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Ero Copper reports record revenue, cash flow from operations and net income resulting in record earnings per share of $1.01 in 2019

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Ero Copper reports record revenue, cash flow from operations and net income resulting in record earnings per share of $1.01 in 2019

 

 

 

 

 

Ero Copper Corp. (TSX: ERO) is pleased to announce its financial results for the three and twelve-months ended December 31, 2019.

 

HIGHLIGHTS

 

  • Record annual copper production in 2019 with 42,318 tonnes of copper produced – a 39% year-on-year increase in production at the Curaçá Valley operations;
  • Record C1 cash costs* of $0.80 and $0.93 per pound of copper produced during the three and twelve-month periods ended December 31, 2019, respectively;
  • Record $31.2 and $134.1 million in Adjusted EBITDA* during the three and twelve-month periods ended December 31, 2019, respectively;
  • Record cash flow from operations of $35.9 and $127.8 million during the three and twelve-month periods ended December 31, 2019, respectively;
  • Record net income attributable to owners of the Company of $45.2 and $91.9 million ($0.49 and $1.01 per share on a diluted basis) during the three and twelve-month periods ended December 31, 2019; respectively;
  • Record adjusted net income attributable to owners of the Company* of $40.7 and $86.3 million ($0.44 and $0.94 per share on a diluted basis) during the three and twelve-month periods ended December 31, 2019, respectively;
  • 6,043 ounces of gold produced at C1 cash costs* of $980 per ounce during the fourth quarter resulting in full-year production of 30,434 ounces of gold at C1 cash costs* of $691 per ounce at the NX Gold Mine; and,
  • Reiterate previously announced full-year production, operating cost and capital guidance for 2020.

 

Commenting on the 2019 results, David Strang, President and CEO, stated, “2019 was a fantastic year for the Company and the financial results highlight the extraordinary quality of our assets and people. Execution of our business plan over the past several years has continued to translate to significant year-on-year growth in production and profitability – a trend we see continuing with the support of our exploration programs underway both within and around our existing operations and regionally throughout the Curaçá Valley.

 

Our results are highlighted by full year C1 cash costs of $0.93 per pound of copper produced in 2019 – well below our long-term target of $1.00 per pound, and significantly improved when compared to the 2018 result of $1.19 per pound of copper produced. Similarly, net income of $91.9 million in 2019 ($1.01 per share on a fully diluted basis) and cash flow from operations of $127.8 million reflect a significant year-on-year improvement when compared to our 2018 results (net loss of $3.2 million and cash flow from operations of $82.9 million, respectively).

 

Despite entering a period of global macroeconomic uncertainty in early 2020, our business is as well positioned as ever to continue to execute our business plan and long-term growth strategy. Supported by low-cost, highly profitable operations, we are successfully running one of the most comprehensive exploration programs globally. At each of our operations, excess mill capacity paired with low capital intensity, supported by first-quartile operating costs continues to translate into high returns on this invested capital.”

 

*EBITDA, Adjusted EBITDA, Adjusted net income (loss), C1 cash cost of copper produced (per lb) and C1 cash costs of gold produced (per ounce) 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 – another year of record copper production

  • 589,065 tonnes of ore grading 2.16% copper processed during the fourth quarter producing 11,526 tonnes of copper in concentrate after metallurgical recoveries of 90.7%.
  • Total of 2.4 million tonnes of ore processed grading 1.93% copper producing 42,318 tonnes of copper in concentrate after metallurgical recoveries that averaged 90.5% during the twelve-month period ended December 31, 2019.
  • Strong operating performance from Pilar and Vermelhos, highlighted by significant quarter-on-quarter increases in grades and tonnes mined with 433,258 tonnes grading 1.73% copper and 185,045 tonnes grading 3.39% copper mined during the period, respectively – an increase of approximately 1,500 tonnes of contained copper mined as compared to prior quarter.

 

The NX Gold Mine processed 158,275 tonnes of ore grading 6.98 grams per tonne gold, resulting in the production of 30,434 ounces of gold and 19,641 ounces of silver as by-product after metallurgical recoveries that averaged 85.7% during the twelve month period ended December 31, 2019.

 

Successfully commenced mining of the high-grade Santo Antonio vein prior to year-end.

 

Exploration Activities – focus on regional exploration in 2020 with 26 drill rigs operating at MCSA and 4 at NX Gold

 

Vermelhos District

 

Drilling within the Vermelhos District, where 12 drill rigs are operating (including four drill rigs operating on regional targets), is currently targeting several high-priority exploration targets identified during the Company’s comprehensive targeting work. These targets extend over approximately 10 kilometers of anomalous soil geochemistry and induced polarization (“IP”) anomalies known as the Vermelhos System targets.  

 

Pilar District

 

Exploration activity within the Pilar District, where 11 drill rigs are currently operating, continues to focus on infill and extensional drilling of high-grade zones that the Company has yet to fully delineate within the Pilar underground mine. These zones are highlighted by recent drill results from the Deepening zone, located down-plunge to the north and along strike to the south of known mineralization where a new “Super Pod” of mineralization was discovered. Additionally, drilling at Pilar will seek to further delineate the up-dip extension of the Baraúna zone, which extends from the upper levels of the Pilar underground mine towards surface south of the historic open pit.

 

Surubim District

 

There are three drill rigs operating on regional exploration targets within the Surubim District.

 

NX Gold Mine

 

At the NX Gold Mine, four exploration drill rigs are currently operating on extensions of the recently announced Santo Antonio vein and testing for continuity of the Brás vein. Additionally, the first comprehensive regional exploration program is underway.

 

Corporate Highlights – strong overall liquidity, well positioned for 2020 plans

 

Total cash and cash equivalents and available liquidity at December 31, 2019 was $21.5 million and $25.1 million compared to $18.9 million and $4.7 million, respectively, at the end of 2018.

 

As at the end of 2019, the Company had $14.0 million undrawn on its secured, revolving credit facility in Canada, plus an additional R$64.8 million in available undrawn lines of credit in Brazil.

 

OPERATING AND FINANCIAL HIGHLIGHTS

 

    3 months
ended
Dec. 31,
2019
  3 months
ended
Sep. 30,
2019
  12 months
ended
Dec. 31,
2019
  3 months
ended
Dec. 31,
2018
  12 months
ended
Dec. 31,
2018
Operating Highlights (MCSA Operations)
Ore Processed (tonnes)     589,065       587,915       2,424,592       777,480       2,257,917  
Grade (% Cu)     2.16       1.84       1.93       1.77       1.56  
Cu Production (tonnes)     11,526       9,674       42,318       12,104       30,426  
Cu Production (000 lbs)     25,411       21,327       93,296       26,685       67,077  
Cu Sold in Concentrate (tonnes)     11,595       10,200       42,759       12,900       30,107  
Cu Sold in Concentrate (000 lbs)     25,562       22,487       94,267       28,440       66,375  
                     
C1 Cash Cost of copper produced (per lb)(1)     0.80       1.01       0.93       0.99       1.19  
                     
Gold (NX Gold Operations)                    
Au Production (oz)     6,043       4,356       30,434       10,008       39,808  
C1 Cash Cost of gold produced (per ounce)(1)   $980     $1,169     $691     $540     $520  
                     
Financial Highlights ($millions, except per share amounts) 
Revenues   $75.7     $60.6     $284.8     $85.1     $233.1  
Gross profit   $31.1     $21.3     $117.1     $39.0     $82.2  
EBITDA(1)   $34.3     $35.1     $141.4     $40.2     $70.5  
Adjusted EBITDA(1)   $31.2     $27.3     $134.1     $39.0     $99.9  
Cash flow from operations   $35.9     $29.5     $127.8     $24.0     $82.9  
Net income (loss)   $45.4     $16.3     $92.5     $11.3     ($3.0 )
Net income (loss) attributable to owners of the Company   $45.2     $16.3     $91.9     $11.2     ($3.2 )
Net income (loss) per share attributable to owners of the Company (Basic)   $0.53     $0.19     $1.08     $0.13     ($0.04 )
Net income (loss) per share attributable to owners of the Company (Diluted)   $0.49     $0.18     $1.01     $0.13     ($0.04 )
Adjusted net income (loss) attributable to owners of the Company(1)   $40.7     $10.2     $86.3     $7.9     $10.9  
Adjusted net income (loss) per share attributable to owners of the Company(1) (Basic)   $0.47     $0.12     $1.01     $0.09     $0.13  
Adjusted net income (loss) per share attributable to owners of the Company(1) (Diluted)   $0.44     $0.11     $0.94     $0.09     $0.12  
                     
Cash and Cash Equivalents   $21.5     $21.7     $21.5     $18.9     $18.9  
Working Capital (Deficit)(1)   ($4.9 )   $6.4     ($4.9 )   ($9.3 )   ($9.3 )
Net Debt(1)   ($136.4 )   ($133.4 )   ($136.4 )   ($130.3 )   ($130.3 )

 

Footnotes

[1] EBITDA, Adjusted EBITDA, Adjusted net income (loss), Adjusted net income (loss) per share, Net Debt, Working Capital, C1 cash cost of copper produced (per lb) and C1 cash cost 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

    2019 – Q4  
     
Adjusted EBITDA   $   31,152  
Adjustments:    
Unrealized foreign exchange loss on USD denominated debt in MCSA     3,753  
Unrealized foreign exchange loss on derivative contracts     1,410  
Realized foreign exchange loss on derivative contracts     (462 )
Share based compensation and other     (1,582 )
Loss on gold hedge contracts     (15 )
EBITDA   $ 34,256  
     
Adjusted net income attributable to owners of the Company   $   40,654  
Adjustments for non-cash items (attributable to owners of the Company):    
Unrealized foreign exchange loss on USD denominated debt in MCSA     3,738  
Unrealized loss on gold hedge contracts     677  
Unrealized foreign exchange loss on derivative contracts     1,404  
Shared based compensation     (1,304 )
Reported net income attributable to owners of the Company   $ 45,169  

2020 PRODUCTION OUTLOOK

 

Copper production from the Curaçá Valley operations for 2020 is expected to come from ore mined from the Pilar and Vermelhos underground mines. Production from the Pilar Mine is expected to contribute a total of approximately 1.4 million tonnes grading 1.40% copper while production from the Vermelhos Mine is expected to contribute a total of approximately 750,000 tonnes grading 3.50% copper resulting in a blended mill head grade of approximately 2.15% copper.

 

 

Curaçá Valley Operations   2019 Original
Guidance
  2019 Revised
Guidance
  2019 Result     2020
Guidance[1]
 
Tonnes Processed   2,050,000   2,350,000   2,424,592     2,150,000  
Copper Grade (% Cu)   2.00%   1.95%   1.93%     2.15%  
Copper Recovery (%)   88.0%   90.0%   90.5%     91.0%  
Cu Production (000 tonnes)   36.0 – 38.0   40.0 – 42.0   42.3     41.0 – 43.0  
                     
NX Gold Operations   2019 Original
Guidance
  2019 Revised
Guidance
  2019 Result     2020
Guidance[1]
 
Tonnes Processed       158,275     150,000  
Gold Grade (gpt)       6.98     9.00  
Gold Recovery (%)       85.7%     90.0%  
Au Production (000 ounces)       30.4     38.0 – 40.0  
Ag Production (000 ounces)       19.6     n/a  

[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.

 

2020 CASH COST GUIDANCE

 

The Company’s guidance for 2020 assumes a USD:BRL foreign exchange rate of 4.00, gold price of $1,450 per ounce and silver price of $17.00 per ounce.

 

    2019 Revised
Guidance
  2019 Result     2020 Guidance  
Curaçá Valley C1 Cash Cost Guidance (US$/lb)[1]   $1.00 – $1.10   $0.93     $0.85 – $0.95  
NX Gold Mine C1 Cash Cost Guidance (US$/oz)[1]   n/a   $691     $475 – $575  

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

 

2020 CAPITAL EXPENDITURE GUIDANCE

 

The Company’s capital expenditure guidance for 2020 assumes a USD:BRL foreign exchange rate of 4.00 and has been presented below in USD millions. Capital expenditure guidance, including discretionary capital for 2020, is based on a budgeted copper price of US$2.65 per pound of copper. 

 

Curaçá Valley / Copper Operations   2019 Revised Guidance     2020 Guidance  
Pilar Mine and Caraíba Mill Complex[1]   $45.0     $58.0  
Vermelhos Mine   $20.0     $16.0  
Boa Esperanҫa Project   $1.0     $0.2  
Capital Expenditure Guidance   $66.0     $74.2  
Curaçá Valley Exploration[2]   $30.0     $28.0  
             
NX Gold Operations   2019 Guidance     2020 Guidance  
Capital Expenditure Guidance   n/a     $5.7  
Exploration[2]   n/a     $3.5  
Total, NX Gold   n/a     $9.2  

[1] Pilar Mine and Caraíba Mill Complex capital expenditure guidance for 2020 includes completion of the high-intensity grinding mill and operation of the ore-sorting pilot plant.

[2] Exploration capital expenditure guidance for 2020 has been forecast through September of 2020 and, as with prior guidance, is dependent, in part, on future exploration success and subject to further review and revision.

 

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), C1 cash costs of gold produced (per ounce), EBITDA, Adjusted EBITDA, Adjusted net income (loss) attributable to owners of the Company, 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 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 the sum of production costs, 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.                               

 

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

 

EBITDA represents earnings before interest expense, income taxes, depreciation, and amortization.  Adjusted EBITDA includes further adjustments for non-recurring items and items not indicative to the future operating performance of the Company.  The Company believes EBITDA and adjusted EBITDA are appropriate supplemental measures of debt service capacity and performance of its operations.

 

Adjusted EBITDA is calculated by removing the following income statement items:

  • Recovery of value added taxes
  • Foreign exchange loss (gain)
  • Loss on gold hedge contracts
  • Share based compensation
  • Loss on debt settlement

 

Adjusted Net Income (Loss) attributable to owners of the Company and Adjusted Earnings (Loss) Per Share attributable to owners of the Company

 

The Company uses the financial measure “Adjusted net income (loss) attributable to owners of the Company” and “Adjusted earnings (loss) per share attributable to owners of the Company” to supplement information in its consolidated financial statements. The Company believes that, in addition to conventional measures prepared in accordance with IFRS, the Company and certain investors and analysts use this information to evaluate the Company’s performance. The Company excludes non-cash and unusual items from net earnings to provide a measure which allows the Company and investors to evaluate the operating results of the underlying core operations.

 

During the period, the following non-cash or unusual adjustments to calculated adjusted net income (loss):

  • Net recovery of value added taxes
  • Share based compensation
  • Unrealized foreign exchange loss on USD denominated debt in MCSA
  • Unrealized foreign exchange loss on foreign exchange derivatives contract
  • Unrealized loss on gold hedge contracts
  • Loss on debt settlement

 

Net Debt

 

Net debt is determined based on cash and cash equivalents, restricted cash and loans and borrowings as reported in the Company’s consolidated financial statements. The Company uses net debt as a measure of the Company’s ability to pay down its debt.

 

Working capital

 

Working capital is determined based on current assets and current liabilities as reported in the Company’s consolidated financial statements. The Company uses working capital as a measure of the Company’s short-term financial health and operating efficiency.

 

ABOUT ERO COPPER CORP

 

Ero Copper Corp, headquartered in Vancouver, B.C., is focused on copper production growth from the Vale do Curaçá Property, located in Bahia, Brazil. 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 Vale do Curaçá Property with over 40 years of operating history in the region. The Company currently mines copper ore from the Pilar and Vermelhos underground mines. In addition to the Vale do Curaçá Property, MCSA owns 100% of the Boa Esperanҫa development project, an IOCG-type copper project located in Pará, Brazil and the Company, directly and indirectly, owns 97.6% of 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 Vale do Curaçá, Boa Esperanҫa and NX Gold properties, can be found on the Company’s website (www.erocopper.com) and on SEDAR (www.sedar.com).

 

Posted March 13, 2020

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