Ero Copper Reports Fourth Quarter and Full Year 2022 Operating and Financial Results
TSX: ERO NYSE: ERO
March 7, 2023
Ero Copper Reports Fourth Quarter and Full Year 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 twelve months ended December 31, 2022. Management will host a conference call tomorrow, Wednesday, March 8, 2023, at 11:30 a.m. Eastern time to discuss the results. Dialin details for the call can be found near the end of this press release.
HIGHLIGHTS
- Record full-year copper production of 46,371 tonnes, including 12,664 tonnes produced in the fourth quarter, surpassed the Company's 2022 production guidance range of 43,000 to 46,000 tonnes
- Copper C1 cash costs(*) for the fourth quarter and full-year were $1.41 and $1.36, respectively, per pound of copper produced
- Gold production also marked a record 42,669 ounces in 2022, including 11,786 ounces produced in the fourth quarter, and exceeded the full-year guidance range of 39,000 to 42,000 ounces
- Gold C1 cash costs(*) for the fourth quarter and full-year were $445 and $560, respectively, per ounce of gold produced. All-in Sustaining Costs ("AISC")(*) for the same periods were $1,096 and $1,124, respectively, per ounce of gold produced
- Fourth quarter and full-year cash flows from operations were $34.0 million and $143.4 million, respectively
- Fourth quarter and full-year adjusted EBITDA(*) were $58.2 million and $208.6 million, respectively
- Fourth quarter and full-year adjusted net income attributable to owners of the Company(*) were $22.2 million ($0.24 per share on a diluted basis) and $83.5 million ($0.91 per share on a diluted basis), respectively
- Capital expenditures were nearly $90 million in the fourth quarter as construction activity related to the Company's strategic growth initiatives ramped up. Full-year capital expenditures, including deposits on contracts, were just under $300 million, below 2022 capital expenditure guidance of $308 million to $354 million, primarily
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due to the success of Project Honeypot and subsequent deferral of the delivery date for the new external shaft of Pilar Mine
- Available liquidity at year-end was $392.4 million, including cash and cash equivalents of $177.7 million, short-term investments of $139.7 million, and $75.0 million of undrawn availability under the Company's senior secured revolving credit facility. Subsequent to year-end, the Company extended the maturity and increased the size of its senior secured revolving credit facility to $150.0 million, resulting in pro forma yearend liquidity of $467.4 million
- 2023 production, operating cost, and capital expenditure guidance reaffirmed
*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 year ended December 31, 2022 and the Reconciliation of Non-IFRS Measures section at the end of this press release.
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“Our 2022 financial results showcase record production levels amidst a backdrop of inflationary pressures experienced across the global mining industry over the past year,” said David Strang, Chief Executive Officer. “Despite encountering some unique obstacles related to our domestic smelter that necessitated a higher allocation of copper concentrate sales to the export market, resulting in reduced tax benefits during the year, we resumed domestic sales on a limited basis subsequent to year-end. With the added benefit of higher metal prices, we are witnessing stronger-than-expected operating margins as we enter 2023 and are well-positioned to execute on our growth strategy.
"At our Tucumã Project, road upgrade and drainage infrastructure completed at the end of the third quarter allowed us to build momentum during the rainy season with minimal down- time. As of year-end, we reached just over 20% physical completion and are ahead of schedule on pre-stripping activities. As a result of these efforts, we were able to commence concrete pours for the plant foundation subsequent to year-end.
"At the Pilar Mine, we revised our timeline for the new external shaft following the success of Project Honeypot and updates to Caraíba's Strategic Life-of-Mine Plan. The Project Honeypot stopes added to our production plan have allowed us to maintain high margins while smoothing our capital profile during construction of the shaft, for which the delivery date has been deferred by approximately nine months.
"Given the scarcity of new copper development projects and extraordinary demand anticipated from global decarbonization efforts, the timing of our near-term growth plans is highly favorable. With these unprecedented market conditions as well as nearly $470 million in balance sheet liquidity as of February 2023, we remain focused on delivering peer-leading growth."
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FOURTH QUARTER & FULL-YEAR REVIEW
- Mining & Milling Operations
- The Caraíba Operations achieved record full-year production of 46,371 tonnes of copper in concentrate, following strong year-end operating performance driven by the addition of high-grade Project Honeypot stopes to the fourth quarter production plan
- Higher mined and process copper grades during the fourth quarter resulted in copper production of 12,664 tonnes in concentrate, representing an increase of approximately 13% compared to the third quarter
- Full-year copper production exceeded 2022 copper production guidance range of 43,000 to 46,000 tonnes and reflect a year-on-year increase to mill throughput of nearly 500,000 tonnes of ore
- The Xavantina Operations delivered record quarterly and full-year gold production of 11,786 and 42,669 ounces, respectively
- Fourth quarter gold production benefited from higher processed gold grades of 10.17 grams per tonne ("gpt"), representing an increase in grade of nearly 20% compared to the prior quarter
- Full-year gold production, which surpassed 2022 gold production guidance range of 39,000 to 42,000 ounces, increased approximately 13% year-onyear due to higher mill throughput as well as higher mined and processed gold grades
- The Caraíba Operations achieved record full-year production of 46,371 tonnes of copper in concentrate, following strong year-end operating performance driven by the addition of high-grade Project Honeypot stopes to the fourth quarter production plan
- Organic Growth Projects
- The Company continued to progress the construction of the Tucumã Project, which is advancing on schedule with over 20% physical completion achieved as of yearend
- Mine pre-stripping accelerated during Q4 2022 with approximately 1.6 million tonnes of pre-stripping completed as of year-end, or approximately 12% of total. Waste dump construction is progressing on schedule with completion expected in Q3 2023
- Completion of the on-site concrete batch plant and mobilization of the civil works contractor occurred subsequent to year-end with first foundations poured in February 2023
- Approximately 55% of planned capital expenditures were under contract as of year-end, up from approximately 30% at the end of Q3 2022. An additional 25% of Feasibility Study capital expenditures remain in various stages of tendering or negotiation. Consistent with Q3 2022 project capital forecasts, total planned capital expenditures remain within 12% of precontingency Feasibility Study as of year-end
- The Company continued to progress the construction of the Tucumã Project, which is advancing on schedule with over 20% physical completion achieved as of yearend
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- In partnership with The National Service for Industrial Training, a Brazilian non-profit organization focused on improving the competitiveness of Brazil's manufacturing sector through technical and vocational education, the Company commenced comprehensive training programs within the city of Tucumã and surrounding communities to further develop skills within the local community that are expected to support the development and operation of the Tucumã Project
- During the quarter, the Company's Pilar 3.0 initiative was significantly bolstered by the success of Project Honeypot as reflected in the Caraíba Operations' 2022 Strategic Life-of-Mine ("LOM") Plan (please refer to press release dated November 7, 2022). Project Honeypot, an engineering initiative focused on recovering highergrade material in the upper levels of the Pilar Mine, is one of three projects that together are expected to enable the creation of a two-mine system at the Pilar Mine. The other two components of Pilar 3.0 include (i) construction of a new external shaft to access the Deepening Extension Zone and (ii) an expansion of the Caraíba mill to 4.2 million tonnes per annum
- The addition of Project Honeypot into the LOM Plan drove a significant increase to the Caraíba Operations' estimated mineral resources, mineral reserves and mine life, allowing the Company to defer the delivery date of the new external shaft by approximately nine months without impacting expected copper production
- Construction of the new external shaft continued to advance well against the revised timeline with physical completion at approximately 20% as of year-end and approximately 35% of planned capital expenditures under contract or in the final stages of negotiation. Based upon current capital expenditure forecasts which reflect additional supplier and contractor quotes, construction of the new external shaft remains on budget
- The Caraíba mill expansion remains on schedule with completion expected in Q4 2023
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Figure 1: Tucumã Project pre-stripping progress (February 2023).
Figure 2: Aerial view of future Tucumã Project processing areas, including (A) primary crushing, (B) secondary and tertiary crushing, and (C) plant and administrative buildings.
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- Subsequent Events
- In January 2023, the Company entered into a zero-cost collar program on 3,000 tonnes of copper per month for February through December of 2023. The collars establish a floor price at $3.50 per pound of copper on total hedged volumes of 33,000 tonnes of copper, representing approximately 75% of full-year production volumes. The program protects a meaningful portion of the Company's revenue at the Company's 2023 budget copper price which was used for capital, cash flow and liquidity planning purposes, while providing upside to increases in the copper price up to a cap of $4.76 per pound - within 5% of the all-time high copper price. The hedge contracts are financially settled on a monthly basis.
- Subsequent to year-end, the Company also closed its amended senior secured revolving credit facility (the "Amended Senior Credit Facility"), increasing its capacity from $75.0 million to $150.0 million and extending the maturity from March 2025 to December 2026. The Company also achieved improved terms on the Amended Credit Facility, including a 25 basis point reduction to the applicable margin on drawn funds and reduced standby fees on undrawn commitments.
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OPERATING AND FINANCIAL HIGHLIGHTS
| 3 months | 3 months | 3 months | 12 months | 12 months |
| ended | ended | ended | ended | ended |
| Dec. 31, 2022 | Sep. 30, 2022 | Dec. 31, 2021 | Dec. 31, 2022 | Dec. 31, 2021 |
Operating Highlights Copper (Caraíba Operations)
| Ore Processed (tonnes) | 745,850 | 720,725 | 646,319 | 2,864,230 | 2,370,571 |
| Grade (% Cu) | 1.84 | 1.68 | 2.01 | 1.76 | 2.08 |
| Cu Production (tonnes) | 12,664 | 11,189 | 11,918 | 46,371 | 45,511 |
| Cu Production (000 lbs) | 27,918 | 24,669 | 26,275 | 102,230 | 100,333 |
| Cu Sold in Concentrate (tonnes) | 13,301 | 10,522 | 12,393 | 46,816 | 45,717 |
| Cu Sold in Concentrate (000 lbs) | 29,323 | 23,197 | 27,321 | 103,211 | 100,788 |
| C1 cash cost of Cu produced (per lb)(1) | $ 1.41 $ | 1.46 $ | 0.96 $ | 1.36 $ | 0.77 |
Gold (Xavantina Operations)
| Au Production (oz) | 11,786 | 10,965 | 8,544 | 42,669 | 37,798 | |
| C1 cash cost of Au Produced (per oz)(1) | $ | 445 $ | 537 $ | 582 $ | 560 $ | 525 |
| AISC of Au produced (per oz)(1) | $ | 1,096 $ | 1,135 $ | 910 $ | 1,124 $ | 732 |
Financial Highlights ($ in millions, except per share amounts)
| Revenues | $ 116.7 $ | 85.9 $ | 134.9 $ | 426.4 $ | 489.9 |
| Gross profit | 52.7 | 22.8 | 84.4 | 187.2 | 318.9 |
| EBITDA(1) | 58.7 | 27.9 | 80.7 | 218.6 | 296.4 |
| Adjusted EBITDA(1) | 58.2 | 32.1 | 86.8 | 208.6 | 331.9 |
| Cash flow from operations | 34.0 | 43.0 | 66.7 | 143.4 | 364.6 |
| Net income | 22.5 | 4.0 | 60.2 | 103.1 | 202.6 |
| Net income attributable to owners of the Company | 22.2 | 3.7 | 59.8 | 101.8 | 201.1 |
| Per share (basic) | 0.24 | 0.04 | 0.67 | 1.12 | 2.27 |
| Per share (diluted) | 0.24 | 0.04 | 0.65 | 1.10 | 2.21 |
Adjusted net income attributable to owners of the
| Company(1) | 22.2 | 4.0 | 59.7 | 83.5 | 215.4 |
| Per share (basic) | 0.24 | 0.04 | 0.67 | 0.92 | 2.43 |
| Per share (diluted) | 0.24 | 0.04 | 0.65 | 0.91 | 2.37 |
| Cash, cash equivalents, and short-term investments | 317.4 | 359.8 | 130.1 | 317.4 | 130.1 |
| Working capital(1) | 263.3 | 343.2 | 86.0 | 263.3 | 86.0 |
| Net (cash) debt(1) | 100.7 | 51.5 | (70.9) | 100.7 | (70.9) |
(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 year ended December 31, 2022 and the Reconciliation of Non-IFRS Measures section at the end of this press release.
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2023 PRODUCTION AND COST GUIDANCE(*)
In 2023, the Caraíba Operations are expected to produce 44,000 to 47,000 tonnes of copper in concentrate with higher mill throughput levels expected towards the end of the year following the anticipated completion of the Caraíba mill expansion in Q4 2023. As a result, copper production is expected to be slightly weighted towards H2 2023 with Q1 2023 expected to contribute the lowest amount of production of the year due to planned stope sequencing driving lower anticipated processed copper grades.
The Company's 2023 C1 cash cost guidance range for the Caraíba Operations of $1.40 to $1.60 per pound of copper produced reflects (i) sales allocation of 100% of copper concentrate produced to the international market and (ii) elevated consumable cost input assumptions based on Q4 2022 consumable pricing. Q1 2023 C1 cash costs are expected to be slightly above the full-year guidance range due to the impact of lower anticipated copper grades and production during the quarter.
At the Xavantina Operations, the Company expects to produce 50,000 to 53,000 ounces of gold in 2023 with production expected to be lowest in Q1 2023 and slightly weighted towards H2 2023 due to higher mill throughput levels following the expected commencement of production from the Matinha vein during H2 2023.
The Xavantina Operations' 2023 C1 cash cost guidance range of $475 to $575 per ounce of gold produced reflects the impact of significantly higher anticipated mined and processed gold grades in 2023 compared to 2022, partially offset by elevated consumable cost assumptions reflecting Q4 2022 consumable pricing. The Company's AISC guidance range for 2023 is $725 to $825 per ounce of gold produced.
The Company's cost guidance for 2023 assumes a USD:BRL foreign exchange rate of 5.30, a gold price of $1,725 per ounce and a silver price of $20.00 per ounce.
2023 Guidance
Caraíba Operations
Copper Production (tonnes) 44,000 - 47,000 C1 Cash Cost (US$/lb)(1) $1.40 - $1.60
Xavantina Operations
Gold Production (ounces) 50,000 - 53,000 C1 Cash Cost (US$/oz)(1) $475 - $575 All-in Sustaining Cost (AISC) (US$/oz)(1) $725 - $825
(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 capital expenditure guidance for 2023 assumes a USD:BRL foreign exchange rate of 5.30 and has been presented below in USD millions.
2023 Guidance Caraíba Operations
Growth $80 - $90 Sustaining $65 - $75 Exploration $22 - $27
Total, Caraíba Operations $167 - $192
Tucumã Project
Growth $150 - $165 Exploration $0 - $1
Total, Tucumã Project $150 - $166
Xavantina Operations
Growth $4 - $5 Sustaining $12 - $14 Exploration $6 - $7
Total, Xavantina Operations $22 - $26
Company Total
Growth $234 - $260 Sustaining $77 - $89 Exploration $31 - $40
Total, Company $342 - $389
(*) 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 Wednesday, March 8, 2023 at 11:30 am Eastern time (8:30 am Pacific time) to discuss these results.
Date: Wednesday, March 8, 2023 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: 9896
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 year ended December 31, 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 - Q4 2022 - Q3 2021 - Q4 2022 2021 Cost of production $ 40,067 $ 39,047 $ 30,016 $ 146,292 $ 96,975 Add (less):
| Transportation costs & other | 2,362 | 2,209 | 1,998 | 9,019 | 6,331 | |
| Treatment, refining, and other | 4,949 | 4,198 | 2,645 | 15,086 | 4,093 | |
| By-product credits | (6,103) | (4,929) | (6,250) | (22,282) | (22,983) | |
| Incentive payments | (1,092) | (902) | (3,482) | (3,914) | (5,527) | |
| Net change in inventory | (861) | (3,849) | 654 | (6,040) | (1,697) | |
| Foreign exchange translation and other | (47) | 212 | (293) | 373 | (97) | |
| C1 cash costs | $ | 39,275 $ | 35,986 $ | 25,288 $ | 138,534 $ | 77,095 |
| Mining | $ | 26,433 $ | 23,594 $ | 18,560 $ | 94,086 $ | 59,867 |
| Processing | 8,033 | 7,687 | 6,365 | 30,155 | 21,585 | |
| Indirect | 5,963 | 5,436 | 3,968 | 21,489 | 14,533 | |
| Production costs | 40,429 | 36,717 | 28,893 | 145,730 | 95,985 | |
| By-product credits | (6,103) | (4,929) | (6,250) | (22,282) | (22,983) | |
| Treatment, refining and other | 4,949 | 4,198 | 2,645 | 15,086 | 4,093 | |
| C1 cash costs | $ | 39,275 $ | 35,986 $ | 25,288 $ | 138,534 $ | 77,095 |
| Payable copper produced (lb, 000) | 27,918 | 24,669 | 26,275 | 102,230 | 100,333 | |
| Mining | $ | 0.95 $ | 0.96 $ | 0.71 $ | 0.92 $ | 0.60 |
| Processing | $ | 0.29 $ | 0.31 $ | 0.24 $ | 0.29 $ | 0.22 |
| Indirect | $ | 0.21 $ | 0.22 $ | 0.15 $ | 0.21 $ | 0.14 |
| By-product credits | $ | (0.22) $ | (0.20) $ | (0.24) $ | (0.22) $ | (0.23) |
| Treatment, refining and other | $ | 0.18 $ | 0.17 $ | 0.10 $ | 0.16 $ | 0.04 |
| C1 cash costs of copper produced (per lb) | $ | 1.41 $ | 1.46 $ | 0.96 $ | 1.36 $ | 0.77 |
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