Ero Copper Corp 6-K, filed Aug 5, 2021
Ero Copper Corp. (ERO)
About this 6-K
Ero Copper Corp filed this 6-K on August 5, 2021.
UNITED STATES
SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
under the Securities Exchange Act of 1934
For the month of August 2021
Commission File Number 001-40459
ERO COPPER CORP.
(Translation of registrant's name into English)
625 Howe Street, Suite 1050
Vancouver, British Columbia V6C 2T6
Canada
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F ☐ Form 40-F ☒
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1). _____
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7). _____
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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ERO COPPER CORP.
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| By: | /s/ Deepk Hundal | |||
| Name: | Deepk Hundal | |||
| Title: | VP, General Counsel and Corporate Secretary | |||
| Date: August 4, 2021 | ||||
Exhibit Index
Exhibit 99.1
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2021
1050 – 625 Howe Street, Vancouver, B.C., Canada V6C 2T6
Phone: 604-449-9244 | Website: www.erocopper.com | Email: info@erocopper.com
MANAGEMENT’S DISCUSSION AND ANALYSIS
This Management’s Discussion and Analysis (“MD&A”) has been prepared as at August 4, 2021 and should be read in conjunction with the unaudited condensed consolidated interim financial statements of Ero Copper Corp. (“Ero”, the “Company”, or “we”) as at, and for the three and six months ended June 30, 2021, and related notes thereto, which are prepared in accordance with International Accounting Standards (“IAS”) 34, Interim Financial Reporting as permitted by the International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (the “IASB”). All references in this MD&A to “Q2 2021” and “Q2 2020” are to the three months ended June 30, 2021 and June 30, 2020, respectively, all references in this MD&A to “YTD 2021” and “YTD 2020” are to the six months ended June 30, 2021 and June 30, 2020, respectively, and all references in this MD&A to “H1 2021” are to the six months ended June 30, 2021. All dollar amounts are expressed in United States (“US”) dollars and tabular amounts are expressed in thousands of US dollars, unless otherwise indicated. References to “$”, “US$”, “dollars”, or “USD” are to US dollars, references to “C$” are to Canadian dollars, and references to “R$” or “BRL” are to Brazilian Reais.
This MD&A refers to various non-IFRS measures, such as C1 cash cost of copper produced (per lb), C1 cash cost of gold produced (per ounce), all-in sustaining cost (“AISC”) of gold produced (per ounce), EBITDA, Adjusted EBITDA, Adjusted net income attributable to owners of the Company, Adjusted net income per share attributable to owners of the Company, Working Capital (Deficit), Available Liquidity, and Net Debt. Please refer to the section titled "NON-IFRS MEASURES" within this MD&A for a discussion of non-IFRS measures.
This MD&A contains “forward-looking statements” that are subject to risk factors set out in a cautionary note contained at the end of this MD&A. The Company cannot assure investors that such statements will prove to be accurate, and actual results and future events may differ materially from those anticipated in such statements. The results for the periods presented are not necessarily indicative of the results that may be expected for any future period. Investors are cautioned not to place undue reliance on such forward-looking statements. All information contained in this MD&A is current and has been approved by the Board of Directors of the Company (the “Board”) as of August 4, 2021, unless otherwise stated.
BUSINESS OVERVIEW
Ero, headquartered in Vancouver, B.C., is focused on copper production growth from the MCSA Mining Complex located in Bahia State, Brazil, with over 40 years of operating history in the region. The Company's primary asset is a 99.6% interest in the Brazilian copper mining company, MCSA, 100% owner of the MCSA Mining Complex, which is comprised of operations located in the Curaçá Valley, Bahia State, Brazil, wherein the Company currently mines copper ore from the Pilar and Vermelhos underground mines, and the Boa Esperança development project, an IOCG-type copper project located in Pará, Brazil. The Company also 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 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).
The Company’s shares are publicly traded on the Toronto Stock Exchange and the New York Stock Exchange under the symbol “ERO”.
Ero Copper Corp. June 30, 2021 MD&A | Page 1
HIGHLIGHTS
| 2021 - Q2 | 2021 - Q1 | 2021 - YTD | 2020 - Q2 | 2020 - YTD | ||||||||||||||||
| Operating Information | ||||||||||||||||||||
| Copper (MCSA Operations) | ||||||||||||||||||||
| Ore Processed (tonnes) | 553,992 | 597,594 | 1,151,586 | 627,071 | 1,235,030 | |||||||||||||||
| Grade (% Cu) | 2.13 | 2.30 | 2.22 | 1.98 | 1.97 | |||||||||||||||
| Cu Production (tonnes) | 10,898 | 12,638 | 23,536 | 11,178 | 21,835 | |||||||||||||||
| Cu Production (lbs) | 24,025,913 | 27,862,608 | 51,888,521 | 24,642,935 | 48,138,033 | |||||||||||||||
| Cu Sold in Concentrate (tonnes) | 10,094 | 12,469 | 22,562 | 10,586 | 21,018 | |||||||||||||||
| Cu Sold in Concentrate (lbs) | 22,252,643 | 27,488,413 | 49,741,056 | 23,338,581 | 46,337,717 | |||||||||||||||
| C1 cash cost of copper produced (per lb)* | $ | 0.72 | $ | 0.49 | $ | 0.60 | $ | 0.65 | $ | 0.68 | ||||||||||
| Gold (NX Gold Operations) | ||||||||||||||||||||
| Au Production (ounces) | 10,377 | 9,451 | 19,828 | 8,739 | 16,605 | |||||||||||||||
| C1 cash cost of gold produced (per ounce)* | $ | 499 | $ | 487 | $ | 494 | $ | 437 | $ | 511 | ||||||||||
| AISC of gold produced (per ounce)* | $ | 660 | $ | 643 | $ | 652 | $ | 593 | $ | 668 | ||||||||||
| Financial information ($millions, except per share amounts) | ||||||||||||||||||||
| Revenues | $ | 120.7 | $ | 122.5 | $ | 243.2 | $ | 70.8 | $ | 138.5 | ||||||||||
| Gross profit | $ | 83.7 | $ | 82.8 | $ | 166.5 | $ | 39.5 | $ | 70.2 | ||||||||||
| EBITDA* | $ | 112.0 | $ | 55.2 | $ | 167.2 | $ | 23.4 | $ | (27.2 | ) | |||||||||
| Adjusted EBITDA* | $ | 85.5 | $ | 86.7 | $ | 172.2 | $ | 42.4 | $ | 75.9 | ||||||||||
| Cash flow from operations | $ | 85.1 | $ | 62.1 | $ | 147.2 | $ | 42.5 | $ | 79.8 | ||||||||||
| Net income (loss) | $ | 84.0 | $ | 32.1 | $ | 116.0 | $ | 7.7 | $ | (45.3 | ) | |||||||||
| Net income (loss) attributable to owners of the Company | $ | 83.4 | $ | 31.7 | $ | 115.2 | $ | 7.5 | $ | (45.2 | ) | |||||||||
| Net income (loss) per share attributable to owners of the Company | ||||||||||||||||||||
| - Basic | $ | 0.95 | $ | 0.36 | $ | 1.31 | $ | 0.09 | $ | (0.53 | ) | |||||||||
| - Diluted | $ | 0.89 | $ | 0.34 | $ | 1.24 | $ | 0.08 | $ | (0.53 | ) | |||||||||
| Adjusted net income attributable to owners of the Company* | $ | 53.7 | $ | 56.3 | $ | 110.0 | $ | 20.3 | $ | 41.1 | ||||||||||
| Adjusted net income per share attributable to owners of the Company* | ||||||||||||||||||||
| - Basic | $ | 0.61 | $ | 0.64 | $ | 1.25 | $ | 0.24 | $ | 0.48 | ||||||||||
| - Diluted | $ | 0.58 | $ | 0.61 | $ | 1.18 | $ | 0.22 | $ | 0.45 | ||||||||||
| Cash and Cash Equivalents | $ | 137.7 | $ | 84.6 | $ | 137.7 | $ | 51.6 | $ | 51.6 | ||||||||||
| Working Capital (Deficit)* | $ | 118.9 | $ | 63.5 | $ | 118.9 | $ | (25.7 | ) | $ | (25.7 | ) | ||||||||
| Net Debt* | $ | 19.2 | $ | 74.5 | $ | 19.2 | $ | 130.9 | $ | 130.9 | ||||||||||
*Please refer to the section titled "NON-IFRS MEASURES" within this MD&A for a discussion of non-IFRS measures.
Ero Copper Corp. June 30, 2021 MD&A | Page 2
Q2 2021 Highlights
Proactive mitigation of the potential impacts of the COVID-19 pandemic continue
| · | The Company continues to have no material disruption to operations, supply chains or sales channels as a result of the COVID-19 pandemic. Since the onset of the COVID-19 pandemic in early 2020, the Company has continued to take extraordinary measures to mitigate the impact of COVID-19 on its workforce and operations. Some of these measures include: |
| (i) | eliminating all non-essential travel to and from the Company’s mining operations; |
| (ii) | routine engagement with all suppliers and active stockpiling of key consumables to protect against any supply chain disruptions; |
| (iii) | reducing physical interaction throughout the organization as much as possible by closing administrative offices and moving to a work-from-home format, increasing social distancing by limiting the number of employees travelling on provided buses between the Company’s mining communities and mines, limiting the number of employees in the cafeteria at any given time, cancelling all group meetings, implementing social-distancing for essential line-out meetings and encouraging work-from-home and video/telephone conferencing where feasible; |
| (iv) | establishing COVID-19 committees with senior leadership and local health administrators for the regions in which the Company operates; |
| (v) | purchasing thousands of COVID-19 testing kits for the Company’s operations, with the donation of a portion of these test kits, as well as other personal protective equipment, to each of the Company’s local municipalities to facilitate rapid testing throughout each community; and, |
| (vi) | implementing wellness education, health screenings, and self-isolation protocols along with enhanced sanitization throughout the Company’s operations. |
| · | As global vaccination programs ramp up, the Company continues to closely monitor the COVID-19 pandemic and is engaged in ongoing operational and financial contingency planning to prudently manage the potential impact of the pandemic on its operations. |
Record operating cash flows of $85.1 million driven by strong operating performance and elevated copper and gold prices during Q2 2021; well-positioned to achieve full-year production and cost guidance
| · | The MCSA Mining Complex processed 553,992 tonnes of ore grading 2.13% copper, producing 10,898 tonnes of copper in concentrate during the quarter after metallurgical recoveries of 92.5%; H1 2021 copper production totaled 23,536 tonnes based on approximately 1.2 million tonnes processed at copper grades of 2.22% and metallurgical recoveries of 92.2%. |
| · | Lower quarter-on-quarter tonnes processed due to scheduled mill maintenance at the MCSA Mining Complex was offset by higher-than-planned grades related to favorable grade reconciliations and value engineering opportunities, which allowed for the integration of high-grade stopes within the upper levels of the Pilar Mine into the mining sequence. |
| · | The NX Gold Mine processed 43,936 tonnes grading 7.45 grams per tonne, producing 10,377 ounces of gold after metallurgical recoveries of 98.6% and 6,803 ounces of silver produced as by-product; H1 2021 tonnes processed totaled 81,548 at an average grade of 7.82 grams per tonne, producing 19,828 ounces of gold after metallurgical recoveries of 96.7% and 12,597 ounces of silver produced as by-product. Metallurgical recovery rates were elevated during H1 2021 due to contributions from gold recovered through the Company’s “Zero Loss” campaign, which included the reprocessing of mill and foundry scrap, and therefore, may not be representative of metallurgical recoveries from mined ore during the period. |
| · | Cost performance during the quarter continued to track ahead of full-year guidance with C1 cash costs of $0.72 per pound of copper produced at the MCSA Mining Complex, bringing H1 2021 C1 cash costs to $0.60 per pound of copper produced; at the NX Gold Mine, C1 cash costs and AISC during the quarter were $499 and $660, respectively, per ounce of gold produced, resulting in H1 2021 C1 cash costs and AISC of $494 and $652, respectively, per ounce of gold produced (see Non-IFRS Measures). |
Ero Copper Corp. June 30, 2021 MD&A | Page 3
| · | Record cash flows from operations during the quarter of $85.1 million were driven by strong operating performance and elevated copper and gold prices, resulting in total cash and cash equivalents at quarter-end of $137.7 million, an increase of $53.1 million quarter-on-quarter and $75.1 million since the end of 2020. |
Reaffirming full-year production, operating cost and capital expenditure guidance for 2021
| · | 2021 copper production guidance has been reaffirmed with the Company well-positioned to achieve the high-end of the range. Similar to Q2 2021, mill throughput volumes and copper production in Q3 2021 are expected to be impacted by the second phase of mill maintenance at the MCSA Mining Complex, scheduled to begin in August 2021 and be completed by the end of the third quarter. Copper grades are expected to revert to plan in H2 2021. |
| · | Full-year gold production guidance reaffirmed with lower grades anticipated in H2 2021 due to scheduled mine sequencing. Recovery rates at the NX Gold Mine, which were elevated during Q2 2021 due to gold contributions from mill and foundry scrap recycling efforts, are expected to normalize in Q3 2021. |
| · | The Company is also reaffirming its cost guidance at both the MCSA Mining Complex and the NX Gold Mine as well as full-year capital expenditure guidance. |
Ongoing exploration programs delivered the best intercepts to date at both the Pilar and NX Gold Mines with aggressive regional exploration drilling underway
| · | Q2 2021 exploration activities generated the Company’s best results to date on a grade-meter basis, delineating a new open zone of high-grade “Superpod” style mineralization in the Deepening Extension of the Pilar Mine and extending the Santo Antonio Vein to depth with the best intercept drilled in the history of the NX Gold Mine. The Company’s ongoing exploration efforts are focused on aggressively advancing target zones and new mineral systems within each of the Company’s core exploration programs. These programs are focused on developing a portfolio of assets in parallel with potential to meaningfully augment each phase of the Company’s life-of-mine production plans from the near- to medium-term and over the long-term at both the MCSA Mining Complex and the NX Gold Mine: |
| (i) | MCSA In-Mine and Near-Mine Exploration Programs: During the period, the Company continued to prioritize drilling of the Deepening Extension within the Pilar Mine, where the Company continues to confirm thick and high-grade mineralization at depth, as well as extensions of the Vermelhos Mine, including within the Southern Vermelhos Corridor. Exploration activities in the Deepening Extension delineated a new open zone of “Superpod” style mineralization extending over 350 meters in strike length at the deepest limits of the previously defined 2020 Inferred mineral resource shell with results including an intercept of 67 meters at over 9% copper. At the Vermelhos Mine, drilling continued to extend mineralization adjacent to mine infrastructure as well as intercept new mineralized lenses up to 125 meters beneath the main orebodies. Exploration activities within the Southern Vermelhos Corridor, a near-mine exploration zone extending from the Siriema Deposit to the UG1 mining area of the Vermelhos Mine, remain focused on two primary objectives: (a) testing continuity of high-grade copper mineralization within the corridor, and (b) conducting borehole EM surveys to identify high-grade exploration targets. |
| (ii) | NX Gold In-Mine and Regional Exploration Programs: Drilling at the NX Gold Mine remains focused on three primary objectives for 2021: (a) infill and extension of the Santo Antonio Vein, (b) delineation and discovery of new gold-bearing veins within the NX Gold Mine system near existing infrastructure, such as the Matinha Vein, and (c) executing upon the first regional exploration program conducted on the broader NX Gold land package. During the quarter, new extensions to depth of the Santo Antonio Vein were highlighted by the best intercept in the history of the mine, nine meters grading over 22 grams per tonne gold, located approximately ten meters below the 2020 Inferred mineral resource shell, plus the discovery of a new high-grade extension of the Matinha Vein. Regional drilling resulted in the discovery of two new mineralized gold systems, known as the Sovaco de Cobra (“Cobra”) and the Mata Verde Systems, located approximately 1.2 kilometers northeast and 25 kilometers east-northeast of the NX Gold Mine, respectively. |
Ero Copper Corp. June 30, 2021 MD&A | Page 4
| (iii) | MCSA Past Producing Open Pit Mine Re-evaluation: Exploration efforts during the period continued to advance a strategic review and re-evaluation of known zones of mineralization existing beneath several past producing open pit mines throughout the Curaçá Valley. At Lagoa da Mina, part of the past-producing Angicos Mine located in the Surubim District, new drilling continues to confirm and further extend the known limits of a high-grade zone of mineralization approximately 70 meters beneath the historic open pit, while exploration activities at the Surubim Mine continue to confirm a high-grade zone of mineralization approximately 150 meters beneath the historic open pit. |
Please refer to the Company’s press release dated July 7, 2021 for the latest results from the Company’s ongoing exploration programs.
Organic Growth Projects
| · | Mobilization for early works is underway in preparation for construction of the new external shaft supporting the Deepening Extension Project, which upon completion, is expected to support higher production rates from the Pilar Mine at an elevated grade profile. As a result of newly identified “Superpod” style mineralization at depth, the Company has initiated a design review of the new shaft to maximize the value of the mineral resource. |
| · | The Company continues to progress the Boa Esperança Project optimized Feasibility Study and expects to provide an update on these ongoing studies during Q3 2021. |
Corporate Highlights
| · | The Company announced a $110 million precious metals purchase agreement with RGLD Gold AG, a wholly owned subsidiary of Royal Gold, Inc. (collectively, “Royal Gold”) in relation to gold production from the NX Gold Mine (the “NX Gold Transaction”) unlocking significant value from the NX Gold Mine by validating the exploration potential of the broader NX Gold land package. |
| o | The Company will receive upfront cash consideration of $100 million for the purchase of 25% of gold produced until 93,000 ounces of gold have been delivered, decreasing to 10% of gold produced over the remaining life of mine. Royal Gold will make ongoing payments equal to 20% of the prevailing spot gold price for each ounce of gold delivered until 49,000 ounces of gold have been received, after which it will pay 40% of the prevailing spot gold price for each ounce of gold delivered. Additional payment obligations of Royal Gold include: |
| § | Up to US$5 million payable, available through the end of 2024, based upon the number of ounces of gold added to the Measured and Indicated mineral resource categories as compared to the mineral resources as of the effective date of the NX Gold Transaction at a rate of US$20 per ounce; |
| § | Up to US$5 million payable, available from 2022 through the end of 2024, based upon completion of planned meters of drilling within the exploration concessions of the NX Gold Mine at a rate of US$100 per meter; and |
| § | US$5 per ounce of gold delivered under the NX Gold Transaction payable to the Company as contribution towards ongoing ESG initiatives within the area of influence of the mine. |
| o | Proceeds from the transaction, which is expected to close during the third quarter of 2021, will significantly enhance Ero’s balance sheet strength and flexibility, offering further support to execute upon the Company’s growth strategy including advancing the Boa Esperança Project. |
| o | Please refer to the Company’s press release dated June 30, 2021 for additional information on the transaction. Closing of the transaction is subject to the completion of certain corporate matters and customary conditions. |
| · | During the quarter, the Company released its 2020 Sustainability Report, detailing the Company’s commitment to responsible mining as well as its environmental, social, corporate governance and health and safety goals and performance. |
Ero Copper Corp. June 30, 2021 MD&A | Page 5
Q2 2021 Financial Report
| · | Cash flow from operations: Q2 2021 cash flow from operations was a record $85.1 million, an increase of $42.6 million from $42.5 million in Q2 2020. |
| · | Net income per share: Q2 2021 net income per share was $0.95 and $0.89, on a basic and diluted basis, respectively, compared with Q2 2020 net income per share of $0.09 and $0.08, on a basic and diluted basis, respectively. |
| · | Adjusted net income per share (see Non-IFRS Measures): Q2 2021 adjusted net income per share was $0.61 and $0.58, on a basic and diluted basis, respectively, compared with Q2 2020 adjusted net income per share of $0.24 and $0.22, on a basic and diluted basis, respectively. |
| · | Unrealized foreign exchange gains (losses): Q2 2021 financial results were impacted by the strengthening of the BRL against the USD in comparison to the end of the first quarter of 2021, mainly through the change in the mark-to-market valuation of derivatives used to hedge BRL revenues. During Q2 2021, the Company recognized a $29.9 million non-cash valuation gain on its USD/BRL foreign exchange collars, compared with a $8.5 million non-cash valuation loss on USD/BRL foreign exchange collars in Q2 2020. |
| - | The Company uses these structures to hedge Brazilian Real-measured revenues. As a result of the COVID-19 pandemic and its impact on macro-economic interrelationships, there was a continual increase in implied volatility of the BRL versus USD. |
| - | Generally accepted accounting standards dictate that the liability be recognized at fair value, which requires management to estimate fair value using a Black-Scholes valuation methodology and assumptions for the foreign exchange rate and volatility. |
| - | The Company does not believe that this impact on the income statement reflects the underlying profitability of the Company as it provides no offset for the expected future benefits/costs of a lower/higher BRL/USD exchange rate on operating costs and capital expenditures of the Company’s underlying business. These benefits/costs may outweigh the Company’s projected hedge losses/gains that may result from these collars. |
REVIEW OF OPERATIONS
Mineração Caraíba S.A. (Vale do Curaçá):
| 2021 - Q2 | 2021 - Q1 | 2021 - YTD | 2020 - Q2 | 2020 - YTD | ||||||||||||||||
| Operating Information | ||||||||||||||||||||
| Copper (MCSA Operations) | ||||||||||||||||||||
| Ore Processed (tonnes) | 553,992 | 597,594 | 1,151,586 | 627,071 | 1,235,030 | |||||||||||||||
| Grade (% Cu) | 2.13 | 2.30 | 2.22 | 1.98 | 1.97 | |||||||||||||||
| Cu Production (tonnes) | 10,898 | 12,638 | 23,536 | 11,178 | 21,835 | |||||||||||||||
| Cu Production (lbs) | 24,025,913 | 27,862,608 | 51,888,521 | 24,642,935 | 48,138,033 | |||||||||||||||
| Concentrate Grade (% Cu) | 34.7 | 34.6 | 34.6 | 34.0 | 33.8 | |||||||||||||||
| Recovery (%) | 92.5 | 92.0 | 92.2 | 90.0 | 89.9 | |||||||||||||||
| Concentrate Sales (tonnes) | 29,404 | 36,353 | 65,757 | 31,138 | 62,267 | |||||||||||||||
| Cu Sold in Concentrate (tonnes) | 10,094 | 12,469 | 22,562 | 10,586 | 21,018 | |||||||||||||||
| Cu Sold in Concentrate (lbs) | 22,252,643 | 27,488,413 | 49,741,056 | 23,338,581 | 46,337,717 | |||||||||||||||
| C1 cash cost of copper produced (per lb) | $ | 0.72 | $ | 0.49 | $ | 0.60 | $ | 0.65 | $ | 0.68 | ||||||||||
Q2 2021 was a strong quarter for the Company’s MCSA Mining Complex, which delivered 10,898 tonnes of copper production, bringing H1 2021 copper production to 23,536 tonnes. Lower mill throughput related to scheduled mill maintenance was offset by higher-than-planned grades related to a continuation of favorable grade reconciliations at the Pilar and Vermelhos Mines as well as value engineering opportunities that allowed for the integration of high-grade stopes within the upper levels of the Pilar Mine into the mining sequence. Strong continued metallurgical recoveries and concentrate grades were driven by the Company’s high-intensity grinding (“HIG”) mill. The Company was also able to use excess capacity generated by the HIG mill during the quarter to help mitigate the impact of downtime associated with the first phase of mill maintenance that was successfully completed subsequent to quarter-end.
Ero Copper Corp. June 30, 2021 MD&A | Page 6
At the Pilar Mine, 345,991 tonnes of ore were mined grading 1.68% copper (as compared to 300,074 tonnes of ore grading 1.87% copper during Q1 2021). At the Vermelhos Mine, 201,143 tonnes of ore were mined grading 2.55% copper (as compared to 184,450 tonnes of ore grading 2.92% copper in Q1 2021). In total, contributions from both mines during the period resulted in 547,134 tonnes of ore mined grading 2.00% copper. During Q2 2021, 553,992 tonnes of ore grading 2.13% copper were processed, producing 10,898 tonnes of copper after average metallurgical recoveries of 92.5%. Total H1 2021 processed volumes of 1,151,586 tonnes grading 2.22% copper resulted in copper production of 23,536 tonnes after average metallurgical recoveries of 92.2%.
As mentioned, the Company began the first of two phases of scheduled mill maintenance during the period, which was successfully completed subsequent to quarter-end. The second phase of the mill maintenance is expected to begin in August 2021 and be completed before the end of the third quarter 2021. These sequential preventative maintenance shuts are being conducted to help prepare the MCSA Mining Complex mill for expanded operations and higher throughputs, including when the Surubim open pit mine, where pre-stripping activities are underway, is restarted in H2 2021. While lower mill throughput volumes are expected to continue during the third quarter, these planned maintenance activities were factored into the Company’s 2021 production guidance.
C1 cash costs per pound of copper produced during Q2 2021 averaged $0.72 (see Non-IFRS Measures), bringing H1 2021 C1 cash costs per pound of copper produced to $0.60. Cost performance during the second quarter and first half of the year were ahead of full-year cost guidance due to elevated grades mined and processed, strong overall operational and cost performance at the Company’s MCSA operations, continued weakness of the BRL versus the US dollar and strength in the underlying price of gold and silver produced as by-products.
The Company’s exploration programs continued to deliver exceptional results throughout the Curaçá Valley during the period. These results, which included the delineation of a new open zone of “Superpod” style mineralization with the best hole drilled in the history of the MCSA Mining Complex, continue to demonstrate the extensive exploration potential and inherent optionality of the Curaçá Valley. In addition to exploration in and around current operations, the Company’s re-evaluation of past producing open pit mines at MCSA is generating promising results as drilling continues to confirm two high-grade zones of mineralization within the Surubim District beneath each Lagoa da Mina, part of the past producing Angicos Mine, and the Surubim Mine. There are currently 24 drill rigs working throughout the Curaçá Valley, including six drill rigs allocated to the MCSA regional exploration program. Collectively, these programs are expected to serve in improving the Company’s grade and overall copper production profile over the near to medium and long-term with a focus on (i) increasing production through utilization of available excess mill capacity and (ii) continuing to improve and augment the near- and medium-term production profile versus what is outlined in the current life of mine plan. Please refer to the Company’s press release dated July 7, 2021 for additional details.
Ero Copper Corp. June 30, 2021 MD&A | Page 7
NX Gold S.A.
| 2021 - Q2 | 2021 - Q1 | 2021 - YTD | 2020 - Q2 | 2020 - YTD | ||||||||||||||||
| Operating Information | ||||||||||||||||||||
| Gold (NX Gold Operations) | ||||||||||||||||||||
| Ore mined (tonnes) | 44,994 | 37,774 | 82,768 | 39,108 | 75,319 | |||||||||||||||
| Ore milled (tonnes) | 43,936 | 37,613 | 81,548 | 39,108 | 75,319 | |||||||||||||||
| Head grade (grams per tonne Au) | 7.45 | 8.26 | 7.82 | 7.75 | 7.76 | |||||||||||||||
| Recovery (%) | 98.6 | % | 94.7 | % | 96.7 | % | 89.6 | % | 88.4 | % | ||||||||||
| Gold ounces produced (oz) | 10,377 | 9,451 | 19,828 | 8,739 | 16,605 | |||||||||||||||
| Silver ounces produced (oz) | 6,803 | 5,794 | 12,597 | 5,327 | 10,195 | |||||||||||||||
| Gold sold (oz) | 9,953 | 10,020 | 19,973 | 8,384 | 15,910 | |||||||||||||||
| Silver sold (oz) | 6,371 | 6,171 | 12,542 | 5,132 | 9,778 | |||||||||||||||
| C1 cash cost of gold produced (per ounce) | $ | 499 | $ | 487 | $ | 494 | $ | 437 | $ | 511 | ||||||||||
| AISC of gold produced (per ounce) | $ | 660 | $ | 643 | $ | 652 | $ | 593 | $ | 668 | ||||||||||
| [1] | NX Gold metallurgical recoveries during H1 2021 includes gold recovered through the Company’s “Zero Loss” campaign, including reprocessed mill and foundry scrap, and therefore may not be representative of metallurgical recoveries from mined ore during the period. |
At the NX Gold Mine, quarter-on-quarter increases in tonnes mined and milled as well as strong metallurgical performance more than offset lower planned head grades, resulting in an increase in gold production of 10% compared to Q1 2021. Production during Q2 2021 totaled 10,377 ounces of gold and 6,803 ounces of silver (as by-product) from total mill feed of 43,936 tonnes grading 7.45 grams per tonne gold after metallurgical recoveries of 98.6% during the period. Metallurgical recovery rates were elevated during H1 2021 due to contributions from gold recovered through the Company’s “Zero Loss” campaign, which included the reprocessing of mill and foundry scrap, and therefore, may not be representative of metallurgical recoveries from mined ore during the period. Despite an increase in production quarter-on-quarter, gold sales were lower compared to the first quarter, which had elevated sales due to finished inventory at year-end that was subsequently sold in Q1 2021.
For the first half of 2021, the NX Gold Mine delivered production of 19,828 ounces of gold and 12,597 ounces of silver from total mill feed of 81,548 tonnes grading 7.82 grams per tonne gold after metallurgical recoveries of 96.7%. As previously noted, metallurgical recovery rates were elevated during the period due to gold contributions from mill and foundry scrap recycling efforts. Lower grades are anticipated in the second half of 2021 due to planned mine sequencing, while recovery rates are expected to normalize in Q3 2021.
The NX Gold Mine achieved C1 cash costs during Q2 2021 of $499 per ounce of gold produced and AISC during the period averaged $660 per ounce of gold produced, bringing H1 2021 C1 cash costs and AISC to $494 and $652, respectively, per ounce of gold produced (see Non-IFRS Measures).
Civil site works and electrical infrastructure works related to the mine’s paste-fill plant continued as planned during the second quarter. Commissioning of the plant and integration into the operations remains on track for later this year.
Exploration activities at the NX Gold Mine remain focused on three primary objectives for 2021: (i) infill and extension of the Santo Antonio Vein, (ii) delineation and discovery of new gold-bearing veins within the NX Gold Mine system near existing infrastructure, such as the Matinha Vein, and (iii) executing upon the first regional exploration program conducted on the broader NX Gold land package. During the quarter, new extensions to depth of the Santo Antonio Vein were highlighted by the best intercept in the history of the mine, located approximately 10 meters beyond the limit of the 2020 Inferred mineral resource shell, plus the discovery of a new high-grade extension of the Matinha Vein. Regional drilling resulted in the discovery of two new mineralized gold systems, known as the Cobra and the Mata Verde Systems, located approximately 1.2 kilometers northeast and 25 kilometers east-northeast of the NX Gold Mine, respectively.
Ero Copper Corp. June 30, 2021 MD&A | Page 8
Financial Update
Revenue: Revenues from the Company’s copper operations at MCSA increased by 82.1% from $56.5 million in Q2 2020 to $103.0 million in Q2 2021. The increase in revenue was primarily attributed to higher average realized copper prices over the comparative period.
Revenues from the Company’s gold operations at NX Gold increased 24.7% from $14.2 million in Q2 2020 to $17.7 million in Q2 2021. The increase was primarily a result of increased sales volume over the comparative period.
Mine gross profit: Mine gross profit from the Company’s copper operations at MCSA totaled $73.1 million in Q2 2021 compared to $29.8 million in Q2 2020. The increase in mine gross profit was primarily driven by an increase in revenues attributed to higher average realized copper prices. The Company also recognized mine gross profit of $10.6 million in Q2 2021 compared to $9.7 million in Q2 2020 from its gold operations at NX Gold.
Net income (loss): The Company recognized net income of $84.0 million (basic net income per share of $0.95) in Q2 2021 compared to $7.7 million in Q2 2020 (basic net income per share of $0.09). The increase in net income was primarily attributable to an increase in revenues from higher average realized copper prices and higher gold sales volume over the comparative period.
2021 Guidance/Outlook
The Company is reiterating its previously announced 2021 guidance.
| · | 2021 annual production guidance for the MCSA Mining Complex of 42,000 to 45,000 tonnes of copper in concentrate at C1 cash cost guidance[1] range of US$0.75 to US$0.85 per pound of copper produced; and, |
| · | 2021 annual production guidance for the NX Gold Mine of 34,500 to 37,500 ounces of gold at C1 cash cost and AISC guidance[1] range of US$500 to US$600 and US$875 to US$975 per ounce of gold produced, respectively. |
| [1] | C1 cash cost of copper produced (per lb.), C1 cash cost of gold produced (per oz.), and AISC are non-IFRS measures – Please refer to the section titled "NON-IFRS MEASURES" within this MD&A for a discussion of non-IFRS measures. 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 AIF (as defined herein) and Management of Risks and Uncertainties in this MD&A for complete risk factors. |
2021 Production Outlook
The Company is reaffirming its 2021 production guidance ranges for both the MCSA Mining Complex and the NX Gold Mine and is well-positioned to achieve the high end of both ranges. Similar to Q2 2021, mill throughput volumes and copper production in Q3 2021 are expected to be impacted by the second phase of planned mill maintenance at the MCSA Mining Complex, scheduled to begin in August 2021 and be completed before the end of the third quarter. The sequential preventative maintenance shuts are being conducted to help prepare the Company’s mill for expanded operations and higher throughputs, including when the Surubim open pit mine, where pre-stripping activities are underway, is restarted in H2 2021. Copper grades are expected to revert to plan in H2 2021.
Gold production from NX Gold for 2021 is expected to come from ore mined from the Santo Antonio Vein. Lower gold grades are anticipated in H2 2021 due to scheduled mine sequencing, and recovery rates at the NX Gold Mine, which were elevated during H1 2021 due to gold contributions from mill and foundry scrap recycling efforts, are expected to normalize in Q3 2021.
Ero Copper Corp. June 30, 2021 MD&A | Page 9
|
MCSA Mining Complex |
2021 Guidance[1] | |
| Tonnes Processed | 2,700,000 | |
| Copper Grade (% Cu) | 1.75% | |
| Copper Recovery (%) | 93.0% | |
| Cu Production (000 tonnes) | 42.0 – 45.0 |
|
NX Gold Mine |
2021 Guidance[1] | |
| Tonnes Processed | 167,000 | |
| Gold Grade (gpt) | 7.20 | |
| Gold Recovery (%) | 92.0% | |
| Au Production (000 ounces) | 34.5 – 37.5 | |
| Ag Production (000 ounces) | 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 and EDGAR filings for complete risk factors, including the AIF (as defined herein) and Management of Risks and Uncertainties in this MD&A for complete risk factors. |
2021 Cost Guidance
The Company is tracking towards the low end of its reaffirmed 2021 cost guidance ranges, which assume a USD:BRL foreign exchange rate of 5.00, a gold price of $1,750 per ounce and a silver price of $20.00 per ounce.
| 2021 Guidance | |||
| MCSA Mining Complex C1 Cash Cost Guidance (US$/lb)[1] | $0.75 - $0.85 | ||
| NX Gold Mine C1 Cash Cost Guidance (US$/oz)[1] | $500 - $600 | ||
| NX Gold Mine All-in Sustaining Cost (AISC) Guidance (US$/oz)[1] | $875 - $975 |
| [1] | C1 cash cost of copper produced (per lb.), C1 cash cost of gold produced (per oz.), and AISC are non-IFRS measures – Please refer to the section titled "NON-IFRS MEASURES" within this MD&A for a discussion of non-IFRS measures. 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 AIF (as defined herein) and Management of Risks and Uncertainties in this MD&A for complete risk factors. |
2021 Capital Expenditure Guidance
The Company is reaffirming its 2021 capital expenditure guidance, which assumes a USD:BRL foreign exchange rate of 5.00 and has been presented below in USD millions.
Ero Copper Corp. June 30, 2021 MD&A | Page 10
| MCSA Operations | 2021 Guidance | ||
| Pilar Mine and Caraíba Mill Complex (excluding Deepening Extension Project) | $ 45.0 - 50.0 | ||
| Deepening Extension Project | 12.5 – 15.0 | ||
| Vermelhos Mine & District[1] | 14.0 – 16.0 | ||
| Surubim Open Pit Mine | 10.0 – 12.0 | ||
| Boa Esperanҫa Project | 1.0 – 1.5 | ||
| Capital Expenditure Guidance | $ 82.5 - 94.5 | ||
| Curaçá Valley Exploration | $ 30.0 – 35.0 | ||
| NX Gold Mine | 2021 Guidance | ||
| Capital Expenditure Guidance | $ 13.0 – 15.0 | ||
| Exploration | 8.0 – 10.0 | ||
| Total, NX Gold Mine | $ 21.0 – 25.0 |
[1] Vermelhos District includes open pit mining infrastructure expenditures of approximately US$6.0 million in 2021.
Mineração Caraíba S.A.
Copper production from the MCSA Mining Complex for 2021 is expected to come from ore mined from the Pilar and Vermelhos underground mines as well as the Surubim open pit mine, which is expected to restart operations later in 2021. Production from the Pilar Mine is expected to contribute a total of approximately 1.5 million tonnes grading 1.40% copper, production from the Vermelhos Mine is expected to contribute a total of approximately 0.8 million tonnes grading 2.40% copper and production from the Surubim Mine is expected to contribute a total of 0.2 million tonnes grading 0.60% copper as it is a partial year of operation. The blended mill head grade incorporating these sources is expected to be approximately 1.75% copper for the full year.
NX Gold S.A.
Gold production from NX Gold for 2021 is expected to come from ore mined from the Santo Antonio Vein. Mining operations during the year are expected to total approximately 167,000 tonnes of ore grading 7.20 grams per tonne gold.
Boa Esperança
A full review of the Boa Esperança Feasibility Study[1] remains ongoing with the goal of extending the potential mine life and increasing copper production among other desktop optimization initiatives. As a result of an ongoing internal technical review, several potential opportunities were identified to optimize and further realize the potential of the Boa Esperança project, including, but not limited to:
| · | Separating high-grade and low-grade copper domains within the mineral resource estimate to better optimize mining sequence, mineral reserve conversion and improve overall project economics; |
| · | Increasing the overall size of the open pit, targeting an increase in in-pit mineral reserves, extension of mine life and an increase in life-of-mine copper production; |
| · | Implementing bulk ore-sorting with the goal of enhancing mine selectivity; and, |
| · | Re-designing processing plant reflecting optimization initiatives around selective mining and the implementation of ore-sorting. |
The Company’s technical team continues to actively review these opportunities and is making headway in advancing them into actionable deliverables. The Company expects to provide additional guidance on these developments in Q3 2021.
[1] As defined herein under “NOTE REGARDING SCIENTIFIC AND TECHNICAL INFORMATION”.
Ero Copper Corp. June 30, 2021 MD&A | Page 11
REVIEW OF FINANCIAL RESULTS
The following table provides a summary of the financial results of the Company for Q2 2021 and Q2 2020. Tabular amounts are in thousands of US dollars, except share and per share amounts.
| Three months ended | Three months ended | |||||||||
| Notes | June 30, 2021 | June 30, 2020 | ||||||||
| Revenue | 1 | $ | 120,706 | $ | 70,760 | |||||
| Cost of product sold | 2 | (35,300 | ) | (30,114 | ) | |||||
| Sales expenses | (1,747 | ) | (1,114 | ) | ||||||
| Gross profit | 83,659 | 39,532 | ||||||||
| Expenses | ||||||||||
| General and administrative | 3 | (9,506 | ) | (6,073 | ) | |||||
| Share-based compensation | (2,480 | ) | (2,723 | ) | ||||||
| Income before the undernoted | 71,673 | 30,736 | ||||||||
| Other income (expenses) | ||||||||||
| Finance income | 318 | 530 | ||||||||
| Finance expense | 4 | (2,306 | ) | (2,845 | ) | |||||
| Foreign exchange gain (loss) | 5 | 30,718 | (16,322 | ) | ||||||
| Other expense | (562 | ) | (802 | ) | ||||||
| Income before income taxes | 99,841 | 11,297 | ||||||||
| Income tax expense | ||||||||||
| Current | (4,716 | ) | (2,798 | ) | ||||||
| Deferred | (11,146 | ) | (791 | ) | ||||||
| 6 | (15,862 | ) | (3,589 | ) | ||||||
| Net income for the period | 83,979 | 7,708 | ||||||||
| Other comprehensive income (loss) | ||||||||||
| Foreign currency translation gain (loss) | 7 | 44,603 | (14,041 | ) | ||||||
| Comprehensive income (loss) | $ | 128,582 | $ | (6,333 | ) | |||||
| Net income attributable to: | ||||||||||
| Owners of the Company | $ | 83,419 | $ | 7,526 | ||||||
| Non-controlling interests | 560 | 182 | ||||||||
| $ | 83,979 | $ | 7,708 | |||||||
| Comprehensive income (loss) attributable to: | ||||||||||
| Owners of the Company | $ | 127,844 | $ | (6,459 | ) | |||||
| Non-controlling interests | 738 | 126 | ||||||||
| $ | 128,582 | $ | (6,333 | ) | ||||||
| Net income per share attributable to owners of the Company | ||||||||||
| Net income per share | ||||||||||
| Basic | $ | 0.95 | $ | 0.09 | ||||||
| Diluted | $ | 0.89 | $ | 0.08 | ||||||
| Weighted average number of common shares outstanding | ||||||||||
| Basic | 88,251,995 | 85,933,443 | ||||||||
| Diluted | 93,314,274 | 91,428,969 | ||||||||
| Cash and cash equivalents | $ | 137,655 | $ | 51,617 | ||||||
| Total assets | $ | 628,475 | $ | 420,330 | ||||||
| Non-current liabilities | $ | 189,365 | $ | 207,918 | ||||||
Ero Copper Corp. June 30, 2021 MD&A | Page 12
Notes:
| 1. | Revenues for Q2 2021 from copper sales was $103.0 million (Q2 2020 - $56.5 million), which included the sale of 10,094 copper tonnes in concentrate as compared to 10,586 copper tonnes for Q2 2020. The increase in revenues is primarily attributed to higher realized prices, offset by slightly lower sales volume. |
Revenues for Q2 2021 from gold sales was $17.7 million (Q2 2020 - $14.2 million), which included the sale of 9,953 ounces of gold, compared to 8,384 ounces of gold for Q2 2020. The increase in revenues is primarily attributable to higher sales volume and slightly attributable to higher realized prices than in the comparative quarter.
| 2. | Cost of product sold for Q2 2021 from copper sales was $28.3 million (Q2 2020 - $25.6 million) which primarily comprised of $7.9 million (Q2 2020 - $8.6 million) in depreciation and depletion, $6.8 million (Q2 2020 - $5.6 million) in salaries and benefits, $4.8 million (Q2 2020 - $3.5 million) in materials and consumables, $3.5 million (Q2 2020 - $2.9 million) in maintenance costs, $3.3 million (Q2 2020 - $3.6 million) in contracted services, and $2.0 million (Q2 2020 - $1.4 million) in utilities. The increase in cost of product sold in Q2 2021 as compared to Q2 2020 is primarily attributable to increased costs associated with planned maintenance of mills at MCSA. |
Cost of product sold for Q2 2021 from gold sales was $7.0 million (Q2 2020 - $4.5 million) which primarily comprised of $1.9 million (Q2 2020 - $0.7 million) in depreciation and depletion, $1.5 million (Q2 2020 - $0.7 million) in contracted services, $1.5 million (Q2 2020 - $1.1 million) in salaries and benefits, $1.1 million (Q2 2020 - $0.9 million) in materials and consumables, $0.5 million (Q2 2020 - $0.5 million) in utilities, and $0.4 million (Q2 2020 - $0.5 million) in maintenance costs. The increase in cost of product sold in Q2 2021 as compared to Q2 2020 is primarily attributable to increases in production and sales at NX Gold.
| 3. | General and administrative expenses for Q2 2021 include $4.6 million (Q2 2020 - $3.8 million) with respect to MCSA for salaries and incentive payments, professional fees, office and sundry and provisions for tax, legal and labour claims, $0.6 million (Q2 2020 - $0.2 million) with respect to NX Gold for salaries and incentive payments, professional fees, office and sundry and provisions for tax, legal and labour claims, and $4.3 million (Q2 2020 - $2.0 million) with respect to the corporate head office in Vancouver. Corporate head office costs are primarily comprised of $2.4 million (Q2 2020 - $1.6 million) in salaries, incentive payments, and consulting fees, $0.8 million (Q2 2020 - nominal) in travel-related costs, $0.5 million (Q2 2020 - $0.2 million) in accounting and legal costs, and $0.4 million (Q2 2020 - nominal) in office and sundry costs. General and administrative expenses in Q2 2021 increased from that in Q2 2020, primarily attributable to an increase in corporate headcount and administrative activities to support overall growth in operations. |
| 4. | Finance expense for Q2 2021 was $2.3 million (Q2 2020 - $2.8 million) and is primarily comprised of interest on loans at the corporate head office of $1.4 million (Q2 2020 - $1.7 million), accretion of asset retirement obligations of $0.2 million (Q2 2020 - $0.2 million), other finance expenses of $0.2 million (Q2 2020 - income of $0.5 million), interest on loans and borrowings at MCSA and NX Gold of $0.2 million (Q2 2020 - $0.9 million), loss on interest rate swap derivatives of $0.2 million (Q2 2020 - $0.2 million), and lease interest of $0.1 million (Q2 2020 - nominal). The overall decrease in finance expense in Q2 2021 as compared to Q2 2020 is primarily attributable to a decrease in interest on loans and borrowings. |
| 5. | Foreign exchange gain for Q2 2021 was $30.7 million (Q2 2020 - $16.3 million loss). This amount is primarily comprised of foreign exchange gain on unrealized derivative contracts of $29.9 million (Q2 2020 - $8.5 million loss), foreign exchange gain on USD denominated debt of $10.0 million (Q2 2020 - $3.0 million loss) in MCSA for which the functional currency is the BRL, partially offset by realized foreign exchange loss on derivative contracts of $6.0 million (Q2 2020 - $4.4 million), and other foreign exchange losses of $3.2 million (Q2 2020 - $0.5 million). The foreign exchange gains were primarily a result of a strengthening of BRL against USD in Q2 2021 as compared to the prior quarter. The foreign exchange gains on unrealized derivative contracts are a result of mark-to-market calculations at period end and may not represent the amount that will ultimately be realized, which will depend on future changes to the USD/BRL foreign exchange rates. |
| 6. | In Q2 2021, the Company recognized $15.9 million in income tax expense (Q2 2020 - $3.6 million), primarily as a result of income taxes from operations and the recognition of temporary taxable differences associated with MCSA’s unrealized foreign exchange gains on derivatives and loans and borrowings denominated in USD, both of which were higher in Q2 2021 compared to Q2 2020. |
| 7. | The foreign currency translation gain is a result of a strengthening of the BRL against the USD during Q2 2021 when translating the net assets of the Company’s Brazilian subsidiaries to USD for presentation in the Company’s consolidated financial statements. |
Ero Copper Corp. June 30, 2021 MD&A | Page 13
The following table provides a summary of the financial results of the Company for YTD 2021 and YTD 2020. Tabular amounts are in thousands of US dollars, except share and per share amounts.
| Six months ended | Six months ended | |||||||||
| Notes | June 30, 2021 | June 30, 2020 | ||||||||
| Revenue | 1 | $ | 243,249 | $ | 138,505 | |||||
| Cost of product sold | 2 | (73,660 | ) | (65,925 | ) | |||||
| Sales expenses | (3,121 | ) | (2,396 | ) | ||||||
| Gross profit | 166,468 | 70,184 | ||||||||
| Expenses | ||||||||||
| General and administrative | 3 | (18,007 | ) | (13,576 | ) | |||||
| Share-based compensation | (4,826 | ) | (4,772 | ) | ||||||
| Income before the undernoted | 143,635 | 51,836 | ||||||||
| Other income (expenses) | ||||||||||
| Finance income | 1,288 | 997 | ||||||||
| Finance expense | 4 | (6,076 | ) | (9,496 | ) | |||||
| Foreign exchange gain (loss) | 5 | 2,093 | (98,244 | ) | ||||||
| Other expense | (1,213 | ) | (1,495 | ) | ||||||
| Income (loss) before income taxes | 139,727 | (56,402 | ) | |||||||
| Income tax recovery (expense) | ||||||||||
| Current | (11,806 | ) | (3,889 | ) | ||||||
| Deferred | (11,885 | ) | 15,004 | |||||||
| 6 | (23,691 | ) | 11,115 | |||||||
| Net income (loss) for the year | 116,036 | (45,287 | ) | |||||||
| Other comprehensive income (loss) | ||||||||||
| Foreign currency translation income (loss) | 7 | 20,244 | (63,960 | ) | ||||||
| Comprehensive income (loss) | $ | 136,280 | $ | (109,247 | ) | |||||
| Net income (loss) attributable to: | ||||||||||
| Owners of the Company | $ | 115,168 | $ | (45,227 | ) | |||||
| Non-controlling interests | 868 | (60 | ) | |||||||
| $ | 116,036 | $ | (45,287 | ) | ||||||
| Comprehensive income (loss) attributable to: | ||||||||||
| Owners of the Company | $ | 135,331 | $ | (108,931 | ) | |||||
| Non-controlling interests | 949 | (316 | ) | |||||||
| $ | 136,280 | $ | (109,247 | ) | ||||||
| Net income (loss) per share attributable to owners of the Company | ||||||||||
| Net income (loss) per share | ||||||||||
| Basic | $ | 1.31 | $ | (0.53 | ) | |||||
| Diluted | $ | 1.24 | $ | (0.53 | ) | |||||
| Weighted average number of common shares outstanding | ||||||||||
| Basic | 88,158,672 | 85,846,319 | ||||||||
| Diluted | 93,106,210 | 85,846,319 | ||||||||
Ero Copper Corp. June 30, 2021 MD&A | Page 14
Notes:
| 1. | Revenues for YTD 2021 from copper sales was $207.7 million (YTD 2020 - $112.7 million), which included the sale of 22,562 copper tonnes in concentrate as compared to 21,018 copper tonnes for YTD 2020. The increase in revenues is primarily attributed to higher realized prices from copper sales |
Revenues for YTD 2021 from gold sales was $35.5 million (YTD 2020 - $25.8 million), which included the sale of 19,973 ounces of gold, compared to 15,910 ounces of gold for YTD 2020. The increase in revenues is primarily attributable to higher sales volume and partially attributable to higher realized prices than in the comparative period.
| 2. | Cost of product sold for YTD 2021 from copper sales was $59.9 million (YTD 2020 - $55.6 million) which consisted of $17.6 million (YTD 2020 - $18.1 million) in depreciation and depletion, $14.2 million (YTD 2020 - $12.6 million) in salaries and benefits, $9.7 million (YTD 2020 - $7.5 million) in materials and consumables, $7.3 million (YTD 2020 - $5.8 million) in maintenance costs, $7.1 million (YTD 2020 - $8.2 million) in contracted services, $3.8 million (YTD 2020 - $3.2 million) in utilities, and $0.2 million (YTD 2020 - $0.2 million) in other costs. The increase in cost of product sold is primarily attributed to increase in costs associated with mining higher grade ores and achieving higher metallurgical recoveries. |
Cost of product sold for YTD 2021 from gold sales was $13.8 million (YTD 2020 - $10.3 million) which primarily comprised of $3.6 million (YTD 2020 - $1.5 million) in depreciation and depletion, $3.1 million (YTD 2020 - $2.9 million) in salaries and benefits, $2.9 million (YTD 2020 - $1.7 million) in contracted services, $2.1 million (YTD 2020 - $1.9 million) in materials and consumables, $1.1 million (YTD 2020 - $1.1 million) in utilities, $0.9 million (YTD 2020 - $1.2 million) in maintenance costs, and $0.1 million (YTD 2020 - $0.1 million) in other costs. The increase in cost of product sold is primarily attributed to increase in ore milled and achieving higher metallurgical recoveries.
| 3. | General and administrative expenses for YTD 2021 include $8.8 million (YTD 2020 - $8.6 million) with respect to MCSA for salaries and incentive payments, professional fees, office and sundry and provisions for tax, legal and labour claims, $1.1 million (YTD 2020 - $0.7 million) with respect to NX Gold for salaries and incentive payments, professional fees, office and sundry and provisions for tax, legal and labour claims, and $8.1 million (YTD 2020 - $4.3 million) with respect to the corporate head office in Vancouver. Corporate head office costs are primarily comprised of $5.1 million (YTD 2020 - $3.2 million) in salaries, incentive payments, and consulting fees, $1.2 million (YTD 2020 - $0.2 million) in travel-related costs, $0.7 million (YTD 2020 - $0.4 million) in office and sundry costs, $0.7 million (YTD 2020 - $0.2 million) in professional fees, and $0.2 million (YTD 2020 - $0.2 million) in transfer agent and filing fees. |
General and administrative expenses in YTD 2021 increased compared to that in YTD 2020, primarily attributable to an increase in corporate headcount and administrative activities to support overall growth in operations. In addition, YTD 2021 saw the resumption of travel activities which was restricted during the onset of COVID-19 in early 2020.
| 4. | Finance expense for YTD 2021 was $6.1 million (YTD 2020 - $9.5 million) and was primarily comprised of interest on loans at the corporate head office of $2.7 million (YTD 2020 - $3.5 million), other finance expenses of $1.9 million (YTD 2020 - $1.2 million), accretion of asset retirement obligations of $0.5 million (YTD 2020 - $0.5 million), interest on loans and borrowings at MCSA and NX Gold of $0.5 million (YTD 2020 - $1.8 million), commitment fees of $0.2 million (YTD 2020 - $0.4 million), lease interest of $0.2 million (YTD 2020 - $0.1 million), and loss on interest rate swap derivatives of $0.1 million (YTD 2020 - $2.0 million). |
| 5. | Foreign exchange gain for YTD 2021 was $2.1 million (YTD 2020 - $98.2 million loss). This amount was primarily comprised of a foreign exchange gain on unrealized derivative contracts of $13.0 million (YTD 2020 - $61.1 million loss), a foreign exchange gain on USD denominated debt of $2.2 million (YTD 2020 - $29.9 million loss) in MCSA for which the functional currency is the BRL, partially offset by a realized foreign exchange loss on derivative contracts of $11.7 million (YTD 2020 - $7.0 million), and other foreign exchange losses of $1.3 million (YTD 2020 - $0.2 million). The fluctuation in foreign exchange gains/losses were primarily a result of fluctuations in the USD against the BRL during a time of worldwide instability as a result of the COVID-19 pandemic in YTD 2020, and subsequently, an increased volatility of the USD/BRL foreign exchange rates that ensued since. During YTD 2021, the BRL strengthened against the USD whereas during YTD 2020, the BRL weakened against the USD. The foreign exchange gains/losses on unrealized derivative contracts are a result of mark-to-market calculations at period end and may not represent the amount that will ultimately be realized, which will depend on future changes to the USD/BRL foreign exchange rates. |
| 6. | In YTD 2021, the Company recognized a $23.7 million income tax expense (YTD 2020 - income tax recovery of $11.1 million), primarily comprised of current tax arising from taxable income in mining operations and the recognition of temporary taxable differences associated with MCSA’s unrealized foreign exchange gains on derivatives and loans and borrowings denominated in USD, both of which were higher in YTD 2021 compared YTD 2020. In YTD 2020, the Company had unrealized foreign exchange losses on derivatives and loans and borrowings denominated in USD. |
Ero Copper Corp. June 30, 2021 MD&A | Page 15
| 7. | The foreign currency translation income/loss is a result of volatility of the USD/BRL foreign exchange rates during a time of worldwide instability as a result of the COVID-19 pandemic when translating the net assets of the Company’s Brazilian subsidiaries to USD for presentation in the Company’s consolidated financial statements. |
SUMMARY OF QUARTERLY RESULTS
The following table presents selected financial information for each of the most recent eight quarters. Tabular amounts are in millions of US Dollars, except share and per share amounts.
| 2021 | 2020 | 2019 | ||||||||||||||||||||||||||||||
| Selected Financial Information | Jun 30(1) | Mar 31 | Dec 31(2) | Sept 30 | Jun 30(3) | Mar 31(4) | Dec 31(5) | Sept 30(6) | ||||||||||||||||||||||||
| Revenue | $ | 120.7 | $ | 122.5 | $ | 91.2 | $ | 94.3 | $ | 70.8 | $ | 67.7 | $ | 75.7 | $ | 60.6 | ||||||||||||||||
| Cost of product sold | $ | (35.3 | ) | $ | (38.4 | ) | $ | (31.3 | ) | $ | (33.3 | ) | $ | (30.1 | ) | $ | (35.8 | ) | $ | (43.0 | ) | $ | (38.4 | ) | ||||||||
| Gross profit | $ | 83.7 | $ | 82.8 | $ | 58.3 | $ | 59.6 | $ | 39.5 | $ | 30.7 | $ | 31.1 | $ | 21.3 | ||||||||||||||||
| Net income (loss) for period | $ | 84.0 | $ | 32.1 | $ | 66.3 | $ | 31.4 | $ | 7.7 | $ | (53.0 | ) | $ | 45.4 | $ | 16.3 | |||||||||||||||
| Income (loss) per share attributable to | ||||||||||||||||||||||||||||||||
| owners of the Company | ||||||||||||||||||||||||||||||||
| - Basic | $ | 0.95 | $ | 0.36 | $ | 0.75 | $ | 0.36 | $ | 0.09 | $ | (0.62 | ) | $ | 0.53 | $ | 0.19 | |||||||||||||||
| - Diluted | $ | 0.89 | $ | 0.34 | $ | 0.71 | $ | 0.34 | $ | 0.08 | $ | (0.62 | ) | $ | 0.49 | $ | 0.18 | |||||||||||||||
| Weighted average number of common shares | ||||||||||||||||||||||||||||||||
| outstanding | ||||||||||||||||||||||||||||||||
| - Basic | 88,251,995 | 88,064,312 | 87,321,832 | 86,448,318 | 85,933,443 | 85,759,194 | 85,620,168 | 85,505,675 | ||||||||||||||||||||||||
| - Diluted | 93,314,274 | 92,902,306 | 92,642,103 | 91,961,897 | 91,428,969 | 85,759,194 | 91,670,988 | 91,320,363 | ||||||||||||||||||||||||
Notes:
| 1. | During Q2 2021, the Company recognized $30.7 million in foreign exchange gains. This amount is primarily comprised of foreign exchange gain on unrealized derivative contracts of $29.9 million, foreign exchange gain on USD denominated debt of $10.0 million in MCSA for which the functional currency is the BRL, partially offset by realized foreign exchange loss on derivative contracts of $6.0 million, and other foreign exchange losses of $3.2 million. The foreign exchange gains were primarily a result of a strengthening of BRL against USD in Q2 2021 as compared to the prior quarter. The foreign exchange gains on unrealized derivative contracts are a result of mark-to-market calculations at period end and may not represent the amount that will ultimately be realized, which will depend on future changes to the USD/BRL foreign exchange rates. |
| 2. | During the quarter ended December 31, 2020, the Company recognized $27.1 million in foreign exchange gains. The foreign exchange gains were primarily comprised of foreign exchange gain on unrealized derivative contracts of $27.7 million and a foreign exchange gain on USD denominated debt of $7.7 million in MCSA for which the functional currency is the BRL, partially offset by a realized foreign exchange loss on derivative contracts of $7.8 million and other foreign losses of $0.4 million. The foreign exchange gains were primarily a result of a strengthening of BRL against USD in Q4 2020. The foreign exchange gains on unrealized derivative contracts are a result of mark-to-market calculations at period end and may not represent the amount that will ultimately be realized, which will depend on future changes to the USD/BRL foreign exchange rates. |
During the quarter ended December 31, 2020, the Company recognized a recovery of $8.9 million in net income related to value added taxes. The recovery was recognized as a result of a study conducted to revisit certain tax positions which concluded that it is probable that additional tax credits are available to be used to offset a variety of taxes.
| 3. | During Q2 2020, the Company had an overall net income of $7.7 million, despite $16.3 million in foreign exchange losses. The foreign exchange losses were comprised of a foreign exchange loss on unrealized derivative contracts of $8.5 million, a foreign exchange loss on realized derivative contracts of $4.4 million, and a foreign exchange loss on USD denominated debt of $3.0 million in MCSA for which the functional currency is the BRL. As with the preceding quarter, the foreign exchange losses were unusually high this quarter due to volatility in the foreign exchange rates between the USD and BRL resulting from the worldwide instability in currency rates as a result of the COVID-19 pandemic. |
| 4. | During the quarter ended March 31, 2020, the Company recognized a $81.9 million in foreign exchange losses. The foreign exchange losses were mainly comprised of a $26.9 million loss associated with USD denominated debt held by MCSA, whose functional currency is the BRL, and $52.7 million losses associated with unrealized losses on foreign exchange currency collar contracts. These foreign exchange losses were unusually high this quarter due to volatility in the foreign exchange rates between the USD and the BRL resulting from the worldwide instability in currency rates as a result of the COVID-19 pandemic. |
| 5. | During the quarter ended December 31, 2019, the Company recognized a $25.2 million income tax recovery primarily resulting from the recognition of available tax losses and tax credits in MCSA. At December 31, 2019, the Company considered the taxable income generated since acquisition of MCSA and forecasted future taxable income and determined that it was now considered probable that the benefit of these losses and tax credits in MCSA would be realized. |
Ero Copper Corp. June 30, 2021 MD&A | Page 16
| 6. | During the quarter ended September 30, 2019, the Company recognized a recovery of $21.6 million in net income related to value added taxes previously paid on sales in Brazil. The recovery was recognized as a result of a Brazil Supreme Court ruling in 2017 that concluded that the relevant taxing authorities had historically used an incorrect methodology to determine such taxes. The ruling set a precedent for all companies in Brazil but was required to be confirmed for the Company’s specific claim, for which approval was received in July 2019. These credits can be used to offset a variety of other taxes, including income taxes and taxes on future sales. |
LIQUIDITY, CAPITAL RESOURCES, AND CONTRACTUAL OBLIGATIONS
Liquidity
As at June 30, 2021, the Company held cash and cash equivalents of $137.7 million. Cash and cash equivalents are primarily comprised of cash held with reputable financial institutions and are invested in highly liquid short-term investments with maturities of three months or less. The funds are not exposed to liquidity risk and there are no restrictions on the ability of the Company to use these funds to meet its obligations.
Cash and cash equivalents have increased by $75.1 million since December 31, 2020. The Company’s cash flows from operating, investing, and financing activities during YTD 2021 are summarized as follows:
| · | Cash from operating activities of $147.2 million |
Partially offset by:
| · | Cash used in investing activities of $61.9 million, including: |
| o | $61.1 million of additions to mineral property, plant and equipment; |
| o | $1.3 million of additions to exploration and evaluation assets |
net of:
| o | $0.5 million from other investments |
| · | Cash used in financing activities of $15.6 million, including: |
| o | $10.8 million of repayment on loans and borrowings; |
| o | $3.3 million of payment of interest on loans and borrowings; |
| o | $2.3 million of lease payments; |
| o | $2.1 million of other finance expenses |
net of:
| o | $2.2 million proceeds from exercise of stock options and warrants; |
| o | $0.6 million proceeds from new loans and borrowings; |
As at June 30, 2021, the Company had working capital of $118.9 million.
Capital Resources
The Company’s primary sources of capital are comprised of cash from operations, and cash and cash equivalents on hand. The Company continuously monitors its liquidity position and capital structure and, based on changes in operations and economic conditions, may adjust such structure by issuing new common shares or new debt as necessary. While the Company has been successful in securing financing to date, there are no guarantees that it will be able to secure such financing in the future on terms acceptable to the Company, if at all. Taking into consideration cash flow from existing operations, management believes that the Company has sufficient working capital and financial resources to maintain its planned operations and activities for the foreseeable future.
At June 30, 2021, we had unrestricted cash and cash equivalents of $137.7 million compared to $62.5 million at December 31, 2020. The increase is primarily due to an increase in cash from operations.
Ero Copper Corp. June 30, 2021 MD&A | Page 17
The Company had a $150.0 million facility from a syndicate of Canadian financial institutions. The facility was comprised of a $75.0 million senior secured amortizing non-revolving credit facility (“Term Facility”) and a $75.0 million senior secured revolving term credit facility (“Revolving Credit Facility”) (collectively the “Facilities”). The Term Facility required quarterly payments commencing on March 31, 2022 and the Revolving Credit Facility was due on March 31, 2024. The Facilities bore interest on a sliding scale at a rate of LIBOR plus 2.50% to 4.25%, depending on the Company’s consolidated leverage ratio at the time.
During March 2021, the Facilities were amended to combine the Facilities into a new $150.0 million senior secured revolving credit facility (“New Revolving Credit Facility”) payable entirely on March 31, 2025. The New Revolving Credit Facility bears interest on a sliding scale at a rate of LIBOR plus 2.25% to 4.25% depending on the Company’s consolidated leverage ratio at the time. Commitment fees for any undrawn portion of the Revolving Credit Facility are on a sliding scale between 0.56% to 1.06%.
The New Revolving Credit Facility includes standard and customary terms and conditions with respect to fees, representations, warranties, and financial covenants that remain unchanged from those of the Facilities.
The New Revolving Credit Facility was fully drawn as of June 30, 2021. The Company is required to comply with certain financial covenants. As of the date of the condensed consolidated financial statements, the Company is in compliance with these covenants.
Contractual Obligations and Commitments
Certain loan agreements contain operating and financial covenants that could restrict the ability of the Company and its subsidiaries, MCSA, Ero Gold, and NX Gold S.A., to, among other things, incur additional indebtedness needed to fund its respective operations, pay dividends or make other distributions, make investments, create liens, sell or transfer assets or enter into transactions with affiliates. There are no other restrictions or externally imposed capital requirements of the Company.
During Q2 2021, the Company entered into a precious metals purchase agreement with Royal Gold in relation to gold production from the NX gold mine. Refer to the sectioned titled “Q2 2021 Highlights” in this MD&A for further information. The Company expects this transaction to close in the third quarter of 2021. Closing of the transaction is subject to the completion of certain corporate matters and customary conditions. Post-closing, the Company is obligated to sell certain of its gold production to Royal Gold.
MANAGEMENT OF RISKS AND UNCERTAINTIES
The Company thoroughly examines the various financial instruments and risks to which it is exposed and assesses the impact and likelihood of those risks. These risks may include credit risk, liquidity risk, currency risk, commodity price risk and interest rate risk. Where material, these risks are reviewed and monitored by the Board.
COVID-19 Pandemic Risk
The outbreak of COVID-19 has had a significant impact on the volatility of commodity prices and USD/BRL exchange rates, and governmental actions to contain the outbreak may impact our ability to transport or market our concentrate or cause disruptions in our supply chains or interruption of production. A material spread of COVID-19 in jurisdictions where we operate could impact our ability to staff operations. A reduction in production or other COVID-19 related impacts, including but not limited to, low copper prices could cause a significant reduction in profitability of ongoing operations.
The global pandemic could cause temporary closure of businesses in regions that are significantly impacted by the health crises, or cause governments to take or continue to take preventative measures such as the closure of points of entry, including ports and borders.
Ero Copper Corp. June 30, 2021 MD&A | Page 18
Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company’s receivables from customers. The carrying amount of the financial assets below represents the maximum credit risk exposure as at June 30, 2021 and December 31, 2020:
| June 30, 2021 | December 31, 2020 | |||||||
| Cash and cash equivalents | $ | 137,655 | $ | 62,508 | ||||
| Accounts receivable | 21,507 | 20,353 | ||||||
| Deposits and other non-current assets | 534 | 595 | ||||||
| $ | 159,696 | $ | 83,456 | |||||
The Company invests cash and cash equivalents with financial institutions that are financially sound based on their credit rating. The Company’s exposure to credit risk associated with accounts receivable is influenced mainly by the individual characteristics of each customer. The Company currently has only four significant customers, all of which have no history of credit default with the Company. The Company has not incurred credit losses during the three and six-month periods ended June 30, 2021 nor recognized a provision for credit losses.
Foreign exchange currency risk
The Company may use derivatives, including forward contracts, collars and swap contracts, to manage market risks. At June 30, 2021, the Company has entered into foreign exchange collar contracts at zero cost for notional amounts of $279.7 million (December 31, 2020 - notional amount of $285.7 million) with an average floor rate of 4.15 BRL to US Dollar and an average cap rate of 4.86 BRL to US Dollar. The maturity dates of these contracts are from July 28, 2021 to December 28, 2022 and are financially settled on a net basis. The fair value of these contracts at June 30, 2021 was a liability of $23.3 million, (December 31, 2020 - $34.5 million) which is included in Derivatives in the statement of financial position. The fair value of these forward contracts as at June 30, 2021 was determined using an option pricing model with the following assumptions: discount rate of 2.78% - 2.83%, a foreign exchange rate range of 4.99 - 5.46, and volatility of 15.65% - 16.78%. The change in fair value of foreign exchange collar contracts was a gain of $29.9 million and $13.0 million for the three and six-month periods ended June 30, 2021, respectively (loss of $8.5 million and $61.1 million for the three and six-month periods ended June 30, 2020, respectively) and has been recognized in foreign exchange gain (loss). In addition, during the three and six-month periods ended June 30, 2021, the Company recognized a realized loss of $6.0 million and $11.7 million, respectively ($4.4 million and $7.0 million for the three and six-month periods ended June 30, 2020, respectively) related to the settlement of foreign currency forward collar contracts.
Interest rate risk
The Company is principally exposed to the variation in interest rates on loans and borrowings with variable rates of interest. Management reduces interest rate risk exposure by entering into loans and borrowings with fixed rates of interest or by entering into derivative instruments that fix the ultimate interest rate paid.
The Company is principally exposed to interest rate risk through its New Revolving Credit Facility of $150.0 million, Brazilian Real denominated bank loans of $4.2 million, and Brazilian Real denominated equipment finance loans of $0.4 million. Based on the Company’s net exposure at June 30, 2021, a 1% change in the variable rates would have an impact of $1.5 million on pre-tax annual net income, without consideration of the effects of the interest rate swap contract below.
Ero Copper Corp. June 30, 2021 MD&A | Page 19
In order to mitigate the above volatility due to variable rates on loans, as at June 30, 2021, the Company has entered into an interest rate swap contract to manage interest rate risk. At June 30, 2021, the floating interest on a notional amount of $50.0 million was swapped for a fixed interest rate of 1.68%. This interest rate swap transaction is in effect until March 31, 2025, with settlements made on a monthly basis. The fair value of this contract at June 30, 2021 was a liability of $2.0 million (December 31, 2020 - $2.5 million) and was included in Derivatives in the statement of financial position. The Company recognized a realized loss of $0.4 million on the termination of the original interest rate swap from 2019 (realized loss of $0.3 million and $0.4 million for the three and six-month periods ended June 30, 2020, respectively) and a realized loss of $0.1 million for the three and six-month periods ended June 30, 2021 for the new interest rate swap. The Company also recognized an unrealized gain of nil and $0.4 million for the three and six-month periods ended June 30, 2021, respectively (unrealized gain of $0.1 million and unrealized loss of $1.6 million for the three and six-month periods ended June 30, 2020, respectively), which was included in finance expense.
In addition, as at June 30, 2021, MCSA has entered into an interest rate and currency swap contract on the Plural Loan. At June 30, 2021, the floating interest on a notional amount of BRL $2.2 million was swapped for a fixed interest rate of 9.9% and the BRL currency on the loan was swapped for USD at a rate of 3.95. The fair value of this contract at June 30, 2021 was a liability of $0.2 million (December 31, 2020 - $0.3 million) and is included in Derivatives in the statement of financial position. The realized loss on this swap contract was $0.1 million and $0.2 million for the three and six-month periods ended June 30, 2021, respectively, and was included in finance expense.
Price risk
The Company may use derivatives, including forward contracts, collars and swap contracts, to manage commodity price risks. At June 30, 2021, the Company has provisionally priced sales that are exposed to commodity price changes. Based on the Company’s net exposure at June 30, 2021, a 10% change in the price of copper would have an impact of $1.9 million on pre-tax net income.
For a discussion of additional risks applicable to the Company and its business and operations, including risks related to the Company’s foreign operations, the environment and legal proceedings, see “Risk Factors” in the Company’s Annual Information Form for the year ended December 31, 2020 and dated March 16, 2021 (the “AIF”).
OTHER FINANCIAL INFORMATION
Off-Balance Sheet Arrangements
As at June 30, 2021, the Company had no material off-balance sheet arrangements.
Contingencies
MCSA is subject to a number of claims (including claims related to tax, labour and social security matters and civil action) in the course of its business which individually are not material and have not been accrued for in the Company’s financial statements as it is not probable that a material cash outflow will occur. While the Company believes that these claims are unlikely to be successful, if all such existing claims were decided against it, the Company could be exposed to a liability of up to approximately $23.0 million as at June 30, 2021 (December 31, 2020 - $21.8 million), which could have an adverse impact on the Company’s business, financial condition, results of operations, cash flows or prospects.
Outstanding Share Data
As of August 4, 2021, the Company had 88,399,676 common shares, 4,304,680 stock options, 1,466,664 warrants, and 727,761 performance share units issued and outstanding.
Ero Copper Corp. June 30, 2021 MD&A | Page 20
Related Party Disclosures
For the three and six months ended June 30, 2021, amounts paid to related parties were incurred in the normal course of business and measured at the exchange amount, which is the amount agreed upon by the transacting parties and on terms and conditions similar to non-related parties.
The aggregate value of compensation paid to key management personnel for the three and six-month periods ended June 30, 2021 was $1.8 million and $3.7 million, respectively ($1.8 million and $3.6 million for the three and six-month periods ended June 30, 2020, respectively). In addition, 50,000 options and 6,178 DSUs were issued to key management personnel and non-executive directors during the six-month period ended June 30, 2021 (43,456 options and 37,321 DSUs for the six-month period ended June 30, 2020). For key management personnel, $1.4 million and $2.8 million was recognized in share-based compensation expense for the three and six-month periods ended June 30, 2021 for options, share units, and DSUs issued ($1.6 million and $2.9 million for the three and six-month periods ended June 30, 2020, respectively).
During the three and six-month periods ended June 30, 2021, key management personnel exercised 85,000 and 135,000 options, and 66,666 and 133,332 warrants, for total cash proceeds to the Company of $0.5 million and $0.7 million, respectively (223,555 and 248,555 options, as well as 100,000 warrants for total cash proceeds of $0.5 million and $0.6 million for the three and six-month periods ended June 30, 2020, respectively).
As at June 30, 2021, $1.8 million was payable to key management as incentive compensation and is included in accounts payable and accrued liabilities in the statement of financial position (December 31, 2020 - $3.7 million). Such amounts are unsecured, non-interest bearing and will be paid under normal trade terms.
ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES
Critical Accounting Judgments and Estimates
The preparation of consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions about future events that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Although these estimates are based on management’s best knowledge of the amount, events or actions, actual results may differ from these estimates.
The Company’s significant accounting policies and accounting estimates are contained in the Company’s December 31, 2020 consolidated financial statements. Certain of these policies, such as, capitalization and depreciation of property, plant and equipment and mining interests, derivative instruments, and decommissioning liabilities provisions involve critical accounting estimates because they require management of the Company to make subjective or complex judgments about matters that are inherently uncertain, and because of the likelihood that materially different amounts could be reported under different conditions or using different assumptions.
In preparing its financial statements, management has made judgments, estimates and assumptions that affect the application of the Company’s accounting policies and the reported amounts of the assets, liabilities, revenues, and expenses. Actual results may differ from these estimates.
The estimates and assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively. For a description of the critical judgements in application of the accounting policies and information about assumptions and estimations uncertainties, refer to the Company’s MD&A for the year ended December 31, 2020, which is available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.
Ero Copper Corp. June 30, 2021 MD&A | Page 21
Local Currency Operating Metrics – Presented in Brazilian Real
| 2021 - Q2 | 2021 - Q1 | 2021 - YTD | 2020 - Q2 | 2020 - YTD | ||||||||||||||||||
| Costs (MCSA Operations) | ||||||||||||||||||||||
| Mining[1] - UG (Pilar) | R$ | 39,567 | 34,663 | 74,230 | 35,146 | 64,142 | ||||||||||||||||
| - UG (Vermelhos) | 32,857 | 30,340 | 63,197 | 30,189 | 61,379 | |||||||||||||||||
| Processing | 27,211 | 21,921 | 53,487 | 19,496 | 38,545 | |||||||||||||||||
| Indirect | 18,842 | 17,900 | 32,387 | 13,456 | 26,085 | |||||||||||||||||
| Production costs[1] | 118,477 | 104,824 | 223,301 | 98,287 | 190,151 | |||||||||||||||||
| By-product credits | (29,286 | ) | (33,935 | ) | (63,221 | ) | (21,162 | ) | (36,954 | ) | ||||||||||||
| Treatment, refining and other | 2,070 | 4,371 | 6,441 | 8,751 | 7,124 | |||||||||||||||||
| C1 cash costs | R$ | 91,261 | 75,260 | 166,521 | 85,876 | 160,321 | ||||||||||||||||
| Breakdown Mined and Processed (tonnes) | ||||||||||||||||||||||
| UG Mined | 571,514 | 519,295 | 1,090,809 | 672,679 | 1,285,189 | |||||||||||||||||
| Total Mined (t): | 571,514 | 519,295 | 1,090,809 | 672,679 | 1,285,189 | |||||||||||||||||
| Total Processed (t) | 553,992 | 597,594 | 1,151,586 | 627,071 | 1,235,030 | |||||||||||||||||
| Cu Production (t) | 10,898 | 12,638 | 23,536 | 11,178 | 21,835 | |||||||||||||||||
| UG Mining Total - R$/tonne mined | 126.72 | 125.18 | 125.99 | 97.13 | 97.67 | |||||||||||||||||
| Pilar - R$/tonne mined | 109.09 | 106.54 | 107.89 | 87.47 | 83.77 | |||||||||||||||||
| Vermelhos - R$/tonne mined | 157.34 | 156.44 | 156.91 | 111.45 | 118.16 | |||||||||||||||||
| Processing - R$/tonne processed | 49.12 | 36.68 | 46.45 | 31.09 | 31.21 | |||||||||||||||||
| Indirect - R$/tonne processed | 34.01 | 29.95 | 28.12 | 21.46 | 21.12 | |||||||||||||||||
Footnotes
General - Above only includes amounts from MCSA. NX Gold operations are excluded.
[1] - Beginning in the third quarter of 2020, production costs are presented net of capex development. Comparative figures have been adjusted to conform with the revised presentation.
Ero Copper Corp. June 30, 2021 MD&A | Page 22
Capital Expenditures
The following table presents capital expenditures at the Company’s operations.
| 2021 - Q2 | 2021 - Q1 | 2021 - YTD | 2020 - Q2 | 2020 - YTD | ||||||||||||||||
| MCSA Operations | ||||||||||||||||||||
| Pilar Mine and Caraíba Mill Complex | 17,261 | 12,838 | 30,099 | 17,859 | 27,740 | |||||||||||||||
| Vermelhos Mine | 1,915 | 2,678 | 4,593 | 4,240 | 6,639 | |||||||||||||||
| Boa Esperanҫa Project | 293 | 103 | 396 | 26 | 59 | |||||||||||||||
| Capital Expenditure | 19,469 | 15,619 | 35,088 | 22,125 | 34,438 | |||||||||||||||
| Capex Development (included in above) | 8,359 | 7,334 | 15,693 | 7,489 | 16,662 | |||||||||||||||
| Exploration | 10,334 | 6,675 | 17,009 | 7,887 | 14,732 | |||||||||||||||
| NX Gold Operations | ||||||||||||||||||||
| Capital Expenditure | 4,865 | 2,249 | 7,114 | 2,990 | 6,110 | |||||||||||||||
| Capex Development (included in above) | 1,750 | 1,621 | 3,371 | 1,737 | 3,570 | |||||||||||||||
| Exploration | 2,379 | 1,840 | 4,219 | 977 | 1,838 | |||||||||||||||
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 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 debt, working capital (deficit) and available liquidity, 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. The tables below provide a reconciliation of these non-IFRS measures to the most directly comparable IFRS measures as contained in the Company’s financial statements.
Unless otherwise noted, the non-IFRS measures presented below have been calculated on a consistent basis for the periods presented.
Ero Copper Corp. June 30, 2021 MD&A | Page 23
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 cost 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.
The following table provides a reconciliation of C1 cash cost of copper produced per pound to cost of goods sold, its most directly comparable IFRS measure.
| 2021 - Q2 | 2021 - Q1 | 2021 - YTD | 2020 - Q2 | 2020 - YTD | ||||||||||||||||
| Reconciliation: | ||||||||||||||||||||
| Cost of Product Sold | $ | 28,322 | $ | 31,568 | $ | 59,890 | $ | 25,645 | $ | 55,599 | ||||||||||
| Add (less): | ||||||||||||||||||||
| Depreciation/amortization/depletion | (7,858 | ) | (9,766 | ) | (17,624 | ) | (8,565 | ) | (18,131 | ) | ||||||||||
| Incentive payments | (569 | ) | (813 | ) | (1,382 | ) | (672 | ) | (1,266 | ) | ||||||||||
| Net change in inventory | 701 | (2,668 | ) | (1,967 | ) | 700 | 492 | |||||||||||||
| Transportation costs & other | 1,516 | 975 | 2,491 | 844 | 1,864 | |||||||||||||||
| By-product credits | (5,522 | ) | (6,200 | ) | (11,722 | ) | (3,927 | ) | (7,470 | ) | ||||||||||
| Treatment, refining, and other | 392 | 779 | 1,171 | 1,645 | 1,277 | |||||||||||||||
| Foreign exchange translation adjustments | 352 | (153 | ) | 199 | 288 | 289 | ||||||||||||||
| C1 cash costs | $ | 17,334 | $ | 13,722 | $ | 31,056 | $ | 15,958 | $ | 32,654 | ||||||||||
| 2021 - Q2 | 2021 - Q1 | 2021 - YTD | 2020 - Q2 | 2020 - YTD | ||||||||||||||||
| Costs | ||||||||||||||||||||
| Mining[1] | $ | 13,732 | $ | 11,869 | $ | 25,601 | $ | 12,125 | $ | 25,626 | ||||||||||
| Processing | 5,132 | 4,010 | 9,938 | 3,618 | 7,891 | |||||||||||||||
| Indirect | 3,600 | 3,264 | 6,068 | 2,497 | 5,330 | |||||||||||||||
| Production costs[1] | 22,464 | 19,143 | 41,607 | 18,240 | 38,847 | |||||||||||||||
| By-product credits | (5,522 | ) | (6,200 | ) | (11,722 | ) | (3,927 | ) | (7,470 | ) | ||||||||||
| Treatment, refining and other | 392 | 779 | 1,171 | 1,645 | 1,277 | |||||||||||||||
| C1 cash costs | $ | 17,334 | $ | 13,722 | $ | 31,056 | $ | 15,958 | $ | 32,654 | ||||||||||
| Costs per pound | ||||||||||||||||||||
| Payable copper produced (lb 000) | 24,026 | 27,863 | 51,889 | 24,643 | 48,138 | |||||||||||||||
| Mining[1] | $ | 0.57 | $ | 0.43 | $ | 0.49 | $ | 0.49 | $ | 0.53 | ||||||||||
| Processing | $ | 0.21 | $ | 0.14 | $ | 0.19 | $ | 0.15 | $ | 0.16 | ||||||||||
| Indirect | $ | 0.15 | $ | 0.12 | $ | 0.12 | $ | 0.10 | $ | 0.11 | ||||||||||
| By-product credits | $ | (0.23 | ) | $ | (0.22 | ) | $ | (0.23 | ) | $ | (0.16 | ) | $ | (0.16 | ) | |||||
| Treatment, refining and other | $ | 0.02 | $ | 0.03 | $ | 0.02 | $ | 0.07 | $ | 0.03 | ||||||||||
| C1 cash cost of copper produced (per lb) | $ | 0.72 | $ | 0.49 | $ | 0.60 | $ | 0.65 | $ | 0.68 | ||||||||||
[1] - Beginning in the third quarter of 2020, production costs are presented net of capex development. Comparative figures have been adjusted to conform with the revised presentation.
Ero Copper Corp. June 30, 2021 MD&A | Page 24
C1 Cash Cost of Gold produced (per ounce) and AISC 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 ounce 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.
AISC of gold produced (per ounce) is the sum of production costs, site general and administrative costs, accretion of mine closure and rehabilitation provision, sustaining capital expenditures, sustaining leases, and royalties and production taxes, net of 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. All-in sustaining cost of gold produced per ounce 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.
The following table provides a reconciliation of C1 cash cost of gold produced per ounce and AISC of gold produced per ounce to cost of goods sold, its most directly comparable IFRS measure.
| 2021 - Q2 | 2021 - Q1 | 2021 - YTD | 2020 - Q2 | 2020 - YTD | ||||||||||||||||
| Reconciliation: | ||||||||||||||||||||
| Cost of Product Sold | $ | 6,978 | $ | 6,792 | $ | 13,770 | $ | 4,469 | $ | 10,326 | ||||||||||
| Add (less): | ||||||||||||||||||||
| Depreciation/amortization/depletion | (1,898 | ) | (1,708 | ) | (3,606 | ) | (663 | ) | (1,546 | ) | ||||||||||
| Incentive payments | (210 | ) | (283 | ) | (493 | ) | (103 | ) | (275 | ) | ||||||||||
| Net change in inventory | 292 | (127 | ) | 165 | 90 | 19 | ||||||||||||||
| By-product credits | (157 | ) | (148 | ) | (305 | ) | (77 | ) | (149 | ) | ||||||||||
| Foreign exchange translation adjustments | 176 | 81 | 257 | 102 | 111 | |||||||||||||||
| C1 cash costs | $ | 5,181 | $ | 4,607 | $ | 9,788 | $ | 3,818 | $ | 8,486 | ||||||||||
| Site general and administrative | 369 | 307 | 676 | 501 | 1,058 | |||||||||||||||
| Accretion of mine closure and rehabilitation provision | (63 | ) | (49 | ) | (112 | ) | 207 | 131 | ||||||||||||
| Sustaining capital expenditure | 527 | 485 | 1,012 | 78 | 254 | |||||||||||||||
| Sustaining leases | 565 | 462 | 1,027 | 365 | 766 | |||||||||||||||
| Royalties and production taxes | 271 | 269 | 540 | 214 | 390 | |||||||||||||||
| AISC | $ | 6,850 | $ | 6,081 | $ | 12,931 | $ | 5,183 | $ | 11,085 | ||||||||||
Ero Copper Corp. June 30, 2021 MD&A | Page 25
| 2021 - Q2 | 2021 - Q1 | 2021 - YTD | 2020 - Q2 | 2020 - YTD | ||||||||||||||||
| Costs | ||||||||||||||||||||
| Mining[1] | $ | 2,481 | $ | 2,263 | $ | 4,744 | $ | 1,790 | $ | 3,934 | ||||||||||
| Processing | 1,937 | 1,680 | 3,617 | 1,496 | 3,294 | |||||||||||||||
| Indirect | 920 | 812 | 1,732 | 609 | 1,407 | |||||||||||||||
| Production costs[1] | 5,338 | 4,755 | 10,093 | 3,895 | 8,635 | |||||||||||||||
| By-product credits | (157 | ) | (148 | ) | (305 | ) | (77 | ) | (149 | ) | ||||||||||
| C1 cash costs | $ | 5,181 | $ | 4,607 | $ | 9,788 | $ | 3,818 | $ | 8,486 | ||||||||||
| Site general and administrative | 369 | 307 | 676 | $ | 501 | $ | 1,058 | |||||||||||||
| Accretion of mine closure and rehabilitation provision | (63 | ) | (49 | ) | (112 | ) | $ | 207 | $ | 131 | ||||||||||
| Sustaining capital expenditure | 527 | 485 | 1,012 | $ | 78 | $ | 254 | |||||||||||||
| Sustaining leases | 565 | 462 | 1,027 | $ | 365 | $ | 766 | |||||||||||||
| Royalties and production taxes | 271 | 269 | 540 | $ | 214 | $ | 390 | |||||||||||||
| AISC | $ | 6,850 | $ | 6,081 | $ | 12,931 | $ | 5,183 | $ | 11,085 | ||||||||||
| Costs per ounce | ||||||||||||||||||||
| Payable gold produced (ounces) | 10,377 | 9,451 | 19,828 | 8,739 | 16,605 | |||||||||||||||
| Mining[1] | $ | 239 | $ | 239 | $ | 239 | $ | 205 | $ | 237 | ||||||||||
| Processing | $ | 187 | $ | 178 | $ | 182 | $ | 171 | $ | 198 | ||||||||||
| Indirect | $ | 89 | $ | 86 | $ | 87 | $ | 70 | $ | 85 | ||||||||||
| By-product credits | $ | (15 | ) | $ | (16 | ) | $ | (15 | ) | $ | (9 | ) | $ | (9 | ) | |||||
| C1 cash cost of gold produced (per ounce) | $ | 499 | $ | 487 | $ | 494 | $ | 437 | $ | 511 | ||||||||||
| AISC of gold produced (per ounce) | $ | 660 | $ | 643 | $ | 652 | $ | 593 | $ | 668 | ||||||||||
[1] - Beginning in the third quarter of 2020, production costs are presented net of capex development. Comparative figures have been adjusted to conform with the revised presentation.
Ero Copper Corp. June 30, 2021 MD&A | Page 26
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/or 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:
| - | Foreign exchange loss (gain) |
| - | Share based compensation |
| - | Incremental costs in response to COVID-19 pandemic |
| 2021 - Q2 | 2021 - Q1 | 2021 - YTD | 2020 - Q2 | 2020 - YTD | ||||||||||||||||
| Reconciliation: | ||||||||||||||||||||
| Net income (loss) | $ | 83,979 | $ | 32,057 | $ | 116,036 | $ | 7,708 | $ | (45,287 | ) | |||||||||
| Adjustments: | ||||||||||||||||||||
| Finance expenses | 2,306 | 3,770 | 6,076 | 2,845 | 9,496 | |||||||||||||||
| Tax expense (recovery) | 15,862 | 7,829 | 23,691 | 3,589 | (11,115 | ) | ||||||||||||||
| Depreciation/amortization/depletion | 9,871 | 11,511 | 21,382 | 9,261 | 19,742 | |||||||||||||||
| EBITDA | 112,018 | 55,167 | 167,185 | 23,403 | (27,164 | ) | ||||||||||||||
| Foreign exchange loss (gain) | (30,718 | ) | 28,625 | (2,093 | ) | 16,322 | 98,244 | |||||||||||||
| Share based compensation | 2,480 | 2,346 | 4,826 | 2,723 | 4,772 | |||||||||||||||
| Incremental costs in response to COVID-19 pandemic | 1,749 | 556 | 2,305 | - | - | |||||||||||||||
| Adjusted EBITDA | $ | 85,529 | $ | 86,694 | $ | 172,223 | $ | 42,448 | $ | 75,852 | ||||||||||
Note: In the fourth quarter of 2020, incremental costs in response to COVID-19 pandemic was included as an adjustment to the calculation of Adjusted EBITDA.
Adjusted net income attributable to owners of the Company and Adjusted net income per share attributable to owners of the Company
The Company uses the financial measure “Adjusted net income attributable to owners of the Company” and “Adjusted net income per share attributable to owners of the Company” (“Adjusted EPS”) 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 investor and analysts use this information to evaluate the Company’s performance. The Company excludes the following items from net income to provide a measure which allows the Company and investors to evaluate the operating results of the underlying core operations:
| - | Share based compensation |
| - | Unrealized foreign exchange loss (gain) on USD denominated balances in MCSA |
| - | Unrealized loss (gain) on foreign exchange derivative contracts, net of tax |
| - | Incremental costs in response to COVID-19 pandemic |
| - | Unrealized loss (gain) on interest rate derivative contracts |
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.
The following table provides a detailed reconciliation of net income (loss) attributable to owners of the Company as reported in the Company’s consolidated financial statements to adjusted net income attributable to owners of the Company and Adjusted EPS.
Ero Copper Corp. June 30, 2021 MD&A | Page 27
| 2021 - Q2 | 2021 - Q1 | 2021 - YTD | 2020 - Q2 | 2020 - YTD | ||||||||||||||||
| Reconciliation: | ||||||||||||||||||||
| Net income (loss) as reported attributable to the owners of the Company | $ | 83,419 | $ | 31,749 | $ | 115,168 | $ | 7,526 | $ | (45,227 | ) | |||||||||
| Adjustments for: | ||||||||||||||||||||
| Share based compensation | 2,480 | 2,346 | 4,826 | 2,723 | 4,772 | |||||||||||||||
| Unrealized foreign exchange loss (gain) on USD denominated balances in MCSA | (8,712 | ) | 7,800 | (912 | ) | 2,984 | 29,750 | |||||||||||||
| Unrealized loss (gain) on foreign exchange derivative contracts, net of tax | (25,256 | ) | 14,299 | (10,957 | ) | 7,151 | 50,232 | |||||||||||||
| Incremental costs in response to COVID-19 pandemic | 1,735 | 556 | 2,291 | - | - | |||||||||||||||
| Unrealized loss (gain) on interest rate derivative contracts | 6 | (415 | ) | (409 | ) | (131 | ) | 1,560 | ||||||||||||
| Adjusted net income attributed to owners of the Company | $ | 53,672 | $ | 56,335 | $ | 110,007 | $ | 20,253 | $ | 41,087 | ||||||||||
| Weighted average number of common shares - basic | 88,251,995 | 88,064,312 | 88,158,672 | 85,933,443 | 85,846,319 | |||||||||||||||
| Weighted average number of common shares - diluted | 93,314,274 | 92,902,306 | 93,106,210 | 91,428,969 | 91,517,140 | |||||||||||||||
| Adjusted EPS - basic | $ | 0.61 | $ | 0.64 | $ | 1.25 | $ | 0.24 | $ | 0.48 | ||||||||||
| Adjusted EPS - diluted | $ | 0.58 | $ | 0.61 | $ | 1.18 | $ | 0.22 | $ | 0.45 | ||||||||||
Note: In the fourth quarter of 2020, incremental costs in response to COVID-19 pandemic is included as an adjustment to the calculation of Adjusted EPS.
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. The following table provides a calculation of net debt based on amounts presented in the Company’s consolidated financial statements as at June 30, 2021, March 31, 2021, December 31, 2020, and June 30, 2020.
| June 30, | March 31 | December 31, | June 30, | |||||||||||||
| 2021 | 2021 | 2020 | 2020 | |||||||||||||
| Current portion of loans and borrowings | $ | 4,461 | $ | 5,971 | $ | 12,539 | $ | 25,793 | ||||||||
| Long-term portion of loans and borrowings | 152,404 | 153,090 | 155,563 | 157,482 | ||||||||||||
| Less: Cash and cash equivalents | (137,655 | ) | (84,574 | ) | (62,508 | ) | (51,617 | ) | ||||||||
| Restricted cash | - | - | - | (750 | ) | |||||||||||
| Net Debt | $ | 19,210 | $ | 74,487 | $ | 105,594 | $ | 130,908 | ||||||||
Working Capital (Deficit) and Available Liquidity
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. Available liquidity includes the Company’s cash and cash equivalents and undrawn revolving credit facilities in place. The following table provides a calculation for these based on amounts presented in the Company’s consolidated financial statements as at June 30, 2021, March 31, 2021, December 31, 2020, and June 30, 2020.
| June 30, | March 31 | December 31, | June 30, | |||||||||||||
| 2021 | 2021 | 2020 | 2020 | |||||||||||||
| Current Assets | $ | 202,342 | $ | 150,770 | $ | 127,541 | $ | 90,954 | ||||||||
| Less: Current Liabilities | (83,453 | ) | (87,309 | ) | (91,720 | ) | (116,687 | ) | ||||||||
| Working Capital (Deficit) | $ | 118,889 | $ | 63,461 | $ | 35,821 | $ | (25,733 | ) | |||||||
| Cash and cash equivalents | $ | 137,655 | $ | 84,574 | $ | 62,508 | $ | 51,617 | ||||||||
| Available undrawn revolving credit facilities | - | 10,600 | 11,621 | - | ||||||||||||
| Available Liquidity | $ | 137,655 | $ | 95,174 | $ | 74,129 | $ | 51,617 | ||||||||
Ero Copper Corp. June 30, 2021 MD&A | Page 28
Disclosure Controls and Procedures and Internal Control over Financial Reporting
The Company’s management, with the participation of the CEO and CFO, is responsible for establishing and maintaining adequate disclosure controls and procedures (“DC&P”) and internal control over financial reporting (“ICFR”).
The Company’s DC&P are designed to provide reasonable assurance that material information related to the Company is identified and communicated on a timely basis.
The Company’s ICFR is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Any system of ICFR, no matter how well designed, has inherent limitations and cannot provide absolute assurance that all misstatements and instances of fraud, if any, within the Company have been prevented or detected. The Company’s ICFR is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.
The Company uses the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
There were no changes in the Company’s DC&P and ICFR that materially affected, or are reasonably likely to materially affect, ICFR during Q2 2021.
NOTE REGARDING SCIENTIFIC AND TECHNICAL INFORMATION
Unless otherwise indicated, scientific and technical information in this MD&A relating to Ero’s properties (“Technical Information”) is based on information contained in the following reports:
The report prepared in accordance with National Instrument 43-101, Standards of Disclosure for Mineral Projects (“NI 43-101”) and entitled “2020 Updated Mineral Resources and Mineral Reserves Statements of Mineração Caraíba’s Vale do Curaçá Mineral Assets, Curaçá Valley”, dated January 14, 2021 with an effective date of October 1, 2020, prepared by Porfirio Cabaleiro Rodrigues, MAIG, Bernardo Horta de Cerqueira Viana, MAIG, Paulo Roberto Bergmann, FAusIMM, Fábio Valério Câmara Xavier, MAIG, Dr. Augusto Ferreira Mendonça, RM SME, all of GE21 Consultoria Mineral Ltda. (“GE21”), and Dr. Beck (Alizeibek) Nader, FAIG, of BNA Mining Solutions, and each a “qualified person” and “independent” of the Company within the meanings of NI 43-101 (the “MCSA Mining Complex Technical Report”).
The report prepared in accordance with NI 43-101 and entitled “Mineral Resource and Mineral Reserve Estimate of the NX Gold Mine, Nova Xavantina”, dated January 8, 2021 with an effective date of September 30, 2020, prepared by Porfirio Cabaleiro Rodrigues, MAIG, Leonardo de Moraes Soares, MAIG, Bernardo Horta de Cerqueira Viana, MAIG, and Paulo Roberto Bergmann, FAusIMM, each of GE21 and a “qualified person” and “independent” of the Company within the meanings of NI 43-101 (the “NX Gold Technical Report”).
The report prepared in accordance with NI 43-101 and entitled “Feasibility Study, Technical Report for the Boa Esperança Copper Project, Pará State Brazil”, dated September 7, 2017 with an effective date of June 1, 2017, prepared by Rubens Mendonça, MAusIMM of SRK Consultores do Brasil Ltda. (“SRK” or “SRK Brazil”) as at the date of the report and Carlos Barbosa, MAIG and Girogio di Tomi, MAusIMM, both of SRK Brazil, and each a “qualified person” and “independent” of the Company within the meanings of NI 43-101 (the “Boa Esperança Feasibility Study”).
Ero Copper Corp. June 30, 2021 MD&A | Page 29
Reference should be made to the full text of the MCSA Mining Complex Technical Report, the NX Gold Technical Report and the Boa Esperança Technical Report, each of which is available for review under the Company’s profile on SEDAR at www.sedar.com.
The disclosure of Technical Information in this MD&A 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 NI 43-101.
Cautionary Note Regarding Forward-Looking Statements
This MD&A contains “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995 and “forward-looking information” within the meaning of applicable Canadian securities legislation (collectively, “forward-looking statements”). Forward-looking statements include statements that use forward-looking terminology such as “may”, “could”, “would”, “will”, “should”, “intend”, “target”, “plan”, “expect”, “budget”, “estimate”, “forecast”, “schedule”, “anticipate”, “believe”, “continue”, “potential”, “view” or the negative or grammatical variation thereof or other variations thereof or comparable terminology. Forward-looking statements include, but are not limited to,. Such forward-looking statements include, without limitation, statements with respect to mineral reserve and mineral resource estimates as well as LOM plans; targeting additional mineral resources and expansion of deposits; the Company’s expectations, strategies and plans for the MCSA Mining Complex, the NX Gold Property and the Boa Esperança Property, including, but not limited to, the Company’s planned exploration, development and production activities; the significance and timing of any particular exploration program or result and the Company’s expectations for current and future exploration plans including, but not limited to, planned areas of additional exploration, the significance of any drill results or new discoveries and targets including, but not limited to,, extensions of defined mineralized zones, possibilities for mine life extensions or continuity of high-grade mineralization, the recoverable value of any metals other than copper, further extensions and expansion of mineralization near the Company’s existing operations and throughout the Curaçá Valley or the NX Gold Mine, statements with respect to the importance of any new discoveries including newly identified mineral systems, the significance of re-evaluation of the Company’s past producing open pit mines, the timing and advancement of ongoing projects including the Deepening Extension Project and the re-start of the Surubim open pit mine; estimated completion dates for certain milestones; successfully adding or upgrading mineral resources and successfully developing new deposits; the costs and timing of future exploration and development including but not limited to the Deepening Extension Project at the MCSA Mining Complex; the significance of any potential optimization initiatives in connection with the Boa Esperança Property; the impact of the COVID-19 pandemic on the Company’s planned drill programs; the timing and amount of future production at the MCSA Mining Complex and the NX Gold Property; the timing and successful close of the NX Gold Transaction; the Company's ability to service its ongoing obligations, the Company's future production outlook, cash costs, capital resources, expenditures, and current global macroeconomic uncertainty stemming from the COVID-19 pandemic and its impact on the Company’s business, financial condition, results of operations, cash flows and prospects.
Forward-looking statements are not a guarantee of future performance and are based upon a number of estimates and assumptions of management in light of management’s experience and perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable in the circumstances, as of the date of this MD&A including, without limitation, assumptions about: continued effectiveness of the measures taken by the Company to mitigate the possible impact of COVID-19 on its workforce and operations; favourable equity and debt capital markets; the ability to raise any necessary additional capital on reasonable terms to advance the production, development and exploration of the Company’s properties and assets; future prices of copper and other metal prices; the timing and results of exploration and drilling programs; the accuracy of any mineral reserve and mineral resource estimates; the geology of the MCSA Mining Complex, NX Gold Property and the Boa Esperança Property being as described in the technical reports for these properties; production costs; the accuracy of budgeted exploration and development costs and expenditures; the price of other commodities such as fuel; future currency exchange rates and interest rates; operating conditions being favourable such that the Company is able to operate in a safe, efficient and effective manner; work force conditions to remain healthy in the face of prevailing epidemics, pandemics or other health risks (including COVID-19), political and regulatory stability; the receipt of governmental, regulatory and third party approvals, licenses and permits on favourable terms; obtaining required renewals for existing approvals, licenses and permits on favourable terms; requirements under applicable laws; sustained labour stability; stability in financial and capital goods markets; availability of equipment and critical supplies, spare parts and consumables; positive relations with local groups and the Company’s ability to meet its obligations under its agreements with such groups; and satisfying the terms and conditions of the Company’s current loan arrangements. While the Company considers these assumptions to be reasonable, the assumptions are inherently subject to significant business, social, economic, political, regulatory, competitive, global health, and other risks and uncertainties, contingencies and other factors that could cause actual actions, events, conditions, results, performance or achievements to be materially different from those projected in the forward-looking statements. Many assumptions are based on factors and events that are not within the control of the Company and there is no assurance they will prove to be correct.
Ero Copper Corp. June 30, 2021 MD&A | Page 30
Furthermore, such forward-looking statements involve a variety of known and unknown risks, uncertainties and other factors which may cause the actual plans, intentions, activities, results, performance or achievements of the Company to be materially different from any future plans, intentions, activities, results, performance or achievements expressed or implied by such forward-looking statements. Such risks include, without limitation the risk factors listed under the heading “Risk Factors” in the AIF.
Although the Company has attempted to identify important factors that could cause actual actions, events, conditions, results, performance or achievements to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events, conditions, results, performance or achievements to differ from those anticipated, estimated or intended.
The Company cautions that the foregoing lists of important assumptions and factors are not exhaustive. Other events or circumstances could cause actual results to differ materially from those estimated or projected and expressed in, or implied by, the forward-looking statements contained herein. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.
Forward-looking statements contained herein are made as of the date of this MD&A and the Company disclaims any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or results or otherwise, except as and to the extent required by applicable securities laws.
Cautionary Notes Regarding Mineral Resource and Mineral Reserve Estimates
In accordance with applicable Canadian securities regulatory requirements, all mineral reserve and mineral resource estimates of the Company disclosed in this MD&A have been prepared in accordance with NI 43-101 and are classified in accordance with the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) Definition Standards for Mineral Resources and Mineral Reserves, adopted by the CIM Council on May 10, 2014 (the “CIM Standards”). NI 43-101 is a rule developed by the Canadian Securities Administrators that establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects. NI 43-101 differs significantly from the disclosure requirements of the Securities and Exchange Commission (the “SEC”) generally applicable to U.S. companies. For example, the terms “mineral reserve”, “proven mineral reserve”, “probable mineral reserve”, “mineral resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral resource” are defined in NI 43-101. These definitions differ from the definitions in the disclosure requirements promulgated by the SEC. Accordingly, information contained in this MD&A may not be comparable to similar information made public by U.S. companies reporting pursuant to SEC disclosure requirements.
Ero Copper Corp. June 30, 2021 MD&A | Page 31
Mineral resources which are not mineral reserves do not have demonstrated economic viability. Pursuant to the CIM Standards, mineral resources have a higher degree of uncertainty than mineral reserves as to their existence as well as their economic and legal feasibility. Inferred mineral resources, when compared with measured or indicated mineral resources, have the least certainty as to their existence, and it cannot be assumed that all or any part of an inferred mineral resource will be upgraded to an indicated or measured mineral resource as a result of continued exploration. Pursuant to NI 43-101, inferred mineral resources may not form the basis of any economic analysis. Accordingly, readers are cautioned not to assume that all or any part of a mineral resource exists, will ever be converted into a mineral reserve, or is or will ever be economically or legally mineable or recovered.
ADDITIONAL INFORMATION
Additional information about Ero and its business activities, including the AIF, is available under the Company’s profile at www.sedar.com and www.sec.gov.
Ero Copper Corp. June 30, 2021 MD&A | Page 32
Exhibit 99.2
CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 2021 AND 2020
| Ero Copper Corp. |
|
Condensed Consolidated Statements of Financial Position (Amounts in thousands of US Dollars) (Unaudited) |
| ASSETS | Notes | As at June 30, 2021 | As at December 31, 2020 | |||||||||
| Current | ||||||||||||
| Cash and cash equivalents | $ | 137,655 | $ | 62,508 | ||||||||
| Accounts receivable | 21,507 | 20,353 | ||||||||||
| Inventories | 3 | 27,172 | 25,496 | |||||||||
| Other current assets | 4 | 16,008 | 19,184 | |||||||||
| 202,342 | 127,541 | |||||||||||
| Non-Current | ||||||||||||
| Mineral, property, plant and equipment | 5 | 399,856 | 333,702 | |||||||||
| Exploration and evaluation assets | 6 | 24,078 | 21,024 | |||||||||
| Deposits | 532 | 513 | ||||||||||
| Deferred income tax assets | 1,635 | 14,223 | ||||||||||
| Other non-current assets | 32 | 96 | ||||||||||
| 426,133 | 369,558 | |||||||||||
| Total Assets | $ | 628,475 | $ | 497,099 | ||||||||
| LIABILITIES | ||||||||||||
| Current | ||||||||||||
| Accounts payable and accrued liabilities | $ | 42,413 | $ | 37,878 | ||||||||
| Current portion of loans and borrowings | 7 | 4,461 | 12,539 | |||||||||
| Current portion of value added, payroll and other taxes payable | 14,755 | 13,361 | ||||||||||
| Current portion of derivatives | 15 | 18,129 | 26,540 | |||||||||
| Current portion of lease liabilities | 3,695 | 1,402 | ||||||||||
| 83,453 | 91,720 | |||||||||||
| Non-Current | ||||||||||||
| Loans and borrowings | 7 | 152,404 | 155,563 | |||||||||
| Provisions | 21,873 | 21,450 | ||||||||||
| Value added, payroll and other taxes | 4,239 | 1,468 | ||||||||||
| Derivatives | 15 | 7,125 | 10,811 | |||||||||
| Lease liabilities | 2,490 | 346 | ||||||||||
| Other non-current liabilities | 1,234 | 1,666 | ||||||||||
| 189,365 | 191,304 | |||||||||||
| Total Liabilities | 272,818 | 283,024 | ||||||||||
| SHAREHOLDERS’ EQUITY | ||||||||||||
| Share capital | 8 | 129,152 | 126,152 | |||||||||
| Equity reserves | (43,606 | ) | (67,291 | ) | ||||||||
| Retained earnings | 269,010 | 153,842 | ||||||||||
| Equity attributable to owners of the Company | 354,556 | 212,703 | ||||||||||
| Non-controlling interests | 1,101 | 1,372 | ||||||||||
| 355,657 | 214,075 | |||||||||||
| Total Liabilities and Equity | $ | 628,475 | $ | 497,099 | ||||||||
Commitments (Note 9); Contingencies (Note 17)
APPROVED ON BEHALF OF THE BOARD:
| “David Strang” , CEO & Director | ” Matthew Wubs” , Director |
| The accompanying notes are an integral part of these condensed consolidated interim financial statements |
Page 1
| Ero Copper Corp. |
|
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Amounts in thousands of US Dollars, except share and per share amounts) (Unaudited) |
| Notes | Three-month period ended June 30, 2021 | Three-month period ended June 30, 2020 | Six-month period ended June 30, 2021 | Six-month period ended June 30, 2020 | ||||||||||||||||
| Revenue | 9 | $ | 120,706 | $ | 70,760 | $ | 243,249 | $ | 138,505 | |||||||||||
| Cost of product sold | 10 | (35,300 | ) | (30,114 | ) | (73,660 | ) | (65,925 | ) | |||||||||||
| Sales expenses | (1,747 | ) | (1,114 | ) | (3,121 | ) | (2,396 | ) | ||||||||||||
| Gross profit | 83,659 | 39,532 | 166,468 | 70,184 | ||||||||||||||||
| Expenses | ||||||||||||||||||||
| General and administrative | 11 | (9,506 | ) | (6,073 | ) | (18,007 | ) | (13,576 | ) | |||||||||||
| Share-based compensation | 8(a) to (c) | (2,480 | ) | (2,723 | ) | (4,826 | ) | (4,772 | ) | |||||||||||
| Income before the undernoted | 71,673 | 30,736 | 143,635 | 51,836 | ||||||||||||||||
| Other income (expenses) | ||||||||||||||||||||
| Finance income | 318 | 530 | 1,288 | 997 | ||||||||||||||||
| Finance expense | 12 | (2,306 | ) | (2,845 | ) | (6,076 | ) | (9,496 | ) | |||||||||||
| Foreign exchange gain (loss) | 13 | 30,718 | (16,322 | ) | 2,093 | (98,244 | ) | |||||||||||||
| Other expenses | (562 | ) | (802 | ) | (1,213 | ) | (1,495 | ) | ||||||||||||
| Income (loss) before income taxes | 99,841 | 11,297 | 139,727 | (56,402 | ) | |||||||||||||||
| Income tax recovery (expense) | ||||||||||||||||||||
| Current | (4,716 | ) | (2,798 | ) | (11,806 | ) | (3,889 | ) | ||||||||||||
| Deferred | (11,146 | ) | (791 | ) | (11,885 | ) | 15,004 | |||||||||||||
| (15,862 | ) | (3,589 | ) | (23,691 | ) | 11,115 | ||||||||||||||
| Net income (loss) for the period | 83,979 | 7,708 | 116,036 | (45,287 | ) | |||||||||||||||
| Other comprehensive income (loss) | ||||||||||||||||||||
| Foreign currency translation gain (loss) | 44,603 | (14,041 | ) | 20,244 | (63,960 | ) | ||||||||||||||
| Comprehensive income (loss) | $ | 128,582 | $ | (6,333 | ) | $ | 136,280 | $ | (109,247 | ) | ||||||||||
| Net income (loss) attributable to: | ||||||||||||||||||||
| Owners of the Company | 83,419 | 7,526 | 115,168 | (45,227 | ) | |||||||||||||||
| Non-controlling interests | 560 | 182 | 868 | (60 | ) | |||||||||||||||
| $ | 83,979 | $ | 7,708 | $ | 116,036 | $ | (45,287 | ) | ||||||||||||
| Comprehensive income (loss) attributable to: | ||||||||||||||||||||
| Owners of the Company | 127,844 | (6,459 | ) | 135,331 | (108,931 | ) | ||||||||||||||
| Non-controlling interests | 738 | 126 | 949 | (316 | ) | |||||||||||||||
| $ | 128,582 | $ | (6,333 | ) | $ | 136,280 | $ | (109,247 | ) | |||||||||||
| Net income (loss) per share attributable to owners of the Company | 8(e) | |||||||||||||||||||
| Net income (loss) per share | ||||||||||||||||||||
| Basic | $ | 0.95 | $ | 0.09 | $ | 1.31 | $ | (0.53 | ) | |||||||||||
| Diluted | $ | 0.89 | $ | 0.08 | $ | 1.24 | $ | (0.53 | ) | |||||||||||
| Weighted average number of common shares outstanding | ||||||||||||||||||||
| Basic | 88,251,995 | 85,933,443 | 88,158,672 | 85,846,319 | ||||||||||||||||
| Diluted | 93,314,274 | 91,428,969 | 93,106,210 | 85,846,319 | ||||||||||||||||
| The accompanying notes are an integral part of these condensed consolidated interim financial statements |
Page 2
| Ero Copper Corp. |
|
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Amounts in thousands of US Dollars, except share and per share amounts) (Unaudited) |
| Share Capital | Equity Reserves | |||||||||||||||||||||||||||||||||
| Notes | Number of shares | Amount | Contributed surplus | Foreign exchange | Retained earnings | Total | Non-controlling interest | Total equity | ||||||||||||||||||||||||||
| Balance, December 31, 2019 | 85,703,646 | $ | 120,492 | $ | 9,084 | $ | (33,573 | ) | $ | 102,220 | $ | 198,223 | $ | 835 | $ | 199,058 | ||||||||||||||||||
| Income for the period | - | - | - | - | (45,227 | ) | (45,227 | ) | (60 | ) | (45,287 | ) | ||||||||||||||||||||||
| Other comprehensive loss for the period | - | - | - | (63,704 | ) | - | (63,704 | ) | (256 | ) | (63,960 | ) | ||||||||||||||||||||||
| Total comprehensive loss for the period | - | - | - | (63,704 | ) | (45,227 | ) | (108,931 | ) | (316 | ) | (109,247 | ) | |||||||||||||||||||||
| Shares issued for: | ||||||||||||||||||||||||||||||||||
| Exercise of options and warrants | 594,313 | 2,327 | (671 | ) | - | - | 1,656 | - | 1,656 | |||||||||||||||||||||||||
| Share-based compensation | 8(a) to (b) | - | - | 4,268 | - | - | 4,268 | - | 4,268 | |||||||||||||||||||||||||
| Dividends to non-controlling interest | (10 | ) | (10 | ) | ||||||||||||||||||||||||||||||
| Balance, June 30, 2020 | 86,297,959 | $ | 122,819 | $ | 12,681 | $ | (97,277 | ) | $ | 56,993 | $ | 95,216 | $ | 509 | $ | 95,725 | ||||||||||||||||||
| Balance, December 31, 2020 | 87,879,261 | $ | 126,152 | $ | 15,637 | $ | (82,928 | ) | $ | 153,842 | $ | 212,703 | $ | 1,372 | $ | 214,075 | ||||||||||||||||||
| Income for the period | - | - | - | - | 115,168 | 115,168 | 868 | 116,036 | ||||||||||||||||||||||||||
| Other comprehensive loss for the period | - | - | - | 20,163 | - | 20,163 | 81 | 20,244 | ||||||||||||||||||||||||||
| Total comprehensive income (loss) for the period | - | - | 15,637 | 20,163 | 115,168 | 135,331 | 949 | 136,280 | ||||||||||||||||||||||||||
| Shares issued for: | ||||||||||||||||||||||||||||||||||
| Exercise of options and warrants | 495,415 | 3,000 | (799 | ) | - | - | 2,201 | - | 2,201 | |||||||||||||||||||||||||
| Share-based compensation | 8(a) to (b) | - | - | 4,321 | - | - | 4,321 | - | 4,321 | |||||||||||||||||||||||||
| Dividends to non-controlling interest | - | - | - | - | - | - | (1,220 | ) | (1,220 | ) | ||||||||||||||||||||||||
| Balance, June 30, 2021 | 88,374,676 | $ | 129,152 | $ | 19,159 | $ | (62,765 | ) | $ | 269,010 | $ | 354,556 | $ | 1,101 | $ | 355,657 | ||||||||||||||||||
| The accompanying notes are an integral part of these condensed consolidated interim financial statements |
Page 3
| Ero Copper Corp. | |
|
Condensed Consolidated Statements of Cash Flows (Amounts in thousands of US Dollars) (Unaudited) |
| Three-month period ended June 30, 2021 | Three-month period ended June 30, 2020 | Six-month period ended June 30, 2021 | Six-month period ended June 30, 2020 | |||||||||||||
| Cash Flows from / (used in) Operating Activities | ||||||||||||||||
| Net income (loss) for the period | $ | 83,979 | $ | 7,708 | $ | 116,036 | $ | (45,287 | ) | |||||||
| Adjustments for: | ||||||||||||||||
| Amortization and depreciation | 9,871 | 9,261 | 21,382 | 19,742 | ||||||||||||
| Income tax expense (recovery) | 15,862 | 3,589 | 23,691 | (11,115 | ) | |||||||||||
| Write-off of plant and equipment | 54 | 48 | 129 | 48 | ||||||||||||
| Provisions | 39 | 212 | (29 | ) | 555 | |||||||||||
| Share-based compensation | 2,480 | 2,723 | 4,826 | 4,772 | ||||||||||||
| Finance income | (318 | ) | (530 | ) | (1,288 | ) | (997 | ) | ||||||||
| Finance expenses | 2,306 | 2,845 | 6,076 | 9,496 | ||||||||||||
| Foreign exchange loss (gain) | (30,718 | ) | 16,322 | (2,093 | ) | 98,244 | ||||||||||
| Changes in: | ||||||||||||||||
| Accounts receivable | 11,632 | (98 | ) | (557 | ) | 5,764 | ||||||||||
| Inventories | (1,200 | ) | (3,044 | ) | 87 | (4,981 | ) | |||||||||
| Other assets | (1,008 | ) | 2,473 | 3,953 | 3,914 | |||||||||||
| Accounts payable and accrued liabilities | 2,580 | 7,386 | (9,248 | ) | 6,328 | |||||||||||
| Value added, payroll and other taxes | (389 | ) | (1,724 | ) | 620 | 1,063 | ||||||||||
| 95,170 | 47,171 | 163,585 | 87,546 | |||||||||||||
| Derivative contract settlements | (5,997 | ) | (4,363 | ) | (11,708 | ) | (7,014 | ) | ||||||||
| Provision settlements | (443 | ) | (338 | ) | (795 | ) | (748 | ) | ||||||||
| Income taxes paid | (3,628 | ) | - | (3,868 | ) | - | ||||||||||
| 85,102 | 42,470 | 147,214 | 79,784 | |||||||||||||
| Cash Flows from / (used in) Investing Activities | ||||||||||||||||
| Additions to mineral property, plant and equipment | (35,239 | ) | (30,375 | ) | (61,112 | ) | (58,742 | ) | ||||||||
| Additions to exploration and evaluation assets | (837 | ) | (34 | ) | (1,301 | ) | (88 | ) | ||||||||
| Other investments | 374 | 47 | 500 | 565 | ||||||||||||
| (35,702 | ) | (30,362 | ) | (61,913 | ) | (58,265 | ) | |||||||||
| Cash Flows from / (used in) Financing Activities | ||||||||||||||||
| Restricted cash | - | 375 | - | 750 | ||||||||||||
| Lease liability payments | (1,181 | ) | (1,016 | ) | (2,266 | ) | (2,187 | ) | ||||||||
| New loans and borrowings, net of finance costs | 11 | 5,309 | 641 | 50,998 | ||||||||||||
| Loans and borrowings paid | (3,114 | ) | (7,854 | ) | (10,776 | ) | (29,084 | ) | ||||||||
| Interest paid on loans and borrowings | (1,401 | ) | (1,284 | ) | (3,322 | ) | (3,732 | ) | ||||||||
| Other finance expenses | (1,090 | ) | (540 | ) | (2,103 | ) | (1,306 | ) | ||||||||
| Issuance of share capital, net of issuance costs | 1,085 | 1,357 | 2,201 | 1,656 | ||||||||||||
| (5,690 | ) | (3,653 | ) | (15,625 | ) | 17,095 | ||||||||||
| Effect of exchange rate changes on cash and cash equivalents | 9,371 | (1,176 | ) | 5,471 | (8,482 | ) | ||||||||||
| Net increase in cash and cash equivalents | 53,081 | 7,279 | 75,147 | 30,132 | ||||||||||||
| Cash and cash equivalents - beginning of period | 84,574 | 44,338 | 62,508 | 21,485 | ||||||||||||
| Cash and cash equivalents - end of period | $ | 137,655 | $ | 51,617 | $ | 137,655 | $ | 51,617 | ||||||||
| The accompanying notes are an integral part of these condensed consolidated interim financial statements |
Page 4
| Ero Copper Corp. |
|
Notes to Condensed Consolidated Interim Financial Statements (Tabular amounts in thousands of US Dollars, except share and per share amounts) (Unaudited) |
| 1. | Nature of Operations |
Ero Copper Corp. (“Ero" or the "Company") was incorporated on May 16, 2016 under the Business Corporations Act (British Columbia) and maintains its head office at Suite 1050, 625 Howe Street, Vancouver, BC, V6C 2T6. The Company’s shares are publicly traded on the Toronto Stock Exchange and the New York Stock Exchange under the symbol “ERO”.
The Company’s principal asset is its 99.6% ownership interest in Mineração Caraíba S.A. (“MCSA”). The Company also currently owns a 97.6% ownership interest in NX Gold S.A. (“NX Gold”) indirectly through its wholly-owned subsidiary, Ero Gold Corp. (“Ero Gold”).
MCSA is a Brazilian company which holds a 100% interest in the MCSA Mining Complex and the Boa Esperança Property (Note 6). MCSA’s predominant activity is the production and sale of copper concentrate from the MCSA Mining Complex, located in Bahia, Brazil, with gold and silver produced and sold as by-products. The Company currently mines copper ore from the Pilar underground mine (“Pilar UG Mine”) and the Vermelhos underground mine (“Vermelhos UG Mine”). The Boa Esperança Property is located within the municipality of Tucumã in the southeastern part of the state of Pará, Brazil, and consists of a single mineral concession covering an area of 4,034 hectares (“ha”).
NX Gold is a Brazilian gold mining company focused on the production and sale of gold as its main product and silver as its by-product. NX Gold wholly owns a 31,096 ha property, located approximately 18 kilometers west of the town of Nova Aventine, in southeastern Mato Grosso State, Brazil, consisting of a single mining concession covering an area of 620 ha, where all gold mining and processing activities occur.
On March 11, 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organization. Although COVID-19 has not materially impacted the Company’s operations during the three and six-month periods ended June 30, 2021, the situation is dynamic and the ultimate duration and magnitude of the impact on the economy and our business are not known at this time. These impacts could include an impact on the Company’s ability to obtain debt and equity financing, impairment of investments, impairments in the value of long-lived assets, continued fluctuation in the value of the Brazilian Real or potential future decreases in revenue or the profitability of ongoing operations.
| 2. | Basis of Preparation |
| a) | Statement of Compliance |
These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standards (“IAS”) 34, Interim Financial Reporting and follow the same accounting policies and methods of application as the Company’s most recent annual consolidated financial statements for the year ended December 31, 2020. These condensed consolidated interim financial statements do not include all of the information required for full consolidated annual financial statements and should be read in conjunction with the consolidated financial statements of the Company as at and for the year ended December 31, 2020, prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee.
These condensed consolidated interim financial statements were authorized for issue by the Board of Directors of the Company (the “Board”) on August 4, 2021.
| Page 5 |
| Ero Copper Corp. |
|
Notes to Condensed Consolidated Interim Financial Statements (Tabular amounts in thousands of US Dollars, except share and per share amounts) (Unaudited) |
| b) | New Accounting Standards and Interpretations |
The following amendment to accounting standards has been issued but not yet adopted in the financial statements:
| · | On May 14, 2020, the IASB published a narrow scope amendment to IAS 16 Property, Plant and Equipment - Proceeds before Intended Use. The amendment prohibits deducting from the cost of property, plant and equipment amounts received from selling items produced while preparing the asset for its intended use. Instead, amounts received will be recognized as sales proceeds and related cost in profit or loss. The effective date is for annual periods beginning on or after January 1, 2022. The Company will not adopt this amendment until the effective date but does not anticipate a material impact on its consolidated financial statements. |
| · | In September 2019, the IASB issued first phase amendments IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Hedging and IFRS 7 Financial Instrument Disclosures to address the financial reporting impact of the reform on interest rate benchmarks, such as the discontinuance of the interbank offered rates. Phase 2 of the Interest Rate Benchmark Reform refers to a global reform of interest rate benchmarks, which includes the replacement of some interbank offered rates (“LIBOR”) with alternative benchmark rates. Phase 2 amendments require the effective interest rate to be adjusted when accounting for changes in the basis for determining the contractual cash flows of financial assets and liabilities that relate directly to this reform rather than applying modification accounting. In addition, the Phase 2 amendments require disclosures to assist users in understanding the effect of the reform on the Company’s financial instruments and risk management strategy. |
The Company maintains a $150.0 million senior secured revolving credit facility which bears interest on a sliding scale at a rate of LIBOR plus 2.25% to 4.25% depending on the Company’s consolidated leverage ratio at the time, and which is expected to be fully repaid on March 31, 2025. The Company expects to switch over to the benchmark replacement rate, the Secured Overnight Funding Rate (“SOFR”) during 2021.
The Company also maintains LIBOR interest rate swap contracts on a notional amount of $50.0 million of the $150.0 million senior secured revolving credit facility, which was swapped for a fixed interest rate of 1.68%. The Company expects it will also switch over to the SOFR for this interest rate swap arrangement, which is in effect until March 31, 2025.
The Company is in the process of assessing the impact of the switch to SOFR on the consolidated financial statements.
| c) | Use of Judgments and Estimates |
In preparing these condensed consolidated interim financial statements, management has made judgments, estimates and assumptions that affect the application of the Company’s accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may differ. Significant judgments made by management in applying the Company’s accounting policies and key sources of estimation uncertainty were the same as those applied in the most recent annual audited consolidated financial statements for the year ended December 31, 2020.
| Page 6 |
| Ero Copper Corp. |
|
Notes to Condensed Consolidated Interim Financial Statements (Tabular amounts in thousands of US Dollars, except share and per share amounts) (Unaudited) |
| 3. | Inventories |
| June 30, 2021 | December 31, 2020 | |||||||
| Supplies and consumables | $ | 19,818 | $ | 15,619 | ||||
| Stockpile | 1,555 | 3,569 | ||||||
| Work in progress | 2,511 | 5,234 | ||||||
| Finished goods | 3,288 | 1,074 | ||||||
| $ | 27,172 | $ | 25,496 | |||||
| 4. | Other Current Assets |
| June 30, 2021 | December 31, 2020 | |||||||
| Advances to suppliers | $ | 751 | $ | 500 | ||||
| Prepaid expenses | 4,694 | 2,635 | ||||||
| Advances to employees (a) | 1,146 | 2,091 | ||||||
| Value added federal taxes recoverable (b) | 9,417 | 13,958 | ||||||
| $ | 16,008 | $ | 19,184 | |||||
| (a) | Advances to employees include short term advances of salary, vacation and other benefits granted to employees of the Company’s subsidiaries MCSA and NX Gold. |
| (b) | At June 30, 2021, $5.9 million (December 31, 2020 - $12.0 million) of this balance relates to additional taxes recoverable identified by a study conducted to revisit certain tax positions in 2020 and a 2019 favourable legal decision that recognizes MCSA’s right to a tax credit as a result of historical over-payment. MCSA is able to use these tax credits against a variety of taxes, including taxes on future sales. During the three and six-month periods ended June 30, 2021, the Company used $0.2 million and $6.1 million, respectively, of these credits to offset current income taxes payable. (three and six-month periods ended June 30, 2020 - $1.6 million and $4.8 million, respectively) |
| 5. | Mineral, Property, Plant and Equipment |
Additions to mineral, property, plant and equipment totaled $46.1 million and $72.0 million during the three and six-month periods ended June 30, 2021, respectively, (three and six-month periods ended June 30, 2020 - $33.7 million and $61.5 million, respectively) none of which was obtained through financing arrangements with equipment suppliers (three and six-month periods ended June 30, 2020 - $0.1 million and $6.4 million, respectively).
Certain equipment has been provided as security for the equipment finance loans (note 7(b)).
Included in mineral, property, plant and equipment is $93.0 million (December 31, 2020 - $56.8 million) related to projects in progress that are not currently being amortized.
| 6. | Exploration and Evaluation Assets |
Exploration and evaluation assets relate to the Company’s Boa Esperança development project located in the Municipality of Tucumã, in the state of Pará, Brazil. This prospective copper property is the subject of a completed feasibility study, and an optimization study is currently in progress.
| Page 7 |
| Ero Copper Corp. |
|
Notes to Condensed Consolidated Interim Financial Statements (Tabular amounts in thousands of US Dollars, except share and per share amounts) (Unaudited) |
| 7. | Loans and Borrowings |
| Carrying value, including
accrued interest | ||||||||||||||||||||
| Description | Denomination | Security | Time to Maturity | Coupon rate | Principal
to be repaid | June
30, 2021 | December
31, 2020 | |||||||||||||
| Bank loan | BRL R$ | Unsecured | 65 months | CDI + 0.5% | 4,185 | 3,819 | 3,980 | |||||||||||||
| Line of credit (MCSA) | BRL R$ | Unsecured | - | CDI + 9.0% | - | - | 1,447 | |||||||||||||
| Lines of credit (MCSA) | BRL R$ | Unsecured | - | 9.60%-13.20% | - | - | 4,221 | |||||||||||||
| Equipment finance loan (Plural) | BRL R$ | Secured | 5 months | CDI + 7.0% | 400 | 503 | 1,065 | |||||||||||||
| Equipment finance loans | BRL R$ | Secured | - | 11.88%-16.49% | - | - | 1,607 | |||||||||||||
| Equipment finance loans | EURO | Secured | 12 - 18 months | 5.5%-7.0% | 719 | 734 | 1,791 | |||||||||||||
| Equipment finance loans | USD | Secured | 10 - 26 months | 6.50%-7.95% | 4,055 | 4,191 | 5,605 | |||||||||||||
| Senior non-revolving credit facility | USD | Secured | - | LIBOR + 2.50%-4.25% | - | - | 74,193 | |||||||||||||
| Senior revolving credit facility | USD | Secured | 45 months | LIBOR + 2.25%-4.25% | 150,000 | 147,618 | 74,193 | |||||||||||||
| Total | $ | 159,359 | $ | 156,865 | $ | 168,102 | ||||||||||||||
| Current portion: | $ | 4,461 | $ | 12,539 | ||||||||||||||||
| Non-current portion: | $ | 152,404 | $ | 155,563 | ||||||||||||||||
| June 30, 2021 | December 31, 2020 | |||||||
| Balance, beginning of year | $ | 168,102 | $ | 159,370 | ||||
| New senior revolving credit facility, net | - | 13,652 | ||||||
| New equipment finance loans | - | 19,278 | ||||||
| New lines of credit | 641 | 36,726 | ||||||
| Principal and interest payments | (14,098 | ) | (67,118 | ) | ||||
| Interest accretion | 3,216 | 9,921 | ||||||
| Effect of foreign exchange rate changes | (996 | ) | (3,727 | ) | ||||
| Balance, end of period | $ | 156,865 | $ | 168,102 | ||||
| (a) | Senior credit facility |
The Company had a $150.0 million facility from a syndicate of Canadian financial institutions. The facility was comprised of a $75.0 million senior secured amortizing non-revolving credit facility (“Term Facility”) and a $75.0 million senior secured revolving term credit facility (“Revolving Credit Facility”) (collectively the “Facilities”). The Term Facility required quarterly payments commencing on March 31, 2022 and the Revolving Credit Facility was due on March 31, 2024. The Facilities bore interest on a sliding scale at a rate of LIBOR plus 2.50% to 4.25%, depending on the Company’s consolidated leverage ratio at the time.
During the six-month period ended June 30, 2021, the Facilities were amended to combine the Facilities into a new $150.0 million senior secured revolving credit facility (“New Revolving Credit Facility”) payable entirely on March 31, 2025. The New Revolving Credit Facility bears interest on a sliding scale at a rate of LIBOR plus 2.25% to 4.25% depending on the Company’s consolidated leverage ratio at the time. Commitment fees for any undrawn portion of the Revolving Credit Facility are on a sliding scale between 0.56% to 1.06%.
The New Revolving Credit Facility includes standard and customary terms and conditions with respect to fees, representations, warranties, and financial covenants that remain unchanged from those of the Facilities.
The New Revolving Credit Facility is secured by pledges of shares of MCSA, NX Gold and Ero Gold. The Company is required to comply with certain financial covenants. As of the date of these condensed consolidated interim financial statements, the Company is in compliance with these covenants.
During the six-month period ended June 30, 2021, the existing interest rate swap arrangement was replaced with a new interest rate swap arrangement whereby the floating interest on a notional amount of $50.0 million of the New Revolving Credit Facility was swapped for a fixed interest rate of 1.68%. The interest rate swap arrangement is in effect until March 31, 2025. Interest swap settlements are being made on a monthly basis.
| Page 8 |
| Ero Copper Corp. |
|
Notes to Condensed Consolidated Interim Financial Statements (Tabular amounts in thousands of US Dollars, except share and per share amounts) (Unaudited) |
| (b) | Bank loan and equipment finance loans |
The bank loan relates to the Company’s subsidiary, MCSA, and was recognized at the date the Company acquired MCSA at fair value and has subsequently been recognized at amortized cost, net of settlements. Interest is being recognized using the effective interest rate method at an interest rate of 11.29%.
MCSA is required to comply with certain financial covenants which MCSA is in compliance with at June 30, 2021. The equipment finance loans are secured by the corresponding equipment relating to them and a guarantee by the Company.
| (c) | MCSA and NX Gold lines of credit |
At June 30, 2021, and during the six-month period then ended, the Company’s subsidiaries, MCSA and NX Gold, terminated all their remaining available credit facilities.
MCSA had a non-revolving line of credit of up to BRL $30.0 million at an interest rate of CDI (“Brazilian Interbank Deposit Rate”) + 9.00% per annum. At December 31, 2020, BRL $7.5 million ($1.4 million) had been drawn from this credit facility. During the six-month period ended June 30, 2021, this credit facility was repaid in full and terminated.
MCSA had various supply credit arrangements, of which BRL $21.8 million ($4.2 million) remained outstanding as at December 31, 2020. The interest rates on these credit agreements ranged from 9.60% to 24.34%. During the six-month period ended June 30, 2021, these credit facilities were repaid in full and terminated.
MCSA has a credit agreement for a line of credit of up to BRL $30.0 million at an interest rate of CDI + 8.86%. At June 30, 2021, no amount had been drawn from this credit facility and it was terminated.
NX Gold has a credit agreement for a line of credit of up to BRL $7.5 million at an interest rate of 14.30% per annum. The Company and MCSA provide unsecured guarantees for this credit agreement. At June 30, 2021, no amounts had been drawn from this line of credit and it was terminated.
NX Gold has a credit agreement for a line of credit of up to BRL $8.0 million at an interest rate of CDI + 8.86%. At June 30, 2021, no amount had been drawn from this credit facility and it was terminated.
| (d) | Plural loan |
MCSA has an equipment finance loan with Plural Bank for BRL $12.0 million for a term of 24 months and at an interest rate of CDI + 7.00% per annum. In connection with this loan, MCSA entered into an interest rate swap transaction and a foreign exchange swap transaction with Plural Bank whereby the floating interest of CDI + 7.00% on a notional amount of BRL $2.2 million was swapped for a fixed interest rate of 9.90%, and a notional principal amount of BRL $2.2 million was swapped for the USD currency at a foreign exchange rate of 3.95. This interest rate and foreign exchange swap transactions are in effect for the term of the loan.
| Page 9 |
| Ero Copper Corp. |
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Notes to Condensed Consolidated Interim Financial Statements (Tabular amounts in thousands of US Dollars, except share and per share amounts) (Unaudited) |
| 8. | Share Capital |
As at June 30, 2021, the Company’s authorized share capital consists of an unlimited number of common shares without par value. As at June 30, 2021, 88,374,676 common shares were outstanding.
| (a) | Options |
On March 19, 2021, the Company granted 50,000 options to a new employee of the Company at an exercise price of CAD$24.45 per share with a term to expiry of five years. These stock options vest in three equal installments on each annual anniversary date from the date of grant. The total fair value of these options on the grant date was $0.3 million, which is recognized over the vesting period.
| Number of Stock Options | Weighted Average Exercise Price | |||||||
| Outstanding stock options, December 31, 2020 | 4,641,763 | $ | 8.00 | |||||
| Issued | 50,000 | 19.73 | ||||||
| Exercised | (362,083 | ) | 5.64 | |||||
| Outstanding stock options, June 30, 2021 | 4,329,680 | $ | 8.46 | |||||
The weighted average share price on the date of exercise for options exercised during the three and six-month periods ended June 30, 2021 was $23.25 and $20.01, respectively (three and six-month periods ended June 30, 2020 - $12.86 and $12.84, respectively).
As at June 30, 2021, the following stock options were outstanding:
| Expiry Date | Number of Stock Options | Weighted Average Exercise Price | Vested and Exercisable Number of Stock Options | Weighted Average Remaining Life in Years | ||||||||||||||
| May 15, 2022 | 320,334 | $ | 1.50 | USD | 320,334 | 0.87 | ||||||||||||
| July 10, 2022 | 60,000 | 1.50 | USD | 60,000 | 1.03 | |||||||||||||
| November 24, 2022 | 318,000 | 6.48 | CAD | 318,000 | 1.40 | |||||||||||||
| December 7, 2022 | 1,142,501 | 6.74 | CAD | 1,142,501 | 1.44 | |||||||||||||
| January 18, 2023 | 60,000 | 7.95 | CAD | 60,000 | 1.55 | |||||||||||||
| January 23, 2023 | 21,667 | 7.76 | CAD | 21,667 | 1.57 | |||||||||||||
| June 19, 2023 | 134,000 | 10.25 | CAD | 134,000 | 1.97 | |||||||||||||
| July 16, 2023 | 100,000 | 9.01 | CAD | 33,332 | 2.04 | |||||||||||||
| December 31, 2023 | 1,022,256 | 9.76 | CAD | 693,065 | 2.50 | |||||||||||||
| January 2, 2024 | 125,000 | 9.80 | CAD | 125,000 | 2.51 | |||||||||||||
| August 15, 2024 | 20,000 | 21.09 | CAD | 20,000 | 3.13 | |||||||||||||
| December 12, 2024 | 470,228 | 20.52 | CAD | 156,734 | 3.45 | |||||||||||||
| January 2, 2025 | 73,456 | 23.42 | CAD | 53,456 | 3.51 | |||||||||||||
| December 17, 2025 | 412,238 | 18.90 | CAD | 25,207 | 4.47 | |||||||||||||
| March 18, 2026 | 50,000 | 24.45 | CAD | - | 4.72 | |||||||||||||
| 4,329,680 | $ | 8.46 | USD | 3,163,296 | 2.29 | |||||||||||||
In determining the weighted average exercise price of all outstanding options in the tables above and below, the CAD prices were converted to USD at the June 30, 2021 exchange rate of 1.2395.
| Page 10 |
| Ero Copper Corp. |
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Notes to Condensed Consolidated Interim Financial Statements (Tabular amounts in thousands of US Dollars, except share and per share amounts) (Unaudited) |
The fair value of options granted in the three and six-month periods ended June 30, 2021 was determined using the Black-Scholes option pricing model. The weighted average inputs used in the measurement of fair values at grant date of the options are the following:
| 2021 | ||||
| Expected term (years) | 3.0 | |||
| Forfeiture rate | 0 | % | ||
| Volatility | 54 | % | ||
| Dividend yield | 0 | % | ||
| Risk-free interest rate | 0.77 | % | ||
| Weighted-average fair value per option | $ | 6.32 | ||
For the three and six-month periods ended June 30, 2021, the Company recorded share-based compensation of $0.7 million and $1.4 million (three and six-month periods ended June 30, 2021 - $0.9 million and $2.1 million, respectively) with respect to its outstanding stock options.
| (b) | Share Unit Plan |
No share units were issued during the three and six-month periods ended June 30, 2021. As at June 30, 2021 and December 31, 2020, 727,761 share units are outstanding. These share units will vest three years from the date of grant by the Compensation Committee and the number of share units that will vest may range from 0% to 200% of the number granted, subject to the satisfaction of certain market and non-market performance conditions. Each vested share unit entitles the holder thereof to receive on or about the applicable date of vesting of such share unit (i) one common share; (ii) a cash amount equal to the fair market value of one common share as at the applicable date of vesting; or (iii) a combination of (i) and (ii), as determined by the Compensation Committee in its sole discretion. The Company currently intends to settle these share units using common shares. Accordingly, they are classified as equity settled instruments.
For the share units with non-market performance conditions, the fair value of the share units granted was determined using the share price at the date of grant. For the share units with market performance conditions, the fair value of the share units granted was determined using a Geometric Brownian Motion model.
During the three and six-month periods ended June 30, 2021, the Company recorded share-based compensation of $1.5 million and $2.9 million (three and six-month periods ended June 30, 2020 - $1.6 million and $2.2 million, respectively) with respect to the share units.
| (c) | Deferred Share Unit Plan |
During the three and six-month periods ended June 30, 2021, 2,853 and 6,178 Deferred Share Units (“DSU”), respectively, (three and six-month periods ended June 30, 2020 - 4,994 and 37,321 DSUs, respectively) were issued to independent directors.
As at June 30, 2021, the fair value of the DSU liability was $1.8 million (December 31, 2020 - $1.3 million) which has been recognized in accounts payable and accrued liabilities, with $0.3 million and $0.5 million recognized in share-based compensation expense for the three and six-month periods ended June 30, 2021 (three and six-month periods ended June 30, 2020 - $0.2 million and $0.5 million, respectively).
| Page 11 |
| Ero Copper Corp. |
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Notes to Condensed Consolidated Interim Financial Statements (Tabular amounts in thousands of US Dollars, except share and per share amounts) (Unaudited) |
| (d) | Warrants |
As at June 30, 2021, 1,466,664 (December 31, 2020 – 1,599,996) common share purchase warrants were outstanding with a weighted average exercise price of $1.20 and a weighted average remaining contractual life of 0.45 years. 66,666 and 133,332 warrants were exercised during the three and six-month periods ended June 30, 2021 for gross proceeds of $0.1 million and $0.2 million, respectively (100,000 warrants exercised for gross proceeds of $0.1 million for the three and six-month periods ended June 30, 2020).
| (e) | Net Income (loss) per Share |
| Three months ended June 30, 2021 | Three months ended June 30, 2020 | |||||||
| Weighted average number of common shares outstanding | 88,251,995 | 85,933,443 | ||||||
| Dilutive effect of warrants | 1,435,893 | 2,540,190 | ||||||
| Dilutive effect of stock options | 2,534,744 | 2,297,641 | ||||||
| Dilutive effect of Share Units | 1,091,642 | 657,695 | ||||||
| Weighted average number of diluted common shares outstanding | 93,314,274 | 91,428,969 | ||||||
| Net income attributable to owners of the Company | $ | 83,419 | $ | 7,526 | ||||
| Basic net income per share attributable to owners of the Company | 0.95 | 0.09 | ||||||
| Diluted net income per share attributable to owners of the Company | 0.89 | 0.08 | ||||||
| Six months ended June 30, 2021 | Six months ended June 30, 2020 | |||||||
| Weighted average number of common shares outstanding | 88,158,672 | 85,846,319 | ||||||
| Dilutive effect of warrants | 1,446,119 | - | ||||||
| Dilutive effect of stock options | 2,409,777 | - | ||||||
| Dilutive effect of Share Units | 1,091,642 | - | ||||||
| Weighted average number of diluted common shares outstanding | 93,106,210 | 85,846,319 | ||||||
| Net income (loss) attributable to owners of the Company | $ | 115,168 | $ | (45,227 | ) | |||
| Basic net income (loss) per share attributable to owners of the Company | 1.31 | (0.53 | ) | |||||
| Diluted net income (loss) per share attributable to owners of the Company | 1.24 | (0.53 | ) | |||||
| Page 12 |
| Ero Copper Corp. |
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Notes to Condensed Consolidated Interim Financial Statements (Tabular amounts in thousands of US Dollars, except share and per share amounts) (Unaudited) |
| 9. | Revenue |
| Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 | |||||||||||||
| Copper concentrate | ||||||||||||||||
| - sales within Brazil | $ | 32,713 | $ | 25,739 | $ | 73,056 | $ | 76,960 | ||||||||
| - export sales | 68,513 | 28,172 | 131,652 | 37,015 | ||||||||||||
| - price adjustments on provisionally priced sales | 1,759 | 2,634 | 3,039 | (1,285 | ) | |||||||||||
| Gold | ||||||||||||||||
| - export sales | 17,721 | 14,215 | 35,502 | 25,815 | ||||||||||||
| $ | 120,706 | $ | 70,760 | $ | 243,249 | $ | 138,505 | |||||||||
Under the terms of the Company’s contract with its primary customer, sales are provisionally priced on the date of sale based on the previous month’s average copper price. The final sales price for all shipments in a month is based on the average copper price in the month of shipment and determined at the end of the month in which the sale is recognized. Accordingly, no provisionally priced sales remain for this customer at June 30, 2021. During the three-month period ended March 31, 2021, the Company entered into a contract with a new customer whereby provisionally priced sales are settled with a final sales price four months after shipment takes place. As at June 30, 2021, 5,253 tonnes of copper concentrate have been sold on a provisionally priced basis and are exposed to commodity price changes. During the three and six-month periods ended June 30, 2021, the Company recognized $1.8 million and $3.0 million, respectively, (three and six-month periods ended June 30, 2020 - $2.6 million and ($1.3 million), respectively) in price adjustments related to provisionally priced sales.
During the three-month period ended June 30, 2021, the Company entered into a precious metals purchase agreement (the “NX Gold Transaction”) with RGLD Gold AG, a wholly owned subsidiary of Royal Gold Inc. (collectively, “Royal Gold”), in relation to gold production from the NX Gold mine. The Company will receive upfront cash consideration of $100 million payable to the Company on closing for the purchase of 25% of an equivalent amount of gold produced from the NX Gold mine until 93,000 ounces of gold have been delivered and thereafter decreasing to 10% of gold produced over the remaining life of mine. Royal Gold will make ongoing payments equal to 20% of the prevailing spot gold price for each ounce of gold delivered until 49,000 ounces of gold have been received and 40% of the prevailing spot gold price for each ounce of gold delivered thereafter. Additional payment obligations of Royal Gold include:
| i. | Up to US$5 million payable, available through the end of 2024, based upon the number of ounces of gold added to the Measured and Indicated mineral resource categories as compared to the mineral resources as of the effective date of the NX Gold Transaction at a rate of US$20 per ounce; |
| ii. | Up to US$5 million payable, available from 2022 through the end of 2024, based upon completion of planned meters of drilling within the exploration concessions of the NX Gold mine at a rate of US$100 per meter; and, |
| iii. | US$5 per ounce of gold delivered under the NX Gold Transaction payable to the Company as contribution towards ongoing environmental, social and governance initiatives within the area of influence of the mine. |
The Company expects this transaction to close in the third quarter of 2021.
Closing of the transaction is subject to the completion of certain corporate matters and customary conditions.
| Page 13 |
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Notes to Condensed Consolidated Interim Financial Statements (Tabular amounts in thousands of US Dollars, except share and per share amounts) (Unaudited) |
| 10. | Cost of Product Sold |
| Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 | |||||||||||||
| Materials | $ | 5,909 | $ | 4,374 | $ | 11,766 | $ | 9,356 | ||||||||
| Salaries and benefits | 8,284 | 6,767 | 17,238 | 15,457 | ||||||||||||
| Depreciation and depletion | 9,756 | 9,228 | 21,230 | 19,677 | ||||||||||||
| Contracted services | 4,833 | 4,329 | 10,004 | 9,852 | ||||||||||||
| Maintenance costs | 3,873 | 3,422 | 8,153 | 7,015 | ||||||||||||
| Utilities | 2,493 | 1,886 | 4,966 | 4,289 | ||||||||||||
| Other costs | 152 | 108 | 303 | 279 | ||||||||||||
| $ | 35,300 | $ | 30,114 | $ | 73,660 | $ | 65,925 | |||||||||
| 11. | General and Administrative Expenses |
| Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 | |||||||||||||
| Accounting and legal | $ | 721 | $ | 307 | $ | 1,087 | $ | 505 | ||||||||
| Amortization and depreciation | 115 | 33 | 152 | 65 | ||||||||||||
| Office and sundry | 1,823 | 1,431 | 3,351 | 3,037 | ||||||||||||
| Provisions | 39 | 212 | (29 | ) | 555 | |||||||||||
| Salaries and consulting fees | 2,828 | 2,429 | 8,241 | 6,856 | ||||||||||||
| Incentive payments | 2,630 | 1,558 | 3,121 | 1,855 | ||||||||||||
| Transfer agent and filing fees | 91 | 54 | 210 | 172 | ||||||||||||
| Travel and conference | 1,259 | 49 | 1,874 | 531 | ||||||||||||
| $ | 9,506 | $ | 6,073 | $ | 18,007 | $ | 13,576 | |||||||||
| 12. | Finance Expense |
| Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 | |||||||||||||
| Interest on loans and borrowings | $ | 1,537 | $ | 2,542 | $ | 3,216 | $ | 5,274 | ||||||||
| Loss on interest rate swap derivatives | 155 | 195 | 117 | 2,018 | ||||||||||||
| Accretion of mine closure and rehabilitation provision | 246 | 191 | 473 | 459 | ||||||||||||
| Commitment fees | 66 | 385 | 208 | 385 | ||||||||||||
| Interest on lease liabilities | 104 | 60 | 165 | 137 | ||||||||||||
| Other finance expenses | 198 | (528 | ) | 1,897 | 1,223 | |||||||||||
| $ | 2,306 | $ | 2,845 | $ | 6,076 | $ | 9,496 | |||||||||
| Page 14 |
| Ero Copper Corp. |
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Notes to Condensed Consolidated Interim Financial Statements (Tabular amounts in thousands of US Dollars, except share and per share amounts) (Unaudited) |
| 13. | Foreign Exchange Gain (Loss) |
The following foreign exchange gains (losses) arise as a result of balances and transactions in the Company’s Brazilian subsidiaries that are denominated in currencies other than the Brazilian Reais (BRL$), which is their functional currency.
| Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 | |||||||||||||
| Foreign exchange on USD denominated debt in Brazil | $ | 9,993 | $ | (2,996 | ) | $ | 2,162 | $ | (29,869 | ) | ||||||
| Realized foreign exchange on derivative contracts (note 15) | (5,997 | ) | (4,363 | ) | (11,708 | ) | (7,014 | ) | ||||||||
| Unrealized foreign exchange on derivative contracts (note 15) | 29,934 | (8,485 | ) | 12,983 | (61,140 | ) | ||||||||||
| Other | (3,212 | ) | (478 | ) | (1,344 | ) | (221 | ) | ||||||||
| $ | 30,718 | $ | (16,322 | ) | $ | 2,093 | $ | (98,244 | ) | |||||||
| 14. | Related Party Transactions |
Key management personnel consist of the Company’s directors and officers and their compensation includes director retainer fees and management salaries paid to these individuals, as well as share-based compensation. The aggregate value of compensation paid to key management personnel for the three and six-month periods ended June 30, 2021 was $1.8 million and $3.7 million, respectively ($1.8 million and $3.6 million for the three and six-month periods ended June 30, 2020, respectively). In addition, 50,000 options and 6,178 DSUs were issued to key management personnel and non-executive directors during the six-month period ended June 30, 2021 (43,456 options and 37,321 DSUs for the six-month period ended June 30, 2020). For key management personnel, $1.4 million and $2.8 million was recognized in share-based compensation expense for the three and six-month periods ended June 30, 2021 for options, share units, and DSUs issued ($1.6 million and $2.9 million for the three and six-month periods ended June 30, 2020, respectively).
During the three and six-month periods ended June 30, 2021, key management personnel exercised 85,000 and 135,000 options, and 66,666 and 133,332 warrants, for total cash proceeds to the Company of $0.5 million and $0.7 million, respectively (223,555 and 248,555 options, as well as 100,000 warrants for total cash proceeds of $0.5 million and $0.6 million for the three and six-month periods ended June 30, 2020, respectively).
As at June 30, 2021, $1.8 million was payable to key management as incentive compensation and is included in accounts payable and accrued liabilities in the statement of financial position (December 31, 2020 - $3.7 million). Such amounts are unsecured, non-interest bearing and will be paid under normal trade terms.
| 15. | Financial Instruments |
Fair value
Fair values of financial assets and liabilities are determined based on available market information and valuation methodologies appropriate to each situation. However, some judgments are required in the interpretation of the market data to produce the most appropriate fair value estimates. The use of different market information and/or evaluation methodologies may have a material effect on the fair value amounts.
As at June 30, 2021, derivatives were measured at fair value based on Level 2 inputs.
| Page 15 |
| Ero Copper Corp. |
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Notes to Condensed Consolidated Interim Financial Statements (Tabular amounts in thousands of US Dollars, except share and per share amounts) (Unaudited) |
The carrying values of cash and cash equivalents, accounts receivable, deposits, and accounts payable and accrued liabilities approximate their fair values due to their short terms to maturity or market rates of interest used to discount amounts. At June 30, 2021, the carrying value of loans and borrowings is $156.9 million while the fair value is approximately $159.4 million. The contractual interest rates on these loans and borrowings are a close approximation of market rates of interest at June 30, 2021 (Level 2 of the fair value hierarchy).
Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company’s receivables from customers. The carrying amount of the financial assets below represents the maximum credit risk exposure as at June 30, 2021 and December 31, 2020:
| June 30, 2021 | December 31, 2020 | |||||||
| Cash and cash equivalents | $ | 137,655 | $ | 62,508 | ||||
| Accounts receivable | 21,507 | 20,353 | ||||||
| Deposits and other non-current assets | 534 | 595 | ||||||
| $ | 159,696 | $ | 83,456 | |||||
The Company invests cash and cash equivalents with financial institutions that are financially sound based on their credit rating. The Company’s exposure to credit risk associated with accounts receivable is influenced mainly by the individual characteristics of each customer. The Company currently has only four significant customers, all of which have no history of credit default with the Company. The Company has not incurred credit losses during the three and six-month periods ended June 30, 2021 nor recognized a provision for credit losses.
(i) Foreign exchange currency risk
The Company may use derivatives, including forward contracts, collars and swap contracts, to manage market risks. At June 30, 2021, the Company has entered into foreign exchange collar contracts at zero cost for notional amounts of $279.7 million (December 31, 2020 - notional amount of $285.7 million) with an average floor rate of 4.15 BRL to US Dollar and an average cap rate of 4.86 BRL to US Dollar. The maturity dates of these contracts are from July 28, 2021 to December 28, 2022 and are financially settled on a net basis. The fair value of these contracts at June 30, 2021 was a liability of $23.3 million, (December 31, 2020 - $34.5 million) which is included in Derivatives in the statement of financial position. The fair value of these forward contracts as at June 30, 2021 was determined using an option pricing model with the following assumptions: discount rate of 2.78% - 2.83%, a foreign exchange rate range of 4.99 – 5.46, and volatility of 15.65% - 16.78%. The change in fair value of foreign exchange collar contracts was a gain of $29.9 million and $13.0 million for the three and six-month periods ended June 30, 2021, respectively (loss of $8.5 million and $61.1 million for the three and six-month periods ended June 30, 2020, respectively) and has been recognized in foreign exchange gain (loss). In addition, during the three and six-month periods ended June 30, 2021, the Company recognized a realized loss of $6.0 million and $11.7 million, respectively ($4.4 million and $7.0 million for the three and six-month periods ended June 30, 2020, respectively) related to the settlement of foreign currency forward collar contracts.
(ii) Interest rate risk
The Company is principally exposed to the variation in interest rates on loans and borrowings with variable rates of interest. Management reduces interest rate risk exposure by entering into loans and borrowings with fixed rates of interest or by entering into derivative instruments that fix the ultimate interest rate paid.
| Page 16 |
| Ero Copper Corp. |
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Notes to Condensed Consolidated Interim Financial Statements (Tabular amounts in thousands of US Dollars, except share and per share amounts) (Unaudited) |
The Company is principally exposed to interest rate risk through its New Revolving Credit Facility of $150.0 million, Brazilian Real denominated bank loans of $4.2 million, and Brazilian Real denominated equipment finance loans of $0.4 million. Based on the Company’s net exposure at June 30, 2021, a 1% change in the variable rates would have an impact of $1.5 million on pre-tax annual net income, without consideration of the effects of the interest rate swap contract below.
In order to mitigate the above volatility due to variable rates on loans, as at June 30, 2021, the Company has entered into an interest rate swap contract to manage interest rate risk (see note 7(a)). At June 30, 2021, the floating interest on a notional amount of $50.0 million was swapped for a fixed interest rate of 1.68%. This interest rate swap transaction is in effect until March 31, 2025, with settlements made on a monthly basis. The fair value of this contract at June 30, 2021 was a liability of $2.0 million (December 31, 2020 - $2.5 million) and was included in Derivatives in the statement of financial position. The Company recognized a realized loss of $0.4 million on the termination of the original interest rate swap from 2019 (see note 7) (realized loss of $0.3 million and $0.4 million for the three and six-month periods ended June 30, 2020, respectively) and a realized loss of $0.1 million for the three and six month periods ended June 30, 2021 for the new interest rate swap. The Company also recognized an unrealized gain of nil and $0.4 million for the three and six-month periods ended June 30, 2021, respectively (unrealized gain of $0.1 million and unrealized loss of $1.6 million for the three and six-month periods ended June 30, 2020, respectively), which was included in finance expense.
In addition, as at June 30, 2021, MCSA has entered into an interest rate and currency swap contract on the Plural Loan (see note 7(d)). At June 30, 2021, the floating interest on a notional amount of BRL $2.2 million was swapped for a fixed interest rate of 9.9% and the BRL currency on the loan was swapped for USD at a rate of 3.95. The fair value of this contract at June 30, 2021 was a liability of $0.2 million (December 31, 2020 – $0.3 million) and is included in Derivatives in the statement of financial position. The realized loss on this swap contract was $0.1 million and $0.2 million for the three and six-month periods ended June 30, 2021, respectively, and was included in finance expense.
(iii) Price risk
The Company may use derivatives, including forward contracts, collars and swap contracts, to manage commodity price risks. At June 30, 2021, the Company has provisionally priced sales that are exposed to commodity price changes (note 9). Based on the Company’s net exposure at June 30, 2021, a 10% change in the price of copper would have an impact of $1.9 million on pre-tax net income.
| Page 17 |
| Ero Copper Corp. |
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Notes to Condensed Consolidated Interim Financial Statements (Tabular amounts in thousands of US Dollars, except share and per share amounts) (Unaudited) |
| 16. | Segment Disclosure |
The Company’s operations are segmented by entity between MCSA, NX Gold and corporate head office, which is consistent with internal reporting purposes. The Company monitors the operating results of its operating segments separately for the purpose of making decisions about resource allocation and performance assessment.
Total revenue from MCSA is from three customers while total revenue from NX Gold is from one customer.
Segmented information is as follows:
| Three months ended June 30, 2021 | MCSA (Brazil) | NX Gold (Brazil) | Corporate (Canada) | Consolidated | ||||||||||||
| Revenue | $ | 102,985 | $ | 17,721 | $ | - | $ | 120,706 | ||||||||
| Depreciation and depletion | (7,858 | ) | (1,898 | ) | - | (9,756 | ) | |||||||||
| Other cost of product sold expenses | (20,464 | ) | (5,080 | ) | - | (25,544 | ) | |||||||||
| Cost of product sold | (28,322 | ) | (6,978 | ) | - | (35,300 | ) | |||||||||
| Sales expenses | (1,605 | ) | (142 | ) | - | (1,747 | ) | |||||||||
| Gross profit | 73,058 | 10,601 | - | 83,659 | ||||||||||||
| Expenses | ||||||||||||||||
| General and administrative | (4,561 | ) | (593 | ) | (4,352 | ) | (9,506 | ) | ||||||||
| Share-based compensation | - | - | (2,480 | ) | (2,480 | ) | ||||||||||
| Finance income | 142 | 170 | 6 | 318 | ||||||||||||
| Finance expenses | (1,110 | ) | (465 | ) | (731 | ) | (2,306 | ) | ||||||||
| Foreign exchange gain (loss) | 30,180 | 727 | (189 | ) | 30,718 | |||||||||||
| Other expenses | (319 | ) | (243 | ) | - | (562 | ) | |||||||||
| Income (loss) before taxes | 97,390 | 10,197 | (7,746 | ) | 99,841 | |||||||||||
| Current tax expense | (3,341 | ) | (1,225 | ) | (150 | ) | (4,716 | ) | ||||||||
| Deferred tax expense | (11,110 | ) | (36 | ) | - | (11,146 | ) | |||||||||
| Net Income (Loss) | $ | 82,939 | $ | 8,936 | $ | (7,896 | ) | $ | 83,979 | |||||||
| Page 18 |
| Ero Copper Corp. |
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Notes to Condensed Consolidated Interim Financial Statements (Tabular amounts in thousands of US Dollars, except share and per share amounts) (Unaudited) |
| Six months ended June 30, 2021 | MCSA (Brazil) | NX Gold (Brazil) | Corporate (Canada) | Consolidated | ||||||||||||
| Revenue | $ | 207,747 | $ | 35,502 | $ | - | $ | 243,249 | ||||||||
| Depreciation and depletion | (17,624 | ) | (3,606 | ) | - | (21,230 | ) | |||||||||
| Other cost of product sold expenses | (42,266 | ) | (10,164 | ) | - | (52,430 | ) | |||||||||
| Cost of product sold | (59,890 | ) | (13,770 | ) | - | (73,660 | ) | |||||||||
| Sales expenses | (2,867 | ) | (254 | ) | - | (3,121 | ) | |||||||||
| Gross profit | 144,990 | 21,478 | - | 166,468 | ||||||||||||
| Expenses | ||||||||||||||||
| General and administrative | (8,780 | ) | (1,057 | ) | (8,170 | ) | (18,007 | ) | ||||||||
| Share-based compensation | - | - | (4,826 | ) | (4,826 | ) | ||||||||||
| Finance income | 185 | 245 | 858 | 1,288 | ||||||||||||
| Finance expenses | (3,424 | ) | (613 | ) | (2,039 | ) | (6,076 | ) | ||||||||
| Foreign exchange gain (loss) | 2,015 | 190 | (112 | ) | 2,093 | |||||||||||
| Other expenses | (810 | ) | (403 | ) | - | (1,213 | ) | |||||||||
| Income (loss) before taxes | 134,176 | 19,840 | (14,289 | ) | 139,727 | |||||||||||
| Current tax expense | (6,702 | ) | (2,458 | ) | (2,646 | ) | (11,806 | ) | ||||||||
| Deferred tax expense | (11,836 | ) | (49 | ) | - | (11,885 | ) | |||||||||
| Net Income (Loss) | $ | 115,638 | $ | 17,333 | $ | (16,935 | ) | $ | 116,036 | |||||||
| Assets | ||||||||||||||||
| Current | $ | 133,884 | $ | 43,317 | $ | 25,141 | $ | 202,342 | ||||||||
| Non-current | 383,443 | 35,273 | 7,417 | 426,133 | ||||||||||||
| Total Assets | $ | 517,327 | $ | 78,590 | $ | 32,558 | $ | 628,475 | ||||||||
| Total Liabilities | $ | 88,471 | $ | 21,183 | $ | 163,164 | $ | 272,818 | ||||||||
| Three months ended June 30, 2020 | MCSA (Brazil) | NX Gold (Brazil) | Corporate (Canada) | Consolidated | ||||||||||||
| Revenue | $ | 56,545 | $ | 14,215 | $ | - | $ | 70,760 | ||||||||
| Depreciation and depletion | (8,565 | ) | (663 | ) | - | (9,228 | ) | |||||||||
| Other cost of product sold expenses | (17,080 | ) | (3,806 | ) | - | (20,886 | ) | |||||||||
| Cost of product sold | (25,645 | ) | (4,469 | ) | - | (30,114 | ) | |||||||||
| Sales expenses | (1,114 | ) | - | - | (1,114 | ) | ||||||||||
| Gross profit | 29,786 | 9,746 | - | 39,532 | ||||||||||||
| Expenses | ||||||||||||||||
| General and administrative | (3,817 | ) | (213 | ) | (2,043 | ) | (6,073 | ) | ||||||||
| Share-based compensation | - | - | (2,723 | ) | (2,723 | ) | ||||||||||
| Finance income | 168 | 18 | 344 | 530 | ||||||||||||
| Finance expenses | (780 | ) | (196 | ) | (1,869 | ) | (2,845 | ) | ||||||||
| Foreign exchange loss | (15,861 | ) | (440 | ) | (21 | ) | (16,322 | ) | ||||||||
| Other income | (413 | ) | (389 | ) | - | (802 | ) | |||||||||
| Income (loss) before taxes | 9,083 | 8,526 | (6,312 | ) | 11,297 | |||||||||||
| Current taxes | (1,506 | ) | (1,292 | ) | - | (2,798 | ) | |||||||||
| Deferred taxes | (849 | ) | 58 | - | (791 | ) | ||||||||||
| Net Income (Loss) | $ | 6,728 | $ | 7,292 | $ | (6,312 | ) | $ | 7,708 | |||||||
| Page 19 |
| Ero Copper Corp. |
|
Notes to Condensed Consolidated Interim Financial Statements (Tabular amounts in thousands of US Dollars, except share and per share amounts) (Unaudited) |
| Six months ended June 30, 2020 | MCSA (Brazil) | NX Gold (Brazil) | Corporate (Canada) | Consolidated | ||||||||||||
| Revenue | $ | 112,690 | $ | 25,815 | $ | - | $ | 138,505 | ||||||||
| Depreciation and depletion | (18,131 | ) | (1,546 | ) | - | (19,677 | ) | |||||||||
| Other cost of product sold expenses | (37,468 | ) | (8,780 | ) | - | (46,248 | ) | |||||||||
| Cost of product sold | (55,599 | ) | (10,326 | ) | - | (65,925 | ) | |||||||||
| Sales expenses | (2,396 | ) | - | - | (2,396 | ) | ||||||||||
| Gross profit | 54,695 | 15,489 | - | 70,184 | ||||||||||||
| Expenses | ||||||||||||||||
| General and administrative | (8,565 | ) | (693 | ) | (4,318 | ) | (13,576 | ) | ||||||||
| Share-based compensation | - | - | (4,772 | ) | (4,772 | ) | ||||||||||
| Finance income | 285 | 58 | 654 | 997 | ||||||||||||
| Finance expenses | (3,421 | ) | (528 | ) | (5,547 | ) | (9,496 | ) | ||||||||
| Foreign exchange loss | (95,510 | ) | (2,704 | ) | (30 | ) | (98,244 | ) | ||||||||
| Other income | (963 | ) | (532 | ) | - | (1,495 | ) | |||||||||
| Income (loss) before taxes | (53,479 | ) | 11,090 | (14,013 | ) | (56,402 | ) | |||||||||
| Current tax expense | (1,923 | ) | (1,966 | ) | - | (3,889 | ) | |||||||||
| Deferred tax recovery | 14,575 | 429 | - | 15,004 | ||||||||||||
| Net Income (Loss) | $ | (40,827 | ) | $ | 9,553 | $ | (14,013 | ) | $ | (45,287 | ) | |||||
| Assets | ||||||||||||||||
| Current | $ | 53,789 | $ | 16,238 | $ | 20,927 | $ | 90,954 | ||||||||
| Non-current | 306,776 | 19,830 | 2,770 | 329,376 | ||||||||||||
| Total Assets | $ | 360,565 | $ | 36,068 | $ | 23,697 | $ | 420,330 | ||||||||
| Total Liabilities | $ | 149,855 | $ | 16,590 | $ | 158,160 | $ | 324,605 | ||||||||
| 17. | Contingencies |
MCSA is subject to a number of claims (including claims related to tax, labour and social security matters and civil action) in the course of its business which individually are not material and have not been accrued for in the Company’s financial statements as it is not probable that a cash outflow will occur. While the Company believes that these claims are unlikely to be successful, if all such existing claims were decided against it, the Company could be exposed to a liability of up to approximately $23.0 million as at June 30, 2021 (December 31, 2020 - $21.8 million), which could have an adverse impact on the Company’s business, financial condition, results of operations, cash flows or prospects.
Page 20
Exhibit 99.3
 |
TSX: ERO NYSE: ERO |
| August 4, 2021 |
Ero Copper reports record cash flow from operations of $85.1 million in the second quarter
(all amounts in US dollars, unless otherwise noted)
Vancouver, British Columbia – Ero Copper Corp. (TSX: ERO, NYSE: ERO) (“Ero” or the “Company”) today is pleased to announce its financial results for the three months ended June 30, 2021. Management will host a conference call tomorrow, Thursday, August 5, 2021, 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.
HIGHLIGHTS
| · | Copper production of 10,898 tonnes at the MCSA Mining Complex at C1 cash costs(*) of $0.72 per pound of copper produced during the quarter; |
| · | Gold production of 10,377 ounces at the NX Gold Mine at C1 cash costs(*) of $499 per ounce of gold produced and All-in Sustaining Costs(*) of $660 per ounce of gold produced; |
| · | Strong quarterly adjusted EBITDA(*) of $85.5 million and adjusted net income attributable to owners of the Company(*) of $53.7 million ($0.58 per share on a diluted basis); |
| · | Record quarterly cash flow from operations of $85.1 million driven by strong performance across the Company’s operations as well as elevated copper and gold prices; |
| · | Total cash and cash equivalents of $137.7 million, an increase of $53.1 million quarter-over-quarter and $75.1 million since the end of 2020; |
| · | Announced a $110 million streaming agreement with Royal Gold (as defined below) in relation to gold production from the NX Gold Mine (the “NX Gold Stream”), unlocking significant shareholder value from the mine and further enhancing the Company’s balance sheet; |
| · | Net debt position of $19 million at the end of the quarter (excluding proceeds from the NX Gold Stream) versus $74 million at the end of Q1 2021; and, |
| · | Reiterating full-year production, operating cost and capital expenditure guidance for 2021. |
Commenting on the results, David Strang, CEO, stated, “We have built strong momentum on all fronts throughout our organization as we enter the second half of 2021. Our operating results were highlighted by a continuation of higher-than-forecasted grades in the Pilar Mine, aided during the second quarter by an ongoing value engineering program allowing us to access and mine high-grade stopes previously believed to be sterilized within the upper levels of the Pilar Mine. These efforts allowed us to maintain strong copper production while successfully completing the first of two phases of scheduled mill maintenance at the MCSA Mining Complex, and as a result, we generated record quarterly operating cash flows and are well-positioned to achieve full-year production and cost guidance.
| 1 | Ero Copper Corp |
TSX: ERO
NYSE: ERO
“On the exploration front, we recently released our most significant results to date, highlighted by several of the best drill results in the history of our operations including a 67 meter intercept grading over 9% copper from a new open zone of ‘Superpod’ style mineralization at depth in the Pilar Mine and a nine meter intercept grading over 22 grams per tonne gold at depth within the NX Gold Mine – the best intercept in the history of the mine. We expect both areas, which extend known mineralization beyond the limits of our current mineral resources, along with ongoing exploration efforts, to contribute to Ero’s growth in the years to come.
“Our core focus on generating industry-leading ROIC and unlocking value for shareholders was demonstrated during the quarter with the announcement of a $110 million streaming transaction on the NX Gold Mine. The transaction unlocks value from the NX Gold Mine while forming a strategic partnership highly aligned with our vision to further develop and grow gold production from the mine. The NX Gold Stream, combined with our record cash position and strong cash flow from operations, provides balance sheet strength and flexibility to continue to execute our organic growth initiatives, including the development of the Boa Esperança Project.”
*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.
OPERATIONS & EXPLORATION HIGHLIGHTS
| § | Mining & Milling Operations – record operating cash flows driven by operational excellence |
| · | The MCSA Mining Complex processed 553,992 tonnes of ore grading 2.13% copper, producing 10,898 tonnes of copper in concentrate during the quarter after metallurgical recoveries of 92.5%; H1 2021 copper production totaled 23,536 tonnes based on approximately 1.2 million tonnes processed at copper grades of 2.22% and metallurgical recoveries of 92.2%. |
| · | Lower quarter-on-quarter tonnes processed due to scheduled mill maintenance at the MCSA Mining Complex was offset by higher-than-planned grades related to favorable grade reconciliations and value engineering opportunities, which allowed for the integration of high-grade stopes within the upper levels of the Pilar Mine into the mining sequence. |
| · | The NX Gold Mine processed 43,936 tonnes grading 7.45 grams per tonne, producing 10,377 ounces of gold after metallurgical recoveries of 98.6%(*) and 6,803 ounces of silver produced as by-product; H1 2021 tonnes processed totaled 81,548 at an average grade of 7.82 grams per tonne, producing 19,828 ounces of gold after metallurgical recoveries of 96.7% and 12,597 ounces of silver produced a by-product. |
(*) Metallurgical recovery rates were elevated during H1 2021 due to contributions from gold recovered through the Company’s “Zero Loss” campaign, which included the reprocessing of mill and foundry scrap, and therefore, may not be representative of metallurgical recoveries from mined ore during the period.
| 2 | Ero Copper Corp |
TSX: ERO
NYSE: ERO
| § | Exploration Activities – new open zone of high-grade “Superpod” style mineralization identified with best hole drilled in the history of the MCSA Mining Complex |
| · | MCSA In-Mine and Near-Mine Exploration Programs |
| Ø | Deepening Extension drilling, within the Pilar Mine, has delineated a new open zone of “Superpod” style mineralization extending over 350 meters in strike length below the current mineral resource shell with best hole drilled in the history of the mine of 67.0 meters grading 9.21% copper, including 21.0 meters grading 14.14% copper. |
| · | NX Gold Mine Exploration Program |
| Ø | Best intercepts in the history of the mine, including 9.0 meters grading 22.66 grams per tonne, continue to demonstrate extensions of the Santo Antonio Vein beyond the current mineral resource shell. In addition, new high-grade extensions of the Matinha Vein have been identified at depth. |
| Ø | Two new mineralized gold systems, known as the Sovaco de Cobra (“Cobra”) and the Mata Verde Systems, located 1.2 kilometers and 25 kilometers, respectively, from the NX Gold Mine, were also discovered during the quarter. |
| · | MCSA Past Producing Open Pit Mine Re-Evaluation |
| Ø | New drilling continues to confirm two high-grade zones of mineralization within the Surubim District beneath each Lagoa da Mina, part of the past producing Angicos Mine, and the Surubim Mine. |
| · | Regional Exploration Program |
| Ø | Regional exploration within the Curaçá Valley continues to be a top priority with an aggressive drill program underway for H2 2021. |
| Ø | Six geochemistry teams, four ground gravity teams and three ground induced polarization teams continue to refine drill locations within previously announced target systems. |
| § | Organic Growth Projects – executing on high-return, low capital intensity organic growth strategy |
| · | Mobilization for early works is underway in preparation for construction of the new external shaft supporting the Deepening Extension Project, which upon completion, is expected to support higher production rates from the Pilar Mine at an elevated grade profile. As a result of newly identified “Superpod” style mineralization at depth, the Company has initiated a design review of the new shaft to maximize the value of the mineral resource. |
| · | The Company continues to progress the Boa Esperança Project optimized Feasibility Study and expects to provide an update on these ongoing studies during Q3 2021. |
| 3 | Ero Copper Corp |
TSX: ERO
NYSE: ERO
| § | Corporate Highlights – strengthened balance sheet to execute organic growth plans |
| · | The Company announced a $110 million NX Gold Stream, unlocking significant value from the NX Gold Mine by validating the exploration potential of the broader NX Gold land package. Additional detail is provided later in this press release. |
| · | During the quarter, the Company released its 2020 Sustainability Report, detailing the Company’s commitment to responsible mining as well as its environmental, social, corporate governance and health and safety goals and performance. |
| 4 | Ero Copper Corp |
TSX: ERO
NYSE: ERO
OPERATING AND FINANCIAL HIGHLIGHTS
| 3
months ended June 30, 2021 |
3
months ended March 31, 2021 |
6
months ended June 30, 2021 |
3
months ended June 30, 2020 |
6
months ended June 30, 2020 |
|||||||
| Operating Highlights | |||||||||||
| Copper (MCSA Operations) | |||||||||||
| Ore Processed (tonnes) | 553,992 | 597,594 | 1,151,586 | 627,071 | 1,235,030 | ||||||
| Grade (% Cu) | 2.13 | 2.30 | 2.22 | 1.98 | 1.97 | ||||||
| Cu Production (tonnes) | 10,898 | 12,638 | 23,536 | 11,178 | 21,835 | ||||||
| Cu Production (000 lbs) | 24,026 | 27,863 | 51,889 | 24,643 | 48,138 | ||||||
| Cu Sold in Concentrate (tonnes) | 10,094 | 12,469 | 22,562 | 10,586 | 21,018 | ||||||
| Cu Sold in Concentrate (000 lbs) | 22,253 | 27,488 | 49,741 | 23,339 | 46,338 | ||||||
| C1 cash cost of copper produced (per lb)(1) | $0.72 | $0.49 | $0.60 | $0.65 | $0.68 | ||||||
| Gold (NX Gold Operations) | |||||||||||
| Au Production (oz) | 10,377 | 9,451 | 19,828 | 8,739 | 16,605 | ||||||
| C1 cash cost of gold produced (per ounce)(1) | $499 | $487 | $494 | $437 | $511 | ||||||
| AISC of gold produced (per ounce)(1) | $660 | $643 | $652 | $593 | $668 | ||||||
| Financial Highlights ($millions, except per share amounts) | |||||||||||
| Revenues | $120.7 | $122.5 | $243.2 | $70.8 | $138.5 | ||||||
| Gross Profit | $83.7 | $82.8 | $166.5 | $39.5 | $70.2 | ||||||
| EBITDA(1) | $112.0 | $55.2 | $167.2 | $23.4 | $(27.2) | ||||||
| Adjusted EBITDA(1) | $85.5 | $86.7 | $172.2 | $42.4 | $75.9 | ||||||
| Cash Flow from Operations | $85.1 | $62.1 | $147.2 | $42.5 | $79.8 | ||||||
| Net Income (loss) | $84.0 | $32.1 | $116.0 | $7.7 | $(45.3) | ||||||
| Net income (loss) attributable to owners of the Company | $83.4 | $31.7 | $115.2 | $7.5 | $(45.2) | ||||||
| Per share (basic) | $0.95 | $0.36 | $1.31 | $0.09 | $(0.53) | ||||||
| Per share (diluted) | $0.89 | $0.34 | $1.24 | $0.08 | $(0.53) | ||||||
| Adjusted net income attributable to owners of the Company(1) | $53.7 | $56.3 | $110.0 | $20.3 | $41.1 | ||||||
| Per share (basic) | $0.61 | $0.64 | $1.25 | $0.24 | $0.48 | ||||||
| Per share (diluted) | $0.58 | $0.61 | $1.18 | $0.22 | $0.45 | ||||||
| Cash and Cash Equivalents | $137.7 | $84.6 | $137.7 | $51.6 | $51.6 | ||||||
| Working Capital (Deficit)(1) | $118.9 | $63.5 | $118.9 | $(25.7) | $(25.7) | ||||||
| Net Debt(1) | $19.2 | $74.5 | $19.2 | $130.9 | $130.9 | ||||||
Footnotes
| (1) | EBITDA, Adjusted EBITDA, Adjusted net income (loss) attributable to owners of the Company, Adjusted net income (loss) per share attributable to owners of the Company, Net Debt, Working Capital (Deficit), C1 cash cost of copper produced (per lb), C1 cash cost of gold produced (per ounce) and AISC of gold produced (per ounce) are non-IFRS measures – see the Notes section of this press release for a discussion on non-IFRS Measures. |
| 5 | Ero Copper Corp |
TSX: ERO
NYSE: ERO
ADJUSTED EBITDA & NET INCOME (LOSS) RECONCILIATION
| ($ in thousands) | 3
months ended June 30, 2021 |
||
| Adjusted EBITDA | $85,529 | ||
| Adjustments: | |||
| Unrealized foreign exchange gain on USD denominated debt in MCSA | 9,993 | ||
| Unrealized foreign exchange gain on derivative contracts | 29,934 | ||
| Realized foreign exchange loss on derivative contracts | (5,997) | ||
| Share based compensation and other | (5,692) | ||
| Incremental costs in response to COVID-19 pandemic | (1,749) | ||
| EBITDA | $112,018 | ||
| Adjusted net income attributable to owners of the Company | $53,672 | ||
| Adjustments for non-cash items (attributable to owners of the Company): | |||
| Unrealized foreign exchange gain on USD denominated balances in MCSA | 8,712 | ||
| Unrealized foreign exchange gain on derivative contracts, net of tax | 25,256 | ||
| Unrealized loss on interest rate derivative | (6) | ||
| Share based compensation | (2,480) | ||
| Incremental costs in response to COVID-19 pandemic | (1,735) | ||
| Reported net income attributable to owners of the Company | $83,419 |
NX GOLD STREAM
During the quarter, the Company entered into a definitive Precious Metals Purchase Agreement with RGLD Gold AG, a wholly owned subsidiary of Royal Gold Inc. (collectively, “Royal Gold”), in relation to gold production from the NX Gold Mine.
The Company will receive upfront cash consideration of $100 million for the purchase of 25% of gold produced until 93,000 ounces of gold have been delivered, decreasing to 10% of gold produced over the remaining life of mine. Royal Gold will make ongoing payments equal to 20% of the prevailing spot gold price for each ounce of gold delivered until 49,000 ounces of gold have been received, after which it will pay 40% of the prevailing spot gold price for each ounce of gold delivered. Additional payment obligations of Royal Gold include:
| i. | Up to US$5 million payable, available through the end of 2024, based upon the number of ounces of gold added to the Measured and Indicated mineral resource categories as compared to the mineral resources as of the effective date of the NX Gold Stream at a rate of US$20 per ounce; |
| ii. | Up to US$5 million payable, available from 2022 through the end of 2024, based upon completion of planned meters of drilling within the exploration concessions of the NX Gold Mine at a rate of US$100 per meter; and, |
| iii. | US$5 per ounce of gold delivered under the NX Gold Stream payable to the Company as contribution towards ongoing ESG initiatives within the area of influence of the mine. |
| 6 | Ero Copper Corp |
TSX: ERO
NYSE: ERO
Proceeds from the transaction, which is expected to close during the third quarter of 2021, will significantly enhance Ero’s balance sheet strength and flexibility, offering further support to execute upon the Company’s growth strategy including advancing the Boa Esperança Project.
Please refer to the Company’s press release dated June 30, 2021 for additional information on the NX Gold Stream. Closing of the transaction is subject to the completion of certain corporate matters and customary conditions.
2021 PRODUCTION OUTLOOK
The Company is reaffirming its 2021 production guidance ranges for both the MCSA Mining Complex and the NX Gold Mine and is well-positioned to achieve the high end of both ranges. Similar to Q2 2021, mill throughput volumes and copper production in Q3 2021 are expected to be impacted by the second phase of planned mill maintenance at the MCSA Mining Complex, scheduled to begin in August 2021 and be completed before the end of the third quarter. Copper grades are expected to revert to plan in H2 2021.
Gold production from the NX Gold Mine for 2021 is expected to come from ore mined from the Santo Antonio Vein. Lower gold grades are anticipated in H2 2021 due to scheduled mine sequencing, and recovery rates, which were elevated during H1 2021 due to gold contributions from mill and foundry scrap recycling efforts, are expected to normalize in Q3 2021.
| 2021 Guidance(1) | |
| MCSA Mining Complex | |
| Tonnes Processed | 2,700,000 |
| Copper Grade (% Cu) | 1.75% |
| Copper Recovery (%) | 93.0% |
| Cu Production Guidance (000 tonnes) | 42.0 – 45.0 |
| NX Gold Mine | |
| Tonnes Processed | 167,000 |
| Gold Grade (gpt) | 7.20 |
| Gold Recovery (%) | 92.0% |
| Au Production Guidance (000 ounces) | 34.5 – 37.5 |
(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, including the Annual Information Form for the year ended December 31, 2020 and dated March 16, 2021 (the “AIF”), for complete risk factors.
| 7 | Ero Copper Corp |
TSX: ERO
NYSE: ERO
2021 COST GUIDANCE
The Company is tracking towards the low end of its reaffirmed 2021 cost guidance ranges, which assume a USD:BRL foreign exchange rate of 5.00, a gold price of $1,750 per ounce and a silver price of $20.00 per ounce.
| 2021 Guidance | |
| MCSA Mining Complex C1 Cash Cost Guidance (US$/lb)(1) | $0.75 – $0.85 |
| NX Gold Mine C1 Cash Cost Guidance (US$/oz)(1) | $500 – $600 |
| NX Gold Mine All-in Sustaining Cost (AISC) Guidance (US$/oz)(1) | $875 – $975 |
(1) C1 cash costs and AISC are a non-IFRS measures – see the Notes section of this press release for additional information.
2021 CAPITAL EXPENDITURE GUIDANCE
The Company is reaffirming its 2021 capital expenditure guidance, which assumes a USD:BRL foreign exchange rate of 5.00 and has been presented below in USD millions.
| MCSA Operations | 2021 Guidance | |
| Pilar Mine and Caraíba Mill Complex (excluding Deepening Extension Project) | $45.0 – $50.0 | |
| Deepening Extension Project | $12.5 – $15.0 | |
| Vermelhos Mine & District(1) | $14.0 – $16.0 | |
| Surubim Open Pit Mine | $10.0 – $12.0 | |
| Boa Esperança Project | $1.0 – $1.5 | |
| Capital Expenditure Guidance | $82.5 – $94.5 | |
| Curaçá Valley Exploration | $30.0 – $35.0 | |
| NX Gold Mine | 2021 Guidance | |
| Capital Expenditure Guidance | $13.0 – $15.0 | |
| Exploration | $8.0 – $10.0 | |
| Total, NX Gold Mine | $21.0 – $25.0 |
(1) Vermelhos District includes open pit mining infrastructure expenditures of approximately US$6.0 million in 2021.
| 8 | Ero Copper Corp |
TSX: ERO
NYSE: ERO
CONFERENCE CALL DETAILS
The Company will hold a conference call on Thursday, August 5, 2021 at 11:30 am Eastern time (8:30 am Pacific time) to discuss these results.
| Date: | Thursday, August 5, 2021 |
| 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: | 7238 |
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), AISC of gold produced (per ounce), EBITDA, Adjusted EBITDA, Adjusted net income attributable to owners of the Company, Adjusted net income 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.
| 9 | Ero Copper Corp |
TSX: ERO
NYSE: ERO
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 ounce 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.
All-in Sustaining Cost of gold produced (per ounce)
All-in sustaining cost of gold produced (per ounce) is the sum of production costs, site general and administrative costs, accretion of mine closure and rehabilitation provision, sustaining capital expenditures, sustaining leases, and royalties and production taxes, net of 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. All-in sustaining cost of gold produced per ounce 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:
| - | Foreign exchange loss (gain) |
| - | Share based compensation |
| - | Incremental costs in response to COVID-19 pandemic |
Adjusted net income attributable to owners of the Company and Adjusted net income per share attributable to owners of the Company
The Company uses the financial measure “Adjusted net income attributable to owners of the Company” and “Adjusted net income 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.
| 10 | Ero Copper Corp |
TSX: ERO
NYSE: ERO
During the period, the following non-cash or unusual adjustments to calculated adjusted net income (loss):
| - | Share based compensation |
| - | Unrealized foreign exchange loss (gain) on USD denominated balances in MCSA |
| - | Unrealized loss (gain) on foreign exchange derivative contracts, net of tax |
| - | Incremental costs in response to COVID-19 pandemic |
| - | Unrealized loss (gain) on interest rate derivative contracts |
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 MCSA Mining Complex located in Bahia State, Brazil, with over 40 years of operating history in the region. The Company's primary asset is a 99.6% interest in the Brazilian copper mining company, MCSA, 100% owner of the MCSA Mining Complex, which is comprised of operations located in the Curaçá Valley, Bahia State, Brazil, wherein the Company currently mines copper ore from the Pilar and Vermelhos underground mines, and the Boa Esperança development project, an IOCG-type copper project located in Pará, Brazil. The Company also 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 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).
| 11 | Ero Copper Corp |
TSX: ERO
NYSE: ERO
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ERO COPPER CORP.
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| Signed: “David Strang” | For further information contact: |
| David Strang, CEO | Courtney Lynn, VP, Corporate Development & Investor Relations |
| (604) 335-7504 | |
| info@erocopper.com | |
CAUTION REGARDING FORWARD LOOKING INFORMATION AND STATEMENTS
This press release contains “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995 and “forward-looking information” within the meaning of applicable Canadian securities legislation (collectively, “forward-looking statements”). Forward-looking statements include statements that use forward-looking terminology such as “may”, “could”, “would”, “will”, “should”, “intend”, “target”, “plan”, “expect”, “budget”, “estimate”, “forecast”, “schedule”, “anticipate”, “believe”, “continue”, “potential”, “view” or the negative or grammatical variation thereof or other variations thereof or comparable terminology. Such forward-looking statements include, without limitation, statements with respect to mineral reserve and mineral resource estimates as well as LOM plans; targeting additional mineral resources and expansion of deposits; the Company’s expectations, strategies and plans for the MCSA Mining Complex, the NX Gold Property and the Boa Esperança Property, including, but not limited to, the Company’s planned exploration, development and production activities; the significance and timing of any particular exploration program or result and the Company’s expectations for current and future exploration plans including, but not limited to, planned areas of additional exploration, the significance of any drill results or new discoveries and targets including, but not limited to, extensions of defined mineralized zones, possibilities for mine life extensions or continuity of high-grade mineralization, the recoverable value of any metals other than copper, further extensions and expansion of mineralization near the Company’s existing operations and throughout the Curaçá Valley or the NX Gold Mine, statements with respect to the importance of any new discoveries including newly identified mineral systems, the significance of re-evaluation of the Company’s past producing open pit mines, the timing and advancement of ongoing projects including the Deepening Extension Project and the re-start of the Surubim open pit mine; estimated completion dates for certain milestones; successfully adding or upgrading mineral resources and successfully developing new deposits; the costs and timing of future exploration and development including but not limited to the Deepening Extension Project at the MCSA Mining Complex; the significance of any potential optimization initiatives in connection with the Boa Esperança Property; the impact of the COVID-19 pandemic on the Company’s planned drill programs; the timing and amount of future production at the MCSA Mining Complex and the NX Gold Property; the timing and successful close of the NX Gold Stream; the Company's ability to service its ongoing obligations, the Company's future production outlook, cash costs, capital resources, expenditures, and current global macroeconomic uncertainty stemming from the COVID-19 pandemic and its impact on the Company’s business, financial condition, results of operations, cash flows and prospects.
Forward-looking statements are not a guarantee of future performance and are based upon a number of estimates and assumptions of management in light of management’s experience and perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable in the circumstances, as of the date of this press release including, without limitation, assumptions about: continued effectiveness of the measures taken by the Company to mitigate the possible impact of COVID-19 on its workforce and operations; favourable equity and debt capital markets; the ability to raise any necessary additional capital on reasonable terms to advance the production, development and exploration of the Company’s properties and assets; future prices of copper and other metal prices; the timing and results of exploration and drilling programs; the accuracy of any mineral reserve and mineral resource estimates; the geology of the MCSA Mining Complex, NX Gold Property and the Boa Esperança Property being as described in the technical reports for these properties; production costs; the accuracy of budgeted exploration and development costs and expenditures; the price of other commodities such as fuel; future currency exchange rates and interest rates; operating conditions being favourable such that the Company is able to operate in a safe, efficient and effective manner; work force conditions to remain healthy in the face of prevailing epidemics, pandemics or other health risks (including COVID-19), political and regulatory stability; the receipt of governmental, regulatory and third party approvals, licenses and permits on favourable terms; obtaining required renewals for existing approvals, licenses and permits on favourable terms; requirements under applicable laws; sustained labour stability; stability in financial and capital goods markets; availability of equipment and critical supplies, spare parts and consumables; positive relations with local groups and the Company’s ability to meet its obligations under its agreements with such groups; and satisfying the terms and conditions of the Company’s current loan arrangements. While the Company considers these assumptions to be reasonable, the assumptions are inherently subject to significant business, social, economic, political, regulatory, competitive, global health, and other risks and uncertainties, contingencies and other factors that could cause actual actions, events, conditions, results, performance or achievements to be materially different from those projected in the forward-looking statements. Many assumptions are based on factors and events that are not within the control of the Company and there is no assurance they will prove to be correct.
Furthermore, such forward-looking statements involve a variety of known and unknown risks, uncertainties and other factors which may cause the actual plans, intentions, activities, results, performance or achievements of the Company to be materially different from any future plans, intentions, activities, results, performance or achievements expressed or implied by such forward-looking statements. Such risks include, without limitation the risk factors listed under the heading “Risk Factors” in the AIF.
Although the Company has attempted to identify important factors that could cause actual actions, events, conditions, results, performance or achievements to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events, conditions, results, performance or achievements to differ from those anticipated, estimated or intended.
The Company cautions that the foregoing lists of important assumptions and factors are not exhaustive. Other events or circumstances could cause actual results to differ materially from those estimated or projected and expressed in, or implied by, the forward-looking statements contained herein. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.
Forward-looking statements contained herein are made as of the date of this press release and the Company disclaims any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or results or otherwise, except as and to the extent required by applicable securities laws.
Cautionary Notes Regarding Mineral Resource and MINERAL Reserve Estimates
In accordance with applicable Canadian securities regulatory requirements, all mineral reserve and mineral resource estimates of the Company disclosed in this press release have been prepared in accordance with NI 43-101 and are classified in accordance with the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) Definition Standards for Mineral Resources and Mineral Reserves, adopted by the CIM Council on May 10, 2014 (the “CIM Standards”). NI 43-101 is a rule developed by the Canadian Securities Administrators that establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects. NI 43-101 differs significantly from the disclosure requirements of the Securities and Exchange Commission (the “SEC”) generally applicable to U.S. companies. For example, the terms “mineral reserve”, “proven mineral reserve”, “probable mineral reserve”, “mineral resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral resource” are defined in NI 43-101. These definitions differ from the definitions in the disclosure requirements promulgated by the SEC. Accordingly, information contained in this press release may not be comparable to similar information made public by U.S. companies reporting pursuant to SEC disclosure requirements.
Mineral resources which are not mineral reserves do not have demonstrated economic viability. Pursuant to the CIM Standards, mineral resources have a higher degree of uncertainty than mineral reserves as to their existence as well as their economic and legal feasibility. Inferred mineral resources, when compared with measured or indicated mineral resources, have the least certainty as to their existence, and it cannot be assumed that all or any part of an inferred mineral resource will be upgraded to an indicated or measured mineral resource as a result of continued exploration. Pursuant to NI 43-101, inferred mineral resources may not form the basis of any economic analysis. Accordingly, readers are cautioned not to assume that all or any part of a mineral resource exists, will ever be converted into a mineral reserve, or is or will ever be economically or legally mineable or recovered.
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