ERO Copper (NYSE: ERO) Update - Sept 20

[dan_s]

I am FINALLY getting time to take a hard look at ERO. I will be adding it to our Small-Cap Growth Portfolio. Why? I am extremely bullish on copper and nickel because these two metals are key to the electric vehicle market and the transition to more electrification in general. Even ICE cars need a lot of copper. Copper demand exceeds supply in 2021 and the supply deficit could become significant in less than three years. My initial valuation of ERO is $28.00US per share. It is trading at $17.63 at the time of this post.

Ero Copper hosted our webinar on August 26th. Here is the link to the replay: https://www.youtube.com/watch?v=tYWLwu9x-I0

Note from BMO Capital Markets dated 8/4/2021

Another strong quarter. Ero's MCSA complex reported slightly higher production and in-line costs versus expectations; the NX Gold mine continues to perform very well, with production of 10.4koz above our 9.4koz and AISC of US$660/oz Au well below our US$875/oz Au and the 2021 guidance range US$875-975/oz Au. While financials were relatively in-line on an adj EPS basis at US$0.58, the adj EBITDA US$85.5M was significantly better than the consensus and our expectation of ~US$78M.

Guidance is maintained, but it's looking well achievable. Operating success at both the MCSA copper mine and NX Gold has positioned Ero well to meet or exceed its previously-released 2021 targets. Having said this, the company has highlighted some reasons why performance won't be quite as strong in H2 - we applaud its clear and timely communication of these challenges, and we have reflected them in our estimates. These include scheduled mill maintenance at MCSA in Q3, lower grades due to mine sequencing, and recovery rates at NX Gold falling from abnormally high levels in Q2. In general, our estimates for production are at the high end of guidance ranges and our cost estimates at the low end of guidance (our 2021 NX Gold AISC is below the guidance range).

Outstanding balance sheet. Net debt levels fell to a record-low US$19.2M at June 30.Subsequent to quarter-end, we expect Ero will receive a cash inflow from the closing of the previously-announced NX Gold stream transaction with Royal Gold, bringing the company's cash balance to ~US$240M and net cash to ~US$80M. Capital allocation decisions will become increasingly important as the cash balance grows. We expect Ero will pay down its revolving credit facility and will fund growth, including future exploration, the Pilar shaft sinking project which is scheduled to start construction inQ3/21, and further growth including the Boa Esperança project (Ero is expected to deliver an optimized feasibility study later this year).

We maintain our Outperform rating and our C$32.00/share one-year target.
Investors looking for (relatively) low-risk copper exposure should consider Ero for its consistent operating execution, stable jurisdiction (at present), affordable and achievable growth opportunities, and for its exploration upside. We have also updated our estimates for Royal Gold, which will hold a stream on Ero's NX Gold mine later this quarter.

[grimaldi]

Bought a little ERO today, it was a wonderful day to hit stink bids.
Meanwhile, over in the high-yield portfolio, know anything about Falcon Minerals? Symbol FLMN.

[dan_s]

I don't cover that one, but on my next live webinar set for October 22nd my invited industry expert will be Bob Howard who runs Resource Royalty, based in Dallas. Bob is also an EPG member.

Falcon Minerals Corporation acquires and owns mineral, royalty, and over-riding royalty interests in oil and natural gas properties in North America. It owns interests covering approximately 256,000 gross unit acres in the Eagle Ford Shale and Austin Chalk in Karnes, DeWitt, and Gonzales Counties in Texas, as well as approximately 75,000 gross unit acres in the Marcellus Shale across Pennsylvania, Ohio, and West Virginia. The company is based in New York, New York.

Falcon had strong Q2 results and raised their dividend to $0.15/Qtr for annualized yield of 13.9% based on today's closing price.

I like Brigham Minerals (MNRL) because none of their production is hedged and they have a rock solid team that I have known for over a decade. They are also very well funded and positioned for significant growth.