Nexa Resources' Otavi Project Sale: A Masterclass in Portfolio Optimization and Value Creation

In a move that underscores disciplined capital allocation, Nexa Resources has executed the sale of its Namibian Otavi Project to Midnab Resources, a subsidiary of Midas Minerals, in a transaction structured to maximize immediate liquidity while preserving upside exposure. This sale is not merely a divestiture but a strategic recalibration of Nexa’s asset base, aligning its operations with its core strengths in zinc production and high-potential copper exploration. For investors seeking exposure to metals with robust demand dynamics, Nexa’s decision represents a compelling opportunity to capitalize on a repositioned portfolio.

The Transaction’s Financial Ingenuity

The Otavi Project sale is a masterclass in balancing risk and reward. Nexa secures an upfront payment of US$3.0 million, though 49% of this sum is allocated to its joint venture partner JOGMEC, leaving the company with US$1.53 million in net cash upon closing. This immediate liquidity injection is critical for reducing debt or reinvesting in higher-margin assets. Yet the transaction’s true brilliance lies in its milestone-based contingent payments, which could yield an additional US$7.0 million as Midnab advances the project’s exploration or development. Crucially, Nexa retains royalty rights tied to future commercial production, ensuring it participates in the project’s success without bearing the execution risk.

This structure exemplifies risk-adjusted value creation: Nexa monetizes non-core assets today while retaining a claim on their future upside. Contrast this with traditional asset sales, which often trade away long-term potential for upfront gains. Here, the company has engineered a win-win—de-risking its balance sheet while maintaining a stake in Namibia’s copper potential.

Strategic Rationale: Focusing on Core Competencies

Nexa’s rationale is clear: prioritize assets that leverage its expertise in zinc production and polymetallic mining. The Otavi Project, while part of the copper-rich Damara Belt, was a peripheral exploration play. By divesting it, Nexa can redirect capital to its core operations—four underground mines in Peru and Brazil, three smelters (including Latin America’s largest), and an open-pit mine in the Central Andes. These assets underpin its position as a top-five global zinc producer, a metal critical to green energy infrastructure and construction.

The transaction also reduces operational complexity. Nexa’s Namibian interests now focus on copper exploration, a region it deems strategically vital but one it can pursue without the burden of managing early-stage projects. This portfolio optimization aligns with broader industry trends, where miners increasingly specialize to mitigate execution risks in volatile markets.

The Investment Case: Why Nexa Deserves a Buying Opportunity Now

For investors, the Otavi sale crystallizes three compelling arguments:

1. Enhanced Free Cash Flow: The upfront payment and contingent milestones will bolster Nexa’s liquidity, enabling debt reduction or strategic acquisitions in its core zinc operations. A stronger balance sheet reduces financial fragility in a world of rising interest rates.

2. Upside Retention Without Risk: Royalties provide a non-dilutive income stream tied to copper’s price and Midnab’s success—a critical hedge against commodity price fluctuations.

3. Strategic Positioning in Zinc: With zinc demand surging due to EV battery and renewable energy adoption, Nexa’s dominance in this space—backed by low-cost, high-grade deposits—is a long-term growth engine.

Risks and Considerations

No transaction is without risk. Midnab’s ability to meet milestones could delay or reduce contingent payments, while regulatory hurdles or exploration failures in Namibia might limit royalty payouts. However, these risks are mitigated by Midnab’s expertise in African exploration and the royalty structure’s asymmetry—Nexa gains upside with no further liability.

Conclusion: A Buy Signal for Zinc Bulls

Nexa’s Otavi sale is a textbook example of how to maximize shareholder value through disciplined capital reallocation. By offloading non-core exploration, securing immediate cash, and retaining a royalty stake, the company has strengthened its financial flexibility while maintaining exposure to Namibia’s copper potential. For investors focused on zinc’s structural tailwinds and risk-aware capital management, Nexa now presents a compelling entry point.

The market has yet to fully price in the strategic clarity this deal brings. Investors ignoring Nexa’s repositioning risk missing out on a company poised to deliver both near-term cash flow growth and long-term upside in a metals sector primed for recovery. Act now—before the market catches up.