Ero Copper Corp. Q3 FY2026 earnings call

• Financial Strength & Deleveraging: The company achieved record cash flow from operations ($191 million) and adjusted EBITDA ($201 million). Net debt decreased by approximately $100 million in Q3 alone, bringing the net debt leverage ratio down to 0.5 times.
• Operational Efficiency: Throughput at Cariba and Tucuman increased sequentially by 8% and 14%, respectively. Both sites are on track to achieve record annual throughput volumes.
• Cost Management: The 'One Arrow' initiative and foreign exchange hedging strategies are successfully offsetting inflationary pressures and BRL strength. FX hedges generated $30 million in realized gains year-to-date.
• Gold Program Success: The Javanchina gold concentrate program has provided significant flexibility. The company expects to deliver 75,000 to 80,000 ounces of gold for the full year, a company record.
• Growth Pipeline: Phase III drilling at the Furnas project was completed two years ahead of schedule, demonstrating high-grade continuity. The pre-feasibility study is expected in 2027.

The company reported record financial performance across its segments. The Copper segment produced 18,300 tons in Q3 at a consolidated C1 cash cost of approximately $2.50 per pound, with Cariba and Tucuman contributing strong throughput increases. The Gold segment (Javanchina) recovered a record 25,000 ounces in Q3, driven by historic concentrate sales, though mine production was lower than expected. Total revenue reached $348 million, up 22% sequentially. Adjusted EBITDA exceeded $200 million for the quarter.

• Copper Production: On track to meet full-year copper production guidance, with expectations for Q4 to be the strongest operating quarter of the year due to higher grades and throughput.
• Gold Production: Full-year gold production guidance remains between 75,000 and 80,000 ounces, supported by historic concentrate recovery.
• Cash Costs: Consolidated C1 cash costs are expected to decline in Q4 as production volumes increase, despite current inflationary headwinds mitigated by FX hedges.
• Debt Repayment: Management intends to repay the remaining balance of the revolving credit facility during Q4 2026.

• Foreign Exchange Volatility: A stronger Brazilian Real continues to adversely impact reported operating costs and capital expenditures, though hedging provides partial protection.
• Inflationary Pressures: Elevated diesel prices and general inflation have impacted waste-tripping and fleet maintenance costs, particularly at Cariba.
• Operational Delays: At Javanchina, delays in accessing key high-grade stopes resulted in lower-than-expected mine grades in Q3, though this is expected to improve in Q4.
• Maintenance Impacts: Temporary recovery issues occurred at Tucuman following mill liner replacement and maintenance shutdowns.

Q: Analyst asked about the timing of shareholder returns given the low leverage ratio (0.5x) and plans for the Brazilian Real hedge in Q4 and beyond.

A: CFO stated that while they are below target leverage and expect to repay the revolver in Q4, there is no specific announcement date yet. Regarding FX, the Q4 floor is protected at 5.54 BRL/USD, but they participate in upside up to a 6.42 cap. They are actively building new hedges for 2027 to manage future volatility.

Q: Analyst questioned the lower-than-expected gold grade in Q3 at Javanchina and requested an update on the shaft sinking progress at Cariba.

A: CEO explained that access to key high-grade stopes was delayed until late Q3, so those grades will flow through in Q4, which is expected to be the strongest quarter. For Cariba, the shaft is 1,250m complete with 300m to go; it is on track for completion in Q1 next year, with $70 million of the $370 million CapEx remaining.

Q: Analyst asked if the three-year production outlook for Javanchina should be revised lower given recent grade challenges and requested an update on Tucuman filters.

A: CEO argued that Q4 performance is a better indicator of capacity than the full-year 2026 average, suggesting the asset can support the previous 50k-60k ounce guidance when normalized. COO confirmed that all new filters at Tucuman are on site and installation is on track for year-end completion.

Q: Analyst inquired about the drivers behind lower recovery rates in Q3 and the reason for the 30% YoY increase in corporate G&A expenses.

A: CEO attributed the recovery dip to operational adjustments needed after a major mill reline and maintenance period in late Q2, calling it a one-off impact. CFO clarified that the G&A increase is entirely due to expensed costs related to the SAP HANA implementation, which will normalize after the project concludes in Q2 2027.

Q: Analyst asked for the company's strategic outlook through 2029, focusing on growth projects and equity story.

A: CEO emphasized that Arrow is well-positioned with a strong balance sheet and cash flow generation while waiting for the next major growth asset (Furnas). Priorities include paying down the revolver, advancing the Furnas pre-feasibility study, and executing organic growth initiatives like the One Arrow program and brownfield developments.