Nexa Resources heads into its third-quarter report with a story that looks better on paper than it does on the stock chart. Last quarter management declared that the company's long-promised operational inflection had finally arrived, with mining output recovering, a fourth tailings filter running at Aripuana and a richer share of Cerro Lindo silver flowing to Nexa's own account. Yet the shares have fallen 12% since that report, trailing the S&P 500 by about 11 percentage points. The October 29 release, due after the close, is a chance to show that the second quarter's blemishes were one-time events rather than the start of a new problem.
The Street is looking for earnings of $0.60 per share on revenue of $932.0 million. That revenue figure would be up 22.1% from a year ago, and the EPS estimate compares with a small loss in the year-ago quarter, which is why the headline growth rate looks so outsized. The more useful comparison is sequential: consensus sits slightly below the $0.64 Nexa earned last quarter even as revenue is expected to inch up from $907.9 million. In other words, analysts are not modeling another leap. They are modeling a company that holds its ground. Management reaffirmed all of its 2026 production, capex and sales guidance last quarter without raising any of it, so the bar is about execution against existing targets rather than a fresh upgrade.
The smelting business is the place to look first. A May fire at the Cajamarquilla casting house pushed zinc metal and oxide sales down to 134,000 tonnes, well below the roughly 142,000 to 150,000 tonne run rate of the prior three quarters, and lifted cash and conversion costs above guidance. Management said it expects to recover lost volumes in the second half by drawing down cathode inventory. A rebound in sales volumes and unit costs moving back toward guidance would validate that claim. Another quarter of elevated costs would raise uncomfortable questions, especially with Chinese spot treatment charges deeply negative and Brazilian Real strength and labor inflation pushing on expenses.
On the mining side, the evidence needed is steadier. Aripuana should be ramping toward full capacity now that the filter bottleneck has been removed, and Cerro Lindo's first full quarter under the reduced 25% silver stream should show up clearly in realized revenue and cash generation, given management's estimate of roughly $100 million a year in extra cash. Silver prices that averaged more than double year-ago levels last quarter magnify that benefit. Mining segment EBITDA held a 42% margin last quarter, and sustaining something close to that would go a long way toward supporting consensus.
Cash flow is the scorecard that ties it together. Free cash flow was slightly negative last quarter, though management noted it would have been about $120 million positive without the $131 million Peruvian tax settlement. A clean quarter should therefore produce clearly positive cash, and that matters for the deleveraging path. Net leverage has fallen from 2.2x to 1.4x over three quarters, with a target of about 1.0x by year-end. Progress toward that number would be the strongest confirmation of the turnaround. Management also flagged a strong El Niño as a fourth-quarter risk to Peruvian logistics, so any commentary on preparations will color expectations for the year's close.
Sentiment has soured, swinging from modestly bullish ahead of last quarter to modestly bearish now, and the stock at $12.31 sits below its 200-day moving average of $12.96 and near the bottom of its post-earnings range of $11.69 to $15.95. That leaves room for relief if the quarter is clean. The central question is simple: did Cajamarquilla bounce back while the mines kept delivering? If yes, the inflection narrative survives intact. If smelting stays impaired, the market's skepticism will look justified.