Ero Copper Reports Third Quarter 2022 Operating and Financial Results
TSX: ERO NYSE: ERO
November 1, 2022
Ero Copper Reports Third Quarter 2022 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, 2022. Management will host a conference call tomorrow, Wednesday, November 2, 2022, at 11:30 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
- Quarterly copper production of 11,189 tonnes at C1 cash costs(*) of $1.46 per pound of copper produced;
- Quarterly gold production of 10,965 ounces at C1 cash costs(*) and All-in Sustaining Costs ("AISC")(*) of $537 and $1,135, respectively, per ounce of gold produced;
- Adjusted EBITDA(*) of $32.1 million and adjusted net income attributable to owners of the Company(*) of $4.0 million ($0.04 per share on a diluted basis);
- Strong quarterly cash flows from operations of $43.0 million;
- Financial results during the period were impacted by continued metal price weakness, including the impact of $10.3 million in final settlements on provisionally priced copper concentrate sales from the first half of 2022, combined with increased unit operating costs at the Caraíba Operations;
- Capital expenditures accelerated during the quarter as construction activities related to the Company's growth initiatives continued to progress;
- At the Tucumã Project, critical path work packages required ahead of the rainy season have been completed. These include site access and haul road upgrades, major drainage infrastructure, and advancing pre-stripping activities; and,
- At the Caraíba Operations, the Pilar 3.0 growth initiative continues to progress with surface infrastructure for the new external shaft well-advanced, critical equipment orders for the expansion of the mill contracted, and the integration of Project Honeypot into the life-of-mine production plan completed. The updated strategic life-of-mine production plan for the Caraíba Operations, inclusive of Project Honeypot, is expected to be released ahead of the Company's Annual Operational, Project and Exploration Update on November 8, 2022.
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- Available liquidity at quarter-end was $434.8 million, including cash and cash equivalents of $210.2 million, short-term investments of $149.6 million, and $75.0 million of undrawn availability under the Company's senior revolving credit facility;
- 2022 production, operating cost, and capital expenditure guidance reaffirmed; and,
- The Company will host an Annual Operational, Project and Exploration Update on November 8, 2022, during which a more detailed overview will be provided on the Pilar 3.0 growth initiative, including the integration of Project Honeypot, the Company's advancement of the Tucumã Project, and results from exploration programs at each of the Company's operations.
*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, 2022 and the Reconciliation of Non-IFRS Measures section at the end of this press release.
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“Our operations delivered solid third quarter operating performance against a challenging macroeconomic backdrop that resulted in compressed operating margins during the period,” said David Strang, Chief Executive Officer. “While near-term global economic conditions remain dynamic, we are well-positioned with an experienced team, high-quality operations and a solid balance sheet to continue making progress on our strategic growth initiatives.
"At our Tucumã Project, road upgrades and site drainage are now complete ahead of the rainy season, and our mining contractor mobilized to site and commenced pre-stripping activities and waste rock dump construction during the quarter. All activities on site are advancing in- line with the Feasibility Study schedule. At our Caraíba Operations, shaft civil work, raise- boring and underground development related to our Pilar 3.0 initiative are progressing well, and an updated life-of-mine production plan reflecting the integration of Project Honeypot has also been finalized.
"Despite strong operating performance and successful project execution during the period, our operating costs remain higher than we had forecasted at the beginning of the year due to inflationary pressures and the higher allocation of copper sales to international customers that negate some of the tax benefits we receive when we sell to our domestic customer. As we look ahead to the fourth quarter, we expect to be in line with our revised full-year operating cost guidance but acknowledge we are tracking towards the higher end of the range as a result of these impacts.
"While, like our peers, we continue to navigate challenging near-term market conditions, we remain focused on advancing our growth strategy in anticipation of an unprecedented outlook for copper. The timing of our growth initiatives, now well underway at Tucumã and Caraíba, continues to align well with an expected surge in copper demand that is projected to far outpace supply in the years ahead."
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THIRD QUARTER REVIEW
- Mining & Milling Operations
| The Caraíba Operations processed | 720,725 | tonnes of ore grading | 1.68% | copper, | ||||
| producing | 11,189 | tonnes of copper in concentrate during the quarter after | ||||||
| metallurgical recoveries of | 92.2% | . |
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- The Xavantina Operations processed 42,747 tonnes of ore grading 8.55 grams per tonne gold, producing 10,965 ounces of gold after metallurgical recoveries of 93.3% and 7,487 ounces of silver as a by-product.
- Organic Growth Projects
- At the Tucumã Project, engineering, contracting efforts and construction activities continued to progress during the quarter.
- Critical path earthworks, site drainage and road upgrades are finished. Mine pre-stripping, waste and tailings dump construction, and plant site earthworks are underway. Total project engineering and construction are approximately 40% and 8% complete, respectively, on-track with the Feasibility Study schedule;
- Approximately 30% of planned capital expenditures were under contract as of quarter-end and within 10% of pre-contingency Feasibility Study estimates; and,
- Approximately 80% of Feasibility Study capital expenditures have now been contracted or are in various stages of tendering or negotiation. Based upon prevailing foreign exchange rates, labour costs and diesel prices, and subject to final contract negotiations, these expenditures are currently forecast to be within 12% of pre-contingency Feasibility Study estimates.
- The Company continued to advance its Pilar 3.0 initiative, comprised of several projects that together are expected to enable the creation of a two-mine system at the Pilar Mine. These projects include (i) Project Honeypot, an engineering initiative focused on recovering higher-grade material in the upper levels of the Pilar Mine,
(ii) construction of a new external shaft to access the Deepening Extension Zone, and (iii) an expansion of the Caraíba Mill to 4.2 million tonnes per annum.
- Incorporation of Project Honeypot into the Caraíba strategic life-of-mine production plan was completed subsequent to quarter-end and is expected to be released ahead of the Company's Annual Operational, Project and Exploration Update on November 8, 2022;
- Construction of the new external shaft is progressing well with physical completion currently at approximately 10% with approximately 30% of planned capital expenditures under contract as of quarter-end; and,
- Caraíba Mill expansion is advancing as planned with the ball mill installation contract finalized during the quarter.
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Figure 1: Tucumã Project site in April 2022 (left) and August 2022 (right).
Figure 2: Tucumã Project mine access road and completed drainage infrastructure (left) and waste rock dump with installation of HDPE liner underway in October 2022 (right).
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- Exploration Highlights
- In early 2022, the Company formed a dedicated nickel exploration team to accelerate the identification and testing of nickel targets throughout the Curaçá Valley. This effort resulted in the announced discovery of a new nickel sulphide system, known as the "Umburana System", located approximately 20 kilometers from the Caraíba processing facilities. The system, which has an initial strike length of five kilometers, remains open in all directions and is highlighted by multiple surface expressions of nickel mineralization. Drilling of additional targets within the system remains ongoing with four dedicated drill rigs. For additional information on the Umburana System, including drill results, please see the Company's press release dated September 29, 2022.
- Exploration at the Tucumã Project during the quarter was focused on extensional drilling of high-grade mineralization to depth in the south and southwestern portions of the deposit, beneath the designed pit shell.
- Exploration activities at the Xavantina Operations during the quarter continued to focus on testing extensions of the Matinha and Santo Antônio veins. Step-out drilling continues to confirm thick, high-grade extensions at depth within the Santo Antônio vein, which remains open.
- Highlights from these exploration programs will be announced as part of the Company's Annual Operational, Project and Exploration Update planned for November 8, 2022.
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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, 2022 | June 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 |
Operating Highlights Copper (Caraíba Operations)
| Ore Processed (tonnes) | 720,725 | 801,425 | 572,666 | 2,118,380 | 1,724,252 |
| Grade (% Cu) | 1.68 | 1.74 | 1.90 | 1.73 | 2.11 |
| Cu Production (tonnes) | 11,189 | 12,734 | 10,057 | 33,707 | 33,593 |
| Cu Production (000 lbs) | 24,669 | 28,073 | 22,170 | 74,312 | 74,059 |
| Cu Sold in Concentrate (tonnes) | 10,522 | 12,948 | 10,762 | 33,515 | 33,324 |
| Cu Sold in Concentrate (000 lbs) | 23,197 | 28,546 | 23,727 | 73,888 | 73,468 |
| C1 cash cost of Cu produced (per lb)(1) | $ 1.46 $ | 1.24 $ | 0.94 $ | 1.34 $ | 0.70 |
Gold (Xavantina Operations)
| Au Production (oz) | 10,965 | 11,122 | 9,426 | 30,883 | 29,254 | |
| C1 cash cost of Au Produced (per oz)(1) | $ | 537 $ | 643 $ | 538 $ | 604 $ | 508 |
| AISC of Au produced (per oz)(1) | $ | 1,135 $ | 1,169 $ | 741 $ | 1,135 $ | 681 |
Financial Highlights ($ in millions, except per share amounts)
| Revenues | $ 85.9 $ | 114.9 $ | 111.8 $ | 309.7 $ | 355.0 |
| Gross profit | 22.8 | 50.7 | 68.0 | 134.5 | 234.5 |
| EBITDA(1) | 27.9 | 53.9 | 48.5 | 159.9 | 215.7 |
| Adjusted EBITDA(1) | 32.1 | 55.8 | 72.9 | 150.3 | 245.1 |
| Cash flow from operations | 43.0 | 22.4 | 150.7 | 109.4 | 297.9 |
| Net income | 4.0 | 24.1 | 26.4 | 80.6 | 142.4 |
| Net income attributable to owners of the Company | 3.7 | 23.8 | 26.1 | 79.7 | 141.2 |
| Per share (basic) | 0.04 | 0.26 | 0.29 | 0.88 | 1.60 |
| Per share (diluted) | 0.04 | 0.26 | 0.28 | 0.87 | 1.52 |
Adjusted net income attributable to owners of the
| Company(1) | 4.0 | 24.4 | 41.2 | 61.3 | 154.4 |
| Per share (basic) | 0.04 | 0.27 | 0.47 | 0.68 | 1.75 |
| Per share (diluted) | 0.04 | 0.27 | 0.44 | 0.67 | 1.66 |
| Cash, cash equivalents, and short-term investments | 359.8 | 429.9 | 119.1 | 359.8 | 119.1 |
| Working capital(1) | 343.2 | 417.7 | 81.4 | 343.2 | 81.4 |
| Net (cash) debt(1) | 51.5 | (10.2) | (63.7) | 51.5 | (63.7) |
(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, 2022 and the Reconciliation of Non-IFRS Measures section at the end of this press release.
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2022 GUIDANCE(*)
The Company is reaffirming its full-year production guidance as well as its revised 2022 operating cost and capital expenditure guidance. At the Caraíba Operations, copper production in Q4 2022 is expected to be similar to Q3 2022 production levels. At the Xavantina Operations, the Company also expects to achieve similar Q4 2022 gold production levels relative to Q3 2022, resulting from higher anticipated gold grades and lower expected tonnes processed.
Due primarily to a higher allocation of concentrate sales to the international market and the continued influence of inflation on the cost of key consumables, C1 cash costs at the Caraíba Operations are trending towards the high-end of the guidance range of $1.20 to $1.35 per pound of copper produced. At the Xavantina Operations, costs are trending towards the lowend of the full-year C1 cash cost guidance range of $600 to $700 per ounce of gold produced and the high-end of the 2022 AISC range of $1,000 to $1,100 per ounce of gold produced.
2022 PRODUCTION AND COST GUIDANCE(*)
The Company's cost guidance for 2022 assumes a USD:BRL foreign exchange rate of 5.30, a gold price of $1,725 per ounce and a silver price of $20.00 per ounce for Q4 2022.
2022 Guidance
Caraíba Operations
Copper Production (tonnes) 43,000 - 46,000 C1 Cash Cost Guidance (US$/lb)(1) $1.20 - $1.35
Xavantina Operations
Gold Production (ounces) 39,000 - 42,000 C1 Cash Cost Guidance (US$/oz)(1) $600 - $700 All-in Sustaining Cost (AISC) Guidance (US$/oz)(1) $1,000 - $1,100
(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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2022 CAPITAL EXPENDITURE GUIDANCE(*)
The Company's capital expenditure guidance for 2022 assumes a USD:BRL foreign exchange rate of 5.30 for Q4 2022 and has been presented below in USD millions.
2022 Guidance Caraíba Operations
Growth $95 - $110 Sustaining $85 - $95 Exploration $25 - $30
Total, Caraíba Operations $205 - $235
Tucumã Project
Growth $70 - $80 Exploration $5 - $6
Total, Tucumã Project $75 - $86
Xavantina Operations
Growth $2 - $4 Sustaining $16 - $18 Exploration $10 - $11
Total, Xavantina Operations $28 - $33
Company Total
Growth $167 - $194 Sustaining $101 - $113 Exploration $40 - $47
Total, Company $308 - $354
(*) 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, 2021 and dated March 11, 2022 (the "AIF"), for complete risk factors.
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CONFERENCE CALL DETAILS
The Company will hold a conference call on Wednesday, November 2, 2022 at 11:30 am Eastern time (8:30 am Pacific time) to discuss these results.
Date: Wednesday, November 2, 2022 Time: 11:30 am Eastern time (8:30 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: 9507
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, 2022 which is available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.
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C1 cash cost of copper produced (per lb.)
The following table provides a reconciliation of C1 cash cost of copper produced per pound to cost of production, its most directly comparable IFRS measure.
Reconciliation: 2022 - Q3 2022 - Q2 2021 - Q3 2022 - YTD 2021 - YTD Cost of production $ 39,047 $ 38,015 $ 24,693 $ 106,225 $ 66,959 Add (less):
| Transportation costs & other | 2,209 | 2,579 | 1,842 | 6,657 | 4,333 | |
| Treatment, refining, and other | 4,198 | 3,893 | 277 | 10,137 | 1,448 | |
| By-product credits | (4,929) | (6,438) | (5,011) | (16,179) | (16,733) | |
| Incentive payments | (902) | (1,016) | (663) | (2,822) | (2,045) | |
| Net change in inventory | (3,849) | (1,907) | (384) | (5,179) | (2,351) | |
| Foreign exchange translation and other | 212 | (178) | (3) | 420 | 196 | |
| C1 cash costs | $ | 35,986 $ | 34,948 $ | 20,751 $ | 99,259 $ | 51,807 |
| Mining | $ | 23,594 $ | 23,933 $ | 15,706 $ | 67,653 $ | 41,307 |
| Processing | 7,687 | 7,988 | 5,282 | 22,122 | 15,220 | |
| Indirect | 5,436 | 5,572 | 4,497 | 15,526 | 10,565 | |
| Production costs | 36,717 | 37,493 | 25,485 | 105,301 | 67,092 | |
| By-product credits | (4,929) | (6,438) | (5,011) | (16,179) | (16,733) | |
| Treatment, refining and other | 4,198 | 3,893 | 277 | 10,137 | 1,448 | |
| C1 cash costs | $ | 35,986 $ | 34,948 $ | 20,751 $ | 99,259 $ | 51,807 |
| Payable copper produced (lb, 000) | 24,669 | 28,073 | 22,170 | 74,312 | 74,059 | |
| Mining | $ | 0.96 $ | 0.85 $ | 0.71 $ | 0.91 $ | 0.56 |
| Processing | $ | 0.31 $ | 0.28 $ | 0.24 $ | 0.30 $ | 0.21 |
| Indirect | $ | 0.22 $ | 0.20 $ | 0.20 $ | 0.21 $ | 0.14 |
| By-product credits | $ | (0.20) $ | (0.23) $ | (0.23) $ | (0.22) $ | (0.23) |
| Treatment, refining and other | $ | 0.17 $ | 0.14 $ | 0.02 $ | 0.14 $ | 0.02 |
| C1 cash costs of copper produced (per lb) | $ | 1.46 $ | 1.24 $ | 0.94 $ | 1.34 $ | 0.70 |
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C1 cash cost of gold produced and All-in Sustaining Cost of gold produced (per ounce)
The following table provides a reconciliation of C1 cash cost of gold produced per ounce and AISC of gold produced per ounce to cost of production, its most directly comparable IFRS measure.
| Reconciliation: 2022 - Q3 2022 - Q2 2021 - Q3 | 2022 - YTD 2021 - YTD |
| Cost of production $ 7,317 $ 7,225 $ 4,936 | $ 19,934 $ 15,100 |
| Add (less): | |
| Incentive payments (177) (188) (145) | (950) (638) |
| Net change in inventory (1,031) (73) (176) | (377) (11) |
| By-product credits (145) (145) (153) | (414) (458) |
| Foreign exchange translation and other (80) 327 608 | 453 865 |
| C1 cash costs $ 5,884 $ 7,146 $ 5,070 | $ 18,646 $ 14,858 |
| Site general and administrative 1,011 882 601 | 2,452 1,277 |
| Accretion of mine closure and rehabilitation provision 106 112 285 | 330 173 |
| Sustaining capital expenditure 4,105 3,690 552 | 10,091 1,564 |
| Sustaining leases 1,036 894 216 | 2,752 1,243 |
| Royalties and production taxes 298 277 261 | 779 801 |
| AISC $ 12,440 $ 13,001 $ 6,985 | $ 35,050 $ 19,916 |
2022 - Q3 2022 - Q2 2021 - Q3 2022 - YTD 2021 - YTD Costs
| Mining | $ 3,071 $ | 3,929 $ | 2,247 $ | 10,218 $ | 6,991 |
| Processing | 1,867 | 2,285 | 2,005 | 5,850 | 5,622 |
| Indirect | 1,091 | 1,077 | 971 | 2,992 | 2,703 |
| Production costs | 6,029 | 7,291 | 5,223 | 19,060 | 15,316 |
| By-product credits | (145) | (145) | (153) | (414) | (458) |
| C1 cash costs | $ 5,884 $ | 7,146 $ | 5,070 $ | 18,646 $ | 14,858 |
| Site general and administrative | 1,011 | 882 | 601 | 2,452 | 1,277 |
| Accretion of mine closure and rehabilitation provision | 106 | 112 | 285 | 330 | 173 |
| Sustaining capital expenditure | 4,105 | 3,690 | 552 | 10,091 | 1,564 |
| Sustaining leases | 1,036 | 894 | 216 | 2,752 | 1,243 |
| Royalties and production taxes | 298 | 277 | 261 | 779 | 801 |
| AISC | $ 12,440 $ | 13,001 $ | 6,985 $ | 35,050 $ | 19,916 |
Costs per ounce
| Payable gold produced (ounces) | 10,965 | 11,122 | 9,426 | 30,883 | 29,254 | |
| Mining | $ | 280 $ | 353 $ | 238 $ | 331 $ | 239 |
| Processing | $ | 170 $ | 205 $ | 213 $ | 189 $ | 192 |
| Indirect | $ | 99 $ | 97 $ | 103 $ | 97 $ | 92 |
| By-product credits | $ | (12) $ | (12) $ | (16) $ | (13) $ | (15) |
| C1 cash costs of gold produced (per ounce) | $ | 537 $ | 643 $ | 538 $ | 604 $ | 508 |
| AISC of gold produced (per ounce) | $ | 1,135 $ | 1,169 $ | 741 $ | 1,135 $ | 681 |
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