Nexa's Resumption of Cerro Pasco Operations: A Strategic Buying Opportunity Amid Zinc Market Strength

Nexa Resources S.A. (NYSE: NEXA) has navigated a critical juncture in its operational history, with the full resumption of activities at its Cerro Pasco Complex in Peru. This development, following a brief disruption caused by localized protests, underscores the company's operational resilience and reaffirms its 2025 production guidance. For investors, this marks a pivotal moment to reassess Nexa's strategic positioning in a zinc market that, despite current oversupply, is poised for structural shifts driven by decarbonization and industrial demand.

Operational Resilience: A Cornerstone of Nexa's Strategy

The Cerro Pasco Complex, a cornerstone of Nexa's zinc output, has returned to full capacity after a temporary production loss of 1.2 kilotons of zinc. The company's swift resolution of the disruption—achieved through dialogue with local communities and authorities—highlights its commitment to stakeholder collaboration and operational continuity. Nexa's ability to absorb short-term setbacks without compromising long-term guidance reflects its robust risk management framework, a critical differentiator in the volatile base metals sector.

The resumption of operations at Cerro Pasco is not merely a return to status quo; it is a strategic reinforcement of Nexa's low-cost, integrated production model. The company operates four polymetallic mines and three smelters, including the Cajamarquilla smelter in Lima, the largest in the Americas. This vertical integration allows Nexa to optimize margins and mitigate supply chain risks, a rare advantage in an industry where cost volatility is the norm.

Zinc Market Fundamentals: Oversupply vs. Structural Demand

The global zinc market in 2025 is characterized by a 93,000-ton surplus, driven by a 4.3% increase in mine output and 1.8% growth in refined production, while demand growth remains muted at 1.0%. However, this apparent bearishness masks emerging tailwinds. The International Zinc Association (IZA) forecasts that zinc-ion battery adoption will surge from 1% in 2021 to 20% by 2030, driven by its role in renewable energy storage. Additionally, solar energy applications are expected to account for a significant share of zinc consumption by 2030, creating a new demand vector.

While current oversupply pressures have kept prices rangebound—LME zinc closed at $2,738/mt in late July—structural demand from green technologies and infrastructure projects could catalyze a re-rating. Nexa's cost advantage, with cash costs among the lowest in the sector, positions it to outperform peers when the market transitions from oversupply to balance.

Valuation Metrics: Undervaluation as Opportunity

Nexa's valuation metrics present a compelling case for investors. As of August 2025, the company trades at an EV/EBITDA of 3.5x, significantly below the industry median of 10.81x for the Metals & Mining sector. This discount is exacerbated by a negative P/E ratio (-18.8x), driven by a net loss in the last 12 months. However, Nexa's EBITDA margin of 23% and positive free cash flow (FCF) margin of 2% highlight its operational strength.

The company's recent $500 million bond issuance at a 6.600% coupon rate has extended its debt maturity and improved liquidity, further de-risking its capital structure. Nexa's disciplined capital allocation—evidenced by a 29% quarter-over-quarter increase in Adjusted EBITDA to $161 million in Q2 2025—suggests a path to earnings recovery.

Strategic Positioning: A High-Conviction Play

Nexa's Cerro Pasco Integration Project and operational improvements at its Brazilian smelters have enhanced efficiency and reduced unit costs. These initiatives, combined with its low-cost production profile, create a moat against cyclical price volatility. The company's exposure to both mining and smelting segments also provides diversification, insulating it from commodity price swings that disproportionately affect pure-play miners.

In a market where peers like BHP Group and ArcelorMittal trade at higher multiples, Nexa's valuation appears disconnected from its fundamentals. This disconnect may reflect lingering concerns about short-term zinc prices and operational risks. However, the company's reaffirmed 2025 production guidance and proactive stakeholder engagement suggest these risks are manageable.

Investment Thesis: Balancing Risk and Reward

The current undervaluation of Nexa presents a high-conviction opportunity for investors with a medium-term horizon. While the zinc market remains oversupplied, Nexa's cost discipline, operational resilience, and exposure to decarbonization-driven demand position it to outperform. Key risks include prolonged weak demand in construction and automotive sectors, as well as geopolitical tensions in Latin America.

For those willing to navigate near-term volatility, Nexa offers a compelling entry point. The company's strategic initiatives, including ESG integration and operational efficiency gains, align with long-term industry trends. As zinc demand from renewable energy and infrastructure projects gains momentum, Nexa's low-cost, integrated model is well-positioned to capture value.

Conclusion: A Strategic Buy

Nexa Resources' resumption of Cerro Pasco operations is more than a short-term victory—it is a testament to the company's operational agility and strategic foresight. In a zinc market poised for structural shifts, Nexa's undervaluation reflects a temporary discount rather than a fundamental flaw. Investors who recognize this opportunity may find themselves well-positioned to benefit from the company's long-term growth trajectory.

Investment Recommendation: Buy Nexa Resources S.A. (NEXA) with a 12-month price target of $6.00, reflecting a 25% upside from current levels and a re-rating of its valuation metrics as zinc fundamentals stabilize.