ANNUAL
ANNUAL
REVIEW 20190
REVIEW 20190
20
19
Annual
Report
ERO COPPER
Ero Copper is a first-quartile
copper producer focused on
continued development of
an emerging world-class
mineral district in Brazil
Our primary asset is a 99.6% interest in the
Brazilian copper mining company, Mineração
Caraíba S.A. (“MCSA”), 100% owner of the Vale do
Curaçá Property with over 40 years of operating
history in the region, featuring excess mill
capacity and a highly-prospective under-explored
land package within the Curaçá Valley totaling
approximately 153,741 hectares.
TSX: ERO
WWW.EROCOPPER.COM
Table of Contents
2019 Highlights
2019 Highlights
[3]
[4]
[5]
Letter from the Executive Chairman
Letter from the Executive Chairman
Letter from the President & CEO
Letter from the President & CEO
[7] Management’s Discussion
Management’s Discussion
and Analysis
and Analysis
[40]
Consolidated Financial Statements
[84]
Corporate Information
Continuing Organic Growth
Industry-Leading Exploration Program
MCSA Copper Production (kt)
MCSA Kilometres Drilled (km)
42.3
235
30.4
158
20.1
64
2017
2018
2019
2017
2018
2019
ERO COPPER | 2019 ANNUAL REPORT | 1
5
1
2
3
MCSA Mining Complex (Curaçá Valley)
Fully integrated mining and processing facilities located in
Bahia State. A conventional three-stage crush and flotation
circuit produces a high-grade, clean copper concentrate.
The Company is focused on creating value through one of
the world’s most comprehensive exploration programs
currently underway in the Curaçá Valley.
NX Gold Mine
The high-grade NX Gold Mine, located in Mato Grosso
State, produces gold and silver. Underground mining
occurs within the newly discovered San Antonio vein. High-
grade ore is processed via conventional gravity
concentration with intensive leach and a flotation /
carbon-in- leach circuit at the Nova Xavantina Mill.
Boa Esperança Project
‘Turn-key’ copper development project located in the
Carajás Mineral Province in Pará State. The project has the
potential to add approximately 163 thousand tonnes of
incremental copper production from a conventional open-
pit operation over an initial nine-year mine life.
4 Brazil Corporate Office, MCSA (Sao Paulo)
5
Canada Corporate Office (Vancouver)
ERO COPPER | 2019 ANNUAL REPORT | 2
3
2
1
4
2019 Highlights
Operating
• Record copper production at MCSA Mining Complex of 42,318 tonnes copper in concentrate, a
39% year-on-year increase
• C1 cash costs of $0.93/lb copper produced(*), a 22% year-on-year reduction
• At the NX Gold Mine, successfully transitioned from mining the Brás and Buracão veins to mining
of the new Santo Antonio vein
Financial
• Record revenues of $284.8 million
• Record EBITDA(*) of $141.4 million
• Record net income attributable to owners of the Company of $91.9 million ($1.01 per diluted
share outstanding)
• Record cash flow from operations of $127.8 million
• Ended the year with cash and cash equivalents of $21.5 million and approximately $30 million in
undrawn credit facilities
Safety
• Zero fatalities
•
LTIFR of 0.99 on over seven million man-hours worked in 2019
Sustainability
• Our 2019 Sustainability Report will be published in the first half of 2020
Exploration
• Approximately 235 kilometers drilled at MCSA Mining Complex with approximately 23% allocated
to regional exploration
• Several significant discoveries made at MCSA Mining Complex in 2019
• New “Super Pod” discovered within the Deepening Extension of the Pilar Mine
• Greater than 100% increase in mineral reserves at the MCSA Mining Complex, announced in
October 2019
• Greater than 400% increase in mineral resources at NX Gold Mine, announced in December 2019
*EBITDA and C1 cash cost of copper produced (per lb) are non-IFRS measures – please refer to the attached Management’s Discussion and
Analysis and Consolidated Financial Statements
ERO COPPER | 2019 ANNUAL REPORT | 3
Letter from the Executive Chairman
Dear Fellow Shareholders,
Ero Copper had another strong year
in 2019, highlighted by significant
year over year copper production
growth while maintaining first-
quartile operating costs at $0.93
per pound of copper produced. In
addition, we continued to execute
our strategy of investing in our
copper operations to unlock the
vast exploration potential of the
Curaçá Valley.
Building upon the success of 2018, our
performance in 2019 is a direct reflection of our
world-class operating asset base combined with
our exceptional operational teams in Brazil. The
commitment to excellence and operational
improvement demonstrated by our colleagues
in Brazil allows us to execute our growth
strategy.
At our MCSA operations, we achieved record
throughput, copper grades and metallurgical
recoveries in 2019. This resulted in record
annual copper production, a significant 39%
year-on-year increase.
At our NX Gold operations, we announced an
initial three-year mine life extension in late
2019 that will serve as a solid foundation of
gold production on which to build longer-term
growth through exploration success. We
successfully commenced mining of the San
Antonio vein, which we expect to provide the
foundation for the NX Gold Mine for years to
come.
In 2019, we strengthened our Board of
Directors with the appointment of Dr. Sally Eyre
and Chantal Gosselin. These appointments
added significant capital markets, financial and
mining experience that complement the
existing skillset of our Board of Directors.
We believe that a strong commitment to
sustainability is central to our social license to
operate. The investments we are making within
our mining operations and within our local
communities continue to support the long-term
growth of the region. We are committed to
responsible mining and believe that transparent
reporting is imperative to the sustainability of
our business. In recognition of this, we will be
issuing our first sustainability report outlining
this performance during the first half of 2020.
I would like to take this opportunity to thank all
of our stakeholders for their continued support
and, in particular, the many employees and
contractors of the Company and each of the
communities in which we operate.
I look forward to building on our success in
2020.
Christopher Noel Dunn
Executive Chairman
March 12, 2020
ERO COPPER | 2019 ANNUAL REPORT | 4
Letter from the President & CEO
Dear Shareholders,
2019 proved to be another great
year for the Company with
continued operational execution,
improved financial stability and
significant growth of our
exploration programs during the
year. I am confident the best is yet
to come as we continue to grow
our business.
Solid Performance in 2019
Safety Performance
Ero Copper achieved strong operating and
financial results in 2019, exceeding copper
production guidance and achieving C1 cash
costs well below guidance.
Following the successful construction and
commissioning of the Vermelhos mine in 2018,
our operational team at MCSA carried positive
momentum into 2019, delivering 39% year-on-
year copper production growth.
Our net earnings attributable to the owners of
the Company was $91.9 million, or $1.01 per
diluted share, in 2019 compared to ($3.2)
million, or ($0.04) per in 2018. Cash and cash-
equivalents at year-end totaled approximately
$21.5 million and we ended the year with $30
million in undrawn revolving credit facilities. We
are well positioned to execute on our strategy
despite weakness in the spot copper price.
Additionally, our BRL per tonne mined key-
performance indicators (“KPIs”) during the year
showed significant year-on-year improvement
in both underground and open pit mining
operations while processing and indirect KPIs
remained in-line.
The health and safety of our employees and
contractors is paramount to our business. We
remain committed to improving the safety at
each of our operations to ensure our team
members can perform their roles safely and
effectively.
We had a lost time injury frequency rate
(“LTIFR”) of 0.99 in 2019, up from a record low
of 0.32 in 2018 but down from 1.47 in 2017. We
remain focused on continuous improvement
and achieving our goal of zero lost time injuries.
Creating Value Through Exploration
We believe the exploration potential of the
Curaçá Valley is immense and unlocking that
value for our key stakeholders continues to be a
core focus.
In 2019, we drilled approximately 235 km in the
Curaçá Valley, with 26 drill rigs operating, we
had one of the largest exploration programs
globally. Approximately 23% of the drilling was
focused on regional greenfield exploration and
we expect this to increase to approximately
60% in 2020.
ERO COPPER | 2019 ANNUAL REPORT | 5
Our aggressive and exploration program in
2019 led to the significant discoveries of
Baraúna and Siriema as well as a new “Super
Pod” within the Deepening Extension of the
Pilar Mine. Baraúna, located at the Pilar Mine, is
immediately below the southern portion of the
historic open pit. This combined with a new
high-grade zone of mineralization in the
Deepening Extension increases our confidence
that we will continue to extend the mine life at
Pilar well into the future. The Siriema discovery
is located approximately 1.5 km south of the
Vermelhos Mine and was the first target to be
drilled following our regional targeting work.
Siriema validates our data-driven exploration
methodology and we look forward to testing
our more than 140 regional exploration targets
in the years ahead. It is also worth mentioning
the discovery at Siriema included a zone of
brecciated massive sulphide containing
significant nickel, cobalt and platinum group
metals, further highlighting the potential value
of the Curaçá Valley as a major magmatic
sulphide district.
Beyond new discoveries, our 2019 drilling
programs contributed to a greater than 100%
increase in mineral reserves at the MCSA
mining complex and more than a 400% increase
in mineral resources at the NX Gold Mine.
Outlook for 2020
I look forward to another positive year in 2020
with continued strong operational
performance, completion of the HIG mill
installation, commissioning of the recently
installed ore sorting plant, and the execution of
our 2020 exploration program.
In the year ahead, we will continue to build on
the achievements of 2019 to unlock new value
for our shareholders.
David Strang
President, CEO and Director
March 12, 2020
ERO COPPER | 2019 ANNUAL REPORT | 6
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2019
ERO COPPER | 2019 ANNUAL REPORT | 7
MANAGEMENT’S DISCUSSION AND ANALYSIS
This Management’s Discussion and Analysis (“MD&A”) has been prepared as at March 12, 2020 and should be
read in conjunction with the audited consolidated financial statements of Ero Copper Corp. (“Ero”, the
“Company”, or “we”) as at, and for the year ended December 31, 2019, and related notes thereto, which are
prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board (the “IASB”). All references in this MD&A to “Q4 2019” and “Q4 2018” are to the
three months ended December 31, 2019 and December 31, 2018, respectively. All references to “Fiscal 2019”,
“Fiscal 2018”, and “Fiscal 2017” are to the years ended December 31, 2019, December 31, 2018, and December
31, 2017, respectively. All dollar amounts are expressed in United States (“US”) dollars and tabular amounts are
expressed in thousands of US dollars, unless otherwise indicated. References to “$” or “dollars” are to US dollars,
references to “C$” are to Canadian dollars, and references to “R$” are to Brazilian Reais.
This MD&A refers to various non-IFRS measures, such as C1 cash cost of copper produced (per lb), C1 cash cost of
gold produced (per ounce), EBITDA, Adjusted EBITDA, Adjusted net income attributable to owners of the
Company, Adjusted net income per share attributable to owners of the Company, Working Capital (Deficit),
Available Liquidity, and Net Debt. Please refer to the section titled "NON-IFRS MEASURES" within this MD&A for
a discussion of non-IFRS measures.
This MD&A contains “forward-looking information” that is subject to risk factors set out in a cautionary note
contained at the end of this MD&A. The Company cannot assure investors that such information will prove to be
accurate, and actual results and future events may differ materially from those anticipated in such information.
The results for the periods presented are not necessarily indicative of the results that may be expected for any
future period. Investors are cautioned not to place undue reliance on this forward-looking information. All
information contained in this MD&A is current and has been approved by the Board of Directors of the Company
(the “Board”) as of March 12, 2020, unless otherwise stated.
BUSINESS OVERVIEW
Ero, headquartered in Vancouver, B.C., is focused on copper production growth from the Vale do Curaçá Property,
located in Bahia, Brazil. The Company’s primary asset is a 99.6% interest in the Brazilian copper mining company,
Mineraҫão Caraíba S.A. (“MCSA”), 100% owner of the Vale do Curaçá Property with over 40 years of operating
history in the region. The Company currently mines copper ore from the Pilar and Vermelhos underground mines.
In addition to the Vale do Curaçá Property, MCSA owns 100% of the Boa Esperanҫa development project, an IOCG-
type copper project located in Pará, Brazil and the Company, directly and indirectly, owns 97.6% of the NX Gold
Mine, an operating gold and silver mine located in Mato Grosso, Brazil. Additional information on the Company
and its operations, including technical reports on the Vale do Curaçá, Boa Esperanҫa and NX Gold properties, can
be found on the Company’s website (www.erocopper.com) and on SEDAR (www.sedar.com).
ERO COPPER | 2019 ANNUAL REPORT | 8
HIGHLIGHTS
Operating Information
Copper (MCSA Operations)
Ore Processed (tonnes)
Grade (% Cu)
Cu Production (tonnes)
Cu Production (lbs)
Cu Sold in Concentrate (tonnes)
Cu Sold in Concentrate (lbs)
2019 - Q4
2019 - Q3
2019
2018 - Q4
2018
589,065
2.16
11,526
25,411,100
11,595
25,562,212
587,915
1.84
9,674
21,326,717
10,200
22,486,742
2,424,592
1.93
42,318
93,295,598
42,759
94,267,101
777,480
1.77
12,104
26,685,324
12,900
28,439,667
2,257,917
1.56
30,426
67,076,849
30,107
66,374,564
C1 cash cost of copper produced (per lb)
$
0.80
$
1.01
$
0.93
$
0.99
$
1.19
Gold (NX Gold Operations)
Au Production (ounces)
6,043
4,356
30,434
10,008
39,808
C1 cash cost of gold produced (per ounce)
$ 980 $ 1,169 $ 691 $ 540 $ 520
Financial information ($millions, except per share amounts)
Revenues
75.7
Gross profit
31.1
$
$
$
$
60.6
21.3
$
$
284.8
117.1
$
$
85.1
39.0
$
$
233.1
82.2
EBITDA
Adjusted EBITDA
Cash flow from operations
Net income (loss)
Net income (loss) attributable to owners of
the Company
Net income (loss) per share attributable to
owners of the Company
- Basic
- Diluted
Adjusted net income attributable to
owners of the Company
Adjusted net income per share attributable
to owners of the Company
$
34.3
$
35.1
$
141.4
$
40.2
$
70.5
$
$
$
31.2
35.9
45.4
$
$
$
27.3
29.5
16.3
$
$
$
134.1
127.8
92.5
$
$
$
39.0
24.0
11.3
$
$
$
99.9
82.9
(3.0)
$
45.2
$
16.3
$
91.9
$
11.2
$
(3.2)
$
$
0.53
0.49
$
$
0.19
0.18
$
$
1.08
1.01
$
$
0.13
0.13
$
$
(0.04)
(0.04)
$
40.7
$
10.2
$
86.3
$
7.9
$
10.9
- Basic
- Diluted
$
$
0.47
0.44
$
$
0.12
0.11
$
$
1.01
0.94
$
$
0.09
0.09
$
$
0.13
0.12
Cash and Cash Equivalents
Working Capital (Deficit)
Net Debt
$
21.5
$
21.7
$
21.5
$
18.9
$
18.9
$
(4.9)
$
6.4
$
(4.9)
$
(9.3)
$
(9.3)
$
(136.4)
$
(133.4)
$
(136.4)
$
(130.3)
$
(130.3)
ERO COPPER | 2019 ANNUAL REPORT | 9
2019 Highlights
2019 Operational Highlights
Another record year of copper production
•
Increased year-on-year copper production by 39.1%, with 42,318 tonnes of copper produced in
concentrate compared to 30,426 tonnes produced in 2018.
• Exceeded the Company’s 2019 original guidance of 37,000 tonnes of copper by 14.3%.
• C1 cash cost of $0.93 per pound of copper produced for 2019, $0.07 below the low-end of the Company’s
2019 guidance range of $1.00 to $1.10 per pound of copper produced.
• Total of approximately 2.4 million tonnes of ore grading 1.93% copper processed during the year
producing 42,318 tonnes of copper in concentrate after average metallurgical recoveries of 90.5%.
• Advanced several key capital programs in 2019 including completion of approximately 235,000 meters of
drilling, acceleration of development at Pilar and Vermelhos Mines to enhance operational flexibility and
production volumes, commencement of civil works and infrastructure installation for the Company’s high-
intensity grinding mill which is expected to be commissioned during Q2 2020, and installation of a 200,000
tonne per annum ore sorting plant that was commissioned in Q1 2020.
• Total annual gold and silver production at the NX Gold operations of 30,434 ounces gold and 19,641
ounces silver at C1 cash costs of $691 per ounce of gold produced.
2019 Financial Highlights
Cash position, liquidity and available lines of credit: Total cash and cash equivalents and available liquidity at
December 31, 2019 was $21.5 million and $25.1 million compared to $18.9 million and $4.7 million, respectively,
at the end of 2018. Increased liquidity is due to a reduction in the Company’s working capital deficit from $9.3
million at the end of 2018 to $4.9 million at the end of 2019, as well as an increase in the Company’s credit facilities
during the year. As at the end of 2019, the Company had $14.0 million undrawn on its secured, revolving credit
facility in Canada, plus an additional R$64.8 million in available undrawn lines of credit in Brazil.
Revenue: The Company increased year-on-year revenues from its copper operations at MCSA by 33.3%, totalling
$246.2 million in 2019 compared to $184.7 million in 2018. The increase in revenue was attributed to the increase
in year-on-year copper production.
Year-on-year decline in gold revenue from the Company’s gold operations at NX Gold was a result of decreased
production volumes as we transition into the Santo Antonio vein, partially offset by increased gold prices, resulting
in a net decrease in gold revenue of 20.1% totalling $38.6 million in 2019 compared to $48.4 million in 2018.
Mine gross profit: The Company significantly increased year-on-year mine gross profit from its copper operations
at MCSA totaling $105.6 million in 2019 compared to $66.1 million in 2018. The increase in mine gross profit was
primarily driven by increased revenues from increased copper production, and a decrease in cash costs over the
prior year as a result of higher grades processed and improved metallurgical recoveries. The Company also
recognized mine gross profit of $11.4 million in 2019 compared to $16.1 million in 2018 from its gold operations
at NX Gold as a result of lower gold production volumes.
Net income: The Company recognized net income of $92.5 million (net income per share of $1.08) in 2019
compared to a net loss of $3.0 million in 2018 (loss per share of $0.04), attributable to increased mine gross profit,
a recovery related to value added taxes previously paid on sales in Brazil, and the recognition of available tax
losses and tax credits in MCSA.
During the year, the Company recognized a recovery of $21.6 million in net income related to value added taxes
previously paid on sales in Brazil. The recovery was recognized as a result of a Brazil Supreme Court ruling in 2017
that concluded that the relevant taxing authorities had historically used an incorrect methodology to determine
such taxes. The ruling set a precedent for all companies in Brazil but was required to be confirmed for the
Company’s specific claim, for which approval was received in July 2019. These credits can be used to offset a
variety of other taxes, including income taxes and taxes on future sales.
ERO COPPER | 2019 ANNUAL REPORT | 10
In addition, the Company recognized a $28.3 million net deferred tax recovery primarily resulting from the
recognition of available tax losses and tax credits in MCSA. At December 31, 2019, the Company considered the
taxable income generated since acquisition of MCSA and forecasted future taxable income and determined that
it was now considered probable that the benefit of these losses and tax credits in MCSA would be realized.
Q4 2019 Highlights
Q4 Operational Highlights
Continued Strong Performance at MCSA Operations
• 589,065 tonnes processed grading 2.16% copper producing 11,526 tonnes of copper in concentrate after
metallurgical recoveries that averaged 90.7% during the period.
• C1 cash cost of $0.80 per pound of copper produced during Q4 2019, a $0.21 per pound improvement
over the third quarter, resulting in full-year 2019 C1 cash costs of $0.93 per pound of copper produced.
Exploration focus turns to regional greenfield targets in 2020
• One of the most comprehensive exploration programs underway globally with 26 drill rigs operating
within the Curaçá Valley plus an additional four drill rigs operating at the NX Gold Mine.
• Prior to the end of the quarter, the Company released its fourth quarter exploration results outlining
continued success within the Curaçá Valley including two new regional discoveries at N1 South and
Vermelhos North, the identification of the “Keel Zone” - a nickel-platinum-group metals rich zone at
Siriema in the Vermelhos District, plus the most significant set of holes drilled to date in the Deepening
Extension of the Pilar Mine.
• Within the Vermelhos District, where 12 drill rigs are currently operating, the identification of a brecciated
massive sulphide zone within the Siriema deposit containing copper, nickel, cobalt and platinum,
palladium, rhodium and gold (“3PGE+Au”) was released. Results were highlighted by hole FSI-40 that
intersected 9.1 meters grading 2.66% copper, 1.74% nickel, 0.07% cobalt and 1.46 grams per tonne
3PGE+Au including 5.6 meters grading 3.37% copper, 2.59% nickel, 0.10% cobalt, and 2.08 grams per
tonne 3PGE+Au. The zone remains open at depth and has been delineated over approximately 150 meters
in strike length, 105 meters down plunge and over an average thickness of 10 meters. The results of the
multi-element analysis at Siriema represents the first evidence in the history of the Curaçá Valley of a
consistent zone of elevated nickel and platinum-group metals (“PGMs”). Work continues to test the
extension of the zone to depth and to the north is planned in 2020.
In the Pilar District, where 11 drill rigs are currently operating, drilling in the Deepening Extension zone
continues to significantly extend the known extent of high-grade copper mineralization at the mine both
with respect to thickness and grade. The latest results are indicative of the emergence of a new high-
grade mineralized chamber, or “Superpod”, highlighted by hole FC5616 that intersected 51.8 meters
grading 3.49% copper including 33.4 meters grading 4.96% copper and hole FC5615 that intersected 62.5
meters grading 1.65% copper including 26.1 meters grading 2.37% copper. These results are
complemented by previously announced intercepts FC47142 that intersected 34.7 meters grading 2.29%
copper including 18.6 meters grading 3.15% copper and hole FC47139 that intersected 7.1 meters grading
6.50% copper including 4.1 meters grading 9.01% copper, both located on section 47, approximately 400
meters south of the new intercepts on section 56 (as referenced in the Company’s press release dated
September 12, 2019).
•
• Three drill rigs are currently operating on regional exploration targets within the Surubim District.
ERO COPPER | 2019 ANNUAL REPORT | 11
Q4 NX Gold Operational Highlights
• Q4 2019 gold and silver production at the Company’s high-grade NX Gold Mine of 6,043 ounces of gold
and 4,315 ounces of silver, a 39% improvement over the third quarter as first ore from the Santo Antonio
vein was mined and processed.
• 43,207 tonnes grading 6.32 grams per tonne gold processed during the period, producing 6,043 ounces
of gold after metallurgical recoveries that averaged 68.9% during Q4 2019.
• Fourth quarter C1 cash cost of $980 per ounce of gold produced, resulting in full year 2019 C1 cash costs
of $691 per ounce of gold produced.
• The Company expects production to stabilize throughout 2020 as production reaches planned capacity
from the Santo Antonio vein.
• An updated NI 43-101 (as defined herein) compliant mineral resource and mineral reserve estimate, and
associated mine plan, was announced in the fourth quarter of 2019, outlining an updated, high-grade
mineral reserve demonstrating a production profile averaging 40,500 oz per year over an initial three-year
mine life.
• Four drill rigs are currently operating at the NX Gold Mine and exploration efforts are focused on
conversion of the inferred portions of the Santo Antonio vein discovery and extensions of the Brás vein
aimed at further increasing the life-of-mine.
Q4 Financial Highlights
Revenue: Revenues from the Company’s copper operations at MCSA decreased by 6.4% from $72.3 million in Q4
2018 to $67.7 million in Q4 2019. The decrease in revenue was attributed to the decrease in copper production.
Revenues from the Company’s gold operations at NX Gold decreased 37.1% from $12.8 million in Q4 2018 to $8.0
million in Q4 2019. The decline was primarily a result of decreased production volumes, partially offset by
increased gold prices.
Mine gross profit: Mine gross profit from the Company’s copper operations at MCSA totaled $30.4 million in Q4
2019 compared to $33.9 million in Q4 2018. The decrease in mine gross profit was primarily driven by decreased
revenues from decreased copper production, partially offset by a decrease in cash costs over the comparative
period as a result of higher grades processed and improved metallurgical recoveries. The Company also
recognized mine gross profit of $0.6 million in Q4 2019 compared to $0.6 million in Q4 2018 from its gold
operations at NX Gold.
Net income: The Company recognized net income of $45.4 million (net income per share of $0.53) in Q4 2019
compared to a net income of $11.3 million in Q4 2018 (net income per share of $0.13), primarily attributable the
recognition of available tax losses and tax credits in MCSA.
During Q4 2019, the Company recognized a $27.4 million net deferred tax recovery primarily resulting from the
recognition of available tax losses and tax credits in MCSA. At December 31, 2019, the Company considered the
taxable income generated since acquisition of MCSA and forecasted future taxable income and determined that
it was now considered probable that the benefit of these losses and tax credits in MCSA would be realized.
ERO COPPER | 2019 ANNUAL REPORT | 12
REVIEW OF OPERATIONS
Mineração Caraíba S.A. (Vale do Curaçá):
2019 - Q4
2019 - Q3
2019
2018 - Q4
2018
Operating Information
Copper (MCSA Operations)
Ore Processed (tonnes)
Grade (% Cu)
Cu Production (tonnes)
Cu Production (lbs)
Concentrate Grade (% Cu)
Recovery (%)
Concentrate Sales (tonnes)
Cu Sold in Concentrate (tonnes)
Cu Sold in Concentrate (lbs)
589,065
2.16
11,526
25,411,100
2,424,592
1.93
42,318
93,295,598
587,915
1.84
9,674
21,326,717
2,257,917
1.56
30,426
67,076,849
35.0 33.7 34.8 34.5 34.5
90.7 89.2 90.5 87.8 86.3
87,307
30,107
66,374,564
777,480
1.77
12,104
26,685,324
29,142
10,200
22,486,742
37,801
12,900
28,439,667
122,966
42,759
94,267,101
33,926
11,595
25,562,212
C1 cash cost of copper produced (per lb)
$
0.80
$
1.01
$
0.93
$
0.99
$
1.19
MCSA operations continued to perform well during the fourth quarter, with a significant increase in both tonnes
and grade mined from Pilar. During the quarter, 433,258 tonnes of ore were mined grading 1.73% copper, a 19%
increase in tonnes mined, and a 15% increase in grade over the prior quarter (362,667 tonnes mined grading
1.51% copper during third quarter). At Vermelhos, production volumes were in-line with the prior quarter with
185,045 tonnes mined. Average grades mined at Vermelhos declined slightly to 3.39% copper due to normal stope
sequencing. Increases in tonnage and grade mined from the Pilar mine resulted in a significant improvement in
total contained copper, with a total of 618,303 tonnes mined grading 2.22% copper during the period. For the full
year 2019, a total of approximately 2.46 million tonnes grading 1.98% copper was mined.
At the Company’s milling operations, 589,065 tonnes of ore grading 2.16% copper was processed during Q4 2019.
Metallurgical recoveries averaged 90.7% during the period, resulting in average full-year 2019 recovery of 90.5%,
an improvement over the Company’s guidance of 90.0%. During 2019, a total of 2.42 million tonnes of ore was
processed grading 1.93% copper, resulting in the production of 42,318 tonnes of copper in concentrate. The
benefit of several low-cost milling and flotation improvement initiatives undertaken at the end of 2018 have
continued to support strong metallurgical performance in 2019. Going forward, improved metallurgical
performance remains a key focus area of the Company, complimented by the high-intensity regrind mill project,
currently underway.
The Company’s regrind mill project, sanctioned during the first quarter of 2019, remains on-budget and on-track
for equipment delivery during the first quarter of 2020 with commissioning and ramp-up during the second
quarter of 2020. A significant improvement in overall metallurgical recoveries of 3% to 4% and plant performance
beyond those already realized are expected once the new mill is operational.
In addition to the regrind mill project, the Company completed delivery of a 200,000 tonne per annum ore sorting
plant at the end of 2019. Construction of associated infrastructure was completed in the fourth quarter of 2019,
and commissioning occurred during first quarter 2020, subsequent to the end of the year. The Company aims to
test a variety of ore sources and grades from different deposits throughout the Curaçá Valley over the course of
the first half of 2020 with the aim of better evaluating the potential of pre-concentration. The ore sorting project
represents an investment in longer-term potential value optimization for deposits within the Company’s current
portfolio.
C1 cash cost averaged $0.80 and $0.93 per pound of copper produced, respectively, during the three and twelve-
month period ended December 31, 2019. C1 cash costs during the fourth quarter reflect the increase in contained
ERO COPPER | 2019 ANNUAL REPORT | 13
copper produced driven by mill head-grades, resulting in a $0.21 decrease in C1 cash costs compared to third
quarter. As a result of the Company’s increased production, and favorable prevailing foreign exchange rates, C1
cash costs for the full year came in $0.07 below the low end of the Company’s guidance of $1.00-$1.10 per pound
of copper produced.
Subsequent to the end of the quarter, the Company announced its production, cash cost, and capital guidance for
2020. The Company provided annual copper production guidance of 41,000 to 43,000 tonnes of copper in
concentrate at C1 cash costs between $0.85 and $0.95 per pound of copper produced. Capital cost guidance for
2020 is $74 million, with an additional $28 million to fund the 2020 exploration program through the end of Q3
2020. The program is designed to complete approximately 172,000 meters of drilling through the end of Q3 2020,
an annualized run rate of approximately 230,000 meters of drilling. By year end, the Company expects that 60%
of total drilling will be allocated to testing new greenfield targets identified through the Company’s airborne
geophysical survey and ongoing data analysis.
In support of its strategy to drive organic growth of the Company through exploration and new project delivery,
Ero will continue to run one of the most comprehensive drill programs globally throughout 2020. With 26 drill rigs
currently operating, the Company remains focused on using a data driven approach to exploration. This program
has already resulted in several new discoveries since 2016 including two new discoveries announced in the fourth
quarter at N1 South and Vermelhos North, as well as the identification of a nickel-PGM rich zone at Siriema.
In the Vermelhos District, approximately 80 kilometers to the north of the Caraíba Mill complex, which includes
the high-grade operating Vermelhos Mine, exploration continues to focus on continued testing of high-value
exploration targets surrounding the Vermelhos Mine. Systematic testing of targets along the previously identified
10-kilometer trend of soil and induced polarization (“IP”) anomalies along the Paredao Antiform (known as the
“Vermelhos System”) is ongoing, with the most recent discoveries of N1 South and Vermelhos North representing
the current known southern and northern extent of the Vermelhos System, respectively.
In-mine exploration in the Vermelhos District also continues to deliver results as new mineralization was identified
beneath the Toboggan and Sombrero orebodies with the most significant intercept returning 6.4 meters at 5.03%
copper, as well as in the East Zone, where drilling in the deep portion of the East Zone returned 8.4 meters grading
4.02% copper at a depth of approximately 450 meters below surface. In-mine exploration at Vermelhos in 2020
will continue to test targets beneath the known extent of mineralization in the main orebody, as well the vertical
extent of the East Zone.
In addition to in-mine exploration, drilling within the broader Vermelhos System remains focused on advancing
the Siriema and N8/N9 deposits. Drilling at Siriema in the fourth quarter was focused on testing high priority areas
within the “keel zone”, a high-grade zone of brecciated massive sulphide containing copper-nickel and PGMs,
identified through down-hole electromagnetic (“EM”) surveys. Results were highlighted by hole FSI-40 which
intersected 9.1 meters grading 2.66% copper, 1.74% nickel, 0.07% cobalt and 1.46 grams per tonne 3PGE+Au.
Drilling at N8/N9 during the period was focused on testing the extent of known mineralization, as well as the high-
grade zones within each orebody. The planned 2020 exploration program will continue to delineate the extent of
the “keel zone” at Siriema and the extent of the N8/N9 orebodies.
During the fourth quarter, the Company re-prioritized drilling of the Deepening Extension where a new set of deep
drill holes, drilled down plunge to the north have intersected thick and high-grade mineralization indicative of a
newly identified mineralized chamber, or “Superpod”, in the Deepening. In addition, drilling of the Baraúna and
South Extension zones continued to confirm extensions of mineralization within these zones.
Drilling in the Deepening Extension is currently targeting mineralization on the East Limb of the Pilar Mine between
level -725 and level -1300 approximately 1,200 meters to 1,750 meters below surface and approximately 100
meters laterally from the current level of the primary ramp (completed to level -925). Underground drilling during
the period continued work that commenced in mid-2019 to re-prioritize testing of the known extent of
mineralization within the zone, including down-plunge exploration drilling beneath the deepest known extents of
ERO COPPER | 2019 ANNUAL REPORT | 14
mineralization within the Pilar Mine. The results during the fourth quarter are among the most significant holes
on a grade-meter basis drilled by the Company in the Pilar Mine since acquisition of the Vale do Curaçá Property
in 2016. Results were highlighted by hole FC5616 that intersected 51.8 meters grading 3.49% copper including
33.4 meters grading 4.96% copper and hole FC5615 that intersected 62.5 meters grading 1.65% copper including
26.1 meters grading 2.37% copper. These results are complemented by the previously announced intercepts of
FC47142 that intersected 34.7 meters grading 2.29% copper including 18.6 meters grading 3.15% copper and hole
FC47139 that intersected 7.1 meters grading 6.50% copper including 4.1 meters grading 9.01% copper, both
located on section 47, approximately 400 meters south of the new intercepts on section 56. Exploration results
from the Deepening Extension continue to support the belief that the Pilar Mine is open at depth, where high-
grade mineralization continues to be encountered approximately 350 meters below the deepest level of current
development at the mine. Currently, five drill rigs are positioned to drill the Deepening, targeting resource
conversion and testing the extent of the mineralization to the North, South, and at depth.
Elsewhere within the Pilar underground mine, drilling at Baraúna was performed from surface targeting
mineralization beneath the southern portion of the open pit mine and extensions of mineralization to the south.
Results were highlighted by hole FC1923 that intersected 31.8 meters grading 0.83% copper including 7.0 meters
grading 1.31% copper immediately beneath the south pit wall and FC0901 that intersected 4.5 meters grading
0.44% copper from 19.6 meters down hole, approximately 200 meters south of the known limit of mineralization
within the Pilar Mine. While results to date in this area are low-grade disseminated mineralization, additional
geophysical work is ongoing to better refine high-grade targeting in this zone. Drilling in the South Extension
continued to confirm the continuity of the orebody to the south, and current drilling is testing the extent of this
zone at depth and to the South.
ERO COPPER | 2019 ANNUAL REPORT | 15
NX Gold S.A.
Operating Information
Gold (NX Gold Operations)
Ore mined (tonnes)
Ore milled (tonnes)
Head grade (grams per tonne Au)
Recovery (%)
2019 - Q4
2019 - Q3
2019
2018 - Q4
2018
40,453 33,601 154,271 37,950 119,469
43,207 34,813 158,275 38,464 117,857
6.32 4.51 6.98 8.85 11.55
91.0%
91.5%
86.2%
85.7%
68.9%
Gold ounces produced (oz)
Silver ounces produced (oz)
6,043 4,356 30,434 10,008 39,808
4,315 2,909 19,641 6,186 24,700
Gold sold (oz)
Silver sold (oz)
5,810 4,579 29,755 10,603 39,808
4,247 2,999 19,142 6,752 24,700
C1 cash cost of gold produced (per ounce)
$
980
$
1,169
$
691
$
540
$
520
The fourth quarter at the NX Gold Mine was a continuation of transitioning mining activity to the Santo Antonio
vein. During the period, remaining exposed ore blocks continued to be mined from the Brás vein, while
development and mining activities ramped up within Santo Antonio. As a result of first production from the Santo
Antonio vein, ore production and grade were 20% and 30% improved versus the third quarter, respectively. During
the fourth quarter, 43,207 tonnes of ore grading 6.32 grams per tonne of gold was processed, producing 6,043
ounces of gold and 4,315 ounces of silver as by-product after metallurgical recoveries that averaged 68.9%.
Recoveries during the quarter were adversely impacted due to the transition of ore feed from Brás to Santo
Antonio. Recoveries are expected to improve in the first quarter and throughout 2020. C1 cash costs averaged
$980 per ounce of gold produced. For the full year, the NX Gold Mine produced 30,434 ounces of gold at C1 cash
costs of $691 per ounce.
In the fourth quarter, the Company released its National Instrument 43-101, Standards of Disclosure for Mineral
Projects (“NI 43-101”) compliant Mineral Resource and Mineral Reserve estimate outlining a significantly
improved Mineral Reserve extending mine-life by three years and demonstrating average annual production of
40,500 ounces of gold. Subsequent to the end of the quarter, the Company released 2020 production, cash cost,
and capital expenditure guidance for the NX Gold Mine. The Company expects to produce 38,000 to 40,000 ounces
of gold at C1 cash costs of $475 to $575 per ounce. Capital costs are expected to be $6.0 million, plus an additional
$3.5 million allocated to exploration for 2020.
Following the release of the NI 43-101 compliant Mineral Resource and Mineral Reserve estimate and mine plan
in the fourth quarter, the exploration focus at NX Gold has shifted to infill drilling of the inferred portions of the
Santo Antonio orebody with the focus of converting additional mineralization into measured and indicated
mineral resources. The regional exploration program continues to work to identify new targets within the
Company’s significant land holding in Mato Grosso. There are currently four drill rigs operating on the property.
ERO COPPER | 2019 ANNUAL REPORT | 16
2020 Guidance/Outlook
• Annual production guidance for the Curaçá Valley operations of 41,000 to 43,000 tonnes of copper in
concentrate.
• C1 cash cost guidance of US$0.85 to US$0.95 per pound of copper produced and capital expenditure
guidance of US$74.0 million[1].
• An additional US$28 million[1] to fund the 2020 exploration program in the Curaçá Valley. The program is
highlighted by 172,000 meters of planned exploration drilling through September 2020, an annualized
rate of approximately 230,000 meters, of which approximately 60% is planned for regional exploration
including drill testing of new greenfield targets identified during the Company’s airborne geophysical
survey and ongoing data analysis. This compares to approximately 235,000 meters drilled during 2019 of
which only 23% was allocated to regional exploration.
• Annual production guidance for the NX Gold Mine of 38,000 to 40,000 ounces of gold at C1 cash costs of
US$475 to US$575 per ounce of gold produced. Annual capital expenditure guidance for the NX Gold Mine
of US$5.7 million plus US$3.5 million[1] in ongoing exploration expenditures.
[1] Capital and operating cost guidance presented in USD assuming a R$ / $ foreign exchange rate of 4.00.
2020 Production Outlook
Curaçá Valley Operations
Tonnes Processed
Copper Grade (% Cu)
Copper Recovery (%)
Cu Production (000 tonnes)
NX Gold Operations
Tonnes Processed
Gold Grade (gpt)
Gold Recovery (%)
Au Production (000 ounces)
Ag Production (000 ounces)
2019 Original
Guidance
2019 Revised
Guidance
2,050,000
2.00%
88.0%
36.0 - 38.0
2,350,000
1.95%
90.0%
40.0 - 42.0
2019 Result
2,424,592
1.93%
90.5%
2020
Guidance[1]
2,150,000
2.15%
91.0%
42.3
41.0 - 43.0
2019 Original
Guidance
2019 Revised
Guidance
2019 Result
-
-
-
-
-
-
-
-
-
-
158,275
6.98
85.7%
30.4
19.6
2020
Guidance[1]
150,000
9.00
90.0%
38.0 - 40.0
n/a
(1) Guidance is based on certain estimates and assumptions, including but not limited to, mineral reserve estimates, grade and continuity of interpreted
geological formations and metallurgical performance. Please refer to the Company’s AIF (as defined herein) for complete risk factors.
2020 Cash Cost Guidance
The Company’s guidance for 2020 assumes a R$ / $ foreign exchange rate of 4.00, gold price of $1,450 per ounce
and silver price of $17.00 per ounce.
Curaçá Valley C1 Cash Cost
Guidance (US$/lb)[1]
NX Gold Mine C1 Cash Cost
Guidance (US$/oz)[1]
2019 Revised
Guidance
$1.00 - $1.10
2019 Result
2020 Guidance
$0.93
$0.85 - $0.95
n/a
$691
$475 - $575
(1) Guidance is based on certain estimates and assumptions, including but not limited to, mineral reserve estimates, grade and continuity of interpreted
geological formations and metallurgical performance. Please refer to the Company’s SEDAR filings for complete risk factors.
2020 Capital Expenditure Guidance
ERO COPPER | 2019 ANNUAL REPORT | 17
The Company’s capital expenditure guidance for 2020 assumes a R$ / $ foreign exchange rate of 4.00 and has
been presented below in USD millions. Capital expenditure guidance, including discretionary capital for 2020, is
based on a budgeted copper price of US$2.65 per pound of copper.
Curaçá Valley / Copper Operations
Pilar Mine and Caraíba Mill Complex[1]
Vermelhos Mine
Boa Esperanҫa Project
Capital Expenditure Guidance
Curaçá Valley Exploration[2]
NX Gold Operations
Capital Expenditure Guidance
Exploration[2]
Total, NX Gold
2019 Revised Guidance
$45.0
$20.0
$1.0
$66.0
$30.0
2019 Guidance
n/a
n/a
n/a
2020 Guidance
$58.0
$16.0
$0.2
$74.2
$28.0
2020 Guidance
$5.7
$3.5
$9.2
[1] Pilar Mine and Caraíba Mill Complex capital expenditure guidance for 2020 includes completion of the high-intensity grinding mill and operation of the
ore-sorting pilot plant.
[2] Exploration capital expenditure guidance for 2020 has been forecast through September of 2020 and, as with prior guidance, is dependent, in part, on
future exploration success and subject to further review and revision.
Mineração Caraíba S.A.
Copper production from the Curaçá Valley operations for 2020 is expected to be between 41,000 and 43,000
tonnes, with ore fed solely from the Pilar and Vermelhos underground mines. Production from the Pilar Mine is
expected to contribute a total of approximately 1.4 million tonnes grading 1.40% copper while production from
the Vermelhos Mine is expected to contribute a total of approximately 750,000 tonnes grading 3.50% copper
resulting in a blended mill head grade of approximately 2.15% copper.
NX Gold S.A.
Approximately 150,000 tonnes of ore will be mined and processed from the Santo Antonio vein in 2020 at an
average grade of 9.00 grams per tonne of gold. Following average metallurgical recoveries of 90.0%, Gold
production from the NX Gold Mine is expected to reach 38,000 to 40,000 ounces.
Boa Esperança
A full review of the Boa Esperança Feasibility Study1 remains ongoing with the goal of extending the potential
mine life and increasing copper production among other desktop optimization initiatives. The Company expects
to provide an update on these initiatives during the first half of 2020.
1.
As defined herein under “NOTE REGARDING SCIENTIFIC AND TECHNICAL INFORMATION”.
ERO COPPER | 2019 ANNUAL REPORT | 18
REVIEW OF FINANCIAL RESULTS
The following table provides a summary of the financial results of the Company for Q4 2019 and Q4 2018. Tabular
amounts are in thousands of US dollars, except share and per share amounts.
Notes
Three months ended
December 31, 2019
Three months ended
December 31, 2018
Revenue
Cost of product sold
Sales expenses
Gross profit
Expenses
General and administrative
Share-based compensation
Income before the undernoted
Other income (expenses)
Finance income
Finance expense
Foreign exchange gain
Loss on debt settlement
Other income (expense)
Income before income taxes
Income tax recovery (expense)
Current
Deferred
Net income for the period
Other comprehensive income
Foreign currency translation gain
Comprehensive income
Net income attributable to:
Owners of the Company
Non-controlling interests
Comprehensive income attributable to:
Owners of the Company
Non-controlling interests
Net income per share attributable to owners of the Company
Net income per share
Basic
Diluted
Weighted average number of common shares outstanding
Basic
Diluted
Notes:
1
2
3
4
5
6
7
8
8
$
75,688
(43,017)
(1,595)
31,076
$
85,084
(44,661)
(1,441)
38,982
(12,707)
(1,304)
17,065
358
(2,014)
4,423
-
368
20,200
(2,232)
27,441
25,209
45,409
(10,456)
(723)
27,803
773
(6,776)
7,433
(5,476)
(5,625)
18,132
(1,853)
(4,999)
(6,852)
11,280
$
6,528
51,937
$
3,830
15,110
$
$
$
$
$
$
$
$
45,169
240
45,409
51,671
266
51,937
11,210
70
11,280
15,026
84
15,110
$
$
0.53
0.49
$
$
0.13
0.13
85,620,168
91,670,988
84,504,954
88,638,656
ERO COPPER | 2019 ANNUAL REPORT | 19
1. Revenues for Q4 2019 from copper sales was $67.7 million (Q4 2018 - $72.3 million), which included the sale of 11,595 copper tonnes in
concentrate as compared to 12,900 copper tonnes for Q4 2018. The Company processed 24% less ore at a higher ore grade during Q4 2019
compared to Q4 2018. Revenues for Q4 2019 from gold sales was $8.0 million (Q4 2018 - $12.8 million), which included the sale of 5,810
ounces of gold, compared to 10,603 ounces of gold for Q4 2018.
2.
Cost of product sold for Q4 2019 from copper sales was $35.6 million (Q4 2018 - $36.9 million) which consisted of $11.1 million (Q4 2018 -
$9.3 million) in depreciation and depletion, $9.4 million (Q4 2018 - $8.5 million) in salaries and benefits, $4.6 million (Q4 2018 - $5.7 million)
in materials and consumables, $4.3 million (Q4 2018 - $7.3 million) in contracted services, $3.9 million (Q4 2018 - $3.4 million) in maintenance
costs, $2.2 million (Q4 2018 - $2.5 million) in utilities, and $0.2 million (Q4 2018 - $0.2 million) in other costs.
Cost of product sold for Q4 2019 from gold sales was $7.4 million (Q4 2018 - $7.8 million) which primarily comprised of $2.2 million (Q4 2018
- $1.8 million) in salaries and benefits, $1.2 million (Q4 2018 - $0.8 million) in contracted services, $1.2 million (Q4 2018 - $1.4 million) in
maintenance costs, $1.1 million (Q4 2018 - $1.3 million) in materials and consumables, $0.9 million (Q4 2018 - $1.8 million) in depreciation
and depletion, and $0.7 million (Q4 2018 - $0.6 million) in utilities.
3. General and administrative expenses for Q4 2019 include $10.3 million (Q4 2018 - $3.8 million) with respect to MCSA for salaries and incentive
payments, professional fees, office and sundry and provisions for tax, legal and labour claims, $0.5 million (Q4 2018 - $1.8 million) with respect
to NX Gold for salaries and incentive payments, professional fees, office and sundry and provisions for tax, legal and labour claims, and $1.9
million (Q4 2018 - $4.8 million) with respect to the corporate head office in Vancouver. Corporate head office costs are primarily comprised
of $1.4 million (Q4 2018 - $4.0 million) in salaries, incentive payments, and consulting fees, $0.3 million (Q4 2018 - $0.2 million) in travel-
related costs, and $0.2 million (Q4 2018 - $0.4 million) in professional fees. Increases in general and administrative expenses in Q4 2019 as
compared to Q4 2018 reflect the growth of operations, which included higher headcounts, incentive payments for exceeding board-mandated
performance targets during 2019, as well as rate increases related to annual union contract negotiations at MCSA.
4.
5.
Finance expense for Q4 2019 was $2.0 million (Q4 2018 - $6.8 million) and is primarily comprised of interest on loans at the corporate head
office of $2.0 million (Q4 2018 - $1.5 million), interest on loans and borrowings at MCSA and NX Gold of $0.7 million (Q4 2018 - $3.1 million),
commitment fees of $0.5 million (Q4 2018 - $0.6 million), partially offset by other finance income of $1.0 million (Q4 2018 - $2.0 million), and
the reduction of asset retirement obligation accretion of $0.2 million (Q4 2018 - accretion of $3.8 million). Interest on loans and borrowings
at MCSA and NX Gold decreased due to the repayments of certain loans during 2018 and 2019.
Foreign exchange gain for Q4 2019 was $4.4 million (Q4 2018 - $7.4 million). This amount is primarily comprised of a foreign exchange gain
on USD denominated debt of $3.8 million (Q4 2018 - $4.8 million) in MCSA for which the functional currency is the Brazilian Real and a foreign
exchange gain on unrealized derivative contracts of $1.4 million (Q4 2018 - $4.0 million), partially offset by a foreign exchange loss on realized
derivative contracts of $0.5 million (Q4 2018 - $1.0 million). The decrease in foreign exchange gains was primarily a result of the foreign
exchange rate between the Brazilian Real and the US dollar fluctuating less during Q4 2019 as compared to Q4 2018 and a decrease in the
outstanding USD denominated debt held in MCSA.
6.
In Q4 2018, the Company recognized a loss on settlement of debt of $5.5 million, comprising of a $3.7 million loss in early repayment fees for
the settlement of certain debt in MCSA and a $1.8 million loss in loan settlement fees when the Company replaced its $50 million senior
secured non-revolving credit facility with a $130 million facility from a syndicate of Canadian financial institutions.
7. Other income for Q4 2019 was $0.4 million (Q4 2018 - other expense of $5.6 million). Other income for Q4 2019 was not significant. Other
expense in Q4 2018 primarily consisted of the write-off of state tax credits claimed that were deemed not recoverable for MCSA and NX
Gold of $2.6 million and $1.6 million, respectively.
8.
In Q4 2019, the Company recognized a $25.2 million income tax recovery (Q4 2018 - income tax expense of $6.9 million), primarily resulting
from the recognition of available tax losses and tax credits in MCSA and partially offset by current tax expense in the period. At December 31,
2019, the Company considered the taxable income generated since acquisition of MCSA and forecasted future taxable income and determined
that it was now considered probable that the benefit of these losses and tax credits in MCSA would be realized.
ERO COPPER | 2019 ANNUAL REPORT | 20
The following table provides a summary of the financial results of the Company for Fiscal 2019, Fiscal 2018, and
Fiscal 2017. Tabular amounts are in thousands of US dollars, except share and per share amounts.
Year ended
Notes December 31, 2019
Year ended
December 31, 2018
Year ended
December 31, 2017
Revenue
Cost of product sold
Sales expenses
Gross profit
Expenses
General and administrative
Share-based compensation
Income before the undernoted
Other income (expenses)
Finance income
Finance expense
Foreign exchange loss
Loss on debt settlement
Recovery of value added taxes
Other income (expense)
Income before income taxes
Income tax recovery (expense)
Current
Deferred
Net income (loss) for the period
Other comprehensive income (loss)
Foreign currency translation loss
Comprehensive income (loss)
Net income attributable to:
Owners of the Company
Non-controlling interests
Comprehensive income (loss) attributable to:
Owners of the Company
Non-controlling interests
Net income per share attributable to owners of the Company
Net income per share
Basic
Diluted
Weighted average number of common shares outstanding
Basic
Diluted
Cash and cash equivalents
Total assets
Non-current liabilities
1
2
3
4
5
6
7
8
8
$
284,843
(162,817)
(4,962)
117,064
$
233,105
(147,611)
(3,268)
82,226
$
148,241
(128,009)
(2,225)
18,007
(32,817)
(5,792)
78,455
701
(20,428)
(5,148)
(1,783)
21,584
1,448
74,829
(10,645)
28,271
17,626
92,455
(29,000)
(3,225)
50,001
1,303
(22,562)
(20,713)
(5,476)
-
108
2,661
(2,899)
(2,753)
(5,652)
(2,991)
(22,940)
(879)
(5,812)
2,276
(20,709)
(4,296)
28,727
-
1,788
1,974
(1,104)
16,614
15,510
17,484
$
(4,941)
87,514
$
(27,801)
(30,792)
$
(973)
16,511
$
$
$
$
$
$
(3,155)
164
(2,991)
(30,845)
53
(30,792)
22,466
(4,982)
17,484
21,497
(4,986)
16,511
$
$
$
$
$
$
91,883
572
92,455
86,962
552
87,514
$
$
1.08
1.01
$
$
(0.04)
(0.04)
$
$
0.40
0.34
85,244,277
91,390,425
83,927,977
83,927,977
56,252,358
66,003,387
$
$
$
21,485
462,674
183,135
$
$
$
18,941
360,439
196,352
$
$
$
51,098
381,343
196,265
ERO COPPER | 2019 ANNUAL REPORT | 21
Notes:
1. Revenues for Fiscal 2019 from copper sales was $246.2 million (Fiscal 2018 - $184.7 million) which included the sale of 42,759 copper tonnes
in concentrate in Fiscal 2019 as compared to 30,107 copper tonnes in Fiscal 2018. The increase in revenue in Fiscal 2019 as compared to Fiscal
2018 includes production from the Vermelhos mine which commenced commercial production in October 2018. The Company processed
64% more ore at a higher ore grade during Fiscal 2019 as compared to Fiscal 2018. In addition, revenues for Fiscal 2019 included $38.6 million
(Fiscal 2018 - $48.4 million) from the sale of 29,755 (Fiscal 2018 - 39,808) ounces of gold from NX Gold operations.
2. Cost of product sold for Fiscal 2019 from copper sales was $135.6 million (Fiscal 2018 - $115.3 million), which consisted of $40.1 million (Fiscal
2018 - $34.1 million) in depreciation and depletion, $33.7 million (Fiscal 2018 - $29.7 million) in salaries and benefits, $20.5 million (Fiscal
2018 - $17.6 million) in contracted services, $17.9 million (Fiscal 2018 - $14.9 million) in materials and consumables, $14.1 million (Fiscal 2018
- $10.8 million) in maintenance costs, $8.7 million (Fiscal 2018 - $7.5 million) in utilities, and $0.7 million (Fiscal 2018 - $0.7 million) in other
costs. Cost of products sold during Fiscal 2019 increased 18% as compared to Fiscal 2018. Higher recoveries, higher ore grade, and efficiencies
contributed towards cost containment relative to the increase in production volume. The increase in cost of products sold in Fiscal 2019
compared to Fiscal 2018 was primarily due to more copper being produced and sold as a result of the commencement of production at the
Vermelhos underground mine in October 2018.
Cost of product sold during Fiscal 2019 from gold sales was $27.2 million (Fiscal 2018 - $32.3 million), which comprised of $5.9 million (Fiscal
2018 - $11.1 million) in depreciation and depletion, $7.1 million (Fiscal 2018 - $6.4 million) in salaries and benefits, $4.3 million (Fiscal 2018 -
$5.0 million) in maintenance costs, $3.9 million (Fiscal 2018 - $4.5 million) in materials and consumables, $3.2 million (Fiscal 2018 - $3.2
million) in contracted services, $2.5 million (Fiscal 2018 - $1.8 million) in utilities, and $0.3 million (Fiscal 2018 - $0.3 million) in other costs.
3. General and administrative expenses during Fiscal 2019 include $21.0 million (Fiscal 2018 - $16.3 million) with respect to MCSA for salaries
and incentive payments, professional fees, office and sundry and provisions for tax, legal and labour claims, $2.3 million (Fiscal 2018 - $3.4
million) with respect to NX Gold for salaries and incentive payments, professional fees, office and sundry and provisions for tax, legal and
labour claims and $9.5 million (Fiscal 2018 - $9.3 million) with respect to the corporate head office in Vancouver. Corporate head office costs
are primarily comprised of $6.7 million (Fiscal 2018 - $6.4 million) in salaries, incentive payments, and consulting fees, $1.2 million (Fiscal
2018 - $0.9 million) in travel-related costs, $0.7 million (Fiscal 2018 - $1.0 million) in office and sundry costs, and $0.5 million (Fiscal 2018 -
$0.9 million) in professional fees. Increases in general and administrative expenses in Fiscal 2019 as compared to Fiscal 2018 reflect the growth
of operations, which included higher headcounts, incentive payments for exceeding board-mandated performance targets during 2019, as
well as rate increases related to annual union contract negotiations at MCSA.
4.
5.
6.
Finance expense for Fiscal 2019 was $20.4 million (Fiscal 2018 - $22.6 million) and is primarily comprised of interest on loans at the corporate
head office of $8.3 million (Fiscal 2018 - $5.4 million), interest on loans and borrowings at MCSA and NX Gold of $2.9 million (Fiscal 2018 - $9.6
million), the accretion of asset retirement obligations of $3.5 million (Fiscal 2018 - $3.8 million), commitment fees of $1.7 million (Fiscal 2018
- $0.6 million), and other finance expenses of $3.1 million (Fiscal 2018 - $2.6 million). Interest on loans and borrowings at MCSA and NX Gold
decreased due to the repayments of certain loans during 2018 and 2019, while interest on loans at the corporate head office increased due
to the senior secured non-revolving credit facility entered into in December 2018, the proceeds of which were used to repay or settle debt at
MCSA.
Foreign exchange loss for Fiscal 2019 was $5.1 million (Fiscal 2018 - $20.7 million), primarily comprised of a foreign exchange loss on US
denominated debt of $4.4 million (Fiscal 2018 - $9.8 million) in MCSA where the functional currency is the Brazilian Real, a loss on other
foreign exchange transactions of $0.7 million (Fiscal 2018 - $1.9 million), and a foreign exchange loss on unrealized derivative contracts of $0.3
million (Fiscal 2018 - $1.1 million gain), partially offset by a foreign exchange gain on realized derivative contracts of $0.2 million (Fiscal 2018
- $10.1 million loss). The decrease in foreign exchange losses in Fiscal 2019 was primarily due to the foreign exchange rate between the
Brazilian Real and the US dollar not fluctuating significantly during Fiscal 2019 as compared to Fiscal 2018 and a decrease in the outstanding
USD denominated debt held in MCSA.
Loss on debt settlement during Fiscal 2019 was $1.8 million (Fiscal 2018 - $5.5 million), representing the difference between the accounting
fair value made to legally extinguish a bank loan held by MCSA during the second quarter of 2019 and the carrying value of the loan at the
time. Loss on settlement of debt during Fiscal 2018 of $5.5 million was incurred in Q4 2018, comprising of a $3.7 million loss in early repayment
fees for the settlement of certain debt in MCSA and a $1.8 million loss in loan settlement fees when the Company replaced its $50 million
senior secured non-revolving credit facility with a $130 million facility from a syndicate of Canadian financial institutions.
7. During Fiscal 2019, the Company recognized a recovery of $21.6 million (Fiscal 2018 - $nil) in net income related to value added taxes
previously paid on sales in Brazil. The recovery was recognized as a result of a Brazil Supreme Court ruling in 2017 that concluded that the
relevant taxing authorities had historically used an incorrect methodology to determine such taxes. The ruling set a precedent for all
companies in Brazil but was required to be confirmed for the Company’s specific claim, which approval was received in July 2019. These
credits can be used to offset a variety of other taxes, including taxes on future sales. Of the recovery recognized, $3.2 million has been applied
to taxes in the current year, $12.2 million has been included in other current assets based on the expected timing of their use, with the
remaining $6.2 million recognized in other non-current assets in the statement of financial position.
8. During Fiscal 2019, the Company recognized a $17.6 million income tax recovery (Fiscal 2018 - income tax expense of $5.7 million), primarily
resulting from the recognition of available tax losses and tax credits in MCSA and partially offset by current income tax expense. Current tax
exposure increased as a result of higher taxable income in MCSA. At December 31, 2019, the Company considered the taxable income
generated since acquisition of MCSA and forecasted future taxable income and determined that it was now considered probable that the
benefit of these losses and tax credits in MCSA would be realized.
ERO COPPER | 2019 ANNUAL REPORT | 22
SUMMARY OF QUARTERLY RESULTS
The following table presents selected financial information for each of the most recent eight quarters. Tabular
amounts are in millions of US Dollars, except share and per share amounts.
Selected Financial Information
Revenue
Cost of product sold
Gross profit
Net income (loss) for period
Income (loss) per share attributable to
owners of the Company
- Basic
- Diluted
Weighted average number of common shares
outstanding
2019
2018
Dec 31(1)
$
$
75.7
(43.0)
Sept 30(2)
$
$
60.6
(38.4)
June 30
$
$
76.5
(43.3)
March 31
$
$
72.0
(38.1)
Dec 31(3)
$
$
85.1
(44.7)
Sept 30
$
$
47.3
(27.9)
June 30(4)
$
$
61.0
(44.2)
March 31
$
$
39.7
(30.8)
$
$
31.1
45.4
$
$
21.3
16.3
$
$
32.1
15.3
$
$
32.6
15.5
$
$
39.0
11.3
$
$
18.8
5.2
$
$
15.9
(18.2)
$
$
8.5
(1.3)
$
$
0.53
0.49
$
$
0.19
0.18
$
$
0.18
0.17
$
$
0.18
0.17
$
$
0.13
0.13
$
$
0.06
0.06
$
$
(0.22)
(0.22)
$
$
(0.02)
(0.02)
- Basic
- Diluted
85,620,168
91,670,988
85,505,675
91,320,363
85,032,841
90,696,926
84,804,389
89,917,828
84,736,476
89,191,707
84,504,954
88,638,656
84,458,914
84,458,914
81,974,876
81,974,876
Notes:
1. During Q4 2019, the Company recognized a $25.2 million income tax recovery primarily resulting from the recognition of available tax
losses and tax credits in MCSA. At December 31, 2019, the Company considered the taxable income generated since acquisition of
MCSA and forecasted future taxable income and determined that it was now considered probable that the benefit of these losses and
tax credits in MCSA would be realized.
2. During the quarter ended September 30, 2019, the Company recognized a recovery of $21.6 million in net income related to value
added taxes previously paid on sales in Brazil. The recovery was recognized as a result of a Brazil Supreme Court ruling in 2017 that
concluded that the relevant taxing authorities had historically used an incorrect methodology to determine such taxes. The ruling set
a precedent for all companies in Brazil but was required to be confirmed for the Company’s specific claim, for which approval was
received in July 2019. These credits can be used to offset a variety of other taxes, including income taxes and taxes on future sales.
3. During Q4 2018, MCSA began commercial production of the Vermelhos Mine. This resulted in increased sales this quarter, generating
higher net income for the period.
4. During the quarter ended June 30, 2018, the Company had an overall net loss of $18.2 million, which included $26.4 million in foreign
exchange losses. The foreign exchange losses were comprised of a $12.2 million loss associated with US dollar denominated debt held
by MCSA, whose functional currency is the Brazilian Real, $11.4 million loss on foreign exchange forward contracts and $2.8 million
related to other operational exchange losses. The foreign exchange losses were unusually high this quarter due to volatility in the
foreign exchange rates between the US dollar and the Brazilian Real.
LIQUIDITY, CAPITAL RESOURCES, AND CONTRACTUAL OBLIGATIONS
Liquidity
As at December 31, 2019, the Company held cash and cash equivalents of $21.5 million. Cash and cash equivalents
are primarily comprised of cash held with reputable financial institutions and are invested in highly liquid short-
term investments with maturities of three months or less. The funds are not exposed to liquidity risk and there
are no restrictions on the ability of the Company to use these funds to meet its obligations.
Cash and cash equivalents increased by $2.5 million during Fiscal 2019. The Company’s cash flows from operating,
investing and financing activities during Fiscal 2019 are summarized as follows:
• Cash from operating activities of $127.8 million.
Partially offset by:
• Cash used in investing activities of $106.7 million, including:
o $105.4 million of additions to mineral property, plant and equipment;
o $0.9 million of additions to exploration and evaluation assets;
o $0.5 million of additions to financial investments
• Cash flows used in financing activities of approximately $18.0 million, including:
ERO COPPER | 2019 ANNUAL REPORT | 23
o $41.3 million of repayment on loans and borrowings;
o $10.3 million of payment of interest on loans and borrowings;
o $4.1 million of lease payments;
o $3.7 million of other finance expenses
net of:
o $37.9 million proceeds from new loans and borrowings;
o $1.9 million proceeds from exercise of stock options and warrants;
o $1.5 million released from restricted cash
As at December 31, 2019, the Company had working capital deficit of $4.9 million.
Capital Resources
The Company’s primary sources of capital are comprised of cash from operations, cash and cash equivalents on
hand and undrawn debt facilities. The Company will continuously monitor its capital structure and, based on
changes in operations and economic conditions, may adjust such structure by issuing new common shares or new
debt as necessary. While the Company has been successful in securing financing to date, there are no guarantees
that it will be able to secure such financing in the future on terms acceptable to the Company, if at all. Taking into
consideration cash flow from existing operations, and the existing undrawn revolving credit facility of $14.0 million
in Canada and undrawn lines of credit totalling R$64.8 million in MCSA as at December 31, 2019, management
believes that the Company has sufficient working capital and financial resources to maintain its planned
operations and activities for the foreseeable future.
Contractual Obligations and Commitments
Certain loan agreements contain operating and financial covenants that could restrict the ability of the Company
and its subsidiaries, MCSA and NX Gold S.A., to, among other things, incur additional indebtedness needed to fund
its respective operations, pay dividends or make other distributions, make investments, create liens, sell or
transfer assets or enter into transactions with affiliates. There are no other restrictions or externally imposed
capital requirements of the Company.
MANAGEMENT OF RISKS AND UNCERTAINTIES
The Company thoroughly examines the various financial instruments and risks to which it is exposed and assesses
the impact and likelihood of those risks. These risks may include credit risk, liquidity risk, currency risk, commodity
price risk and interest rate risk. Where material, these risks are reviewed and monitored by the Board.
ERO COPPER | 2019 ANNUAL REPORT | 24
Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails
to meet its contractual obligations and arises principally from the Company’s receivables from customers. The
carrying amount of the financial assets below represents the maximum credit risk exposure as at December 31,
2019 and December 31, 2018:
December 31, 2019
December 31, 2018
Cash and cash equivalents
Restricted cash
Accounts receivable
Deposits
Derivatives
Other non-current assets - term deposits
$
$
21,485
1,500
7,680
1,200
-
1,196
33,061
$
$
$
$
$
$
$
18,941
3,000
7,219
1,334
254
686
31,434
The Company invests cash and cash equivalents as well as restricted cash with financial institutions that are
financially sound based on their credit rating. The Company’s exposure to credit risk associated with accounts
receivable is influenced mainly by the individual characteristics of each customer. The Company currently has
only three significant customers, all of which have no history of credit default with the Company. The Company
has not incurred credit losses during the years ended December 31, 2019 and 2018 nor has a provision for credit
losses been recognized.
Liquidity risk
Liquidity risk is the risk associated with the difficulties that the Company may have meeting the obligations
associated with financial liabilities that are settled with cash payments or with another financial asset. The
Company's approach to liquidity management is to ensure as much as possible that sufficient liquidity exists to
meet their maturity obligations on the expiration dates, under normal and stressful conditions, without causing
unacceptable losses or with risk of undermining the normal operation of the Company.
The table below shows the Company's maturity of financial liabilities on December 31, 2019:
Non-derivative Financial Liabilities
Loans and borrowings
Interest on loans and borrowings
Accounts payable and accrued liabilities
Value added, payroll and other taxes
Market risk
$
Carrying
value
159,370
-
43,694
19,688
222,752
$
Contractual
cash flows
$
161,377
22,788
43,694
20,428
248,287
$
Up to 12
months
$
18,984
8,749
43,694
13,994
85,421
1-2 years
$
3-5 years
$
30,318
7,172
-
1,968
39,458
110,208
6,737
-
4,466
121,411
More than 5
years
$
1,867
130
-
-
1,997
$
$
$
$
Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange
rates, and commodity prices. The purpose of market risk management is to manage and control exposures to
market risks, within acceptable parameters, while optimizing return.
The Company may use derivatives, including forward contracts and swap contracts, to manage market risks.
ERO COPPER | 2019 ANNUAL REPORT | 25
Foreign exchange currency risk
The Company’s subsidiaries in Brazil are exposed to exchange risks related to the US dollars and Euros. In order
to minimize currency mismatches, the Company monitors its cash flow projections considering future sales
expectations indexed to US dollar variation in relation to the cash requirement to settle the existing financings.
The Company's exposure to foreign exchange currency risk at December 31, 2019 relates primarily to $9.6 million
(December 31, 2018 – $10.2 million) in loans and borrowings of MCSA denominated in US dollars and Euros.
Strengthening (weakening) in the Brazilian Real against the US dollar by 10% and 20%, would have increased
(decreased) pre-tax net income by $0.6 million and $1.1 million, respectively (2018 – $0.7 million and $1.3 million).
Strengthening (weakening) in the Brazilian Real against the Euro by 10% and 20%, would have increased
(decreased) pre-tax net income by $0.4 million and $0.8 million, respectively (2018 – $0.4 million and $0.7 million).
This analysis is based on the foreign currency exchange variation rate that the Company considered to be
reasonably possible at the end of the year. The analysis assumes that all other variables, especially interest rates,
are held constant.
The Company may use derivatives, including forward contracts, collars and swap contracts, to manage market
risks. At December 31, 2019, the Company’s subsidiaries have entered into foreign exchange collar contracts at
zero cost for notional amounts of $336.6 million with an average floor rate of 3.86 R$ / $ and an average cap rate
of 4.41 R$ / $ (December 31, 2018 – notional amount of $21.5 million in foreign exchange forward contracts). The
maturity dates of these contracts are from January 15, 2020 to July 28, 2021 and are financially settled on a net
basis. The fair value of these contracts at December 31, 2019 was nil, (December 31, 2018 – an asset of $0.3
million, which was included in Derivatives in the statement of financial position.) The change in fair value of
foreign exchange collar contracts was a loss of $0.3 million for the year ended December 31, 2019 and (a gain of
$1.1 million for the year ended December 31, 2018) has been recognized in foreign exchange loss. In addition, in
the year ended December 31, 2019, the Company recognized a realized gain of $0.2 million, (a loss of $10.1 million
for the year ended December 31, 2018) related to the settlement of foreign currency forward contracts.
Interest rate risk
The Company is principally exposed to the variation in interest rates on loans and borrowings with variable rates
of interest. Management reduces interest rate risk exposure by entering into loans and borrowings with fixed
rates of interest or by entering into derivative instruments that fix the ultimate interest rate paid.
The Company is principally exposed to interest rate risk through its senior credit facilities of $136.0 million and
Brazilian Real denominated bank loans of $9.8 million. Based on the Company’s net exposure at December 31,
2019, a 1% change in the variable rates would have an impact of $1.5 million on pre-tax annual net income,
without consideration of the effects of the swap contracts below.
In order to mitigate the above volatility due to variable rates on loans, as at December 31, 2019, the Company has
entered into an interest rate swap contract to manage interest rate risk associated with its Canadian credit
facilities. The floating interest on a notional amount of $65 million was swapped for a fixed interest rate of 2.69%.
The fair value of this contract at December 31, 2019 was a liability of $1.7 million and was included in Derivatives
in the statement of financial position.
In addition, as at December 31, 2019, MCSA has entered into an interest rate and currency swap contract on the
Plural Loan. The floating interest on a notional amount of R$12 million was swapped for a fixed interest rate of
9.9% and the BRL currency on the loan was swapped for USD at a rate of 3.9500. The fair value of this contract at
December 31, 2019 was a liability of $0.1 million and was included in derivatives in the statement of financial
position while the change in the fair value of this contract of $0.1 million was included in Finance Expenses in the
statement of operations and comprehensive income.
ERO COPPER | 2019 ANNUAL REPORT | 26
Price risk
The Company may use derivatives, including forward contracts, collars and swap contracts, to manage commodity
price risks. During the year ended December 31, 2019, the Company had entered into commodity swap collar
contracts. As at December 31, 2019, these commodity swap collar contracts have all matured and the balance
was $nil. The Company recognized a realized loss of $1.4 million for the year ended December 31, 2019 related
to the settlement of commodity forward contracts.
For a discussion of additional risks applicable to the Company and its business and operations, including risks
related to the Company’s foreign operations, the environment and legal proceedings, see “Risk Factors” in the
Company’s Annual Information Form for the year ended December 31, 2019 and dated March 12, 2020 (the “AIF”).
OTHER FINANCIAL INFORMATION
Off-Balance Sheet Arrangements
As at December 31, 2019, the Company had no material off-balance sheet arrangements.
Contingencies
With the acquisition of MCSA, the Company inherited certain liabilities and MCSA has been subject to a number
of claims (including claims related to tax, labour and social security matters and civil action) in the course of its
business which individually are not material and have not been accrued for in the Company’s financial statements
as it is not probable that a cash outflow will occur. While the Company believes that these claims are unlikely to
be successful, if all such existing claims were decided against it, the Company could be exposed to a liability of up
to approximately $31.1 million as at December 31, 2019 (December 31, 2018 - $21.9 million), which could have
an adverse impact on the Company’s business, financial condition, results of operations, cash flows or prospects.
Outstanding Share Data
At March 12, 2020, the Company had 85,756,978 common shares, 5,081,541 stock options, 2,866,662 warrants,
and 438,463 performance share units issued and outstanding.
Related Party Disclosures
For the year ended December 31, 2019, amounts paid to related parties were incurred in the normal course of
business and measured at the exchange amount, which is the amount agreed upon by the transacting parties and
on terms and conditions similar to non-related parties.
Key management personnel consist of the Company’s directors and officers and their compensation includes
director retainer fees and management salaries paid to these individuals, as well as share-based compensation.
The aggregate value of compensation paid to key management personnel for the year ended December 31, 2019
was $7.5 million ($5.4 million for the year ended December 31, 2018). In addition, 444,265 options and 171,754
share units were issued to key management personnel during the year ended December 31, 2019 (1,100,155
options and 130,636 share units for the year ended December 31, 2018), with $4.1 million recognized in share-
based compensation expense for the year ended December 31, 2019 ($2.3 million for the year ended December
31, 2018).
During the year ended December 31, 2019, key management personnel exercised 286,666 options and 300,000
warrants for cash proceeds to the Company of $0.6 million and $0.4 million, respectively (133,000 options for $0.2
million for the year ended December 31, 2018). During the year ended December 31, 2018, key management
personnel converted convertible debentures into 1,476,164 common shares and 369,040 common share purchase
warrants. The warrants were subsequently exercised into 369,040 common shares.
ERO COPPER | 2019 ANNUAL REPORT | 27
As at December 31, 2019, $3.9 million was payable to key management as incentive compensation and is included
in the accounts payable and accrued liabilities in the consolidated financial statements (December 31, 2018 - $2.7
million). Such amounts were unsecured, non-interest bearing and were repaid under normal trade terms.
Subsequent to December 31, 2019, 23,674 deferred share units were issued to directors, and 43,456 options were
granted to directors.
ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES
Critical Accounting Judgments and Estimates
The preparation of consolidated financial statements in conformity with IFRS requires management to make
judgments, estimates and assumptions about future events that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the
reporting period. Although these estimates are based on management’s best knowledge of the amount, events
or actions, actual results may differ from these estimates.
The Company’s significant accounting policies and accounting estimates are contained in the Company’s
December 31, 2019 consolidated financial statements. Certain of these policies, such as, capitalization and
depreciation of property, plant and equipment and mining
instruments, and
decommissioning liabilities provisions involve critical accounting estimates because they require management of
the Company to make subjective or complex judgments about matters that are inherently uncertain, and because
of the likelihood that materially different amounts could be reported under different conditions or using different
assumptions.
interests, derivative
In preparing its financial statements, management has made judgments, estimates and assumptions that affect
the application of the Company’s accounting policies and the reported amounts of the assets, liabilities, revenues
and expenses. Actual results may differ from these estimates.
The estimates and assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized
prospectively.
Critical Judgments
Functional currency
The functional currency of the Company and each of its subsidiaries is the currency of the primary economic
environment in which the entities operate. The Company has determined that the functional currency for the
Company is the US dollar while the functional currency for MCSA and NX Gold is the Brazilian Real. Assessment of
functional currency involves certain judgements to determine the primary economic environment and the
Company reconsiders the functional currency of its entities if there is a change in events and conditions which
determined the primary economic environment.
ERO COPPER | 2019 ANNUAL REPORT | 28
Legal claims and contingent liabilities
The recognition of legal provisions and contingent liabilities involves the assessment of claims made against the
Company and each of its subsidiaries. The recognition of a legal provision, or disclosure of a contingent liability,
involves certain judgements to determine the probability of whether a cash outflow will occur. In making this
judgment, management has assessed various criteria and also relies on the opinions of its legal advisers to assist
in making this assessment.
Key Sources of Estimation Uncertainty
The preparation of financial statements in conformity with IFRS requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure of assets and liabilities
at the date of the consolidated financial statements and the reported amounts of expenses during the reporting
periods. Actual results could differ from those estimates and such differences could be significant. Significant
estimates made by management affecting the consolidated financial statements include:
Impairment of property, plant and equipment
The Company evaluates each asset or cash generating unit every reporting period to determine whether there
are any indications of impairment. If any such indication exists, which is often judgmental, a formal estimate of
recoverable amount is performed and an impairment loss is recognized to the extent that the carrying amount
exceeds the recoverable amount. The recoverable amount of an asset or cash generating group of assets is
measured at the higher of fair value less costs to sell and value in use. The evaluation of asset carrying values for
indications of impairment includes consideration of both external and internal sources of information, including
such factors as market and economic conditions, production budgets and forecasts, and life-of-mine estimates.
When required, the determination of fair value and value in use requires management to make estimates and
assumptions about expected production, sales volumes, commodity prices, mineral reserves, operating costs,
closure and rehabilitation costs and future capital expenditures. The estimates and assumptions are subject to
risk and uncertainty; hence, there is the possibility that changes in circumstances will alter these projections,
which may impact the recoverable amount of the assets. In such circumstances, some or all of the carrying value
of the assets may be further impaired or the impairment charge reduced with the impact recorded in profit or
loss.
Mineral reserve and resource estimates including life of mine plan
The Company estimates its mineral reserves and mineral resources based on information compiled by competent
individuals. Mineral reserves are used in the calculation of depreciation, impairment assessments and for
forecasting the timing of payment of mine closure and rehabilitation costs.
There are numerous uncertainties inherent in estimating mineral reserves, and assumptions that are valid at the
time of estimation may change significantly when new information becomes available. Changes in the estimation
methodology, forecasted prices of commodities, exchange rates, production costs or recovery rates may change
the economic status of mineral reserves and may, ultimately, result in changes in the mineral reserves.
The carrying amounts of the Company’s mineral properties, plant and equipment are depleted in part based on
recoverable mineral reserve tonnes processed, depending on the use of the asset. Changes to estimates of
recoverable quantities of metals, mineral reserve tonnes and depletable costs, including changes resulting from
revisions to the Company’s mine plans and changes in metals prices forecasts, can result in a change to future
depreciation and depletion rates and may result in impairment charges.
Mine closure and rehabilitation costs
ERO COPPER | 2019 ANNUAL REPORT | 29
Significant estimates and assumptions are made in determining the provision for mine closure and rehabilitation
as there are numerous factors that will affect the ultimate liability payable. These factors include estimation of
the extent and cost of rehabilitation activities, timing of future cash flows, discount rates, inflation rate, and
regulatory requirements.
Changes in the above factors can result in a change to the provision recognized by the Company. Changes to mine
closure and rehabilitation costs are recorded with a corresponding change to the carrying amounts of related
mineral properties, plant and equipment. Adjustments to the carrying amounts of related mineral properties,
plant and equipment can result in a change to future depreciation and depletion expense.
Significant assumptions used to determine mine closure and rehabilitation costs are included in Note 11(a) to the
consolidated financial statements.
Inventory
The net recoverable value of stockpile inventory and production in work in progress inventory is based on the
quantity of recoverable metal inventory which is an estimate based on the tons of ore added and removed from
the process, expected grade and recovery rates. The quantity of recoverable metal in finished concentrate
inventory is an estimate based on initial weights and assay results. The net recoverable value of these inventories
also requires estimates of expected selling prices and, where applicable, costs to complete.
Income taxes
The determination of the Company’s tax expense for the period and deferred tax assets and liabilities involves
significant estimation and judgement by management. In determining these amounts, management interprets tax
legislation in a variety of jurisdictions and makes estimates of the expected timing of the reversal of deferred tax
assets and liabilities. Management also makes estimates of future earnings, which affect the extent to which
potential future tax benefits may be used. The Company is subject to assessments by various taxation authorities,
which may interpret legislation differently. These differences may affect the final amount or the timing of the
payment of taxes. The Company provides for such differences where known based on management’s best
estimate of the probable outcome of these matters.
New Accounting Standards Adopted in the Current Period
The following new and amended IFRS pronouncements were adopted effective January 1, 2019:
i)
IFRS 16 Leases
IFRS 16 introduces a single, on-balance sheet accounting model for lessees. As a result, the Company, as a
lessee, has recognized right-of-use assets representing its rights to use the underlying assets and lease
liabilities representing its obligation to make lease payments. The Company may elect to not apply IFRS 16 to
leases with a term of less than 12 months, which election is made by underlying class of assets to which the
right of use asset relates, or leases where the underlying asset is of low value, which election is made on an
asset by asset basis. Lessor accounting remains similar to previous accounting policies.
Previously, the Company determined at contract inception whether an arrangement was or contained a lease
under IFRIC 4, Determining Whether an Arrangement contains a Lease. The Company now assesses whether
a contract is or contains a lease based on the new definition of a lease. Under IFRS 16, a contract is, or
contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in
exchange for consideration.
ERO COPPER | 2019 ANNUAL REPORT | 30
The Company adopted IFRS 16 using the modified retrospective approach. Accordingly, the comparative
information presented for 2018 has not been restated. The impact of adoption of IFRS 16 is disclosed in note
2(e) of the consolidated financial statements.
As a result of applying IFRS 16, the Company recognized right-of-use assets of $4.7 million and lease liabilities
of $4.7 million upon adoption.
ii)
IFRIC 23 – Uncertainty over Income Tax Treatments
The Company has adopted IFRIC Interpretation 23 (“Interpretation 23”) – Uncertainty over Income Tax
Treatments from January 1, 2019. The Interpretation provides guidance on the accounting for current and
deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments.
There is no material impact on the financial statements from the adoption of Interpretation 23.
Local Currency Operating Metrics – Presented in Brazilian Real
Costs (MCSA Operations)
Mining - UG (Pilar)
- UG (Vermelhos)
- OP
Processing
Indirect
Production costs
Capex development
By-product credits
Treatment, refining and other
C1 cash costs
R$
R$
Breakdown Mined and Processed (tonnes)
UG Mined
OP Mined
Total Mined (t):
Total Processed (t)
Cu Production (t)
UG Mining Total - R$/tonne mined
Pilar - R$/tonne mined(1)
Vermelhos - R$/tonne mined(1)
OP Mining - R$/tonne mined[2]
Processing - R$/tonne processed
Indirect - R$/tonne processed
2019 - Q4
2019 - Q3
2019
2018 - Q4
2018
66,743
39,864
29
22,250
12,822
141,708
(45,009)
(16,876)
3,895
83,717
675,258
-
675,258
589,065
11,526
91.22
78.56
118.52
n/a
37.77
21.77
60,294
38,952
761
21,309
10,504
131,820
(36,108)
(12,720)
2,622
85,614
677,535
15,259
692,794
587,915
9,674
93.19
87.91
102.63
49.89
36.25
17.87
234,887
140,124
8,521
83,041
46,607
513,180
(125,918)
(50,823)
7,358
343,798
2,527,386
727,578
3,254,964
2,424,592
42,318
98.56
91.26
112.93
11.71
34.25
19.22
63,863
19,288
16,894
23,058
10,783
133,886
(27,815)
(11,090)
(2,676)
92,305
687,872
700,732
1,388,604
777,480
12,104
120.88
n/a
n/a
24.11
29.66
13.87
201,948
19,288
62,867
70,583
30,058
384,744
(68,705)
(28,310)
(1,772)
285,957
1,836,455
4,096,723
5,933,178
2,257,917
30,426
120.47
n/a
n/a
15.35
31.26
13.31
Footnotes
General - Above only includes amounts from MCSA. NX Gold operations are excluded.
[1] Starting 2019, the Company breaks out the cost metrics for underground mining between Pilar and Vermelhos.
[2] There was no OP production in Q4 2019.
ERO COPPER | 2019 ANNUAL REPORT | 31
NON-IFRS MEASURES
Financial results of the Company are prepared in accordance with IFRS. The Company utilizes certain non-IFRS
measures, including C1 cash cost of copper produced (per lb), C1 cash cost of gold produced (per ounce), EBITDA,
Adjusted EBITDA, Adjusted net income (loss) attributable to owners of the Company, Adjusted earnings (loss) per
share, net debt and working capital, which are not measures recognized under IFRS. The Company believes that
these measures, together with measures determined in accordance with IFRS, provide investors with an improved
ability to evaluate the underlying performance of the Company. Non-IFRS measures do not have any standardized
meaning prescribed under IFRS, and therefore they may not be comparable to similar measures employed by
other companies. The data is intended to provide additional information and should not be considered in isolation
or as a substitute for measures of performance prepared in accordance with IFRS. The tables below provide a
reconciliation of these non-IFRS measures to the most directly comparable IFRS measures as contained in the
Company’s financial statements.
Unless otherwise noted, the non-IFRS measures presented below have been calculated on a consistent basis for
the periods presented.
ERO COPPER | 2019 ANNUAL REPORT | 32
C1 Cash Cost of Copper Produced (per lb)
C1 cash cost of copper produced (per lb) is the sum of production costs, net of capital expenditure development
costs and by-product credits, divided by the copper pounds produced. C1 cash costs reported by the Company
include treatment, refining charges, offsite costs, and certain tax credits relating to sales invoiced to the
Company’s Brazilian customer on sales. By-product credits are calculated based on actual precious metal sales
(net of treatment costs) during the period divided by the total pounds of copper produced during the period. C1
cash cost of copper produced per pound is a non-IFRS measure used by the Company to manage and evaluate
operating performance of the Company’s operating mining unit and is widely reported in the mining industry as
benchmarks for performance but does not have a standardized meaning and is disclosed in addition to IFRS
measures.
The following table provides a reconciliation of C1 cash cost of copper produced per pound to cost of goods sold,
its most directly comparable IFRS measure.
2019 - Q4
2019 - Q3
2019
2018 - Q4
2018
Reconciliation:
Cost of Product Sold
Add (less):
Depreciation/amortization/depletion
Incentive payments
Net change in inventory
Transportation costs & other
By-product credits
Treatment, refining, and other
Foreign exchange translation
adjustments
C1 cash costs
Costs
Mining
Processing
Indirect
Production costs
Capex development
By-product credits
Treatment, refining and other
C1 cash costs
Costs per pound
Payable copper produced (lb)(1)
Mining
Processing
Indirect
Capex development
By-product credits
Treatment, refining and other
C1 cash cost of copper produced (per lb)
$
35,620
$
32,396
$
135,607
$
36,894
$
115,346
(11,128)
(2,870)
322
1,479
(4,101)
935
(9,675)
-
544
902
(3,202)
632
(40,107)
(2,870)
1,062
4,598
(12,822)
1,814
(9,244)
-
(1,204)
1,019
(2,911)
(263)
(34,104)
-
1,491
3,083
(7,607)
(705)
$
74
20,330
$
(77)
21,520
$
(70)
87,212
$
2,161
26,452
$
2,001
79,505
2019 - Q4
2019 - Q3
2019
2018 - Q4
2018
$
$
$
$
$
25,910
5,406
3,116
34,432
(10,936)
(4,101)
935
20,330
25,172
5,363
2,644
33,179
(9,089)
(3,202)
632
21,520
97,308
21,035
11,581
129,924
(31,705)
(12,822)
1,814
87,212
28,045
6,052
2,830
36,927
(7,301)
(2,911)
(263)
26,452
79,046
19,167
8,134
106,347
(18,530)
(7,607)
(705)
79,505
$
$
$
$
$
25,411
21,327
93,295
26,685
67,077
$
$
$
$
$
$
$
1.02
0.21
0.12
(0.43)
(0.16)
0.04
0.80
$
$
$
$
$
$
$
1.18
0.25
0.12
(0.42)
(0.15)
0.03
1.01
$
$
$
$
$
$
$
1.04
0.23
0.12
(0.34)
(0.14)
0.02
0.93
$
$
$
$
$
$
$
1.05
0.23
0.11
(0.27)
(0.11)
(0.04)
0.99
$
$
$
$
$
$
$
1.18
0.29
0.12
(0.28)
(0.11)
(0.01)
1.19
Footnote
[1] Total includes amount produced from the newly constructed Vermelhos underground mine as of 2018 Q4 and pre-production ore.
ERO COPPER | 2019 ANNUAL REPORT | 33
C1 Cash Cost of Gold produced (per ounce)
C1 cash cost of gold produced (per ounce) is the sum of production costs, net of capital expenditure development
costs and silver by-product credits, divided by the gold ounces produced. By-product credits are calculated based
on actual precious metal sales during the period divided by the total ounces of gold produced during the period.
C1 cash cost of gold produced per pound is a non-IFRS measure used by the Company to manage and evaluate
operating performance of the Company’s operating mining unit and is widely reported in the mining industry as
benchmarks for performance but does not have a standardized meaning and is disclosed in addition to IFRS
measures.
The following table provides a reconciliation of C1 cash cost of gold produced per ounce to cost of goods sold, its
most directly comparable IFRS measure.
2019 - Q4
2019 - Q3
2019
2018 - Q4
2018
Reconciliation:
Cost of Product Sold
Add (less):
Depreciation/amortization/depletion
Incentive payments
Net change in inventory
By-product credits
Foreign exchange translation adjustments
C1 cash costs
Costs
Mining
Processing
Indirect
Production costs
Capex development
By-product credits
C1 cash costs
$
7,397
$
5,982
$
27,210
$
7,768
$
32,265
(881)
(634)
120
(67)
(18)
5,917
$
(1,051)
-
235
(47)
(21)
5,098
$
(5,907)
(634)
710
(281)
(46)
21,052
$
(1,810)
-
(308)
(90)
(150)
5,410
$
(11,084)
-
-
(354)
(87)
20,740
$
2019 - Q4
2019 - Q3
2019
2018 - Q4
2018
$
$
$
$
$
3,255
2,274
995
6,524
(540)
(67)
5,917
2,791
1,821
850
5,462
(317)
(47)
5,098
11,413
7,588
3,479
22,480
(1,147)
(281)
21,052
3,033
1,944
668
5,645
(145)
(90)
5,410
11,958
7,290
2,541
21,789
(695)
(354)
20,740
$
$
$
$
$
Costs per ounce
Payable gold produced (ounces)
Mining
Processing
Indirect
Capex development
By-product credits
C1 cash cost of gold produced (per ounce)
6,043
4,356
30,434
10,008
39,808
$
$
$
$
$
$
539
376
165
(89)
(11)
980
$
$
$
$
$
$
641
418
195
(73)
(12)
1,169
$
$
$
$
$
$
375
249
114
(38)
(9)
691
$
$
$
$
$
$
300
190
70
(10)
(10)
540
$
$
$
$
$
$
300
183
64
(17)
(10)
520
Earnings before interest, taxes, depreciation, and amortization (“EBITDA”) and Adjusted EBITDA
ERO COPPER | 2019 ANNUAL REPORT | 34
EBITDA represents earnings before interest expense, income taxes, depreciation, and amortization. Adjusted
EBITDA includes further adjustments for non-recurring items and/or items not indicative to the future operating
performance of the Company. The Company believes EBITDA and adjusted EBITDA are appropriate supplemental
measures of debt service capacity and performance of its operations.
Adjusted EBITDA is calculated by removing the following income statement items:
- Recovery of value added taxes
Foreign exchange loss (gain)
-
Loss on gold hedge contracts
-
Share based compensation
-
Loss on debt settlement
-
Reconciliation:
Net income (loss)
Adjustments:
Finance expenses
Tax expense (recovery)
Depreciation/amortization/depletion
EBITDA
Recovery of value added taxes
Foreign exchange loss (gain)
Loss on gold hedge contracts
Share based compensation
Loss on debt settlement
Adjusted EBITDA
2019 - Q4
2019 - Q3
2019
2018 - Q4
2018
$
45,409
$
16,307
$
92,455
$
11,280
$
(2,991)
2,014
(25,209)
12,042
34,256
-
(4,423)
15
1,304
-
31,152
$
5,206
2,825
10,768
35,106
(21,584)
10,866
1,514
1,353
-
27,255
$
20,428
(17,626)
46,171
141,428
(21,584)
5,148
1,505
5,792
1,783
134,072
$
6,776
6,852
15,301
40,209
-
(7,433)
-
723
5,476
38,975
$
22,562
5,652
45,297
70,520
-
20,713
-
3,225
5,476
99,934
$
Adjusted net income attributable to owners of the Company and Adjusted net income per share
attributable to owners of the Company
The Company uses the financial measure “Adjusted net income attributable to owners of the Company” and
“Adjusted net income per share attributable to owners of the Company” (“Adjusted EPS”) to supplement
information in its consolidated financial statements. The Company believes that, in addition to conventional
measures prepared in accordance with IFRS, the Company and certain investor and analysts use this information
to evaluate the Company’s performance. The Company excludes the following items from net earnings to provide
a measure which allows the Company and investors to evaluate the operating results of the underlying core
operations: i) net recovery of value added taxes, ii) share based compensation iii) unrealized foreign exchange loss
(gain) on USD denominated debt in MCSA, iv) unrealized loss (gain) on foreign exchange derivative contracts, v)
unrealized loss on gold hedge contracts, and vi) loss on debt settlement. The presentation of Adjusted EPS is not
meant to substitute the net income (loss) per share attributable to owners of the Company (“EPS”) presented in
accordance with IFRS, but rather it should be evaluated in conjunction with such IFRS measures.
The following table provides a detailed reconciliation of net income (loss) attributable to owners of the Company
as reported in the Company’s consolidated financial statements to adjusted net income attributable to owners of
the Company and Adjusted EPS.
ERO COPPER | 2019 ANNUAL REPORT | 35
Reconciliation:
Net income (loss) as reported attributable to the owners of
the Company
Adjustments for:
Net recovery of value added taxes
Share based compensation
Unrealized foreign exchange loss (gain) on USD
denominated debt in MCSA
Unrealized loss (gain) on foreign exchange derivative
contracts
Unrealized loss (gain) on gold hedge contracts
Loss on debt settlement
Adjusted net income attributed to owners of the Company
Weighted average number of common shares - basic
Weighted average number of common shares - diluted
Adjusted earnings per share - basic
Adjusted earnings per share - diluted
Net Debt
2019 - Q4
2019 - Q3
2019
2018 - Q4
2018
$
45,169
$
16,280
$
91,883
$
11,210
$
(3,155)
-
1,304
(3,738)
(17,783)
-
9,559
(17,783)
5,792
4,388
-
-
-
-
(4,816)
9,769
$
$
$
$
$
(1,404)
(677)
-
40,654
85,620,168
91,670,988
0.47
0.44
1,398
719
-
10,173
85,505,675
91,320,363
0.12
0.11
249
-
1,776
86,305
85,244,277
91,390,425
1.01
0.94
(3,977)
-
5,461
7,878
84,736,476
89,191,707
0.09
0.09
(1,132)
-
5,461
10,943
83,927,977
83,927,977
0.13
0.12
$
$
$
$
$
$
$
$
$
$
Net debt is determined based on cash and cash equivalents, restricted cash and loans and borrowings as reported
in the Company’s consolidated financial statements. The Company uses net debt as a measure of the Company’s
ability to pay down its debt. The following table provides a calculation of net debt based on amounts presented
in the Company’s consolidated financial statements as at December 31, 2019 and December 31, 2018.
Cash and cash equivalents
Restricted cash
Less: Current portion of loans and borrowings
Long-term portion of loans and borrowings
Net Debt
Working Capital and Available Liquidity
$
$
December 31,
2019
21,485
1,500
(18,984)
(140,386)
(136,385)
December 31,
2018
18,941
3,000
(10,602)
(141,632)
(130,293)
$
$
Working capital is determined based on current assets and current liabilities as reported in the Company’s
consolidated financial statements. The Company uses working capital as a measure of the Company’s short-term
financial health and operating efficiency. Available liquidity includes the Company’s working capital and undrawn
revolving credit facilities in place. The following table provides a calculation for these based on amounts presented
in the Company’s consolidated financial statements as at December 31, 2019 and December 31, 2018.
Current Assets
Less: Current Liabilities
Working Capital (Deficit)
Available undrawn revolving credit facilities
Available Liquidity
Disclosure Controls and Procedures
December 31,
2019
75,565
(80,481)
(4,916)
30,000
25,084
$
$
$
$
$
$
December 31,
2018
50,954
(60,265)
(9,311)
14,000
4,689
The Company’s management, with the participation of the Chief Executive Officer (“CEO”) and the Chief Financial
Officer (“CFO”), has evaluated the effectiveness of the Company’s disclosure controls and procedures (“DC&P”).
Based on the results of that evaluation, the Company’s CEO and CFO have concluded that, as of December 31,
2019, the Company’s DC&P were effective to provide reasonable assurance that the information required to be
disclosed by the Company in reports it files is recorded, processed, summarized, and reported within the
appropriate time periods and is accumulated and communicated to management, including the CEO and CFO, as
appropriate to allow timely decisions regarding required disclosure.
ERO COPPER | 2019 ANNUAL REPORT | 36
Internal Control over Financial Reporting
The Company’s management, with the participation of the CEO and CFO, is responsible for establishing and
maintaining adequate internal control over financial reporting (“ICFR”). The Company’s ICFR is a process designed
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with IFRS. Any system of ICFR, no matter how well designed, has
inherent limitations and cannot provide absolute assurance that all misstatements and instances of fraud, if any,
within the Company have been prevented or detected. The Company’s ICFR is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with IFRS.
The Company uses the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
The Company’s management, under the supervision of the CEO and CFO, has evaluated the design and operating
effectiveness of the Company’s ICFR and concluded that the Company’s ICFR were effective as of December 31,
2019.
There were no changes in the Company’s ICFR that materially affected, or are reasonably likely to materially affect,
ICFR during Q4 2019.
NOTE REGARDING SCIENTIFIC AND TECHNICAL INFORMATION
Unless otherwise indicated, scientific and technical information in this MD&A relating to Ero’s properties
(“Technical Information”) is based on information contained in the following reports:
The report prepared in accordance with NI 43-101 and entitled “2019 Updated Mineral Resources and Mineral
Reserves Statements of Mineração Caraíba’s Vale do Curaçá Mineral Assets, Curaçá Valley”, dated November 25,
2019 with an effective date of September 18, 2019, prepared by Rubens Jose De Mendonça, MAusIMM, of
Planminas – Projectos e Consultoria em Mineração Ltd. (“Planminas”), Porfirio Cabaleiro Rodrigues, MAIG,
Leonardo de Moraes Soares, MAIG, and Bernardo Horta de Cerqueira Viana, MAIG, all of GE21 Consultoria
Mineral Ltda. (“GE21”), and each a “qualified person” and “independent” of the Company within the meanings
of NI 43-101 (the “Vale do Curaçá Technical Report”).
The report prepared in accordance with NI 43-101 and entitled “Mineral Resource and Mineral Reserve Estimate
of the NX Gold Mine, Nova Xavantina”, dated February 3, 2020 with an effective date of September 30, 2019,
prepared by Porfirio Cabaleiro Rodrigues, MAIG, Leonardo de Moraes Soares, MAIG, and Paulo Roberto
Bergmann, FAusIMM, each of GE21 and a “qualified person” and “independent” of the Company within the
meanings of NI 43-101 (the “NX Gold Technical Report”).
The report prepared in accordance with NI 43-101 and entitled “Feasibility Study, Technical Report for the Boa
Esperança Copper Project, Pará State Brazil”, dated September 7, 2017 with an effective date of June 1, 2017,
prepared by Rubens Mendonça, MAusIMM of SRK Consultores do Brasil Ltda. (“SRK” or “SRK Brazil”) as at the
date of the report (now of Planminas) and Carlos Barbosa, MAIG and Girogio di Tomi, MAusIMM, both of SRK
Brazil, and each a “qualified person” and “independent” of the Company within the meanings of NI 43-101 (the
“Boa Esperança Feasibility Study”).
Reference should be made to the full text of the Vale do Curaçá Technical Report, the NX Gold Technical Report
and the Boa Esperança Technical Report, each of which is available for review under the Company’s profile on
SEDAR at www.sedar.com.
ERO COPPER | 2019 ANNUAL REPORT | 37
The disclosure of Technical Information in this MD&A was reviewed and approved by Ricardo Emerson Re, MSc,
MBA, MAusIMM (CP) (No. 305892), Registered Member (No. 0138) (Chilean Mining Commission) and Resource
Manager of the Company who is a “qualified person” within the meanings of NI 43-101.
Cautionary Note Regarding Forward-Looking Statements
This MD&A contains “forward-looking information” within the meaning of applicable Canadian securities laws.
Forward-looking information includes statements that use forward-looking terminology such as “may”, “could”,
“would”, “will”, “should”, “intend”, “target”, “plan”, “expect”, “budget”, “estimate”, “forecast”, “schedule”,
“anticipate”, “believe”, “continue”, “potential”, “view” or the negative or grammatical variation thereof or other
variations thereof or comparable terminology. Such forward-looking information includes, without limitation,
statements with respect to the Company's expected operations at the Vermelhos and Pilar Mines as well as at the
NX Gold Property, drilling plans, plans for the Company's exploration program, timing of any updated mineral
resource and reserve updates and technical reports, the Company's ability to service its ongoing obligations, the
Company's future production outlook, cash costs, capital resources, expenditures, the impact of new accounting
standards and amendments on the Company's financial statements, and current global macroeconomic
uncertainty stemming from the onset of Covid-19.
Forward-looking information is not a guarantee of future performance and is based upon a number of estimates
and assumptions of management in light of management’s experience and perception of trends, current
conditions and expected developments, as well as other factors that management believes to be relevant and
reasonable in the circumstances, as of the date of this Press Release including, without limitation, assumptions
about: favourable equity and debt capital markets; the ability to raise any necessary additional capital on
reasonable terms to advance the production, development and exploration of the Company’s properties and
assets; future prices of copper and other metal prices; the timing and results of exploration and drilling programs;
the accuracy of any mineral reserve and mineral resource estimates; the geology of the Vale do Curaçá Property,
NX Gold Property and the Boa Esperanҫa Property being as described in the technical reports for these properties;
production costs; the accuracy of budgeted exploration and development costs and expenditures; the price of
other commodities such as fuel; future currency exchange rates and interest rates; operating conditions being
favourable such that the Company is able to operate in a safe, efficient and effective manner; political and
regulatory stability; the receipt of governmental, regulatory and third party approvals, licenses and permits on
favourable terms; obtaining required renewals for existing approvals, licenses and permits on favourable terms;
requirements under applicable laws; sustained labour stability; stability in financial and capital goods markets;
availability of equipment; positive relations with local groups and the Company’s ability to meet its obligations
under its agreements with such groups; and satisfying the terms and conditions of the Company’s current loan
arrangements. While the Company considers these assumptions to be reasonable, the assumptions are inherently
subject to significant business, social, economic, political, regulatory, competitive, global health, and other risks
and uncertainties, contingencies and other factors that could cause actual actions, events, conditions, results,
performance or achievements to be materially different from those projected in the forward-looking information.
Many assumptions are based on factors and events that are not within the control of the Company and there is
no assurance they will prove to be correct.
Furthermore, such forward-looking information involves a variety of known and unknown risks, uncertainties and
other factors which may cause the actual plans, intentions, activities, results, performance or achievements of the
Company to be materially different from any future plans, intentions, activities, results, performance or
achievements expressed or implied by such forward-looking information. Such risks include, without limitation
the risk factors listed under the heading “Risk Factors” in the AIF.
Although the Company has attempted to identify important factors that could cause actual actions, events,
conditions, results, performance or achievements to differ materially from those described in forward-looking
information, there may be other factors that cause actions, events, conditions, results, performance or
achievements to differ from those anticipated, estimated or intended.
ERO COPPER | 2019 ANNUAL REPORT | 38
The Company cautions that the foregoing lists of important assumptions and factors are not exhaustive. Other
events or circumstances could cause actual results to differ materially from those estimated or projected and
expressed in, or implied by, the forward-looking information contained herein. There can be no assurance that
forward-looking information will prove to be accurate, as actual results and future events could differ materially
from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-
looking information.
Forward-looking information contained herein is made as of the date of this MD&A and the Company disclaims
any obligation to update or revise any forward-looking information, whether as a result of new information, future
events or results or otherwise, except as and to the extent required by applicable securities laws.
Cautionary Notes Regarding Mineral Resource and Reserve Estimates
In accordance with applicable Canadian securities regulatory requirements, all mineral reserve and mineral
resource estimates of the Company disclosed or incorporated by reference in this MD&A have been prepared in
accordance with NI 43-101 and are classified in accordance with the Canadian Institute of Mining, Metallurgy and
Petroleum (“CIM”) Definition Standards for Mineral Resources and Mineral Reserves, adopted by the CIM Council
on May 10, 2014 (the “CIM Standards”).
Mineral resources which are not mineral reserves do not have demonstrated economic viability. Pursuant to the
CIM Standards, mineral resources have a higher degree of uncertainty than mineral reserves as to their existence
as well as their economic and legal feasibility. Inferred mineral resources, when compared with Measured or
Indicated mineral resources, have the least certainty as to their existence, and it cannot be assumed that all or
any part of an Inferred mineral resource will be upgraded to an Indicated or Measured mineral resource as a result
of continued exploration. Pursuant to NI 43-101, Inferred mineral resources may not form the basis of any
economic analysis. Accordingly, readers are cautioned not to assume that all or any part of a mineral resource
exists, will ever be converted into a mineral reserve, or is or will ever be economically or legally mineable or
recovered.
ADDITIONAL INFORMATION
Additional information about Ero and its business activities, including the AIF, is available under the Company’s
profile at www.sedar.com.
ERO COPPER | 2019 ANNUAL REPORT | 39
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
ERO COPPER | 2019 ANNUAL REPORT | 40
KPMG LLP
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada
Telephone (604) 691-3000
Fax (604) 691-3031
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Ero Copper Corp.
Opinion
We have audited the consolidated financial statements of Ero Copper Corp. (“the
Company”), which comprise:
– the consolidated statements of financial position as at December 31, 2019 and
December 31, 2018;
– the consolidated statements of operations and comprehensive income (loss), changes
in shareholders’ equity and cash flows for the years then ended; and
– notes to the consolidated statements, including a summary of significant accounting
policies
(Hereinafter referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material
respects, the consolidated financial position of the Company as at December 31, 2019 and
December 31, 2018, and its consolidated financial performance and consolidated cash
flows for the years then ended in accordance with International Financial Reporting
Standards.
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing
standards. Our responsibilities under those standards are further described in the
“Auditors’ Responsibilities for the Audit of the Financial Statements” section of our auditors’
report.
We are independent of the Company in accordance with the ethical requirements that are
relevant to our audit of the financial statements in Canada and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative (“KPMG International”),
a Swiss entity. KPMG Canada provides services to KPMG LLP.
ERO COPPER | 2019 ANNUAL REPORT | 41
Other Information
Management is responsible for the other information. Other information comprises:
– the information included in Management’s Discussion and Analysis filed with the
relevant Canadian Securities Commissions; and
– information, other than the financial statements and the auditors’ report thereon,
included in a document likely to be entitled “Annual Report”.
Our opinion on the financial statements does not cover the other information and we do
not and will not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the
other information identified above and, in doing so, consider whether the other information
is materially inconsistent with the financial statements or our knowledge obtained in the
audit and remain alert for indications that the other information appears to be materially
misstated.
We obtained the information included in Management’s Discussion and Analysis filed with
the relevant Canadian Securities Commissions as at the date of this auditors’ report. If,
based on the work we have performed on this other information, we conclude that there is
a material misstatement of this other information, we are required to report that fact in the
auditors’ report. We have nothing to report in this regard.
The information, other than the financial statements and the auditors’ report thereon,
included in a document likely to be entitled “Annual Report” is expected to be made
available to us after the date of this auditors’ report. If, based on the work we will perform
on this other information, we conclude that there is a material misstatement of this other
information, we are required to report that fact to those charged with governance.
Responsibilities of Management and Those Charged with Governance
for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial
statements in accordance with International Financial Reporting Standards, and for such
internal control as management determines is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing as applicable, matters related
to going concern and using the going concern basis of accounting unless management
either intends to liquidate the Company or to cease operations, or has no realistic
alternative but to do so.
Those charged with governance are responsible for overseeing the Company‘s financial
reporting process.
ERO COPPER | 2019 ANNUAL REPORT | 42
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue
an auditors’ report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with Canadian generally accepted auditing standards will always
detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions
of users taken on the basis of the financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards,
we exercise professional judgment and maintain professional skepticism throughout the
audit.
We also:
– Identify and assess the risks of material misstatement of the financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those
risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for
our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for
one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
– Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control.
– Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by management.
– Conclude on the appropriateness of management's use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on the Company's
ability to continue as a going concern. If we conclude that a material uncertainty exists,
we are required to draw attention in our auditors’ report to the related disclosures in
the financial statements or, if such disclosures are inadequate, to modify our opinion.
Our conclusions are based on the audit evidence obtained up to the date of our
auditors’ report. However, future events or conditions may cause the Company to
cease to continue as a going concern.
– Evaluate the overall presentation, structure and content of the financial statements,
including the disclosures, and whether the financial statements represents the
underlying transactions and events in a manner that achieves fair presentation.
– Communicate with those charged with governance regarding, among other matters,
the planned scope and timing of the audit and significant audit findings, including any
significant deficiencies in internal control that we identify during our audit.
ERO COPPER | 2019 ANNUAL REPORT | 43
– Provide those charged with governance with a statement that we have complied with
relevant ethical requirements regarding independence, and communicate with them all
relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
– Obtain sufficient appropriate audit evidence regarding the financial information of the
entities or business activities within the group Company to express an opinion on the
financial statements. We are responsible
the direction, supervision and
performance of the group audit. We remain solely responsible for our audit opinion.
for
Chartered Professional Accountants
The engagement partner on the audit resulting in this auditors’ report is Robert Ryan
Owsnett, CPA, CA.
Vancouver, Canada
March 12, 2020
ERO COPPER | 2019 ANNUAL REPORT | 44
Ero Copper Corp.
Consolidated Statements of Financial Position
(Amounts in thousands of US Dollars, except share and per share amounts)
ASSETS
Current
Cash and cash equivalents
Restricted cash
Accounts receivable
Inventories
Derivatives
Other current assets
Non-Current
Mineral, property, plant and equipment
Exploration and evaluation assets
Deposits
Deferred income tax assets
Other non-current assets
Total Assets
LIABILITIES
Current
Accounts payable and accrued liabilities
Deferred revenue
Current portion of loans and borrowings
Current portion of value added, payroll and
other taxes payable
Current portion of derivatives
Current portion of lease liabilities
Non-Current
Loans and borrowings
Provisions
Value added, payroll and other taxes
Derivatives
Lease liabilities
Other non-current liabilities
Deferred income tax liabilities
Total Liabilities
SHAREHOLDERS’ EQUITY
Share capital
Equity reserves
Retained earnings
Equity attributable to owners of the Company
Non-controlling interests
Notes
As at
December 31, 2019
As at
December 31, 2018
$
$
$
9(b)
4
21
5
6
7
11(b)
19
18
8
9
10
21
9
11
10
21
19
12
$
$
$
21,485
1,500
7,680
19,377
-
25,523
75,565
339,516
25,878
1,200
13,099
7,416
387,109
462,674
43,694
-
18,984
13,994
650
3,159
80,481
140,386
33,581
5,694
1,059
487
1,928
-
183,135
263,616
120,492
(24,489)
102,220
198,223
835
199,058
18,941
3,000
7,219
14,645
254
6,895
50,954
280,804
25,563
1,334
-
1,784
309,485
360,439
36,390
1,916
10,602
11,357
-
-
60,265
141,632
31,509
6,593
-
-
807
15,811
196,352
256,617
117,944
(24,755)
10,337
103,526
296
103,822
Total Liabilities and Equity
Nature of operations (Note 1); Contingencies (Note 11(c)); Subsequent events (Notes 9(c) and 12)
462,674
$
$
360,439
APPROVED ON BEHALF OF THE BOARD:
“David Strang”
,CEO & Director
”Matthew Wubs”
, Director
ERO COPPER | 2019 ANNUAL REPORT | 45
Ero Copper Corp.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Amounts in thousands of US Dollars, except share and per share amounts)
Revenue
Cost of product sold
Sales expenses
Gross profit
Expenses
General and administrative
Share-based compensation
Income before the undernoted
Other income (expenses)
Finance income
Finance expense
Foreign exchange loss
Loss on debt settlement
Recovery of value added taxes
Other income
Income before income taxes
Income tax recovery (expense)
Current
Deferred
Net income (loss) for the year
Other comprehensive income (loss)
Foreign currency translation loss
Comprehensive income (loss)
Net income (loss) attributable to:
Owners of the Company
Non-controlling interests
Notes
Year ended
December 31, 2019
Year ended
December 31, 2018
$
13
14
$
284,843
(162,817)
(4,962)
117,064
233,105
(147,611)
(3,268)
82,226
15
12(a)(b)
16
17
9(a)(b)
18
19
19
(32,817)
(5,792)
78,455
701
(20,428)
(5,148)
(1,783)
21,584
1,448
74,829
(10,645)
28,271
17,626
92,455
(4,941)
87,514
$
91,883
572
92,455
86,962
552
87,514
$
$
(29,000)
(3,225)
50,001
1,303
(22,562)
(20,713)
(5,476)
-
108
2,661
(2,899)
(2,753)
(5,652)
(2,991)
(27,801)
(30,792)
(3,155)
164
(2,991)
(30,845)
53
(30,792)
1.08
1.01
$
$
(0.04)
(0.04)
85,244,277
91,390,425
83,927,977
83,927,977
$
$
$
$
$
Comprehensive income (loss) attributable to:
Owners of the Company
Non-controlling interests
Income (loss) per share attributable to owners of
the Company
12(e)
Net income (loss) per share
Basic
Diluted
Weighted average number of common shares
outstanding
Basic
Diluted
ERO COPPER | 2019 ANNUAL REPORT | 46
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Ero Copper Corp.
Consolidated Statements of Cash Flows
(Amounts in thousands of US Dollars, except share and per share amounts)
Cash Flows from Operating Activities
Net income (loss) for the year
$
92,455
$
(2,991)
Year ended
December 31, 2019
Year ended
December 31, 2018
Adjustments for:
Amortization and depreciation
Income tax expense (recovery)
Loss on debt settlement
Recovery of value added taxes
Write-off of plant and equipment
Unrealized derivative contracts
Provisions
Share-based compensation
Finance income
Finance expenses
Foreign exchange loss
Derivative contract settlements
Changes in:
Accounts receivable
Inventories
Other assets
Accounts payable and accrued liabilities
Deferred revenue
Value added, payroll and other taxes
Provision settlements
Income taxes paid
Cash Flows used in Investing Activities
Additions to mineral property, plant and equipment
Additions to exploration and evaluation assets
Interest received
Other
Cash Flows used in Financing Activities
Restricted cash
Lease liability payments
New loans and borrowings, net of finance costs
Loans and borrowings paid
Interest paid on loans and borrowings
Other finance expenses
Issuance of share capital, net of issuance costs
46,171
(17,626)
1,783
(21,584)
3,475
1,427
(625)
5,792
(701)
20,428
5,148
(1,011)
(756)
(5,946)
(4,636)
11,604
(1,882)
43
(1,786)
131,773
(3,943)
127,830
(105,382)
(892)
38
(505)
(106,741)
1,500
(4,082)
37,867
(41,305)
(10,276)
(3,668)
1,943
(18,021)
Effect of exchange rate changes on cash and cash
equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents - beginning of year
Cash and cash equivalents - end of year
$
(524)
2,544
18,941
21,485 $
ERO COPPER | 2019 ANNUAL REPORT | 48
45,297
5,652
5,476
-
3,782
-
(1,464)
3,225
(1,303)
22,562
20,713
(10,119)
(4,616)
(5,225)
3,192
6,855
1,707
(5,606)
(1,967)
85,170
(2,228)
82,942
(97,556)
(3,616)
198
-
(100,974)
(807)
-
141,488
(127,369)
(11,522)
(10,765)
1,643
(7,332)
(6,842)
(32,206)
51,147
18,941
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
1. Nature of Operations
Ero Copper Corp. (“Ero" or the "Company") was incorporated on May 16, 2016 under the Business Corporations
Act (British Columbia) and maintains its head office at Suite 1050, 625 Howe Street, Vancouver, BC, V6C 2T6.
The Company’s shares are publicly traded on the Toronto Stock Exchange under the symbol “ERO”.
The Company’s principal asset is its 99.6% ownership interest in Mineração Caraíba S.A. (“MCSA”). The Company
also currently owns, directly and indirectly, a 97.6% ownership interest in NX Gold S.A. (“NX Gold”).
MCSA is a Brazilian company which holds a 100% interest in the Vale do Curaçá Property and the Boa Esperança
Property (Note 7). MCSA’s predominant activity is the production and sale of copper concentrate from the Vale
do Curaçá Property, with gold and silver produced and sold as by-products. The Company currently mines copper
ore from the Pilar underground mine (“Pilar UG Mine”) and the Vermelhos underground mine (“Vermelhos UG
Mine”). The Boa Esperança Property is located within the municipality of Tucumã in the southeastern part of
the state of Pará, Brazil, and consists of a single mineral concession covering an area of 4,034 hectares (“ha”).
NX Gold is a Brazilian gold mining company focused on the exploration and commercialization of gold as its main
product and silver as its sub-product. NX Gold wholly owns a 31,096 ha property, located approximately 18
kilometers west of the town of Nova Xavantina, southeastern Mato Grosso State, Brazil, consisting of a single
mining concession covering an area of 620 ha, where all gold mining and processing activities occur.
2. Basis of Preparation
a) Statement of Compliance
These consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and
interpretations of the International Financial Reporting Interpretations Committee.
These consolidated financial statements were authorized for issue by the Board of Directors of the Company
(the “Board”) on March 12, 2020.
b) Basis of Presentation and Principles of Consolidation
These consolidated financial statements have been prepared on a historical cost basis except for fair-value
through-profit-or-loss and derivative financial instruments, which are measured at fair value.
These consolidated financial statements include the accounts of the Company and its subsidiaries.
Subsidiaries are entities controlled by the Company. Control over a subsidiary is defined to exist when the
Company is exposed to variable returns from involvement with an investee and has the ability to affect the
returns through power over the investee. All intercompany balances and transactions are eliminated upon
consolidation.
The Company applies the acquisition method to account for business combinations. The consideration
transferred by the Company to obtain control of a subsidiary is calculated as the sum of the acquisition-date
fair values of assets transferred, liabilities assumed and the equity interests issued by the Company, which
includes the fair value of any asset or liability arising from a contingent consideration arrangement.
Acquisition costs are expensed as incurred.
The Company recognizes identifiable assets acquired and liabilities assumed in a business combination
regardless of whether they have been previously recognized in the acquiree’s financial statements prior to
ERO COPPER | 2019 ANNUAL REPORT | 49
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
the acquisition. Assets acquired and liabilities assumed are generally measured at their acquisition-date fair
values.
Goodwill arising from acquisitions is the excess of the sum of a) fair value of consideration transferred, b)
the recognized amount of any non-controlling interest in the acquiree and c) acquisition-date fair value of
any existing equity interest in the acquiree, over the acquisition-date fair values of identifiable net assets. If
the fair values of identifiable net assets exceed the sum calculated above, the excess amount would be
recognized in profit or loss immediately.
Since the Company does not own 100% of its interests in MCSA and NX Gold, the interest attributable to
non-controlling shareholders is reflected in non-controlling interests. Adjustments to non-controlling
interests that do not involve the loss of control are accounted for as equity transactions and adjustments are
based on a proportionate amount of the net assets of the subsidiary.
c) Foreign Currency Translation
The functional currency and presentation currency of the Company is the US dollar. The monetary assets and
liabilities of the Company that are denominated in foreign currencies are translated at the rate of exchange
at the statement of financial position date while non-monetary assets and liabilities are translated at
historical rates. Revenues and expenses are translated at the exchange rates approximating those in effect
on the date of the transactions. Exchange gains and losses arising on translation are included in profit or
loss.
The functional currency of MCSA and NX Gold is the Brazilian Real (“BRL”). The assets and liabilities of MCSA
and NX Gold are translated into the US dollar presentation currency using the rate of exchange at the
statement of financial position date while revenues and expenses are translated at the exchange rates
approximating those in effect on the date of the transactions. Exchange gains and losses arising on
translation are included in a separate component of shareholders’ equity.
d) Use of Estimates and Judgments
In preparing these financial statements, management has made judgments, estimates and assumptions that
affect the application of the Company’s accounting policies and the reported amounts of the assets,
liabilities, revenues and expenses. Actual results may differ from these estimates.
The estimates and assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized
prospectively.
Critical Judgments
Functional currency
The functional currency of the Company and each of its subsidiaries is the currency of the primary economic
environment in which the entities operate. The Company has determined that the functional currency for
the Company is the US dollar while the functional currency for MCSA and NX Gold is the Brazilian Real.
Assessment of functional currency involves certain judgements to determine the primary economic
environment and the Company reconsiders the functional currency of its entities if there is a change in events
and conditions which determined the primary economic environment.
ERO COPPER | 2019 ANNUAL REPORT | 50
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
Legal claims and contingent liabilities
The recognition of legal provisions and contingent liabilities involves the assessment of claims made against
the Company and each of its subsidiaries. The recognition of a legal provision, or disclosure of a contingent
liability, involves certain judgements to determine the probability of whether a cash outflow will occur. In
making this judgment, management has assessed various criteria and also relies on the opinions of its legal
advisers to assist in making this assessment.
Key Sources of Estimation Uncertainty
The preparation of financial statements in conformity with IFRS requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of assets and
liabilities at the date of the consolidated financial statements and the reported amounts of expenses during
the reporting periods. Actual results could differ from those estimates and such differences could be
significant. Significant estimates made by management affecting the consolidated financial statements
include:
Impairment of mineral, property, plant and equipment
The Company evaluates each asset or cash generating unit every reporting period to determine whether
there are any indications of impairment. If any such indication exists, which is often judgmental, a formal
estimate of recoverable amount is performed and an impairment loss is recognized to the extent that the
carrying amount exceeds the recoverable amount. The recoverable amount of an asset or cash generating
group of assets is measured at the higher of fair value less costs to sell and value in use. The evaluation of
asset carrying values for indications of impairment includes consideration of both external and internal
sources of information, including such factors as market and economic conditions, production budgets and
forecasts, and life-of-mine estimates.
When required, the determination of fair value and value in use requires management to make estimates
and assumptions about expected production, sales volumes, commodity prices, mineral reserves, operating
costs, closure and rehabilitation costs and future capital expenditures. The estimates and assumptions are
subject to risk and uncertainty; hence, there is the possibility that changes in circumstances will alter these
projections, which may impact the recoverable amount of the assets. In such circumstances, some or all of
the carrying value of the assets may be further impaired or the impairment charge reduced with the impact
recorded in profit or loss.
Mineral reserve and resource estimates including life of mine plan
The Company estimates its mineral reserves and mineral resources based on information compiled by
competent individuals. Mineral reserves are used in the calculation of depreciation, impairment assessments
and for forecasting the timing of payment of mine closure and rehabilitation costs.
There are numerous uncertainties inherent in estimating mineral reserves, and assumptions that are valid at
the time of estimation may change significantly when new information becomes available. Changes in the
estimation methodology, forecasted prices of commodities, exchange rates, production costs or recovery
rates may change the economic status of mineral reserves and may, ultimately, result in changes in the
mineral reserves.
The carrying amounts of the Company’s mineral properties, plant and equipment are depleted in part based
on recoverable mineral reserve tonnes processed, depending on the use of the asset. Changes to estimates
of recoverable quantities of metals, mineral reserve tonnes and depletable costs, including changes resulting
ERO COPPER | 2019 ANNUAL REPORT | 51
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
from revisions to the Company’s mine plans and changes in metals prices forecasts, can result in a change to
future depreciation and depletion rates and may result in impairment charges.
Mine closure and rehabilitation costs
Significant estimates and assumptions are made in determining the provision for mine closure and
rehabilitation as there are numerous factors that will affect the ultimate liability payable. These factors
include estimation of the extent and cost of rehabilitation activities, timing of future cash flows, discount
rates, inflation rate, and regulatory requirements.
Changes in the above factors can result in a change to the provision recognized by the Company. Changes
to mine closure and rehabilitation costs are recorded with a corresponding change to the carrying amounts
of related mineral properties, plant and equipment. Adjustments to the carrying amounts of related mineral
properties, plant and equipment can result in a change to future depreciation and depletion expense.
Significant assumptions used to determine mine closure and rehabilitation costs are included in Note 11(a).
Inventory
The net recoverable value of stockpile inventory and production in work in progress inventory is based on
the quantity of recoverable metal inventory which is an estimate based on the tons of ore added and
removed from the process, expected grade and recovery rates. The quantity of recoverable metal in finished
concentrate inventory is an estimate based on initial weights and assay results. The net recoverable value
of these inventories also requires estimates of expected selling prices and, where applicable, costs to
complete.
Income taxes
The determination of the Company’s tax expense for the period and deferred tax assets and liabilities
involves significant estimation and judgement by management. In determining these amounts, management
interprets tax legislation in a variety of jurisdictions and makes estimates of the expected timing of the
reversal of deferred tax assets and liabilities. Management also makes estimates of future earnings, which
affect the extent to which potential future tax benefits may be used. The Company is subject to assessments
by various taxation authorities, which may interpret legislation differently. These differences may affect the
final amount or the timing of the payment of taxes. The Company provides for such differences where known
based on management’s best estimate of the probable outcome of these matters.
e) Changes in Accounting Standards Adopted During the Year
The following new and amended IFRS pronouncements were adopted effective January 1, 2019:
IFRS 16 Leases
IFRS 16 introduces a single, on-balance sheet accounting model for lessees. As a result, the Company, as a
lessee, has recognized right-of-use assets representing its rights to use the underlying assets and lease
liabilities representing its obligation to make lease payments. The Company may elect to not apply IFRS 16
to leases with a term of less than 12 months, which election is made by underlying class of assets to which
the right of use asset relates, or leases where the underlying asset is of low value, which election is made on
an asset by asset basis. Lessor accounting remains similar to previous accounting policies.
Previously, the Company determined at contract inception whether an arrangement was or contained a lease
under IFRIC 4, Determining Whether an Arrangement contains a Lease. The Company now assesses whether
ERO COPPER | 2019 ANNUAL REPORT | 52
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
a contract is or contains a lease based on the new definition of a lease. Under IFRS 16, a contract is, or
contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time
in exchange for consideration.
The Company’s accounting policy in Note 3(m) has been updated to reflect the Company’s new accounting
policies under IFRS 16.
Transition
The Company adopted IFRS 16 using the modified retrospective approach. Accordingly, the comparative
information presented for 2018 has not been restated.
On transition to IFRS 16, the Company elected to apply the practical expedient to grandfather the assessment
of which transactions are leases. Accordingly, IFRS 16 was applied only to contracts that were previously
identified as leases. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed.
Therefore, the definition of a lease under IFRS 16 has been applied only to contracts entered into or changed
on or after January 1, 2019.
As a lessee, the Company previously classified leases as operating or finance leases based on its assessment
of whether the lease transferred substantially all of the risks and rewards of ownership. Under IFRS 16, the
Company recognizes right-of-use assets and lease liabilities for most leases. However, the Company has
elected not to recognize right-of-use assets and lease liabilities for some leases of low-value assets and with
a term of less than 12 months. The Company recognizes the lease payments associated with these leases as
an expense on a straight-line basis over the lease term.
The Company leases various assets including equipment, offices and properties that had previously been
classified as operating leases under IAS 17. On transition lease liabilities for these leases were measured at
the present value of remaining lease payments, discounted at the Company’s or subsidiary’s incremental
borrowing rate as of January 1, 2019. The average incremental borrowing rate at January 1, 2019 used for
base calculations was 10%. The Company elected to measure the right-of-use assets at an amount equal to
the lease liability.
The Company used the following practical expedients when applying IFRS 16 to leases previously classified
as operating leases under IAS 17:
•
•
•
Applied the exemption not to recognize right-of-use assets and liabilities for leases with less than
12 months of lease term.
Applied a single discount rate to a portfolio of leases with reasonably similar characteristics (such as
leases with a similar remaining lease term for a similar class of underlying asset in a similar economic
environment).
Used hindsight when determining the lease term if the contract contains options to extend or
terminate the lease.
The Company did not have any leases classified as finance leases under IAS 17 on the adoption date.
The Company presents right-of-use assets in mineral, property, plant and equipment in the statement of
financial position, the same line item as it presents underlying assets of the same nature that it owns. The
Company presents lease liabilities as a separate line item on the statement of financial position.
ERO COPPER | 2019 ANNUAL REPORT | 53
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
The impact on transition is summarized below:
Mineral, property, plant and equipment
Current portion of lease liabilities
Lease liabilities (long-term)
December 31, 2018
280,804
$
-
-
$
IFRS 16 adjustments
4,708
4,221
487
January 1, 2019
285,512
$
4,221
487
Operating lease commitments at December 31, 2018
Arrangements reassessed as leases
Effect of discounting using the incremental borrowing rate at January 1, 2019
Lease liabilities recognized as IFRS 16 adjustment at January 1, 2019
$
$
221
4,914
(427)
4,708
January 1, 2019
IFRIC 23 – Uncertainty over Income Tax Treatments
The Company has adopted IFRIC Interpretation 23 (“Interpretation 23”) – Uncertainty over Income Tax
Treatments from January 1, 2019. The Interpretation provides guidance on the accounting for current and
deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments.
There is no material impact on the financial statements from the adoption of Interpretation 23.
3. Significant Accounting Policies
a) Revenue
Revenue is generated from the sale of sale of metals in concentrate and gold doré. The Company’s
performance obligations relate primarily to the delivery of the concentrate or gold doré to customers, with
each shipment representing a separate performance obligation.
Revenue from the sale of metals in concentrate and gold doré is recognized at the point the customer obtains
control of the product. Control is transferred when title has passed to the purchaser, the product is physically
delivered to the customer, the customer controls the risks and rewards of ownership and the Company has
a present right to payment for the product which is generally when the concentrate or ore is delivered to a
location designated by the customer.
The sales amount is typically based on quoted market and contractual prices which are fixed at the time the
shipment is received at the customers’ premises. In certain circumstances the sales price of metals in
concentrate may be determined in a period subsequent to the date of sale (provisionally priced sales) based
on the terms of specific copper concentrate contracts. Provisionally priced sales are recognized based on an
estimate of metal contained using forward market prices corresponding with the expected date that final
sales prices will be fixed. The period between provisional pricing and final settlement can be up to one
month. The settlement receivable is recorded at fair value each reporting period by reference to forward
market prices until the date of final pricing, with the changes in fair value recorded as an adjustment to
revenue.
b) Tax Incentives
The Company receives certain tax incentives in Brazil. These tax incentives are recognized in profit or loss in
the period the incentives are received or receivable and recorded against the expenditure that they are
intended to compensate.
ERO COPPER | 2019 ANNUAL REPORT | 54
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
c) Finance Income and Finance Expense
Finance income includes interest on cash and cash equivalents, restricted cash and financial investments,
and gains related to changes in the fair value of financial assets measured at fair value through profit. Interest
income is recognized as it accrues in profit or loss, using the effective interest method.
Finance expense comprise interest expense on loans and borrowings, unwinding of the discount on
provisions and leases, commitment fees and losses related to changes in the fair value of financial assets
measured at fair value through profit or loss. Borrowing costs that are not directly attributable to the
acquisition, construction or production of a qualifying asset are recognized in profit or loss using the effective
interest method.
d) Employee Benefits
Short-term employee benefit obligations are recognized as personnel expenses as the corresponding service
is provided. Liabilities are recognized at the amount that is expected to be paid if the Company has a present
legal or constructive obligation to pay that amount based on past services rendered by the employee, and
the obligation can be estimated reliably. There are no long-term employee benefit plans.
e) Taxation
Income tax expense comprises current and deferred tax. Current income tax is the expected tax payable or
receivable on the taxable income or loss for the year using tax rates enacted or substantively enacted at the
reporting date.
Deferred income tax is recognized in respect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred
income tax is measured at the tax rates that are expected to be applied to temporary differences when they
reverse, based on the tax laws that have been enacted or substantively enacted at the reporting date.
Deferred income tax assets and liabilities are offset if there is a legally enforceable right to offset current tax
liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable
entity. Deferred income tax is not recognized for the initial recognition of assets or liabilities in a transaction
that is not a business combination and that effects neither accounting nor taxable income or loss, differences
related to investments in subsidiaries to the extent that it is probable that they will not reverse in the
foreseeable future and taxable differences arising from the initial recognition of goodwill.
A deferred income tax asset is recognized for unused tax losses, tax credits and deductible temporary
differences, to the extent that it is probable that future taxable profits will be available against which they
can be utilized. Deferred income tax assets are reviewed at each reporting date and are reduced to the
extent that it is no longer probable that the related tax benefit will be realized.
f)
Inventories
Inventories are measured at the lower of cost and net realizable value. The cost of consumable inventory is
determined on a weighted average acquisition cost basis. Cost of stockpile inventory, products in progress
and finished goods is determined based on a weighted average production cost basis and includes the cost
of mining and processing ore including direct labour and materials; depreciation and amortization; and an
appropriate share of production overheads based on normal operating capacity.
Net realizable value of stockpile inventory, products in progress and finished goods is the estimated selling
price in the ordinary course of business, less estimated completion costs and selling expenses.
ERO COPPER | 2019 ANNUAL REPORT | 55
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
Provisions for low turnover or obsolete supplies and consumables inventory are established by management
as deemed necessary.
g) Mineral, Property, Plant and Equipment
Mineral, property, plant and equipment is measured at acquisition or construction cost, including capitalized
borrowing costs, less accumulated depreciation and accumulated impairment losses.
i) Acquisition and disposal
The cost of mineral, property, plant and equipment include expenditures directly attributable to an asset’s
acquisition. The cost of assets constructed by Company includes the cost of materials and direct labor, any
other costs to bring the asset in the place and conditions required to be operated in the manner intended by
management, costs of disassembly and restoration of the site and borrowing costs on qualifying assets.
When parts of mineral, property, plant and equipment have different useful lives, they are accounted for as
separate items (major components) of mineral, property, plant and equipment.
Gains and losses on disposal of mineral, property, plant and equipment are determined by comparing the
proceeds from disposal with the carrying amount of equipment and are recognized net within other income.
ii) Subsequent costs
The cost of replacing plant and equipment is recognized in the carrying amount of the item if it is probable
that the future economic benefits embodied within the item will flow to the Company and its cost can be
measured reliably. The carrying amount of the replaced item is derecognized. The costs of the day-to-day
servicing of equipment are included in profit or loss.
iii) Development and construction in progress
When economically viable mineral reserves have been determined and the decision to proceed with
development has been approved, exploration and evaluation assets are first assessed for impairment, then
reclassified to construction-in-progress or mineral properties. The expenditures related to development and
construction are capitalized as construction-in-progress and are included within mineral, property, plant and
equipment. Costs associated with the commissioning of new assets incurred before they are operating in the
way intended by management, including directly attributable costs of testing, are capitalized. Construction-
in-progress includes the purchase price and any costs directly attributable to bringing the asset to the location
and condition necessary for its intended use including advances on long-lead items. Construction-in-progress
is not depreciated.
Once the asset is operating in the way intended by management, construction-in-progress costs are
reclassified to mineral properties or plant and equipment.
Pre-production costs of removing overburden to access ore in the open pit mines and developing access
headings in the underground mines are capitalized as pre-production stripping or development costs
respectively and are included within mineral, property, plant and equipment. Revenues earned during pre-
production periods are also capitalized.
ERO COPPER | 2019 ANNUAL REPORT | 56
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
iv) Mineral properties
Mineral properties consist of the cost of acquiring and developing mineral properties. Once in production,
mineral properties are amortized on a units-of-production basis over the component of the ore body to which
they relate.
v) Stripping costs and development in the production phase
Where open pit production stripping or underground development activities do not result in inventory
produced, but does provide improved access to the ore body, the costs are classified as mineral properties
when these activities meet all of the following criteria: (1) it is probable that the future economic benefit
associated with the activity will flow to the Company; (2) the Company can estimate the mineral reserve of
the ore body for which access has been improved; and (3) the costs relating to the activity associated with
that mineral reserve can be measured reliably.
For underground mines, costs incurred to access a mineral reserve of the ore body are capitalized to mineral
properties or construction-in-progress and are depreciated on a units-of-production basis over the expected
useful life of the identified mineral reserve of the ore body to which access has been improved as a result of
the development activity. For open pit mines, stripping costs are capitalized to mineral properties or
construction-in-progress until an average stripping ratio is achieved (waste/ore) for the mine. After the
stripping ratio is achieved, all stripping costs are classified as production costs. The capitalized stripping costs
are depreciated over the related mineral reserves accessed by the stripping activity.
vi) Mine closure and rehabilitation costs
The Company’s provision for mine closure and rehabilitation liabilities represents management’s best
estimate of the present value of the future cash outflows required to settle estimated reclamation and
closure costs at the end of a mine’s life. The provision reflects estimates of future costs, inflation, movements
in foreign exchange rates and assumptions of risks associated with the future cash outflows, and the
applicable risk-free interest rates for discounting the future cash outflows. Changes in the above factors can
result in a change to the provision recognized by the Company.
vii) Depreciation
Items of mineral, property, plant and equipment are depreciated on a straight-line method based on the
estimated economic useful life of each component as follows:
Buildings
Mining equipment
Mobile equipment & other assets
Mineral properties
Mine closure and rehabilitation costs
Right of use assets
Up to 25 years
4 years
5 years
Units of production
Units of production or
period until remediation
Shorter of the term of
lease and life of asset
The depletion of mineral, properties and mine closure and rehabilitation costs is determined based on the
ratio of tons of copper/kg of gold contained in the ore mined and total proven and probable mineral reserve
tonnes of contained copper/kg of contained gold.
Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted
if appropriate.
ERO COPPER | 2019 ANNUAL REPORT | 57
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
h) Exploration and Evaluation Assets
Exploration and evaluation costs relate to the initial search for a mineral deposit, the cost of acquisition of a
mineral property interest or exploration rights and the subsequent evaluation to determine the economic
potential of the mineral deposit. The exploration and evaluation stage commences when the Company
obtains the legal right or license to begin exploration and subsequently exploration and evaluation expenses
are capitalized as exploration and evaluation assets. Costs incurred prior to the Company obtaining the legal
rights are expensed.
When the exploration and evaluation of a mineral property indicates that development of the mineral
property is technically and commercially feasible, the future economic benefits are probable, and the
Company has the intention and sufficient resources to complete the development and use or sell the asset,
the related costs are transferred from exploration and evaluation assets to mineral property, plant and
equipment.
Management reviews the carrying value of capitalized exploration costs for indicators that the carrying value
is impaired at least annually and when facts and circumstances suggest that the carrying amount may exceed
the recoverable amount. The review is based on the Company’s intentions for further exploration and
development of the undeveloped property, results of drilling, commodity prices and other economic and
geological factors. Subsequent recovery of the resulting carrying value depends on successful development
or sale of the undeveloped project. If a property does not prove viable, all non-recoverable costs associated
with the project, net of any previous impairment provisions, are written off.
i) Financial Instruments
Non-derivative financial assets
The Company classifies its financial assets in the following categories: at fair value through profit or loss
(“FVTPL”), at fair value through other comprehensive income (“FVTOCI”) or at amortized cost. The
classification depends on the purpose for which the financial assets were acquired. Management determines
the classification of its financial assets at initial recognition. Measurement and classification of financial
assets is dependent on the Company’s business model for managing the financial assets and the contractual
cash flow characteristics of the financial asset. Financial assets are derecognized when they mature or are
sold, and substantially all the risks and rewards of ownership have been transferred.
Fair values
A number of the Company’s accounting policies and disclosures require the measurement of fair values, for
both financial and non-financial assets and liabilities.
When measuring the fair value of an asset or liability, the Company uses observable market data, as much as
possible. Fair values are classified into different levels in a hierarchy based on the inputs used in the valuation
techniques, as follows:
•
•
•
Level 1: quoted prices (without adjustments) in active markets for identical assets or liabilities.
Level 2: inputs other than Level 1 quoted prices, that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: inputs, for assets or liabilities, that are not based on observable market information (non-
observable inputs).
ERO COPPER | 2019 ANNUAL REPORT | 58
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
The Company recognizes transfers between levels of the hierarchy of fair value at the end of the reporting
period during which the change occurred.
When applicable, additional information on the assumptions used in the fair value calculations are disclosed
in the specific notes of the corresponding asset or liability.
Financial assets at FVTPL
Financial assets carried at FVTPL are initially recorded at fair value and transaction costs are expensed in the
income statement. Realized and unrealized gains and losses arising from changes in the fair value of the
financial asset held at FVTPL are included in profit or loss in the period in which they arise. Derivatives are
also categorized as FVTPL unless they are designated as hedges.
Financial assets at FVTOCI
Investments in equity instruments at FVTOCI are initially recognized at fair value plus transaction costs.
Subsequently they are measured at fair value, with gains and losses arising from changes in fair value
recognized in other comprehensive income. Gains or losses on financial assets classified as FVTOCI remain
within accumulated other comprehensive income following the derecognition of the investment.
Financial assets at amortized cost
Financial assets at amortized cost are initially recognized at fair value and subsequently carried at amortized
cost less any impairment. They are classified as current assets or non-current assets based on their maturity
date. Gains and losses on derecognition of financial assets classified amortized cost are recognized in profit
or loss.
Financial liabilities
Financial liabilities are recognized initially at fair value, net of transaction costs incurred, and are
subsequently measured at amortized cost. Any difference between the amounts originally received, net of
transaction costs, and the redemption value is recognized in profit and loss over the period to maturity using
the effective interest method.
Derivative instruments
Derivative instruments, including embedded derivatives in executory contracts or financial liability contracts,
are classified as at FVTPL and, accordingly, are recorded in the statement of financial position at fair value.
Unrealized gains and losses on derivatives not designated in a hedging relationship are recorded as part of
the revenue or expense item to which the derivative relates, depending on the nature of the derivative. Fair
values for derivative instruments are determined using inputs based on market conditions existing at the
balance sheet date or settlement date of the derivative. Derivatives embedded in non-derivative contracts
are recognized separately unless they are closely related to the host contract.
Trade receivables related to provisionally priced sales are measured at fair value with changes recognized in
profit or loss.
Compound instruments
Equity components of compound instruments, such as convertible debt, are separated from the debt host
contract using the residual method. The Company determines the fair value of the debt component by
ERO COPPER | 2019 ANNUAL REPORT | 59
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
discounting the expected principal and interest payments using an appropriate discount rate reflective of
debt instruments with similar risks but without the equity component. The difference between the proceeds
received and the amount assigned to the debt component is allocated to the equity component.
Share capital
Common shares are classified as equity. Incremental costs directly attributable to the issuance of common
shares and share options are recognized as a deduction from equity, net of any tax effects. The Company
includes the value of share purchase warrants included in the issuance of equity units, which consist of
common shares and warrants, in share capital.
Classification and Measurement Changes
The Company has assessed the classification and measurement of its financial assets and financial liabilities
under IFRS 9 in the following table:
Financial Assets:
Cash, cash equivalents and restricted cash
Trade receivables
Deposits
Other non-current assets - term deposits
Financial Liabilities:
Trade payables
Loans and borrowings
Derivatives
Measurement Category
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value through profit or loss
Cash and cash equivalents, restricted cash and deposits
Cash is comprised of cash on hand and demand deposits. Cash equivalents, restricted cash and deposits are
short-term, highly liquid investments with original maturities of three months or less that are readily
convertible to known amounts of cash and which are subject to an insignificant risk of change in fair value.
Trade receivables
Trade receivables relate to amounts receivable from sales with fixed or determinable payments that are not
quoted in an active market. These receivables are non-interest bearing and are recognized at face amount,
except when fair value is materially different, and are subsequently measured at amortized cost. Trade
receivables recorded are net of lifetime expected credit losses.
Other non-current assets – term deposits
Term deposits are directly related to loan agreements with a Brazilian financial institution which requires the
establishment of a reserve fund. Redemptions of financial investments are conditional on the Company
making the scheduled loan repayments. These term deposits are classified as, and subsequently measured
at, amortized cost. These term deposits are recognized initially at fair value plus any directly attributable
transaction costs. Subsequent to initial recognition, they are measured at amortized cost using the effective
interest method, less any impairment losses.
ERO COPPER | 2019 ANNUAL REPORT | 60
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
j)
Impairment
i) Financial assets
The Company recognizes a loss allowance for expected credit losses on financial assets that are measured at
amortized cost. At each reporting date, the loss allowance for the financial asset is measured at an amount
equal to the lifetime expected credit losses if the credit risk on the financial asset has increased significantly
since initial recognition. If at the reporting date, the financial asset has not increased significantly since initial
recognition, the loss allowance is measured for the financial asset at an amount equal to twelve months’
expected credit losses. For trade receivables the Company applies the simplified approach to providing for
expected credit losses, which allows the use of a lifetime expected loss provision. Impairment losses on
financial assets carried at amortized cost are reversed in subsequent periods if the amount of the loss
decreases and the decrease can be objectively related to an event occurring after the impairment was
recognized. The expected lifetime credit loss provision for trade receivables is based on historical
counterparty default rates and adjusted for relevant forward-looking information, when required. As the
Company’s three primary significant customers are considered to have a low default rate and historical
default rates are low, the lifetime expected credit loss allowance for trade receivables is nominal as at
December 31, 2019. Accordingly, the Company did not record a provision for expected credit losses for trade
receivables.
ii) Non-Financial assets
At each reporting date the carrying amounts of the Company’s mineral, property, plant and equipment and
exploration and evaluation assets are reviewed to determine whether there is any indication that those
assets are impaired. If such indication exists, the recoverable amount of the asset is estimated in order to
determine the extent of the impairment, if any. The recoverable amount is the higher of fair value less costs
to sell and value in use, which is the present value of future cash flows expected to be derived from the asset
or its related cash generating unit. For purposes of impairment testing, assets are grouped at the lowest
levels that generate cash inflows from continuing use that are largely independent of the cash inflows of
other assets or groups of assets (the “cash-generating unit”).
If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount,
the carrying amount of the associated assets are reduced to their recoverable amount and the impairment
loss is recognized in the profit or loss for the period.
Impairment losses recognized in prior periods are assessed at each reporting date for any indications that
the loss has decreased or no longer exists. An impairment charge is reversed through profit or loss only to
the extent that the asset’s carrying amount does not exceed the carrying amount that would have been
determined, net of any applicable depreciation, if no impairment loss had been recognized.
k) Provisions
i) Mine closure and rehabilitation provision
The Company records the present value of estimated costs of legal and constructive obligations related to
mine closure and rehabilitation in the period in which the obligation occurs. Mine closure and rehabilitation
activities include facility decommissioning and dismantling; removal and treatment of waste materials; site
and land rehabilitation, including compliance with and monitoring of environmental regulations; and related
costs required to perform this work and/or operate equipment designed to reduce or eliminate
environmental effects. The provision is adjusted each period for new disturbances, and changes in regulatory
requirements, the estimated amount of future cash flows required to discharge the obligation, the timing of
ERO COPPER | 2019 ANNUAL REPORT | 61
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
such cash flows and the pre-tax discount rate specific to the liability. The unwinding of the discount is
recognized in profit or loss as a finance expense.
When the provision is initially recognized, the corresponding cost is capitalized by increasing the carrying
amount of the related asset and is amortized to profit or loss on a unit-of-production basis.
ii) Other provisions
Other provisions are recognized, based on a past event, when the Company has a legal or constructive
obligation that can be estimated reliably, and it is probable that an economic mineral resource will be
required to settle the obligation. Provisions are measured by discounting the expected future cash flows at
a pre-tax rate that reflects current market assessments of the time value of money and specific risks for the
liability. The discount is unwound over the period over which the cash flows are expected to be incurred with
the related expense included in finance expense.
l) Share-Based Compensation
The grant date fair value of share-based payment awards granted to employees and consultants, including
directors and officers, is recognized as an employee expense, with a corresponding increase in equity, over
the period that the employees unconditionally become entitled to the awards. The amount recognized as an
expense is adjusted to reflect the number of awards for which the related service and non-market vesting
conditions are expected to be performed or satisfied such that the amount ultimately recognized as an
expense is based on the number of awards that meet the related service and non-market performance
conditions at the vesting date.
m) Leases
A contract is or contains a lease when the contract conveys a right to control the use of an identified asset
for a period of time in exchange for consideration.
The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-
of-use asset is initially measured at cost, and subsequently at cost less any accumulated depreciation and
impairment losses, and adjusted for certain re-measurements of the lease liability. The cost of the right-of-
use asset includes the amount of the initial measurement of the lease liability, any lease payments made at
or before the commencement date, less any lease incentives received, any initial direct costs; and if
applicable, an estimate of costs to be incurred by the Company in dismantling and removing the underlying
asset, restoring the site on which it is located or restoring the underlying asset to the condition required by
the terms and conditions of the lease.
The lease liability is initially measured at the present value of the lease payments that are not paid at the
commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily
determined, the Company’s incremental borrowing rate. The incremental borrowing rate reflects the rate of
interest that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value
in a similar economic environment with similar terms and conditions. Generally, the Company uses its
incremental borrowing rate as the discount rate.
The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease
payments made. It is remeasured when there is a change in future lease payments arising from a change in
an index or rate, a change in the estimate of the amount expected to be payable under a residual value
guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is
reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.
ERO COPPER | 2019 ANNUAL REPORT | 62
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
The Company does not recognize right-of-use assets and lease liabilities for leases of low-value assets and
leases with lease terms that are less than 12 months. Lease payments associated with these leases are instead
recognized as an expense over the lease term on either a straight-line basis, or another systematic basis if
more representative of the pattern of benefit.
The Company has applied judgement to determine the lease term for some lease contracts in which it is a
lessee that include renewal options. The assessment of whether the Company is reasonably certain to
exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and
right-of-use assets recognized.
n) Income (Loss) per Share
Basic income (loss) per share is calculated by dividing the profit or loss attributable to common shareholders
of the Company by the weighted average number of common shares outstanding during the period. Diluted
income (loss) per common share is calculated by adjusting the weighted average number of common shares
outstanding for the effect of conversion of all potentially dilutive share equivalents, such as stock options
and warrants, and assumes that the receipt of proceeds upon exercise of the options are used to repurchase
common shares at the average market price during the period. The net effect of the shares issued less the
shares assumed to be repurchased is added to the basic weighted average shares outstanding. For
convertible instruments, the common shares to be included in the diluted per share calculation assumes that
the instrument is converted at the beginning of the period (or the issue date if later). For Share Units (as
defined herein, see note 12(b)), the common shares to be included in the diluted per share calculation is
based on the number of shares that would be issuable if the reporting date were the end of the vesting
period. The profit or loss attributable to common shareholders is adjusted to eliminate related interest costs
of dilutive securities recognized in profit or loss for the period.
4.
Inventories
Supplies and consumables
Stockpile
Work in progress
Finished goods
5. Other Current Assets
Advances to suppliers
Prepaid expenses
Advances to employees (a)
Value added federal taxes recoverable (b)
December 31, 2019
$
13,878
2,556
2,164
779
19,377
$
December 31, 2019
1,046
$
4,779
2,829
16,869
25,523
$
$
$
December 31, 2018
$
11,641
1,116
543
1,345
14,645
December 31, 2018
$
766
2,188
1,349
2,592
6,895
(a)
(b)
Advances to employees include short term advances of salary, vacation and other benefits granted to employees of the
Company’s Brazilian subsidiaries.
$12.2 million of this balance relates to a recent favourable legal decision that recognizes MCSA’s right to a tax credit as
a result of historical over-payments. MCSA will be able to use these tax credits against a variety of taxes, including
income taxes and taxes on future sales (note 18).
ERO COPPER | 2019 ANNUAL REPORT | 63
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Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
6. Mineral, Property, Plant and Equipment (continued)
Of the $118.9 million in mineral, property, plant and equipment purchases during the year ended December 31,
2019, $8.6 million was obtained through financing arrangements directly from equipment suppliers.
Certain equipment is secured for the equipment finance loans (note 9).
Included in mineral, property, plant and equipment is $7.3 million (December 31, 2018 - $10.4 million) related to
the value of mineral resources beyond proven and probable reserves not currently being amortized. During the
year ended December 31, 2019, $3.1 million (year ended December 31, 2018 - $8.2 million) was transferred from
mineral resources to amortizable mineral reserves as a result of an update to MCSA’s proven and probable reserves
during the year. In addition, $52.7 million (December 31, 2018 - $42.1 million) related to projects in progress are
not currently being amortized.
7. Exploration and Evaluation Assets
Exploration and evaluation assets relate to the Boa Esperança Property located in the Municipality of Tucumã, in
the state of Pará, Brazil which consists of a single mineral concession. This prospective copper/gold property is in
advanced stages of exploration with various geological mineral resource studies and is the subject of a completed
feasibility study.
8. Accounts Payable and Accrued Liabilities
Trade suppliers
Payroll and related charges
Other accrued liabilities
December 31, 2019
December 31, 2018
$
$
21,811
20,058
1,818
43,687
$
$
19,007
14,802
2,581
36,390
ERO COPPER | 2019 ANNUAL REPORT | 65
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
9. Loans and Borrowings
Description
Bank loan (at acquisition)
Bank loan (at acquisition)
Bank loan (at acquisition)
Bank loan (NX Gold)
Bank loan (MCSA)
Bank loan (MCSA)
Line of credit (NX Gold)
Equipment finance loan (Plural)
Equipment finance loans
Equipment finance loans
Equipment finance loans
Senior non-revolving credit facility
Senior revolving credit facility
Denomination
USD
BRL R$
BRL R$
BRL R$
USD
BRL R$
BRL R$
BRL R$
BRL R$
EURO
USD
USD
USD
Security
Unsecured
Secured
Unsecured
Unsecured
Unsecured
Unsecured
Unsecured
Secured
Secured
Secured
Secured
Secured
Secured
Time to Maturity
-
-
83 months
-
12 months
2 months
9 months
23 months
1 - 50 months
8-36 months
29-38 months
48 months
36 months
Coupon rate
7.50%
7.50%
CDI + 0.5%
95% CDI
4.43%
CDI + 3.7%
15.00%
CDI + 7.0%
11.88%-16.49%
5.5%-7.0%
6.99%-7.95%
LIBOR + 2.75%-4.75%
LIBOR + 2.75%-4.75%
Total
Current portion:
Non-current portion:
(1) Carrying value includes accrued interest.
Principal to
be repaid
-
$
-
6,736
-
1,500
204
645
2,853
5,400
3,945
4,094
80,000
56,000
$
Carrying value
December 31,
2019(1)
-
-
5,941
-
1,503
204
670
2,892
5,585
3,996
4,125
79,091
55,363
$
Carrying value
December 31,
2018
558
8,607
6,969
106
3,000
1,484
-
-
1,346
3,645
2,994
79,056
44,469
$
161,377
$
159,370
$
152,234
$
$
18,984
140,386
$
$
10,602
141,632
Balance, beginning of year
Reclassification of NX Gold amounts from assets held for sale
New senior non-revolving credit facility
New senior revolving credit facility, net
New equipment finance loans
New bank loans
Debt extinguishment
Principal and interest payments
Interest accretion
Loss on debt settlement
Effect of foreign exchange rate changes
Balance, end of period
(a) Senior credit facility
December 31, 2019
152,234
$
-
-
10,565
24,890
10,976
-
( 51,581 )
11,236
1,783
( 733 )
159,370
$
December 31, 2018
139,166
$
2,071
78,837
44,346
11,652
4,581
( 124,697 )
( 19,670 )
14,965
5,476
( 4,493 )
152,234
$
In December 2018, the Company replaced the $50 million senior secured non-revolving credit facility completed on
December 29, 2017 with a new $130 million facility from a syndicate of Canadian financial institutions. The facility
is comprised of an $80 million senior secured amortizing non-revolving credit facility (“Term Facility”) and a $50
million senior secured revolving term credit facility (“Revolving Credit Facility”) (collectively the “Facilities”). The
Term Facility has a 5-year term with equal quarterly principal payments of $6.2 million beginning on December 13,
2020, while the Revolving Credit Facility is payable at maturity on December 13, 2022. The Facilities bear interest
on a sliding scale at a rate of LIBOR plus 2.75% to 4.75% depending on the Company’s consolidated leverage ratio
at the time. The Company incurred transaction costs associated with the Facilities of $2.3 million which have been
included in the carrying value of the Facilities and are being amortized using an effective interest rate of 5.64%. The
settlement of the previous $50 million senior secured non-revolving credit facility resulted in a loss on settlement
of $1.8 million.
In January 2019, the Company entered into an interest rate swap transaction with a Canadian financial institution
whereby the floating LIBOR interest on a notional amount of $65 million was swapped for a fixed interest rate of
2.69%. This interest rate swap transaction is in effect for the term of the Term Facility, with the notional amount
reduced as principal payments are made. Settlements are being made on a quarterly basis.
ERO COPPER | 2019 ANNUAL REPORT | 66
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
During the second quarter of 2019, the Company refinanced a loan held by the Company’s subsidiary, MCSA, by
extending the Revolving Credit Facility. The credit limit of the Revolving Credit Facility was increased by $20.0
million to $70.0 million. All other terms of the Facilities remained unchanged. Upon completion of the amendment,
the Company drew $11.0 million to repay certain of its bank loans held by MCSA. As at December 31, 2019, the
Company had a remaining $14.0 million undrawn on this secured Revolving Credit Facility.
The Facilities are secured by pledges of shares of MCSA and NX Gold. The Company is required to comply with
certain financial covenants. As of the date of these consolidated financial statements, the Company is in compliance
with these covenants.
(b) Bank loans and equipment finance loans
The bank loans (at acquisition) relate to the Company’s subsidiary, MCSA, and were recognized at the date the
Company acquired MCSA at fair value and have subsequently been recognized at amortized cost, net of settlements.
Interest is being recognized using the effective interest rate method at an interest rate of 11.29% for the remaining
such loan at December 31, 2019.
In June 2019, the Company repaid one of MCSA’s bank loans (at acquisition) in full using funds from the Company’s
Revolving Credit Facility and recognized a loss on settlement of $1.8 million. During the year ended December 31,
2018, the Company acquired and/or settled certain of the MCSA bank loans (at acquisition) with a carrying value of
$68.8 million. The settlement of these loans resulted in a loss of $3.7 million.
As per the terms of one of MCSA’s bank loans, the Company is required to maintain a separate debt service bank
account with sufficient funds to guarantee scheduled principal payments by MCSA. At December 31, 2019, $1.5
million was on deposit in said designated debt service account and is presented as restricted cash in the statement
of financial position.
MCSA is required to comply with certain financial covenants which MCSA is in compliance with at December 31,
2019. The equipment finance loans are secured by the corresponding equipment relating to them and a guarantee
by the Company.
(c) MCSA and NX Gold lines of credit
At December 31, 2019, the Company’s subsidiaries MCSA and NX Gold have the following credit facilities available:
MCSA entered into a credit agreement for a line of credit of up to BRL $30.0 million at an interest rate of CDI
(“Brazilian Interbank Deposit Rate”) + 9% per annum. MCSA may drawdown on this line of credit at any time until
November 30, 2020. In addition, MCSA also entered into a second credit agreement for a total line of credit of up
to BRL $30.0 million at an interest rate of 14.98% per annum. MCSA may drawdown on this line of credit at any
time until August 27, 2020. The Company and NX Gold provide unsecured guarantees for these credit agreements.
At December 31, 2019, no amounts had been drawn from either of these credit facilities
NX Gold entered into an agreement for a line of credit of up to BRL $7.5 million at an interest rate of 14.98% per
annum. NX Gold may drawdown on this line of credit at any time until August 27, 2020. As at December 31, 2019,
BRL $2.7 million ($0.7 million) has been drawn from NX Gold’s line of credit.
Subsequent to December 31, 2019, NX Gold entered into a credit agreement for a line of credit of up to BRL $7.5
million at an interest rate of 14.34% per annum. NX Gold may drawdown on this line of credit at any time until
February 22, 2021. NX Gold is using BRL $1.5 million of this line of credit to provide a letter of credit to a supplier
until January 31, 2022. The Company provides unsecured guarantees for these credit agreements.
ERO COPPER | 2019 ANNUAL REPORT | 67
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
(d) Plural loan
During the quarter ended December 31, 2019, MCSA secured a new equipment finance loan with Plural Bank for
BRL $12.0 million for a term of 24 months and at an interest rate of 7% + CDI per annum. Concurrently, MCSA
entered into an interest rate swap transaction and a foreign exchange swap transaction with Plural Bank whereby
the floating interest of 7% + CDI on a notional amount of BRL $12.0 million was swapped for a fixed interest rate of
9.90%, and a notional principal amount of BRL $12.0 million was swapped for the USD currency at a rate of 3.9500.
This interest rate and foreign exchange swap transactions are in effect for the term of the loan.
(e) Debt repayments
Repayments of the principal portion of loans and borrowings is as follows:
2020
2021
2022
2023
2024
2025 and beyond
10. Value Added, Payroll and Other Taxes
Value-added taxes payable
Tax based on net sales of copper and gold
Federal sales tax
Social security installments (a)
Income taxes
Other taxes
Total value added, payroll and other taxes
Less: current portion of value added, payroll and other taxes
Non-current value added, payroll and other taxes
$
18,984
30,318
83,286
25,918
1,004
1,867
161,377
$
December 31, 2019
December 31, 2018
$
$
2,865
5,287
-
9,519
1,108
909
19,688
13,994
5,694
2,873
3,064
1,984
8,744
944
341
17,950
11,357
6,593
$
$
(a) The Company’s subsidiary, MCSA, has an agreement with the National Institute of Social Security in Brazil to pay
outstanding social security contributions in installments over a period to 2024.
ERO COPPER | 2019 ANNUAL REPORT | 68
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
11. Provisions and Contingent Liabilities
Balance at December 31, 2017
Reclassification of NX Gold amounts from assets held for sale
Additions (reductions) due to change in estimated cash flows
Unwinding of the discount
Settled
Foreign exchange
Balance at December 31, 2018
Additions (reductions) due to change in estimated cash flows
Unwinding of the discount
Settled
Foreign exchange
Balance at December 31, 2019
(a) Mine closure and rehabilitation
Mine Closure
and
Rehabilitation
22,688
$
6,082
1,136
3,767
( 1,967 )
( 4,352 )
27,354
2,266
3,508
( 1,786 )
( 1,145 )
30,197
$
Legal
Claims
$
Total
$
7,626
329
( 2,825 )
-
-
( 975 )
4,155
( 625 )
-
-
( 146 )
3,384
30,314
6,411
( 1,689 )
3,767
( 1,967 )
( 5,327 )
31,509
1,641
3,508
( 1,786 )
( 1,291 )
33,581
$
$
The Company’s provision for mine closure and rehabilitation consists of costs accrued based on the current best
estimate of mine closure and reclamation activities that will be required upon completion of mining. The Company’s
provision for future site closure and reclamation costs is based on the level of known disturbance at the reporting
date, known legal requirements and cost estimates prepared by a third-party specialist.
Management used a pre-tax discount rates in the range of 4.34% - 6.5% (2018 – 6.5%) and an inflation factor in the
range of 3.5% – 3.75% (2018 – 4.2%) in preparing the Company’s provision for mine closure and rehabilitation.
Although the ultimate amount to be incurred is uncertain, based on development, legal requirements and estimated
costs as at December 31, 2019, the undiscounted inflation-adjusted liability for provision for mine closure and
rehabilitation is estimated to be approximately $45.7 million (2018 - $48.7 million), of which $36.8 million (2018 -
$39.1 million) relates to MCSA and $8.9 million (2018 - $9.6 million) relates to NX Gold. The cash expenditures are
expected to occur over a period of time extending several years after the projected closure, which for both MCSA
and NX Gold is currently 2026.
(b) Legal claims
There are various legal actions that are in process against the Company’s Brazilian subsidiaries related to labor,
civil and tax matters. Based on an analysis of individual judicial and administrative legal claims, the following
provision has been made for probable losses associated with these claims:
Labour claims (i)
Tax claims (ii)
Other claims
(i)
Labor claims
December 31, 2019
December 31, 2018
$
$
3,311
73
-
3,384
$
$
3,561
522
72
4,155
The labor claims related primarily to claims made by existing and former employees for alleged travel time
reimbursements, overtime and severance payments. Of the claims made, the Company has assessed, with the
assistance of its legal counsel, that the probable loss on such claims is $3.3 million and such amount has been
accrued.
ERO COPPER | 2019 ANNUAL REPORT | 69
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
(ii) Tax claims
The provisions for tax claims relate to tax assessments, interest and penalties resulting from unpaid income and
social contribution taxes by MCSA.
In relation to the above-mentioned claims and those discussed in Note 11(c) below, MCSA and NX Gold were
required to place a total of $1.2 million in trust as of December 31, 2019 (December 31, 2018 - $1.3 million), which
is included in other non-current assets on the statement of financial position.
(c) Contingent liabilities
As of December 31, 2019, based on the opinion of its legal advisers, the Company has not recognized a provision
for the following claims of MCSA and NX Gold as it is not probable that a cash outflow will occur.
Social security tax (i)
Taxes (ii)
Labour (refer to note 11(b)(i))
Mining and other (iii)
(i) Social security tax
December 31, 2019
December 31, 2018
$
$
3,681
14,990
6,303
6,080
31,054
$
$
3,715
14,800
3,380
-
21,895
Social security claims relate to potential social security tax payments related to past payments to employees,
including profit sharing, and payments made to external contractors. The Company strongly believes, based
on precedent court case rulings, that part of the claim will be cancelled after administrative and judicial
discussions. The estimated portion of the claim expected to be cancelled of $3.7 million is included in the table
above.
(ii) Tax
There are 129 tax claims (2018 – 99 tax claims) against MCSA which were evaluated as possible, but not probable,
losses by external legal counsel. The main subjects under discussion for the tax claims involve the validity of tax
credits used to offset federal taxes.
(iii) Mining
In June 2019, MCSA was notified of five administrative claims filed by the Nacional Mining Agency regarding
alleged differences in the calculation of certain sales taxes on mining revenue by MCSA. The Company, based on
the opinion of its legal advisors, does not believe such claims will result in a probable cash outflow.
12. Share Capital
As at December 31, 2019, the Company’s authorized share capital consists of an unlimited number of common
shares without par value. As at December 31, 2019, 85,703,646 (2018 – 84,738,650) common shares were
outstanding.
In January 2017, the Company issued $2.75 million of convertible debentures with an interest rate of 10% to be
repaid within two years or to be converted to units, at the option of the holder, at a conversion price of $0.75 per
unit, with each unit consisted of one common share and one-quarter of one common share purchase warrant. Each
whole warrant entitled the holder to purchase one common share at a price of $1.20 per common share until
ERO COPPER | 2019 ANNUAL REPORT | 70
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
December 12, 2021. The Company had the right to accelerate the expiry of any warrants issued in relation to these
convertible debentures if the closing share price on a recognized exchange reached or exceeded $1.70 for 20
consecutive trading days. In February 2018, all of the convertible debenture holders converted their debentures
into units, resulting in the issuance of 4,059,450 common shares and 1,014,861 common share purchase warrants.
These warrants were subsequently exercised for an equivalent number of common shares for gross proceeds
received by the Company of $1.2 million.
(a) Options
In January 2018, the Company granted 60,000 options to an employee of the Company at an exercise price of
CAD$7.95 per share with a term to expiry of five years. In addition, the Company also granted in January 2018
125,000 options to an employee of the Company at an exercise price of CAD$7.76 per share with a term to expiry
of five years. These stock options vest in three equal installments on each annual anniversary date from the date
of grant. The total fair value of these options to be expensed over the vesting period was $0.5 million.
In June 2018, the Company granted 174,000 options to an employee and a director of the Company at an exercise
price of CAD$10.25 per share with a term to expiry of five years. 150,000 of these stock options vest in three equal
installments on each annual anniversary date from the date of grant, while 24,000 of these stock options vested
immediately. The total fair value of these options to be expensed over the vesting period was $0.6 million.
In July 2018, the Company granted 200,000 options to an employee of the Company at an exercise price of CAD$9.01
per share with a term to expiry of five years. These stock options vest in three equal installments on each annual
anniversary date from the date of grant. The total fair value of these options to be expensed over the vesting period
was $0.6 million.
On December 31, 2018, the Company granted 1,155,519 options to certain officers, directors, consultants and
employees of the Company at an exercise price of CAD$9.76 per share with a term to expiry of five years. These
stock options vest in three equal installments on each annual anniversary date from the date of grant. The total
fair value of these options to be expensed over the vesting period was $3.5 million.
On January 2, 2019, the Company granted 125,000 options to directors of the Company at an exercise price of
CAD$9.80 per share with a term to expiry of five years. These options vested immediately, and their total fair value
was $0.5 million.
On August 15, 2019, the Company granted 40,000 options to directors of the Company at an exercise price of
CAD$21.09 per share with a term to expiry of five years. 23,828 of these options vested immediately, while 16,172
will vest upon shareholder approval. Their total fair value was $0.3 million.
On December 12, 2019, the Company granted 470,228 options to certain officers, directors, consultants and
employees of the Company at an exercise price of CAD$20.52 per share with a term to expiry of five years. These
stock options vest in three equal installments on each annual anniversary date from the date of grant. The total
fair value of these options to be expensed over the vesting period was $2.7 million.
Outstanding stock options, December 31, 2017
Issued
Exercised
Outstanding stock options, December 31, 2018
Issued
Exercised
Outstanding stock options, December 31, 2019
Number of
Stock Options
3,493,000
1,714,519
(283,000)
4,924,519
635,228
(498,330)
5,061,417
Weighted Average
Exercise Price
3.28
6.97
1.50
4.64
14.20
2.75
6.23
$
$
ERO COPPER | 2019 ANNUAL REPORT | 71
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
The weighted average share price on the date of exercise for the year ended December 31, 2019 was $14.60 (year
ended December 31, 2018 - $8.91).
As at December 31, 2019, the following stock options were outstanding:
Expiry Date
May 15, 2022
July 10, 2022
November 24, 2022
December 7, 2022
January 18, 2023
January 23, 2023
June 19, 2023
July 16, 2023
December 31, 2023
January 2, 2024
August 15, 2024
December 12, 2024
Number of
Stock Options
972,001
100,000
318,000
1,393,335
60,000
83,334
144,000
200,000
1,155,519
125,000
40,000
470,228
5,061,417
Weighted Average
Exercise Price
1.50 USD
1.50 USD
6.48 CAD
6.74 CAD
7.95 CAD
7.76 CAD
10.25 CAD
9.01 CAD
9.76 CAD
9.80 CAD
21.09 CAD
20.52 CAD
6.23 USD
Vested and
Exercisable
Number of
Stock Options
433,665
66,666
212,000
946,664
20,000
-
44,000
66,666
385,165
125,000
23,828
-
2,323,654
Weighted
Average
Remaining
Life in Years
2.37
2.53
2.90
2.94
3.05
3.07
3.47
3.54
4.00
4.01
4.63
4.95
3.33
In determining the weighted average exercise price of all outstanding options in the tables above and below, the
CAD prices were converted to USD at the December 31, 2019 exchange rate of 1.2989.
The fair value of options granted in the years ended December 31, 2019 and 2018 was determined using the Black-
Scholes option pricing model. Expected volatility is estimated by considering historic average share price volatility
of comparable companies. The weighted average inputs used in the measurement of fair values at grant date of
the options are the following:
Expected term (years)
Forfeiture rate
Volatility
Dividend yield
Risk-free interest rate
Weighted-average fair value per option
2019
3.0
0%
53.3%
0%
1.68%
5.42
$
2018
3.0
0%
60.7%
0%
1.92%
2.98
$
For the year ended December 31, 2019, the Company recorded share-based compensation $4.7 million (2018 - $3.2
million) with respect to its outstanding stock options.
Subsequent to December 31, 2019, the Company granted 73,456 options to directors and certain employees of the
Company at an exercise price of CAD$23.42 per share with a term to expiry of five years. The 43,456 options to
directors vested immediately, while the 30,000 options to employees vest in three equal installments on each
annual anniversary date from the date of grant.
Subsequent to December 31, 2019, 53,332 options were exercised for gross proceeds of $0.2 million.
(b) Share Unit Plan
The Company has a share unit plan (the “Share Unit Plan”) pursuant to which the Board, at the compensation
committee’s recommendation, may grant share units (“Share Units”) to any director, officer, employee, or
consultant of the Company or its subsidiaries. At the time of grant of a Share Unit, the Board, at the compensation
ERO COPPER | 2019 ANNUAL REPORT | 72
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
committee’s recommendations, may establish performance conditions for the vesting of the Share Units. The
performance conditions may be graduated such that different percentages (which may be greater or lower than
100%) of the Share Units in a grant become vested depending on the satisfaction of one or more performance
conditions. Performance conditions may include terms or conditions relating to: (i) the market price of the Shares;
(ii) the return to holders of shares, with or without reference to other comparable companies; (iii) the financial
performance or results of the Company or its subsidiaries; (iv) the achievement of performance conditions or other
performance criteria relating to the Company or its subsidiaries; (v) any other terms and conditions the Board may
in its sole discretion determine with respect to vesting or the acceleration of vesting; and (vi) the vesting date of
the Share Units. The Board may, in its discretion, subsequent to the grant of a Share Unit, waive any such
performance condition or determine that it has been satisfied subject to applicable law. Each Share Unit entitles
the holder thereof to receive one common share, without payment of additional consideration, on the redemption
date selected by the Board following the date of vesting of such Share Unit, which will be within 30 days of the date
of vesting, or at a later deferred date, subject to certain exception and restrictions.
On December 31, 2018, 215,288 Share Units were issued and on December 12, 2019, 225,659 Share Units were
issued to certain officers and employees of the Company pursuant to the Company’s Share Unit Plan. These Share
Units will vest three years from the date they were approved for granting by the Board (December 31, 2021 and
December 12, 2022, respectively) and the number of Share Units that will vest may range from 0% to 200% of the
number granted, subject to the satisfaction of certain market and non-market performance conditions. Each vested
Share Unit entitles the holder thereof to receive on or about the applicable date of vesting of such Share Unit (i)
one common share; (ii) a cash amount equal to the fair market value of one common share as at the applicable date
of vesting; or (iii) a combination of (i) and (ii), as determined by the Board in its sole discretion. The Company
currently intends to settle these Share Units using common shares. Accordingly, they are classified as equity settled
instruments.
As at December 31, 2019, 437,463 Share Units have been issued and are outstanding to certain officers and
employees of the Company pursuant to the Company’s Share Unit Plan.
For the Share Units with non-market performance conditions, the fair value of the Share Units granted was
determined using the share price at the date of grant. For the Share Units with market performance conditions,
the fair value of the Share Units granted was determined using a Geometric Brownian Motion model. Expected
volatility is estimated by considering historic share price information. The inputs used in the measurement of fair
values at grant date of the Share Units issued are the following:
Expected term (years)
Forfeiture rate
Volatility
Dividend yield
Risk-free interest rate
Weighted-average fair value per Share Unit
December 12, 2019 December 31, 2018
3.0
0%
45.4%
0%
1.95%
17.75
3.0
0%
44.5%
0%
1.69%
18.97
$
$
During the year ended December 31, 2019, the Company recorded share-based compensation of $1.0 million (2018
- $nil) with respect to the Share Units.
Subsequent to December 31, 2019, 1,000 Share Units were issued to certain employees of the Company pursuant
to the Company’s Share Unit Plan.
(c) Deferred Share Unit Plan
On December 12, 2019, a Deferred Share Unit Plan (“DSU Plan”) was established by the Board as a component of
our compensation for independent directors. Only independent directors are eligible to participate and to receive
ERO COPPER | 2019 ANNUAL REPORT | 73
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
deferred share units (“DSUs”) under the DSU Plan. DSUs may be awarded by the Board from time to time to provide
independent directors with appropriate equity-based compensation for the services they render to the Company
and may be subject to terms and conditions with respect to vesting of such DSUs. In addition, independent directors
may elect to receive a portion or all of their respective annual cash remuneration in the form of DSUs, which will be
fully vested upon such grant. The number of DSUs to be awarded to a participant under the DSU Plan is determined
by dividing the portion of that participant’s annual cash remuneration by the fair market value of a common share
on the last day of the quarter in which such portion of the annual cash remuneration was earned. Pursuant to the
DSU Plan, DSUs may only be settled by way of cash payment. A participant is not entitled to payment in respect of
the DSUs until his or her death, retirement or removal from the Board. The settlement amount of each DSU is based
on the fair market value of a common share on the DSU redemption date multiplied by the number of DSUs being
redeemed.
Subsequent to December 31, 2019, 23,674 DSUs were issued to independent directors.
(d) Warrants
As at December 31, 2019, 2,866,662 (December 31, 2018 – 3,333,328) common share purchase warrants were
outstanding with a weighted average exercise price of $1.20 and a weighted average remaining contractual life of
1.95 years.
During the year ended December 31, 2019, 466,666 warrants were exercised for gross proceeds of $0.6 million.
(e) Net Income (Loss) per Share
Weighted average number of common shares outstanding
Dilutive effect of warrants
Dilutive effect of stock options
Dilutive effect of Share Units
Weighted average number of diluted common shares outstanding
Year ended
December 31,
2019
85,244,277
2,788,885
2,919,799
437,463
91,390,425
Year ended
December 31, 2018
83,927,977
-
-
-
83,927,977
Net income (loss) attributable to owners of the Company
Basic net income (loss) per share attributable to owners of the Company
Diluted net income (loss) per share attributable to owners of the Company
$
91,883
1.08
1.01
$
(3,155)
(0.04)
(0.04)
For the year ended December 31, 2018, the potentially dilutive effect of warrants and stock options are excluded
from the dilutive net income (loss) per share calculation as the Company incurred a loss for the year.
13. Revenue
Copper concentrate
- sales within Brazil
- export sales
- price adjustments on provisionally priced sales
Gold
- export sales
Year ended
December 31, 2019
Year ended December
31, 2018
$
176,885
69,499
(187)
$
137,039
49,382
(1,691)
$
38,646
284,843
$
48,375
233,105
ERO COPPER | 2019 ANNUAL REPORT | 74
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
Under the terms of the Company’s contract with its primary customer, sales are provisionally priced on the date of
sale based on the previous month’s average copper price. The final sales price for all shipments in a month is
determined at the end of the month in which the sale is recognized. As at December 31, 2019, there are no sales
subject to provisional pricing. During the year ended December 31, 2019, the Company recognized $0.2 million
(2018 - $1.7 million) related to provisional price adjustments related to such provisionally priced sales.
14. Cost of Product Sold
Materials
Salaries and benefits
Depreciation and depletion
Contracted services
Maintenance costs
Utilities
Other costs
15. General and Administrative Expenses
Accounting and legal
Amortization and depreciation
Office and sundry
Provisions
Salaries and consulting fees
Incentive payments
Transfer agent and filing fees
Travel and conference
16. Finance Expense
Interest on loans and borrowings
Accretion of purchase price adjustments
Accretion of mine closure and rehabilitation provision
Commitment fees
Interest on lease liabilities
Other finance expenses
Year ended
December 31, 2019
21,788
$
40,787
46,014
23,691
18,383
11,154
1,000
162,817
$
Year ended December
31, 2018
$
$
19,356
36,130
45,188
20,806
15,842
9,341
948
147,611
Year ended
December 31, 2019
1,507
$
157
7,192
(625)
13,427
8,684
206
2,269
32,817
$
Year ended December
31, 2018
$
$
1,672
109
6,335
361
11,250
7,211
176
1,886
29,000
Year ended
December 31, 2019
$
11,236
512
3,508
1,681
366
3,125
20,428
$
Year ended December
31, 2018
$
$
14,965
662
3,767
585
-
2,583
22,562
ERO COPPER | 2019 ANNUAL REPORT | 75
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
17. Foreign Exchange Loss
The following foreign exchange gains (losses) arise as a result of balances and transactions in the Company’s
Brazilian subsidiaries that are denominated in currencies other than the Brazilian Reais (BRL$), which is their
functional currency.
Foreign exchange on USD denominated debt in Brazil
Realized foreign exchange on derivative contracts (note 21)
Unrealized foreign exchange on derivative contracts (note 21)
Other
Year ended
December 31, 2019
$
Year ended December
31, 2018
$
$
(9,808)
(10,119)
1,137
(1,923)
(20,713)
(4,406)
185
(250)
(677)
(5,148)
$
18. Recovery of Value Added Taxes
During the year ended December 31, 2019, the Company recognized a recovery of $21.6 million in net income
related to value added taxes previously paid on sales in Brazil. The recovery was recognized as a result of a Brazil
Supreme Court ruling in 2017 that concluded that the relevant taxing authorities had historically used an incorrect
methodology to determine such taxes. The ruling set a precedent for all companies in Brazil but was required to be
confirmed for the Company’s specific claim, which approval was received in July 2019. These credits can be used
to offset the payment of a variety of other taxes, including income taxes and taxes on future sales. Of the recovery
recognized, $3.2 million has been applied to taxes during the 2019 year, $12.2 million has been included in other
current assets based on the expected timing of their use, with the remaining $6.2 million recognized in other non-
current assets in the statement of financial position.
19. Income Taxes
(a) Reconciliation of income taxes
A reconciliation of the income tax expense to the amount calculated using the Company’s combined Canadian
federal and provincial statutory income tax rate of 27% (2018 – 27%) is as follows:
Year Ended December
31, 2019
Year Ended December
31, 2018
Net income in the year before tax
Tax rate
Income tax expense at statutory rate
Tax effect of:
Difference in tax rate of foreign jurisdictions
Non-deductible (taxable) items
Change in temporary differences not previously recognized
Reduction (utilization) of tax losses against other liabilities
Other
Income tax expense (recovery)
$
$
$
74,829
27%
20,204
$
$
(7,557)
(6,334)
(24,570)
-
631
(17,626)
$
2,661
27%
718
(1,489)
(596)
4,071
952
1,996
5,652
ERO COPPER | 2019 ANNUAL REPORT | 76
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
Year Ended December
31, 2019
Year Ended December
31, 2018
Current income tax:
Relating to current income tax charge
$
10,645
$
2,899
Deferred income tax:
Relating to recognition of previously unrecognized temporary
differences
Relating to origination and reversal of temporary differences
(33,836)
5,565
-
2,753
Income tax expense (recovery)
$
(17,626)
$
5,652
(b) Deferred income tax assets (liabilities)
The general movement in the deferred income tax asset (liability) is as follows:
At the beginning of the year
Reduction (utilization) of tax losses against other liabilities
Deferred income tax recovery (expense)
Foreign exchange
At the end of the year
Year Ended December 31,
2019
$ (15,811)
-
28,271
639
13,099
$
Recognized deferred tax and assets and liabilities consist of the following:
Year Ended December 31,
2018
$
(16,655)
952
(2,753)
2,645
(15,811)
$
Deferred tax assets:
Non-capital losses - Brazil
Other - Brazil
Mine closure and rehabilitation provision - Brazil
Non-capital losses - Canada
Financing fees and other - Canada
Deferred tax liabilities
Mineral property, plant and equipment - Brazil
Loans and borrowings - Brazil
Other - Brazil
Loans and borrowings - Canada
December 31, 2019
December 31, 2018
$
28,792
3,192
4,605
317
1,349
38,256
$
6,311
-
-
-
1,660
7,971
(9,612)
(12,192)
(1,687)
(1,666)
(25,157)
(7,227)
(14,698)
(197)
(1,660)
(23,782)
Net deferred income tax assets (liabilities)
$
13,099
$
(15,811)
ERO COPPER | 2019 ANNUAL REPORT | 77
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
Deferred tax assets of $11.7 million (December 31, 2018 - $22.5 million) have not been recognized for the following
deductible temporary differences as it is not probable that the benefits of these temporary differences will be
realized:
Year Ended December 31, 2019
Year Ended December 31, 2018
Brazil
Canada
Brazil
Canada
Exploration and evaluation assets
Mineral property, plant and equipment
Share issuance/Financing costs
Non-capital losses
Other
$
$
47,986
-
-
-
-
47,986
$
$
-
72
-
14,196
4,251
18,519
$
$
49,920
8,974
-
72,672
-
131,566
$
$
-
42
640
7,194
2,588
10,464
The Company has loss carry forwards in Brazil totalling $83.0 million (December 31, 2018 - $114.1 million) which
may be carried forward indefinitely to offset future taxable income in Brazil. Use of these losses is limited to 30%
of taxable income annually. The Company also has loss carry forwards in Canada totalling $15.4 million (December
31, 2018 - $7.2 million) which may be carried forward for 20 years to offset future taxable income, which expire
between 2036 and 2039.
20. Related Party Transactions
Key management personnel consist of the Company’s directors and officers and their compensation includes
director retainer fees and management salaries paid to these individuals, as well as share-based compensation. The
aggregate value of compensation paid to key management personnel for the year ended December 31, 2019 was
$7.5 million ($5.4 million for the year ended December 31, 2018). In addition, 444,265 options and 171,754 Share
Units were issued to key management personnel during the year ended December 31, 2019 (1,100,155 options and
130,636 Share Units for the year ended December 31, 2018) with $4.1 million recognized in share-based
compensation expense for the year ended December 31, 2019 ($2.3 million for the year ended December 31, 2018).
During the year ended December 31, 2019, key management personnel exercised 286,666 options and 300,000
warrants for cash proceeds to the Company of $0.6 million and $0.4 million, respectively (133,000 options for $0.2
million for the year ended December 31, 2018). During the year ended December 31, 2018, key management
personnel converted convertible debentures into 1,476,164 common shares and 369,040 common share purchase
warrants. The warrants were subsequently exercised into 369,040 common shares.
As at December 31, 2019, $3.9 million was payable to key management as incentive compensation and is included
in accounts payable and accrued liabilities in the consolidated financial statements (December 31, 2018 - $2.7
million). Such amounts are unsecured, non-interest bearing and will be paid under normal trade terms.
21. Financial Instruments
Fair value
Fair values of financial assets and liabilities are determined based on available market information and valuation
methodologies appropriate to each situation. However, some judgments are required in the interpretation of the
market data to produce the most appropriate realization value estimate. As a consequence, the estimates
presented herein do not necessarily indicate the amounts that could be realized in the current exchange market.
The use of different market information and/or evaluation methodologies may have a material effect on the market
value amount.
ERO COPPER | 2019 ANNUAL REPORT | 78
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
As at December 31, 2019, derivatives were measured at fair value based on Level 2 inputs. The fair value of
derivatives is disclosed under market risk below.
The carrying values of cash and cash equivalents, restricted cash, accounts receivable, deposits, financial
investments and accounts payable and accrued liabilities approximate their fair values due to their short terms to
maturity or market rates of interest used to discount amounts. The carrying value of value added, payroll and other
taxes approximate fair value based on the discount rate applied. At December 31, 2019, the carrying value of loans
and borrowings is $159.4 million while the fair value is approximately $161.4 million. The effective interest rates
used to amortize these loans are a close approximation of market rates of interest at December 31, 2019 (Level 2
of the fair value hierarchy).
Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to
meet its contractual obligations and arises principally from the Company’s receivables from customers. The carrying
amount of the financial assets below represents the maximum credit risk exposure as at December 31, 2019 and
December 31, 2018:
Cash and cash equivalents
Restricted cash
Accounts receivable
Deposits
Derivatives
Other non-current assets - term deposits
December 31, 2019
December 31, 2018
$
$
21,485
1,500
7,680
1,200
-
1,196
33,061
$
$
18,941
3,000
7,219
1,334
254
686
31,434
The Company invests cash and cash equivalents as well as restricted cash with financial institutions that are
financially sound based on their credit rating. The Company’s exposure to credit risk associated with accounts
receivable is influenced mainly by the individual characteristics of each customer. The Company currently has only
three significant customers, all of which have no history of credit default with the Company. The Company has not
incurred credit losses during the years ended December 31, 2019 and 2018, nor has a provision for credit losses
been recognized.
Liquidity risk
Liquidity risk is the risk associated with the difficulties that the Company may have meeting the obligations
associated with financial liabilities that are settled with cash payments or with another financial asset. The
Company's approach to liquidity management is to ensure as much as possible that sufficient liquidity exists to meet
their maturity obligations on the expiration dates, under normal and stressful conditions, without causing
unacceptable losses or with risk of undermining the normal operation of the Company.
The table below shows the Company's maturity of financial liabilities on December 31, 2019:
Non-derivative Financial Liabilities
Loans and borrowings
Interest on loans and borrowings
Accounts payable and accrued liabilities
Value added, payroll and other taxes
$
Carrying
value
159,370
-
43,694
19,688
222,752
$
Contractual
cash flows
161,377
$
22,788
43,694
20,428
248,287
$
Up to 12
months
$
18,984
8,749
43,694
13,994
85,421
1-2 years
$
3-5 years
$
30,318
7,172
-
1,968
39,458
110,208
6,737
-
4,466
121,411
More than 5
years
$
1,867
130
-
-
1,997
$
$
$
$
ERO COPPER | 2019 ANNUAL REPORT | 79
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
Market risk
Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange
rates, and commodity prices. The purpose of market risk management is to manage and control exposures to
market risks, within acceptable parameters, while optimizing return.
The Company may use derivatives, including forward contracts and swap contracts, to manage market risks.
(i) Foreign exchange currency risk
The Company’s subsidiaries in Brazil are exposed to exchange risks related to the US dollars and Euros. In order to
minimize currency mismatches, the Company monitors its cash flow projections considering future sales
expectations indexed to US dollar variation in relation to the cash requirement to settle the existing financings.
The Company's exposure to foreign exchange currency risk at December 31, 2019 relates primarily to $9.6 million
(December 31, 2018 – $10.2 million) in loans and borrowings of MCSA denominated in US dollars and Euros.
Strengthening (weakening) in the Brazilian Real against the US dollar by 10% and 20%, would have increased
(decreased) pre-tax net income by $0.6 million and $1.1 million, respectively (2018 – $0.7 million and $1.3 million).
Strengthening (weakening) in the Brazilian Real against the Euro by 10% and 20%, would have increased (decreased)
pre-tax net income by $0.4 million and $0.8 million, respectively (2018 – $0.4 million and $0.7 million). This analysis
is based on the foreign currency exchange variation rate that the Company considered to be reasonably possible at
the end of the year. The analysis assumes that all other variables, especially interest rates, are held constant.
The Company may use derivatives, including forward contracts, collars and swap contracts, to manage market risks.
At December 31, 2019, the Company’s subsidiaries have entered into foreign exchange collar contracts at zero cost
for notional amounts of $336.6 million with an average floor rate of 3.86 BRL to US Dollar and an average cap rate
of 4.41 BRL to US Dollar (December 31, 2018 – notional amount of $21.5 million in foreign exchange forward
contracts). The maturity dates of these contracts are from January 15, 2020 to July 28, 2021 and are financially
settled on a net basis. The fair value of these contracts at December 31, 2019 was nil, (December 31, 2018 – an
asset of $0.3 million, which was included in Derivatives in the statement of financial position.) The change in fair
value of foreign exchange collar contracts was a loss of $0.3 million for the year ended December 31, 2019 (a gain
of $1.1 million for the year ended December 31, 2018) and has been recognized in foreign exchange loss. In
addition, in the year ended December 31, 2019, the Company recognized a realized gain of $0.2 million, (a loss of
$10.1 million for the year ended December 31, 2018) related to the settlement of foreign currency forward
contracts.
(ii) Interest rate risk
The Company is principally exposed to the variation in interest rates on loans and borrowings with variable rates of
interest. Management reduces interest rate risk exposure by entering into loans and borrowings with fixed rates
of interest or by entering into derivative instruments that fix the ultimate interest rate paid.
The Company is principally exposed to interest rate risk through its Term Facilities of $136.0 million and Brazilian
Real denominated bank loans of $9.8 million. Based on the Company’s net exposure at December 31, 2019, a 1%
change in the variable rates would have an impact of $1.5 million on pre-tax annual net income, without
consideration of the effects of the swap contracts below.
In order to mitigate the above volatility due to variable rates on loans, as at December 31, 2019, the Company has
entered into an interest rate swap contract to manage interest rate risk (see note 9(a)) associated with its Canadian
Facilities. The floating interest on a notional amount of $65 million was swapped for a fixed interest rate of 2.69%.
The fair value of this contract at December 31, 2019 was a liability of $1.7 million and was included in Derivatives
in the statement of financial position while the change in the fair value of this contract of $1.7 million was included
in Finance Expenses in the statement of operations and comprehensive income.
ERO COPPER | 2019 ANNUAL REPORT | 80
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
In addition, as at December 31, 2019, MCSA has entered into an interest rate and currency swap contract on the
Plural Loan (see note 9(d)). The floating interest on a notional amount of BRL$12 million was swapped for a fixed
interest rate of 9.9% and the BRL currency on the loan was swapped for USD at a rate of 3.9500. The fair value of
this contract at December 31, 2019 was a liability of $0.1 million and was included in Derivatives in the statement
of financial position while the change in the fair value of this contract of $0.1 million was included in Finance
Expenses in the statement of operations and comprehensive income.
(iii) Price risk
The Company may use derivatives, including forward contracts, collars and swap contracts, to manage commodity
price risks. During the year ended December 31, 2019, the Company had entered into commodity swap collar
contracts. As at December 31, 2019, these commodity swap collar contracts have all matured and the balance was
$nil. The Company recognized a realized loss of $1.4 million for the year ended December 31, 2019 related to the
settlement of commodity forward contracts.
22. Capital Management
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going
concern in order to pursue the development and production of its mine properties and to maintain a flexible capital
structure for its projects for the benefit of its stakeholders.
In the management of capital, the Company includes the components of shareholders’ equity and debt facilities.
The Company manages the capital structure and makes adjustments to it considering changes in the economic
conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the
Company may attempt to issue new loans and borrowings, common shares, or acquire or dispose of assets.
Management reviews the capital structure on a regular basis to ensure that the above-noted objectives are met.
Certain loan agreements contain operating and financial covenants that could restrict the ability of the Company
and its subsidiary, MCSA, to, among other things, incur additional indebtedness needed to fund its respective
operations, pay dividends or make other distributions, make investments, create liens, sell or transfer assets or
enter into transactions with affiliates. There are no other restrictions or externally imposed capital requirements
of the Company.
ERO COPPER | 2019 ANNUAL REPORT | 81
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
23. Segment Disclosure
The Company’s operations are segmented by entity between MCSA, NX Gold and corporate head office, which is
consistent with internal reporting purposes. The Company monitors the operating results of its operating segments
separately for the purpose of making decisions about resource allocation and performance assessment. The
accounting policies used in the operating segments are the same as those contained in Note 3.
Total revenue from MCSA is from two customers while total revenue from NX Gold is from one customer.
Segmented information is as follows:
Year ended December 31, 2019
MCSA (Brazil) NX Gold (Brazil) Corporate (Canada) Consolidated
Revenue
Depreciation and depletion
Other cost of product sold expenses
Cost of product sold
Sales expenses
Gross profit
$
246,197
(40,107)
(95,500)
(135,607)
(4,962)
105,628
$
38,646
(5,907)
(21,303)
(27,210)
-
11,436
Expenses
General and administrative
Share-based compensation
Finance income
Finance expenses
Foreign exchange gain (loss)
Loss on debt settlement
Recovery of value added taxes
Other income
Income (loss) before taxes
Current tax expense
Deferred tax recovery
Net Income (Loss)
Assets
Current
Non-current
Total Assets
Total Liabilities
(20,993)
-
520
(8,877)
(5,039)
(1,783)
21,584
242
91,282
(8,764)
27,267
109,785
$
(2,308)
-
143
(1,366)
( 76 )
-
-
1,206
9,035
(1,881)
1,004
8,158
$
$
$
62,413
364,117
426,530
107,045
$
$
9,166
20,180
29,346
15,934
$
$
$
$
$
$
$
-
-
-
-
-
-
$
284,843
(46,014)
(116,803)
(162,817)
(4,962)
117,064
(9,516)
(5,792)
38
(10,185)
(33)
-
-
-
(25,488)
-
-
(25,488)
3,986
2,812
6,798
140,637
(32,817)
(5,792)
701
(20,428)
(5,148)
(1,783)
21,584
1,448
74,829
(10,645)
28,271
92,455
$
$
75,565
387,109
462,674
263,616
$
$
ERO COPPER | 2019 ANNUAL REPORT | 82
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
Year ended December 31, 2018
MCSA (Brazil)
NX Gold (Brazil)
Corporate (Canada)
Consolidated
233,105
45,188
102,423
(147,611)
(3,268)
82,226
(29,000)
(3,225)
1,303
(22,562)
(20,713)
(5,476)
108
2,661
(2,899)
(2,753)
(2,991)
50,954
309,485
360,439
256,617
$
$
$
$
$
Revenue
Depreciation and depletion
Other cost of product sold expenses
Cost of product sold
Sales expenses
Gross profit
Expenses
General and administrative
Share-based compensation
Finance income
Finance expenses
Foreign exchange loss
Gain (loss) on debt settlement
Other income
Income (loss) before taxes
Current tax expense
Deferred tax expense
Net Income (Loss)
Assets
Current
Non-current
Total Assets
Total Liabilities
$
$
$
$
$
$
184,730
34,104
81,242
(115,346)
(3,268)
66,116
(16,340)
-
844
(16,215)
(20,301)
(3,708)
1,653
12,049
-
(1,932)
10,117
43,802
281,622
325,424
160,824
$
$
$
$
$
48,375
11,084
21,181
(32,265)
-
16,110
(3,401)
-
28
(959)
(131)
-
(1,545)
10,102
(2,899)
(1,173)
6,030
(630)
25,128
24,498
14,021
$
$
$
$
-
-
-
-
-
-
(9,259)
(3,225)
431
(5,388)
(281)
(1,768)
-
(19,490)
-
352
(19,138)
7,782
2,735
10,517
81,772
ERO COPPER | 2019 ANNUAL REPORT | 83
Corporate Information
Corporate Office
1050 – 625 Howe Street
Vancouver, British Columbia
Canada V6C 2T6
T: +1 604 449 9244
F: +1 604 398 3767
info@erocopper.com
Board of Directors
Christopher Noel Dunn – Executive Chairman
David Strang
Lyle Braaten
Steven Busby
Dr. Sally Eyre
Robert Getz
Chantal Gosselin
John Wright
Matthew Wubs
Executive Team
Christopher Noel Dunn – Executive Chairman
David Strang – President & Chief Executive Officer
Wayne Drier – Chief Financial Officer
Michel (Mike) Richard – Chief Geological Officer
Anthea Bath – Vice President, Technical Services
Makko DeFilippo – Vice President, Corporate
Development
Deepk Hundal – Vice President, General Counsel &
Corporate Secretary
Pablo Mejia-Herrera – Vice President, Exploration
Michal Romanowski – Vice President, Evaluations &
Planning
Jonathan Singh – Vice President, Finance
Brazilian Leadership
Manoel Valério de Brito – Co-CEO and COO of MCSA
Eduardo De Come – Co-CEO and CFO of MCSA
Auditors
KPMG LLP
777 Dunsmuir Street
Vancouver, British Columbia
Canada V7Y 1K3
Register and Transfer Agent
Computershare Investor Services Inc.
510 Burrard Street, 3rd Floor
Vancouver, British Columbia
Canada V6C 3B9
+1-604-661-9400
service@computershare.com
External Legal Counsel
Blake, Cassels & Graydon LLP
595 Burrard Street
P.O Box 49314, Suite 2600, Three Bentall Centre
Vancouver, British Columbia
Canada V7X 1L3
Share Information
TSX: ERO
Common shares outstanding as at Dec. 31, 2019:
85.7 million
Investor Contact
Makko DeFilippo
Vice President, Corporate Development
T: +1 604 429 9244
E: info@erocopper.com
Annual Meeting Details
Thursday, May 7th, 2020 – 3:30pm (PST)
Lancaster Room at the Rosewood Hotel Georgia
801 W Georgia Street
Vancouver, British Columbia
Canada V6C 1P7
ERO COPPER | 2019 ANNUAL REPORT | 84
Cautionary Note Regarding Forward-Looking Statements
This Annual Report contains “forward-looking information” within the meaning of applicable Canadian securities laws.
Forward-looking information includes statements that use forward-looking terminology such as “may”, “could”, “would”,
“will”, “should”, “intend”, “target”, “plan”, “expect”, “budget”, “estimate”, “forecast”, “schedule”, “anticipate”, “believe”,
“continue”, “potential”, “view” or the negative or grammatical variation thereof or other variations thereof or comparable
terminology. Such forward-looking information includes, without limitation, statements with respect to the Company's
expected operations at the Vermelhos and Pilar Mines as well as at the NX Gold Property, drilling plans, plans for the
Company's exploration program, timing of any updated mineral resource and reserve updates and technical reports, the
Company's ability to service its ongoing obligations, the Company's future production outlook, cash costs, capital
resources, expenditures, the impact of new accounting standards and amendments on the Company's financial
statements, and current global macroeconomic uncertainty stemming from the onset of Covid-19.
Forward-looking information is not a guarantee of future performance and is based upon a number of estimates and
assumptions of management in light of management’s experience and perception of trends, current conditions and
expected developments, as well as other factors that management believes to be relevant and reasonable in the
circumstances, as of the date of this Press Release including, without limitation, assumptions about: favourable equity and
debt capital markets; the ability to raise any necessary additional capital on reasonable terms to advance the production,
development and exploration of the Company’s properties and assets; future prices of copper and other metal prices; the
timing and results of exploration and drilling programs; the accuracy of any mineral reserve and mineral resource
estimates; the geology of the Vale do Curaçá Property, NX Gold Property and the Boa Esperanҫa Property being as
described in the technical reports for these properties; production costs; the accuracy of budgeted exploration and
development costs and expenditures; the price of other commodities such as fuel; future currency exchange rates and
interest rates; operating conditions being favourable such that the Company is able to operate in a safe, efficient and
effective manner; political and regulatory stability; the receipt of governmental, regulatory and third party approvals,
licenses and permits on favourable terms; obtaining required renewals for existing approvals, licenses and permits on
favourable terms; requirements under applicable laws; sustained labour stability; stability in financial and capital goods
markets; availability of equipment; positive relations with local groups and the Company’s ability to meet its obligations
under its agreements with such groups; and satisfying the terms and conditions of the Company’s current loan
arrangements. While the Company considers these assumptions to be reasonable, the assumptions are inherently subject
to significant business, social, economic, political, regulatory, competitive, global health, and other risks and uncertainties,
contingencies and other factors that could cause actual actions, events, conditions, results, performance or achievements
to be materially different from those projected in the forward-looking information. Many assumptions are based on
factors and events that are not within the control of the Company and there is no assurance they will prove to be correct.
Furthermore, such forward-looking information involves a variety of known and unknown risks, uncertainties and other
factors which may cause the actual plans, intentions, activities, results, performance or achievements of the Company to
be materially different from any future plans, intentions, activities, results, performance or achievements expressed or
implied by such forward-looking information. Such risks include, without limitation the risk factors listed under the heading
“Risk Factors” in the Annual Information Form for the year ended December 31, 2019 and dated March 12, 2020.
Although the Company has attempted to identify important factors that could cause actual actions, events, conditions,
results, performance or achievements to differ materially from those described in forward-looking information, there may
be other factors that cause actions, events, conditions, results, performance or achievements to differ from those
anticipated, estimated or intended.
The Company cautions that the foregoing lists of important assumptions and factors are not exhaustive. Other events or
circumstances could cause actual results to differ materially from those estimated or projected and expressed in, or
implied by, the forward-looking information contained herein. There can be no assurance that forward-looking information
will prove to be accurate, as actual results and future events could differ materially from those anticipated in such
information. Accordingly, readers should not place undue reliance on forward-looking information.
Forward-looking information contained herein is made as of the date of this Annual Report and the Company disclaims any
obligation to update or revise any forward-looking information, whether as a result of new information, future events or
results or otherwise, except as and to the extent required by applicable securities laws.
ERO COPPER | 2019 ANNUAL REPORT | 85
Ero Copper Corp.
Suite 1050 – 625 Howe Street
Vancouver, British Columbia, Canada
V6C 2T6
T: +1 604 429 9244
F: +1 604 398 3767
www.erocopper.com