Ero Copper Corp

Thank you for standing by. This is the conference operator. Welcome to the Eric Hopper First Quarter 2025 Operating and Financial Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. I would now like to turn the conference over to Courtney Lynn, Executive Vice President, External Affairs and Strategies. Please go ahead.

Thank you, Operator. Good morning and welcome to AeroCopper's first quarter earnings call. Our operating and financial results were released yesterday afternoon and are available on our website, along with our financial statements and MD&A for the three months ended March 31st, 2025. A corresponding earnings presentation can be downloaded directly from the webcast and is also available in the presentation section of our website. Joining me on the call today are Marco DiFilippo, President and Chief Executive Officer, Wayne Dreyer, Executive Vice President and Chief Financial Officer, and Jelson Batista, Executive Vice President and Chief Operating Officer. Before we begin, I'd like to remind everyone that today's discussion will include forward-looking statements, which involve risks and uncertainties that may cause actual results to differ materially. For a detailed discussion of these risks and their potential impact on our business, please refer to our most recent annual information form, available on our website as well as on CDAR and EDGAR. Unless otherwise noted, all figures discussed today are in U.S. dollars. With that, I'll now turn the call over to Marco DiFilippo.

Thank you, Courtney, and thank you everyone for taking the time to join us today. Our first quarter marked a critical period to set up our operations and our company for success. During these first few months of 2025, we've made meaningful progress towards achieving our near-term objectives while laying important groundwork for sustainable growth in copper production, increased operating margins, and long-term value creation across our portfolio. I am deeply thankful for the ongoing contributions of our global leadership team towards achieving this vision. Our near-term strategy for Arrow is simple, and it remains unchanged. As I have said before, there are four steps to this strategy. Step one, achieve commercial production at Tukma. Two, deleverage our balance sheet. aggressively advance long-term growth initiatives, including our partnership on Fernas, and step four, initiate returns to shareholders. Starting with Tucumá and the first step of our strategy, we remain on track to achieve commercial production over the coming weeks. It was a productive start to the year that involved two extended periods of planned downtime in January and February in order to address plant bottlenecks that we identified during the ramp up of the operation in late 2024. The successful execution of this program allowed consistent mill throughput, and with the elevated grades that we are seeing early in the mine life, the month of March accounted for more than half of Tucumã's total plant throughput and copper production during the first quarter. In April, we focused our attention on one of the last remaining items outstanding on our punch list, repairing the damaged third tailings filter which we completed at the end of the month. We expect throughput volumes to increase steadily over the coming weeks and months as a result of these modifications and repairs. With respect to timing of commercial production, it is worth noting that Tukama operations contributed a significant portion to our consolidated net income and EBITDA during the first quarter. That said, It is still early in May, and we are taking a measured approach here to ensure that the expected throughput improvements following the release of the third filter are maintained prior to making this designation. In summary, we're closing gaps on commercial production at Tukema. We are setting solid foundations to ensure long-term success for the operation, and we are reaffirming our guidance ranges for the full year. The growing contribution from Tsukuma will position us well to begin delivering on our second near-term objective of deleveraging our balance sheet. While we expect this to occur naturally with increasing consolidated EBITDA, assuming metal prices remain constructive, we expect to begin repaying our revolving credit facility during the second half of the year. In parallel, we have continued to aggressively advance our longer-term growth initiatives. These efforts are concentrated currently at Pernas, we have eight drill rigs operating on site. We remain on track to complete the phase one drill program during the third quarter of this year and are pleased with the results we are seeing thus far. In parallel, we are advancing confirmatory technical work in support of a preliminary economic assessment on the project, which we expect to publish in the first half of 2026. Before I turn the call over to Wayne, I would like to share a bit of detail on our operating performance during the first quarter at Cariba and Javanchina and touch on the investments we are making there to enhance operational flexibility and further support long-term growth. At our Cariba operations, lower planned mined and processed copper grades resulted in a quarter-on-quarter decline in copper production and elevated unit costs during the first quarter. While total mined and processed tonnage remained relatively flat compared to the fourth quarter, We've begun to see the benefits of our additional investment in development, which resulted in target mining rates being achieved at the Polar Mine in March. In further support of this effort, we successfully mobilized a second underground development contractor during the quarter, and we expect sequential growth in mine and process volumes, and as a result, copper production through the remainder of the year at Cariba. At our Giavencina operation, total mine and process volumes increased by more than 27% quarter on quarter. However, lower grade mine and process resulted in a decrease in total gold production. While a modest decrease in production was anticipated during the first quarter, grades encountered within planned operational areas were slightly below expectations. In addition, the need for additional ground support at access points of several newly developed higher grade areas within San Antonio delayed contributions from this area. Through the remainder of the year, continued investment in low-profile mining equipment and support infrastructure is expected to support increased mine and process volumes. We see grades improving as compared to the first quarter, which we expect will support higher production levels and lower unit costs as we move forward. To ensure we have sufficient time for Q&A, I will leave it there and pass the call to Wayne, who will provide more detailed financial results.

Thank you, Maka. Our financial results reflect the growing contribution from the Tucuma operation and stronger metal prices, which together drove quarter-on-quarter adjusted EBITDA of $65.4 million and adjusted net income attributable to owners of the company of $35.8 million, or 35 cents per share. We ended the quarter with a solid liquidity position of $116 million. supported by several actions to further strengthen our balance sheet and support long-term growth. In January, we amended our credit facility to reflect our expanded operating footprint, increasing total commitments from $150 million to $200 million. In March, we drew the remaining $25 million available under our copper prepayment facility to support working capital needs related to the ramp-up at Tucuma. To help protect cash flows amid continued macroeconomic uncertainty and copper price volatility, we opportunistically entered into zero-cost copper collars covering 3,000 tons of copper per month from April through September of this year. These contracts provide downside protection at a floor price of $4 per pound with an average ceiling price of $4.68 per pound. Just prior to quarter end, we also extended our stream agreement with Royal Gold in exchange for $50 million in upfront proceeds, bringing total proceeds under the Chaventina stream to $160 million. With key capital investments underway at Chaventina, this transaction offered a dedicated non-dilutive source of funding to support investments focused on asset integrity and margin expansion. Turning to our foreign exchange hedge program, our total notional position at quarter end was $332.5 million. consisting of zero-cost collars with a weighted average floor and ceiling of 552 and 649 real per U.S. dollar respectively. These extend through to June 2026. While we recorded a realized loss of $2.2 million related to collars that matured in December 2024, the real to U.S. dollar exchange rate remained largely within our collar range during the first quarter. I'll now pass the call back to Marco for some closing remarks.

Thank you, Wayne. Before we move into the Q&A session, I want to take a moment to reiterate our commitment to delivering on our four pillar strategy over the near term. Achieving commercial production at Tucumán remains our top priority. With that, I'll now turn the call back to the operator to open the line for questions.

Thank you. To join the question queue, you may press star then one on your telephone keypad. you will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. The first question comes from Dalton Barreto with Canaccord. Please go ahead.

Thanks. Good morning, guys. Hey, Marco, thanks for the operating color through March there. I'm wondering if you can give us an update at all three assets and how they're doing in April. Thank you.

Thanks, Dalton. Appreciate the question. Let's just kind of run through the list here. You know, in April, starting at Giavanchino, we're seeing grades improving. We're seeing productivity increase from the mine as we expected to come out of Q1 here. So positive indications on that side of things. Kariba, obviously we're now starting to see the benefits of the third party contractor at Kariba and specifically the Polar mine. So being able to maintain target mining rates at Polar is obviously a very important milestone for us to be able to improve the consistency and operating performance there. So pretty encouraged about what we're seeing on both of our operating assets given the transformational program that we started at the tail end of last year and committed uh and continued here through the first quarter and then at tucuma um you know i think as we outlined on the the call here we completed the third filter press repairs at the very end of the month so yeah i'd say from april's perspective it was aligned with our expectations in terms of being able to to execute in that program Until the third filter press is fully operational, we expect throughput volumes to be somewhat muted, and that was reflected in our guidance range for the full year and our expectations for the first half. So stay tuned on that side. As I said, pretty pleased with the performance overall across all three of our operations. And stay tuned.

Great, thanks for that, Marco. And then if I can just maybe ask a question of Wayne there, maybe a bit more about housekeeping item. I think there was a $43 million advanced to customers on your cash flow statement. Just wondering if you can wrap some context around that. Thanks.

Yeah, sure, Dalton. I mean, if you actually have a look at the accounts receivable for the quarter, that was exceptionally elevated as well. What that was, was that we switched some sales from one trading house to another late in the quarter. So what you really see is an elevated accounts payable, but also an elevated accounts receivable. So it's really just some accounting treatment right at the end of the quarter.

Got it. Thanks very much, Wayne. That's all for me.

The next question comes from Emerson Vera with Goldman Sachs. Please go ahead.

Good morning, everyone. Thank you for the opportunity. So I have a question on Tucuman. First, you guys mentioned that going forward, we would expect lower grades and improving throughput. So just want to understand the reason why we expect grades to be marginally lower. So if this is a result of fine-tuning in the ball mills, can you please elaborate on that? So that's the first question. A second one goes on Chaventina. Also, I want to understand why we should expect grades improving in the coming quarters. Is this just a consequence of a soft comparison base, or indeed there is a structural improvement in grades? And would that come back to the last year's levels? And just a final one on Chaventina, and also Connecting to liquidity management, I see that you guys incremented the Shop and China stream gold agreement by some 70,000 ounces with implied better prices indeed. But considering the current outlook for gold prices and the positive outlook on Tucumã's hump up as well, I wonder if this gold streaming strategy will continue to be part of the company's liquidity management.

uh going forward thank you perfect thank you a lot to unpack there but i took notes if i missed anything i apologize let's let's run through those in order so starting first um with tukama the increasing throughput and declining grade i i want to stress as a bit of context that that was always part of the strategy the tucuma deposit has a very very high grade upper benches of the mine this phase zero phase one is very high grade and as we move through that near surface high grade mineralization we do expect grade to decline and that's been an artifact of the project since inception it's the reason that we have such a high uh return on that project and the operation, and we're seeing that. I think as we alluded to over the last couple quarters, what we saw in our infill drilling was in fact a bit higher grade in some of these areas than we expected. And so we're really encouraged with the signs that we're seeing on the grades. And obviously we expect as we move through that high grade for grades to decline. I would note just from an outlook perspective that to the extent that throughputs remain lower than, you know, than the original design. Obviously that extends that high grade further out in time, but the contained metal volume is the same. So that's starting with Tucumah. It's an artifact of geology and the mine plan. Shavanshina, I think it's really important to look at the context here. You know, we went through two years of significant positive grade reconciliation, you know, to the tune of, more than 15%. And so what I look at the first quarter in that context, yes, some of the operational areas that we had were a bit lower grade. We also planned for lower grade throughout the year relative to prior periods. And we see the grades here in April and the early part of May returning to sort of normalized levels against our full year. So I think it was really a moment in time. We also had, as I outlined in the call, a couple of levels that required some additional ground support in the access that delayed the mining of these levels, which we're seeing higher grades and we expect higher grades to continue. So again, but I think that historical context is important there. In terms of liquidity management, obviously very pleased with where the gold price is. I think commodity prices in general are having a strong tailwind here and we're quite pleased with that. The stream itself, as part of our ongoing strategy. From my perspective, we have a big capital outlay at Javanchina this year. We're putting in quite a bit of low-profile equipment. We're, as Wayne mentioned, have a big asset integrity program. And so what we sought to do with the stream was, I'd say, less of a liquidity management tool, but rather as a partnership to further develop that asset. And we have a great partner in RealGold. They've been supportive of this project for the last several years. They continue to invest alongside us in this asset. They believe in our exploration programs. They support us in the work that we do around the community. So I think from my perspective, it was an opportunity to tap into that partnership to further advance Javanchina at a time when we don't get rewarded for that capital investment that we're making. All right.

Very clear, Michael. Thank you.

The next question comes from with Scotiabank. Please go ahead.

Hi, good morning. Just on the Tukama ramp, now that you have completed the maintenance work and the replacement of the third filter press, is there anything left that has been identified to date that still needs to be replaced, repaired? And I'm wondering if there is meaningful scheduled maintenance ahead over the next couple of months that we should be aware of.

Yeah, I think so. I'd say in terms of big building pieces, I think we're pretty happy with where we're at. Obviously, we're going to continue to adapt that and review any additional modifications that are needed as we ramp up volumes. But in terms of the items that we identified last year during ramp up, the major constraints and bottlenecks that we identified, we've substantively completed those. So we don't anticipate any major downtime. Obviously, we still have planned you know, plan maintenance for the mill and plan maintenance for the filter process. So we expect periodic downtime, but nothing to the extent of what we saw in January and February of this year.

Okay. And as a follow-up, can you give us an update on what's happening with the power situation at Tukama? Like, are you still having issues where the mill is going down temporarily in terms of the oscillating, I guess, that power on the grid? Or is that now behind you? And is the permanent solution now in place?

Yeah, thanks, Oris. We do still see oscillations on the power line, for sure. We haven't seen the levels of disruption since we implemented the solution that we put in place late last year. And so we've been pretty happy with the performance of that system. We're still evaluating a longer-term solution to normalize power, as we discussed last quarter. During the first quarter, I would say The one area that we focused on was expanding the data collection time period and also the reach in terms of distance from our operation. We want to make sure that what we put in place covers the asset, not only for this year, but for the life of the mine. And so that data collection process is over. We're continuing to work here in the second quarter on design and implementation of what that looks like exactly. um but again with the the performance that we've seen and the consistency of operations um we don't see that as a as a big bottleneck going forward obviously we still want to address that issue for the long term but in the in the near to medium term we don't see that as a big gating item okay is that can you quantify that for us in terms of sort of the current state like how many times a month is power tripping and

Just trying to get a sense of how much that's impacting the ramp up still.

Yeah, or as I said, we don't see that as being a gating item for us right now. Okay, great.

The next question comes from Gabe Rosito with Bank of America. Please go ahead.

Thank you, and good morning, everyone. Thank you for taking my questions. So my first question is on Tucumã as well. I'm just trying to understand. I know you reaffirmed commercial production in the first half of 2025, but since we're already in May and the first half ends next month, my question is, should we expect something for this month or to the end of the first half, just to get a clear sense of when it should happen? And my second question on Caraíba, costs, of course, were higher, but volumes were low. But nevertheless, costs were below the top end of the C1 guidance. So Just trying to understand here, as grades pick up, as volumes pick up, if you can expect C1 to be around the bottom end of your guidance for this year. Thank you.

Yeah, both good questions. On timing and commercial production, as I said, we're being thoughtful about how we view that delineation, that designation. We just came through the final repairs, that filter press, so we want to see that operating for a bit of time here. So when we say we're on track for the first half of the year, I'm going to stick with that and rather give the first half of the year, feel comfortable with that. But in terms of differentiating between May and June, we'll skip that detail for now. In terms of costs at Kariba, yeah, look, it's a great point, one where we've made a huge effort across our organization on margin expansion. Obviously, we benefited a little bit here in the first quarter from the four exchange, and we continue to see that supporting US dollar operating margins through right now. We'll see what happens through the balance of the year, but we've historically planned our operations at relatively conservative FX rates. And obviously, as Wayne mentioned, we have the floors in place at 550. So we're very happy with where we see operating margins and some of the effort that we've been making, that we've been putting in place on procurement and operating efficiencies making an impact, and we expect that to continue going forward.

Great. Thank you very much.

The next question comes from Craig Hutchinson at TD Cohen. Please go ahead.

Hi, guys. Thanks for taking my question. Just again, back on a cucumber, I think you mentioned that the final repair of the filter presses was done at the end of April. Is that a month behind? Because I think the original guidance was end of Q1.

Yeah, thanks, Greg. Always plan for that to be done towards the end of Q1. I think it would slip by a couple of weeks there, but we had planned in our outlook for the year for, as I said early on, a wide range of possibilities in terms of getting people and equipment to site. So we don't view that couple week slip in the schedule as being significant for our outlook on the full year at Tukma.

Okay, great. And can you just define, how do you guys define commercial production? What are those metrics again?

Yeah, I think we've been pretty clear all along what those metrics are. And as I outlined on the last quarterly conference call, we are reviewing those in the context of where we see filter press performance on the concentrate side. As we outlined here in Q1, March was a very strong month producing well over half of the consolidated copper, or half of the copper production from Tucumab for the quarter. And I think one of the things that we've been talking about, Craig, is that when you look at the grades processed at Tucumab, particularly within the highest grade, higher grades, over 2% copper, that's more than double the average life of mine grade. So I think we're still having those discussions as a team. And I think one of the important points to note is that recovery and concentrate grades continue to perform aligned or better than what we expected. So there's two metrics we look at. Obviously, throughput rates is one, and consistency of performance. Recovery and concentrate grades is another. We feel that we're very close on both of those fronts.

Okay, great. One last question. Just the mining rates at Takuma came off quite a lot this quarter. Is that just a function you have plenty of inventories at this point and those trucks are just put idle or are they redirected to the tailings management facility?

Yeah. Thanks, Craig. Absolutely. You hit it on the head. We've been progressing well ahead of the mine plan for the last couple of years here, basically since we started pre-strip. We have a huge amount of inventory on stockpiles. We moved, our mining fleet didn't stop operations. They did moderate a little bit in the first quarter, but they moved to waste stripping. And it's part of the reason that we saw an elevated stripping ratio in the first quarter. And we've resumed here mining activities in the second quarter. Great. Thanks, guys.

Once again, if you have a question, please press star, then 1. Next question comes from Kate Nakagawa with CIBC. Please go ahead.

Good morning, and thank you for taking my question. I'm asking on behalf of my analyst, Anita Soni. I'm just looking to understand the commentary around mobilization of the contractors at Kariba in March. Does that mean we should be expecting mining costs to increase for the remainder of the year, or will they remain relatively in line with the mining costs we saw in Q1? Thank you.

Yeah, thanks. It's important to note that most of the development that we're doing with third-party contractors is capitalized, so that's been fully reflected in our guidance. There's perhaps a very small allocation to operating costs, but in general, our development contractors mobilize to capitalize development, so we don't see that impacting our operating costs.

Great. Thank you.

We have a follow-up question from Dalton Barreto with Canaccord Genuity. Please go ahead.

Yeah, thanks for taking my follow-up, guys. I thought I'd switch gears a little bit. I feel like we haven't talked about exploration in some time now. Michael, can you give us an update on sort of how you're allocating the dollars you're spending today and what you're seeing? Thanks.

Yeah, thanks, Dalton. Exploration is still one of the core values of Arrow. It has been since inception. Most of our efforts currently are focused on Fernas, where we have eight shore rigs turning. We're very encouraged by the results that we're seeing there. We hope to give an update sometime in the next couple of months on what we're seeing there. And that's been the main focus. I would say at Kariba, we're still doing work both around our existing operations. Infilling the deepening is a priority objective for this year. really to map out those first couple panels of the mine plan in the higher-grade zones of the Polar Mine. We continue to advance land consolidation, early exploration work throughout the Curacao Valley, both on copper and nickel targets. And then at Javanchina, through the support of Royal Gold, we've expanded a bit of our exploration program there, both in the mine to extend mine life, and then also throughout the region. As I said, still a focus of ours, Dalton, for sure. Obviously, our top priority here is on Tucumah, but I would expect us to give more of an update on what we're doing, particularly at Fernas later in the year.

That's great. Thanks, Marco. And then maybe if I could just stay on Tucumah and just thinking out a little bit longer term, what's the latest thinking now in terms of thoughts some of the stuff we've talked about in the past in terms of backfilling the grade drop?

Yeah, great question. We have a program at Tukama that we've talked about before where we see high grades in the lower part of the pit bottom. So I would say, Dalton, too early to talk in too much detail about that. We see a couple of different pathways to being able to maintain elevated production profiles for longer than were previously outlined. But we're still working through those scenarios and opportunities. So I think it's too early, really, to dive into too much detail on that.

Got it. Is there still a regional M&A program in place?

Look, we are very active in the Karajas. Pretty happy with our land package right now at Tucumaw. We have a couple of programs throughout the Karajas that are looking at different opportunities. But again, our core focus as a team, and certainly on the exploration side, is for NAAS. But yeah, we continue to look at things in the broader region to support the Tikama operation. As you know, it's the only sulfide mill operating on the western side of the Karajas, so we still see a a unique strategic advantage there that we expect will pay off in the long term. But again, focus is on getting that mine up to commercial production levels.

Great. That's awesome, man. Thanks, Marco.

Thanks, Colton.

The next question comes from Rolls Ross with Clarkson Securities. Please go ahead.

Hi, guys. Thank you for taking my question. I wanted to ask about the new shaft at Pilar. So, number one, what's sort of the primary milestones to achieve now going forward? And number two, of the annual capex on Caraiba, how much is allocated to the shaft?

Yeah, good questions. The shaft is going well. It's according to plan. I mean, really, we're not talking about that being operational until 2027. So finishing the shaft sinking towards the end of 2026. So, you know, still a long ways to go on that project, but things are progressing well. The main milestones for us are really day by day here. I mean, we've completed the surface infrastructure. We're advancing shaft sinking. It's a day-by-day blast in line, and then do that the following day as well. So not too much to say on milestones other than we're advancing that project day-by-day here. In terms of cost allocation for 2025, we expect the entire deepening project, including ore handling system and the development associated with some of the deeper work in the mine, to be about $80 to $90 million this year, and that's fully reflected in our guidance range.

Okay, great. Thanks. And lastly, just on Cervantina with sort of lower production this quarter, but you reaffirmed the volumes for the full year. Are you expecting a sequential progress throughout the year or straight back to a high level next quarter? Or how do you view the progression for 2025?

Yeah, I think it's more of a steady progression, and the reason for that is that we continue to have equipment arrive on site. Our low-profile equipment that we purchased last year is arriving on site sequentially throughout the year, and our increase in production volumes matches those delivery timelines.

Okay, thank you.

Yeah, we have a follow-up question from Emerson Vieira with Goldman Sachs. Please go ahead.

Hey guys, thanks again. Just to follow up on what you mentioned that you guys are reviewing the metrics, the metrics used in order to declare commercial production. So I just want to understand a little bit better what types of variables are you guys studying to change here? Is it the 80%? in terms of design capacity or the amount of time needed running at that level. So this is my question. Thank you.

Thanks for the question. Just to be clear there with respect to commercial production, those discussions that we're still having, I would say that at the current grades of two times the life of mine average, it would be very difficult to feed 100% of mill throughput. And so that balance is what we're in discussions with as a team in making that designation. But I would say if you just take a big step back and you look at the contribution of Tukama to our consolidated net income and our EBITDA for the quarter, with really only one month of production, I think you can see that we expect Tukama to be a meaningful contributor to our consolidated results. And I think that's probably a large factor as well.

I don't know if Wayne, you've got anything to add on that, but. No, I mean, obviously the concept of commercial production in pure accounting terms is when management deemed the asset, you know, fully ready for, fully operational. And it is a very subjective measure. There is no set measure with, certainly with our auditors. I would say, as Michael pointed out, as the asset ramps up here and we continue to see significant free cash flow generation from the asset, the likelihood that from an accounting perspective, we can continue to not declare commercial production gets smaller and smaller. So I think at the end of the day, as Michael said, we're assessing that. I'd say we feel we're getting close and hopefully... that will occur in the near future.

Okay, thank you.

This concludes the question and answer session. I would like to turn the conference back over to Marco D'Appalipo for any closing remarks. Please go ahead.

I appreciate everyone taking the time today. It was a lively Q&A, and I certainly appreciate that, as does the rest of the team, so I appreciate your time. Obviously, myself and our leadership team always available for any follow-up questions. Thank you very much. We'll chat next quarter.

This brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.