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Ero Copper reports first quarter 2022 operating and financial results

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Ero Copper reports first quarter 2022 operating and financial results

 

 

 

 

 

Ero Copper Corp. (TSX: ERO) (NYSE: ERO) is pleased to announce its operating and financial results for the three months ended March 31, 2022.

 

HIGHLIGHTS

  • Copper production of 9,784 tonnes at C1 cash costs(*) of $1.31 per pound of copper produced;
  • Gold production of 8,796 ounces at C1 cash costs(*) and All-in Sustaining Costs(*) of $638 and $1,092, respectively, per ounce of gold produced;
  • Strong net income attributable to the owners of the Company of $52.1 million ($0.57 per share on a diluted basis), adjusted net income attributable to owners of the Company(*) of $33.0 million ($0.36 per share on a diluted basis), and adjusted EBITDA(*) of $62.4 million;
  • Quarterly cash flows from operations of $44.0 million offset capital expenditures related to advancing the Company’s key growth projects. Combined with net proceeds of approximately $392.0 million from the Company’s issuance of $400 million of senior unsecured notes due 2030, less the repayment of approximately $50 million in outstanding borrowings under the Company’s senior secured revolving credit facility, available liquidity at the end of the period was a record $540.5 million;
  • Reaffirming 2022 production, operating cost and capital expenditure guidance:
    • Full-year copper production currently expected to be at the high-end of the guidance range;
    • Based upon the impact of inflation and exchange rate volatility in the first quarter, the Company is currently guiding to the higher end of its 2022 operating cost ranges; and,
    • Capital projects remain on schedule and on budget.
  • Advanced the Company’s organic growth strategy through the execution of several critical milestones during the period including:
    • Bolstered balance sheet with the issuance of $400 million senior unsecured notes offering;
    • Received approval from the Company’s Board of Directors to construct Boa Esperança and subsequently executed the critical-path power transmission line contract; and,
    • Secured several long-lead items related to the new external shaft and mill expansion at the MCSA Mining Complex.

 

“Our vision of high-return organic growth took several critical steps forward during the first quarter,” said David Strang, Chief Executive Officer. “Following the announcement of our strategy to double copper production by 2025, we successfully bolstered our liquidity position to support the execution of these growth plans and received Board approval to construct the Boa Esperança Project. During the period, we made significant progress at the MCSA Mining Complex on our Pilar 3.0 initiative, which included securing key long-lead items such as the third ball mill and shaft winder, advancing shaft construction and new surface installations, and completing the installation of our Cooling Project. Successful execution of these initiatives is expected to allow us to increase mining and processing capacity to accommodate significantly higher planned throughput in the years ahead.

 

“Despite these significant positive developments, the first quarter was not without challenges. In addition to an underlying strengthening of the Brazilian Real during the first quarter, our operating costs faced the same inflationary headwinds experienced globally across all industries. While many of the challenges related to costs are externally driven, we are focused on continuing to improve our operating efficiencies through existing programs and by investing in new technologies applicable across all areas of our business. At the same time, we are taking a cautious approach and currently guiding to the higher end of our full-year operating cost guidance ranges.

 

“Highlighting our pursuit of continuous improvement, we commenced an engineering initiative last year, known as Project Honeypot, that is already delivering significant near-term value for our operations. Through this initiative our engineering teams, supported by our geology and exploration group, have developed a comprehensive program to identify and recover high-grade stopes at the Pilar Mine that were left behind by previous operators decades ago. While the addition of Project Honeypot stopes to the mine plan are expected to be gradual, we anticipate a positive impact on mined copper grades commencing in the second quarter of 2022. These contributions are expected to drive higher copper production through the remainder of the year and, as a result, we are currently guiding to the high-end of our full-year production guidance range.”

 

*Earnings before interest, taxes, depreciation and amortization (“EBITDA”), Adjusted EBITDA, Adjusted net income attributable to owners of the Company, Adjusted net income per share attributable to owners of the Company, C1 cash cost per pound of copper produced, C1 cash cost per ounce of gold produced and All-in Sustaining Costs (“AISC”) per ounce of gold produced are non-IFRS measures – see the Notes section of this press release for additional information. C1 cash cost per pound of copper produced are net of by-product credits from metal produced at the MCSA Mining Complex. AISC per ounce of gold produced are net of by-product credits from metal produced at the NX Gold Mine.

 

FIRST QUARTER REVIEW

 

  • Mining & Milling Operations
    • The MCSA Mining Complex processed 596,230 tonnes of ore grading 1.78% copper, producing 9,784 tonnes of copper in concentrate during the quarter after metallurgical recoveries of 92.2%.
    • The NX Gold Mine processed 49,990 tonnes grading 5.93 grams per tonne, producing 8,796 ounces of gold after metallurgical recoveries of 92.3% and 6,042 ounces of silver as a by- product.
  • Organic Growth Projects
    • At the MCSA Mining Complex, construction of the new external shaft in support of the “Pilar 3.0” initiative continued to progress during the quarter while efforts on ancillary related projects delivered important milestones. Together, the existing and new shaft currently under construction are expected to increase total hoisting capacity of the Pilar Mine to approximately 5.7 million tonnes per annum, an increase of over 60% compared to current hoisting capacity of 3.5 million tonnes per annum, offering flexibility for future mine expansions.
      • Construction of the new external shaft continues to progress on schedule and on budget with excavation for the head-frame and two winder foundations completed during the first quarter.
      • Expansion of the Caraíba Mill to 4.2 million tonnes per annum is underway with a third ball mill ordered during the period for which commissioning is expected in Q2 2023.
      • Significant progress has been made in defining opportunities in the upper levels of the Pilar Mine that have the potential to add near-term value through an initiative known as “Project Honeypot”. This engineering initiative is focused on recovering high-grade stopes, ribs and sill pillars left behind by previous operators during the late 1990s due to the under-capitalized nature of operations at the time. The first Project Honeypot stope (RC03) is approximately 130,000 tonnes grading approximately 4.00% copper and is expected to commence mining in Q2 2022.
      • The second and final phase of the Cooling Project was completed subsequent to quarter-end at the Pilar Mine with hand-over to operations occurring at the end of April 2022. The Cooling Project is expected to support expansions at depth and has the potential to drive meaningful operating efficiencies.
    • Important advances on key workstreams at Boa Esperança included:
      • Execution of the critical-path power transmission line contract;
      • Mobilization of the first earth works package, including new access road construction and road upgrades;
      • Completion of Gap Zone and condemnation drilling; and,
      • Market tendering for key contracts completed subsequent to quarter-end. Contractor and supplier selections remain ongoing.

 

 

OPERATING AND FINANCIAL HIGHLIGHTS

 
  3 months
ended
3 months
ended
3 months
ended
  Mar. 31, 2022 Dec. 31, 2021 Mar. 31, 2021
Operating Highlights      
Copper (MCSA Operations)      
Ore Processed (tonnes)   596,230     646,319     597,594
Grade (% Cu)   1.78     2.01     2.30
Cu Production (tonnes)   9,784     11,918     12,638
Cu Production (000 lbs)   21,570     26,275     27,863
Cu Sold in Concentrate (tonnes)   10,045     12,393     12,469
Cu Sold in Concentrate (000 lbs)   22,145     27,321     27,488
C1 cash cost of Cu produced (per lb)(1) $ 1.31   $ 0.96   $ 0.49
Gold (NX Gold Operations)      
Au Production (oz)   8,796     8,544     9,451
C1 cash cost of Au Produced (per oz)(1) $ 638   $ 582   $ 487
AISC of Au produced (per oz)(1) $ 1,092   $ 910   $ 643
       
Financial Highlights ($ in millions, except per share amounts)      
Revenues $ 108.9   $ 134.9   $ 122.5
Gross profit   61.0     84.4     82.8
EBITDA(1)   78.1     80.7     55.2
Adjusted EBITDA(1)   62.4     86.8     86.7
Cash flow from operations   44.0     66.7     62.1
Net income   52.5     60.2     32.1
Net income attributable to owners of the Company   52.1     59.8     31.7
Per share (basic)   0.58     0.67     0.36
Per share (diluted)   0.57     0.65     0.34
Adjusted net income attributable to owners of the Company(1)   33.0     59.7     56.3
Per share (basic)   0.37     0.67     0.64
Per share (diluted)   0.36     0.65     0.61
Cash, cash equivalents, and short-term investments   465.5     130.1     84.6
Working capital(1)   443.7     86.0     63.5
Net debt(1)   (54.4 )   (70.9 )   74.5
  • 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 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 – see the Notes section of this press release for a discussion on non-IFRS Measures.

 

ADJUSTED EBITDA & NET INCOME (LOSS) RECONCILIATION  

($ in thousands)

  3 months ended
Mar. 31, 2022
     
Adjusted EBITDA $ 62,377  
Adjustments:    
Unrealized foreign exchange gain on USD denominated balances in MCSA   11,279  
Unrealized foreign exchange gain on derivative contracts   24,714  
Realized foreign exchange loss on derivative contracts   (4,567 )
Share based compensation and other   (14,707 )
Incremental costs in response to COVID-19 pandemic   (1,004 )
EBITDA $ 78,092  
     
Adjusted net income attributable to owners of the Company $ 32,951  
Adjustments for non-cash items (attributable to owners of the Company):    
Unrealized foreign exchange gain on USD denominated debt in MCSA   1,337  
Unrealized foreign exchange gain on derivative contracts, net of tax   24,615  
Share based compensation   (1,990 )
Incremental costs in response to COVID-19 pandemic   (998 )
Reported net income attributable to owners of the Company $ 55,915  

 

2022 GUIDANCE(*)

 

The Company is reaffirming its full-year production, cost and capital expenditure guidance as detailed in the tables below. At the MCSA Mining Complex, the Company is guiding to the high-end of its full- year copper production guidance range. Increased copper production is expected to result from higher mining rates at the Pilar Mine relative to the first quarter as well as improved grades due to planned stope sequencing and mining of an initial stope within the Project Honeypot zone. Higher mined and processed volumes from the Surubim Mine are also expected to contribute to higher copper production volumes through the balance of the year.

 

Unit operating costs during the first quarter were affected by inflation in the cost of key consumables and impacted by the strengthening of the BRL versus the US dollar. While unit costs are expected to benefit through the remainder of the year from higher copper and gold production, based upon the influence of first quarter operating costs, the Company is currently guiding to the higher end of its full- year operating cost guidance ranges.

 

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.

 

MCSA Mining Complex  
Copper Production (tonnes) 43,000 – 46,000
C1 Cash Cost Guidance (US$/lb)(1) $1.05 – $1.15
   
   
NX Gold Mine  
Gold Production (ounces) 39,000 – 42,000
C1 Cash Cost Guidance (US$/oz)(1) $500 – $600
All-in Sustaining Cost (AISC) Guidance (US$/oz)(1) $925 – $1,025

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

 

2022 CAPITAL EXPENDITURE GUIDANCE(*)

 

The Company’s capital expenditure guidance for 2022 assumes a USD:BRL foreign exchange rate of 5.30 and has been presented below in USD millions.

 

MCSA Mining Complex  
Growth $125 – $140
Sustaining $80 – $90
Exploration $25 – $30
Total, MCSA Mining Complex $230 – $260
   
Boa Esperança Project  
Growth $70 – $80
Sustaining $0
Exploration $5 – $6
Total, Boa Esperança Project $75 – $86
   
NX Gold Mine  
Growth $0 – $1
Sustaining $16 – $18
Exploration $9 – $10
Total, NX Gold Mine $25 – $29
   
Company Total  
Growth $195 – $221
Sustaining $96 – $108
Exploration $39 – $46
Total, Company $330 – $375

(*) 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 Company’s most recent Annual Information Form, for complete risk factors.

 

NOTES

 

Non-IFRS measures

 

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), realized gold price (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.

 

C1 cash cost of copper produced (per lb.)

 

C1 cash cost of copper produced (per lb) is a non-IFRS performance measure used by the Company to manage and evaluate the operating performance of its copper mining segment and is calculated as C1 cash costs divided by total pounds of copper produced during the period. C1 cash costs includes total cost of production, transportation, treatment and refining charges, and certain tax credits relating to sales invoiced to the Company’s Brazilian customer on sales, net of by-product credits and incentive payments. C1 cash cost of copper produced per pound is widely reported in the mining industry as benchmarks for performance but does not have a standardized meaning and is disclosed in supplement to IFRS measures.

 

C1 cash cost of gold produced (per ounce)

 

C1 cash cost of gold produced (per ounce) is a non-IFRS performance measure used by the Company to manage and evaluate the operating performance of its gold mining segment and is calculated as C1 cash costs divided by total ounces of gold produced during the period. C1 cash cost includes total cost of production, net of by-product credits and incentive payments. C1 cash cost of gold produced per ounce is widely reported in the mining industry as benchmarks for performance but does not have a standardized meaning and is disclosed in supplemental to IFRS measures.

 

All-in Sustaining Cost of gold produced (per ounce)

 

All-in sustaining cost of gold produced (per ounce) is an extension of C1 cash cost of gold produced (per ounce) discussed above and is also a key performance measure used by management to evaluate operating performance of its gold mining segment. AISC of gold produced (per ounce) is calculated as AISC divided by total ounces of gold produced during the period. AISC includes C1 cash costs, site general and administrative costs, accretion of mine closure and rehabilitation provision, sustaining capital expenditures, sustaining leases, and royalties and production taxes.

AISC of gold produced (per ounce) is widely reported in the mining industry as benchmarks for performance but does not have a standardized meaning and is disclosed in supplement to IFRS measures.

 

Earnings before interest, taxes, depreciation and amortization (EBITDA) and Adjusted EBITDA

 

EBITDA and adjusted EBITDA are non-IFRS performance measures used by management to evaluate its debt service capacity and performance of its operations. EBITDA represents earnings before finance expense, income taxes, depreciation and amortization. Adjusted EBITDA is EBITDA before the pre-tax effect of adjustments for non-cash and/or non-recurring items required in determination of EBITDA under its revolving credit facility for covenant calculation purposes.

 

Adjusted net income attributable to owners of the Company and Adjusted net income per share attributable to owners of the Company

 

“Adjusted net income attributable to owners of the Company” is net income attributed to shareholders as reported, adjusted for certain types of transactions that, in management’s judgment, are not indicative of our normal operating activities or do not necessarily occur on a recurring basis. “Adjusted net income per share attributable to owners of the Company” (“Adjusted EPS”) is calculated as “adjusted net income attributable to owners of the Company” divided by weighted average number of outstanding common shares in the period. The Company believes that, in addition to conventional measures prepared in accordance with IFRS, the Company and certain investor and analysts use these supplemental non-IFRS performance measures to evaluate the normalized performance of the Company. The presentation of Adjusted EPS is not meant to substitute the net income (loss) per share attributable to owners of the Company (“EPS”) presented in accordance with IFRS, but rather it should be evaluated in conjunction with such IFRS measures.

 

Net (Cash) Debt

 

Net (cash) debt is a performance measure used by the Company to assess its financial position and ability to pay down its debt. Net (cash) debt is determined based on cash and cash equivalents, short-term investments, net of loans and borrowings as reported in the Company’s condensed consolidated interim financial statements.

 

Working capital and Available liquidity

 

Working capital is calculated as current assets less current liabilities as reported in the Company’s condensed consolidated interim financial statements. The Company uses working capital as a measure of the Company’s short-term financial health and ability to meet its current obligations using its current assets. Available liquidity is calculated as the sum of cash and cash equivalents, short-term investments and the undrawn amount available on its revolving credit facilities. The Company uses this information to evaluate the liquid assets available.

 

ABOUT ERO COPPER CORP

 

Ero Copper Corp is a high-growth, clean copper producer with operations in Brazil and corporate headquarters in Vancouver, B.C. The Company’s primary asset is a 99.6% interest in the Brazilian copper mining company, Mineração Caraíba S.A. (“MCSA”), 100% owner of the MCSA Mining Complex, which is comprised of operations located in the Curaçá Valley, Bahia State, Brazil, where the Company currently mines copper from the Pilar and Vermelhos underground mines and the Surubim open pit mine, and the Boa Esperança development project, an IOCG-type copper project located in Pará, Brazil. The Company also owns 97.6% of NX Gold S.A. (“NX Gold”) which owns the NX Gold Mine, an operating gold and silver mine located in Mato Grosso, Brazil. Additional information on the Company and its operations, including technical reports on the MCSA Mining Complex, Boa Esperança and NX Gold properties, can be found on the Company’s website (www.erocopper.com), on SEDAR (www.sedar.com), and on EDGAR (www.sec.gov).

 

Posted May 10, 2022

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