ERO Copper (NYSE: ERO) Q3 Results - Nov 12

[dan_s]

Ero Copper is a recent addition to our Small-Cap Growth Portfolio. The Company is profitable, generates a lot of free cash flow and has a lot of exploration/development upside for us.
TipRanks: "In the last 3 months, 8 ranked analysts set 12-month price targets for ERO. The average price target among the analysts is $24.38."
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VANCOUVER, British Columbia, Nov. 10, 2021 (GLOBE NEWSWIRE) -- Ero Copper Corp. (TSX: ERO, NYSE: ERO) (“Ero” or the “Company”) is pleased to announce its financial results for the three and nine months ended September 30, 2021. Management will host a conference call tomorrow, Thursday, November 11, 2021, at 12:30 p.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 10,057 tonnes at the MCSA Mining Complex at C1 cash costs of $0.94 per pound of copper produced during the quarter; < Copper is selling for ~$4 per pound.

Gold production of 9,426 ounces at the NX Gold Mine at C1 cash costs of $538 per ounce of gold produced and All-in Sustaining Costs ("AISC")(*) of $741 per ounce of gold produced;

Strong quarterly adjusted EBITDA of $72.9 million and adjusted net income attributable to owners of the Company of $45.7 million ($0.49 per share on a diluted basis);

Record quarterly cash flows from operations of $150.7 million driven by strong operating performance and a $100.0 million upfront payment related to the August 2021 closing of the $110 million streaming agreement with Royal Gold (as defined below) in relation to gold production from the NX Gold Mine (the "NX Gold Stream"); < During the first three quarters of 2021, ERO has generated Adjusted Operating Cash Flow Per Fully Diluted Share of $3.36, including the upfront payment received in August.

Announced results of optimized Feasibility Study for the Boa Esperança Project, doubling life-of-mine copper production compared to the 2017 Study;

Repaid $100.0 million of principal on the $150.0 million senior secured revolving credit facility, resulting in available liquidity at quarter-end of $219.1 million, including $92.6 million of cash and cash equivalents, $26.4 million in short-term investments, and $100.0 million of undrawn availability under the senior secured revolving credit facility; and,

Tracking towards the high-end of the Company's reaffirmed 2021 production guidance ranges; lowering full-year AISC guidance for the NX Gold Mine to $650 to $725 per ounce of gold produced and updating 2021 capital expenditure guidance for the MCSA Mining Complex to reflect the acceleration of capital expenditures associated with key projects into Q4 2021 as well as the impact of inflationary pressures on capitalized development.

Commenting on the results, David Strang, CEO, stated, “The third quarter was instrumental in positioning our Company to execute on our growth strategy. We delivered on three important milestones during the quarter including the completion of an optimized Feasibility Study on the Boa Esperança Project, the closing of the previously announced $110 million NX Gold Stream, and the conclusion of mill maintenance at the MCSA Mining Complex in preparation for expanded operations. With the construction of the new external shaft at the Pilar Mine initiated on schedule in September and the planned commencement of early construction activities at the Boa Esperança Project expected to begin in Q2 2022 (subject to approval by the Company's Board of Directors), our team is working to double production while maintaining strong margins over the coming years.

"In preparation of these growth timelines, we have brought forward the second phase of our cooling project and made down payments for long-lead items related to the new external shaft for the Pilar Mine. While we, like the rest of the mining industry, are seeing global inflationary pressures impacting both operating and capital development costs, it remains to be seen whether this cost pressure is transitory or structural in nature. As a result of the acceleration of growth project capital and incorporating increases in development costs, we are updating our capital expenditure guidance for the full-year at the MCSA Mining Complex by approximately $20 million.

"With respect to the Deepening Extension Project, construction of the first phase of the shaft and other early civil works have commenced. Concurrently, we are finalizing the optimization efforts on the project including plans to increase the shaft's diameter. As a result of incorporating exceptional year-to- date drill results from the Deepening Extension and new drilling in the upper levels of the mine, our team has begun working on a longer-term initiative to potentially increased overall production volumes from the Pilar Mine.

"We have an exceptional asset portfolio and our team has worked hard to achieve peer-leading cost performance through optimization and innovation, principles that we are applying to the Deepening Extension and Boa Esperança Projects. While we expect the macro operating environment to remain dynamic, we are staking our success on the core values that have consistently delivered shareholder value: executing upon high-return and low-capital intensity projects.”

[dan_s]

My updated forecast/valuation model for ERO has been updated and posted to the EPG website.
My valuation increases by $1 to $29 per share.

[dan_s]

Note from Ero Copper's IR person:

We delivered another great quarter, including meaningful progress on our growth strategy. Highlights include:

Completion of many significant milestones, highlighted by, among others:
Optimized Boa Esperança feasibility study
Closing of the $110M NX Gold Stream
Conclusion of mill maintenance at MCSA in preparation for expanded operations

Strong adjusted EBITDA of $72.9M, bringing YTD adjusted EBITDA to over $245M

Record cash flow from operations of $150.7M (and nearly $300M YTD) driven by strong operating performance and $100M in upfront proceeds related to the closing of the NX Gold Stream

Strengthened balance sheet
Net cash position for the first time in the Company’s history
Repaid $100M on our $150M revolving credit facility
Quarter-end liquidity of $219.1M including $92.6M of cash and cash equivalents, $26.4M in short-term investments, and $100M of availability under the credit facility

Advancing growth strategy as planned:
Initiated construction of the new external shaft for the Deepening Extension Project
Finalizing optimized shaft design with wider diameter and upgraded design features
Site clearing and early engineering underway at Boa Esperança

Please let us know if you have any questions.

Courtney Lynn
VP, Corporate Development & Investor Relations
EROCOPPER
E: courtneylynn@erocopper.com
M: 917-519-4252

[dan_s]

November 11th report from Stifel. Their price target is $35Cdn per share.

Summary
ERO posted an in line 3Q21 with clean EPS of C$0.49/sh in line with us and consensus at C
$0.49/sh, copper production of 10.0kt slightly ahead of us at 9.8kt, and cash costs of $0.94/lb
in line with us at $0.94/lb. 2021 capex budget has been updated to reflect accelerating growth
plans at Pilar and early works at Boa.

Key Points
Highlights:
• Clean EPS of C$0.49/sh in line with us and consensus at C$0.49/sh.
• Copper production of 10.0kt slightly ahead of us at 9.8kt. ERO is tracking towards the high
end of 2021 production guidance of between 43-45kt Cu produced for 2021.
• Cash costs of $0.94/lb in line with us at $0.94/lb, but highest of the year. YTD cash costs have
averaged $0.72/lb, as ERO remains a first quartile copper producer with strong margins.

Other Items:
•
2021 capex budget updated. ERO is updating its capital expenditure budget for 2021 due
to accelerating growth plans at Pilar, early civil works at Boa, and inflationary pressures at
MCSA; we have revised our estimates accordingly. At Pilar, the company is securing long
lead time items for the new shaft and the cooling project. The company initiated construction
of the new shaft for the Deepening Extension at Pilar, and they are in the final stages of
designing an optimized shaft with wider diameter. Positive read through for the exploration
success at depth.
• We highlight recent exploration success at the Pilar Deepening is providing a possibility
of a 'two mine' system to maximize throughput. In this scenario, the current shaft would
service the upper workings of the operation, and the lower levels, including the growing Pilar
Deepening Extension would be serviced by the new external shaft. Positive read through on
the depth potential at Pilar, as a shaft exclusively servicing the Deepening Extension intimates
exploration is and will continue to find tonnes. Mineralization here is likely continuous at depth,
and infrastructure will ultimately dictate how deep the company can mine at Pilar.
• Boa new feasibility study underpins consolidated copper production growth. Boa has
the ability to double ERO's copper production by 2024. During the quarter, site clearing
and early engineering began at Boa. The new-look Boa FS contemplates a 12-year open pit
life of mine processed at 11ktpd and average Cu recoveries of 91.3%. The operation has a
reserve base of 43MMt @ 0.38% Cu, which is estimated to produce 27ktpa Cu over the life
of mine, and 35ktpa for the first five years of production, for total copper production of 326kt.
Using a 5.0 USD/BRL FX, initial capital is expected at $294MM, with C1 cash costs expected
at $1.36/lb Cu produced over the life of mine.
Valuation. ERO trades at 0.52x spot P/NAV versus peers at 0.56x.