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C o m p a n y P o r t f o l i o
C A N A D A
5
1
MCSA Mining Complex
Location: Bahia, Brazil
Ownership: 99.6%
Stage: Operating
2020 Copper Production: 42,814 t
2020 C1 Cash Costs: US$0.67/lb
2
NX Gold Mine
Location: Mato Grosso, Brazil
Ownership: 97.6%
Stage: Operating
2020 Gold Production: 36,830 oz
2020 C1 Cash Costs: US$457/oz
2020 All-in Sustaining Costs: US$628/oz
3
Boa Esperança Project
Location: Pará, Brazil
Ownership: 99.6%
Stage: Development
4
5
Brazil Corporate Office, MCSA (São Paulo)
Canada Corporate Office (Vancouver)
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B R A Z I L
3
2
1
4
T a b l e o f C o n t e n t s
2020 Highlights
3
Letter from the Executive Chairman
4
Letter from the CEO
Management’s Discussion and Analysis
5
7
Consolidated Financial Statements
44
Corporate Information
88
Ero Copper is a first-quartile
copper producer focused on
continued development of an
emerging world-class mineral
district in Brazil
(“MCSA”), 100% owner of
Our primary asset is a 99.6% interest in the
Brazilian copper mining company, Mineração
the
Caraíba S.A.
MCSA Mining Complex, which is comprised of
operations located in the Curaçá Valley, Bahia
State, Brazil, wherein the Company currently
mines
and
copper ore
Vermelhos underground mines
from the
Pilar
T S X : E R O
W W W. E R O C O P P E R . C O M
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2 0 2 0 H i g h l i g h t s
H i g h l i g h t s
S a f e t y
F i n a n c i a l
▪ Celebrated 1-year without an LTI at our flagship
MCSA Mining Complex in September 2020
▪ Record revenues of US$324.1 million
▪ Record cash flow from operations of US$162.8
▪ LTIFR of 0.27 on over seven million man-hours
million
worked in 2020
O p e r a t i n g
▪ Record annual copper production at the MCSA
Mining Complex of 42,814 tonnes copper in
concentrate
▪ Record annual C1 cash costs of US$0.67/lb
copper produced(*), a US$0.27/lb year-over-
year improvement
▪ Ending cash and cash equivalents of US$62.5
million
▪ As a result of early and aggressive COVID-19
mitigation efforts across the organization, the
Company experienced no material
impacts
from COVID-19 during 2020
E x p l o r a t i o n
▪ Approximately 235,000 meters drilled at MCSA
▪ Successfully installed and commissioned the
Mining Complex
high-intensity grinding (“HIG”) mill
▪ Completed comprehensive ore sorting trial
campaign with excellent results
S u s t a i n a b i l i t y
▪ Released inaugural sustainability report for the
year ended 2019, setting the foundation for
enhanced
stakeholder
alignment
transparency
and
▪ Delineated 7.5 Mt grading 1.86% Cu and 4.5
Mt grading 2.12% Cu of Indicated and Inferred
mineral resources, respectively, within the new
Deepening Extension Zone of the Pilar Mine
▪ Successfully outlined a high-grade and low-cost
six-year mine life for the NX Gold Mine
*C1 Cash Costs per pound of copper produced is a non-IFRS measure – see the
Notes section within the Disclaimer of this Annual Report for additional information
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L e t t e r f r o m t h e E x e c u t i v e C h a i r m a n
Christopher Noel Dunn
Executive Chairman
“EroCopper’s ESG performance and commitment
to sustainability are focus areas of the Board and
Management and we look forward to executing on
the sustainability goals we set in 2020.”
Our balance sheet is the strongest it has been
since the Company’s inception. Record annual
copper production, strong copper and gold
commodity prices and a weak Brazilian Real
relative to the US Dollar contributed to our record
performance in 2020. Amendments made to the
Company’s existing credit
facilities in the first
quarter of 2020 provide financial flexibility as we
advance our organic growth initiatives in the years
to come.
to
social
responsibility,
In 2020, we adopted five new corporate policies
related
diversity
environment, global human rights and health and
safety. Additionally, our
inaugural sustainability
released in Q1 2020, highlights our
report,
commitment to all stakeholders of the Company.
Ero Copper’s ESG performance and commitment
to sustainability are focus areas of the Board and
Management and we look forward to executing on
the sustainability goals we set in 2020.
C h r i s t o p h e r N o e l D u n n
E x e c u t i v e C h a i r m a n
M a r c h 1 6 , 2 0 2 1
o f
E r o
y e a r
a
f o r
c r i t i c a l
2 0 2 0 w a s
C o p p e r .
e x e c u t i o n
2 0 2 0 ’ s g l o b a l m a c r o -
D e s p i t e
e c o n o m i c
a n d a
c h a l l e n g i n g o p e r a t i n g e n v i r o n -
r e c o r d
m e n t ,
y e a r
t h e C o m p a n y .
u n c e r t a i n t i e s
a n o t h e r
i t w a s
f o r
The Company’s achievements in 2020 are, yet
again, an important reflection of the outstanding
operating and committed management teams at
our operations in Brazil. Our COVID-19 mitigation
that were implemented across our
efforts
organization during
the first quarter of 2020
allowed continuity and execution to plan at our
to
operations and, more importantly, sought
ensure the health and well-being of our
employees, contractors, their families and local
communities throughout the year.
Strong performance in 2020 has placed the
Company on solid foundation for future growth.
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L e t t e r f r o m t h e C E O
s t r o n g
E r o C o p p e r h a d a v e r y
I n
2 0 2 0 .
i n
y e a r
o p e r a t i n g
m e a n i n g f u l l y
a d d i t i o n ,
w e
e x t e n d e d t h e m i n e l i f e o f
t h e
M C S A M i n i n g C o m p l e x a n d t h e
N X G o l d M i n e a n d c o n t i n u e t o
s u r f a c e
v a l u e
t h r o u g h t h e d r i l l b i t .
s h a r e h o l d e r
C O V I D - 1 9 P a n d e m i c
the year
throughout
like much of the world, was significantly
Brazil,
impacted by the COVID-19 pandemic in 2020.
Our management and operating teams worked
tirelessly
to keep our
employees, contractors and communities safe. The
tremendous mitigation
our
organization resulted in no material disruptions to
our supply chains, sales channels or production
during 2020. I am incredibly proud of our entire
organization in achieving this result. Continuing to
manage COVID-19 remains a top priority for our
organization into 2021.
efforts
across
David Strang
Chief Executive Officer
“We will continue to focus on delivering low-capital
and high-margin growth through innovation and
operational excellence, while remaining fully
committed to the health and well-being of our
employees, contractors and their families in the
years to come.”
S a f e t y P e r f o r m a n c e
Health and safety remains our top priority. I am
extremely pleased to report that we had a record
low lost time injury frequency rate of 0.27 across
our organization in 2020. Additionally, our
flagship MCSA Mining Complex celebrated 1 year
without a lost time injury at the end of September
2020 – the first time in the 40+ year operating
history of MCSA that this has been achieved.
2 0 2 0 O p e r a t i n g P e r f o r m a n c e
the MCSA Mining Complex we achieved
At
record copper production, at the high-end of our
annual production guidance, and at record-low
C1 cash costs during the year.
Our adjusted net income attributable to owners of
the Company was a record $117.3 million ($1.27
per diluted share) in 2020 compared to $86.3
million in 2019. We finished the year with $62.5
million in cash and cash equivalents, a $41.0
million improvement compared to year-end 2019.
The successful installation and commissioning of
the HIG mill during a challenging year was a
notable accomplishment and we continue to be
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the
pleased with
metallurgical recoveries being realized.
early
improvement
in
installed in 2021 to allow us to safely and
efficiently mine the upper panel, while providing
enhanced mining recovery throughout the mine.
2020
during
confirming
A comprehensive ore sorting trial campaign was
the
completed
amenability of several deposits within the Curaçá
Valley
to upgrading. Based on the strong
operating results, we anticipate implementing the
technology into the Vermelhos District open pit
operations as outlined in the updated life of mine
(“LOM”) plan, released in November 2020.
Our updated LOM plan for the MCSA Mining
Complex represents a step-change improvement
in the longevity of our business and establishes a
strong foundation for future low-cost production.
The new mine plan,
including the Deepening
Extension Project, provides the Company with
low-cost production while retaining
long-term,
excess mill capacity for continued organic growth.
the NX Gold Mine, challenging ground
At
conditions encountered in the upper panel of the
Santo Antonio Vein in early 2020 resulted in a
reduction in our production guidance and full-year
production. A modular paste-fill plant will be
sdfdsfsdfsadfsdf
represents
The updated LOM plan for the NX Gold Mine,
released in November 2020,
a
doubling of the mine life relative to the previously
released LOM plan from 2019. We remain excited
and encouraged by the continued drill results as
well as regional potential of the broader NX Gold
Mine District and expect the mine to continue
producing gold well beyond the current mine life.
O u t l o o k f o r 2 0 2 1
Ero Copper is in the best position it has been in
since inception and I look forward to another year
of executing upon our vision for the Company. We
will continue to focus on delivering low-capital and
high-margin growth through innovation and
operational excellence, while remaining fully
committed to the health and well-being of our
employees, contractors and their families in the
years to come.
D a v i d S t r a n g
C h i e f E x e c u t i v e O f f i c e r
M a r c h 1 6 , 2 0 2 1
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T S X : E R O
MANAGEMENT’S DISCUSSION
AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2020
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MANAGEMENT’S DISCUSSION AND ANALYSIS
This Management’s Discussion and Analysis (“MD&A”) has been prepared as at March 16, 2021 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, 2020, 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 2020” and “Q4 2019” are to the
three months ended December 31, 2020 and December 31, 2019, respectively, and all references to “Fiscal 2020”,
“Fiscal 2019”, and “Fiscal 2018” are to the years ended December 31, 2020, December 31, 2019, and December
31, 2018, 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 “$”, “US$”, “dollars”, or “USD”
are to US dollars, references to “C$” are to Canadian dollars, and references to “R$” or “BRL” 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), all-in sustaining cost (“AISC”) 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 16, 2021, unless otherwise stated.
BUSINESS OVERVIEW
Ero, headquartered in Vancouver, B.C., is focused on copper production growth from the MCSA Mining Complex
located in Bahia State, Brazil, with over 40 years of operating history in the region. The Company's primary asset
is a 99.6% interest in the Brazilian copper mining company, MCSA, 100% owner of the MCSA Mining Complex,
which is comprised of operations located in the Curaçá Valley, Bahia State, Brazil, wherein the Company currently
mines copper ore from the Pilar and Vermelhos underground mines, and the Boa Esperança development project,
an IOCG-type copper project located in Pará, Brazil. The Company also 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 MCSA Mining Complex, Boa Esperança and NX Gold properties, can
be found on the Company’s website (www.erocopper.com) and on SEDAR (www.sedar.com).
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HIGHLIGHTS
*Please refer to the section titled "NON-IFRS MEASURES" within this MD&A for a discussion of non-IFRS measures.
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2020 - Q42020 - Q320202019 - Q42019Operating InformationCopper (MCSA Operations)Ore Processed (tonnes)483,447553,1482,271,625589,0652,424,592Grade (% Cu)2.262.182.082.161.93Cu Production (tonnes)10,01810,96142,81411,52642,318Cu Production (lbs)22,085,92724,163,82994,387,60525,411,10093,295,598Cu Sold in Concentrate (tonnes)10,26511,53042,81311,59542,759Cu Sold in Concentrate (lbs)22,629,43125,420,16494,387,31225,562,21294,267,101C1 cash cost of copper produced (per lb)*0.69$ 0.63$ 0.67$ 0.80$ 0.93$ Gold (NX Gold Operations)Au Production (ounces)10,7899,43636,8306,04330,434C1 cash cost of gold produced (per ounce)* $ 405 $ 421 $ 457 $ 980 $ 691 AISC of gold produced (per ounce)* $ 608 $ 579 $ 628 $ 1,253 $ 889 Financial information ($millions, except per share amounts)Revenues91.2$ 94.3$ 324.1$ 75.7$ 284.8$ Gross profit 58.3$ 59.6$ 188.1$ 31.1$ 117.1$ EBITDA91.3$ 52.1$ 116.2$ 34.3$ 141.4$ Adjusted EBITDA*67.2$ 62.5$ 207.1$ 31.2$ 134.1$ Cash flow from operations38.6$ 44.4$ 162.8$ 35.9$ 127.8$ Net income66.3$ 31.4$ 52.5$ 45.4$ 92.5$ Net income attributable to owners of the Company65.8$ 31.1$ 51.6$ 45.2$ 91.9$ Net income per share attributable to owners of the Company - Basic 0.75$ 0.36$ 0.60$ 0.53$ 1.08$ - Diluted0.71$ 0.34$ 0.56$ 0.49$ 1.01$ Adjusted net income attributable to owners of the Company*37.4$ 36.7$ 117.3$ 40.7$ 86.3$ Adjusted net income per share attributable to owners of the Company* - Basic 0.43$ 0.42$ 1.36$ 0.47$ 1.01$ - Diluted0.40$ 0.40$ 1.27$ 0.44$ 0.94$ Cash and Cash Equivalents62.5$ 54.3$ 62.5$ 21.5$ 21.5$ Working Capital (Deficit)*35.8$ (9.4)$ 35.8$ (4.9)$ (4.9)$ Net Debt*105.6$ 118.4$ 105.6$ 136.4$ 136.4$
2020 Highlights
2020 Operational Highlights
Strong year-end – full-year production guidance achieved, below revised operating cost guidance range
•
Increased year-on-year copper production at high-end of Company’s guidance range with 42,814 tonnes
of copper produced in concentrate.
• Approximately 2.3 million tonnes of ore grading 2.08% copper processed with average metallurgical
recoveries of 90.5%.
• C1 cash cost of $0.67 per pound of copper produced, $0.03 cents below the low-end of the Company’s
revised guidance range of $0.70 to $0.85 per pound of copper produced for 2020.
• Full-year C1 cash costs reflect a year-on-year reduction of $0.26 per pound of copper produced as
compared to 2019.
• Advanced several key capital programs in 2020 including completion of the Company’s high-intensity
grinding (“HIG”) Mill installation, ore-sorting pilot plant program, and drilling and integration of the
Deepening Extension Project (as defined below) into the Company’s recently announced life-of-mine plan
update for 2020.
• Achieved one-year without a lost-time injury at the Company’s MCSA Mining Complex prior to the end of
2020, a record in the mine’s 40 plus year operating history.
• Total annual gold and silver production at the NX Gold Mine of 36,830 ounces gold and 22,694 ounces
silver at C1 cash costs of $457 per ounce of gold produced, in-line with the Company’s revised 2020 NX
Gold guidance, and AISC of $628 per ounce of gold produced.
2020 Financial Highlights
Cash position and available lines of credit: Total cash and cash equivalents and available lines of credit at
December 31, 2020 was $62.5 million and $11.6 million compared to $21.5 million and $30.0 million, respectively,
at the end of 2019. The Company’s working capital improved from a deficit of $4.9 million at the end of 2019 to a
surplus of $35.8 million at the end of 2020, primarily as a result of a record $162.8 million in cash flow from
operations for Fiscal 2020, compared with $127.8 million in cash flow from operations for Fiscal 2019. As at the
end of 2020, the Company had R$60.4 million in available undrawn lines of credit in Brazil.
Revenue: The Company increased year-on-year revenues from its copper operations at MCSA by 6.0%, totalling
$260.9 million in 2020 compared to $246.2 million in 2019. The increase in revenue was primarily attributed to an
increase in realized copper prices.
Year-on-year increase in gold revenue from the Company’s gold operations at NX Gold was a result of increased
gold and silver prices and increased production volumes, resulting in an increase in gold revenue of 63.5% to $63.2
million in 2020 compared to $38.6 million in 2019.
Mine gross profit: The Company significantly increased year-on-year mine gross profit from its copper operations
at MCSA totaling $146.4 million in 2020 compared to $105.6 million in 2019. The increase in mine gross profit was
primarily driven by increased revenues from higher realized copper prices, increased copper concentrate sales,
lower operating costs over the prior year as a result of higher grades processed, and a weakened BRL against the
USD. The Company also recognized mine gross profit of $41.8 million in 2020 compared to $11.4 million in 2019
from its gold operations at NX Gold as a result of higher gold production volumes, higher gold sales, and higher
realized gold prices.
Net income: The Company recognized net income attributable to the Company of $51.6 million (net income per
share, basic, of $0.60) in 2020 compared to $91.9 million (net income per share, basic, of $1.08) in 2019. While
revenue and mine gross profit increased, net income decreased, primarily driven by increased foreign exchange
losses from the weakening of the BRL against the USD and increased income tax expense, partially offset by
decreased costs associated with the weakened BRL in which cost is incurred. Additionally, during 2019, the
Company recognized a recovery of $21.6 million in net income related to value added taxes in Brazil due to a 2017
Brazil Supreme Court ruling that concluded the relevant tax authorities had historically used an incorrect
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methodology to determine such taxes, as well as a $28.3 million net deferred tax recovery primarily resulting from
the recognition of available tax losses and tax credits in MCSA. No such recoveries were recognized during 2020.
Q4 2020 Highlights
Proactive mitigation of the potential impacts of the COVID-19 pandemic throughout 2020
• The Company continues to have no material disruption to operations, supply chains or sales channels as
a result of the COVID-19 pandemic. Since the onset of the COVID-19 pandemic in early 2020, the Company
has continued to take extraordinary measures to mitigate the impact of COVID-19 on its workforce and
operations. Some of these measures include:
(i) eliminating all non-essential travel to and from the Company’s mining operations;
(ii) routine engagement with all suppliers and active stockpiling of key consumables to protect
against any supply chain disruptions;
(iii) reducing physical interaction throughout the organization as much as possible by closing
administrative offices and moving to a work-from-home format, increasing social distancing by
limiting the number of employees travelling on provided buses between the Company’s mining
communities and mines, limiting the number of employees in the cafeteria at any given time,
cancelling all group meetings, implementing social-distancing for essential line-out meetings and
encouraging work-from-home and video/telephone conferencing where feasible;
(iv) establishing COVID-19 committees with senior leadership and local health administrators for the
regions in which the Company operates;
(v) purchasing thousands of COVID-19 testing kits for the Company’s operations, with the donation
of a portion of these test kits, as well as other personal protective equipment, to each of the
Company’s local municipalities to facilitate rapid testing throughout each community; and,
(vi) implementing wellness education, health screenings, and self-isolation protocols along with
enhanced sanitization throughout the Company’s operations.
• The Company continues to closely monitor the COVID-19 pandemic and is engaged in active operational
and financial contingency planning to prudently manage the potential impact of the pandemic on its
operations.
Strong operational performance at MCSA Mining Complex and NX Gold Mine during Q4 2020
• 483,447 tonnes processed grading 2.26% copper producing 10,018 tonnes of copper in concentrate after
metallurgical recoveries that averaged 91.7% during Q4 2020 at the MCSA Mining Complex.
• 45,574 tonnes of ore grading 7.72 grams per tonne gold producing 10,789 ounces of gold and 6,763
ounces of silver as by-product after metallurgical recoveries that averaged 95.4% during Q4 2020 at the
NX Gold Mine.
• Q4 2020 C1 cash costs of $0.69 per pound of copper produced at the MCSA Mining Complex, C1 cash costs
of $405 per ounce of gold produced and AISC of $608 per ounce of gold produced at the NX Gold Mine
(see Non-IFRS Measures).
• As a result of strong operating and financial performance throughout 2020, the Company ended the
period with a robust cash and cash equivalents position of $62.5 million, a quarter-on-quarter
improvement of $8.2 million and a $41.0 million improvement since December 31, 2019.
2020 updated mineral resource, reserve and life-of-mine plans outline significant increases in mineral reserves
and extension of mine life across the Company’s operations
• At the MCSA Mining Complex, significant year-on-year increases in contained copper within the Proven
and Probable mineral reserves, Measured and Indicated, and Inferred mineral resource categories, were
outlined with each increasing by 23%, 29% and 62% respectively, inclusive of the newly defined Deepening
Extension Zone at the same long-term copper price assumption of US$2.75 per pound.
• Updated life-of-mine copper production for the MCSA Mining Complex, totalling approximately 480,800
tonnes of copper at an average C1 cash costs of $0.97 per pound of copper produced, at a US Dollar to
Brazilian Real foreign exchange rate of 5.00.
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• At the NX Gold Mine, a 78% increase in contained gold within the Probable mineral reserve category was
outlined, totalling 862,134 tonnes grading 8.83 grams per tonne containing 244,650 ounces of gold.
• Updated life-of-mine gold production from the NX Gold Mine totalling approximately 227,000 ounces of
gold produced over a six-year mine life, at an average annual production rate of approximately 36,000
ounces of gold (approximately 41,400 ounces over the first four years) at life-of-mine (“LOM”) average C1
cash costs of US$505 per ounce of gold produced and life-of-mine average AISC of US$720 per ounce (see
Non-IFRS Measures).
MCSA exploration programs continue to demonstrate continuity of high-grade mineralization post life-of-mine
plan update as well as newly discovered PGM occurrences throughout the Curaçá Valley
•
• During the period, the Company identified an unexpected new zone of high-grade “Superpod” style
mineralization in the south-central section of the zone that has the potential to meaningfully increase
copper grades within the Deepening Extension Zone of the Pilar Mine. Results in this area include hole
FC48155 that intersected 46.5 meters grading 4.96% copper including 36.5 meters grading 6.08% copper
and 6.0 meters grading 11.98% copper. On the same section, hole FC48161 intersected 20.3 meters
grading 4.76% copper including 9.5 meters grading 7.12% copper providing further evidence of high-grade
mineralization.
In addition, a new target zone, interpreted as a potential parallel lens at depth within the Pilar Mine, was
identified approximately 70 to 120 meters east of the main Deepening Extension Zone. Initially defined
by hole FC47173 that intersected 7.2 meters grading 3.28% copper including 3.0 meters grading 4.35%
copper and hole FC5381 that intersected 6.0 meters grading 1.07% copper, drilled approximately 300
meters apart, the zone has been interpreted to extend approximately 600 meters in strike length.
• Exploration drilling in the Southern Vermelhos Corridor of the Vermelhos District continued to intercept
stacked mineralized lenses within a modeled structural corridor, extending over 700 meters in strike
length. Five drill rigs are scheduled to systematically drill this target area during 2021 and down-hole
electromagnetic (“EM”) targeting work remains ongoing.
Initial results from a program designed to evaluate platinum group metal (“PGM”) associations within the
Curaçá Valley were received during the period. The program, which commenced in early-2020, has
resulted in the interpretation of three distinct styles of PGM mineralization that can be observed in
samples throughout each of the Company’s main operating districts. Occurrences of elevated PGMs have
now been documented from near-surface open pit deposits to the deepest known extent of
mineralization within the Pilar Mine. Results for each style of mineralization are highlighted by:
•
(i) Style 1, high-grade copper-nickel-PGMs (this style of mineralization shows similarities to footwall
zones described within the Sudbury District, Canada and localized copper-rich mineralized zones
at Noril’sk, Russia), highlighted by previously announced Siriema results: FSI-40, 9.1 meters
grading 2.59% copper, 1.74% nickel and 1.61 grams per tonne (“gpt”) 4PGE+Au including 5.6
meters grading 3.37% copper, 2.59% nickel and 2.28gpt 4PGE+Au (platinum group elements
(“PGEs”) in this context are defined as platinum, palladium, rhodium and ruthenium);
(ii) Style 2, high-grade PGM
low-sulphide content, reef-style mineralization (this style of
mineralization shows similarities described in PGM deposits, such as the Bushveld Complex, South
Africa and some zones within the Marathon Intrusion, Canada), highlighted by: hole FC47139,
within the Pilar Deepening Extension, 1.0 meter grading 0.76% copper, 0.05% nickel and 4.12gpt
4PGE+Au; and,
(iii) Style 3, copper-palladium rich (this style of mineralization shows similarities to zones described
within the Sudbury District and Marathon Intrusion), highlighted by: FS-E002, a near-surface
sample from beneath the Surubim open pit mine, 27.0 meters grading 2.04% copper, 0.06% nickel
and 0.33gpt 4PGE+Au including 6.0 meters grading 3.03% copper, 0.13% nickel and 0.87gpt
4PGE+Au.
• Based upon these results, a comprehensive review of PGM occurrences, comprising approximately 5,000
additional samples, is underway to better understand continuity and significance of these initial results.
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Exploration of the Santo Antonio Vein at the NX Gold Mine continues to demonstrate continuity of
mineralization
• The Company continued to have success in demonstrating down-plunge continuity and extensions of the
high-grade mineralization of the Santo Antonio Vein at the NX Gold Mine. The results were highlighted
during the period by hole SA89 that intersected 2.7 meters grading 15.38 grams per tonne gold,
representing the deepest intercept drilled to date by the Company at the Santo Antonio Vein.
Q4 2020 Financial Report
• Cash flow from operations: Q4 2020 cash flow from operations was $38.6 million, an increase of $2.7
million from $35.9 million in Q4 2019.
• Adjusted net income per share (see Non-IFRS Measures): Q4 2020 adjusted net income per share was
$0.43 and $0.40, on a basic and diluted basis, respectively, compared with Q4 2019 adjusted net income
per share of $0.47 and $0.44, on a basic and diluted basis, respectively.
• Unrealized foreign exchange gains: Q4 2020 financial results were impacted by the strengthening of the
BRL against the USD in comparison to the end of the third quarter of 2020, mainly through the change in
the mark-to-market valuation of derivatives used to hedge BRL revenues. During Q4 2020, the Company
recognized a $27.7 million non-cash valuation gain on its USD/BRL foreign exchange collars.
- The Company uses these structures to hedge Brazilian Real measured revenues. As a result of the
COVID-19 pandemic and its impact on macro-economic interrelationships, there was a continual
increase in implied volatility of the BRL versus USD.
- Generally accepted accounting standards dictate that the liability be recognized at fair value, which
requires management to estimate fair value using a Black-Scholes valuation methodology and
assumptions for the foreign exchange rate and volatility.
- The Company does not believe that this impact on the income statement reflects the underlying
profitability of the Company as it provides no offset for the expected future benefits/costs of a
lower/higher BRL/USD exchange rate on operating costs and capital expenditures of the Company’s
underlying business. These benefits/costs may outweigh the Company’s projected hedge losses/gains
that may result from these collars.
• Credit facilities amendment: Subsequent to the year ended December 31, 2020, the Company’s existing
US$75 million term facility and US$75 million revolving credit facility previously entered into with a
syndicate of Canadian financial institutions were amended with a US$150 million senior secured revolving
credit facility (the “New Revolving Credit Facility”) payable entirely on March 31, 2025.
Benefits of the amendment include a reduction of up to 25 basis points in the Company’s cost of
borrowing, depending on consolidated leverage ratio. The New Revolving Credit Facility will bear interest
on a sliding scale at a rate of LIBOR plus 2.25% to 4.25% depending on the Company’s consolidated
leverage ratio at the time. Commitment fees for any undrawn portion of the Revolving Credit Facility will
also be on a sliding scale between 0.56% to 1.06%.
The New Credit Facility includes standard and customary terms and conditions with respect to fees,
representations, warranties, and financial covenants that remain unchanged from prior amendments.
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REVIEW OF OPERATIONS
Mineração Caraíba S.A. (Vale do Curaçá):
Q4 2020 was the culmination of a strong operating year for the Company’s MCSA Mining Complex, which despite
the COVID-19 pandemic, continued to perform well. Quarter-on-quarter declines in tonnes mined, were offset by
increases in copper grades (2.26% vs. 2.18% copper in Q3 2020) and metallurgical recoveries (91.7% vs. 90.8% in
Q3 2020). Improved metallurgical recoveries were driven, in part, by the installation of commissioning of the
Company’s new HIG Mill, which was completed at the end of Q3 2020. While feed system work remained ongoing
during Q4 2020, the Company continues to expect an improvement in metallurgical recoveries in the future as a
result of the successful implementation to date.
At the Pilar Mine, 356,016 tonnes of ore were mined grading 1.74% copper during Q4 2020 (as compared to
375,296 tonnes of ore mined grading 1.36% copper during Q3 2020). At the Vermelhos Mine, 187,659 tonnes of
ore were mined grading 3.19% copper (as compared to 227,963 tonnes of ore mined grading 3.76% copper during
Q3 2020). In total, contributions from both mines during the period resulted in 543,675 tonnes of ore mined
grading 2.24% copper. For the full-year 2020, a total of 2,345,002 tonnes of ore grading 2.10% copper was mined.
During Q4 2020, 483,447 tonnes of ore grading 2.26% copper was processed, producing 10,018 tonnes of copper
after average metallurgical recoveries of 91.7%. For the full-year of 2020, a total of 2,271,625 tonnes of ore grading
2.08% copper was processed, producing 42,814 tonnes of copper after average metallurgical recoveries of 90.5%.
C1 cash costs per pound of copper produced averaged $0.69 (see Non-IFRS Measures) during Q4 2020, reflecting
strong operational performance at the Company’s MCSA operations, continued weakness of the BRL versus the
US dollar and strength in the price of gold and silver produced as by-products. Decreased copper production, a
strengthening of the BRL vs. the US dollar relative to the prior period, and scheduled mill maintenance at year-
end contributed to a $0.06 increase in C1 cash costs per pound of copper produced as compared to Q3 2020. Full-
year 2020 C1 cash costs averaged $0.67 per pound of copper produced – a $0.26 decrease as compared to 2019.
During Q4 2020, the Company announced updated mineral resources, mineral reserves and an updated LOM plans
for the MCSA Mining Complex encompassing the exploration drill programs conducted during the year. Within
the MCSA Mining Complex LOM production plan, for the 2020 update, the Company included production, capital
and operating cost projections based upon the mineral reserves derived from the Measured and Indicated mineral
resources from within the Deepening Extension Zone of the Pilar Mine (the “Deepening Extension Project”), which
was a core objective of the Company during the year. In addition, the Company included an independent
preliminary economic assessment based upon the Inferred mineral resources within the Deepening Extension
Zone of the Pilar Mine (the “Deepening Inferred Project”), that shows the expected synergies associated with
utilizing the infrastructure that will be built in support of the Deepening Extension Project. With the inclusion of
E R O C O P P E R | 2 0 2 0 A N N U A L R E V I E W | 1 4
2020 - Q42020 - Q320202019 - Q42019Operating InformationCopper (MCSA Operations)Ore Processed (tonnes)483,447553,1482,271,625589,0652,424,592Grade (% Cu)2.262.182.082.161.93Cu Production (tonnes)10,01810,96142,81411,52642,318Cu Production (lbs)22,085,92724,163,82994,387,60525,411,10093,295,598Concentrate Grade (% Cu) 33.3 34.0 33.7 35.0 34.8 Recovery (%) 91.7 90.8 90.5 90.7 90.5 Concentrate Sales (tonnes)30,41634,324127,00733,926122,966Cu Sold in Concentrate (tonnes)10,26511,53042,81311,59542,759Cu Sold in Concentrate (lbs)22,629,43125,420,16494,387,31225,562,21294,267,101C1 cash cost of copper produced (per lb)0.69$ 0.63$ 0.67$ 0.80$ 0.93$
the Deepening Extension Project at the Pilar Mine, a significant increase in production from the current 1.2 million
tonnes per annum of ore mined to approximately 2.2 million tonnes of ore mined is planned. The expansion of
the Pilar Mine will be supported by the installation of a new 4.5 meter diameter external shaft, scheduled to
commence construction in Q3 2021, that will not only support the planned increases in copper production at the
Pilar Mine, as outlined in the LOM, but has also been designed to support the potential for longer term copper
production increases from both the Deepening Inferred Project and as additional mineralization is defined. In
keeping with the Company’s return on invested capital focus, the expansion of the mine and development of the
infrastructure in support of the Deepening Extension Project is expected to be delivered at a low capital-intensity
ratio of approximately US$1,677 per tonne of incremental copper production delivered.
In addition, integration of ore sorting into the Company’s LOM plan for the Vermelhos District open pit deposits
of N8/N9 and Siriema is expected to contribute to improved mill head-grades and maintaining first-quartile C1
cash costs over the LOM. In total, approximately 20 million tonnes of ore grading 0.56% are expected to be mined
and sorted, producing a sorted mill-feed of approximately 8.9 million tonnes of ore grading 1.18% copper. As a
result of the integration of ore sorting approximately 11.0 million tonnes of waste material will be prevented from
being transported and processed at the Company’s mill over the LOM. In addition to the associated economic
benefits, this reduction is expected to substantially reduce consumption of fresh-water, diesel and electricity as
well as reduce flotation tailings generated per tonne of copper produced, further advancing the Company’s long-
term environmental and sustainability commitments within the Curaçá Valley.
Please refer to the Company’s press releases dated November 30, 2020 for complete information related to the
LOM plan for the MCSA Mining Complex.
On exploration, the Company’s organic growth strategy remains supported by one of the world’s largest
exploration programs, which continued following the release of the latest LOM plan update. During Q4 2020, the
Company continued to focus its exploration efforts on three primary exploration areas within the Curaçá Valley
(please refer to the Company’s press release dated December 15, 2020 for complete results). These areas
included:
(i)
continued drilling of the Pilar Mine Deepening Extension Zone in an effort to further demonstrate high-
grade continuity outside the previously known limits of mineralization within the mine;
(ii) extensional drilling of the Southern Vermelhos Corridor, a target zone extending over 700 meters in
strike length between Siriema and the Vermelhos Mine to further evaluate continuity of mineralization
and the potential for multiple “stacked” high-grade lenses; and,
(iii) a strategic review of PGM occurrences throughout the Curaçá Valley.
In the Pilar Mine, exploration activities during the period sought to commence a new phase of drilling following
the release of the Company’s updated LOM to further demonstrate continuity of mineralization as well as upgrade
the inferred mineral resources that comprise the Deepening Inferred Project. A surface drill program utilizing
directional drilling technology to evaluate the mineralized potential of the Deepening Extension Zone north of
section 57 continued as planned during the period and this program will continue into 2021. The known limits of
mineralization within the Deepening Extension Zone, which remain open, extend over approximately 900 meters
in strike length, over a total depth of approximately 525 meters and over average thicknesses ranging from 10 to
20 meters with localized thickening throughout the zone. Within the total strike length, a higher-grade continuous
zone of approximately 400 to 500 meters in strike length continues to be supported in the central and northern
segments of the target area, and a new zone of high-grade mineralization is emerging at depth in the south-central
segment of this area. The zone remains open to the north and to depth. Five underground exploration drill rigs
will continue to systematically drill the defined exploration target area within the Deepening Extension Zone in
2021.
Also within the Pilar Mine, a new zone of parallel mineralization at depth, and a new target zone, was identified
during the period, located approximately 70 to 120 meters east of the main Deepening Extension Zone. Results
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during the period are highlighted by hole FC47173 that intersected 7.2 meters grading 3.28% copper including 3.0
meters grading 4.35% copper and hole FC5381 that intersected 6.0 meters grading 1.07% copper. The intercept
in hole FC47173 is approximately 300 meters south of the intercept in hole FC5381, approximately 80 meters to
the east of the main Deepening Extension Zone and approximately 400 meters south of previously drilled holes
that also intersected this target area. The potential for a new, parallel structure extends over a north-south strike
length of approximately 600 meters.
In the Vermelhos District, approximately 80 kilometers to the north of the Caraíba Mill complex, which includes
the high-grade operating Vermelhos Mine, exploration activities during the period focused on two primary
objectives: (i) testing continuity of high-grade copper mineralization within the Southern Vermelhos Corridor and
(ii) conducting down-hole EM surveys to identify high-grade exploration targets. Preliminary results of this
program, which remains ongoing, continues to demonstrate the presence of multiple stacked mineralized lenses,
including high-grade mineralization within the corridor. Five drill rigs are expected to be operational within the
Southern Vermelhos Corridor during 2021 focused on systematic drill testing. The program has been designed on
50 meter drill spacing. Initially, the focus will be the northern section of the Southern Vermelhos Corridor given
its proximity to the existing mine infrastructure of the Vermelhos Mine and the potential for exploration success
to meaningfully enhance the near-term base-case grade profile through replacement of lower grade production
in addition to extending mine life.
Following the discovery of the Siriema Deposit (within the Vermelhos District) in mid-2019 and, the discovery of
the high-grade Keel Zone at Siriema at the end of 2019 (including new massive sulphide breccia zones containing
elevated copper, nickel, cobalt and PGMs), the Company collected and sent a series of samples from each of the
Company’s three primary operating districts of Vermelhos, Pilar and Surubim for additional PGM analysis to
further evaluate the prevalence of PGMs within the broader Curaçá Valley. Based upon the assay results from this
initial program, which were delayed due to the impacts of COVID-19, occurrences of elevated PGMs can be found
throughout the entirety of the Curaçá Valley.
The results, while preliminary, demonstrate that elevated PGM grades within the Curaçá Valley occur in
association with both the high-sulphide copper and copper-nickel mineralized envelopes of deposits such as the
Keel Zone of Siriema, as well as outside of the primary copper-mineralized zones where the highest-grade PGM
samples collected to date occur in low-sulphide reef-style mineralized envelopes lying in zones that traditionally
would have been classified as waste due to their inherently low association with copper. To date, the Company
has observed three distinct styles of PGM mineralization, which are supported by relevant examples from the
early-2020 sample program and previously released multi-element results from within the Keel Zone.
The Company has commenced a comprehensive program comprised of approximately 5,000 additional samples
to continue evaluating the potential for additional occurrences of PGMs as well as evaluate continuity of PGM
mineralization within zones identified to date. Approximately 3,000 samples of the total 5,000 sample program
have been submitted to third-party laboratories for PGM analysis, and the Company has commenced integrating
systematic PGM assaying into its ongoing exploration efforts. This effort is supported by the Company’s new in-
house PGM assay capability, built in response to early results from this program. The Company continues to
undertake additional quality-assurance, quality-control procedures on its newly installed multi-element
Inductively Coupled Plasma analytical equipment to transition away from third-party laboratories in the future.
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NX Gold S.A.
At the NX Gold Mine, continued quarter-on-quarter improvement in tonnes and grade mined and processed, along
with record metallurgical performance, contributed to increased gold production during the period. Production
during Q4 2020 totaled 10,789 ounces of gold and 6,673 ounces of silver (as by-product) from total mill feed of
45,574 tonnes grading 7.72 g/t gold after metallurgical recoveries of 95.4% during the period. Ore mined and gold
production improved in Q4 2020 by 9% and 14%, respectively relative to Q3 2020, and gold production increased
by 37% as compared to the first quarter of 2020. These quarter-on-quarter improvements have been driven by
both increases in the number of working faces in operation within the Santo Antonio Vein and improvements in
metallurgical recoveries. The NX Gold Mine achieved record quarterly C1 cash costs during Q4 2020 of $405 per
ounce of gold produced, resulting in full-year 2020 C1 cash costs of $457 per ounce of gold produced (see Non-
IFRS Measures). AISC during Q4 2020 averaged $608 per ounce of gold produced resulting in full-year 2020 AISC
of $628 per ounce of gold produced (see Non-IFRS Measures).
During Q4 2020, the Company announced updated mineral resources, mineral reserves and an updated LOM
production plan for the NX Gold Mine encompassing the exploration drill programs conducted during the year.
The Company’s updated LOM production plan, prepared in conjunction with the updated mineral resource and
reserve estimate, outlines a six-year LOM with total production of approximately 227,000 ounces and average
annual production of approximately 41,400 ounces of gold over the first four years. In total, approximately
860,000 tonnes of ore are projected to be mined and processed grading an average of approximately 8.80 grams
per tonne of gold. LOM average C1 cash costs are projected to be US$505 per ounce of gold produced with LOM
average AISC of US$720 per ounce (see Non-IFRS Measures).
The updated LOM plan at the NX Gold Mine reflects the culmination of a multi-year commitment to organically
grow the asset by the Company, beginning in mid-2018 with the first real exploration program conducted at the
property since 2012. The updated LOM production plan outlines a highly profitable six-year operation with an
actionable road-map to further grow production and extend mine-life through conversion of newly defined high-
grade Inferred mineral resources (573,772 tonnes grading 10.55 grams per tonne containing approximately
194,556 ounces of gold). During the fourth quarter and into 2021, the Company has committed to continue its
organic growth efforts at NX Gold as evidenced through the installation of a modular paste-fill plant, expected to
be operational during the second half of 2021, as well as additional allocation of capital for exploration at the
mine. The Company ramped up drilling efforts to encompass eight drill rigs at year-end operating on both near-
mine and regional programs throughout the extensive land package controlled by NX Gold.
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2020 - Q42020 - Q320202019 - Q42019Operating InformationGold (NX Gold Operations)Ore mined (tonnes) 45,574 41,749 162,642 40,453 154,271 Ore milled (tonnes) 45,574 41,749 162,642 43,207 158,275 Head grade (grams per tonne Au) 7.72 7.64 7.72 6.32 6.98 Recovery (%)95.4%92.0%91.3%68.9%85.7%Gold ounces produced (oz) 10,789 9,436 36,830 6,043 30,434 Silver ounces produced (oz) 6,763 5,736 22,694 4,315 19,641 Gold sold (oz) 10,100 9,845 35,855 5,810 29,755 Silver sold (oz) 6,349 5,982 22,109 4,247 19,142 C1 cash cost of gold produced (per ounce)405$ 421$ 457$ 980$ 691$ AISC of gold produced (per ounce)608$ 579$ 628$ 1,253$ 889$
Please refer to the Company’s press releases dated November 15, 2020 for complete information as it relates to
the updated LOM production plan for the NX Gold Mine.
Following the release of the updated LOM, exploration at the NX Gold Mine continued to focus primarily on testing
down-plunge extensions of the Santo Antonio Vein. Drill results during the period further extended the known
limits of mineralization within the Santo Antonio Vein. Results are highlighted by the deepest intercept drilled
within the Santo Antonio Vein drilled to date. In addition, the first regional exploration campaign continued to
progress at the NX Gold Mine during the period targeting both near-mine targets as well as distal exploration
targets up to 20 kilometers from the mine.
2021 Guidance/Outlook
• 2021 annual production guidance for the MCSA Mining Complex of 42,000 to 45,000 tonnes of copper in
concentrate at C1 cash cost guidance[1] range of US$0.75 to US$0.85 per pound of copper produced; and,
• 2021 annual production guidance for the NX Gold Mine of 34,500 to 37,500 ounces of gold at C1 cash cost
and AISC guidance[1] range of US$500 to US$600 and US$875 to US$975 per ounce of gold produced,
respectively.
[1] C1 Cash Costs of copper produced (per lb.), C1 Cash Costs of gold produced (per oz.), and AISC are non-IFRS measures – Please refer to the section
titled "NON-IFRS MEASURES" within this MD&A for a discussion of non-IFRS measures. 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) and Management of Risks and Uncertainties in this MD&A for complete risk factors.
2021 Production Outlook
MCSA Mining Complex
Tonnes Processed
Copper Grade (% Cu)
Copper Recovery (%)
2020 Guidance[1]
2,150,000
2020 Result
2,271,625
2021 Guidance[2]
2,700,000
2.15%
91.0%
2.08%
90.5%
42.8
1.75%
93.0%
42.0 – 45.0
Cu Production (000 tonnes)
41.0 – 43.0
NX Gold Mine
Tonnes Processed
Gold Grade (gpt)
Gold Recovery (%)
Au Production (000 ounces)
Ag Production (000 ounces)
2020 Guidance[1]
165,000
7.70
90.0%
36.0 – 37.0
n/a
2020 Result
162,642
7.72
91.3%
36.8
22.7
2021 Guidance[2]
167,000
7.20
92.0%
34.5 – 37.5
n/a
[1] 2020 production guidance for the MCSA Mining Complex as outlined in the Company’s press release dated January 15, 2020. 2020 production guidance
for the NX Gold Mine as outlined in the Company’s press release dated November 5, 2020.
[2] 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, including the AIF (as defined
herein) and Management of Risks and Uncertainties in this MD&A for complete risk factors.
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2021 Cash Cost Guidance
The Company’s guidance for 2021 assumes a USD:BRL foreign exchange rate of 5.00, gold price of $1,750 per
ounce and silver price of $20.00 per ounce.
MCSA Mining Complex C1 Cash Cost Guidance
(US$/lb)[2]
NX Gold Mine C1 Cash Cost Guidance (US$/oz)[2]
NX Gold Mine All-in Sustaining Cost (AISC)
Guidance (US$/oz)[2]
2020 Guidance[1]
2020 Result
2021 Guidance
$0.70 - $0.85
$425 - $525
n/a
$0.67
$457
$628
$0.75 - $0.85
$500 - $600
$875 - $975
[1] 2020 cash cost guidance represents revised guidance as outlined in the Company’s press release dated May 7, 2020.
[2] C1 Cash Costs of copper produced (per lb.), C1 Cash Costs of gold produced (per oz.), and AISC are non-IFRS measures – Please refer to the section
titled "NON-IFRS MEASURES" within this MD&A for a discussion of non-IFRS measures. 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) and Management of Risks and Uncertainties in this MD&A for complete risk factors.
2021 Capital Expenditure Guidance
The Company’s capital expenditure guidance for 2021 assumes a USD:BRL foreign exchange rate of 5.00 and has
been presented below in USD millions.
MCSA Operations
Pilar Mine and Caraíba Mill Complex
(excluding Deepening Extension Project)
Deepening Extension Project
Vermelhos Mine & District[2]
Surubim Open Pit Mine
Boa Esperanҫa Project
Capital Expenditure Guidance
Curaçá Valley Exploration
NX Gold Mine
Capital Expenditure Guidance
Exploration
Total, NX Gold Mine
2020 Guidance[1]
2020 Result
2021 Guidance
$ 45.0 – 55.0
-
11.0 – 13.0
-
0.2 – 0.2
$ 56.2 – 68.2
$ 25.0 – 30.0
2020 Revised
Guidance[1]
$ 9.0 – 11.0
3.0 – 5.0
$ 12.0 – 16.0
54.5
-
14.0
-
0.2
68.7
31.9
$ 45.0 - 50.0
12.5 – 15.0
14.0 – 16.0
10.0 – 12.0
1.0 – 1.5
$ 82.5 - 94.5
$ 30.0 – 35.0
2020 Result
2021 Guidance
13.0
4.3
17.3
$ 13.0 – 15.0
8.0 – 10.0
$ 21.0 – 25.0
[1] 2020 capital cost guidance and revised guidance (NX Gold Mine) as outlined in the Company’s press releases dated May 7, 2020 and November 5, 2020.
[2] Vermelhos District includes open pit mining infrastructure expenditures of approximately US$6.0 million in 2021.
Mineração Caraíba S.A.
Copper production from the MCSA Mining Complex for 2021 is expected to come from ore mined from the Pilar
and Vermelhos underground mines as well as the Surubim open pit mine, which is expected to restart operations
later in 2021. Production from the Pilar Mine is expected to contribute a total of approximately 1.5 million tonnes
grading 1.40% copper, production from the Vermelhos Mine is expected to contribute a total of approximately
0.8 million tonnes grading 2.40% copper and production from the Surubim Mine is expected to contribute a total
of 0.2 million tonnes grading 0.60% copper as it is a partial year of operation. The blended mill head grade
incorporating these sources is expected to be approximately 1.75% copper for the full year.
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NX Gold S.A.
Gold production from NX Gold for 2021 is expected to come from ore mined from the Santo Antônio vein. Mining
operations during the year are expected to total approximately 167,000 tonnes of ore grading 7.20 grams per
tonne gold.
Boa Esperança
A full review of the Boa Esperança Feasibility Study[1] remains ongoing with the goal of extending the potential
mine life and increasing copper production among other desktop optimization initiatives. As a result of an ongoing
internal technical review, several potential opportunities were identified to optimize and further realize the
potential of the Boa Esperança project, including, but not limited to:
• Separating high-grade and low-grade copper domains within the mineral resource estimate to better
•
optimize mining sequence, mineral reserve conversion and improve overall project economics;
Increasing the overall size of the open pit, targeting an increase in in-pit mineral reserves, extension of
mine life and an increase in life-of-mine copper production;
Implementing bulk ore-sorting with the goal of enhancing mine selectivity; and,
•
• Re-designing processing plant reflecting optimization initiatives around selective mining and the
implementation of ore-sorting.
The Company’s technical team continues to actively review these opportunities and is making headway in
advancing them into actionable deliverables. Should this work continue to yield favorable results, the Company
will commission an Optimized Feasibility Study (“OFS”), incorporating these initiatives. The Company expects to
provide additional guidance on these developments mid-year 2021.
[1] As defined herein under “NOTE REGARDING SCIENTIFIC AND TECHNICAL INFORMATION”.
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REVIEW OF FINANCIAL RESULTS
The following table provides a summary of the financial results of the Company for Q4 2020 and Q4 2019. Tabular
amounts are in thousands of US dollars, except share and per share amounts.
Notes:
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Three months ended Three months ended NotesDecember 31, 2020December 31, 2019Revenue191,243$ 75,688$ Cost of product sold2(31,323) (43,017) Sales expenses(1,572) (1,595) Gross profit 58,348 31,076 ExpensesGeneral and administrative3(8,165) (12,707) Share-based compensation(2,549) (1,304) Income before the undernoted47,634 17,065 Other income (expenses)Finance income145 358 Finance expense4(2,556) (2,014) Foreign exchange gain527,142 4,423 Recovery of value added taxes68,886 - Other income (expense)(1,675) 368 Income before income taxes79,576 20,200 Income tax recovery (expense)Current (4,044) (2,232) Deferred (9,190) 27,441 7(13,234) 25,209 Net income for the period66,342 45,409 Other comprehensive incomeForeign currency translation gain819,679 6,528 Comprehensive income86,021$ 51,937$ Net income attributable to:Owners of the Company65,786$ 45,169$ Non-controlling interests556 240 66,342$ 45,409$ Comprehensive income attributable to:Owners of the Company85,386$ 51,671$ Non-controlling interests635 266 86,021$ 51,937$ Net income per share attributable to owners of the CompanyNet income per shareBasic0.75$ 0.53$ Diluted0.71$ 0.49$ Weighted average number of common shares outstandingBasic 87,321,83285,620,168Diluted92,642,10391,670,989Cash and cash equivalents62,508$ 21,485$ Total assets497,099$ 462,674$ Non-current liabilities191,304$ 183,135$
1. Revenues for Q4 2020 from copper sales was $72.6 million (Q4 2019 - $67.7 million), which included the sale of 10,265 copper tonnes
in concentrate as compared to 11,595 copper tonnes for Q4 2019. The increase in revenues is primarily attributed to higher realized
prices, partially offset by lower sales volume. Revenues for Q4 2020 from gold sales was $18.6 million (Q4 2019 - $8.0 million), which
included the sale of 10,100 ounces of gold, compared to 5,810 ounces of gold for Q4 2019, at a significantly higher average gold price
than in the comparative quarter.
2. Cost of product sold for Q4 2020 from copper sales was $25.8 million (Q4 2019 - $35.6 million) which consisted of $8.0 million (Q4
2019 - $11.1 million) in depreciation and depletion, $6.2 million (Q4 2019 - $9.4 million) in salaries and benefits, $3.8 million (Q4 2019
- $4.6 million) in materials and consumables, $3.1 million (Q4 2019 - $3.9 million) in maintenance costs, $2.9 million (Q4 2019 - $4.3
million) in contracted services, $1.7 million (Q4 2019 - $2.2 million) in utilities, and $0.1 million (Q4 2019 - $0.2 million) in other costs.
Cost of product sold for Q4 2020 from gold sales was $5.5 million (Q4 2019 - $7.4 million) which primarily comprised of $1.4 million
(Q4 2019 - $2.2 million) in salaries and benefits, $1.2 million (Q4 2019 - $0.9 million) in depreciation and depletion, $1.1 million (Q4
2019 - $1.2 million) in contracted services, $0.9 million (Q4 2019 - $1.1 million) in materials and consumables, $0.5 million (Q4 2019 -
$0.7 million) in utilities, and $0.4 million (Q4 2019 - $1.2 million) in maintenance costs.
The overall decrease in cost of product sold in Q4 2020 as compared to Q4 2019 is primarily attributable to the weakened BRL, in
which cost is incurred, against the USD, in which cost is reported.
3. General and administrative expenses for Q4 2020 include $5.0 million (Q4 2019 - $10.3 million) with respect to MCSA for salaries and
incentive payments, professional fees, office and sundry and provisions for tax, legal and labour claims, $0.6 million (Q4 2019 - $0.5
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 $2.6 million (Q4 2019 - $1.9 million) with respect to the corporate head office in Vancouver. Corporate head
office costs are primarily comprised of $2.2 million (Q4 2019 - $1.4 million) in salaries, incentive payments, and consulting fees, $0.2
million (Q4 2019 - $0.2 million) in accounting and legal costs, and $0.2 million (Q4 2019 - nominal) in office and sundry costs. General
and administrative expenses in Q4 2020 decreased from that in Q4 2019, primarily attributable to a decrease in incentive payments,
and a weakened BRL, in which costs from MCSA and NX Gold are incurred, against the USD, in which cost is reported.
4.
5.
6.
7.
Finance expense for Q4 2020 was $2.6 million (Q4 2019 - $2.0 million) and is primarily comprised of interest on loans at the corporate
head office of $1.6 million (Q4 2019 - $2.0 million), interest on loans and borrowings at MCSA and NX Gold of $0.5 million (Q4 2019 -
$0.7 million), loss on interest rate swap derivatives of $0.7 million (Q4 2019 - $0.2 million gain), accretion of the asset retirement
obligations of $0.2 million (Q4 2019 - $0.2 million recovery), and nominal commitment fees (Q4 2019 - $0.5 million), partially offset by
other finance income of $0.6 million (Q4 2019 - $1.0 million).
Foreign exchange gain for Q4 2020 was $27.1 million (Q4 2019 - $4.4 million). This amount is primarily comprised of foreign exchange
gain on unrealized derivative contracts of $27.7 million (Q4 2019 - $1.4 million) and a foreign exchange gain on USD denominated debt
of $7.7 million (Q4 2019 - $3.8 million) in MCSA for which the functional currency is the BRL, partially offset by a realized foreign
exchange loss on derivative contracts of $7.8 million (Q4 2019 - $0.5 million) and other foreign losses of $0.4 million (Q4 2019 - $0.2
million gain). The foreign exchange gains were primarily a result of a strengthening of BRL against USD in Q4 2020 as compared to the
prior quarter. The foreign exchange gains on unrealized derivative contracts are a result of mark-to-market calculations at period end
and may not represent the amount that will ultimately be realized, which will depend on future changes to the USD/BRL foreign
exchange rates.
In Q4 2020, the Company recognized a recovery of $8.9 million (Q4 2019 - $nil) in net income related to value added taxes. The
recovery was recognized as a result of a study conducted to revisit certain tax positions which concluded that it is probable that
additional tax credits are available to be used to offset a variety of taxes.
In Q4 2020, the Company recognized $13.2 million in income tax expense (Q4 2019 - $25.2 million recovery). Income taxes from
operations are partially offset by the recognition of temporary deductible differences associated with MCSA’s unrealized foreign
exchange losses on derivatives and loans and borrowings denominated in USD. In Q4 2019 the Company recognized a $25.2 million
income tax recovery, primarily resulting from the recognition of previously unrecognized available tax losses and tax credits in MCSA,
partially offset by current tax expense in the period. At December 31, 2019 the Company considered taxable income generated since
acquisition of MCSA and forecasted future taxable income and determined that it was probable that the benefit of these losses and
tax credits in MCSA would be realized.
8.
The foreign currency translation gain is a result of a strengthening of the BRL against the USD during Q4 2020 when translating the net
assets of the Company’s Brazilian subsidiaries to USD for presentation in the Company’s consolidated financial statements.
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The following table provides a summary of the financial results of the Company for Fiscal 2020, Fiscal 2019, and
Fiscal 2018. Tabular amounts are in thousands of US dollars, except share and per share amounts.
E R O C O P P E R | 2 0 2 0 A N N U A L R E V I E W | 2 3
Year endedYear endedYear ended NotesDecember 31, 2020December 31, 2019December 31, 2018Revenue1324,076$ 284,843$ 233,105$ Cost of product sold2(130,585) (162,817) (147,611) Sales expenses(5,354) (4,962) (3,268) Gross profit 188,137 117,064 82,226 ExpensesGeneral and administrative3(27,927) (32,817) (29,000) Share-based compensation(9,064) (5,792) (3,225) Income before the undernoted151,146 78,455 50,001 Other income (expenses)Finance income1,346 701 1,303 Finance expense4(15,449) (20,428) (22,562) Foreign exchange loss5(79,805) (5,148) (20,713) Loss on debt settlement6- (1,783) (5,476) Recovery of value added taxes78,886 21,584 - Other income (expense)(4,701) 1,448 108 Income before income taxes61,423 74,829 2,661 Income tax recovery (expense)Current (9,675) (10,645) (2,899) Deferred 750 28,271 (2,753) 8(8,925) 17,626 (5,652) Net income (loss) for the year52,498 92,455 (2,991) Other comprehensive lossForeign currency translation loss9(49,553) (4,941) (27,801) Comprehensive income (loss)2,945$ 87,514$ (30,792)$ Net income (loss) attributable to:Owners of the Company51,622$ 91,883$ (3,155)$ Non-controlling interests876 572 164 52,498$ 92,455$ (2,991)$ Comprehensive income (loss) attributable to:Owners of the Company2,267$ 86,962$ (30,845)$ Non-controlling interests678 552 53 2,945$ 87,514$ (30,792)$ Net income (loss) per share attributable to owners of the CompanyNet income (loss) per shareBasic0.60$ 1.08$ (0.04)$ Diluted0.56$ 1.01$ (0.04)$ Weighted average number of common shares outstandingBasic 86,368,53585,244,27783,927,977Diluted92,213,62891,390,42583,927,977
Notes:
1. Revenues for Fiscal 2020 from copper sales was $260.9 million (Fiscal 2019 - $246.2 million), which included the sale of 42,813 copper
tonnes in concentrate as compared to 42,759 copper tonnes for Fiscal 2019. Revenues for Fiscal 2020 from gold sales was $63.2 million
(Fiscal 2019 - $38.6 million), which included the sale of 35,855 ounces of gold, compared to 29,755 ounces of gold for Fiscal 2019, at
a significantly higher average gold price than the comparative period. The increase in revenues is primarily attributed to higher realized
prices from copper and gold sales.
2. Cost of product sold for Fiscal 2020 from copper sales was $109.6 million (Fiscal 2019 - $135.6 million) which consisted of $35.7 million
(Fiscal 2019 - $40.1 million) in depreciation and depletion, $24.6 million (Fiscal 2019 - $33.7 million) in salaries and benefits, $15.1
million (Fiscal 2019 - $17.9 million) in materials and consumables, $14.8 million (Fiscal 2019 - $20.5 million) in contracted services,
$12.5 million (Fiscal 2019 - $14.1 million) in maintenance costs, $6.5 million (Fiscal 2019 - $8.7 million) in utilities, and $0.4 million
(Fiscal 2019 - $0.7 million) in other costs.
Cost of product sold for Fiscal 2020 from gold sales was $21.0 million (Fiscal 2019 - $27.2 million) which primarily comprised of $5.5
million (Fiscal 2019 - $7.1 million) in salaries and benefits, $3.8 million (Fiscal 2019 - $3.9 million) in materials and consumables, $3.7
million (Fiscal 2019 - $3.2 million) in contracted services, $3.5 million (Fiscal 2019 - $5.9 million) in depreciation and depletion, $2.2
million (Fiscal 2019 - $2.5 million) in utilities, $2.1 million (Fiscal 2019 - $4.3 million) in maintenance costs, and $0.2 million (Fiscal 2019
- $0.3 million) in other costs.
The overall decrease in cost of product sold for Fiscal 2020 as compared to Fiscal 2019 is primarily attributable to the weakened BRL,
in which cost of products sold are incurred, against the USD, in which cost is reported.
3. General and administrative expenses for Fiscal 2020 include $16.5 million (Fiscal 2019 - $21.0 million) with respect to MCSA for salaries
and incentive payments, professional fees, office and sundry and provisions for tax, legal and labour claims, $1.7 million (Fiscal 2019 -
$2.3 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 $9.7 million (Fiscal 2019 - $9.5 million) with respect to the corporate head office in Vancouver. Corporate
head office costs are primarily comprised of $7.3 million (Fiscal 2019 - $6.7 million) in salaries, incentive payments, and consulting
fees, $0.9 million (Fiscal 2019 - $0.7 million) in office and sundry costs, $0.5 million (Fiscal 2019 - $1.2 million) in travel-related costs,
$0.5 million (Fiscal 2019 - $0.5 million) in professional fees, and $0.3 million (Fiscal 2019 - $0.2 million) in transfer agent and filing fees.
General and administrative expenses in Fiscal 2020 decreased compared to that in Fiscal 2019, reflecting slightly lower general and
administrative expenses at the corporate head office from reduced consulting fees and travel-related costs during a period of
pandemic-imposed travel restrictions, and the weakening of the BRL, in which costs from MCSA and NX Gold are incurred, against the
USD, in which cost is reported.
Finance expense for Fiscal 2020 was $15.4 million (Fiscal 2019 - $20.4 million) and was primarily comprised of interest on loans at the
corporate head office of $6.7 million (Fiscal 2019 - $8.3 million), interest on loans and borrowings at MCSA and NX Gold of $3.2 million
(Fiscal 2019 - $3.0 million), loss on interest rate swap derivatives of $2.7 million (Fiscal 2019 - $1.8 million), other finance expenses of
$1.2 million (Fiscal 2019 - $1.8 million), and accretion of asset retirement obligations of $0.9 million (Fiscal 2019 - $3.5 million).
Foreign exchange loss for Fiscal 2020 was $79.8 million (Fiscal 2019 - $5.1 million). This amount was primarily comprised of a foreign
exchange loss on unrealized derivative contracts of $34.5 million (Fiscal 2019 - $0.3 million), a foreign exchange loss on USD
denominated debt of $24.2 million (Fiscal 2019 - $4.4 million) in MCSA for which the functional currency is the BRL, and a realized
foreign exchange loss on derivative contracts of $20.8 million (Fiscal 2019 - $1.0 million). The foreign exchange losses were primarily
a result of a strengthening of the USD against the BRL during a time of worldwide instability as a result of the COVID-19 pandemic. The
foreign exchange loss on unrealized derivative contracts are a result of mark-to-market calculations at period end and may not
represent the amount that will ultimately be realized, which will depend on future changes to the USD/BRL foreign exchange rates.
In Fiscal 2019, the Company recognized a loss on debt settlement of $1.8 million, which represented the difference between the
accounting fair value made to legally extinguish a bank loan held by MCSA and the carrying value of the loan at the time.
In Fiscal 2020, the Company recognized a recovery of $8.9 million in net income related to value added taxes. The recovery was
recognized as a result of a study conducted to revisit certain tax positions which concluded that it is probable that additional tax credits
are available to be used to offset a variety of taxes.
4.
5.
6.
7.
In Fiscal 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 tax
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.
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8.
9.
In Fiscal 2020, the Company recognized a $8.9 million income tax expense (Fiscal 2019 - income tax recovery of $17.6 million), primarily
comprised of current tax arising from taxable income in mining operations. In Fiscal 2019, the Company recognized a significant
deferred income tax recovery primarily resulting from the recognition of previously unrecognized available tax losses and tax credits
in MCSA, partially offset by current tax expense in the period. At December 31, 2019 the Company considered the taxable income
generated since the acquisition of MCSA, forecasted future taxable income, and determined that it was considered probable that the
benefit of those losses and tax credits in MCSA would be realized. Accordingly, a tax recovery of $25.2 million was recognized related
to these losses in 2019.
The foreign currency translation loss is a result of a strengthening of the USD against the BRL during a time of worldwide instability as
a result of the COVID-19 pandemic when translating the net assets of the Company’s Brazilian subsidiaries to USD for presentation in
the Company’s consolidated financial statements.
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.
Notes:
1. During Q4 2020, the Company recognized $27.1 million in foreign exchange gains. The foreign exchange gains were primarily
comprised of foreign exchange gain on unrealized derivative contracts of $27.7 million and a foreign exchange gain on USD
denominated debt of $7.7 million in MCSA for which the functional currency is the BRL, partially offset by a realized foreign exchange
loss on derivative contracts of $7.8 million and other foreign losses of $0.4 million. The foreign exchange gains were primarily a result
of a strengthening of BRL against USD in Q4 2020. The foreign exchange gains on unrealized derivative contracts are a result of mark-
to-market calculations at period end and may not represent the amount that will ultimately be realized, which will depend on future
changes to the USD/BRL foreign exchange rates.
During Q4 2020, the Company recognized a recovery of $8.9 million in net income related to value added taxes. The recovery was
recognized as a result of a study conducted to revisit certain tax positions which concluded that it is probable that additional tax credits
are available to be used to offset a variety of taxes.
2. During the quarter ended June 30, 2020, the Company had an overall net income of $7.7 million, despite $16.3 million in foreign
exchange losses. The foreign exchange losses were comprised of a foreign exchange loss on unrealized derivative contracts of $8.5
million, a foreign exchange loss on realized derivative contracts of $4.4 million, and a foreign exchange loss on USD denominated debt
of $3.0 million in MCSA for which the functional currency is the BRL. As with the preceding quarter, the foreign exchange losses were
unusually high this quarter due to volatility in the foreign exchange rates between the USD and BRL resulting from the worldwide
instability in currency rates as a result of the COVID-19 pandemic.
3. During the quarter ended March 31, 2020, the Company recognized a $81.9 million in foreign exchange losses. The foreign exchange
losses were mainly comprised of a $26.9 million loss associated with USD denominated debt held by MCSA, whose functional currency
is the BRL, and $52.7 million losses associated with unrealized losses on foreign exchange currency collar contracts. These foreign
exchange losses were unusually high this quarter due to volatility in the foreign exchange rates between the USD and the BRL resulting
from the worldwide instability in currency rates as a result of the COVID-19 pandemic.
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Selected Financial InformationDec 31(1)Sept 30June 30(2)Mar 31(3)Dec 31(4)Sept 30(5)June 30March 31Revenue91.2$ 94.3$ 70.8$ 67.7$ 75.7$ 60.6$ 76.5$ 72.0$ Cost of product sold(31.3)$ (33.3)$ (30.1)$ (35.8)$ (43.0)$ (38.4)$ (43.3)$ (38.1)$ Gross profit58.3$ 59.6$ 39.5$ 30.7$ 31.1$ 21.3$ 32.1$ 32.6$ Net income (loss) for period66.3$ 31.4$ 7.7$ (53.0)$ 45.4$ 16.3$ 15.3$ 15.5$ Income (loss) per share attributable to owners of the Company0.75$ 0.36$ 0.09$ (0.62)$ 0.53$ 0.19$ 0.18$ 0.18$ - Diluted0.71$ 0.34$ 0.08$ (0.62)$ 0.49$ 0.18$ 0.17$ 0.17$ Weighted average number of common shares outstanding87,321,83286,448,31885,933,44385,759,19485,620,16885,505,67585,032,84184,804,389- Diluted92,642,10391,961,89791,428,96985,759,19491,670,98891,320,36390,696,92689,917,828- Basic- Basic20192020
4. 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.
5. 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.
LIQUIDITY, CAPITAL RESOURCES, AND CONTRACTUAL OBLIGATIONS
Liquidity
As at December 31, 2020, the Company held cash and cash equivalents of $62.5 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 have increased by $41.0 million since December 31, 2019. The Company’s cash flows
from operating, investing, and financing activities during Fiscal 2020 are summarized as follows:
• Cash from operating activities of $162.8 million
• Cash from financing activities of $0.3 million, including:
o $69.0 million proceeds from new loans and borrowings;
o $4.4 million proceeds from exercise of stock options and warrants;
o $1.5 million released from restricted cash
net of:
o $57.4 million of repayment on loans and borrowings;
o $9.7 million of payment of interest on loans and borrowings;
o $4.3 million of lease payments;
o $3.2 million of other finance expenses
Partially offset by:
• Cash used in investing activities of $116.6 million, including:
o $117.6 million of additions to mineral property, plant and equipment;
o $0.2 million of additions to exploration and evaluation assets
net of:
o $1.3 million from other investments
As at December 31, 2020, the Company had working capital of $35.8 million, primarily as a result of a record cash
flow from operations.
Capital Resources
The Company’s primary sources of capital are comprised of cash from operations, and cash and cash equivalents
on hand. 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, management believes that the Company has sufficient working capital and financial
resources to maintain its planned operations and activities for the foreseeable future.
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At December 31, 2020, we had unrestricted cash and cash equivalents of $62.5 million compared to $21.5 million
at December 31, 2019. The increase is primarily due to an increase in cash from operations.
The Company’s $150 million Facilities are fully drawn at December 31, 2020. The Company is required to comply
with certain financial covenants. As of the date of the consolidated financial statements, the Company is in
compliance with these covenants. Subsequent to December 31, 2020, the Company amended terms of the
Facilities. Refer to sub-section titled “Q4 2020 Financial Report” within the “Highlights” section in this MD&A.
Contractual Obligations and Commitments
Certain loan agreements contain operating and financial covenants that could restrict the ability of the Company
and its subsidiaries, MCSA, Ero Gold, 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.
COVID-19 Pandemic Risk
The outbreak of COVID-19 has had a significant impact on the volatility of commodity prices and USD/BRL
exchange rates, and governmental actions to contain the outbreak may impact our ability to transport or market
our concentrate or cause disruptions in our supply chains or interruption of production. A material spread of
COVID-19 in jurisdictions where we operate could impact our ability to staff operations. A reduction in production
or other COVID-19 related impacts, including but not limited to, low copper prices could cause a significant
reduction in profitability of ongoing operations.
The global pandemic could cause temporary closure of businesses in regions that are significantly impacted by the
health crises, or cause governments to take or continue to take preventative measures such as the closure of
points of entry, including ports and borders.
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,
2020 and December 31, 2019:
The Company invests cash and cash equivalents 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
E R O C O P P E R | 2 0 2 0 A N N U A L R E V I E W | 2 7
December 31, 2020December 31, 2019Cash and cash equivalents62,508$ 21,485$ Restricted cash- 1,500 Accounts receivable20,353 7,680 Deposits and other non-current assets595 2,396 83,456$ 33,061$
year ended December 31, 2020 nor recognized a provision for credit losses.
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 non-derivative financial liabilities on December 31, 2020:
The Company also has derivative financial liabilities for foreign exchange and interest rate derivatives whose
notional amounts and maturity information is disclosed below under foreign exchange currency risk and interest
rate risk.
Foreign exchange currency risk
The Company may use derivatives, including forward contracts, collars and swap contracts, to manage market
risks. At December 31, 2020, the Company has entered into foreign exchange collar contracts at zero cost for
notional amounts of $285.7 million with an average floor rate of 4.05 BRL to US Dollar and an average cap rate of
4.76 BRL to US Dollar (December 31, 2019 - notional amount of $336.6 million in foreign exchange forward collar
contracts). The maturity dates of these contracts are from January 27, 2021 to July 27, 2022 and are financially
settled on a net basis. The fair value of these contracts at December 31, 2020 was a liability of $34.5 million,
(December 31, 2019 - $nil) which is included in Derivatives in the statement of financial position. The fair value of
these forward contracts as at December 31, 2020 was determined using an option pricing mode with the following
assumptions: discount rate of 5.015%, foreign exchange rate of approximately 5.20, and volatility of 7.46% -
21.20%. The change in fair value of foreign exchange collar contracts was a loss of $34.5 million for the year ended
December 31, 2020 (a loss of $0.3 million for the year ended December 31, 2019) and has been recognized in
foreign exchange loss. In addition, during the year ended December 31, 2020, the Company recognized a realized
loss of $20.8 million ($1.0 million for the year ended December 31, 2019) related to the settlement of foreign
currency forward collar 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 Term Facilities of $150.0 million, Brazilian Real
denominated bank loans of $4.5 million, Brazilian Real denominated lines of credit of $1.4 million, and Brazilian
Real denominated equipment finance loans of $1.1 million. Based on the Company’s net exposure at December
31, 2020, a 1% change in the variable rates would have an impact of $1.6 million on pre-tax annual net income,
without consideration of the effects of the interest rate swap contract below.
E R O C O P P E R | 2 0 2 0 A N N U A L R E V I E W | 2 8
Non-derivative Financial LiabilitiesCarrying valueContractual cash flowsUp to 12 months1-2 years3-5 yearsMore than 5 yearsLoans and borrowings168,102$ 169,889$ 12,223$ 36,998$ 119,976$ 692$ Interest on loans and borrowings- 15,025 5,859 4,863 4,296 7 Accounts payable and accrued liabilities37,878 37,878 37,878 - - - Value added, payroll and other taxes14,829 16,332 13,361 1,484 1,487 - 220,809$ 239,124$ 69,321$ 43,345$ 125,759$ 699$
In order to mitigate the above volatility due to variable rates on loans, as at December 31, 2020, the Company has
entered into an interest rate swap contract to manage interest rate risk. At December 31, 2020, the floating
interest on a notional amount of $60.0 million was swapped for a fixed interest rate of 2.69%. This interest rate
swap transaction is in effect for the majority of the term of the Company’s term facility, with the notional amount
reduced over time. The fair value of this contract at December 31, 2020 was a liability of $2.5 million (December
31, 2019 - $1.7 million) and was included in Derivatives in the statement of financial position. The fair value of this
swap contracts as at December 31, 2020 was determined using a discounted cash flow model with the following
assumptions: discount rates of 0.017% – 0.298% and forward foreign exchange rates of 0.421% - 0.164%. The
realized loss on the interest rate swap contract was $1.2 million for the year ended December 31, 2020 (realized
loss of $0.1 million for the year ended December 31, 2019) and was included in finance expense. In addition, the
Company recognized an unrealized loss of $0.8 million on the interest rate swap contract for the year ended
December 31, 2020 (unrealized loss of $1.6 million for the year ended December 31, 2019), which was included
in finance expense.
In addition, as at December 31, 2020, MCSA has entered into an interest rate and currency swap contract on the
Plural Loan. At December 31, 2020, 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 3.95. The fair
value of this contract at December 31, 2020 was a liability of $0.3 million (December 31, 2019 - nil) and is included
in Derivatives in the statement of financial position. The realized loss on this swap contract was $0.4 million for
the year ended December 31, 2020 and was included in finance expense. In addition, the Company recognized an
unrealized loss of $0.3 million on the swap contract for the year ended December 31, 2020, which was also
included in finance expense.
Price risk
The Company may use derivatives, including forward contracts, collars and swap contracts, to manage commodity
price risks. At December 31, 2020, the Company has not entered into any commodity derivative contracts. 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, 2020 and dated March 16, 2021 (the “AIF”).
OTHER FINANCIAL INFORMATION
Off-Balance Sheet Arrangements
As at December 31, 2020, the Company had no material off-balance sheet arrangements.
Contingencies
MCSA is 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 material 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 $21.8 million as at December 31, 2020 (December
31, 2019 - $31.1 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 16, 2021, the Company had 88,101,909 common shares, 4,485,781 stock options, 1,533,330 warrants,
and 727,761 performance share units issued and outstanding.
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Related Party Disclosures
For the three months and year ended December 31, 2020, 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.
The aggregate value of compensation paid to key management personnel for the year ended December 31, 2020
was $7.4 million ($7.5 million for the year ended December 31, 2019). In addition, 287,281 options, 197,269 share
units and 79,230 DSUs were issued to key management personnel and non-executive directors during the year
ended December 31, 2020 (444,265 options and 171,754 share units for the year ended December 31, 2019). For
key management personnel, $5.1 million was recognized in share-based compensation expense for the year
ended December 31, 2020 for options, share units, and DSUs issued ($4.1 million for the year ended December
31, 2019).
During the year ended December 31, 2020, key management personnel exercised 408,555 options and 1,266,666
warrants for total cash proceeds to the Company of $2.7 million (286,666 options and 300,000 warrants for total
cash proceeds of $1.0 million for the year ended December 31, 2019).
As at December 31, 2020, $3.7 million was payable to key management as incentive compensation and is included
in accounts payable and accrued liabilities in the statement of financial position (December 31, 2019 - $3.9
million). Such amounts are unsecured, non-interest bearing and will be paid under normal trade terms.
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, 2020 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.
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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.
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:
Derivative instruments
The fair value of derivative instruments is determined using either present value techniques or option pricing
models that utilize a variety of inputs that are a combination of quoted prices and market-corroborated inputs,
including assumptions for forward interest and foreign exchange rates, volatilities and discount rates. The fair
value of the Company’s derivative contracts includes an adjustment for credit risk for either the Company or the
counter party as applicable. Changes in the assumptions for inputs into the models affect the fair value of the
derivatives recognized in the statement of financial position as well as the unrealized gains or losses recognized
in net income.
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
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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) to the
consolidated financial statements.
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.
The Company operates in Brazil where tax authorities may audit income tax treatments and the resolution of such
audits may span multiple years. Tax law in Brazil is complex and often subject to changes and to varied
interpretations; accordingly, the ultimate outcome with respect to income tax treatments may differ from the
amounts recognized. The Company’s assessment of whether it is probable that uncertain income tax treatments
will be accepted by tax authorities in Brazil is a significant management judgment.
New Accounting Standards and Interpretations Adopted in the Year
The following new and amended IFRS pronouncements were adopted effective January 1, 2020 and had no impact
to the Company’s financial statements:
• Amendments to References to the Conceptual Framework in IFRS Standards
•
In September 2019, the IASB issued first phase amendments IFRS 9 Financial Instruments, IAS 39 Financial
Instruments: Recognition and Hedging, and IFRS 7 Financial Instrument Disclosures to address the financial
reporting impact of the reform on interest rate benchmarks, such as the discontinuance of the interbank
offered rates. The first phase amendment is focused on the impact to hedge accounting requirements. The
Company adopted the first phase amendment and there was no material impact on its consolidated
financial statements. The Company will continue to assess the effect of amendments related to the interest
rate benchmark reform on its consolidated financial statements.
The following amendment to accounting standards has been issued but not yet adopted in the financial
statements:
• On May 14, 2020, the IASB published a narrow scope amendment to IAS 16 Property, Plant and Equipment
- Proceeds before Intended Use. The amendment prohibits deducting from the cost of property, plant and
equipment amounts received from selling items produced while preparing the asset for its intended use.
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Instead, amounts received will be recognized as sales proceeds and related cost in profit or loss. The
effective date is for annual periods beginning on or after January 1, 2022. The Company does not expect
to adopt this amendment until the effective date, and does not anticipate a material impact on its
consolidated financial statements.
Local Currency Operating Metrics – Presented in Brazilian Real
Footnotes
General - Above only includes amounts from MCSA. NX Gold operations are excluded.
[1] - Beginning in Q3 2020, production costs are presented net of capex development. Comparative figures have been adjusted to conform with the revised
presentation.
[2] - There was no OP production in Fiscal 2020.
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2020 - Q42020 - Q320202019 - Q42019Costs (MCSA Operations)Mining[1] - UG (Pilar) R$ 40,532 35,661 140,335 36,237 152,994 - UG (Vermelhos)28,149 32,421 121,950 25,360 96,100 - OP- - - 29 8,521 Processing21,657 22,703 82,905 22,250 83,041 Indirect18,897 15,774 60,756 12,822 46,607 Production costs[1]109,235 106,559 405,946 96,698 387,263 By-product credits (24,246) (27,128) (88,328) (16,876) (50,823) Treatment, refining and other (2,854) 2,367 6,637 3,895 7,358 C1 cash costsR$82,135 81,798 324,255 83,717 343,798 Breakdown Mined and Processed (tonnes) UG Mined588,792 647,281 2,521,263 675,258 2,527,386 OP Mined- - - - 727,578 Total Mined (t):588,792 647,281 2,521,263 675,258 3,254,964 Total Processed (t)483,447 553,148 2,271,625 589,065 2,424,592 Cu Production (t)10,018 10,961 42,814 11,526 42,318 UG Mining Total - R$/tonne mined116.65 105.18 104.03 91.22 98.56 Pilar - R$/tonne mined103.55 87.16 89.60 78.56 91.26 Vermelhos - R$/tonne mined142.63 136.14 127.70 118.52 112.93 OP Mining - R$/tonne mined[2]n/an/an/an/a11.71 Processing - R$/tonne processed44.80 41.04 36.50 37.77 34.25 Indirect - R$/tonne processed39.09 28.52 26.75 21.77 19.22
Capital Expenditures
The following table presents capital expenditures at the Company’s operations.
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), AISC of
gold produced (per ounce), EBITDA, Adjusted EBITDA, Adjusted net income attributable to owners of the
Company, Adjusted net income per share, net debt, working capital (deficit) and available liquidity, 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.
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2020 - Q42020 - Q320202019 - Q42019MCSA Operations Pilar Mine and Caraíba Mill Complex12,464 14,283 54,487 14,876 43,933 Vermelhos Mine3,579 3,804 14,022 4,063 19,751 Boa Esperanҫa Project61 58 178 53 1,139 Capital Expenditure16,104 18,145 68,687 18,992 64,823 Capex Development (included in above)7,111 8,156 31,929 10,936 31,705 Exploration7,702 9,446 31,880 8,742 33,738 NX Gold OperationsCapital Expenditure3,843 3,028 12,981 2,280 7,606 Capex Development (included in above)1,407 1,698 6,675 540 1,147 Exploration1,454 965 4,257 859 3,600
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.
[1] - Beginning in Q3 2020, production costs are presented net of capex development. Comparative figures have been adjusted to conform with the revised
presentation.
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2020 - Q42020 - Q320202019 - Q42019Reconciliation: Cost of Product Sold25,800$ 28,168$ 109,567$ 35,620$ 135,607$ Add (less): Depreciation/amortization/depletion(7,950) (9,593) (35,674) (11,128) (40,107) Incentive payments(761) (714) (2,741) (2,870) (2,870) Net change in inventory888 891 2,271 322 1,062 Transportation costs & other1,040 1,043 3,947 1,479 4,598 By-product credits(4,493) (5,042) (17,005) (4,101) (12,822) Treatment, refining, and other(554) 469 1,192 935 1,814 Foreign exchange translation adjustments1,225 11 1,525 74 (70) C1 cash costs15,195$ 15,233$ 63,082$ 20,330$ 87,212$ 2020 - Q42020 - Q320202019 - Q42019CostsMining[1]12,727$ 12,654$ 51,007$ 14,974$ 65,603$ Processing4,013 4,220 16,124 5,406 21,035 Indirect3,502 2,932 11,764 3,116 11,581 Production costs[1]20,242 19,806 78,895 23,496 98,219 By-product credits(4,493) (5,042) (17,005) (4,101) (12,822) Treatment, refining and other(554) 469 1,192 935 1,814 C1 cash costs15,195$ 15,233$ 63,082$ 20,330$ 87,212$ Costs per poundPayable copper produced (lb)22,086 24,164 94,388 25,411 93,295 Mining[1]0.58$ 0.52$ 0.54$ 0.59$ 0.70$ Processing0.18$ 0.17$ 0.17$ 0.21$ 0.23$ Indirect0.16$ 0.12$ 0.12$ 0.12$ 0.12$ By-product credits(0.20)$ (0.21)$ (0.18)$ (0.16)$ (0.14)$ Treatment, refining and other(0.03)$ 0.02$ 0.01$ 0.04$ 0.02$ C1 cash cost of copper produced (per lb)0.69$ 0.63$ 0.67$ 0.80$ 0.93$
C1 Cash Cost of Gold produced (per ounce) and AISC 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 ounce 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.
AISC of gold produced (per ounce) is the sum of production costs, site general and administrative costs, accretion
of mine closure and rehabilitation provision, sustaining capital expenditures, sustaining leases, and royalties and
production taxes, net of 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. All-in sustaining cost of gold produced per ounce 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 and AISC of gold produced
per ounce to cost of goods sold, its most directly comparable IFRS measure.
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2020 - Q42020 - Q320202019 - Q42019Reconciliation: Cost of Product Sold5,523$ 5,169$ 21,018$ 7,397$ 27,210$ Add (less): Depreciation/amortization/depletion(1,174) (818) (3,538) (881) (5,907) Incentive payments(120) (116) (511) - - Net change in inventory255 (134) 140 120 710 By-product credits(141) (134) (424) (67) (281) Foreign exchange translation adjustments26 3 140 (18) (46) C1 cash costs4,369$ 3,970$ 16,825$ 5,917$ 21,052$ Site general and administrative721 641 2,420 716 2,216 Accretion of mine closure and rehabilitation provision88 49 268 194 1,018 Sustaining capital expenditure600 179 1,033 218 773 Sustaining leases502 345 1,613 399 1,423 Royalties and production taxes281 281 952 125 589 AISC6,561$ 5,465$ 23,111$ 7,569$ 27,071$
[1] - Beginning in Q3 2020, production costs are presented net of capex development. Comparative figures have been adjusted to conform with the revised
presentation.
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2020 - Q42020 - Q320202019 - Q42019CostsMining[1]2,280$ 1,980$ 8,194$ 2,715$ 10,266$ Processing1,624 1,544 6,462 2,274 7,588 Indirect606 580 2,593 995 3,479 Production costs[1]4,510 4,104 17,249 5,984 21,333 By-product credits(141) (134) (424) (67) (281) C1 cash costs4,369$ 3,970$ 16,825$ 5,917$ 21,052$ Site general and administrative721 641 2,420 716 2,216 Accretion of mine closure and rehabilitation provision88 49 268 194 1,018 Sustaining capital expenditure600 179 1,033 218 773 Sustaining leases502 345 1,613 399 1,423 Royalties and production taxes281 281 952 125 589 AISC6,561$ 5,465$ 23,111$ 7,569$ 27,071$ Costs per ouncePayable gold produced (ounces)10,789 9,436 36,830 6,043 30,434 Mining[1]211$ 210$ 222$ 449$ 337$ Processing151$ 164$ 175$ 376$ 249$ Indirect56$ 61$ 70$ 165$ 114$ By-product credits(13)$ (14)$ (12)$ (11)$ (9)$ C1 cash cost of gold produced (per ounce)405$ 421$ 457$ 980$ 691$ AISC of gold produced (per ounce)608$ 579$ 628$ 1,253$ 889$
Earnings before interest, taxes, depreciation, and amortization (“EBITDA”) and Adjusted EBITDA
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 valued added taxes
-
Foreign exchange loss (gain)
-
Loss on gold hedge contracts
-
Share based compensation
-
Incremental costs in response to COVID-19 pandemic
-
Loss on debt settlement
Note: In Q4 2020 and Fiscal 2020, incremental costs in response to COVID-19 pandemic is included as an adjustment to the calculation of Adjusted EBITDA.
In Q4 2020 and Fiscal 2020, recovery of value added taxes was not included as an adjustment to the calculation of Adjusted EBITDA.
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 income 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,
net of tax, v) incremental costs in response to COVID-19 pandemic, vi) unrealized loss (gain) on interest rate
derivative contracts, vii) loss on debt settlement, and viii) unrealized loss on gold hedge contracts. 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.
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2020 - Q42020 - Q320202019 - Q42019Reconciliation: Net income 66,342$ 31,443$ 52,498$ 45,409$ 92,455$ Adjustments:Finance expenses2,556 3,397 15,449 2,014 20,428 Tax expense (recovery)13,234 6,806 8,925 (25,209) (17,626) Depreciation/amortization/depletion9,161 10,445 39,348 12,042 46,171 EBITDA91,293 52,091 116,220 34,256 141,428 Recovery of value added taxes- - - - (21,584) Foreign exchange loss (gain) (27,142) 8,703 79,805 (4,423) 5,148 Loss on gold hedge contracts- - - 15 1,505 Share based compensation2,549 1,743 9,064 1,304 5,792 Incremental costs in response to COVID-19 pandemic481 - 1,968 - - Loss on debt settlement- - - - 1,783 Adjusted EBITDA67,181$ 62,537$ 207,057$ 31,152$ 134,072$
Note: In Q4 2020 and Fiscal 2020, incremental costs in response to COVID-19 pandemic is included as an adjustment to the calculation of Adjusted EPS.
In Q4 2020 and Fiscal 2020, net recovery of value added taxes was not included as an adjustment to the calculation of Adjusted EPS.
Net Debt
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, 2020, September 30, 2020, and December
31, 2019.
Working Capital (Deficit) and Available Liquidity
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, 2020 and December 31, 2019.
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2020 - Q42020 - Q320202019 - Q42019Reconciliation:Net income as reported attributable to the owners of the Company65,786$ 31,063$ 51,622$ 45,169$ 91,883$ Adjustments for:Net recovery of value added taxes- - - - (17,783) Share based compensation2,549 1,743 9,064 1,304 5,792 Unrealized foreign exchange loss (gain) on USD denominated debt in MCSA(7,682) 2,026 24,093 (3,738) 4,388 Unrealized loss (gain) on foreign exchange derivative contracts, net of tax(23,077) 2,256 29,411 (1,404) 249 Incremental costs in response to COVID-19 pandemic481 - 1,968 - - Unrealized loss (gain) on interest rate derivative contracts(640) (386) 1,137 - - Loss on debt settlement- - - - 1,776 Unrealized gain on gold hedge contracts- - - (677) - Adjusted net income attributed to owners of the Company37,417$ 36,702$ 117,295$ 40,654$ 86,305$ Weighted average number of common shares - basic87,321,832 86,448,318 86,368,535 85,620,168 85,244,277 Weighted average number of common shares - diluted92,642,103 91,961,897 92,213,628 91,670,988 91,390,425 Adjusted EPS - basic0.43$ 0.42$ 1.36$ 0.47$ 1.01$ Adjusted EPS - diluted0.40$ 0.40$ 1.27$ 0.44$ 0.94$ December 31,September 30,December 31,202020202019Current portion of loans and borrowings12,539$ 17,325$ 18,984$ Long-term portion of loans and borrowings155,563 155,403 140,386 Less: Cash and cash equivalents(62,508) (54,341) (21,485) Restricted cash- - (1,500) Net Debt105,594$ 118,387$ 136,385$ December 31,December 31,20202019Current Assets127,541$ 75,565$ Less: Current Liabilities(91,720) (80,481) Working Capital (Deficit)35,821$ (4,916)$ Available undrawn revolving credit facilities11,621 30,000 Available Liquidity47,442$ 25,084$
Disclosure Controls and Procedures and Internal Control over Financial Reporting
The Company’s management, with the participation of the CEO and CFO, is responsible for establishing and
maintaining adequate disclosure controls and procedures (“DC&P”) and internal control over financial reporting
(“ICFR”).
The Company’s DC&P are designed to provide reasonable assurance that material information related to the
Company is identified and communicated on a timely basis.
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 DC&P and ICFR and concluded that the Company’s DC&P and ICFR were effective
as of December 31, 2020.
There were no changes in the Company’s DC&P and ICFR that materially affected, or are reasonably likely to
materially affect, ICFR during Q4 2020.
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 National Instrument 43-101, Standards of Disclosure for Mineral Projects
(“NI 43-101”) and entitled “2020 Updated Mineral Resources and Mineral Reserves Statements of Mineração
Caraíba’s Vale do Curaçá Mineral Assets, Curaçá Valley”, dated January 14, 2021 with an effective date of October
1, 2020, prepared by Porfirio Cabaleiro Rodrigues, MAIG, Bernardo Horta de Cerqueira Viana, MAIG, Paulo
Roberto Bergmann, FAusIMM, Fábio Valério Câmara Xavier, MAIG, Dr. Augusto Ferreira Mendonça, RM SME, all
of GE21 Consultoria Mineral Ltda. (“GE21”), and Dr. Beck (Alizeibek) Nader, FAIG, of BNA Mining Solutions, and
each a “qualified person” and “independent” of the Company within the meanings of NI 43-101 (the “MCSA
Mining Complex 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 January 8, 2021 with an effective date of September 30, 2020,
prepared by Porfirio Cabaleiro Rodrigues, MAIG, Leonardo de Moraes Soares, MAIG, Bernardo Horta de Cerqueira
Viana, 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 and Carlos Barbosa, MAIG and Girogio di Tomi, MAusIMM, both of SRK Brazil, and each a
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“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 MCSA Mining Complex 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.
The disclosure of Technical Information in this MD&A was reviewed and approved by Emerson Ricardo 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 mineral reserve and mineral resource estimates as well as LOM plans; targeting additional
mineral resources and expansion of deposits; the Company’s expectations, strategies and plans for the MCSA Mining
Complex, the NX Gold Property and the Boa Esperança Property, including the Company’s planned exploration,
development and production activities; the significance of any particular exploration program or result and the
Company’s expectations for current and future exploration plans including, but not limited to, planned areas of
additional exploration, the significance of any drill results or new discoveries and targets, including without limitation,
extensions of defined mineralized zones, possibilities for mine life extensions or continuity of high-grade mineralization,
the recoverable value of any metals other than copper, further extensions and expansion of mineralization near the
Company’s existing operations and throughout the Curaçá Valley or the NX Gold Mine, the timing and advancement of
ongoing projects including the Deepening Extension Project and the re-start of the Surubim open pit mine; estimated
completion dates for certain milestones; successfully adding or upgrading mineral resources and successfully
developing new deposits; the costs and timing of future exploration and development including but not limited to the
Deepening Extension Project at the MCSA Mining Complex; the significance of any potential optimization initiatives in
connection with the Boa Esperança Property and the potential issuance, and timing of, an OFS; the impact of the COVID-
19 pandemic on the Company’s planned drill programs; the timing and amount of future production at the MCSA Mining
Complex and the NX Gold Property; the representativeness of the material tested in the Company’s ore sorting trial
campaign to actual results of each of the mines tested during the campaign and the potential benefits of ore sorting in
the LOM plans at any of the Company's operations including the Vermelhos District as well as any potential savings on
transport costs, any potential reduction in water, diesel and electricity use, as well as any proposed reductions in
flotation tailings as a result of ore sorting implementation, which may or may not occur in any capacity at the Company's
operations or life-of-mine plans now or in the future, 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 COVID-19 pandemic and its impact on the Company’s business, financial condition, results of
operations, cash flows and prospects.
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 MD&A including, without limitation, assumptions about: continued effectiveness
of the measures taken by the Company to mitigate the possible impact of COVID-19 on its workforce and operations;
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 MCSA Mining Complex, 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
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exchange rates and interest rates; operating conditions being favourable such that the Company is able to operate in a
safe, efficient and effective manner; work force conditions to remain healthy in the face of prevailing epidemics,
pandemics or other health risks (including COVID-19), 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 and critical supplies, spare parts and
consumables; 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.
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.
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T S X : E R O
CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 2020 AND 2019
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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 Entity”),
which comprise:
–
–
the consolidated statements of financial position as at December 31, 2020 and
December 31, 2019;
the consolidated statements of operations and comprehensive income, 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 Entity as at December 31, 2020 and
December 31, 2019, 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 Entity 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.
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Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most
significance in our audit of the financial statements for the year ended December 31, 2020.
These matters were addressed in the context of our audit of the financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on
these matters.
We have determined the matter described below to be the key audit matter to be
communicated in our auditors’ report.
Assessment of recognition of uncertainties over income tax treatments in
Brazil
Description of the matter
We draw your attention to Notes 2(d), 3(e) and 11(c)(ii) to the financial statements.
Uncertainties over income tax treatments are evaluated on the basis of whether it is
probable
taxing
authorities. These uncertainties impact the amount of income taxes recognized.
they will be accepted upon examination by
the relevant
that
The Entity operates in Brazil where tax authorities may audit income tax treatments and
the resolution of such audits may span multiple years. Tax law in Brazil is complex and
often subject to changes and to varied interpretations; accordingly, the ultimate outcome
with respect to income tax treatments may differ from the amounts recognized. The Entity’s
assessment of whether it is probable that uncertain income tax treatments will be accepted
by tax authorities in Brazil is a significant management judgment.
Why the matter is a key audit matter
We identified the assessment of recognition of uncertainties over income tax treatments in
Brazil as a key audit matter. This matter represented an area of significant risk of
misstatement given the high degree of subjectivity and judgment required in evaluating
management’s significant judgement. As a result, specialized skills and knowledge were
required in evaluating management’s significant judgement.
How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter included the
following:
We involved income tax and legal professionals in Brazil with specialized skills and
knowledge who assisted in assessing whether it was probable that uncertain income tax
treatments would be accepted by:
– Developing an
independent assessment based on our understanding and
interpretation of tax laws in Brazil
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–
–
Inspecting correspondence documents with Brazilian tax authorities and evaluating the
implications of the matters raised by such authorities
Inspecting opinions provided by the Entity’s tax and legal advisors.
We also assessed whether it was probable that uncertain income tax treatments would be
accepted by obtaining legal enquiry letter responses from law firms related to identified tax
claims and contingencies.
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 Entity’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
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intends to liquidate the Entity or to cease operations, or has no realistic alternative but to
do so.
Those charged with governance are responsible for overseeing the Entity‘s financial
reporting process.
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 Entity'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 Entity'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 Entity to cease to
continue as a going concern.
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– 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.
– 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 Entity 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.
Vancouver, Canada
March 16, 2021
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Ero Copper Corp.
Consolidated Statements of Financial Position
(Amounts in thousands of US Dollars)
Nature of operations (Note 1); Contingencies (Note 11); Subsequent events (Note 9(a), 12(a) and (d))
APPROVED ON BEHALF OF THE BOARD:
“David Strang” , CEO & Director
”Matthew Wubs”
, Director
The accompanying notes are an integral part of these consolidated financial statements
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ASSETSNotesAs at December 31, 2020As at December 31, 2019CurrentCash and cash equivalents62,508$ 21,485$ Restricted cash9(b)- 1,500 Accounts receivable20,353 7,680 Inventories425,496 19,377 Other current assets519,184 25,523 127,541 75,565 Non-CurrentMineral, property, plant and equipment6333,702 339,516 Exploration and evaluation assets721,024 25,878 Deposits513 1,200 Deferred income tax assets1914,223 13,099 Other non-current assets96 7,416 369,558 387,109 Total Assets497,099$ 462,674$ LIABILITIESCurrentAccounts payable and accrued liabilities837,878$ 43,694$ Current portion of loans and borrowings912,539 18,984 Current portion of value added, payroll andother taxes payable1013,361 13,994 Current portion of derivatives2126,540 650 Current portion of lease liabilities1,402 3,159 91,720 80,481 Non-CurrentLoans and borrowings9155,563 140,386 Provisions1121,450 33,581 Value added, payroll and other taxes101,468 5,694 Derivatives2110,811 1,059 Lease liabilities346 487 Other non-current liabilities1,666 1,928 191,304 183,135 Total Liabilities283,024 263,616 SHAREHOLDERS’ EQUITYShare capital12126,152 120,492 Equity reserves(67,291) (24,489) Retained earnings153,842 102,220 Equity attributable to owners of the Company212,703 198,223 Non-controlling interests1,372 835 214,075 199,058 Total Liabilities and Equity497,099$ 462,674$
Ero Copper Corp.
Consolidated Statements of Operations and Comprehensive Income
(Amounts in thousands of US Dollars, except share and per share amounts)
The accompanying notes are an integral part of these consolidated financial statements
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NotesRevenue13324,076$ 284,843$ Cost of product sold14(130,585) (162,817) Sales expenses(5,354) (4,962) Gross profit 188,137 117,064 ExpensesGeneral and administrative15(27,927) (32,817) Share-based compensation12(a) to (c) (9,064) (5,792) Income before the undernoted151,146 78,455 Other income (expenses)Finance income1,346 701 Finance expense16(15,449) (20,428) Foreign exchange loss17(79,805) (5,148) Loss on debt settlement- (1,783) Recovery of value added taxes188,886 21,584 Other income (expenses)(4,701) 1,448 Income before income taxes61,423 74,829 Income tax recovery (expense)Current 19(9,675) (10,645) Deferred19750 28,271 (8,925) 17,626 Net income for the year52,498 92,455 Other comprehensive income (loss)Foreign currency translation loss(49,553) (4,941) Comprehensive income2,945$ 87,514$ Net income attributable to:Owners of the Company51,622 91,883 Non-controlling interests876 572 52,498$ 92,455$ Comprehensive income attributable to:Owners of the Company2,267 86,962 Non-controlling interests678 552 2,945$ 87,514$ Net income per share attributable to owners of the Company 12(e) Net income per share Basic 0.60$ 1.08$ Diluted0.56$ 1.01$ Weighted average number of common shares outstandingBasic86,368,53585,244,277Diluted92,213,62891,390,425Year ended December 31, 2020Year ended December 31, 2019
Ero Copper Corp.
Consolidated Statement of Changes in Shareholders’ Equity
(Amounts in thousands of US Dollars, except share and per share amounts)
The accompanying notes are an integral part of these consolidated financial statements
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Notes Number of shares Amount Contributed surplus Foreign exchange Retained earnings Total Non-controlling interest Total equity Balance, December 31, 201884,738,650 117,944$ 3,897$ (28,652)$ 10,337$ 103,526$ 296$ 103,822$ Income for the year- - - - 91,883 91,883 572 92,455 Other comprehensive loss for the year- - - (4,921) - (4,921) (20) (4,941) Total comprehensive income (loss) for the year- - - (4,921) 91,883 86,962 552 87,514 Shares issued for:Exercise of options and warrants 964,996 2,548 (605) - - 1,943 - 1,943 Share-based compensation12(a) to (c) - - 5,792 - - 5,792 - 5,792 Dividends to non-controlling interest(13) (13) Balance, December 31, 201985,703,646 120,492$ 9,084$ (33,573)$ 102,220$ 198,223$ 835$ 199,058$ Income for the year- - - - 51,622 51,622 876 52,498 Other comprehensive loss for the year- - - (49,355) - (49,355) (198) (49,553) Total comprehensive income (loss) for the year- - - (49,355) 51,622 2,267 678 2,945 Shares issued for:Exercise of options and warrants2,175,615 5,660 (1,258) - - 4,402 - 4,402 Share-based compensation12(a) to (c) - - 7,811 - - 7,811 - 7,811 Dividends to non-controlling interest- - - - - - (141) (141) Balance, December 31, 202087,879,261 126,152$ 15,637$ (82,928)$ 153,842$ 212,703$ 1,372$ 214,075$ Share Capital Equity Reserves
Ero Copper Corp.
Consolidated Statements of Cash Flows
(Amounts in thousands of US Dollars)
The accompanying notes are an integral part of these consolidated financial statements
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Year ended December 31, 2020Year ended December 31, 2019Cash Flows from / (used in) Operating ActivitiesNet income for the year $ 52,498 92,455$ Adjustments for:Amortization and depreciation39,348 46,171 Income tax expense (recovery)8,925 (17,626) Loss on debt settlement- 1,783 Recovery of value added taxes(8,886) (21,584) Write-off of plant and equipment1,842 3,475 Unrealized derivative contracts- 1,427 Provisions(145) (625) Share-based compensation9,064 5,792 Finance income(1,346) (701) Finance expenses15,449 20,428 Foreign exchange loss79,805 5,148 Changes in:Accounts receivable(13,266) (756) Inventories(6,360) (5,946) Other assets6,858 (4,636) Accounts payable and accrued liabilities(3,885) 11,604 Deferred revenue- (1,882) Value added, payroll and other taxes7,121 43 187,022 134,570 Derivative contract settlements(20,804) (1,011) Provision settlements(1,585) (1,786) Income taxes paid(1,796) (3,943) 162,837 127,830 Cash Flows from / (used in) Investing ActivitiesAdditions to mineral property, plant and equipment(117,607) (105,382) Additions to exploration and evaluation assets(199) (892) Other investments1,250 (467) (116,556) (106,741) Cash Flows from / (used in) Financing ActivitiesRestricted cash1,500 1,500 Lease liability payments(4,337) (4,082) New loans and borrowings, net of finance costs68,997 37,867 Loans and borrowings paid(57,425) (41,305) Interest paid on loans and borrowings(9,693) (10,276) Other finance expenses(3,156) (3,668) Issuance of share capital, net of issuance costs4,402 1,943 288 (18,021) Effect of exchange rate changes on cash and cash equivalents(5,546) (524) Net increase in cash and cash equivalents41,023 2,544 Cash and cash equivalents - beginning of year21,485 18,941 Cash and cash equivalents - end of year $ 62,508 $ 21,485
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 a 97.6% ownership interest in NX Gold S.A. (“NX Gold”) indirectly through its wholly-owned
subsidiary, Ero Gold Corp. (“Ero Gold”).
MCSA is a Brazilian company which holds a 100% interest in the MCSA Mining Complex and the Boa Esperança
Property (Note 7). MCSA’s predominant activity is the production and sale of copper concentrate from the MCSA
Mining Complex, located in Bahia, Brazil, 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 by-product. NX Gold wholly owns a 31,096 ha property, located approximately 18
kilometers west of the town of Nova Xavantina, in 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.
On March 11, 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organization.
Although COVID-19 has not materially impacted the Company’s operations during the year ended December 31,
2020, the situation is dynamic and the ultimate duration and magnitude of the impact on the economy and our
business are not known at this time. These impacts could include an impact on the Company’s ability to obtain
debt and equity financing, impairment of investments, impairments in the value of long-lived assets, continued
fluctuation in the value of the Brazilian Real or potential future decreases in revenue or the profitability of
ongoing operations.
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 16, 2021.
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.
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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)
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
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.
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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)
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.
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:
Derivative instruments
The fair value of derivative instruments is determined using either present value techniques or option pricing
models that utilize a variety of inputs that are a combination of quoted prices and market-corroborated
inputs, including assumptions for forward interest and foreign exchange rates, volatilities and discount rates.
The fair value of the Company’s derivative contracts includes an adjustment for credit risk for either the
Company or the counter party as applicable. Changes in the assumptions for inputs into the models affect
the fair value of the derivatives recognized in the statement of financial position as well as the unrealized
gains or losses recognized in net income.
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, property, 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.
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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)
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, property, plant and equipment. Adjustments to the carrying amounts of related mineral,
property, 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).
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.
The Company operates in Brazil where tax authorities may audit income tax treatments and the resolution
of such audits may span multiple years. Tax law in Brazil is complex and often subject to changes and to
varied interpretations; accordingly, the ultimate outcome with respect to income tax treatments may differ
from the amounts recognized. The Company’s assessment of whether it is probable that uncertain income
tax treatments will be accepted by tax authorities in Brazil is a significant management judgment.
e) New Accounting Standards and Interpretations Adopted in the Year
The following new and amended IFRS pronouncements were adopted effective January 1, 2020 and had no
impact to the Company’s financial statements:
•
•
Amendments to References to the Conceptual Framework in IFRS Standards
In September 2019, the IASB issued first phase amendments IFRS 9 Financial Instruments, IAS 39
Financial Instruments: Recognition and Hedging and IFRS 7 Financial Instrument Disclosures to
address the financial reporting impact of the reform on interest rate benchmarks, such as the
discontinuance of the interbank offered rates. The first phase amendment is focused on the impact
to hedge accounting requirements. The Company adopted the first phase amendment and there was
no material impact on its consolidated financial statements. The Company will continue to assess
the effect of amendments related to the interest rate benchmark reform on its consolidated financial
statements.
The following amendment to accounting standards has been issued but not yet adopted in the financial
statements:
• On May 14, 2020, the IASB published a narrow scope amendment to IAS 16 Property, Plant and
Equipment - Proceeds before Intended Use. The amendment prohibits deducting from the cost of
property, plant and equipment amounts received from selling items produced while preparing the
asset for its intended use. Instead, amounts received will be recognized as sales proceeds and related
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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)
cost in profit or loss. The effective date is for annual periods beginning on or after January 1, 2022.
The Company does not expect to adopt this amendment until the effective date, and does not
anticipate a material impact on its consolidated financial statements.
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.
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 or loss.
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.
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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)
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.
Uncertainties over income tax treatments are evaluated on the basis of whether it is probable that they will
be accepted upon examination by the relevant taxing authorities in Brazil. These uncertainties impact the
amount of income taxes recognized. If it is determined that an uncertain income tax treatment is not
probable of being accepted, the effect of the uncertain income tax treatment is reflected in the
determination of income taxes based the most likely amount or, if there are a wide range of possible
outcomes, the expected value.
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.
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
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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)
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.
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
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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)
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.
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. Once the legal rights or license is obtained, 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
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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)
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).
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
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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)
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
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
The Company has assessed the classification and measurement of its financial assets and financial liabilities
under IFRS 9 in the following table:
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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)
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.
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, 2020. 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”).
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Measurement CategoryFinancial Assets:Cash, cash equivalents and restricted cashAmortized costTrade receivablesAmortized costDepositsAmortized costFinancial Liabilities:Trade payablesAmortized costLoans and borrowingsAmortized costDerivativesFair value through profit or loss
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
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
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 equity settled 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. Deferred share units are liability awards settled in
cash and measured at the quoted market price at the grant date with the corresponding expense recognized
over the period that the employees unconditionally become entitled to the awards. The corresponding
liability is adjusted for changes in fair value at each subsequent reporting date until the awards are settled.
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.
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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)
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.
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,
share units and warrants. The dilutive effect of share options and warrants 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.
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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)
4. Inventories
5. Other Current Assets
(a)
(b)
Advances to employees include short term advances of salary, vacation and other benefits granted to employees of the
Company’s subsidiaries MCSA and NX Gold.
At December 31, 2020, $8.0 million of this balance relates to a study conducted to revisit certain tax positions, while $4.0
million of this balance relates to a 2019 favourable legal decision that recognizes MCSA’s right to a tax credit as a result
of historical over-payment (December 31, 2019 - $12.2 million). See note 18 for details. MCSA is able to use these tax
credits against a variety of taxes, including taxes on future sales.
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December 31, 2020December 31, 2019Supplies and consumables15,619$ 13,878$ Stockpile3,569 2,556 Work in progress5,234 2,164 Finished goods1,074 779 25,496$ 19,377$ December 31, 2020December 31, 2019Advances to suppliers500$ 1,046$ Prepaid expenses2,635 4,779 Advances to employees (a)2,091 2,829 Value added federal taxes recoverable (b)13,958 16,869 19,184$ 25,523$
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
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BuildingsMining EquipmentMineral PropertiesProjects in ProgressMobile Equipment & Other AssetsMine Closure CostsRight-of-Use AssetsTotalCost:Balance at December 31, 201815,739$ 74,847$ 209,899$ 42,147$ 9,836$ 12,341$ 4,708$ 369,517$ Additions- 15,429 5,255 91,392 1,348 2,266 3,220 118,910 Disposals- ( 1,819 ) - ( 2,267 ) ( 1,414 ) - ( 463 ) ( 5,963 ) Transfers2,532 18,313 55,754 ( 76,672 ) 73 - - - Foreign exchange( 662 ) ( 3,595 ) ( 9,516 ) ( 1,895 ) ( 362 ) ( 500 ) ( 234 ) ( 16,764 ) Balance at December 31, 201917,609 103,175 261,392 52,705 9,481 14,107 7,231 465,700 Additions54 10,515 6,747 81,332 18,942 197 2,982 120,769 Disposals and other adjustments- ( 16,671 ) - ( 80 ) ( 522 ) ( 3,803 ) ( 291 ) ( 21,367 ) Transfers1,546 19,940 56,346 ( 64,888 ) ( 12,958 ) - 14 - Foreign exchange( 4,327 ) ( 24,257 ) ( 59,173 ) ( 12,297 ) ( 2,139 ) ( 2,965 ) ( 1,614 ) ( 106,772 ) Balance at December 31, 202014,882$ 92,702$ 265,312$ 56,772$ 12,804$ 7,536$ 8,322$ 458,330$ Accumulated depreciation:Balance at December 31, 2018(3,269)$ (16,980)$ (58,598)$ -$ (3,138)$ (2,020)$ -$ (84,005)$ Depreciation expense( 922 ) ( 11,032 ) ( 29,286 ) - ( 1,582 ) ( 1,033 ) ( 3,869 ) ( 47,724 ) Disposals- 1,196 - - 3 - 14 1,213 Foreign exchange144 1,217 2,591 - 145 95 140 4,332 Balance at December 31, 2019( 4,047 ) ( 25,599 ) ( 85,293 ) - ( 4,572 ) ( 2,958 ) ( 3,715 ) ( 126,184 ) Depreciation expense( 785 ) ( 10,882 ) ( 24,597 ) - ( 1,317 ) ( 1,029 ) ( 3,865 ) ( 42,475 ) Disposals- 14,999 - - 446 - 168 15,613 Foreign exchange916 5,827 19,351 - 860 672 792 28,418 Balance at December 31, 2020(3,916)$ (15,655)$ (90,539)$ -$ (4,583)$ (3,315)$ (6,620)$ (124,628)$ Net book value December 31, 201913,562$ 77,576$ 176,099$ 52,705$ 4,909$ 11,149$ 3,516$ 339,516$ Net book value December 31, 202010,966$ 77,047$ 174,773$ 56,772$ 8,221$ 4,221$ 1,702$ 333,702$ 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 additions to mineral, property, plant and equipment, $0.7 million (year ended December 31, 2019 – $8.6
million) was obtained through financing arrangements with equipment suppliers.
Certain equipment has been provided as security for the equipment finance loans (note 9).
During the year ended December 31, 2020, $7.3 million (year ended December 31, 2019 - $3.1 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. As such, there is no balance included in mineral, property, plant and equipment
related to the value of mineral resources beyond proven and probable reserves not currently being amortized. In
addition, $56.8 million (December 31, 2019 - $52.7 million) related to projects in progress are not currently being
amortized.
7. Exploration and Evaluation Assets
Exploration and evaluation assets relate to the Boa Esperança Property located in the Municipality of Tucumã, in
the state of Pará, Brazil which consists of a single mineral concession. This prospective copper/gold property is in
advanced stages of exploration with various geological mineral resource studies and is the subject of a completed
feasibility study.
8. Accounts Payable and Accrued Liabilities
9. Loans and Borrowings
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December 31, 2020December 31, 2019Trade suppliers14,480$ 21,811$ Payroll and related charges17,914 20,058 Other accrued liabilities5,484 1,825 37,878$ 43,694$ DescriptionDenominationSecurityTime to MaturityCoupon ratePrincipal to be repaidDecember 31, 2020December 31, 2019Bank loan (at acquisition)BRL R$Unsecured71 monthsCDI + 0.5%4,469 3,980 5,941 Bank loan (MCSA)USDUnsecured-4.43%- - 1,503 Bank loan (MCSA)BRL R$Unsecured-CDI + 3.7%- - 204 Line of credit (MCSA)BRL R$Unsecured3 monthsCDI + 9.0%1,443 1,447 - Lines of credit (MCSA)BRL R$Unsecured2 - 3 months9.60%-13.20%4,165 4,221 - Lines of credit (NX Gold)BRL R$Unsecured-14.34%-14.98%- - 670 Equipment finance loan (Plural)BRL R$Secured11 monthsCDI + 7.0%1,058 1,065 2,892 Equipment finance loansBRL R$Secured5 - 42 months11.88%-16.49%1,445 1,607 5,585 Equipment finance loansEUROSecured18 - 24 months5.5%-7.0%1,773 1,791 3,996 Equipment finance loansUSDSecured16-32 months6.50%-7.95%5,536 5,605 4,125 Senior non-revolving credit facilityUSDSecured39 monthsLIBOR + 2.50%-4.25%75,000 74,193 79,091 Senior revolving credit facilityUSDSecured39 monthsLIBOR + 2.50%-4.25%75,000 74,193 55,363 Total169,889$ 168,102$ 159,370$ Current portion:12,539$ 18,984$ Non-current portion:155,563$ 140,386$ Carrying value, including accrued interest
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
(a) Senior credit facility
The Company has a $150 million facility from a syndicate of Canadian financial institutions. The facility is comprised
of a $75 million (December 31, 2019 - $80 million) senior secured amortizing non-revolving credit facility (“Term
Facility”) and a $75 million (December 31, 2019 - $70 million) senior secured revolving term credit facility
(“Revolving Credit Facility”) (collectively the “Facilities”).
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.
On March 31, 2020, the Company amended the Facilities to reduce its cost of borrowing by 25 to 50 basis points,
depending on the consolidated leverage ratio, and to defer the scheduled principal payments for two years.
The Term Facility matures on March 31, 2024 and requires principal repayments on a quarterly basis commencing
on March 31, 2022, while the Revolving Credit Facility is payable in full at maturity on March 31, 2024. The Facilities
bear interest on a sliding scale at a rate of LIBOR plus 2.50% to 4.25% depending on the Company’s consolidated
leverage ratio at the time. Commitment fees for any undrawn portion of the Revolving Credit Facility are also on a
sliding scale between 0.63% to 1.06%. The Company determined that the amendments were a non-substantial
modification. In March 2020, the Company drew down the remainder of the amount available under the Facilities
totaling $14.0 million ($13.7 million net of transaction costs). The Term Facility previously had a five-year term with
equal quarterly principal payments beginning on December 13, 2020, while the Revolving Credit Facility was payable
at maturity on December 13, 2022. The Facilities previously bore 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 Facilities include standard and customary terms and conditions with respect to fees, representations,
warranties, and financial covenants that remain unchanged from prior amendments.
The Facilities are secured by pledges of shares of MCSA, NX Gold and Ero Gold Corp., a wholly owned subsidiary
which holds the Company’s interest in 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.
In January 2019, the Company entered into an interest rate swap transaction with a Canadian financial institution
whereby the floating interest on a notional amount of $65.0 million of the Term Facility was swapped for a fixed
interest rate of 2.69%. This interest rate swap transaction is in effect for the majority of the term of the Term
Facility, with the notional amount reduced over time. As at December 31, 2020, the notional amount of the interest
rate swap transaction was $60.0 million. Interest swap settlements are being made on a quarterly basis.
Subsequent to the year ended December 31, 2020, the Facilities were amended with a $150.0 million senior secured
revolving credit facility (“New Revolving Credit Facility”) payable entirely on March 31, 2025. The New Revolving
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December 31, 2020December 31, 2019Balance, beginning of year159,370$ 152,234$ New senior revolving credit facility, net13,652 10,565 New equipment finance loans19,278 24,890 New lines of credit36,726 10,976 Principal and interest payments(67,118) (51,581) Interest accretion9,921 11,236 Loss on debt modification- 1,783 Effect of foreign exchange rate changes(3,727) (733) Balance, end of period168,102$ 159,370$ Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
Credit Facility will bear interest on a sliding scale at a rate of LIBOR plus 2.25 to 4.25% depending on the Company’s
consolidated leverage ratio at the time. Commitment fees for any undrawn portion of the Revolving Credit Facility
will also be on a sliding scale between 0.56% to 1.06%.
(b) Bank loan and equipment finance loans
The bank loan (at acquisition) relates to the Company’s subsidiary, MCSA, and was recognized at the date of
acquisition at fair value and has 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%.
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.
As per the terms of one of MCSA’s bank loans, the Company was required to maintain a separate debt service bank
account with sufficient funds to guarantee scheduled principal payments by MCSA. At December 31, 2020, this loan
has been repaid and the separate debt service bank account has been closed. At December 31, 2019, $1.5 million
was deposited in the designated debt service account and was 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,
2020. 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, 2020, the Company’s subsidiaries, MCSA and NX Gold, have the following credit facilities available:
MCSA entered into a credit agreement in 2019 for a non-revolving line of credit of up to BRL $30.0 million at an
interest rate of CDI (“Brazilian Interbank Deposit Rate”) + 9% per annum, which was available for draw down until
November 30, 2020. At December 31, 2020, BRL $7.5 million ($1.4 million) (December 31, 2019 - $nil) had been
drawn from this credit facility and the draw down period has now expired. The Company and NX Gold provide
unsecured guarantees for this credit agreement and the amount drawn is due in March 2021.
During the three months ended June 30, 2020, MCSA entered into a credit agreement for a line of credit of up to
BRL $14.9 million at an interest rate of 14.30% per annum and MCSA drew down on the full amount of this line of
credit. The Company and NX Gold provide unsecured guarantees for this credit agreement. During the three months
ended December 31, 2020, the full amount of this line of credit was repaid, but the full amount of BRL $14.9 million
remains available to be drawn at any time until May 24, 2021.
During the year ended December 31, 2020, MCSA entered into various credit agreements for lines of credit of up
to a total of BRL $131.6 million, all of which were drawn down during the year ended December 31, 2020. The
interest rates on these credit agreements ranges from 9.60% to 24.34%. The Company repaid a total of BRL $109.8
million in lines of credit during the year ended December 31, 2020 and as at December 31, 2020, BRL $21.8 million
($4.2 million) remains outstanding on these credit facilities, which represents the maximum remaining amount
available under these credit facilities. This amount is repayable by March 2021.
During the three months ended September 30, 2020, MCSA repaid and terminated a previous line of credit entered
into in 2019 in the amount of BRL $30.0 million with an interest rate of 14.98%. MCSA replaced this line of credit
during the three months ended September 30, 2020 by entering into a new credit agreement for a line of credit of
up to BRL $30.0 million at an interest rate of CDI + 8.858%. MCSA may drawdown on this line of credit at any time
until September 20, 2021. At December 31, 2020, no amount has been drawn from this credit facility.
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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)
NX Gold entered into an agreement in 2019 for a line of credit of up to BRL $7.5 million at an interest rate of 14.98%
per annum, which was available for drawdown until August 27, 2020. A total of BRL $7.5 million ($1.4 million) had
been drawn from this line of credit, of which BRL $4.8 million was drawn during the year ended December 31, 2020.
This line of credit was fully repaid and terminated as at December 31, 2020.
During the year ended December 31, 2020, NX Gold entered into a credit agreement for a line of credit of up to BRL
$7.5 million at an interest rate of 14.30% per annum. NX Gold may drawdown on this line of credit at any time until
February 22, 2022. The Company and MCSA provide unsecured guarantees for this credit agreement. At December
31, 2020, no amounts had been drawn from this line of credit.
During the year ended December 31, 2020, NX Gold entered into a credit agreement for a line of credit of up to BRL
$8.0 million at an interest rate of CDI + 8.858%. NX Gold may drawdown on this line of credit at any time until
September 20, 2021. At December 31, 2020, no amount has been drawn from this credit facility.
(d) Plural loan
During the year ended December 31, 2019, MCSA secured an 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 $12.0 million was swapped for the USD currency at a foreign exchange rate of
3.9500. This interest rate and foreign exchange swap transactions are in effect for the term of the loan.
(e)
Debt repayments
Repayments of the principal portion of loans and borrowings is as follows:
10. Value Added, Payroll and Other Taxes
(a) The Company’s subsidiary, MCSA, has an agreement with the National Institute of Social Security in Brazil to pay
outstanding social security contributions in installments over a period to 2024.
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202112,223$ 202236,998 202335,109 202484,112 2025755 2026 and beyond692 169,889$ December 31, 2020December 31, 2019Value-added taxes payable3,420$ 2,865$ Tax based on net sales of copper and gold4,675 5,287 Federal sales tax1,211 - Social security installments (a)2,841 9,519 Income taxes1,280 1,108 Other taxes1,402 909 Total value added, payroll and other taxes14,829 19,688 Less: current portion of value added, payroll and other taxes13,361 13,994 Non-current value added, payroll and other taxes1,468$ 5,694$ 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
(a) Mine closure and rehabilitation
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 5.75% – 7.37% (2019 – 4.34% - 6.5%) and an inflation
factor in the range of 3.25% - 3.50% (2019 – 3.5% - 3.75%) 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, 2020, the undiscounted inflation-adjusted liability for
provision for mine closure and rehabilitation is estimated to be approximately $37.0 million (2019 - $45.7 million),
of which $31.4 million (2019 - $36.8 million) relates to MCSA and $5.6 million (2019 - $8.9 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 MCSA is in a range from 2026 to 2034 and for NX Gold is 2027.
(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:
(i) Labor claims
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 $2.4 million and such amount has been
accrued.
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Mine Closure and RehabilitationLegalClaimsTotalBalance at December 31, 201827,354$ 4,155$ 31,509$ Additions (reductions) due to change in estimated cash flows2,266 ( 625 ) 1,641 Unwinding of the discount3,508 - 3,508 Settled( 1,786 ) - ( 1,786 ) Foreign exchange( 1,145 ) ( 146 ) ( 1,291 ) Balance at December 31, 201930,197 3,384 33,581 Reductions due to change in estimates, including timing of cash flows( 3,803 ) ( 145 ) ( 3,948 ) Unwinding of the discount902 - 902 Settled( 1,585 ) - ( 1,585 ) Foreign exchange( 6,741 ) ( 759 ) ( 7,500 ) Balance at December 31, 202018,970$ 2,480$ 21,450$ December 31, 2020December 31, 2019Labour claims (i)2,416$ 3,311$ Tax claims (ii)- 73 Other claims64 - 2,480$ 3,384$
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 $0.5 million in trust as of December 31, 2020 (December 31, 2019 - $1.2 million), which
is included in Deposits on the statement of financial position.
(c) Contingent liabilities
As of December 31, 2020, 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.
(i) Social security tax
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 $2.9 million is included in the table
above.
(ii) Tax
There are 121 tax claims (2019 – 129 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, 2020, the Company’s authorized share capital consists of an unlimited number of common
shares without par value. As at December 31, 2020, 87,879,261 common shares were outstanding.
(a) Options
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
on the grant date was $0.5 million.
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December 31, 2020December 31, 2019Social security tax (i)2,879$ 3,681$ Taxes (ii)11,633 14,990 Labour (refer to note 11(b)(i))968 6,303 Mining and other (iii)6,346 6,080 21,826$ 31,054$ Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
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 on the grant date 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 on the grant date was $2.7 million, which is recognized over the vesting period.
On January 2, 2020, 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. The total fair value of these options on the grant date was $0.5 million, which is
recognized over the vesting period.
On December 17, 2020, the Company granted 415,839 options to certain officers, directors, consultants and
employees of the Company at an exercise price of CAD$18.90 per share with a term to expiry of five years. 25,207
options to directors vested immediately, while the remaining 390,632 stock options vest in three equal installments
on each annual anniversary date from the date of grant. The total fair value of these options on the grant date was
$2.4 million, which is recognized over the vesting period.
The weighted average share price on the date of exercise for options exercised during the year ended December
31, 2020 was $13.74 (year ended December 31, 2019 - $14.60).
As at December 31, 2020, the following stock options were outstanding:
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Number of Stock OptionsWeighted Average Exercise PriceOutstanding stock options, December 31, 20184,924,5194.64Issued635,22814.20Exercised(498,330)2.75Outstanding stock options, December 31, 20195,061,4176.23$ Issued489,29515.38 Exercised(908,949)3.13 Outstanding stock options, December 31, 20204,641,7637.91$ Expiry DateNumber of Stock OptionsWeighted Average Exercise PriceVested and Exercisable Number of Stock OptionsWeighted Average Remaining Life in YearsMay 15, 2022415,3341.50USD415,334 1.37July 10, 202260,0001.50USD60,000 1.52November 24, 2022318,0006.48CAD318,000 1.90December 7, 20221,300,0016.74CAD1,300,001 1.93January 18, 202360,0007.95CAD40,000 2.05January 23, 202341,6677.76CAD41,667 2.06June 19, 2023144,00010.25CAD94,000 2.47July 16, 2023100,0009.01CAD33,332 2.54December 31, 20231,078,2389.76CAD693,065 3.00January 2, 2024125,0009.80CAD125,000 3.01August 15, 202440,00021.09CAD40,000 3.62December 12, 2024470,22820.52CAD156,734 3.95January 2, 202573,45623.42CAD43,456 4.01December 17, 2025415,83918.90CAD25,207 4.964,641,7637.91USD3,385,796 2.71
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
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, 2020 exchange rate of 1.2732.
The fair value of options granted in the years ended December 31, 2020 and 2019 was determined using the Black-
Scholes option pricing model. The weighted average inputs used in the measurement of fair values at grant date of
the options are the following:
For the year ended December 31, 2020, the Company recorded share-based compensation of $3.9 million (year
ended December 31, 2019 - $4.7 million) with respect to its outstanding stock options.
Subsequent to December 31, 2020, 155,982 options were exercised for total proceeds of $1.0 million.
(b) Share Unit Plan
The Company has a share unit plan (the “Share Unit Plan”) pursuant to which the Compensation Committee may
grant 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 Compensation Committee, 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 common shares; (ii) the return to holders of common 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 Compensation Committee 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 Compensation Committee 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 Compensation Committee
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.
During the year ended December 31, 2020, 290,298 share units (year ended December 31, 2019 – 225,659 share
units) were issued to certain officers, consultants and employees of the Company and as at December 31, 2020,
727,761 share units (December 31, 2019 - 437,463 share units) are outstanding. These share units will vest three
years from the date of grant by the Compensation Committee 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
Compensation Committee in its sole discretion. The Company currently intends to settle these share units using
common shares. Accordingly, they are classified as equity settled instruments.
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20202019Expected term (years)3.03.0Forfeiture rate0%0%Volatility53%53%Dividend yield0%0%Risk-free interest rate0.58%1.68%Weighted-average fair value per option6.00$ 5.42$
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
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,
thefair value of the share units granted was determined using a Geometric Brownian Motion model. The
weighted average inputs used in the measurement of fair values at grant date of the share units issued are as
follows:
During the year ended December 31, 2020, the Company recorded share-based compensation of $3.9 million (year
ended December 31, 2019 - $1.0 million) with respect to the share units.
(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
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.
During the year ended December 31, 2020, 79,230 DSUs (year ended December 31, 2019 - nil) were issued to
independent directors.
As at December 31, 2020, the fair value of the DSU liability was $1.3 million (December 31, 2019 - $nil) which has
been recognized in accounts payable and accrued liabilities with a corresponding $1.3 million recognized in share-
based compensation expense for the year ended December 31, 2020.
(d) Warrants
As at December 31, 2020, 1,599,996 (December 31, 2019 - 2,866,662) common share purchase warrants were
outstanding with a weighted average exercise price of $1.20 and a weighted average remaining contractual life of
0.95 years. 1,266,666 warrants were exercised during the year ended December 31, 2020 for gross proceeds of
$1.5 million (year ended December 31, 2019 – 466,666 warrants for gross proceeds of $0.6 million).
Subsequent to December 31, 2020, 66,666 warrants were exercised for gross proceeds of $0.1 million.
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20202019Expected term (years)3.03.0Forfeiture rate0%0%Volatility44%45%Dividend yield0%0%Risk-free interest rate0.30%1.69%Weighted-average fair value per Share Unit18.95$ 18.97$ Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
(e) Net Income per Share
13. Revenue
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, 2020, there were no sales
subject to provisional pricing. During the year ended December 31, 2020, the Company recognized $2.2 million
(year ended December 31, 2019 - $0.2 million) in price adjustments related to provisionally priced sales.
14. Cost of Product Sold
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Year ended December 31, 2020Year ended December 31, 2019Weighted average number of common shares outstanding86,368,535 85,244,277 Dilutive effect of warrants2,397,518 2,788,885 Dilutive effect of stock options2,355,933 2,919,799 Dilutive effect of Share Units1,091,642 437,464 Weighted average number of diluted common shares outstanding92,213,628 91,390,425 Net income attributable to owners of the Company51,622$ 91,883$ 0.60 1.08 0.56 1.01 Basic net income per share attributable to owners of the Company Diluted net income per share attributable to owners of the Company Year ended December 31, 2020Year ended December 31, 2019Copper concentrate-sales within Brazil161,803$ 176,885$ -export sales96,852 69,499 -price adjustments on provisionally priced sales2,233 (187) Gold -export sales63,188 38,646 324,076$ 284,843$ Year ended December 31, 2020Year ended December 31, 2019Materials18,912$ 21,788$ Salaries and benefits30,044 40,787 Depreciation and depletion39,212 46,014 Contracted services18,463 23,691 Maintenance costs14,672 18,383 Utilities8,728 11,154 Other costs554 1,000 130,585$ 162,817$ Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
15. General and Administrative Expenses
16. Finance Expense
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.
18. Recovery of Value Added Taxes
During the year ended December 31, 2020, the Company recognized a recovery of $8.9 million in net income related
to value added taxes based on the tax treatment applicable to depletion charges. This recovery during 2020 was
recognized as a result of a study conducted to revisit certain tax positions, which concluded that it is probable that
additional tax credits are available to be used to offset a variety of taxes. During the year ended December 31,
2019, the Company recognized a recovery of $21.6 million in net income related to value added taxes previously
paid on sales in Brazil. The recovery during 2019 was recognized as a result of a Brazil Supreme Court ruling in 2017
that concluded that the relevant taxing authorities had historically used an incorrect methodology to determine
such taxes. The ruling set a precedent for all companies in Brazil but was required to be confirmed for the
Company’s specific claim and were not recorded until such amounts were considered probable of being
confirmed. These credits can be used to offset the payment of a variety of other taxes, including income taxes and
taxes on future sales.
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Year ended December 31, 2020Year ended December 31, 2019Accounting and legal1,079$ 1,507$ Amortization and depreciation136 157 Office and sundry7,066 7,192 Provisions(145) (625) Salaries and consulting fees12,206 13,427 Incentive payments6,116 8,684 Transfer agent and filing fees295 206 Travel and conference1,174 2,269 27,927$ 32,817$ Year ended December 31, 2020Year ended December 31, 2019Interest on loans and borrowings9,921$ 11,236$ Loss on interest rate swap derivatives2,720 1,799 Accretion of mine closure and rehabilitation provision902 3,508 Commitment fees484 1,681 Interest on lease liabilities229 366 Other finance expenses1,193 1,838 15,449$ 20,428$ Year ended December 31, 2020Year ended December 31, 2019Foreign exchange on USD denominated debt in Brazil(24,190)$ (4,406)$ Realized foreign exchange on derivative contracts (note 21)(20,804) (1,011) Unrealized foreign exchange on derivative contracts (note 21)(34,548) (250) Other(263) 519 (79,805)$ (5,148)$
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
Of the recoveries recognized in 2019 and 2020, $15.3 million has been applied to taxes during the 2020 year (year
ended December 31, 2019 - $3.2 million) and $12.0 million has been included in other current assets (December
31, 2019 - $12.2 million) based on the expected timing of their use, with no amounts (December 31, 2019 - $6.2
million) recognized in other non-current assets in the statement of financial position.
19. Income Taxes
(a) Reconciliation of income taxes
A reconciliation of the income tax expense to the amount calculated using the Company’s combined Canadian
federal and provincial statutory income tax rate of 27% (2019 – 27%) is as follows:
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Year Ended December 31, 2020Year Ended December 31, 2019Net income in the year before tax61,423$ 74,829$ Tax rate27%27%Income tax expense at statutory rate16,584$ 20,204$ Tax effect of:Difference in tax rate of foreign jurisdictions(6,227) (7,557) Non-deductible (taxable) items(1,792) (6,334) Change in temporary differences not previously recognized(113) (24,570) Other473 631 Income tax expense (recovery)8,925$ (17,626)$ Year Ended December 31, 2020Year Ended December 31, 2019Current income tax:Relating to current income tax charge9,675$ 10,645$ Deferred income tax:Relating to recognition of previously unrecognized temporary differences- (33,836) Relating to origination and reversal of temporary differences(750) 5,565Income tax expense (recovery) recognized in net income8,925$ (17,626)$ Income tax recovery recognized in other comprehensive income(3,073) - Total income tax expense (recovery)5,852 (17,626) Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
(b) Deferred income tax assets (liabilities)
The general movement in the deferred income tax asset (liability) is as follows:
Recognized deferred tax and assets and liabilities consist of the following:
Deferred tax assets of $13.5 million (December 31, 2019 - $11.7 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:
The Company has loss carry forwards in Brazil totalling $46.7 million (December 31, 2019 - $83.0 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 $24.9 million (December
31, 2019 - $15.4 million) which may be carried forward for 20 years to offset future taxable income, which expire
between 2036 and 2040.
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Year Ended December 31, 2020Year Ended December 31, 2019At the beginning of the year13,099$ (15,811)$ Deferred income tax recovery (expense)750 28,271 Income tax expense (recovery) recognized in OCI3,073 - Foreign exchange(2,699) 639 At the end of the year14,223$ 13,099$ December 31, 2020December 31, 2019Deferred tax assets:Non-capital losses - Brazil15,688$ 28,793$ Foreign exchange - Brazil9,412$ 1,066$ Other - Brazil2,167 2,126 Mine closure and rehabilitation provision - Brazil3,110 4,605 Non-capital losses - Canada737 317 Financing fees and other - Canada823 1,349 31,937 38,256Deferred tax liabilitiesMineral property, plant and equipment - Brazil(6,179) (9,612) Loans and borrowings - Brazil(9,431) (12,192) Other - Brazil(544) (1,687) Loans and borrowings - Canada(1,560) (1,666) (17,714) (25,157) Net deferred income tax assets (liabilities)14,223$ 13,099$ BrazilCanadaBrazilCanadaExploration and evaluation assets37,213$ -$ 47,986$ -$ Mineral property, plant and equipment- 90 - 72 Non-capital losses- 22,194 - 14,196 Other- 7,238 - 4,251 37,213$ 29,522$ 47,986$ 18,519$ Year Ended December 31, 2020Year Ended December 31, 2019
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
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, 2020 was
$7.4 million ($7.5 million for the year ended December 31, 2019). In addition, 287,281 options, 197,269 share units
and 79,230 DSUs were issued to key management personnel and non-executive directors during the year ended
December 31, 2020 (444,265 options and 171,754 share units for the year ended December 31, 2019). For key
management personnel, $5.1 million was recognized in share-based compensation expense for the year ended
December 31, 2020 for options, share units, and DSUs issued ($4.1 million for the year ended December 31, 2019).
During the year ended December 31, 2020, key management personnel exercised 408,555 options and 1,266,666
warrants for total cash proceeds to the Company of $2.7 million (286,666 options and 300,000 warrants for total
cash proceeds of $1.0 million for the year ended December 31, 2019).
As at December 31, 2020, $3.7 million was payable to key management as incentive compensation and is included
in accounts payable and accrued liabilities in the statement of financial position (December 31, 2019 - $3.9 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 fair value estimates. The use of different market information and/or
evaluation methodologies may have a material effect on the fair value amounts.
As at December 31, 2020, derivatives were measured at fair value based on Level 2 inputs.
The carrying values of cash and cash equivalents, accounts receivable, deposits, 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, 2020, the carrying value of loans and borrowings is $168.1 million while the
fair value is approximately $169.9 million. The stated interest rates are a close approximation of market rates of
interest at December 31, 2020 (Level 2 of the fair value hierarchy).
Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to
meet its contractual obligations and arises principally from the Company’s receivables from customers. The carrying
amount of the financial assets below represents the maximum credit risk exposure as at December 31, 2020 and
December 31, 2019:
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December 31, 2020December 31, 2019Cash and cash equivalents62,508$ 21,485$ Restricted cash- 1,500 Accounts receivable20,353 7,680 Deposits and other non-current assets595 2,396 83,456$ 33,061$
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
The Company invests cash and cash equivalents 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, 2020 and 2019 nor recognized a provision for credit losses.
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 non-derivative financial liabilities on December 31, 2020:
The Company also has derivative financial liabilities for foreign exchange and interest rate derivatives whose
notional amounts and maturity information is disclosed below under foreign exchange currency risk and interest
rate risk.
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, 2020 relates to $7.4 million (December
31, 2019 – $9.6 million) in loans and borrowings of MCSA denominated in US dollars and Euros. In addition, the
Company is also exposed to foreign exchange currency risk at December 31, 2020 on $83.1 million due to an
intercompany loan balance (December 31, 2019 - $97.8 million) which has contractual repayment terms.
Strengthening (weakening) in the Brazilian Real against the US dollar at December 1, 2020 by 10% and 20%, would
have increased (decreased) pre-tax net income by $8.9 million and $17.7 million, respectively (2019 – $10.3 million
and $20.7 million). Strengthening (weakening) in the Brazilian Real against the Euro at December 31, 2020 by 10%
and 20%, would have increased (decreased) pre-tax net income by $0.2 million and $0.4 million, respectively (2019
– $0.4 million and $0.8 million). This analysis is based on the foreign currency exchange variation rate that the
Company considered to be reasonably possible at the end of the year. The analysis assumes that all other variables,
especially interest rates, are held constant.
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Non-derivative Financial LiabilitiesCarrying valueContractual cash flowsUp to 12 months1-2 years3-5 yearsMore than 5 yearsLoans and borrowings168,102$ 169,889$ 12,223$ 36,998$ 119,976$ 692$ Interest on loans and borrowings- 15,025 5,859 4,863 4,296 7 Accounts payable and accrued liabilities37,878 37,878 37,878 - - - Value added, payroll and other taxes14,829 16,332 13,361 1,484 1,487 - 220,809$ 239,124$ 69,321$ 43,345$ 125,759$ 699$
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
The Company may use derivatives, including forward contracts, collars and swap contracts, to manage market risks.
At December 31, 2020, the Company has entered into foreign exchange collar contracts at zero cost for notional
amounts of $285.7 million with an average floor rate of 4.05 BRL to US Dollar and an average cap rate of 4.76 BRL
to US Dollar (December 31, 2019 - notional amount of $336.6 million in foreign exchange forward collar contracts).
The maturity dates of these contracts are from January 27, 2021 to July 27, 2022 and are financially settled on a net
basis. The fair value of these contracts at December 31, 2020 was a liability of $34.5 million, (December 31, 2019 -
$nil) which is included in Derivatives in the statement of financial position. The fair value of these forward contracts
as at December 31, 2020 was determined using an option pricing mode with the following assumptions: discount
rate of 5.015%, foreign exchange rate of approximately 5.20, and volatility of 7.46% - 21.20%. The change in fair
value of foreign exchange collar contracts was a loss of $34.5 million for the year ended December 31, 2020 (a loss
of $0.3 million for the year ended December 31, 2019) and has been recognized in foreign exchange loss. In
addition, during the year ended December 31, 2020, the Company recognized a realized loss of $20.8 million ($1.0
million for the year ended December 31, 2019) related to the settlement of foreign currency forward collar
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 $150.0 million, Brazilian Real
denominated bank loans of $4.5 million, Brazilian Real denominated lines of credit of $1.4 million, and Brazilian
Real denominated equipment finance loans of $1.1 million. Based on the Company’s net exposure at December 31,
2020, a 1% change in the variable rates would have an impact of $1.6 million on pre-tax annual net income, without
consideration of the effects of the interest rate swap contract below.
In order to mitigate the above volatility due to variable rates on loans, as at December 31, 2020, the Company has
entered into an interest rate swap contract to manage interest rate risk (see note 9(a)). At December 31, 2020, the
floating interest on a notional amount of $60.0 million was swapped for a fixed interest rate of 2.69%. This interest
rate swap transaction is in effect for the majority of the term of the Term Facility (note 9), with the notional amount
reduced over time. The fair value of this contract at December 31, 2020 was a liability of $2.5 million (December
31, 2019 - $1.7 million) and was included in Derivatives in the statement of financial position. The fair value of this
swap contracts as at December 31, 2020 was determined using a discounted cash flow model with the following
assumptions: discount rates of 0.017% – 0.298% and forward foreign exchange rates of 0.421% - 0.164%. The
realized loss on the interest rate swap contract was $1.2 million for the year ended December 31, 2020 (realized
loss of $0.1 million for the year ended December 31, 2019) and was included in finance expense. In addition, the
Company recognized an unrealized loss of $0.8 million on the interest rate swap contract for the year ended
December 31, 2020 (unrealized loss of $1.6 million for the year ended December 31, 2019), which was included in
finance expense.
In addition, as at December 31, 2020, MCSA has entered into an interest rate and currency swap contract on the
Plural Loan (see note 9). At December 31, 2020, 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 3.95.
The fair value of this contract at December 31, 2020 was a liability of $0.3 million (December 31, 2019 - nil) and is
included in Derivatives in the statement of financial position. The realized loss on this swap contract was $0.4
million for the year ended December 31, 2020 and was included in finance expense. In addition, the Company
recognized an unrealized loss of $0.3 million on the swap contract for the year ended December 31, 2020, which
was also included in finance expense.
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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)
(iii) Price risk
The Company may use derivatives, including forward contracts, collars and swap contracts, to manage commodity
price risks. At December 31, 2020, the Company has not entered into any commodity derivative contracts. 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.
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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)
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.
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, 2020
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
$
260,888 $
(35,674)
(73,893)
(109,567)
(4,937)
146,384
Expenses
General and administrative
Share-based compensation
Finance income
Finance expenses
Foreign exchange loss
Recovery of value added taxes
Other income
Income (loss) before taxes
Current tax expense
Deferred tax recovery
Net Income (Loss)
Assets
(16,471)
-
430
(5,789)
(77,235)
7,564
(3,825)
51,058
(5,117)
418
46,359 $
$
63,188 $
(3,538)
(17,480)
(21,018)
( 417 )
41,753
(1,712)
-
143
(805)
(2,563)
1,322
(876)
37,262
(4,558)
332
33,036 $
-
-
-
-
-
-
$ 324,076
(39,212)
(91,373)
(130,585)
(5,354)
188,137
(9,744)
(9,064)
773
(8,855)
(7)
-
-
(26,897)
-
-
(26,897) $
(27,927)
(9,064)
1,346
(15,449)
(79,805)
8,886
(4,701)
61,423
(9,675)
750
52,498
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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)
E R O C O P P E R | 2 0 2 0 A N N U A L R E V I E W | 8 7
Year ended December 31, 2019MCSA (Brazil)NX Gold (Brazil)Corporate (Canada)ConsolidatedRevenue246,197$ 38,646$ -$ 284,843$ Depreciation and depletion(40,107) (5,907) - (46,014) Other cost of product sold expenses(95,500) (21,303) - (116,803) Cost of product sold(135,607) (27,210) - (162,817) Sales expenses(4,962) - - (4,962) Gross profit105,628 11,436 - 117,064 ExpensesGeneral and administrative(20,993) (2,308) (9,516) (32,817) Share-based compensation- - (5,792) (5,792) Finance income520 143 38 701 Finance expenses(8,877) (1,366) (10,185) (20,428) Foreign exchange gain (loss)(5,039) ( 76 ) (33) (5,148) Loss on debt settlement(1,783) - - (1,783) Recovery of value added taxes21,584 - - 21,584 Other income242 1,206 - 1,448 Income (loss) before taxes91,282 9,035 (25,488) 74,829 Current tax expense(8,764) (1,881) - (10,645) Deferred tax recovery27,267 1,004 - 28,271 Net Income (Loss)109,785$ 8,158$ (25,488)$ 92,455$ AssetsCurrent62,413$ 9,166$ 3,986$ 75,565$ Non-current364,117 20,180 2,812 387,109 Total Assets426,530$ 29,346$ 6,798$ 462,674$ Total Liabilities107,045$ 15,934$ 140,637$ 263,616$
C o r p o r a t e D i r e c t o r y
C o r p o r a t e O f f i c e
1050 – 625 Howe Street
Vancouver, British Columbia
Canada V6C 2TC
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T S X : E R O
B o a r d o f D i r e c t o r s
C h r i s t o p h e r N o e l D u n n
D a v i d S t r a n g
L y l e B r a a t e n
S t e v e n B u s b y
D r. S a l l y E y r e
R o b e r t G e t z
C h a n t a l G o s s e l i n
J o h n Wr i g h t
M a t t h e w W u b s
S e n i o r
E x e c u t i v e T e a m
C h r i s t o p h e r N o e l D u n n
E x e c u t i v e C h a i r m a n
D a v i d S t r a n g
C h i e f E x e c u t i v e O f f i c e r
M a k k o D e F i l i p p o
P r e s i d e n t
A n t h e a B a t h
C h i e f O p e r a t i n g O f f i c e r
W a y n e D r i e r
C h i e f F i n a n c i a l O f f i c e r
M i c h e l ( M i k e ) R i c h a r d
C h i e f G e o l o g i c a l O f f i c e r
B r a z i l i a n
L e a d e r s h i p
M a n o e l V a l é r i o d e B r i t o
C o - C E O a n d C O O o f M C S A
E d u a r d o D e C o m e
C o - C E O a n d C F O o f M C S A
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D i s c l a i m e r
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 mineral
reserve and mineral resource estimates as well as LOM plans; targeting additional mineral resources and expansion of deposits; the Company’s
expectations, strategies and plans for the MCSA Mining Complex, the NX Gold Property and the Boa Esperança Property, including the Company’s
planned exploration, development and production activities; the significance of any particular exploration program or result and the Company’s
expectations for current and future exploration plans including, but not limited to, planned areas of additional exploration, the significance of any drill
results or new discoveries and targets, including without limitation, extensions of defined mineralized zones, possibilities for mine life extensions or
continuity of high-grade mineralization, the recoverable value of any metals other than copper, further extensions and expansion of mineralization near
the Company’s existing operations and throughout the Curaçá Valley or the NX Gold Mine, the timing and advancement of ongoing projects including
the Deepening Extension Project and the re-start of the Surubim open pit mine; estimated completion dates for certain milestones; successfully adding
or upgrading mineral resources and successfully developing new deposits; the costs and timing of future exploration and development including but
not limited to the Deepening Extension Project at the MCSA Mining Complex; the significance of any potential optimization initiatives in connection
with the Boa Esperança Property and the potential issuance, and timing of, an OFS; the impact of the COVID-19 pandemic on the Company’s planned
drill programs; the timing and amount of future production at the MCSA Mining Complex and the NX Gold Property; ; the representativeness of the
material tested in the Company’s ore sorting trial campaign to actual results of each of the mines tested during the campaign and the potential benefits
of ore sorting in the LOM plans at any of the Company's operations including the Vermelhos District as well as any potential savings on transport costs,
any potential reduction in water, diesel and electricity use, as well as any proposed reductions in flotation tailings as a result of ore sorting
implementation, which may or may not occur in any capacity at the Company's operations or life-of-mine plans now or in the future, 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
COVID-19 pandemic and its impact on the Company’s business, financial condition, results of operations, cash flows and prospects.
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 Annual Report including, without limitation, assumptions about:
continued effectiveness of the measures taken by the Company to mitigate the possible impact of COVID-19 on its workforce and operations;
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 MCSA Mining Complex, 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; work force
conditions to remain healthy in the face of prevailing epidemics, pandemics or other health risks (including COVID-19), 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 and critical supplies, spare parts and consumables; 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, 2020 and dated March 16, 2021.
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.
NOTES
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.
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E r o C o p p e r C o r p
Suite 1050 – 625 Howe St
Van c o u v er, B C V6C 2T 6
Can ada
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