Ero Copper Corp. 2026 Q2 Earnings Call

Good morning and welcome to Ero Copper's second quarter earnings call. Our operating and financial results were released yesterday afternoon and are available on our website, along with our financial statements and MD&A for the three and six months ended June 30th, 2026. A corresponding earnings presentation can be downloaded directly from the webcast and is also available in the presentation section of our website. Joining me on the call today are Makko DeFilippo, President and Chief Executive Officer, Wayne Dreyer, Executive Vice President and Chief Financial Officer, Gelson Batista, Executive Vice President and Chief Operating Officer, and Courtney Lynn, Executive Vice President, External Affairs and Strategy. Before we begin, I'd like to remind everyone that today's discussion will include forward-looking statements, which involve risks and uncertainties that may cause actual results to differ materially.

For a detailed discussion of these risks and their potential impact on our business, please refer to our most recent annual information form available on our website as well as on SEDAR and EDGAR. Unless otherwise noted, all figures discussed today are in US dollars. With that, I'll now turn the call over to Makko DeFilippo.

Thank you, Farooq, and good morning. I appreciate everyone taking the time to join us today. As I reflected on our results this quarter, what stood out most was not any one individual metric, but the breadth of progress we were seeing across the business. Our efforts to reshape Ero are now increasingly visible in both our operating and financial results. A meaningful part of that progress traces back to One Ero, a company-wide initiative we launched at the start of 2025. One Ero is designed to streamline how we operate, improve efficiency, and unlock synergies across operations, human resources, procurement, and finance while investing in people, systems and processes to drive frontline excellence in data and analytics. We have fundamentally changed how we work together, brought leadership changes on-site and across the organization.

These changes are translating into safer, stronger operational performance, higher cash flows, and meaningful balance sheet improvements, allowing us to accelerate longer term growth within our portfolio. These were the commitments I made to shareholders at the start of 2025, and we are delivering on them. These changes are coming together at exactly the right time. Paired with commodity price tailwinds, our operational momentum drove another quarter of solid financial performance. Cash flow from operations increased nearly 50% quarter-on-quarter to approximately $138 million, and adjusted EBITDA increased to $144 million. Stepping back to the first half as a whole really illustrates how much our business has changed over the past year.

Cash flow from operations for the first six months of 2026 increased to approximately $231 million from $156 million in the first half of 2025. Adjusted EBITDA increased to $269 million from $146 million over the same period. Stronger cash generation has enabled us to make significant progress on deleveraging our balance sheet, one of our key strategic priorities this year. Over the past 18 months, we've reduced net debt by approximately $100 million while improving our net debt leverage ratio to 0.8 from a peak of 2.6 at the start of 2025. As outlined in our news release, we repaid an additional $25 million in our revolving credit facility in July, bringing total payments in 2026 to $60 million.

One Ero has been an important contributor to that progress, we can point to several tangible examples of the value it is creating across the business. Operationally, investments we continue to make in infrastructure, equipment, people, processes and technology are increasingly being reflected in our results. Our copper operations produced a combined 17,315 tons of copper during the second quarter at a consolidated shipping cash cost of $2.42 per pound. At Caraíba, we are sustaining the higher throughput rates we achieved at the end of last year, following our completion of a substantial debottlenecking effort, and remain on track for a new annual throughput record in 2026. At Tucumã, plant throughput increased 27% quarter-on-quarter, and in June we completed the first phase of our tailings filtration expansion.

During the second half of the year, we are on track to install and commission three new modular filters, which are expected to significantly increase filtration capacity and support higher plant throughputs into the future. At Xavantina, important investments in ventilation and cooling are supporting improved mining and development rates, and we saw that reflected during the quarter. Our focus on bringing forward value from our gold concentrate program coincided with the end of the rainy season, which allowed us to recover more gold from our historical concentrates. Together, improved mine performance and increased contributions from historical concentrates drove 170% quarter-over-quarter increase in total gold from Xavantina to more than 20,000 ounces. This included 8,693 ounces of mined gold production at C1 cash cost of $1,586 per ounce and 11,860 ounces recovered from historic concentrates at a C1 cash cost of $633 per ounce.

We expect a successful commissioning and ramp-up of our mobile filter press and industrial dryer to be a real benefit to our concentrate operations through the rest of this year. The collective improvements we have made and are making across our portfolio have positioned us for a strong second half of 2026. Our copper operations remain well-positioned against full-year guidance, with stronger production expected in the second half. We have also maintained consolidated copper C1 cash cost guidance, with unit costs expected to decline sequentially through the remainder of the year. At Xavantina, we expect mining rates throughput and mined gold production to be meaningfully higher in the second half, with unit cost declining as production increases. The slower start to the year means we now expect mined gold production at the low end of the maintained guidance range.

As a result, we have updated full-year C1 cash cost guidance to $1,100-$1,350 per ounce, and our all-in sustaining cost guidance to $2,200-$2,700 per ounce. We have also increased our consolidated capital expenditure guidance by $10 million to include the approval of a new power line at Xavantina. Once operational, the power line is expected to strengthen site infrastructure, support our ongoing efforts to grow our operational footprint at Xavantina, and importantly, reduce power transmission costs, allowing this investment to effectively pay for itself within two years. At Furnas, our June project update showed continued high-grade continuity with mineralization extending both at depth and along strike. An encouraging sign for the life of mine production plan we outlined in the PEA. We are well advanced on the 45,000-meter phase 3 drill program and remain firmly on track to complete it before year-end.

In parallel, we are progressing various work streams in support of a pre-feasibility study that we expect to publish in 2027. In summary, our strategy is working. We are investing in and strengthening operating performance across the portfolio, realizing measurable benefits from One Ero, converting that progress into cash flow and balance sheet improvement, and rapidly advancing Furnas as Ero's next major leg of growth. Before I turn the call over to Gelson, I also want to remind everyone that we'll be hosting our capital markets day in São Paulo on Monday, September 14th. For those of you interested in attending, please reach out to our investor relations team for more information and to register. We look forward to seeing many of you there. With that, I will turn the call over to Gelson.

Thank you, Makko, good morning, everyone. As Makko outlined, we are entering the second half with improving performance across all three operations. I will provide some additional detail on the underlying operating drivers and our expectation for the remaining on our key projects. At Caraíba, copper production totaled 8,351 tons during the quarter. Lower plane head grades were partially offset by slightly higher throughput and improved recoveries. Looking ahead, we expect stronger production at Caraíba in the second half. This should be driven by access to higher-grade benches at Surubim, as well as higher grades and tonnage from Pilar due to planned stope sequencing. We expect the higher throughput levels, grades, and production in the second half of the year. As a result, C1 cash costs are expected to decline sequentially through the remainder of the year.

At Tucumã, copper production increased approximately 6% quarter-over-quarter to 8,964 tons. A 27% increase in plant throughput more than offset the plant decrease in processed grades. Looking to the balance of the year at Tucumã, we expect sustained higher throughput rates to increase overall processed tons. While copper grades are expected to moderate in accordance with the mine plan. As a result, production is expected to be modestly higher in the second half, while C1 cash costs should remain relatively stable, supporting our maintained full-year production and cost guidance for Tucumã. As Makko discussed, we completed the expansion of Tucumã, three existing filter presses in June. We continue to expect the new three modular filters to be delivered through the third quarter and commissioned during the fourth quarter. The combined initiatives are expected to increase filtration capacity and support higher plant throughput as we exit 2026.

At Xavantina, completion of the ventilation and cool tie-in supported higher mining rates, increased throughput, and improved access to higher-grade stopes beginning in May. We expect these benefits to become increasingly visible through the second half as mining rates continue to improve quarter-on-quarter. During Q2, we also advanced process optimization work at the Xavantina processing plant to improve plant recoveries and increase efficiency.