Q1 2021 Ero Copper Corp Earnings Call
Thank you for standing by this is the conference operator, welcome to the ERO copper first quarter results conference call.
As a reminder, all participants are in listen only mode on 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 zero.
I would now like to turn the conference over to Noel Dunn Executive Chairman of ERO copper for opening remarks. Please go ahead.
Thank you and good morning, everyone.
News release announcing era's first quarter 2021 financial results is available on our website and on SEDAR.
As are all financial statements and the MD&A for the three months ended March 31st 2021.
As usual, we will be making forward looking statements on this call that involve risks and uncertainties concerning the businesses operations and financial performance of the company.
We would refer you to our most recent Aif.
Also available on SEDAR.
For a discussion of the risk factors of our business and their potential impact on future performance.
Unless otherwise noted on this call all amounts are in U S dollars.
Joining me on the call today are David Strang, <unk> co founder and Chief Executive Officer, Wayne Drier Chief Financial Officer.
Mike Recharge Chief Geological Officer.
Good day, Philip <unk>, President and Courtney Lynn Vice President corporate development on Investor Relations.
Before diving into our operating and financial results I'd like to recognize the Boulder team at ERO, especially all colleagues in Brazil.
Who have helped us deliver a remarkable first quarter in what continues to be a challenging operating environment.
Our team has shown resilience and maintaining focus on our operations and continue to advance all growth objectives, whilst offering critical support to our local communities.
We are optimistic over the near term with respect to COVID-19, as we're seeing both moderating COVID-19 cases in Brazil, and benefiting from the global vaccination programs as they rollout.
Our strategy has and continues to Sandra Paul on investing in our own assets to increase production, whilst maintaining first quartile operating cost this.
This quarter is a great example of this.
While these efforts continue to focus primarily within the Curacao Valley, where we still see tremendous growth opportunities in front of us in parallel we are looking at unlocking value at both the Nx Gold mine and <unk> Esperanza project.
She will provide when should we expect to provide updates on in the coming months.
As we continue to advance the optimization studies on BOE Esperanza It is worth noting that in tooth on it that in 2000 2017 feasibility study already outlined a fantastic project before any optimization studies with an after tax IRR of 32, 7%, a $3 copper and it would be all on the exchange.
The rate of 380.
Copper price aside we continue to believe the bow Esperanza project represents a high quality actionable project that is aligned with our return on invested capital focus.
With respect to our Q1 results.
We reported several record quarterly figures, including copper production of 12638 tonnes.
Day, one cash cost of 49 cents per pound of copper produced.
Adjusted EBITDA of $86 $7 million.
And on operating cash flow of $62 $1 million.
As a result of this performance on our balance sheet has never been stronger with $84.6 million of cash and equivalents and our peer leading net debt leverage ratio of 0.3 times on a trailing 12 months EBITDA.
With that I will now pass the call over to David to provide a brief review and update of our operations.
As our exploration update was released at the in the end of last week, Mike who will provide additional color on that and Wayne will provide a review of the company's financial performance.
We will all be available for questions immediately following the call.
Thank you know our first quarter results were released last night and reflect excellent performance at the MTO say mining complex driven by higher than planned grades at all alarms Emas underground mines and continued improvements in metallurgical recoveries.
We processed nearly 600000 tonnes of ore at an average grade of two 3% copper and achieved record metallurgical recoveries during the quarter averaging 92%.
I am pleased to see the overall metallurgical recoveries and concentrate grades continued to improve in parallel with increasing mill throughput largely due to successful integration.
New Hickman.
Which completed commissioning in late 2020 and is performing better than expected.
Strong operating performance across the M. CSA mining complex contributed to record quarterly copper production of 12638 tonnes on a record quarterly C. One cash cost.
A 49 cents a pound of copper produced a 20 cent per pound improvement as compared to the fourth quarter of 2020.
Entering the second quarter, we have continued pre operational activities relating to the restart on the sort of be open pit, which we forecast will commence mining operations during the second half of this year.
As we both planned for an expanded operational footprint and actively make the first steps in preparing our operations to run at higher mill throughput, we will undertake consecutive planned ball mill maintenance at the end of the second quarter from beginning of the third quarter.
This maintenance is reflected in our full year copper production guidance range of 42 to 45000 tonnes of copper produced.
Which we expect to be equally weighted between the first and second halves of the year.
While early in our production cycle for the year, we see opportunities to moderate the second and third quarter impacts of this mill maintenance with higher than planned grades at the pillow mine as we saw during the first quarter.
These opportunities remain under analysis.
At the moment I'll see one cash cost guidance range remains unchanged at 75 to 85 cents per pound of copper produced.
Panics Goldmine also delivered a strong quarter, producing 9451 ounces of gold and sue on cash cost of $487 per ounce and all in sustaining cost of $643 per ounce of gold produced.
Lower tonnes milled quarter over quarter was partially offset by higher head grades compared to the fourth quarter, along with continued strong metallurgical performance.
With respect to full year guidance, we are reaffirming our range of 34500 37500 ounces of gold produced at all in sustaining cost of between 875 and $975 per ounce.
It's no mentioned, we continued to actively advance our optimization study for the bow Esperanza project, which started as a bottom up analysis last year.
The 2017 feasibility study outlined a seven five year mine life, averaging approximately 21000 tons of payable copper production per year and with the early results of our team's work. We believe we can significantly improve upon this.
In tandem with the optimization studies on the geology and mining side, we are reviewing a redesign of the processing plant strategy. The use of ore sorting technology and several other leavers that have not been previously explored.
We expect to provide an update on this ongoing work during the third quarter.
Lastly, I would like to quickly touch upon our exploration results that were released last week, and then turn the call over to Mike to provide more detail.
I believe that last week's announcements illustrates our disciplined and systematic exploration strategy continues to demonstrate the criticized value potential and inherent optionality.
We have one of the largest ongoing exploration programs globally, and we are committed to unlocking this value for our shareholders.
Our exploration program at our Nx Gold mine with 10 drill rigs are currently operating is progressing according to plan and we expect to provide more color on these results. During our next quarterly update is third party assay labs in Brazil, reopen and hopefully clear backlog without pending metallics screen results.
With that I will now pass it over to Mike to provide some additional context and color to our quarterly exploration news release. Thank.
Thank you David.
Our exploration program has had a great start to the year and I am pleased with the results. We are seeing come together throughout the course how value.
The announcement on the identification of two mineralized systems Terra does sell and see for our example of the systematic work we have completed over the past two years to identify new greenfields mineral districts. So far we have identified extensive copper mineralization extending up to 2.2 kilometers in the case of C. Four.
Our experienced and of course on valley tells us that higher grade pods occur within broad zones of lower grade mineralization context is important and it is worth reminding everyone that the discovery of the high grade where males mine started with the discovery of lower grade mineralization, some two kilometers to the north.
Likewise, the first of all we drilled into the news he for system inter intercepted approximately 700 meters of multiple mineralized lenses ranging in grade from 0.2%, 2.4% copper.
Call ended in mineralization and the drill results released last week from C. For discovery reflect our first pass review of the system.
We will continue to explore these systems and refined drill targets within them using systematic data driven analysis and the combined use of ground geophysics and borehole EM.
This work is being conducted in parallel with other identified systems and targets in the belt.
Drill targets throughout the belt are continuously being prioritized.
While the regional exploration program is targeting medium to longer term opportunities. We're also focusing on several near term opportunities.
Within our portfolio highlighted by the discovery of the novels on Advair males and our reevaluation of the past producing open pit mines of the company.
Advair males de novo's on discovery has identified a new high grade lens of massive sulphide mineralization in an untested area approximately 200 meters below the existing mine infrastructure.
Extending the grade profile and overall mine life of their mail is a key objective of this year's program and I am pleased to see a news on developing out of the gate.
Our past producing mine reevaluation efforts, which commenced late last year integrating a number of new regional datasets is already generating excellent results highlighted by an exciting high grade zone, plus 3% copper identified just beneath the bottom of the language that Mena.
Open pit.
While this is on existed previously it was lost within the totality of a much lower grade inferred resource and continuity of the high grade has never been evaluated which we are doing now.
Within the deepening extensions on the pillar mine exploration efforts continue to focus on extending mineralization at depth and upgrade the inferred mineral resource within the song.
Through the use of directional drilling technology, which offers greater drill placement accuracy and traditional than traditional drilling technology, we've achieved better than expected results that we look forward to sharing with you next quarter.
When viewed in the context of year round drilling a strong in country geology team and our available excess mill capacity our programs continue to show the variety of potential ore sources for future mill feed over a full complement of development timelines.
Go ahead, Mike Thanks, Mike and good morning, everyone. It's weighted yeah, I want to Echo David's comments about the first quarter of being an outstanding start to the yet.
Sales volumes were up over 20% quarter on quarter.
While gold sales moderated compared to the fourth quarter combined with higher realized metal prices, we achieved record quarterly revenues of $122 $5 million, an improvement of 34% over the prior period.
Higher copper grades mined and processed as well as sustained weakness of the Brazilian real against the U S. Dollar drove record low see you on cash cost at <unk> during the quarter.
It should be no surprise that record quarterly revenue together with these operating cost resulted in record quarterly adjusted EBITDA and cash flow from operations of $86 $7 million and $62 $1 million respectively.
Due to the worsening of the COVID-19 pandemic in Brazil during the first quarter, the Brazilian real weakened relative to the U S. Dollar after year end.
As such we recognized realized and unrealized losses on our foreign exchange derivative contracts of $5 $7 million and $17 million, respectively, and a noncash $7 8 million loss related to the translation of our U S dollar denominated debt held in Brazil.
The benefits of sustained weakness of the Brazilian real relative to the U S. Dollar continued to more than offset the impact of all foreign exchange derivative losses is perhaps best evidenced by this quarter's Rick from financial performance.
Our headline net income for the first quarter was $32 $1 million or 34 cents per fully diluted share.
After adjusting for non cash items, including the unrealized foreign exchange losses, our adjusted net income was $56 $3 million or <unk> 61 cents per fully diluted share.
In addition to amending our corporate credit facility to extend our debt maturities and lower our ongoing interest expense, we repaid approximately $7 million in short term credit lines during the quarter.
These Brazilian lines have now been fully settled and retired.
Our balance sheet is the strongest it's been since we IPO Ed in 2017, with cash and equivalents of $84 $6 million and a very impressive net debt leverage ratio.
<unk> three times on trailing 12 months EBITDA.
I'll now hand, the call back to know to share some final comments.
<unk>.
Thank you, Amy and everyone, who joined the call today before we open it up to questions I'd like to again, thank the euro team for continuing to execute on our strategy and vision for this company.
With headway being made globally in the fight against COVID-19, and tailwind the tailwind is building around the green of Decarbonize World that is heavily reliant on copper the future is looking very bright.
A strong balance sheet and incredible growth strategy and a very attractive asset portfolio that we are confident we will continue to deliver many more record metrics in the near future.
Thanks for joining the call we will turn it back to the operator to open up the line for questions.
Thank you.
We will now begin the question and answer session.
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 are using a speakerphone please pick up your handset before pressing any keys.
Draw. Your question. Please press Star then two.
We will pause for a moment of caller to join the queue.
The first question comes from <unk> <unk> with Scotiabank. Please go ahead.
Hi, Good morning, I was wondering if we could get some more color on the Bora project I realize you're working on a study, but I'm just curious I mean, given that the current reserves only represent about 30% of the MNI resources.
Should we be anticipating a much bigger scale.
Jack that was envisioned I guess a couple of years ago.
Uh huh.
Hey, <unk>. Thanks.
Thanks for the question, Yeah, I think yeah, obviously from the perspective of where we stand we've got to be careful with what we can and cannot say as I as I think I highlighted in my comments debt.
The work has been completed to date.
As we progressed towards the end game with regards to the study.
And the way we've looked at our resources, we way we've looked at reserves.
And preliminary production schedules I think you could see that.
There is a little bit of a disconnect on <unk>.
You can disconnect between the current reserves and resources and I think we're starting to see that we're seeing that differential.
Yeah.
Line.
Passive would significantly.
That's the best way, we can do right now with regards to giving you that kind of guidance. We're very very happy as I said in my notes with regards to the progress of the study.
Okay, and you indicated that'll come out in the third quarter.
Should we take that to mean.
That would likely come out with your Q2 results kind of in early on in store.
Especially earlier.
I think I think it would be after the Q2 Q2 results will be released at the beginning of August.
We're gonna be a little bit later than that but certainly in the third quarter.
Okay, and then just finally.
Moving the economics look attractive and given that my understanding is the projects permitted.
Should we be anticipating that it could move into development fairly quickly and potentially as early as beginning of next year or how should we think about this.
I don't I don't think your thinking is too far off where our thinking is right now we'd certainly like to move the project forward.
Assuming that.
The economic saw what we believe they will be we'd like to move that project.
Ford as quickly as we can we certainly from an internal perspective are doing our planning is though we're trying to move that as quickly as we can.
Okay and just finally is there anything standing in the way of development right now like are there any perhaps social issues or anything that needs to get resolved or could you could you start building tomorrow. If you so chose though.
Well, we have all cash constraints, we've always said we've had a construction permit.
Sitting with a government agencies we've.
It's been held off in the past because as you as you may or may not know in Brazil. Once you initiate a construction permit you have to build within the two year period.
We have re visited that with the relative authorities in state and that process is now moving forward with regards to carrying us.
Construction payments. So we can move forward with construction of Boa.
Great. Thank you very much.
The next question comes from Alex <unk> with CIBC. Please go ahead.
Hi, everyone and congrats on congrats on a great first quarter I wanted to ask on the on the grades. So obviously, they're better than we expected in Q1 was that in line with the mine plan or was that a positive surprise and then how should we think about grades.
For the rest of the year at a M yesterday.
Alex It's a great question.
We are pleasantly surprised with the grades that we're seeing particularly in pillar right now on the mining areas that were mining from they certainly have been better than we expected.
In that area.
Current forecast suggests that it will continue.
But.
Well you know, we're gonna like anything else that we do we're going to take a cautious approach, but so far.
On the preliminary work that's looked at the grades that we will be mining for the remaining part of the year on the areas that we'll be mining in that pillar, we certainly see opportunity that the great could stay high.
Sure.
[laughter] higher okay perfect. Thank you for that and then.
In the exploration update you highlighted sort of a new area from AOS.
And that was that was also higher grade and it was pretty close to infrastructure. So when might that make it to the mill is that something that could benefit the great profile of this year or is that next year.
I don't think that is in the plans this year, Mike and the team have to drill that zone off that will be a focus.
On the second half of the year in terms of not only drilling that but the south from mass corridor.
So if you were to look at it from a planning perspective on your modeling or reviewing the work that we've done in the past in terms of a life of mine plan at from mass. We would anticipate that you would see us moving the east zone <unk> further down in the mine's life and looking to replace debt.
With material mined from Novo as well as yourself from NASCAR door I don't know when exactly we are meant to be doing that I think it's in the 18 months from now so we would expect those areas to start entering the mine plan and that kind of timeframe.
Okay, great. Thank you and then maybe just one more on the exploration side, though with those new discovery before in Paradise out what.
What should we expect in terms of next steps like you are you going to move those quickly towards the resource or do you want to kind of keep testing regionally before you sort of prioritize where you put the lion's share of the effort or how do we think about that going forward.
Well I think as you can see in the exploration update.
Tara to sell right now where we've got the teams on the ground doing a lot of work with regards to E M et cetera, and that particular project. The hope would be that we'll start drilling again there in the second half of the year, maybe the third quarter are.
We do have rigs right now at sea for and we are drilling there are we are drilling and another area on that that journal facility facility vicinity as well in terms of another target zone, maybe we'd be able to talk about that in the next exploration update I'm not sure.
So it's a combination of continuing to work and these mineralized systems that we've identified to as Mike said in these times.
And these piece start narrowing in on massive sulfide mineralization in higher grades than what we've seen.
But also we do continue to look and we do have part of our program continues to look for new mineralized systems as well so it's a combination of both.
Like anything else that we have done as a company we have been generally quite aggressive with our exploration programs with regards to converting discovery into resource.
But I think at this particular stage with the work that Mike is doing a lot of the regional work that we're doing right now is targeting and looking to move in from these disseminated lower grade.
Mineralized zones into the high grade massive sulfide zones as illustrative of what we've done in the past with regards to what was done in the past in terms of the mass and that whole region up there.
Okay, Alright, that's great. Okay. Thanks, that's it from me congrats again on on a great quarter.
Thanks, Alex.
Yeah.
This concludes the question answer session I would like to turn the conference back over to management for any closing remarks.
Thanks, operator and net.
I appreciate every like we've said on the pulse, we really appreciate everybody's time and consideration in terms of following our company following our story.
Thanks to all the analysts for <unk>.
Consideration with regards to the coverage of that I'd like to just reiterate our thanks again to our team in Brazil.
We've done an outstanding job again on another great quarter, and we look forward to talking to your in between quarter and at the next quarter.
Quarterly update financial results in August thanks, very much operator.
Yeah.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating on.
I think day.
[music].
Yeah.
[music].
Yeah.