Ero Copper Reports Third Quarter 2023 Operating and Financial Results
TSX: ERO NYSE: ERO
November 2, 2023
Ero Copper Reports Third Quarter 2023 Operating and Financial Results
(all amounts in US dollars, unless otherwise noted)
Vancouver, British Columbia – Ero Copper Corp. (TSX: ERO, NYSE: ERO) (“Ero” or the “Company”) is pleased to announce its operating and financial results for the three and nine months ended September 30, 2023. Management will host a conference call tomorrow, Friday, November 3, 2023, at 8:30 a.m. eastern time to discuss the results. Dial-in details for the call can be found near the end of this press release.
HIGHLIGHTS
- Copper production of 10,766 tonnes at C1 cash costs(*) of $1.82 per pound of copper produced
- Gold production of 17,579 ounces at C1 cash costs(*) and All-in Sustaining Costs ("AISC")(*) of $371 and $844, respectively, per ounce of gold produced
- Record gold production and operating margins at the Xavantina Operations partially offset lower copper production at the Caraíba Operations as well as the impact of a stronger Brazilian Real ("BRL") relative to the U.S. dollar ("USD")
- Net income attributable to the owners of the Company of $2.5 million ($0.03 per share on a diluted basis)
- Adjusted net income attributable to the owners of the Company(*) of $17.3 million ($0.18 per share on a diluted basis)
- Adjusted EBITDA(*) of $42.9 million
- Reaffirming full-year copper production guidance and providing updates to other 2023 guidance ranges to reflect YTD performance, including record operating results at the Xavantina Operations
- Important milestones achieved in the execution of strategic growth initiatives during the quarter Construction of the Tucumã Project reached over 70% physical completion as of ◦ quarter-end. Total project capital estimate remains unchanged at approximately $305 million
- At the Caraíba Operations, construction of the Pilar Mine's new external shaft continued to progress on schedule. Planned capital expenditures under contract or in the final stages of negotiation remain at approximately 80% with current estimates within 5% of budget
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Production from the new Matinha vein commenced at the Xavantina Operations, ◦ contributing to a quarter-on-quarter increase of over 40% to both processed gold grades and gold production as well as record-low unit operating costs
- Available liquidity at quarter-end of $237.6 million included cash and cash equivalents of $44.8 million, short-term investments of $42.8 million, and $150.0 million of undrawn availability under the Company's senior secured revolving credit facility
- Immediately prior to quarter-end and continuing into Q4 2023, the Company opportunistically expanded its foreign exchange hedge program
- Of the $437 million foreign exchange derivative position as of October 2023, $145 million is designated for major project capital expenditures with a weighted average floor and ceiling of 5.10 and 5.23 BRL per USD, respectively
- Subsequent to quarter-end, the Company entered into a binding term sheet ("Term Sheet") with Vale Base Metals ("VBM") to earn a 60% interest in the Furnas copper project (the "Project") upon completion of several exploration, engineering and development milestones over a period of five years from the execution of a definitive earn-in agreement
- Offers opportunity to expand long-term growth pipeline within the Carajás Mineral Province, home to the Company's Tucumã Project in Para State, Brazil
- Partnership expected to leverage the Company and VBM's collective strengths while advancing Brazil's position as a leader in the global energy transition
- For more information on the Project and Term Sheet, please see the Company's press release dated October 30, 2023
*These are non-IFRS measures and do not have a standardized meaning prescribed by IFRS and might not be comparable to similar financial measures disclosed by other issuers. Please refer to the Company’s discussion of Non-IFRS measures in its Management’s Discussion and Analysis for the three and nine months ended September 30, 2023 and the Reconciliation of Non-IFRS Measures section at the end of this press release.
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“2023 continues to be a pivotal year for Ero Copper as our near-term growth projects reach critical milestones and we continue to define and broaden our long-term growth pipeline,” said David Strang, Chief Executive Officer. “This strategic execution was evident at the Xavantina Operations, where we successfully initiated production from the Matinha vein during the quarter, resulting in record gold production and operating margins. We also made substantial progress at our Tucumã Project, as announced earlier this month, and advanced our Pilar 3.0 initiative at the Caraíba Operations, where we are nearing completion of the mill expansion project and preparing to commence main sinking of the new external shaft."
"In parallel, we continue to advance on our medium- and longer-term growth pipeline through ongoing regional copper and nickel exploration programs at the Caraíba Operations and, more recently, the execution of a binding term sheet to earn a 60% in VBM's Furnas copper project."
"Despite these important strategic advancements as well as solid operating performance at our Caraíba Operations during the quarter, our financial results were impacted by broader economic conditions that drove weaker metal prices and a stronger BRL against the U.S. dollar. In response, and in addition to the protection provided by the copper price hedges we established earlier this year, we elected to opportunistically expand our foreign exchange rate hedge program to cover a significant portion of projected operating costs and capital expenditures through the end of 2024."
"While we continue to navigate near-term economic and market uncertainty, we remain optimistic about the long-term demand outlook for copper and are committed to the execution of our strategy as we position Ero Copper to create sustainable, long-term value for all stakeholders."
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THIRD QUARTER REVIEW
- Mining & Milling Operations
- The Caraíba Operations processed 806,096 tonnes of ore grading 1.46% copper, producing 10,766 tonnes of copper in concentrate during the quarter after metallurgical recoveries of 91.6%
- Lower mill throughput volumes, as well as lower mined and processed copper grades due to mine sequencing, resulted in decreased copper production quarter-on-quarter
- The Caraíba Operations processed 806,096 tonnes of ore grading 1.46% copper, producing 10,766 tonnes of copper in concentrate during the quarter after metallurgical recoveries of 91.6%
The Xavantina Operations processed 31,446 tonnes of ore grading 18.72 grams ◦ per tonne, producing 17,579 ounces of gold production after metallurgical recoveries of 92.9%
- Initial production from the new Matinha vein contributed to a quarter-onquarter increase of over 40% in both processed gold grades and gold production
- Organic Growth Projects
- The Company made significant progress on the construction of its Tucumã Project, which reached over 70% physical completion at quarter-end, up from approximately 45% at the end of Q2 2023. The first phase of plant commissioning is expected to commence by year-end 2023. First production remains on track to begin in H2 2024
- Significant advancement in mine pre-stripping, with first sulphide ore on track to be reached in early November
- All earthworks are now completed, including the water storage reservoir, site drainage and run-of-mine stockpiles
- Over 15,000 cubic meters of concrete have been poured (over 65% complete), concluding all major foundation requirements
- Steel structure pre-assembly and erection are tracking ahead of schedule with approximately 1,000 tonnes of steel already in place
- Key pieces of processing equipment are on site with installations either concluded or ongoing, including the primary crusher, ball mill, secondary and tertiary crushers, vibrating screen decks and flotation cells
- Main electrical substation installed on site with construction of power line tracking ahead of schedule; tie-in to national power grid scheduled for Q4 2023
- Project capital estimate remains unchanged at approximately $305 million
- For additional information on the Tucumã Project, including recent images of construction progress, please see the Company's press release dated October 19, 2023
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At the Caraíba Operations, the Company is focused on advancing its Pilar 3.0 ◦ initiative, designed to support sustained annual ore production levels of 3.0 million tonnes. The components of Pilar 3.0 include (i) Project Honeypot, an engineering initiative focused on recovering higher-grade material in the upper levels of the Pilar Mine, (ii) an expansion of the Caraíba mill from 3.0 to 4.2 million tonnes of annual throughput capacity, and (iii) construction of a new external shaft to enable the creation of a two-mine system at the Pilar Mine
- Construction of the new external shaft remains on schedule. Headframe erection, stage winder installation and several key underground infrastructure installations were completed during the quarter. Main shaft sinking remains on track to commence prior to year-end. Planned capital expenditures under contract or in the final stages of negotiation remain at approximately 80% with current estimates within 5% of budget
- At the Caraíba mill, installation of the new ball mill, Jameson cell and associated electrical installations were nearly completed during the period. The mill expansion project remains on schedule for physical completion prior to year-end
- Greenfield exploration of regional nickel targets continued during the quarter; the identification of new copper targets within the Vermelhos district warrants further investigation during the coming year
- Please see recent images from construction on the Caraíba Operations' new external shaft below
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Figure 1: October 2023 aerial view of the Caraíba Operations shaft project, including (A) the permanent rock and personnel winders, (B) the completed shaft headframe, (C) the stage winder foundation, and (D) engineering and administrative buildings.
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Figure 2: Progress on erection of the permanent rock and personnel winder building (October 2023).
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Figure 3: Progress on erection of the stage winder building (October 2023).
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OPERATING AND FINANCIAL HIGHLIGHTS
| 3 months | 3 months | 3 months | 9 months | 9 months |
| ended | ended | ended | ended | ended |
| Sep. 30, 2023 | June 30, 2023 | Sep. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2022 |
Operating Highlights Copper (Caraíba Operations)
| Ore Processed (tonnes) | 806,096 | 840,821 | 720,725 | 2,419,465 | 2,118,380 |
| Grade (% Cu) | 1.46 | 1.55 | 1.68 | 1.45 | 1.73 |
| Cu Production (tonnes) | 10,766 | 12,004 | 11,189 | 32,097 | 33,707 |
| Cu Production (000 lbs) | 23,734 | 26,464 | 24,669 | 70,761 | 74,312 |
| Cu Sold in Concentrate (tonnes) | 10,090 | 11,612 | 10,522 | 31,166 | 33,515 |
| Cu Sold in Concentrate (000 lbs) | 22,244 | 25,600 | 23,197 | 68,709 | 73,888 |
| C1 cash cost of Cu produced (per lb)(1) | $ 1.82 $ | 1.52 $ | 1.46 $ | 1.67 $ | 1.34 |
Gold (Xavantina Operations)
| Ore Processed (tonnes) | 31,446 | 34,377 | 42,747 | 101,586 | 150,028 | |
| Au Production (oz) | 17,579 | 12,333 | 10,965 | 42,355 | 30,883 | |
| C1 cash cost of Au Produced (per oz)(1) | $ | 371 $ | 492 $ | 537 $ | 425 $ | 604 |
| AISC of Au produced (per oz)(1) | $ | 844 $ | 1,081 $ | 1,135 $ | 943 $ | 1,135 |
Financial Highlights ($ in millions, except per share amounts)
| Revenues | $ 105.2 $ | 104.9 $ | 85.9 $ | 311.1 $ | 309.7 |
| Gross profit | 35.5 | 39.4 | 22.8 | 115.0 | 134.5 |
| EBITDA(1) | 28.3 | 58.6 | 24.9 | 135.0 | 154.7 |
| Adjusted EBITDA(1) | 42.9 | 45.8 | 29.1 | 133.2 | 145.1 |
| Cash flow from operations | 41.9 | 55.5 | 43.0 | 113.7 | 109.4 |
| Net income | 2.8 | 29.9 | 4.0 | 57.3 | 80.6 |
| Net income attributable to owners of the Company | 2.5 | 29.6 | 3.7 | 56.3 | 79.7 |
| Per share (basic) | 0.03 | 0.32 | 0.04 | 0.61 | 0.88 |
| Per share (diluted) | 0.03 | 0.32 | 0.04 | 0.60 | 0.87 |
Adjusted net income attributable to owners of the
| Company(1) | 17.3 | 22.3 | 4.0 | 62.0 | 61.3 |
| Per share (basic) | 0.19 | 0.24 | 0.04 | 0.67 | 0.68 |
| Per share (diluted) | 0.18 | 0.24 | 0.04 | 0.66 | 0.67 |
| Cash, cash equivalents, and short-term investments | 87.6 | 180.4 | 359.8 | 87.6 | 359.8 |
| Working capital(1) | 32.8 | 140.7 | 343.2 | 32.8 | 343.2 |
| Net (cash) debt(1) | 331.8 | 246.5 | 51.5 | 331.8 | 51.5 |
(1) EBITDA, Adjusted EBITDA, Adjusted net income (loss) attributable to owners of the Company, Adjusted net income (loss) per share attributable to owners of the Company, Net (Cash) Debt, Working Capital, C1 cash cost of copper produced (per lb), C1 cash cost of gold produced (per ounce) and AISC of gold produced (per ounce) are non-IFRS measures. These measures do not have a standardized meaning prescribed by IFRS and might not be comparable to similar financial measures disclosed by other issuers. Please refer to the Company’s discussion of Non-IFRS measures in its Management’s Discussion and Analysis for the three and nine months ended September 30, 2023 and the Reconciliation of Non-IFRS Measures section at the end of this press release.
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2023 PRODUCTION AND COST GUIDANCE(*)
The Company is reaffirming its 2023 copper production guidance for the Caraíba Operations of 44,000 to 47,000 tonnes of copper in concentrate. Copper production is expected to be strongest in the last quarter of the year due to higher anticipated mined and processed copper grades.
The Company's full-year copper C1 cash cost guidance range, based on the originally assumed foreign exchange rate of 5.30 BRL per USD, remains $1.40 and $1.60 per pound of copper produced. Given the continued strength of the BRL against the USD, the Company is now also providing an updated range of $1.50 to $1.70 per pound of copper produced should the exchange rate remain at current levels of approximately 5.00 BRL per USD for the remainder of Q4 2023.
Due to the Xavantina Operations' strong year-to-date operating performance, the Company is increasing its 2023 gold production guidance range to 55,000 to 59,000 ounces (originally 50,000 to 53,000 ounces). The Company is also reducing its full-year C1 cash cost guidance for the Xavantina Operations to $375 to $475 (originally $475 and $575) per ounce of gold produced and lowering its AISC guidance range to $900 to $1,000 (from $1,000 to $1,100) per ounce of gold produced.
With respect to its 2023 capital expenditure guidance, the Company is also providing ranges based on the original exchange rate assumption of 5.30 BRL per USD as well as a current exchange rate of 5.00 BRL per USD. At the Tucumã Project, the Company has elected to accelerate select workstreams originally slated for Q1 2024 to Q4 2023 due to the strong momentum carried forward from Q2 and Q3 2023. As a result, the adjusted 2023 capital expenditure guidance for the Tucumã Project includes an estimated increase of approximately $15-$20 million due to the expected shift in timing of associated payments.
The Company's updated cost guidance for 2023 reflects actual YTD cost performance and exchange rates, and assumes a Q4 2023 foreign exchange rate of 5.00 BRL per USD, a gold price of $1,725 per ounce and a silver price of $20.00 per ounce.
Previous Guidance Previous Guidance Updated Guidance @ 5.30 FX Rate @ 5.00 FX Rate @ 5.00 FX Rate
Caraíba Operations
Copper Production (tonnes) 44,000 - 47,000 Unchanged Unchanged C1 Cash Cost (US$/lb)(1) $1.40 - $1.60 $1.50 - $1.70 Unchanged
Xavantina Operations
Gold Production (ounces) 50,000 - 53,000 Unchanged 55,000 - 59,000 C1 Cash Cost (US$/oz)(1) $475 - $575 $500 - $600 $375 - $475 All-in Sustaining Cost (AISC) (US$/oz)(1) $1,000 - $1,100 $1,050 - $1,150 $900 - $1,000
(1) These are non-IFRS measures and do not have a standardized meaning prescribed by IFRS and might not be comparable to similar financial measures disclosed by other issuers. See the Reconciliation of Non-IFRS Measures section at the end of this press release for additional information.
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2023 CAPITAL EXPENDITURE GUIDANCE(*)
The Company's updated capital expenditure guidance, presented in millions of USD, reflects actual YTD exchange rates and an assumed Q4 2023 exchange rate of 5.00 BRL per USD.
Updated Guidance Previous Guidance Previous Guidance Including Forecast @ 5.30 FX Rate @ 5.00 FX Rate Capital Changes Caraíba Operations
Growth $90 - $105 $95 - $110 Unchanged Sustaining $70 - $80 $75 - $85 Unchanged Exploration $22 - $27 $23 - $29 Unchanged
Total, Caraíba Operations $182 - $212 $193 - $224 Unchanged
Tucumã Project
Growth $150 - $165 $160 - $175 $175 - $190 Exploration $0 - $1 $0 - $1 Unchanged
Total, Tucumã Project $150 - $166 $160 - $176 $175 - $191
Xavantina Operations
Growth $4 - $5 $4 - $5 Unchanged Sustaining $12 - $14 $13 - $15 Unchanged Exploration $6 - $7 $6 - $7 $7 - $8
Total, Xavantina Operations $22 - $26 $23 - $27 $24 - $28
Other Exploration Projects $3 - $5 $3 - $5 $5 - $7
Company Total
Growth $244 - $275 $259 - $290 $274 - $305 Sustaining $82 - $94 $88 - $100 $88 - $100 Exploration $31 - $40 $32 - $42 $35 - $45
Total, Company $357 - $409 $379 - $432 $397 - $450
(*) Guidance is based on certain estimates and assumptions, including but not limited to, mineral reserve estimates, grade and continuity of interpreted geological formations and metallurgical performance. Please refer to the Company’s SEDAR and EDGAR filings, including the recent Annual Information Form for the year ended December 31, 2022 and dated March 7, 2023 (the "AIF"), for complete risk factors.
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CONFERENCE CALL DETAILS
The Company will hold a conference call on Friday, November 3, 2023 at 8:30 am Eastern time (5:30 am Pacific time) to discuss these results.
Date: Friday, November 3, 2023 Time: 8:30 am Eastern time (5:30 am Pacific time)
Dial in: North America: 1-800-319-4610, International: +1-604-638-5340 please dial in 5-10 minutes prior and ask to join the call Replay: North America: 1-800-319-6413, International: +1-604-638-9010 Replay Passcode: 0471
Reconciliation of Non-IFRS Measures
Financial results of the Company are presented in accordance with IFRS. The Company utilizes certain alternative performance (non-IFRS) measures to monitor its performance, including C1 cash cost of copper produced (per lb), C1 cash cost of gold produced (per ounce), AISC of gold produced (per ounce), EBITDA, adjusted EBITDA, adjusted net income attributable to owners of the Company, adjusted net income per share, net (cash) debt, working capital and available liquidity. These performance measures have no standardized meaning prescribed within generally accepted accounting principles under IFRS and, therefore, amounts presented may not be comparable to similar measures presented by other mining companies. These non-IFRS measures are intended to provide supplemental information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.
For additional details please refer to the Company’s discussion of non-IFRS and other performance measures in its Management’s Discussion and Analysis for the three and nine months ended September 30, 2023 which is available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.
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