U.S. Markets closed

Edited Transcript of ERO.TO earnings conference call or presentation 6-Nov-19 4:30pm GMT

Q3 2019 Ero Copper Corp Earnings Call

Nov 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Ero Copper Corp earnings conference call or presentation Wednesday, November 6, 2019 at 4:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Christopher Noel Dunn

Ero Copper Corp. - Executive Chairman of the Board

* David Maxwell Strang

Ero Copper Corp. - CEO, President & Director

* Makko DeFilippo

Ero Copper Corp. - VP of Corporate Development

* Wayne Drier

Ero Copper Corp. - CFO

================================================================================

Conference Call Participants

================================================================================

* Jackie Przybylowski

BMO Capital Markets Equity Research - Analyst

* Justin Chan

Numis Securities Limited, Research Division - Analyst

* Orest Wowkodaw

Scotiabank Global Banking and Markets, Research Division - Senior Equity Research Analyst of Base Metals

* Raphael De Souza

CIBC Capital Markets, Research Division - Research Analyst

* Stefan Ioannou

Cormark Securities Inc., Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Welcome to the Ero Copper Corp. Third Quarter Financial and Operating Results Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. (Operator Instructions)

I would now like to turn the conference over to Noel Dunn, Executive Chairman of Ero Copper. Please go ahead.

--------------------------------------------------------------------------------

Christopher Noel Dunn, Ero Copper Corp. - Executive Chairman of the Board [2]

--------------------------------------------------------------------------------

Thank you, operator, and good morning, everyone. The news release announcing Ero's third quarter result is available on our website and on SEDAR, as are our financial statements and MD&A for the 3 and 9 months ended September 30, 2019.

As usual, comments made on this call contain forward-looking statements that involve risks and uncertainties concerning the business, operations and financial performance of the company. For a discussion of the risks and factors which may lead to actual performance being different, please refer to our most recent AIF, also on SEDAR. Unless otherwise noted, all amounts discussed on this call are in U.S. dollars.

With me in the room today are David Strang, Ero's Co-Founder, Chief Executive and President; Wayne Drier, Ero's Chief Financial Officer; and Makko DeFilippo, Vice President of Corporate Development.

It is our aim today to be brief to allow sufficient times for questions on the count of the fact that it's a busy reporting day for most of you on this call.

Before discussing the operational and financial results of the quarter, I'd like to reiterate our business strategy in its simplest sense, and it's comprised of 2 primary elements. Number one, continue to grow copper production at first quartile operating costs; two, reinvesting excess profits from that production into unlocking the vast exploration potential of the Curaçá Valley with one of the world's largest active exploration programs.

As evidenced by our operating results and increased production guidance for the full year, our core assets within the Curaçá Valley are performing well, and we expect to continue to support this strategy well into the future.

The great advantage of the Curaçá Valley is that we have optionality. If metal prices rally into a new range and we maintain cash costs as our target range of around $1 per pound, then we have the option of boosting production in short order by introducing different sources of material.

Our most recent updated NI 43-101 mine plan defined the capital cost to boost mill throughput back to the nameplate capacity. So that is now clear for everyone. When we will do this and at what mix of sources of material is a decision we can make in the future depending on the outlook and depending on future discovery.

Our revised full year production guidance now calls for an incremental 2,000 tonnes of copper compared to our revised guidance to between 40,000 and 42,000 tonnes of copper for the year. We continue to guide towards the low end of our C1 cash cost guidance range of around $1 per pound of copper produced, which is in line with the strategy I've just outlined above.

NX Gold, we experienced a decline in production as the mine transitioned from the Bras vein into the Santo Antonio ore body during the quarter. The truth of the matter is, the reserves officially ran out in Q1 of this year at NX Gold. But we continue to mine as we transition to the new ore body.

From Santo Antonio, we see production levels increasing through the balance of the year, where we are currently forecasting approximately 7,500 ounces of gold production at C1 costs of approximately $700 per ounce.

Based on the drilling we've conducted to date, we see a multiyear mine life from the Santo Antonio with additional exploration upside, which we will further detail prior to the year end.

While the decline of the NX Gold production weighed on our consolidated financial performance during the period, this was offset by a favorable court ruling in July that allowed the company to recognize a tax credit totaling approximately $22 million. This was related to historical overpayments that will be used to offset future taxes payable.

Having said that, I will now pass the call over to David to provide a brief review and update of our operations, and Wayne will provide a review of the company's financial performance. But the whole team will be available for questions immediately following the call.

--------------------------------------------------------------------------------

David Maxwell Strang, Ero Copper Corp. - CEO, President & Director [3]

--------------------------------------------------------------------------------

Thank you, Noel. Our production results for the third quarter were released last night and reflect continued solid underlying operating performance at MCSA.

During the third quarter, we produced 9,674 tonnes of copper in concentrate with 587,915 tonnes milled, grading 1.84% copper and average metallurgical recoveries of 89.2%. Through the end of the third quarter, we have processed approximately 1.8 million tonnes of ore, grading 1.86% copper, producing 30,792 tonnes of copper after average metallurgical recoveries of 90.4%. This reflects a 70% increase in production from the same 9-month period in 2018.

Operating highlights during the period include record quarterly production at Vermelhos, where we continue to realize performance gains resulting in production of 176,183 tonnes of ore, grading 3.84% copper from the mine.

In addition, we achieved a notable increase in tonnes mined from the Pilar Mine relative to prior periods. In total, 362,667 tonnes were mined, grading 1.51% copper from Pilar.

We expect grades mined for the full year to be in line with our guidance of 3.2% copper for Vermelhos and 1.7% copper for Pilar, and are projecting grades process to increase in the fourth quarter over the third quarter, resulting in a full year mill head-grade of approximately 1.95% copper.

This continued performance from our core operations has resulted in improved guidance for 2019, where we now expect between 40,000 and 42,000 tonnes of copper production, an increase of 2,000 tonnes of copper compared to prior guidance and 4,000 tonnes over our original 2019 guidance released in January.

For the quarter, C1 operating costs were $1.01 per pound of copper produced, resulting in total C1 operating costs of $0.99 for the first 3 quarters of 2019, in line with our guidance for the year.

We are increasing our full year capital expenditure guidance by a modest $6 million to reflect additional exploration drilling planned for the fourth quarter as well as an increase development cost within Pilar and Vermelhos related to the production increase in 2019.

The increase in exploration expenditures is related to the increase in drilling meterage and is now forecast to be approximately 220,000 meters in 2019, a 20,000 meter increase over what was previously planned, primarily related to regional greenfields exploration. This increase in expenditures includes additional ground geophysical survey work, including additional borehole EM surveys which has proven itself successful in identifying high grade ore bodies to date.

As Noel mentioned, at our NX Gold Mine, we produced 4,356 ounces of gold at C1 cash costs of $1,169 per ounce of gold during the third quarter. Lower production during the period was a result of transitioning our mining operations from the Bras vein into the new Santo Antonio vein, as has been mentioned. While the Bras vein officially ran out of reserves per NI 43-101 technical report in the first quarter of this year, we were able to continue mining well beyond this endpoint as we accelerated development into Santo Antonio. We benefited from this in the second quarter.

With this transitional period largely behind us this quarter, we expect production and profitability to increase through year-end, and are forecasting approximately 7,500 ounces of production in the fourth quarter at approximately $700 per ounce C1 cash costs.

We will be releasing an updated NI I 43-101-compliant resource and reserve update along with a new mine plan later this year, incorporating Santo Antonio into the mine's production profile.

With respect to exploration in the Curaçá Valley, we have maintained a total rig count of 27 drill rigs. Currently, 25 are operating, with the additional 2 rigs assigned to year-end maintenance, a process that will see the majority of the rigs rotate through during the fourth quarter.

Our exploration programs have actively shifted focus over the past several weeks from primarily in and near mine targets to regional greenfield discovery programs, an essential part of our business strategy that, quite frankly, we couldn't be more excited about.

We anticipate over 50% of our meters drilled in the fourth quarter of this year will be allocated to regional targets, increasing to approximately 65% of all drilling planned for 2020.

Our greenfield exploration efforts are initially focused within the Vermelhos District, where we continue to see compelling evidence supporting our campaign. Vermelhos District exploration focus area today now covers a 10 kilometer semicontinuous trend of exploration targets and anomalies that surround the Vermelhos Mine, our newly discovered Siriema deposit, the N8/N9 deposits and notable extensions along strike to the north and south along the system. For reference, a map of the system can be found in Figure 1 of our October 10 press release.

In addition to further delineating the extent of the mineralization within the broader Vermelhos District near-mine exploration continues to focus on areas of immediate value creation, including extensions of the main Vermelhos ore bodies to depth and follow-up drilling of the high-grade zone within the Siriema Discovery, a (inaudible) zone of massive sulphide mineralization that remains open. A majority of the company's increased bore-hole EM work is focused on this target area.

In the Pilar District where 10 of the 25 drill rigs are operating, we continue to press forward with a number of in-line initiatives that have the potential to meaningfully change the production profile of the mine, particularly with respect to extending high-grade production. These include aggressive reprioritization of drilling within the deepening zone, where high-grade copper mineralization remains open along strike to the north, to the south and to depth as well as drilling in the [MSB] south zone located at higher elevations in the mine. Recent results in these zones have highlighted high-grade mineralization that is yet to be fully delineated in our resource and reserve estimates. Additionally, we continue to drill test to the south of the Pilar Mine in the Barauna zone, where mineralization appears to be shallowing towards surface as we move further south.

We anticipate providing additional detail and results on each of these programs in our upcoming Quarterly Exploration Update, typically released 4 to 6 weeks following our financial results.

With that, I will now pass it over to Wayne, who will provide an overview of our financial performance for the quarter.

--------------------------------------------------------------------------------

Wayne Drier, Ero Copper Corp. - CFO [4]

--------------------------------------------------------------------------------

Thank you, David, and good morning, all. The third quarter of 2019 can be summarized by a solid financial performance at our core MCSA operations. On a consolidated basis, the results were impacted by a weaker quarter at NX Gold, as Noel mentioned. It's worth pointing out that in prior periods, NX Gold contributed approximately $0.04 to our consolidated earnings per share compared to a negative $0.01 in the current period.

During the quarter, the company sold 10,200 tonnes of copper in concentrate and 4,579 ounces of gold, for consolidated revenues of $60.6 million. While copper sales volumes were a modest 7% lower than the prior period, revenue from concentrate sales fell by nearly 16% due to the decline in the copper price. C1 cash costs were $1.01 per pound for the quarter and $0.99 for the 9 months ended September 30, 2019.

Adjusted earnings before interest, tax, depreciation and amortization was $27.3 million for the quarter and $102.9 million for the 9 months ended September 30, 2019.

Cash flow from operations during the quarter and 9 months was $29.5 million and $91.9 million, respectively.

As Noel alluded to, the quarter's financial result was highlighted by the recognition of an BRL 89.9 million tax credit, which equates to approximately $22 million, which will be used to offset future taxes payable in 2020 and 2021.

The recognition reflects a long-running campaign by our legal and finance teams in Brazil to recoup historic overpayments of value-added taxes prior to 2003, and we are delighted that has resulted in this favorable outcome. Of the total recovery recognized, $15.7 million has been included in our current assets based on the expected timing of (inaudible).

Net income for the quarter was $16.3 million or $0.18 per share, while adjusted net income was $10.2 million or $0.11 per share. For the 9 month period, net income and adjusted net income per share were $0.51 and $0.45 per share, respectively.

The total cash position at quarter end was $23.6 million, including restricted cash. The overall liquidity position of the company remains robust, with undrawn lines of credit in Brazil totaling approximately $19 million as well as a further $14 million of headroom in our corporate revolver.

On that note, I'll hand the call back over to Noel for some concluding remarks.

--------------------------------------------------------------------------------

Christopher Noel Dunn, Ero Copper Corp. - Executive Chairman of the Board [5]

--------------------------------------------------------------------------------

Thank you, Wayne. In summary, our third quarter performance can be summarized as follows. One, strong operating and financial performance are our core business, contributing to increased full year guidance.

Two, soft operating and financial performance at NX Gold as we transition into new production areas. We'll provide clarity on the mine plan of NX Gold in the near future.

Three, a multiyear effort by our teams in Brazil, culminating in the recognition of a historic tax credit of approximately $22 million, which Wayne has pointed out will be used to offset future taxes.

Although it has been said many times before, I'd like to recognize the valuable contribution by our operating, exploration, financial and legal teams for outstanding work thus far in 2019.

Thank you very much for joining the call. We will turn it back to the operator to open the line for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Our first question is from Justin Chan with Numis Securities.

--------------------------------------------------------------------------------

Justin Chan, Numis Securities Limited, Research Division - Analyst [2]

--------------------------------------------------------------------------------

Thanks very much for hosting the call and congrats on another strong quarter. My first question is just looking ahead at the 2020 outlook as provided by the mine plan and perhaps where we might see some variance from that, if any.

I guess the first one is on the CapEx for the mill expansion. Would you expect that to come in or out as you stand right now?

And then another one on the ore sorting as well. I saw on both scenarios that it didn't really impact throughput or recovery or grade. But do you expect some impacts as you commission it in terms of volumes, if it works out well?

And then, and just on grade profile as well, you're running above that from the undergrounds now. I guess how do you see all those 3 things interacting versus what was in the mine plan?

--------------------------------------------------------------------------------

David Maxwell Strang, Ero Copper Corp. - CEO, President & Director [3]

--------------------------------------------------------------------------------

Let me just address the second question first. The preconcentration plant that we're putting in, is a, while a fully functional plant, we will be utilizing as a test facility for the first 6 months. We'll hope to be able to run -- it's annual capacity is 200,000 tonnes a year. So the intent is to run somewhere in the order of 70,000 to 100,000 tonnes through the first 6 months, testing various different ore types that we can start looking at great profiles.

We have made no commitments as of yet to fully install the system. While the preliminary test work is interesting and shows great opportunity, I think our general view is right now is we're going to take a wait-and-see approach on that piece of equipment.

With respect to 43-101 and the mine plan and the 43-101, as has been discussed numerous times at various places that we visited post the release of the 43-101, a lot of that production profile is based upon exploration success, for prevailing metal prices and, as Noel said, the options that we have available to us.

While I can appreciate that answer doesn't help the analysts on the call with regards to re-addressing their models, et cetera, we always come back to our foundation. And our foundation right now is the Pilar and Vermelhos mines. And as we go into next year, we don't see anything different with respect to changes in production other than the Pilar and the Vermelhos mines.

With regards to future expansions above and beyond the [Higgs] Mill, that is highly dependent, as we said previously, with regards to our ongoing exploration work and success in those areas.

--------------------------------------------------------------------------------

Makko DeFilippo, Ero Copper Corp. - VP of Corporate Development [4]

--------------------------------------------------------------------------------

Justin, this is this Makko. Just to elaborate. While we haven't released formal guidance for next year, I think it's safe to say that if you look at our core assets at Pilar and Vermelhos, I would expect that production throughput should be in line with this year and the grade should be higher. That's just looking at our core assets, as Dave said, at Pilar and Vermelhos. But as I said, we'll be releasing formal guidance for next year in due coarse here.

--------------------------------------------------------------------------------

Justin Chan, Numis Securities Limited, Research Division - Analyst [5]

--------------------------------------------------------------------------------

Okay. Thanks. That's quite helpful. Just in terms of grades, would you consider them similar to Q3 and 4 next year? Is that fair to say? Or is that, perhaps, too . . .

--------------------------------------------------------------------------------

Makko DeFilippo, Ero Copper Corp. - VP of Corporate Development [6]

--------------------------------------------------------------------------------

Yes, I think it's premature to start talking about exact grades, other than range. As I said, we'll come out with formal guidance here in January. You'll also see in the tech report, sort of that breakout we're talking about with respect to core assets and noncore assets.

--------------------------------------------------------------------------------

Justin Chan, Numis Securities Limited, Research Division - Analyst [7]

--------------------------------------------------------------------------------

Okay. Perfect. Just a couple more on that. In terms of the -- just on the CapEx for the -- I guess on CapEx for next year, would the right number to look at then, the number pre-expansion CapEx? But otherwise, that amount is where you expect?

--------------------------------------------------------------------------------

Wayne Drier, Ero Copper Corp. - CFO [8]

--------------------------------------------------------------------------------

That's right.

--------------------------------------------------------------------------------

Makko DeFilippo, Ero Copper Corp. - VP of Corporate Development [9]

--------------------------------------------------------------------------------

In general, that's correct.

--------------------------------------------------------------------------------

Justin Chan, Numis Securities Limited, Research Division - Analyst [10]

--------------------------------------------------------------------------------

Okay. And then on recoveries, in the 43-101, you're at 92.1. I assume there's some contribution from the reground mill in there. And maybe a bit more granularly, if it commissions in Q1 and Q2, or rather, it commissions in Q2, would you expect the 3% recovery by the second half of the year? Is that how that number sort of works through?

--------------------------------------------------------------------------------

David Maxwell Strang, Ero Copper Corp. - CEO, President & Director [11]

--------------------------------------------------------------------------------

That's correct. Expectation, as we've said, is in the latter part of the second quarter is expectation with regards to the commissioning of that plant. We also are working on some other initiatives within the plant, particularly in the use of what we call CSC that helps with some of the hydrophobic ore that we tend to get.

So it's a combination of both the Higgs Mill and our continued work with regards to optimizing the use of the CSC plant.

--------------------------------------------------------------------------------

Justin Chan, Numis Securities Limited, Research Division - Analyst [12]

--------------------------------------------------------------------------------

Okay. Perfect. And then just a couple more fairly sort of operational or -- not really operational, but fairly specific questions.

Just on timing for the 43-101, can you just give us -- should we expect it at the end of the 45-day period? Or is there any update you can give there as to when you expect to file it?

And then on -- sorry. Why don't you answer, and then I'll continue?

--------------------------------------------------------------------------------

David Maxwell Strang, Ero Copper Corp. - CEO, President & Director [13]

--------------------------------------------------------------------------------

I think that's the best thing to do is to expect at the end of that 45-day period.

--------------------------------------------------------------------------------

Justin Chan, Numis Securities Limited, Research Division - Analyst [14]

--------------------------------------------------------------------------------

Okay. Thanks. And then just on the taxes, they're VAT. So I presume this doesn't affect your income tax payable and it'll come out of operating costs. I guess that would be my first one.

And then the second one, the $15.7 million, is that the tax-adjusted number? So I guess for Wayne, what would your VAT be on an annual basis? And I guess how much of a cash impact should be expect it to have.

--------------------------------------------------------------------------------

Wayne Drier, Ero Copper Corp. - CFO [15]

--------------------------------------------------------------------------------

So Justin, yes. The answer to your first question is yes. It doesn't affect income taxes. It'll affect cost of sales.

And to your second question, $15.7 million is just the current portion. The actual total credit which is tax-adjusted because you'll see it flying through the deferred tax, so that the real credit to the company is the $22 million that we talked about, or the BRL 89.9 million.

--------------------------------------------------------------------------------

Justin Chan, Numis Securities Limited, Research Division - Analyst [16]

--------------------------------------------------------------------------------

Right. I see. I take it for it being a current asset, that implies that the entire $15.7 million is likely to be realized within a year?

--------------------------------------------------------------------------------

Wayne Drier, Ero Copper Corp. - CFO [17]

--------------------------------------------------------------------------------

Yes. Correct.

--------------------------------------------------------------------------------

Justin Chan, Numis Securities Limited, Research Division - Analyst [18]

--------------------------------------------------------------------------------

Okay. Thanks. So just net net -- sorry. I realize I've asked this probably 3 different ways. So we should model a $15.7 million reduction in operating costs associated?

--------------------------------------------------------------------------------

Wayne Drier, Ero Copper Corp. - CFO [19]

--------------------------------------------------------------------------------

Yes, you could. Yes, against -- if you ran the model with a standard VAT cost, you would see some benefit flow through to that, in that order of magnitude.

--------------------------------------------------------------------------------

Justin Chan, Numis Securities Limited, Research Division - Analyst [20]

--------------------------------------------------------------------------------

All right. Thanks very much. I would love to come next week. I'm sorry I won't be there, but we'll be represented. But anyway, thanks very much for answering the questions and hosting the call.

--------------------------------------------------------------------------------

Operator [21]

--------------------------------------------------------------------------------

The next question is from Orest Wowkodaw with Scotiabank.

--------------------------------------------------------------------------------

Orest Wowkodaw, Scotiabank Global Banking and Markets, Research Division - Senior Equity Research Analyst of Base Metals [22]

--------------------------------------------------------------------------------

Tough follow-up there. That was a lot of questions. But I'll give it a go. I'm just curious. Obviously, we haven't got the details of the new mine plan yet. But I'm curious whether you think we should rely on at least the production profile in there for 2020 in terms of the grade profile, and whether there's any assumed open pit material that was in the mine plan that came out for '20, or whether it was all underground.

--------------------------------------------------------------------------------

David Maxwell Strang, Ero Copper Corp. - CEO, President & Director [23]

--------------------------------------------------------------------------------

As we said, there is a small bit of open pit material that we did have there that was an opportunistic open pit that we could look at doing, highly dependent on metal prices.

I think from a planning perspective, where we stand today, where metal prices are today, I think it's safe to assume that we will be relying on Pilar and Vermelhos as our foundational and guided production profile for 2020.

--------------------------------------------------------------------------------

Orest Wowkodaw, Scotiabank Global Banking and Markets, Research Division - Senior Equity Research Analyst of Base Metals [24]

--------------------------------------------------------------------------------

Okay. And then in terms of costs, is there any reason, assuming that's the case with Vermelhos and Pilar being 100% of the feed next year, should we expect that your implied kind of cost per tonne be relatively flat from what we've seen this year?

--------------------------------------------------------------------------------

Wayne Drier, Ero Copper Corp. - CFO [25]

--------------------------------------------------------------------------------

We're still working on our final members. I think they're exchange rate dependent. There's potential for some improvement. But don't quote us on that yet.

--------------------------------------------------------------------------------

Makko DeFilippo, Ero Copper Corp. - VP of Corporate Development [26]

--------------------------------------------------------------------------------

Yes. Just to expand on that. I mean, you've seen the last few quarters as we've sort of ramped up production volumes from Vermelhos and Pilar, particularly this quarter, with record production at Vermelhos, and very solid performance underground at Pilar, that those operating metrics on a [BRO] basis have come down quarter-on-quarter.

So I think it's fair to say that, obviously, depending on the throughput rate that we're mining is probably the larger variable, but on an absolute basis, this number's -- I should say, the numerator shouldn't change. What will change is the denominator. And we had a really good quarter in Q3, and we hope to maintain those levels going forward.

--------------------------------------------------------------------------------

David Maxwell Strang, Ero Copper Corp. - CEO, President & Director [27]

--------------------------------------------------------------------------------

And also bear in mind, as Wayne just said, we're going to have the tax credit coming into those costs as well.

--------------------------------------------------------------------------------

Orest Wowkodaw, Scotiabank Global Banking and Markets, Research Division - Senior Equity Research Analyst of Base Metals [28]

--------------------------------------------------------------------------------

Okay. And then just finally for me. I mean, you've got 25 rigs going. I guess 2 on maintenance. Can you give us a sense of what the annual cost is for the exploration related to that number of rigs?

--------------------------------------------------------------------------------

David Maxwell Strang, Ero Copper Corp. - CEO, President & Director [29]

--------------------------------------------------------------------------------

The annualized cost will be going into next year. So what we try and do with exploration, we don't want to try and budget a full year because we get a little too far ahead of ourselves. So our budget for next year, and for capital for that is 160,000 meters through the end of the third quarter at around about $20 million of capital for that.

So you can take that and annualize that for the full year. If you want to get aggressive with regards to that, a lot of that work, in terms of what we do going into the fourth quarter on a year basis is merely we don't have a full picture of where we'll be, so we tend to rather keep things on a 9-month basis. But you can annualize it off that. So I would imagine round about $25 million is probably your number.

--------------------------------------------------------------------------------

Operator [30]

--------------------------------------------------------------------------------

The next question is from Raphael De Souza with CIBC World Markets.

--------------------------------------------------------------------------------

Raphael De Souza, CIBC Capital Markets, Research Division - Research Analyst [31]

--------------------------------------------------------------------------------

Most of them have already been answered, but I had 1 on NX Gold. So I know the tech report is coming up. But I was just wondering if you could provide some color on what to expect for 2020 and some color on silver grades as well for Q4.

--------------------------------------------------------------------------------

David Maxwell Strang, Ero Copper Corp. - CEO, President & Director [32]

--------------------------------------------------------------------------------

I think providing some color on what's going to happen in 2020 ahead of the 43-101 is extremely legally dangerous ground for us to step onto. So with all due respect, we'll hold off doing that until the 43-101 comes out. We expect that that will give, once it's out, to give you guys plenty of time to be able to include that into any work that you'll be doing for the new year.

With regards to silver grades, I'll defer to Makko on that. He's a little closer to that one.

--------------------------------------------------------------------------------

Makko DeFilippo, Ero Copper Corp. - VP of Corporate Development [33]

--------------------------------------------------------------------------------

Yes, it's a good question, Raphael, and it's one of the objectives for this year in our resource and reserve update is to include in the model silver. If you look historically at the operation of the mine, the silver grade ratio's been fairly consistent. So we don't actually model silver as a separate resource and reserve, just because the historic evidence suggests that it is a very consistent relationship.

So as Dave said, we won't get into specifics on 2020 ahead of that coming out, but I would expect that the relationship between gold and silver in that report to be consistent with historic levels, just by the nature of the ore body.

--------------------------------------------------------------------------------

Raphael De Souza, CIBC Capital Markets, Research Division - Research Analyst [34]

--------------------------------------------------------------------------------

Okay. Thank you. And then just a quick second question. So I noticed this quarter the CapEx development line jumped quite a bit. I was just wondering if you could provide some color on that and what to expect going forward.

--------------------------------------------------------------------------------

Makko DeFilippo, Ero Copper Corp. - VP of Corporate Development [35]

--------------------------------------------------------------------------------

Yes, that's another good question, Raphael. On the CapEx development side, one of the things that we've talked about sort of consistently over the last several quarters is, is getting ahead in our development to provide more operational flexibility. We continue to do that. And obviously, we've increased guidance by roughly 10% since our original guidance this year. So that's obviously being reflected in that increased guidance. And we've also continued to deliver in production volumes, as I mentioned earlier, getting record production from Vermelhos and really strong production. (inaudible) All of that increase in production obviously has a development cost associated with it. So if you look at the incremental production we're getting for those development meters, both are higher.

--------------------------------------------------------------------------------

Wayne Drier, Ero Copper Corp. - CFO [36]

--------------------------------------------------------------------------------

And I think where you have to be careful in using terms like significant increase. It was a $2 million increase in development cost projected for the fourth quarter. As Makko had said, we are ahead in development. There's no point pulling back on development if we're ahead and continue to push through. In any underground mining scenario anywhere in the world, and you talk to any operator, the opportunity to continue to get ahead is something that you always want to do. And so from that perspective, we've made that decision. It is not a significant additional amount of $2 million of the overall $6 million that's increasing, $4 million of which is going to exploration.

--------------------------------------------------------------------------------

Operator [37]

--------------------------------------------------------------------------------

The next question is from Stefan Ioannou with Cormark Securities.

--------------------------------------------------------------------------------

Stefan Ioannou, Cormark Securities Inc., Research Division - Analyst [38]

--------------------------------------------------------------------------------

Just sort of thinking sort of more near-term 2020, just the mill capacity and what you have to work with there. With no sort of open pit feed planned for next year, should we sort of think of the amount of tonnes getting fed to that mill from Vermelhos and Pilar around that sort of 550,000 tonne level? Or is there any sort of low hanging fruit in those mines that you could actually pull more ore out of those sooner than later?

--------------------------------------------------------------------------------

David Maxwell Strang, Ero Copper Corp. - CEO, President & Director [39]

--------------------------------------------------------------------------------

I think you can look at, and the 43-101 will lay it out a little better in terms of that breakdown, in terms of production between the 2 mines. I think you'll see reasonably similar production levels to this year in terms of throughput. There may be a little bit more here and there.

As we've said, if you look at the overall grade, you can see that grade does improve over this year is the best way for us to be able to say and give you guidance with regards to that right now in terms of how we look at it.

--------------------------------------------------------------------------------

Makko DeFilippo, Ero Copper Corp. - VP of Corporate Development [40]

--------------------------------------------------------------------------------

Yes. And just to be clear, Stefan, for others on the call, the production guidance for this year from Pilar is about 1.4 million tonnes and Vermelhos is 650,000 tonnes. If you look at the annualized rate of Q3 at Vermelhos, it's closer to 700,000 tonnes. So obviously, we see that potentially coming up a bit higher, if we can maintain that throughput level.

So you're really looking at between 2 million and 2.2 million tonnes a year on the annualized basis, coming from those 2 mines.

--------------------------------------------------------------------------------

Operator [41]

--------------------------------------------------------------------------------

The next question is from Jackie Przybylowski with BMO Capital Markets.

--------------------------------------------------------------------------------

Jackie Przybylowski, BMO Capital Markets Equity Research - Analyst [42]

--------------------------------------------------------------------------------

I wanted to just follow up on the question that Raphael was asking about, NX Gold. I know with the transition to the new mining area, you're going through a bit of a transition there right now. And I just wanted to ask maybe for an update on whether you're thinking on NX Gold has changed in terms of ownership and maintaining ownership and if it's still core to Ero.

And I guess maybe the same question on Boa Esperanca. Are you guys thinking [laser] larger strategically keeping both of those assets in the fold long term at this point? Thanks.

--------------------------------------------------------------------------------

David Maxwell Strang, Ero Copper Corp. - CEO, President & Director [43]

--------------------------------------------------------------------------------

Good questions. With regards to NX right now, NX, we are looking at maintaining it in the portfolio for the near future. As you know, there are some CRA tax issues with regards to effecting a spinout of that asset to our shareholders. And where we see value creation right now as opposed to looking at any potential, putting the mine up for sale, et cetera, et cetera, we believe that we can extract greater potential for the future of that mine in our portfolio right now, rather than looking at disposition of the asset.

With regards to Boa, we absolutely love Boa. The situation with Boa is, while it generates an IRR on the project of close to 35%, it really just doesn't meet the hurdle rate for us with regards to looking at moving both forward at this particular time versus the other opportunities that we see in the valley.

As you know, we are a very return-focused management team, and looking at allocating $200 million of capital towards developing Boa right now versus what, as I said, we see in our headlights with regards to the Curaçá Valley. It's better that Boa sits on the sidelines right now. And so that's where our current thinking is with both assets, both companies.

--------------------------------------------------------------------------------

Jackie Przybylowski, BMO Capital Markets Equity Research - Analyst [44]

--------------------------------------------------------------------------------

Thanks very much. And just a second question, if I might. You mentioned in the initial part of the call, that you're increasing your exploration budget, and part of that's going to include borehole EM surveys.

I know we had talked before about this. Those EM surveys that you're planning to do, is that targeting copper or is it targeting nickel or both? Maybe can you talk a little bit about where you're aiming for, if you don't mind? Thanks.

--------------------------------------------------------------------------------

David Maxwell Strang, Ero Copper Corp. - CEO, President & Director [45]

--------------------------------------------------------------------------------

Jackie, as everybody will see next week, we have a super-duper new piece of equipment that we've bought, has been on site for the last 3 weeks. And we're working with that piece of equipment. That piece of equipment is very versatile, I think, and look for a number of different metals. And so as we're moving forward here, we're increasing the utilization of that piece of equipment, along with our other copper EM probes.

--------------------------------------------------------------------------------

Jackie Przybylowski, BMO Capital Markets Equity Research - Analyst [46]

--------------------------------------------------------------------------------

I guess we'll learn more next week. I'm looking forward to the tour. Thanks very much.

--------------------------------------------------------------------------------

Operator [47]

--------------------------------------------------------------------------------

This concludes the question-and-answer session. I'll now turn the call back over to management for any closing remarks.

--------------------------------------------------------------------------------

Christopher Noel Dunn, Ero Copper Corp. - Executive Chairman of the Board [48]

--------------------------------------------------------------------------------

Thank you, everybody, for being on the call. Thanks for the questions. Those of you we'll see next week, we'll look forward to seeing you. If there's any further clarifications you want to have, we're all available to take calls to hopefully discuss any items that you may have. And just finally, just thank you all for attending.

--------------------------------------------------------------------------------

Operator [49]

--------------------------------------------------------------------------------

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