ERO.TO · 2019-03-14 12:00:00

Ero Copper Reports Fourth Quarter and 2018 Year End Results

Financials

TSX: ERO

Ero Copper Corp

MARCH 14, 2019 NR:19-3

(all amounts in US dollars, unless otherwise noted)

Vancouver, British Columbia – Ero Copper Corp. (TSX : ERO) (“Ero” or the “Company” )

today is pleased to announce its financial results for the three and twelve months ended December

31, 2018. Management will host a conference call tomorrow, Friday, March 15, 2019, at 11:30

a.m. Eastern to discuss the results. Dial in det ails for the call can be found near the end of this

press release.

HIGHLIGHTS

• Fourth quarter copper production of 12,104 tonnes and 2018 full year copper production

of 30,426 tonnes, a 51% year-on-year increase in production and exceeding original 2018

production guidance by 15%;

• Fourth quarter C1 Cash Costs* of $0.99 per pound of copper produced resulting in full year

C1 Cash Costs* of $1.19 per pound of copper produced, within the Company’s revised

guidance range;

• Generated $39.0 million and $99.9 million in Adjusted EBITDA* during the three and

twelve month periods ended December 31, 2018, respectively – a 168% increase in year-

on-year Adjusted EBITDA*;

• Cash flow from operations of $24.0 million and $82.9 million during the three and twelve

month periods ended December 31, 2019, respectively – a 139% increase in year-on-year

cash flow from operations;

• Adjusted net income * attributable to owners of the Company of $7.9 million and $10.9

million ($0.09 and $0.12 per share on a diluted basis ) during the three and twelve month

periods ended December 31, 2018, respectively;

• Total annual gold and silver production at the NX Gold Mine of 39,808 ounces of gold and

24,700 ounces of silver at C1 Cash Costs* of $520 per ounce of gold produced;

• Successfully refinanced all of the Company’s current US dollar denominated debt during

the fourth quarter via a new US$130 million debt financing with The Bank of Nova Scotia

(“Scotiabank”) and Bank of Montreal (“BMO”) , materially reducing the Company’s cost

of borrowing when compared to the prior debt structure;

TSX: ERO

Ero Copper Corp

• Ended 2018 with total cash position of $21.9 million, approximately $15.5 million

available in undrawn unsecured working capital lines of credit plus an additional $5.0

million available under the Company’s secured revolving credit facility;

• Reiterate 2019 full year production guidance of 36.0 to 38.0 thousand tonnes (“kt”) of

copper at full year C1 Cash Cost* guidance to US$1.00 to US$1.10 per pound of copper

produced.

Commenting on the 2018 results, David Strang, President & CEO of Ero stated, “Our operational

results from the fourth quarter of 2018 continue to reflect the growing nature of our business and

the underlying quality of our asset base – particularly with respect to excess mill capacity. Our

operating run rate during the fourth quarter of over 777,000 tonnes of ore processed was an

important high-water mark for the Company as it demonstrates we are capable of operating at

annualized throughput levels in excess of 3.1 million tonnes per annum , well above our forecast

rate of approximately 2.0 million tonnes per annum over the next several years . As we continue

to look into the future, we aim to more effectively utilize this excess capacity through our on-going

exploration programs, resource conversion, and re-sequencing the life of mine plan around these

results. During the period, we saw increased contribution from our newly constructed Vermelhos

underground mine, which was completed on budget, approximately four months ahead of schedule

and commissioned during the third quarter . The acceleration of Vermelhos, combined with

incremental production from Surubim through year-end allowed us to significantly exceed our

original 2018 production guidance.

We cannot say enough about the quality of execution by our operating teams in Brazil throughout

the year. In addition to exceeding production targets, bringing Vermelhos into commercial

production ahead of schedule and advancing several high- value initiatives during a period of

significant ramp-up in operating activity, the team, as a whole, was able to do so while achieving

the best safety record in the 39 year operating history of the Company’s subsidiary, MCSA. Of all

the notable achievements of 2018, this is by far the most significant.

As we look towards 2019, we see several opportunities crystallizing before us. On exploration, the

benefit of several months of disciplined data interpretation on the back of our completed regional

airborne survey has re-ignited our own excitement for the potential of the Curaçá Valley as an

emerging world-class mineral district. This excitement is best evidenced around the Vermelhos

Mine, where we now have nine drill rigs operating, a significant ramp-up compared to year-end

when only five rigs were operating. This increase in exploration effort now includes the first two

underground drill rigs deployed to the mine which will be testing extensions of the high-grade

Vermelhos deposit to depth. On mining, we continue to advance investments in ventilation,

development and new technologies aimed at improv ing operating performance and decreasing

costs. At our mill, we have commenced detailed engineering on an upgraded regrind circuit, which

TSX: ERO

Ero Copper Corp

we anticipate will significantly improve overall metallurgical recoveries and plant performance

once operational during the second quarter of 2020.”

The Company’s financial statements for the period were impacted by non-cash adjustments related

to the Company’s debt refinancing and movements of the Brazilian Real (“BRL”) against the US

dollar during the period , particularly as it relates to the translation of US dollar debt held by the

Company’s subsidiary, Mineração Caraíba S .A. (“MCSA”) into BRL – its functional currency .

Accordingly, the Company believes that Adjusted EBITDA and Adjusted net gain (loss) are better

reflections of the Company’s underlying performance.

*EBITDA, Adjusted net income (loss), C1 Cash Cost of copper produced (per lb) and C1 Cash

Cost of gold produced (per oz) are non-IFRS measures – see the Notes section of this press release

for a discussion on non-IFRS Measures.

OPERATIONS & EXPLORATION HIGHLIGHTS

 Mining & Milling Operations – record year and quarter

• Total of approximately 2.3 million tonnes of ore grading 1.56% copper mined and

processed during the year producing 30,426 tonnes of copper in concentrate after

average metallurgical recoveries of 86.3%;

• Fourth quarter mill throughput of 777,480 tonnes grading 1.77% copper producing

12,104 tonnes of copper in concentrate after metallurgical recoveries that averaged

87.8% during the period;

• Early commissioning of the Vermelhos Mine (approximately 4 months ahead of

schedule) resulted in a total of 206,873 tonnes of ore grading 2.72% copper mined

contributing to the annual production result, with 143,661 tonnes grading 2.77%

copper mined during the fourth quarter;

• The Company’s 97.6% owned NX Gold Mine processed 117,857 tonnes of ore

grading 11.55 grams per tonne gold, resulting in the production of 39,808 ounces of

gold and 24,700 ounces of silver as by -product after metallurgical recoveries that

averaged 91.0% during the twelve month period ended December 31, 2018.

 Exploration Activities – 21 drill rigs now operating, stage set for transformational year

• Vermelhos District

 Near-surface drilling of the recently announced East Zone discovery was

highlighted during the period by drill hole FVS-311 that intersected 27.4 meters

grading 8.39% copper, including 17.7 meters grading 10.76% copper from 81.2

meters downhole. This result was part of 7 holes drilled within 100 meters of

TSX: ERO

Ero Copper Corp

surface, that when combined with the initial discovery holes and subsequent

drilling, confirm the Vermelhos East Zo ne is not a discrete zone, but rather a

semi-continuous mineralized structure extending from the Vermelhos Mine

(UG1 mining area) in a north- northeast direction over a strike length of

approximately 1.1 kilometers (see the Company’s press release dated December

11, 2018 for additional detail) . To date, the Vermelhos East Zone has been

delineated from surface to a depth of approximately 400 meters and remains

open along strike and to depth. Currently nine exploration drill rigs are

operating at Vermelhos, including six surface rigs, two underground drill rigs

and one high-powered reverse circulation (“RC”) rig . These rigs are testing

mineralized continuity below the current ly defined mineral resources at the

Vermelhos Mine, along the East Zone between the Vermelhos Mine and the

Vermelhos West deposit as well as additional near -mine anomalies located

along the same north-northeast structural trend.

• Pilar District

 Exploration activities continue to focus on extensions to the Deepening as well

as extensions and infill of the recently announced West Limb Discovery (see

the Company’s press release dated May 17, 2018 for additional information on

the West Limb discovery). All Pilar exploration targets are within or adjacent

to existing Pilar underground mine infrastructure. Currently, seven

underground and three surface drill rigs are operating at Pilar testing continuity

of these discoveries.

• Surubim District

 Drilling activities continue to focus on evaluating new target areas adjacent to

the Surubim open pit mine. Currently two exploration drill rigs are operating

within the district.

• Regional Programs

 The Company’s airborne geophysical survey, which was completed during the

third quarter of 2018, continues to yield significant results throughout the

Curaçá Valley – more recently, advanced probabilistic modelling of the

Vermelhos District has resulted in an increase in exploration activity within the

district, and re-prioritization of drilling (nine rigs are currently operating in and

around the Vermelhos Mine, an increase of 4 drill rigs as compared to year-end

2018).

TSX: ERO

Ero Copper Corp

OPERATING AND FINANCIAL HIGHLIGHTS

3 months

ended

Dec. 31,

2018

3 months

ended

Sep. 30,

2018

12 months

ended

Dec. 31,

2018

3 months

ended

Dec. 31,

2017

12 months

ended

Dec. 30,

2017(1)

Operating Highlights (MCSA Operations)

Ore Processed (tonnes) 777,480 663,359 2,257,917 452,371 1,771,209

Grade (% Cu) 1.77 1.38 1.56 1.36 1.31

Cu Production (tonnes)(2) 12,104 7,792 30,426 5,334 20,133

Cu Production (000 lbs)(2) 26,685 17,178 67,077 11,760 44,385

Cu Sold in Concentrate (tonnes) 12,900 6,542 30,107 5,488 19,719

Cu Sold in Concentrate (000 lbs) 28,440 14,423 66,375 12,011 43,473

C1 Cash cost of copper produced (per lb)(3)(4) 0.99 0.99 1.19 1.54 1.45

Gold (NX Gold Operations)

Au Production (ounces) 10,008 10,223 39,808 8,531 25,287

C1 Cash cost of gold produced (per ounce) (3) 540 471 520 586 790

Financial Highlights ($millions, except per share amounts)

Revenues $85.1 $47.3 $233.1 $49.4 $148.2

Gross profit (loss) $39.0 $18.8 $82.2 $10.3 $18.0

EBITDA(3) $40.2 $22.8 $70.5 $34.7 $60.8

Adjusted EBITDA(3) $39.0 $26.2 $99.9 $15.6 $37.3

Cash flow from (used in) operations $24.0 $34.3 $82.9 $21.8 $34.7

Net income (loss) attributable to owners of

the Company

$11.2 $4.1 ($3.2) $19.5 $22.5

Net income (loss) per share attributable to

owners of the Company – Basic

$0.13 $0.05 ($0.04) $0.28 $0.40

Net income (loss) per share attributable to

owners of the Company – Diluted $0.13 $0.05 ($0.04) $0.24 $0.34

Adjusted net income (loss) attributable to

owners of the Company(3) $7.9 $2.6 $10.9 ($0.2) ($2.2)

Adjusted net earnings (loss) per share

attributable to owners of the Company(3) –

Basic

$0.09 $0.03 $0.13 ($0.00) ($0.04)

Adjusted net earnings (loss) per share

attributable to owners of the Company(3) –

Diluted

$0.09 $0.03 $0.12 ($0.00) ($0.03)

Cash and Cash Equivalents $18.9 $20.5 $18.9 $51.1 $51.1

Working Capital (Deficit)(3) ($9.3) ($15.8) ($9.3) $42.6 $42.6

Net Debt(3) ($130.3) ($118.9) ($130.3) ($85.9) ($85.9)

TSX: ERO

Ero Copper Corp

Footnotes

[1] Ero was incorporated on May 16, 2016. MCSA was acquired December 12, 2016. Operations did not commence until the first

quarter of 2017

[2] Presented results reflect the consolidation of NX Gold in all periods shown – please see 2018 annual financial statements note 4

for additional details

[3] Includes 1,250 tonnes of copper from the gallery development and trial mining of the newly constructed Vermelhos underground

mine during Q3 2018

[4] EBITDA, Adjusted EBITDA, Adjusted net income (loss), Adjusted net earnings (loss) per share, Net Debt, W orking Capital, C1

Cash Cost of gold produced (per ounce) and C1 Cash Cost of copper produced (per lb) are non-IFRS measures – see the Notes

section of this press release for a discussion on non-IFRS Measures

[5] Starting in 2018, the Company included the costs of treatment, refining and sales costs and credits related to the sale of copper

concentrate in its C1 Cash Cost calculation

ADJUSTED EBITDA & NET INCOME (LOSS) RECONCILIATION

While the reporting currency of the Company is US dollars, and the majority of the Company’s

debt is denominated in US dollars, the US dollar denominated debt is held by MCSA whose

functional currency is BRL. In addition to the gain on debt settlement during the period, on

consolidation, the quarter-on-quarter translation of the US dollar debt into BRL results in a non-

cash adjustment to the income statement, as detailed below:

2018 – Q4 2018

Adjusted EBITDA $ 38,975 $ 99,934

Adjustments:

Gain on debt settlement $ (5,476) $ (5,476)

Unrealized foreign exchange loss on USD denominated debt in MCSA 4,835 (9,808)

Unrealized Foreign exchange loss on derivative contracts 3,993 1,137

Realized Foreign exchange gain on derivative contracts (965) (10,119)

Share based compensation and other (1,153) (5,148)

EBITDA $ 40,209 $ 70,520

Adjusted net income (loss) $ 7,878 $ 10,943

Adjustments for non-cash items (attributable to owners of the Company):

Gain on debt settlement (5,461) (5,461)

Unrealized foreign exchange loss on USD denominated debt in MCSA 4,816 (9,769)

Unrealized foreign exchange loss on derivative contracts 3,977 1,132

Reported net income attributable to owners of the Company $ 11,210 $ (3,155)

2019 PRODUCTION OUTLOOK

Copper production in 2019 is expected to have a slight bias towards the first half of the year due

to higher-grade stope sequencing at both the Pilar and Vermelhos underground mines as well as

incremental production from the R22W open pit mine. R22W is expected to augment underground

production during the first half of the year (contributing approximately 250,000 tonnes of ore

TSX: ERO

Ero Copper Corp

grading 0.50% copper). Underground production from the Pilar Mine is expected to contribute a

total of approximately 1.3 million tonnes grading 1.80% copper while underground production

from the Vermelhos Mine is expected to contribute a total of approximately 500,000 tonnes

grading 3.20% copper resulting in a blended head grade of approximately 2.00% copper for 2019.

2018 Original

Guidance

2018 Revised

Guidance

2018 Result 2019

Guidance[1]

Tonnes Processed Sulphides 2,000,000 2,200,000 2,257,917 2,050,000

Copper Grade (% Cu) 1.50% 1.50% 1.56% 2.00%

Copper Recovery (%) 86.0% 86.0% 86.3% 88.0%

Cu Production (000 tonnes) 25.5 – 27.5 28.0 – 29.0 30.4 36.0 – 38.0

(1) 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 filings for complete risk factors.

2019 CASH COST GUIDANCE

The Company’s guidance for 2019 assumes a USD:BRL foreign exchange rate of 3.70, gold price

of $1,200 per ounce and silver price of $14.50 per ounce.

2018 Revised

Guidance

2018 Result 2019

Guidance

C1 Cash Cost Guidance

(US$/lb)[1]

$1.10 - $1.20 $1.19 $1.00 – $1.10

(1) C1 Cash Costs are a non-IFRS measures – see the Notes section of this press release for additional information.

2019 CAPITAL EXPENDITURE GUIDANCE

The Company’s capital expenditure guidance for 2019 assumes a USD:BRL foreign exchange rate

of 3.70 and has been presented below in USD millions.

2018 Guidance 2019

Guidance

Pilar Mine 39.0 42.0

Vermelhos 36.0 18.0

Boa Esperanҫa 1.0 2.0

Capital Expenditure Guidance 76.0 62.0

Exploration[1,2] 20.0 20.0

(1) Exploration capital expenditure guidance is dependent , in part, on future exploration success and subject to

further review and revision.

(2) 2018 exploration capital expenditure guidance included approximately US$6 million related to the Company’s

airborne geophysical survey.

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Ero Copper Corp

NOTES

Non-IFRS measures

Financial results of the Company are prepared in accordance with IFRS. The Company

utilizes certain non -IFRS measures, including C1 cash cost of copper produced (per lb),

EBITDA, Adjusted net income (loss), Adjusted earnings (loss) per share, net debt and

working capital, which are not measures recognized under IFRS. The Company believes

that these measures, together with measures determined in accordance with IFRS, provide

investors with an improved ability to evaluate the underlying performance of the Company.

Non-IFRS measures do not have any standardized meaning prescribed under IFRS, and

therefore they may not be comparable to similar measures employed by other companies.

The data is intended to provide additional information and should not be considere d in

isolation or as a substitute for measures of performance prepared in accordance with IFRS.

C1 Cash Cost of copper produced (per lb.)

C1 Cash cost of copper produced (per lb) is the sum of production costs (excluding the

capitalized pre- production mining costs at Vermelhos) , net of capital expenditure

development costs and by-product credits, divided by the copper pounds produced. C1 cash

costs reported by the Company include treatment, refining charges , offsite costs, and

certain tax credits relating to sales invoiced to the Company’s Brazilian customer on sales.

By-product credits are calculated based on actual precious metal sales (net of treatment

costs) during the period divided by the total pounds of copper produced during the period.

C1 cash cost of copper produced per pound is a non- IFRS measure used by the Company

to manage and evaluate operating performance of the Company’s operating mining unit,

and is widely reported in the mining industry as benchmarks for performance, but does not

have a standardized meaning and is disclosed in addition to IFRS measures.

C1 Cash Cost of gold produced (per ounce)

C1 Cash cost of gold produced (per ounce) is the sum of production costs, net of capital

expenditure development costs and silver by -product credits, divided by the gold ounces

produced. By-product credits are calculated based on actual precious metal sales during

the period divided by the total ounces of gold produced during the period. C1 cash cost of

gold produced per pound is a non- IFRS measure used by the Company to manage and

evaluate operating performance of the Company’s operating mining unit and is widely

reported in the mining industry as benchmarks for performance but does not have a

standardized meaning and is disclosed in addition to IFRS measures.

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