Ero Copper Corp. (TSX: ERO) is pleased to announce its financial results for the three and nine months ended September 30, 2020. Management will host a conference call tomorrow, Friday, November 6, 2020, 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.
Commenting on the results, David Strang, President & CEO, stated, “Firstly, I would like to congratulate all of our colleagues at our MCSA operations for achieving a full year without a lost-time-injury on September 30th. While we had to celebrate this accomplishment virtually, I am extremely proud of the team’s dedication and hard work that went into achieving this milestone, made more difficult this year by the additional challenges associated with mitigating the impact of COVID-19 on their families, community and our operations. On top of this, operations at MCSA have continued to perform well and we have continued to execute on key objectives in preparation of our updated life-of-mine plan, which remains on track for completion during the fourth quarter. These initiatives and objectives include near-mine exploration programs, our new HIG Mill installation and commissioning, integration and development of Platinum Group Metal (PGM) assay capability in-house and our recently completed ore-sorting trial campaign. We continue to have no disruption to our supply chains, sales channels or production to date as a result of COVID-19.
At MCSA on the operational side, we continued to see quarter-on-quarter increases in grades mined and processed, as well as improved metallurgical recoveries, as expected. Our newly commissioned HIG Mill was handed over to operations during the month of September, contributing to our best average monthly metallurgical recovery this year of 92.0% – a significant improvement over base-line recoveries at the same grade profiles. While a limited data set, and feed and control system work remain ongoing, the performance gains post-commissioning are an encouraging leading indicator, and we expect the HIG Mill to deliver as advertised once this work is complete. The combination of increased grades, metallurgical recoveries and continued weakness in the BRL contributed to another record quarter of C1 cash costs, averaging $0.63 cents per pound during the period. As a result of strong performance to date, we have reaffirmed our annual copper production guidance and are now guiding towards or slightly below the lower-end of our C1 cash cost guidance range of approximately $0.70 per pound of copper produced.
At NX Gold this quarter, we saw steady quarter-on-quarter increases in production volumes from the Santo Antonio Vein as well as significant improvement in metallurgical recoveries during the period, both contributing factors in our increased gold production of 9,436 ounces at another record quarterly C1 cash cost of $421 per ounce of gold produced. A portion of the Santo Antonio orebody we expected to mine this year has encountered sub-optimal ground conditions, and as a result, we have only achieved limited production in this area due to inherited constraints associated with the existing mining method and ground support capabilities. While we have been able to offset some of this decline in production by increasing production from other areas within Santo Antonio, we now expect slightly lower full year production and have revised our guidance accordingly. The team at NX Gold has recently completed engineering studies for the installation of a modular paste-fill plant to recover production from this area as well as enhance overall resource conversion and mine recovery in the future. While a modest investment of only US$2 million, we see this as a significant step towards securing long term production stability and extending the life of mine for NX Gold, which we expect to incorporate into our updated life-of-mine plan, also on track for completion during the fourth quarter.
As you will note in our revised capital guidance, we have increased our full year exploration spend as we continue to uncover both near-mine and regional opportunities at both MCSA and NX Gold. Exploration efforts during the fourth quarter will continue to focus on (i) the newly discovered mineralization between the Vermelhos Mine and the high-grade massive sulphide zones of the Siriema deposit, where we see continued evidence of “stacked” mineralized structures over a strike length of approximately 700 meters, (ii) the Deepening Extension which continues to remain wide open to depth and to the north and (iii) advancing our regional exploration programs.
*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 – tracking copper production guidance, increasing grades and recoveries into Q4 2020, no COVID-19 disruptions to date
◾ Exploration Activities – Completion of priority near-mine programs during the period for inclusion in upcoming mine plan updates, continued to shift to more regional focus
➢ Exploration activity within the Pilar District, where nine drill rigs are currently operating, is focused on extending the limits of high-grade ‘Superpod’ mineralization of the Deepening Extension zone. The Company has now identified a mineralized target area that extends over approximately 900 meters in strike length, over a total depth of approximately 525 meters and over an average thickness of ranging from 10 to 20 meters with localized thickening throughout the zone. The zone remains open to the north and to depth. Results during the period continue to support the potential to meaningfully extend the mine life while maintaining an elevated grade profile from the Pilar Mine and demonstrate that zone remains open to the north and to depth.
➢ Exploration in the Vermelhos District, where eleven drill rigs are currently operating, is focused on further demonstrating continuity between two newly discovered zones of mineralization between Vermelhos and the Siriema deposit. These new zones, when viewed in context with the previously announced high-grade massive sulphide Keel Zone of Siriema and prior Siriema conduit drill results suggest that multiple “stacked” mineralized structures may be present between the Siriema deposit and the Vermelhos Mine, a distance of approximately 700 meters in strike-length. Down-hole electromagnetic (“EM”) work and further drilling is ongoing to evaluate the full potential of these stacked structures. There are currently seven drill rigs focused on this area.
➢ Exploration at the NX Gold Mine is primarily focused on testing down-plunge extensions of the Santo Antonio Vein. Drill results during the period continued to extend the known extent of mineralization within the Santo Antonio Vein down-plunge and are highlighted by the best results drilled to date by the Company at NX Gold on a grade-meter intercept basis as well as the deepest intercept within the Santo Antonio Vein drilled to date.
➢ Regional work at MCSA comprised of both exploration drilling and ground-based geophysical work is focused on four new and recently interpreted mineral systems within the portfolio of targets defined by the Company’s comprehensive targeting work. Each of these new systems has an average strike length of five kilometers and contain multiple priority drill targets. The majority of the Company’s drill meterage is expected to be allocated to regional exploration during the fourth quarter.
➢ In addition, the first regional exploration effort within the broader NX Gold Mine property continued to progress during the period.
◾ Execution of Growth Projects – HIG Mill commissioning complete, ore-sorting project test-work complete, PGM assay capability in-house near-completion and updated life-of-mine plans on track for Q4 2020
◾ Corporate Highlights – Continued capital management and improved liquidity position
OPERATING AND FINANCIAL HIGHLIGHTS
|3 months ended
Sep 30, 2020
|3 months ended
June 30, 2020
|9 months ended
Sep 30, 2020
|3 months ended
Sep 30, 2019
|9 months ended
Sep 30, 2019
|Operating Highlights (MCSA Operations)|
|Ore Processed (tonnes)||553,148||627,071||1,788,178||587,915||1,835,527|
|Grade (% Cu)||2.18||1.98||2.03||1.84||1.86|
|Cu Production (tonnes)||10,961||11,178||32,796||9,674||30,792|
|Cu Production (000 lbs)||24,164||24,643||72,302||21,327||67,884|
|Cu Sold in Concentrate (tonnes)||11,530||10,586||32,549||10,200||31,164|
|Cu Sold in Concentrate (000 lbs)||25,420||23,339||71,758||22,487||68,705|
|C1 Cash Cost of copper produced (per lb)(1)||$0.63||$0.65||$0.66||$1.01||$0.99|
|Gold (NX Gold Operations)|
|Au Production (oz)||9,436||8,739||26,041||4,356||24,391|
|C1 Cash Cost of gold produced (per ounce)(1)||$421||$437||$478||$1,169||$621|
|Financial Highlights ($millions, except per share amounts)|
|Cash flow from operations||$44.4||$42.5||$124.2||$29.5||$91.9|
|Net income (loss)||$31.4||$7.7||($13.8)||$16.3||$47.0|
|Net income (loss) attributable to owners of the Company||$31.1||$7.5||($14.2)||$16.3||$46.7|
|Net income (loss) per share attributable to owners of the Company (Basic)||$0.36||$0.09||($0.16)||$0.19||$0.55|
|Net income (loss) per share attributable to owners of the Company (Diluted)||$0.34||$0.08||($0.16)||$0.18||$0.51|
|Adjusted net income (loss) attributable to owners of the Company(1)||$36.7||$20.3||$77.8||$10.2||$41.2|
|Adjusted net income (loss) per share attributable to owners of the Company(1) (Basic)||$0.42||$0.24||$0.90||$0.12||$0.48|
|Adjusted net income (loss) per share attributable to owners of the Company(1) (Diluted)||$0.40||$0.22||$0.85||$0.11||$0.45|
|Cash and Cash Equivalents||$54.3||$51.6||$54.3||$21.7||$21.7|
|Working Capital (Deficit)(1)||($9.4)||($25.7)||($9.4)||$6.4||$6.4|
 EBITDA, Adjusted EBITDA, Adjusted net income (loss) attributable to owners of the Company, Adjusted earnings (loss) per share, Net Debt, Working Capital, C1 Cash Cost of copper produced (per lb) and C1 Cash Cost of gold produced (per ounce) are non-IFRS measures – see the Notes section of this press release for a discussion on non-IFRS Measures.
ADJUSTED EBITDA & NET INCOME (LOSS) RECONCILIATION
|Unrealized foreign exchange loss on USD denominated debt in MCSA||(2,034)|
|Unrealized foreign exchange loss on derivative contracts||(1,067)|
|Realized foreign exchange loss on derivative contracts||(5,974)|
|Share based compensation and other||(1,371)|
|Adjusted net income||$||36,702|
|Adjustments for non-cash items (attributable to owners of the Company):|
|Unrealized foreign exchange loss on USD denominated debt in MCSA||(2,026)|
|Unrealized loss on foreign exchange derivative contracts, net of tax||(2,256)|
|Share based compensation||(1,743)|
|Unrealized gain on interest rate derivative contracts||386|
|Reported net income attributable to owners of the Company||$||31,063|
While the Company’s copper production guidance for 2020 remains unchanged, gold production outlook from the NX Gold Mine has been reduced as a result of difficult ground conditions encountered in the upper panel of the Santo Antonio Vein. The Company expects to recover this production through the installation of a modular paste-fill plant and associated infrastructure that is expected to be operational during the second half of 2021. While previously revised cash cost guidance for 2020 remains unchanged, the Company is guiding towards or slightly below the lower-end of the range at its Curaçá Valley operations on consideration of prevailing foreign exchange rates and by-product metal prices. The Company has maintained its previously revised non-exploration capital expenditure guidance range at its Curaçá Valley operations and has increased exploration capital guidance to reflect the continuity and expansion of these programs into the fourth quarter. Additional information is outlined below and further detailed in the Company’s press releases dated January 15, 2020 and May 7, 2020.
Production guidance for the Company’s Curaçá Valley operations remains unchanged. Copper production is expected to come from ore mined from the Pilar and Vermelhos underground mines. While the Company expects total recovered copper production to be within its guidance range, production is tracking to be slightly above forecast tonnes processed and slightly below forecast copper grades; however, these variances are expected to be within the levels of accuracy intrinsic to the Company’s annual operating guidance.
The Company is lowering its full year production guidance for its NX Gold operations as a result of difficult ground conditions encountered in the upper panel of the Santo Antonio Vein. The Company expects to recover this production later in the mine’s life through the installation of a modular paste-fill plant and associated infrastructure expected to be operational during the second half of 2021.
|2020 Original Guidance||Revised 2020 Guidance|
|Curaçá Valley Operations|
|Tonnes Processed||2,150,000||(no change)|
|Copper Grade (% Cu)||2.15%||(no change)|
|Copper Recovery (%)||91.0%||(no change)|
|Cu Production Guidance (000 tonnes)||41.0 – 43.0||(no change)|
|NX Gold Operations|
|Gold Grade (gpt)||9.00||7.70|
|Gold Recovery (%)||90.0%||90.0%|
|Au Production Guidance (000 ounces)||38.0 – 40.0||36.0 – 37.0|
 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, including the AIF (defined below).
Operating Cost Guidance
The Company is maintaining its previously revised operating cost guidance ranges, and expects C1 cash costs for the full year to be near or slightly below the low-end of the range at its Curaçá Valley operations due to strong operational performance to date, prevailing foreign exchange rates and elevated gold and silver prices.
|2020 Guidance||2020 Revised Guidance|
|Curaçá Valley C1 Cash Cost Guidance (US$/lb)||$0.85 – $0.95||$0.70 – $0.85|
|NX Gold Mine C1 Cash Cost Guidance (US$/oz)||$475 – $575||$425 – $525|
 C1 Cash Costs of copper produced (per lb.) and C1 Cash Costs of gold produced (per oz.) are non-IFRS measures – see the Notes section of this press release for a discussion of non-IFRS measures.
Capital Expenditure Guidance
The Company is further revising its 2020 capital guidance to reflect the continuity and expansion of its ongoing exploration campaigns both at MCSA and at the NX Gold Mine during the fourth quarter. Non-exploration capital expenditures are expected to be at the high-end of the Company’s previously revised guidance ranges as the Company prepares for meaningful extensions of the Company’s life-of-mine operating plans at both MCSA and NX Gold as well as initiation of several growth projects, such as the installation of a modular paste-fill plant at NX Gold, which are expected to be included in these plans. Capital expenditure guidance is presented below in USD millions.
|Curaçá Valley Operations||Original 2020 Guidance||Previously Revised 2020 Guidance||Newly Revised 2020 Guidance|
|Pilar Mine and Caraíba Mill Complex||58.0||45.0 – 55.0||(no change)|
|Vermelhos Mine||16.0||11.0 – 13.0||(no change)|
|Boa Esperanҫa Project||0.2||0.2 – 0.2||(no change)|
|Capital Expenditure Guidance||74.2||56.2 – 68.2||(no change)|
|Curaçá Valley Exploration||28.0||20.0 – 25.0||25.0 – 30.0|
|NX Gold Operations||Original 2020 Guidance||Previously Revised 2020 Guidance||Newly Revised 2020 Guidance|
|Capital Expenditure Guidance||5.7||7.0 – 9.0||9.0 – 11.0|
|Exploration||3.5||2.0 – 3.0||3.0 – 5.0|
|Total, NX Gold||9.2||9.0 – 12.0||12.0 – 16.0|
 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.
 Exploration capital expenditure guidance for 2020 in the original and previously revised guidance was only forecast through September of 2020, whereas the Company’s newly revised 2020 exploration guidance includes expected exploration expenditures through the entirety of the year.
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:
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 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 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, 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. 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 Esperança development project, an IOCG-type copper project located in Pará, Brazil and the Company 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 Esperança and NX Gold properties, can be found on the Company’s website (www.erocopper.com) and on SEDAR (www.sedar.com).
The disclosure of scientific or technical information in this press release was reviewed and approved by Emerson Ricardo Re, MSc, MBA, MAusIMM (CP) (No. 305892), Registered Member (No. 0138) (Chilean Mining Commission) and Resource Manager of the Company who is a “qualified person” within the meanings of National Instrument 43-101, Standards of Disclosure for Mineral Projects (“NI 43-101”).
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