Ero Copper Corp. Q1 2023 Earnings Call

Thank you for standing by this is the conference operator.

Welcome to the ERO copper first quarter, 2023 financial and operating 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.

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 Vice President corporate development and Investor Relations for opening remarks.

Please go ahead.

Thank you operator, good morning, and welcome to Arrow Copper's first quarter 2023 earnings call.

Our operating and financial results were released yesterday afternoon and are available on our website as are our financial statements and M. DNA for the three months ended March 31st 2023.

On the call today are David Strang, <unk> co founder and Chief Executive Officer.

Michael do you Filippo President and Chief operating Officer, and Wayne Drier Chief Financial Officer.

We will be making forward looking statements that involve risks and uncertainties for much actual results may differ materially we refer you to our most recent annual information form available on our website, the SEDAR and Edgar for a discussion of the risk factors of our business and their potential impact on future performance.

As a reminder, unless otherwise and unless otherwise noted all amounts are in U S dollars I will now pass the call over to CEO David strength.

Thank you Courtney and thank you everyone for joining us today.

I'm pleased to report that we've had a strong start to 2023 euro.

Despite ongoing global economic uncertainty, both copper and gold prices remained at favorable levels. During the period and we expect global policies aimed at reducing carbon emissions will continue to support copper prices for the foreseeable future.

During the first quarter favorable metal price dynamics combined with strong operating performance, including record quarterly gold production drove solid first quarter financial results, including adjusted EBITDA of $48 $2 million.

And adjusted net income attributable to the owners of the company of $22 5 million or 24 cents per share on a diluted basis.

As important we continued to progress our strategic growth initiatives with it took them a project and a new external shaft, curry, but reaching approximately 30% and 20% physical completion, respectively as of quarter end.

We executed several important contracts for each project during the period, bringing visibility on capital expenditures to approximately 90% and took them out.

And 70% on the shift.

Forecast total cost to completion for both projects remain within 5% of the original project.

Before I turn the call tobacco to provide more detail on these projects I will run through our first quarter operating performance and provide color on the expected cadence of production through the rest of 2023.

And our carry by operations, we produced 9327 times.

Copper in concentrate it's C. One cash cost of $1 70 per pound of copper produced.

Lower mine copper grades from the pillar and are amazed mines driven by planned stope sequencing.

<unk> did in lower process copper grades and production compared to the fourth quarter of 2022.

As expected this resulted in first quarter seaborne cash costs above the high end of our full year guidance range.

While we resumed shipments to our domestic smelter during the quarter on a limited and prepaid basis there.

The associated reduction in concentrate sales costs was offset by a stronger foreign exchange rate.

With respect to full year production cadence, we expect the first quarter.

Copper production to be the lowest of the year and anticipate full year copper production to be second half weighted due to higher anticipated mill throughput volumes during ramp up and commissioning of the new ball mill during the fourth quarter.

We are reaffirming our full year copper production guidance.

Our 44 to 47000 tonnes of copper at sea, one cash cost of between $1 40 and $1.

For produced.

Turning to US you haven't seen the operations, we achieved record quarterly gold production of 12443 ounces due to an increase in grade of over 16% quarter on quarter and approximately 100% year on year.

As a result, <unk> 17 of seaborne cash costs for the quarter were $436 per ounce of gold produced.

Gold production that Chevron Tina is also expected to be second half weighted.

We remain on track to commence production from the mid teen year vein later, this year, which should contribute to higher mill throughput volumes during the second half of the year.

We are reaffirming 17 as 2023 gold production guidance of 50 to 53000 ounces as seaborne cash cost of between 475 and $575 per ounce of gold produced.

With each quarter that passes operational execution and the development of our growth projects is bringing us closer to our objective of achieving over 100000 tons of copper production by 2025 and sustained annual gold production of between 55 and 60000.

<unk> beginning in 2024.

With that I will now pass the call tobacco to discuss the highlights around.

Year to date project execution, after which Wayne will discuss our financial results for the quarter.

Thank you David and good morning, everyone as David mentioned, we've made strong progress on the execution of our growth projects since the beginning of the year and are extremely well positioned to continue to execute.

At our took them a project we completed critical path earthworks around a process plant infrastructure and poured the first concrete in February on schedule.

Overall civil works are progressing well and we expect completion of the primary Crusher Foundation later this month and the foundation for the ball mill to be completed in June .

Electro mechanical erection for both areas is scheduled to commence in July .

I am pleased to report that equipment deliveries also commenced this quarter, most notably with the arrival of a ball mill on site.

On the mining side pre stripping activities remain firmly ahead of schedule with approximately 20% of total pre strip volume completed as of quarter end.

With all major outstanding contracts concluded during the period capital expenditures under contract increased from 55% at year end to approximately 85% at the end of the end of March.

With an additional 5% of capital expenditures.

In the final stages of negotiation, our overall visibility on total project spend is over 90% are.

Our capital estimate for project completion remains unchanged at approximately 305 billion, which is within 4% of the feasibility study estimates.

With a significant workforce mobilization currently underway it to come off we've ramped up local labor training programs in partnership with the National service for industrial training, Oh, well known nonprofit organization focused on technical and vocational education in Brazil.

In part due to the success of this program approximately 60% of our 700 member workforce currently at the Chicken My project or from the surrounding communities.

Switching gears to our Caribe operations, we continue to advance surface infrastructure installations for the new external shop as can be seen in the photos included in yesterday afternoon's press release.

Main activities underway on surface, including final civil erection of steel work for the headgear.

Center tower as well as installations at this stage in personal computers.

In parallel, we're making excellent progress on underground infrastructure related to the shop.

Subsequent to quarter end, our shafts sinking contractor Umass group mobilized to site and conducted the first blast of our pricing and important milestone for the project. Looking ahead, we remain fully on track to complete remaining surface infrastructure installations conclude the precinct phase and initiate our main think by year end.

Planned capital expenditures for the new external shaft under contract or in the final stages of negotiating negotiation increase from approximately 35% at year end to over 70% at the end of March with additional equipment orders expected to be placed this quarter total visibility on project capital is approaching 75%.

It took them a project I'm pleased to share that our project projected capital spend on the shaft remains within 5% of budget.

I'll now turn the call to Wayne to discuss our financial results for the quarter.

Thank you Max out.

As Dave mentioned earlier, our first quarter financial results reflected solid operating performance, including record quarterly gold production bolstered by a favorable copper and gold price environment.

This contributed to a stronger than budgeted liquidity position at quarter end of approximately $387 million, which includes approximately $210 million of cash and cash equivalents $27 million in short term investments and $150 million of Undrawn capacity under our senior secured revolver.

The credit facility.

The change in our liquidity position compared to year end of approximately $81 million was driven primarily by elevated capital expenditures related to the execution of our peer leading organic growth strategy as well as approximately $28 million of working capital changes.

We continue to manage our exchange rate exposure through opportunistic hedging of the BRL using zero cost collars.

During the first quarter. This resulted in realized and unrealized gains on our foreign exchange derivative contract.

Zero point $9 million and $3 $2 million respectively.

Well the real has continued to strengthen into the second quarter. We are hedged on approximately $30 million worth of monthly reality exposure for this quarter.

Coming quarter, and approximately $15 million per month for the second half of the year at an average.

<unk> four of around 516 at an average cap rate of 6.3 or four real per U S. Dollar.

We also remain hedged on approximately 75% of our copper production for the remainder of the year through a zero cost collar hedge program, we put in place in January .

The hedge contracts provide a floor price of $3 50 per pound on 3000 tons of copper per month through December 2023, protecting a meaningful portion of our revenues and cash flows during the construction of Tacoma.

With that I'll hand, the call back to David to share some final comments.

Thank you Wayne.

Thanks to everybody who joined the call today.

Before we open the call up to Q&A.

Like to thank our colleagues here in Canada and Brazil.

We continued to execute on our operating plans are also advancing our organic growth projects.

I would also like to congratulate macko on this expansion in Israel from President to President and Chief operating Officer.

I would like to note that Mac has been an integral member of the executive team since the founding of the company and then the Pommies appointment as President and journey 2021, he assumed oversight for the implementation of the company's strategic plan.

Including day to day operations and major projects.

I'd also like to thank anthea for her contributions to the organization.

And along with the rest of my colleagues on the executive team wish you all the best for the future.

I will now turn the call back to the operator to open the line for questions.

Thank you we will now begin the question answer session.

Joining the question queue you May Press Star then one on your telephone keypad.

You will hear a tone acknowledging your request.

You were using a speakerphone please pick up your handset before pressing keys.

To withdraw your question. Please press Star then two.

The first question comes from Gordon Lawson with paradigm capital.

Please go ahead.

Hey, good morning, everyone and congratulations on another great quarter.

Can you. Please elaborate on D V part deposit in terms of some of the challenges in respect of operating cost associated with mining this area.

Yeah.

Oh, that's a good question and it's.

Gonna take a long answer, but essentially honeypot is it's not a new deposit it's part of the original upper levels of the ore body that had been left behind.

Early in the mine's life when he went underground and there was at that time trying to use tasteful back in the 19 eighties.

So honeypot is an understood well understood area.

And it's just being integrated into our plan with respect to how.

Sure.

Into our operating plan.

Issues that we deal with with regards to Honey pot is there's a lot of development drives that had been done back in the 19 eighties that need to be rehabilitated and so as we continue to work we have taken and all of our assumptions and our capital and operating costs have all assumed that we have to in terms of rehabilitate.

Those drives assume that those drives essentially have to be re grilled remind.

So we've taken a very conservative approach with regards to any part the.

The initial responses in terms of operating a honeypot have been great in terms of grade.

And we continue to look forward to integrating it and contingent integrated over the next four to five years as we get deeper into it and as we start to also find new areas associated with it and included it in our mine plan and next next time period.

Yeah.

That's fantastic. Thank you.

Right.

D G.

<unk>.

Yeah.

Reported <unk> 45 per cent.

Are there any plans boost mining rates, where it isn't it's not up a lot.

Yeah.

Sorry go ahead and you you went very muscle death, so we're struggling.

Struggling to hear you could you just repeat that again.

Oh sure so in terms of the excess mill capacity.

Yeah, I'm not sure, Florida, not around 45%. So are there trends anyway or do you prefer.

The.

Minimize scheduled maintenance.

Our our operating plans and if you look at our life of mine plan and coincidentally the new Technical report for as you haven't Tina is being released over the next couple of days, you'll see that our plans do include increased production that will take the capacity of the mill up from its current 55.

N of utilization up to 75%. So we will have a some areas of of excess capacity.

As we look down the road are we really feel that taking that plant from us the 75% capacity to 100% is really involving some of the new exploration work, we're doing on on some lateral.

Projects that were working on we hope to be able to talk to the market place later in the year with regards to the work that we're doing there.

And hopefully at that particular time it starts to show a roadmap.

Towards how we can move to full utilization of the mill.

Okay fantastic thanks very much.

The next question comes from Stefan <unk>.

With Cormack Securities.

Please go ahead.

Great. Thanks, very much guys, yeah again, great to see the quarter I just was curious on the exploration front can you maybe just give us an update on where things are at kariba, and specifically with regards to nickel.

[laughter] Thanks Stefan.

Things continue to progress progressed well on nickel.

I think as a team we'd like to try and give the marketplace a an update over the course of the next couple of months.

With the work that we're doing in them, but on the district, along with some preliminary metallurgical test work results.

But I think I'm more.

Fundamental or more comprehensive update of exactly what we're working with here will be later in the year. We are looking at timing that sometime in October .

And so we ask for patients and bearing with us.

What we are working on is in our minds quite significant we want to get it right for our shareholders.

In terms of the work here.

But yeah I think by the fourth quarter of this year I think we'll be in a position to really have a comprehensive discussion with investors and shareholders to exactly what we are starting to uncover with respect to nickel and.

The unfolding of a nickel district are.

Got it okay.

Okay, Great. That's great. That's helpful. Thanks, guys.

Our next question comes from Orange.

With Scotiabank. Please go ahead.

Hi, good morning on need to come up project. It looks like you've got a pretty good handle on the Capex, where do you see the biggest risks going forward to completing this on time and on budget at this point.

Yeah. Thanks a.

Great Great question.

As you said a high degree of confidence in the capital numbers, where we're seeing I think from the operational perspective that we have now, especially with equipment starting to arrive on site and the conclusion of the rainy season everything right now remains on track obviously that encourage us.

Well.

I liked the fact that you know next year's rainy season is critical path for us So getting ahead on civil and electromechanical erection, which are all well underway.

But we currently have strong visibility on our schedule and Capex and everything is progressing according to plan.

Does that the Capex that you've got the visibility on does that still depend on productivity.

I realize.

You know you've got a fixed pricing for mining equipment, but do you ultimately still have to have to succeed in terms of meeting the productivity goals that are embedded in that.

Yeah for sure I mean, if you look at the schedule that we built out in some of the work that we've done to to to to make sure that we're in a great position to execute on the schedule. We've we've outlined.

We've looked at.

Several projects throughout Brazil.

On top of the World and we've indexed our productivity factors based on our relevant peers in the region to account for the rainy season. So you know when you look at our scheduling and loading factors and our construction schedule. They are in line with what's been achieved and in projects in the region and I think that's an important benchmark for us.

We went through you know as with all projects in our portfolio.

Series of independent peer reviews, and we're confident that the loading factors that are assumed are in line with with the industry. Obviously, you know achieving the the.

$305 million and the overall project schedule are both tied to achieving those those productivity rates.

Thanks, very much Rocco good luck.

Once again, if you have a question. Please press star then.

Blaine.

Our next question comes from Alexandra <unk> with them.

Blair. Please go ahead.

Hi, Thanks for taking my question can.

Can you please elaborate a bit on the lower grade thank God.

What is sure to regular maintenance, perhaps philosophy or.

An incident acuity during the quarter.

No.

Thanks for the question.

The country. The pillar in particular mine is not a homogeneous ore body is quite heterogeneous as such we're always trying to do our best to select stopes and areas to mine that we try and smooth grades as possible over an annualized basis.

But our history in terms of working here over the last six years tells us that we do have quarters, where grade is lower.

And then other quarters.

Just the nature of the ore bodies and the stopes that we are able to mine I, certainly try and put a lot of pressure on the team to try and smooth that out.

Uh huh.

But unfortunately, we don't have it on a smooth basis, so the first quarter.

<unk> was lower grade due to the stope selections that we had within the mine plan.

Can tell you right now on the dailies that our grades are significantly higher right now due to the fact that we have now access to another stope.

In another part of the mine that is significantly higher grade. That's just it's just the rhythm of how the mind works. Unfortunately.

Okay.

A question answer session.

I would like to turn the conference back over to David Strang for any closing remarks.

Thank you operator, and thanks to everybody again for attending our first quarter results.

We look forward to presenting to you again, our second quarter results.

But during the quarter, we will be excited to share. Some of you will be sharing time with us on our visit to two to the operations and we look forward to seeing a lot of you in person.

So with that thank you operator, and thanks again everybody for attending.

Bye bye.

Yeah.

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

[music].

Yeah.