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Rating Action: Moody's assigns B1 CFR to Ero Copper Corp.; outlook stableGlobal Credit Research - 24 Jan 2022Toronto, January 24, 2022 -- Moody's Investors Service ("Moody's") assigned first-time ratings to Ero Copper Corp. ("Ero Copper"), consisting of a B1 corporate family rating (CFR), a B1-PD probability of default rating (PDR), a B1 senior unsecured rating, and an SGL-2 Speculative Grade Liquidity Rating. The ratings outlook is stable.Ero Copper's proposed financing of US$400 million of senior unsecured notes, due 2030, will be used to fund the repayment of certain indebtedness, general corporate purposes and the development of its Boa Esperanca project. Assignments: ..Issuer: Ero Copper Corp. .... Corporate Family Rating, Assigned B1.... Probability of Default Rating, Assigned B1-PD.... Speculative Grade Liquidity Rating, Assigned SGL-2....Senior Unsecured Regular Bond/Debenture, Assigned B1 (LGD4) Outlook Actions: ..Issuer: Ero Copper Corp. ....Outlook, Assigned Stable RATINGS RATIONALE Ero Copper is constrained by its 1) small scale (45,511 tonnes of copper in concentrate at the MCSA Mining Complex and 37,798 ounces of gold at the NX Gold Mine in 2021), 2) mine concentration with a reliance on the MCSA Mining Complex (located in Brazil) for its operating cash flow, 3) execution risks related to the potential development of the Boa Esperanca project located in Brazil, and 4) a concentration of cash flow largely from one metal (copper). The company benefits from 1) the high grade and subsequent competitive cost profile of its operations (C1 cash cost of US$0.70/lb for the nine months ending Sept 2021), 2) low leverage (adjusted debt to EBITDA expected to be about 2x during construction of Boa Esperanca), 3) the long mine life of its MCSA mining complex (over 12 years) 4) expected conservative financial policies and good liquidity and 5) fully commited funding for its Boa project.Pro-forma for the notes offering, Ero Copper's adjusted debt to EBITDA was 1.4x for the twelve months ending September 2021, and is expected to peak at about 2.2x in 2023 during the construction of Boa Esperanca. EBIT Interest coverage is expected to be about 8x during the next 12-18 months. We believe that Ero Copper will maintain conservative financial policies and credit metrics will be strong for its rating.Pro-forma for the transaction, Ero Copper has good liquidity over the next twelve months, with Sources totaling about $545 million compared to Uses of $190 million. Sources include a cash balance of $119 million at Q3/21, $350 million of cash that will be put onto the balance sheet from its debt issuance, and full availability on its $75 million credit facility (mature March 2025). Uses are Moody's expectation of free cash flow usage of about $190 million as the company's spending is elevated during the construction of the Boa Esperanca project. Ero Copper has financial covenants within its credit facility including a maximum leverage and minimum interest coverage tests. We expect the company will remain well in compliance with its financial covenants.The stable outlook reflects Moody's expectation that Ero Copper has sufficient funding and liquidity in place to develop its Boa Esperanca project. It also incorporates the expectation that the company will maintain financial discipline and leverage will be sustained below 3x.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe CFR rating could be upgraded to if Ero Copper is able to achieve increased mine diversity and demonstrate its ability to execute on new mine development without meaningful setbacks. It would also require that leverage is sustained below 2.5x (1.4x proforma the debt offering at Q3/2021), and liquidity remains good.Negative rating pressure could develop if there are cost increases or delays in the development of Boa Esperanca that pressure liquidity. The rating could also be lowered if the company experiences material operational issues at its producing mines which could result in lowered production and higher costs. Quantitatively, Moody's would consider a downgrade if the leverage ratio is expected to increase and be sustained above 3.5x (expected to peak at about 2.2x in 2023) and (CFO - Dividends)/Debt declines below 20% (40% expected in 2022).The principal methodology used in these ratings was Mining published in October 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1292752. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Ero Copper Corp. is a public copper and gold producer headquartered in Vancouver, Canada. The company's operations include The MCSA Mining Complex (MCSA), Boa Esperanca copper Project and the NX Gold Mining Complex, all in Brazil. 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