HIGH-GROWTH
CLEAN COPPER
A N N U A L R E P O R T 2 0 2 1
Ero Copper Corp is a high-growth, clean copper producer with
operations in Brazil and corporate headquarters in Vancouver, B.C.
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, where the Company currently mines copper from
the Pilar and Vermelhos underground mines and the Surubim open pit mine, and the
Boa Esperança development project, an IOCG-type copper project located in Pará, Brazil.
The Company also owns a 97.6% interest in the NX Gold Mine, an operating gold and silver
mine located in Mato Grosso, Brazil.
CONTENTS
1 Company Portfolio
2 2021 Highlights
4 Chairman’s Letter
5 Letter from the CEO
7 Management’s Discussion and Analysis
41 Consolidated Financial Statements
82 Note Regarding Scientific and Technical Information
& Cautionary Note
COMPANY PORTFOLIO
1
MCSA MINING COMPLEX
CANADA
Location: Bahia, Brazil
Ownership: 99.6%
Stage: Operating
2021 Copper Production: 45,511 t
2021 C1 Cash Costs: $0.77/lb
5
2
NX GOLD MINE
Location: Mato Grosso, Brazil
Ownership: 97.6%
Stage: Operating
2021 Gold Production: 37,798 oz
2021 C1 Cash Costs: $525/oz
2021 All-in Sustaining Costs: $732/oz
3
BOA ESPERANÇA PROJECT
Location: Pará, Brazil
Ownership: 99.6%
Stage: Construction
4
5
BRAZIL CORPORATE OFFICE, MCSA (São Paulo)
CANADA CORPORATE OFFICE (Vancouver)
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E R O C O P P E R A N N U A L R E P O R T 2 0 2 1
BRAZIL
3
2
1
4
2021 HIGHLIGHTS
Record Copper Production
(tonnes in thousands)
45,511 t
Record Revenues
(US$ in millions)
$490
Record Cash Flows
from Operations
(US$ in millions)
$365(2)
50
40
30
20
10
0
500
400
300
200
100
$
0
500
400
300
200
100
$
0
Strong Gold Production
(ounces in thousands)
37,798 oz
50
40
30
20
10
0
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
Record Adjusted EBITDA(1)
(US$ in millions)
$332
500
400
300
200
100
$
0
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
Record Adj. Net Income
Attributable to Owners
of the Company(1)
(US$ per diluted share)
$2.37
2.50
2.00
1.50
1.00
0.50
$
0.00
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
(1) Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) and Adjusted net income attributable to owners of the Company are non-IFRS
measures – see the Notes section within this Annual Report for additional information.
(2) Inclusive of a $100 million upfront payment related to the August 2021 closing of the $110 million streaming agreement with RGLD Gold AG, a wholly owned subsidiary
of Royal Gold Inc., in relation to gold production from the NX Gold Mine (the “NX Gold Transaction”).
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E R O C O P P E R A N N U A L R E P O R T 2 0 2 1
SAFETY
STRATEGIC GROWTH INITIATIVES
■ Achieved Lost Time
Incident Frequency Rate
of 0.37(1) on over 8 million hours worked in 2021
OPERATING
■ Achieved record copper production at the MCSA Mining
Complex of 45,511 tonnes in concentrate at first quartile
C1 cash costs(2) of $0.77/lb of copper produced
■ Delivered strong gold production at the NX Gold Mine of
37,798 ounces at C1 cash costs(2) and All-in Sustaining
Costs(2) of $525 and $732, respectively, per ounce of
gold produced
FINANCIAL
■ Announced a $110 million gold stream on our NX Gold
Mine, unlocking significant shareholder value from the
mine and enhancing the Company’s balance sheet with
the upfront payment of $100 million
■ Commenced trading on the New York Stock Exchange in
June 2021, providing another access point for investors
seeking to invest in the Company and enhancing trading
liquidity for existing shareholders
■ Published results of an updated Feasibility Study on the
Boa Esperança Project, outlining a project with a 41.8%
after-tax IRR(3) and an after-tax NPV8% of $380 million(3)
■
Increased proven and probable mineral reserves for
the Deepening Extension Zone by 56% due to exceptional
drill results from this zone throughout 2021
■ Finalized a larger external shaft design for the Deepening
Extension Zone, which will allow for the creation of a two-
mine system at the Pilar Mine as part of an initiative known
as “Pilar 3.0”, This initiative is expected to enable higher
sustained ore production volumes of 2.6 to 3.0 million
tonne per annum from the Pilar Mine over the long-term
■ Successfully and safely completed two mill shell
in
replacements at
preparation for expanded operations and higher mill
through volumes in the years ahead
the MCSA Mining Complex
■ Delivered strong drill results from the NX Gold Mine
throughout 2021, forming the basis of a new initiative
known as “NX 60” that is focused on sustaining longer
term gold production of approximately 60,000 ounces
per year
■ Delivered several record financial results, including:
SUSTAINABILITY
• Revenue of $489.9 million
• Net income and adjusted net income attributable to
owners of the Company(2) of $201.1 million ($2.21 per
diluted share) and $215.4 million ($2.37 per diluted
share), respectively
• EBITDA(2) and Adjusted EBITDA(2) of $296.4 million
and $331.9 million, respectively
• Cash
flow
from operations of $364.6 million
(inclusive of the $100.0 million upfront advance
related to the NX Gold Transaction)
■ Became a signatory of the United National Global Compact
■ Announced support of the Task Force on Climate-Related
Financial Disclosures (TCFD)
■ Formed a Management Climate Change Committee
whose mandate is to incorporate climate change risks
and opportunities into the Company’s strategy, business
plans and disclosures
(1) Per million hours worked.
(2) EBITDA, Adjusted EBITDA, adjusted net income attributable to owners of the Company, including per diluted share, C1 cash cost per pound of copper produced, C1 cash cost
per ounce of gold produced and All-in Sustaining Costs (“AISC”) per ounce of gold produced are non-IFRS measures – see the Notes section of this Annual Report for additional
information. C1 cash cost per pound of copper produced are net of by-product credits from metal produced at the MCSA Mining Complex. AISC per ounce of gold produced are
net of by-product credits from metal produced at the NX Gold Mine.
(3) Based on consensus copper prices price forecast used in the Boa Esperança Technical Report dated November 12, 2021 with an effective date of August 31, 2021. Copper prices
of $3.80/lb in 2024, $3.95/lb in 2025 and $3.40/lb in 2026 and thereafter, and a BRL:USD exchange rate of 5.00.
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E R O C O P P E R A N N U A L R E P O R T 2 0 2 1
CHAIRMAN’S LETTER
2021 marked a year of record
operating and financial performance
as well as the achievement of
several strategic initiatives that have
positioned Ero Copper to pursue
a peer-leading growth trajectory in
the years ahead.
Beginning with the completion of an optimized feasibility
study on the Boa Esperança Project, our team laid the
foundation for high-return organic growth aimed at more
than doubling copper production over the next four years
while maintaining first quartile operating costs. Importantly,
the timing of this projected growth aligns with significant
anticipated copper demand growth related to the
advancement of urgent global decarbonization initiatives.
As a supplier of an element integral to the “Environmental
Revolution”, and specifically the achievement of carbon
neutrality, we are proud to produce some of the world’s
lowest carbon-intensive copper due to our access to power
sourced primarily from renewable energy. In 2021, we
continued to deepen our commitment to sustainability by
forming an internal Management Committee on Climate
Change whose mandate is to incorporate climate change
risks and opportunities
into the Company’s strategy,
business plans and disclosures. In support of this mandate,
we became a signatory of the U.N. Global Compact and a
supporter of the Task Force on Climate-Related Financial
Disclosures (TCFD) and progressed efforts to define
sustainability targets across our operations.
As we prepare to commence construction of our
Boa Esperança Project, the foundation of our Company
has never been stronger. We have defined compelling
growth projects at both the MCSA Mining Complex and the
NX Gold Mine, in addition to the planned development of
Boa Esperança, and have worked to secure and support
this growth by bolstering our balance sheet subsequent
to year-end with the issuance of $400 million in senior
unsecured notes due 2030.
I am extremely proud of Ero Copper’s accomplishments
in 2021 and would like to thank all of our stakeholders for
their continued efforts and unwavering support. Despite
our very strong performance in 2021, I truly believe the best
is still ahead.
Noel Dunn
Executive Chairman
March 15, 2022
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LETTER FROM THE CEO
Ero Copper delivered another year of exceptional performance in 2021 and
made significant progress in defining a strategy to pursue transformational
organic growth in the years ahead. We also made strong progress in shaping
our sustainability strategy to further differentiate our Company as one of the
world’s lowest carbon-intensive copper producers.
Record 2021 Operating and Financial Performance
High-Return Organic Growth Strategy
The MCSA Mining Complex delivered another consecutive
year of record copper production at first quartile C1 cash
costs. This performance was particularly noteworthy due
to the impact of downtime associated with scheduled
maintenance and upgrades performed at the Caraíba
Mill in the second and third quarters to prepare the mill
for expanded operations and higher throughput volumes
related to the ramp up of mining activity at the Surubim
Mine as well as future growth plans at the Pilar Mine and
Deepening Extension Zone.
During the year, we defined a strategy, which we announced
in early 2022, to more than double our copper production and
become a 100,000 tonne per year copper and 60,000 ounce
per year gold producer by 2025 while maintaining first
quartile operating costs and industry-leading returns on
invested capital (“ROIC”). This growth strategy represents
the culmination of aggressive exploration drilling over the
past several years as well as thoughtful project and mine
planning to identify opportunities for value creation within
our existing portfolio.
Operating performance from the NX Gold Mine was also
strong, with production exceeding the high-end of full-
year gold production guidance. Construction of a modular
paste-fill plant was completed in the third quarter, and
commissioning concluded shortly after year-end. The new
paste-fill plant is expected to improve overhand cut and fill
mining operations and enhance pillar recovery throughout
the mine.
As a result of our strong operating performance during
the year, we reported a number of record financial results
that contributed to an increase of $156 million to year-end
available liquidity of $230 million, including $130 million
in cash and cash equivalents and $100 million in undrawn
availability under our senior secured revolving credit facility.
The results of these efforts included the announcement
of an optimized Feasibility Study on the Boa Esperança
Project, outlining a project with a 41.8% after-tax internal
rate of return(1), a $380 million after-tax net present value
(8% discount rate)(1), and average annual copper production
of approximately 35,000 tonnes at an average C1 cash
cost of $1.12(1) per pound of copper produced in the first
five years of production. In February 2022, our Board of
Directors approved the construction of the Boa Esperança
Mine, which is expected to commence in the second quarter
of 2022 with commercial production anticipated in the
second half of 2024. During its first full year of production
in 2025, the Boa Esperança Mine is expected to produce
approximately 50,000 tonnes of copper, doubling our total
copper production to nearly 100,000 tonnes by 2025.
“As we endeavor to double our annual copper production over the next
four years, we are working to establish reduction targets for greenhouse
gas emissions that we believe further improve our position as one of the
world’s cleanest copper producers.”
David Strang - Chief Executive Officer
(1) Based on consensus copper prices price forecast used in the Boa Esperança Technical Report dated November 12, 2021 with an effective date of
August 31, 2021. Copper prices of $3.80/lb in 2024, $3.95/lb in 2025 and $3.40/lb in 2026 and thereafter, and a BRL:USD exchange rate of 5.00.
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E R O C O P P E R A N N U A L R E P O R T 2 0 2 1
Throughout 2021, we released exceptional drill results from
the Deepening Extension Zone, including the best intercept
by our Company in the Curaçá Valley to date. The success
of our exploration efforts within this zone has continued to
exceed our expectations with respect to the size and quality
of mineralization and resulted in a 56% increase to the
Deepening Extension Zone’s proven and probable mineral
reserves in 2021 compared to 2020. This growth in mineral
reserves, combined with the potential for further extensions
at depth, as well as exploration success in the shallower
areas of the Pilar Mine, drove an initiative to optimize
the development strategy for the Deepening Extension
Zone’s new external shaft to allow for higher sustained ore
production levels from the Pilar Mine.
Following months of engineering design work, our team
finalized plans to create a two-mine system at the Pilar Mine,
known as “Pilar 3.0”, which was announced in early 2022
and is expected to enable higher annual ore production
volumes of 2.6 to 3.0 million tonnes from the Pilar Mine,
including the Deepening Extension Zone, compared to the
current production rate of approximately 1.3 million tonnes
per annum.
At the NX Gold Mine, we announced another growth
initiative shortly after year-end known as “NX 60” based on
strong drill results from the mine throughout 2021, including
the best intercept in the history of the mine as well as the
discovery of a new high-grade extension of the Matinha
Vein. The NX 60 initiative is focused on sustaining longer
term gold production of approximately 60,000 ounces per
year, including expected production from the Matinha Vein
beginning in 2024.
Deep Commitment to ESG
Ero Copper is deeply committed to strong environmental,
social and governance principles. This extends from our
health and safety initiatives and performance to our
governance policies and sustainability strategy.
We are fortunate to operate in Brazil, which allows us to
produce some of the lowest carbon-intensive copper in the
world. Brazil is a global leader in the use of renewable energy
with 85% of its power generated from renewable sources,
including 66% from hydropower. We believe this affords our
Company, and the copper concentrate we produce, a growing
competitive advantage as copper is a key input required
to advance global decarbonization initiatives. As a result,
end-users of refined copper globally are increasingly focused
on greenhouse gas emissions throughout the supply chain.
As we endeavor to double our annual copper production
over the next four years, we are working to establish
reduction targets for greenhouse gas emissions that we
believe will further improve our position as one of the world’s
cleanest copper producers.
Outlook for 2022
As we entered 2022, we continued to position our
Company for transformational growth with the issuance of
$400 million in senior unsecured notes due 2030, providing
ample balance sheet liquidity to fund construction of the
Boa Esperança Project as well as other strategic growth
projects. We are well-prepared and excited to execute on
the compelling strategy we have defined over the last year
while remaining true to our core principles around health,
safety and sustainability.
David Strang
Chief Executive Officer
March 15, 2022
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M A N A G E M E N T ’ S D I S C U S S I O N
A N D A N A LY S I S
F O R T H E Y E A R E N D E D D E C E M B E R 3 1 , 2 0 2 1
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E R O C O P P E R A N N U A L R E P O R T 2 0 2 1
TABLE OF CONTENTS
MANAGEMENT’S DISCUSSION AND ANALYSIS
9
Business Overview
10 Highlights
14 Review of Operations
19 Review of Financial Results
23 Summary of Quarterly Results
24 Liquidity, Capital Resources,
and Contractual Obligations
26 Management of Risks and Uncertainties
28 Other Financial Information
29 Accounting Policies, Judgments and Estimates
31 Alternative Performance (Non-IFRS) Measures
38 Note Regarding Scientific
and Technical Information
40 Additional Information
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MANAGEMENT’S DISCUSSION AND ANALYSIS
This Management’s Discussion and Analysis (“MD&A”) has been prepared as at March 8, 2022 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, 2021, 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 2021” and “Q4 2020” are to the
three months ended December 31, 2021 and December 31, 2020, 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 alternative performance (Non-IFRS) measures, including 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), realized gold price (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, Net (Cash)
Debt, Working Capital and Available Liquidity. Please refer to the section titled "Alternative Performance (Non-
IFRS) Measures" within this MD&A for a discussion of non-IFRS measures.
This MD&A contains “forward-looking statements” that are 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 statements will prove to be
accurate, and actual results and future events may differ materially from those anticipated in such statements.
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 such forward-looking statements. 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 8, 2022, unless otherwise stated.
BUSINESS OVERVIEW
Ero Copper Corp is a high-growth, clean copper producer with operations in Brazil and corporate headquarters in
Vancouver, B.C. The Company's primary asset is a 99.6% interest in the Brazilian copper mining company,
Mineração Caraíba S.A. ("MCSA"), 100% owner of the MCSA Mining Complex, which is comprised of operations
located in the Curaçá Valley, Bahia State, Brazil, where the Company currently mines copper from the Pilar and
Vermelhos underground mines and the Surubim open pit mine, and the Boa Esperança development project, an
IOCG-type copper project located in Pará, Brazil. The Company also owns 97.6% of NX Gold S.A. ("NX Gold")
which owns 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), on SEDAR
(www.sedar.com), and on EDGAR (www.sec.gov).
The Company’s shares are publicly traded on the Toronto Stock Exchange and the New York Stock Exchange
under the symbol “ERO”.
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Ero Copper Corp. December 31, 2021 MD&A | Page 1
HIGHLIGHTS
Operating Information
Copper (MCSA Operations)
Ore Processed (tonnes)
Grade (% Cu)
Cu Production (tonnes)
Cu Production (lbs)
Cu Sold in Concentrate (tonnes)
Cu Sold in Concentrate (lbs)
2021 - Q4
2021 - Q3
2020 - Q4
2021
2020
646,319
2.01
11,918
26,274,572
12,393
27,320,802
572,666
1.90
10,057
22,170,355
10,762
23,726,561
483,447
2.26
10,018
22,085,927
10,265
22,629,431
2,370,571
2.08
45,511
100,333,448
45,717
100,788,419
2,271,625
2.08
42,814
94,387,605
42,813
94,387,312
C1 Cash Cost of Cu Produced (per lb)(1)
$
0.96 $
0.94 $
0.69 $
0.77 $
0.67
Gold (NX Gold Operations)
Ore Processed (tonnes)
Au Production (oz)
47,159
8,544
42,874
9,426
45,574
10,789
171,581
37,798
162,642
36,830
Realized Au price (per oz)(1)(2)
C1 Cash Cost of Au Produced (per oz)(1)
AISC of Au produced (per oz)(1)
$
$
$
1,784 $
582 $
910 $
1,746 $
538 $
741 $
1,867 $
405 $
608 $
1,783 $
525 $
732 $
$
Financial information ($ in millions, except per share amounts)
Revenues
134.9 $
Gross profit
EBITDA(1)
Adjusted EBITDA(1)
Cash flow from operations(3)
Net income
Net income attributable to owners of the
84.4
80.7
86.8
66.7
60.2
Company
- Per share (Basic)
- Per share (Diluted)
Adjusted net income attributable to owners
of the Company(1)
- Per share (Basic)
- Per share (Diluted)
Cash and cash equivalents
Working capital(1)
Net (cash) debt(1)
59.8
0.67
0.65
59.7
0.67
0.65
130.1
86.0
(70.9)
111.8 $
68.0
48.5
72.9
150.7
26.4
26.1
0.29
0.28
45.7
0.52
0.49
92.6
81.4
(63.7)
91.2 $
58.3
91.3
67.2
38.6
66.3
489.9 $
318.9
296.4
331.9
364.6
202.6
65.8
0.75
0.71
37.4
0.43
0.40
62.5
35.8
105.6
201.1
2.27
2.21
215.4
2.43
2.37
130.1
86.0
(70.9)
1,795
457
628
324.1
188.1
116.2
207.1
162.8
52.5
51.6
0.60
0.56
117.3
1.36
1.27
62.5
35.8
105.6
(1) Please refer to the section titled "Alternative Performance (Non-IFRS) Measures" within this MD&A.
(2) Realized Au price includes the effect of ounces sold under the stream arrangement with Royal Gold. See "Realized Gold Price" section
of "Alternative Performance (Non-IFRS) Measures" for detail.
(3) Cash flow from operations in Q3 2021 and the year 2021 included $100.0 million upfront advance from Royal Gold for the NX Gold
Transaction, as defined below.
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Ero Copper Corp. December 31, 2021 MD&A | Page 2
2021 Highlights
Strong Q4 operating performance delivers 2021 production guidance beat and record full-year financial results
•
Record 2021 copper production achieved at the MCSA Mining Complex of 45,511 tonnes of copper in
concentrate, exceeding the high-end of full-year guidance of 42,000 to 45,000 tonnes.
• Delivered strong C1 cash costs of $0.77 per pound of copper produced, at the low-end of the Company's
•
guidance range of $0.75 to $0.85 per pound of copper produced for 2021.
Surpassed the high-end of full-year gold production guidance of 34,500 to 37,500 ounces at the NX Gold
Mine with production of 37,798 ounces of gold.
• Achieved C1 cash costs and AISC of $525 and $732, respectively, per ounce of gold produced, in-line with
the Company's 2021 C1 cash cost guidance and revised 2021 AISC guidance.
Record financial results for the year included:
•
◦
◦
◦
◦
Revenue of $489.9 million;
Net income and adjusted net income attributable to owners of the Company of $201.1 million
($2.21 per diluted share) and $215.4 million ($2.37 per diluted share), respectively;
EBITDA(1) and Adjusted EBITDA(1) of $296.4 million and $331.9 million, respectively; and,
Cash flow from operations of $364.6 million (inclusive of the $100.0 million upfront advance for
the NX Gold Transaction, as defined below).
• Available liquidity at year-end was $230.1 million, including cash and cash equivalents of $130.1 million
and $100.0 million of undrawn availability under the Company's senior revolving credit facility.
Advancement and completion of important strategic and corporate milestones during 2021 have positioned
the Company to execute upon attractive, high-return organic growth
•
Published results of an updated Feasibility Study on the Boa Esperança Project, outlining a project with a
41.8% after-tax internal rate of return(2), a $380 million after-tax net present value (8% discount rate)(2),
and average annual copper production of approximately 35,000 tonnes at an average C1 Cash Cost of
$1.12 per pound of copper produced in the first five years of production.
•
• Announced exceptional drill results from the Deepening Extension Zone throughout the year, which
resulted in significant increases to mineral reserves and resources within this zone, highlighted by a 56%
increase in proven and probable mineral reserves, driving an initiative to optimize the development
strategy for the Deepening Extension Zone of the Pilar Mine.
Finalized a larger external shaft design for the Deepening Extension Zone, which will allow for the
creation of a two-mine system at the Pilar Mine in an initiative known as "Pilar 3.0". This initiative,
announced subsequent to year-end, is expected to enable higher production volumes of between 2.6 to
3.0 million tonnes per annum compared to the current production rate of approximately 1.3 million
tonnes per annum at the Pilar Mine.
Completed two consecutive phases of scheduled mill maintenance and upgrades at the MCSA Mining
Complex in preparation for expanded operations and higher mill throughput volumes. Increases in mill
throughput volumes are expected, near-term from Surubim open pit operations, and from development
of the two-mine system at the Pilar Mine over the long-term.
•
• Delivered strong drill results from the NX Gold Mine throughout 2021, including the best intercept in the
history of the mine as well as the discovery of a new high-grade extension of the Matinha Vein, forming
the basis of a new initiative known as "NX 60", announced shortly after year-end. This initiative is
focused on sustaining longer-term gold production of approximately 60,000 ounces per year.
(1) Please refer to the section titled "Alternative Performance (Non-IFRS) Measures" within this MD&A.
(2) Based on consensus copper prices price forecast used in the Boa Esperança Technical Report dated November 12, 2021 with an
effective date of August 31, 2021. Copper prices of $3.80/lb in 2024, $3.95/lb in 2025 and $3.40/lb in 2026 and thereafter, and a
BRL:USD exchange rate of 5.00.
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Ero Copper Corp. December 31, 2021 MD&A | Page 3
• Announced a $110 million streaming agreement with Royal Gold (as defined below) in relation to gold
production from the NX Gold Mine (the "NX Gold Transaction"), unlocking significant shareholder value
from the mine and further enhancing the Company's balance sheet with an upfront payment of $100
million received in Q3 2021.
Commenced trading of the Company's common shares on the New York Stock Exchange in Q2 2021,
providing another access point for investors seeking to invest in the Company and enhancing trading
liquidity for existing shareholders.
•
Important developments subsequent to year-end 2021 continue to support the Company's organic growth
strategy
•
•
•
•
In February 2022, the Company closed an offering of $400 million of senior unsecured notes due 2030.
The Company subsequently used approximately $50 million of net proceeds from the offering to repay
the outstanding balance under its senior secured revolving credit facility. The Company intends to use
the remaining proceeds, together with cash on hand, to fund capital expenditures related to the
construction of the Boa Esperança Project and for general corporate purposes.
Concurrent with the closing of the $400 million senior unsecured notes offering, the Company reduced
the size of its senior secured revolving credit facility from $150 million to $75 million.
The Company's pro forma year-end liquidity position was approximately $550 million, including
approximately $475 million in cash and cash equivalents and $75 million of undrawn availability under
the Company's senior revolving credit facility.
In February 2022, the Company announced that its Board of Directors approved the construction of the
Boa Esperança Project, which is expected to commence construction in Q2 2022.
Q4 2021 Highlights
Strong Q4 2021 operating performance, including growing contributions from the Surubim open pit mine at
the MCSA Mining Complex, drove solid quarterly financial results
•
The MCSA Mining Complex processed 646,319 tonnes of ore grading 2.01% copper, producing 11,918
tonnes of copper in concentrate during the quarter after metallurgical recoveries of 92.7%.
•
• Higher quarter-on-quarter copper production was driven primarily by increased mill throughput volumes
related to (i) the ramp-up of mining activity and processing of stockpiled ore from the Surubim open pit
mine and (ii) a return to higher mill capacity levels following the completion of scheduled mill
maintenance, which impacted mill throughput volumes in Q2 and Q3 of 2021.
The NX Gold Mine processed 47,159 tonnes grading 6.24 grams per tonne, producing 8,544 ounces of
gold after metallurgical recoveries of 90.3% and 5,859 ounces of silver produced as by-product.
Commissioning of the NX Gold Mine's paste-fill plant, where construction was completed in Q3 2021,
continued during the fourth quarter and handover to operations was completed in January 2022. The
paste-fill plant is expected to improve overhand cut and fill mining operations and enhance pillar
recovery throughout the mine.
C1 cash costs during the quarter were $0.96 per pound of copper produced at the MCSA Mining
Complex (see Non-IFRS Measures).
•
•
• At the NX Gold Mine, C1 cash costs and AISC during the quarter were $582 and $910, respectively, per
•
ounce of gold produced (see Non-IFRS Measures).
Strong cash flows from operations during the quarter of $66.7 million contributed to increased available
liquidity at year-end of $230.1 million, including cash and cash equivalents of $130.1 million and $100.0
million of undrawn availability under the Company's senior revolving credit facility.
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Ero Copper Corp. December 31, 2021 MD&A | Page 4
2021 updated mineral reserves and resources for the MCSA Mining Complex and the NX Gold Mine continue to
highlight the Company's track-record of generating shareholder value through exploration
•
Exceptional drill results from the Deepening Extension Zone throughout 2021 resulted in a 56% increase
in proven and probable mineral reserves within the zone and contributed to an increase of 13% in total
proven and probable mineral reserves for the MCSA Mining Complex.
• A 32% increase in measured and indicated mineral resources (25% increase in proven and probable
reserves) for the NX Gold Mine was driven by exploration of high-grade extensions of the Santo Antonio
Vein and the discovery of a new high-grade extension of the Matinha Vein.
Organic Growth Projects
• During the quarter, the Company finalized a redesign of the new external shaft at the Deepening
Extension Zone to allow for higher sustained ore production rates from the Pilar Mine as part of the Pilar
3.0 initiative, announced subsequent to year-end. Plans to construct a larger shaft were driven by
continued exploration success within the Deepening Extension Zone as well as within shallower areas of
the Pilar Mine, enabling the creation of a two-mine system whereby the upper levels of the mine will be
serviced by the existing shaft, while the Deepening Extension Zone will utilize the new, larger external
shaft. Pilar 3.0 is expected to enable higher annual production volumes of 2.6 to 3.0 million tonnes
compared to the current production rate of approximately 1.3 million tonnes per annum at the Pilar
Mine.
• As previously noted, the Company announced that its Board of Directors approved the construction of
the Boa Esperança Project subsequent to year-end. Construction is expected to commence in Q2 2022,
with first production anticipated in H2 2024. In preparation for construction of Boa Esperança, the
Company has made significant progress on key workstreams, including:
◦
Advancing critical-path contracts
construction with equipment mobilization expected in Q2 2022;
Detailed engineering and construction designs; and,
including early works, power
◦
◦ Ongoing drill program efforts, including further exploration of the Gap Zone and completion of
infrastructure and site
condemnation drilling for site infrastructure.
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Ero Copper Corp. December 31, 2021 MD&A | Page 5
REVIEW OF OPERATIONS
Mineração Caraíba S.A. (Vale do Curaçá):
Copper (MCSA Operations)
Ore processed (tonnes)
Grade (% Cu)
Recovery (%)
Cu Production (tonnes)
Cu Production (lbs)
Concentrate grade (% Cu)
Concentrate sales (tonnes)
Cu Sold in concentrate (tonnes)
Cu Sold in concentrate (lbs)
2021 - Q4
2021 - Q3
2020 - Q4
646,319
2.01
92.7
572,666
1.90
92.4
483,447
2.26
91.7
2021
2,370,571
2.08
92.4
2020
2,271,625
2.08
90.5
11,918
26,274,572
10,057
22,170,355
10,018
22,085,927
45,511
100,333,448
42,814
94,387,605
33.2
35,996
12,393
27,320,802
33.5
31,369
10,762
23,726,561
33.3
30,416
10,265
22,629,431
34.0
133,122
45,717
100,788,419
33.7
127,007
42,813
94,387,312
C1 cash cost of copper produced (per lb)
$
0.96 $
0.94 $
0.69 $
0.77 $
0.67
The Company’s MCSA Mining Complex delivered another strong operating quarter in Q4 2021, producing 11,918
tonnes of copper resulting in full year 2021 copper production of 45,511 tonnes. With the completion of the
second and final phase of scheduled mill maintenance at the MCSA Mining Complex during Q3 2021, there was a
meaningful increase in tonnes processed quarter-on-quarter.
During Q4 2021, at the Pilar Mine, 293,627 tonnes of ore were mined grading 1.97% copper (as compared to
346,040 tonnes of ore grading 2.03% copper during Q3 2021). At the Vermelhos Mine, 226,054 tonnes of ore
were mined grading 2.94% copper (as compared to 231,543 tonnes of ore grading 1.49% copper during Q3
2021). At the Surubim Mine, 129,885 tonnes of ore were mined grading 0.72% copper. Contributions from the
three mines resulted in total ore mined during the period of 649,566 tonnes grading 2.01% copper. During Q4
2021, 646,319 tonnes of ore grading 2.01% copper were processed, producing 11,918 tonnes of copper after
average metallurgical recoveries of 92.7%.
Total full year 2021 processed volumes of 2,370,571 tonnes grading 2.08% copper generated copper production
of 45,511 tonnes in concentrate after average metallurgical recoveries of 92.4%.
Initial production from the Surubim open pit occurred in Q4 2021, including the processing of ore stockpiled
during pre-stripping. The Surubim Mine is expected to contribute to higher throughput volumes and lower
average processed copper grades at the MCSA Mining Complex in 2022.
C1 cash costs per pound of copper produced during Q4 2021 averaged $0.96 (see Non-IFRS Measures), resulting
in full year 2021 C1 cash costs per pound of copper produced of $0.77. Full-year cost performance was at the
low end of cost guidance due to elevated grades mined and processed relative to budget, strong overall
operational performance at the MCSA Mining Complex, and continued weakness of the BRL versus the US dollar.
The Company’s exploration programs at the MCSA Mining Complex are focused on four primary objectives for
2022: (i) infill and extension drilling in the upper levels (above level -965) of the Pilar Mine, (ii) focused infill and
exploration drilling at the Vermelhos Mine aimed on extending the known limits of high-grade mineralization
with the goal of supplementing the grade profile of the mine over the near- to medium-term, (iii) re-evaluation
of past producing open pit mines including extension drilling at depth at Lagoa da Mina and Surubim, and (iv)
regional exploration of the broader MCSA Mining Complex land package focused on making new regional
discoveries.
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Ero Copper Corp. December 31, 2021 MD&A | Page 6
NX Gold S.A.
Gold (NX Gold Operations)
Ore mined (tonnes)
Ore processed (tonnes)
Head grade (grams per tonne Au)
Recovery (%)(1)
Gold ounces produced (oz)
Silver ounces produced (oz)
Gold sold (oz)
Silver sold (oz)
2021 - Q4
2021 - Q3
2020 - Q4
47,159
47,159
6.24
90.3
8,544
5,859
7,779
5,938
41,654
42,874
7.37
92.7
9,426
6,575
9,685
6,805
45,574
45,574
7.72
95.4
10,789
6,763
10,100
6,349
2021
171,581
171,581
7.27
94.2
37,798
25,031
37,437
25,285
Realized gold price (per oz)(2)
C1 cash cost of gold produced (per oz)
AISC of gold produced (per oz)
$
$
$
1,784 $
582 $
910 $
1,746 $
538 $
741 $
1,867 $
405 $
608 $
1,783 $
525 $
732 $
2020
162,642
162,642
7.72
91.3
36,830
22,694
35,855
22,109
1,795
457
628
(1) NX Gold metallurgical recoveries during H1 2021 included gold recovered through the Company’s “Zero Loss” campaign, including
reprocessed mill and foundry scrap, and therefore may not be representative of metallurgical recoveries from mined ore during the
period.
(2) Realized Au price includes the effect of ounces sold under the stream arrangement with Royal Gold. See "Realized Gold Price"
section of "Non-IFRS Measures" for detail.
At the NX Gold Mine, gold production decreased 9%, as expected, compared to Q3 2021 due to lower planned
head grades from Santo Antonio. Production during Q4 2021 totaled 8,544 ounces of gold and 5,859 ounces of
silver (as by-product) from total mill feed of 47,159 tonnes grading 6.24 grams per tonne gold after metallurgical
recoveries of 90.3% during the period. Metallurgical recoveries rates were lower in Q4 2021 primarily due to
lower head head grades during the period.
During 2021, the NX Gold Mine delivered production of 37,798 ounces of gold and 25,031 ounces of silver from
total mill feed of 171,581 tonnes grading 7.27 grams per tonne gold after metallurgical recoveries of 94.2%.
Metallurgical recovery rates were elevated in H1 2021 due to gold contributions from mill and foundry scrap
recycling efforts.
The NX Gold Mine achieved C1 cash costs and AISC during Q4 2021 of $582 and $910, respectively, per ounce of
gold produced, bringing 2021 C1 cash costs and AISC to $525 and $732, respectively, per ounce of gold produced
(see Non-IFRS Measures).
Commissioning of the NX Gold Mine's paste-fill plant, where construction was completed in Q3 2021, continued
during the fourth quarter and handover to operations concluded in January 2022. The paste-fill plant is expected
to improve overhand cut and fill mining operations and enhance pillar recovery throughout the mine.
Exploration activities at the NX Gold Mine continue to focus on three primary objectives for 2022: (i) infill and
extension of the Santo Antonio Vein, (ii) delineation and discovery of new gold-bearing veins within the NX Gold
Mine system near existing infrastructure, such as the Matinha Vein, and (iii) regional exploration on the broader
NX Gold land package.
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Ero Copper Corp. December 31, 2021 MD&A | Page 7
NX Gold Transaction
In August 2021, the Company completed the closing of a streaming agreement with Royal Gold in relation to
gold production from the NX Gold mine. The Company received upfront cash consideration of $100.0 million for
the purchase of 25% of an equivalent amount of gold to be produced from the NX Gold mine until 93,000 ounces
of gold have been delivered and thereafter decreasing to 10% of gold produced over the remaining life of the
mine. Royal Gold will make ongoing payments equal to 20% of the then prevailing spot gold price for each ounce
of gold delivered until 49,000 ounces of gold have been received and 40% of the prevailing spot gold price for
each ounce of gold delivered thereafter. Additional payment obligations of Royal Gold include:
i. Up to US$5 million, available through the end of 2024, payable based upon the number of ounces of gold
added to the Measured and Indicated mineral resource categories as compared to the mineral resources
as of the effective date of the NX Gold Transaction at a rate of US$20 per ounce;
ii. Up to US$5 million, available from 2022 through the end of 2024, payable based upon completion of
planned meters of drilling within the exploration concessions of the NX Gold mine at a rate of US$100 per
meter; and,
iii. US$5 per ounce of gold delivered under the NX Gold Transaction payable to the Company as contribution
towards ongoing environmental, social and governance initiatives within the area of influence of the mine.
The contract will be settled by the Company delivering gold to Royal Gold. The $100.0 million upfront proceeds
from Royal Gold has been recognized as deferred revenue and the Company recognizes amounts in revenue as
gold is delivered. Each period, management estimates the cumulative amount of the deferred revenue
obligation that has been satisfied and, therefore, recognized as revenue. Key inputs into the estimate at closing
of the transaction included an estimated long-term gold price of $1,750 per ounce and a life of mine production
schedule for the NX Gold mine that includes mineral reserves and a portion of the mineral resources.
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Ero Copper Corp. December 31, 2021 MD&A | Page 8
2022 Guidance / Outlook
•
•
•
•
2022 annual production guidance for the MCSA Mining Complex of 43,000 to 46,000 tonnes of copper in
concentrate at C1 cash cost guidance(1) range of $1.05 to $1.15 per pound of copper produced;
2022 annual production guidance for the NX Gold Mine of 39,000 to 42,000 ounces of gold at C1 cash
cost guidance(1) range of $500 to $600 per ounce of gold produced;
2022 AISC guidance(1) for the NX Gold Mine of $925 to $1,025 per ounce of gold produced; and
Full-year capital expenditure guidance of $230 million to $260 million for the MCSA Mining Complex,
$75 million to $86 million for the Boa Esperanҫa Project and $25 million to $29 million for the NX Gold
Mine.
2022 Production Outlook
MCSA Mining Complex
Tonnes Processed
Copper Grade (%)
Copper Recovery (%)
Copper Production (tonnes)
NX Gold Mine
Tonnes Processed
Gold Grade (gpt)
Gold Recovery (%)
Au Production (ounces)
2022 Guidance
3,000,000
1.60 %
92.5 %
43,000 - 46,000
168,000
8.00
93.0 %
39,000 - 42,000
Note: 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 and EDGAR
filings, including the Company's Annual Information Form for the year ended December 31, 2021 (the "AIF") for complete risk
factors.
2022 Cost Guidance
The Company's guidance for 2022 assume a USD:BRL foreign exchange rate of 5.30, a gold price of $1,725 per
ounce and a silver price of $20.00 per ounce.
MCSA Mining Complex C1 Cash Cost Guidance (US$/lb)(1)
NX Gold Mine C1 Cash Cost Guidance (US$/oz)(1)
NX Gold Mine All-in Sustaining Cost (AISC) Guidance (US$/oz)(1)
2022 Guidance
$1.05 - $1.15
$500 - $600
$925 - $1,025
(1) C1 cash costs of copper produced (per lb), C1 cash costs of gold produced (per ounce), and AISC are non-IFRS measures – Please
refer to the section titled "Alternative Performance (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.
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Ero Copper Corp. December 31, 2021 MD&A | Page 9
2022 Capital Expenditure Guidance
The Company's capital expenditure guidance for 2022 assume a USD:BRL foreign exchange rate of 5.30 and has
been presented below in USD millions.
MCSA Mining Complex
Growth
Sustaining
Exploration
Total, MCSA Mining Complex
Boa Esperança Project
Growth
Sustaining
Exploration
Total, Boa Esperança Project
NX Gold Mine
Growth
Sustaining
Exploration
Total, NX Gold Mine
Company Total
Growth
Sustaining
Exploration
Total, Company
2022 Guidance
$125 - $140
$80 - $90
$25 - $30
$230 - $260
$70 - $80
$0
$5 - $6
$75 - $86
$0 - $1
$16 - $18
$9 - $10
$25 - $29
$195 - $221
$96 - $108
$39 - $46
$330 - $375
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Ero Copper Corp. December 31, 2021 MD&A | Page 10
REVIEW OF FINANCIAL RESULTS
The following table provides a summary of the financial results of the Company for Q4 2021 and Q4 2020.
Tabular amounts are in thousands of US dollars, except share and per share amounts.
Three months ended December 31,
Notes
2021
2020
Revenue
Cost of sales
Gross profit
Expenses
General and administrative
Share-based compensation
Income before the undernoted
Finance income
Finance expense
Foreign exchange (loss) gain
Recovery of value added taxes
Other expenses
Income before income taxes
Income tax expense
Current
Deferred
Net income for the period
Other comprehensive (loss) gain
Foreign currency translation (loss) gain
Comprehensive income
Net income per share attributable to owners of the Company
Basic
Diluted
Weighted average number of common shares outstanding
Basic
Diluted
Cash and cash equivalents
Total assets
Non-current liabilities
Notes:
1
2
3
4
5
6
7
8
$
$
$
$
$
$
$
$
134,869 $
(50,506)
84,363
(12,252)
(981)
71,130
964
(2,296)
(4,419)
—
(639)
64,740
(6,372)
1,844
(4,528)
60,212 $
91,243
(32,895)
58,348
(8,165)
(2,549)
47,634
145
(2,556)
27,142
8,886
(1,675)
79,576
(4,044)
(9,190)
(13,234)
66,342
(10,474)
49,738 $
19,679
86,021
0.67 $
0.65 $
0.75
0.71
89,637,768
91,727,452
87,321,832
92,642,103
130,129 $
689,762 $
171,612 $
62,508
497,099
191,304
1. Revenues from copper sales in Q4 2021 was $119.9 million (Q4 2020 - $72.6 million), which included the sale of 27.3 million lbs of
copper as compared to 22.6 million lbs of copper in Q4 2020. The increase in revenues was primarily attributed to higher realized
prices and increased sales volume.
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Ero Copper Corp. December 31, 2021 MD&A | Page 11
Revenues from gold sales in Q4 2021 was $14.9 million (Q4 2020 - $18.6 million), which included the sale of 7,779 ounces of gold at a
realized price of $1,784 per ounce, compared to 10,100 ounces of gold at a realized price of $1,867 per ounce for Q4 2020. The
decrease in revenues was primarily attributable to lower realized prices and lower sales volume than in the comparative quarter.
2. Cost of sales for Q4 2021 from copper sales was $43.6 million (Q4 2020 - $25.8 million) which primarily comprised of $11.6 million
(Q4 2020 - $8.0 million) in depreciation and depletion, $11.2 million (Q4 2020 - $6.2 million) in salaries and benefits, $6.8 million (Q4
2020 - $3.8 million) in materials and consumables, $4.8 million (Q4 2020 - $3.1 million) in maintenance costs, $4.7 million (Q4 2020 -
$2.9 million) in contracted services, $2.3 million (Q4 2020 - $1.7 million) in utilities and $2.0 million (Q4 2020 - $1.4 million) in sales
expenses. The increase in cost of sales in Q4 2021 as compared to Q4 2020 was primarily attributable to a 34% increase in tonnes
processed, as well as increases in salaries and benefits and costs in materials and consumables.
Cost of sales for Q4 2021 from gold sales was $6.9 million (Q4 2020 - $5.5 million) which primarily comprised of $2.0 million (Q4
2020 - $1.2 million) in depreciation and depletion, $1.3 million (Q4 2020 - $1.1 million) in contracted services, $1.6 million (Q4 2020 -
$1.4 million) in salaries and benefits, $0.8 million (Q4 2020 - $0.9 million) in materials and consumables, $0.5 million (Q4 2020 - $0.5
million) in utilities, and $0.4 million (Q4 2020 - $0.4 million) in maintenance costs. The increase in cost of sales in Q4 2021 as
compared to Q4 2020 is primarily attributable to increases in cost of contracted services and salaries and benefits at NX Gold.
3. General and administrative expenses for Q4 2021 was primarily comprised of $4.9 million (Q4 2020 - $2.9 million) in salaries and
consulting fees, $3.0 million (Q4 2020 - $2.2 million) in office and administration expenses, $3.0 million (Q4 2020 - $2.5 million) in
incentive payments, and $0.7 million (Q4 2020 - $0.2 million) in travel-related costs. The increase in general and administrative
expenses was attributed to an increase in corporate headcount and administrative activities to support overall growth in operations,
as well as to enhance governance and compliance with the Company's recent NYSE listing.
4.
5.
6.
7.
8.
Finance expense for Q4 2021 was $2.3 million (Q4 2020 - $2.6 million) and is primarily comprised of interest on loans at the
corporate head office of $0.3 million (Q4 2020 - $1.6 million), accretion of deferred revenue of $0.9 million (Q4 2020 - $nil),
accretion of the asset retirement obligations of $0.4 million (Q4 2020 - $0.2 million) and other finance expense of $0.2 million (Q4
2020 - $1.0 million). The overall decrease in finance expense in Q4 2021 as compared to Q4 2020 is primarily attributable to overall
lower debt levels partially offset by an increase in non-cash accretion expense on deferred revenue.
Foreign exchange loss for Q4 2021 was $4.4 million (Q4 2020 - $27.1 million gain). This amount is primarily comprised of foreign
exchange gain on unrealized derivative contracts of $3.3 million (Q4 2020 - $27.7 million gain), foreign exchange loss on USD
denominated debt of $1.6 million (Q4 2020 - $7.7 million gain) in MCSA for which the functional currency is the BRL, partially offset
by a realized foreign exchange loss on derivative contracts of $6.2 million (Q4 2020 - $7.8 million loss) and other foreign exchange
gains of $0.1 million (Q4 2020 - $0.4 million losses). The foreign exchange gains were primarily a result of a weakening of BRL against
USD in Q4 2021 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 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 2021, the Company recognized $4.5 million in income tax expense (Q4 2020 - $13.2 million expense), primarily as a result of an
increase in taxable income from operations.
The foreign currency translation loss is a result of a weakening of the BRL against the USD during Q4 2021 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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Ero Copper Corp. December 31, 2021 MD&A | Page 12
The following table provides a summary of the annual financial results of the Company for 2021, 2020 and 2019.
Tabular amounts are in thousands of US dollars, except share and per share amounts.
Revenue
Cost of sales
Gross profit
Expenses
General and administrative
Share-based compensation
Income before the undernoted
Finance income
Finance expense
Foreign exchange loss
NX Gold Stream transaction fees
Recovery of value added taxes
Other expenses
Income before income taxes
Income tax expense
Current
Deferred
Net income for the period
Other comprehensive loss
Foreign currency translation loss
Comprehensive income
Net income per share attributable to owners of the
Company
Basic
Diluted
Weighted average number of common shares
outstanding
Basic
Diluted
Notes:
Notes
2021
Year ended December 31,
2020
2019
1
2
3
4
5
6
7
8
$
489,915 $
(171,057)
318,858
324,076 $
(135,939)
188,137
284,843
(162,817)
122,026
(38,846)
(7,848)
272,164
2,991
(12,159)
(21,968)
(1,219)
—
(2,889)
236,920
(27,927)
(9,064)
151,146
1,346
(15,449)
(79,805)
—
8,886
(4,701)
61,423
(22,428)
(11,860)
(34,288)
202,632 $
(9,675)
750
(8,925)
52,498 $
(32,817)
(5,792)
83,417
701
(20,428)
(5,148)
(1,783)
21,584
1,448
79,791
(10,645)
28,271
17,626
97,417
(24,252)
178,380 $
(49,553)
2,945 $
(4,941)
92,476
2.27 $
2.21 $
0.60 $
0.56 $
1.08
1.01
88,602,367
90,963,452
86,368,535
92,213,628
85,244,277
91,390,425
$
$
$
$
1. Revenues from copper sales in 2021 was $424.0 million (2020 - $260.9 million), which included the sale of 100,788,419 lbs of copper
compared to 94,387,312 lbs of copper for Fiscal 2020. The increase in revenues is primarily attributed to higher realized copper
prices and increased sales volume compared to the prior year.
Revenues from gold sales in 2021 was $66.0 million (2020 - $63.2 million), which included the sale of 37,437 ounces of gold at a
realized price of $1,783 per ounce, compared to 35,855 ounces of gold sold at a realized price of $1,795 per ounce in 2020. The
increase in revenues was attributable to higher sales volume compared to the prior year.
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2. Cost of sales for 2021 from copper sales was $142.9 million (2020 - $114.5 million) which consisted of $39.2 million (2020 - $35.7
million) in depreciation and depletion, $33.2 million (2020 - $24.6 million) in salaries and benefits, $22.8 million (2020 - $15.1
million) in materials and consumables, $16.4 million (2020 - $12.5 million) in maintenance costs, $15.5 million (2020 - $14.8 million)
in contracted services, $8.5 million (2020 - $6.5 million) in utilities and $6.7 million (2020 - $4.9 million) in sales expenses. The
increase in cost of sales was primarily attributed to a 6% increase in copper tonnes sold, increases in salaries and benefits and
increased costs in materials and consumables at MCSA, as well as preventative maintenance conducted to help prepare the MCSA
Mining Complex mill for expanded operations and higher throughput.
Cost of sales for 2021 from gold sales was $28.2 million (2020- $21.4 million) which primarily comprised of $7.8 million (2020 - $3.5
million) in depreciation and depletion, $6.3 million (2020 - $5.5 million) in salaries and benefits, $5.8 million (2020 - $3.7 million) in
contracted services, $3.6 million (2020 - $3.8 million) in materials and consumables, $2.2 million (2020 - $2.2 million) in utilities, $1.7
million (2020 - $2.1 million) in maintenance costs, and $0.2 million (2020 - $0.2 million) in other costs. The increase in cost of sales
was primarily attributed to increase in depreciation and depletion and contracted services.
3. General and administrative expenses for 2021 was primarily comprised of $17.0 million (2020 - $12.2 million) with respect to salaries
and consulting fees, $9.1 million (2020 - $7.1 million) in office and sundry expenses, $7.1 million (2020 - $6.1 million) in incentive
payments, $3.3 million (2020 - $1.2 million) in travel-related costs, and $1.6 million (2020 - $1.1 million) in professional fees. The
increase in general and administrative expenses in 2021 was primarily attributable to an increase in in corporate headcount and
administrative activities to support overall growth in operations, as well as to enhance governance and compliance with the
Company's recent NYSE listing. In addition, 2021 saw the resumption of travel activities which was restricted during the onset of
COVID-19 in early 2020.
4.
5.
6.
7.
8.
Finance expense for 2021 was $12.2 million (2020 - $15.4 million) and was primarily comprised of interest on loans at the corporate
head office of $4.4 million (2020 - $6.7 million), other finance expense of $3.4 million (2020 - $1.2 million), accretion of the asset
retirement obligations of $1.1 million (Fiscal 2020 - $0.9 million), accretion of deferred revenue of $1.5 million (2020 - $nil), interest
on loans and borrowings at MCSA and NX Gold of $0.8 million (2020 - $3.2 million), commitment fees of $1.0 million (2020 - $0.5
million), lease interest of $0.4 million (2020 - $0.2 million), and gain on interest rate swap derivatives of $0.5 million (2020 - $2.7
million loss).
Foreign exchange loss for 2021 was $22.0 million (2020 - $79.8 million loss). This amount was primarily comprised of realized foreign
exchange loss on derivative contracts of $22.2 million (2020 - $20.8 million loss) and a foreign exchange loss on USD denominated
debt of $5.4 million (2020 - $24.2 million loss) in MCSA for which the functional currency is the BRL, partially offset by foreign
exchange gain on unrealized derivative contracts of $3.9 million (2020 - $34.5 million loss) and an increase in other exchange gains.
The fluctuation in foreign exchange gains/losses were primarily a result of increased volatility of the USD/BRL foreign exchange rates.
During 2021, the BRL weakened 7% against the USD. The foreign exchange gains/losses 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 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.
In 2021, the Company recognized a $34.3 million income tax expense (2020 - income tax expense of $8.9 million), primarily
comprised of current tax arising from an increase in taxable income in mining operations.
The foreign currency translation income/loss is a result of weakening of the BRL against the USD during 2021 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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SUMMARY OF QUARTERLY RESULTS
The following table presents selected financial information for each of the most recent eight quarters. Tabular
amounts are in millions of US Dollars, except share and per share amounts.
Selected Financial Information
Dec. 31,(1)
2021
Sep. 30,(2)
2021
Jun. 30,
2021
Mar. 31,(3)
2021
Dec. 31,
2020
Sep. 30,(4)
2020
Jun. 30,(5)
2020
Mar. 31,(6)
2020
Revenue
Cost of sales
Gross profit
Net income (loss) for period
Income (loss) per share
attributable to the owners of
the Company
- Basic
- Diluted
Weighted average number of
common shares outstanding
$
$
$
$
$
$
134.9 $
111.8 $
120.7 $
122.5 $
91.2 $
94.3 $
70.8 $
67.7
(50.5) $
(43.8) $
(37.0) $
(39.7) $
(32.9) $
(31.2) $
(30.1) $
(37.1)
84.4 $
60.2 $
68.0 $
26.4 $
83.7 $
84.0 $
82.8 $
32.1 $
58.3 $
66.3 $
59.6 $
31.4 $
39.5 $
30.7
7.7 $
(53.0)
0.67 $
0.65 $
0.29 $
0.28 $
0.95 $
0.89 $
0.36 $
0.34 $
0.75 $
0.71 $
0.36 $
0.34 $
0.09 $
0.08 $
(0.62)
(0.62)
- Basic
- Diluted
Notes:
89,637,768
88,449,567
88,251,995
88,064,312
87,321,832
86,448,318
85,933,443
85,759,194
91,727,452
93,255,615
93,314,274
92,902,306
92,642,103
91,961,897
91,428,969
85,759,194
1.
2.
3.
4.
During Q4 2021, the Company recognized net income of $60.2 million compared to $26.4 million in the preceding quarter. The
increase was primarily attributable to a $16.4 million increase in gross profit as a result of increased copper sales volume, as well as a
$15.2 million decrease in foreign exchange losses as the BRL depreciation against the USD was relatively less than the preceding
quarter.
During Q3 2021, the Company recognized net income of $26.4 million compared to $84.0 million in the preceding quarter, a
decrease of $58.7 million primarily due to volatility in foreign exchange gains or losses driven by the weakening of the BRL against
the USD in the quarter, resulting in $19.6 million of foreign exchange losses compared to foreign exchange gains of $30.7 million in
the preceding quarter.
During Q2 2021, the Company recognized $30.7 million in foreign exchange gains. This amount is primarily comprised of foreign
exchange gain on unrealized derivative contracts of $29.9 million, foreign exchange gain on USD denominated debt of $10.0 million
in MCSA for which the functional currency is the BRL, partially offset by realized foreign exchange loss on derivative contracts of $6.0
million, and other foreign exchange losses of $3.2 million. The foreign exchange gains were primarily a result of a strengthening of
BRL against USD in Q2 2021 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.
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 the quarter ended December 31, 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.
5.
During Q2 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
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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.
6.
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.
LIQUIDITY, CAPITAL RESOURCES, AND CONTRACTUAL OBLIGATIONS
Liquidity
As at December 31, 2021, the Company held cash and cash equivalents of $130.1 million which were 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 $67.6 million since December 31, 2020. The Company’s cash flows
from operating, investing, and financing activities during 2021 are summarized as follows:
•
Cash from operating activities of $364.6 million, primarily consists of:
$296.4 million of EBITDA (see Non-IFRS Measures); and
$100.0 million upfront advance from Royal Gold for the NX Gold Transaction;
◦
◦
net of:
◦
◦
$22.2 million of derivative contract settlements; and
$9.1 million of income taxes paid
Partially offset by:
•
Cash used in investing activities of $179.5 million, including:
◦
◦
net of:
◦
$169.2 million of additions to mineral property, plant and equipment;
$12.7 million of additions to exploration and evaluation assets
$2.3 million from other investments, consisting of interest from short-term investments
•
Cash used in financing activities of $115.4 million including:
◦
◦
◦
◦
net of:
◦
$113.2 million of repayment in loans and borrowings;
$4.2 million of payment of interest on loans and borrowings;
$4.8 million of lease payments;
$4.2 million of other finance expenses
$5.6 million proceeds from exercise of stock options and warrants.
As at December 31, 2021, the Company had working capital of $86.0 million and available liquidity of $230.1
million.
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Capital Resources
The Company’s primary sources of capital are comprised of cash from operations, cash and cash equivalents on
hand and short-term investments. The Company continuously monitors its liquidity position and 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. 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.
At December 31, 2021, the Company had available liquidity of $230.1 million, including $130.1 million in cash
and cash equivalents and $100.0 million of undrawn availability under its $150 million senior secured revolving
credit facility.
The Company ended the year with unrestricted cash and cash equivalents of $130.1 million compared to $62.5
million at December 31, 2020. The increase is primarily due to an increase in cash from mining operations and a
$100.0 million upfront payment from the NX Gold Transaction.
At December 31, 2020, the Company had a $150.0 million credit facility from a syndicate of Canadian financial
institutions. The credit facility was comprised of $75.0 million in senior secured non-revolving credit facility
(“Term Facility”) and a $75.0 million senior secured revolving credit facility (“Revolving Credit Facility”)
(collectively, the "Old Facilities). The Term Facility was to mature on March 31, 2024 and required principal
repayments on a quarterly basis commencing on March 31, 2022, while the Revolving Credit Facility was payable
in full at maturity on March 31, 2024. The Old Facilities bore interest on a sliding scale at a rate of LIBOR plus
2.50% to 4.25%, depending on the Company’s consolidated leverage ratio.
During the year ended December 31, 2021, the Old Facilities were amended and combined into a new $150.0
million senior secured revolving credit facility (“New Revolving Credit Facility”) with maturity date of March 31,
2025. The New Revolving Credit Facility bears interest on a sliding scale at a rate of LIBOR plus 2.25% to 4.25%
depending on the Company’s consolidated leverage ratio. Commitment fees for any undrawn portion of the
New Revolving Credit Facility are on a sliding scale between 0.56% to 1.06%
During the year, the Company used its cash on hand, bolstered by proceeds from the NX Gold Transaction, to
repay $100.0 million of principal on its $150.0 million senior secured revolving credit facility. As of December 31,
2021, $50.0 million was drawn on the New Revolving Credit Facility. 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.
The New Revolving Credit Facility includes standard and customary terms and conditions with respect to fees,
representations, warranties, and financial covenants that remain unchanged from those of the Facilities.
In February 2022, the Company closed an offering of $400 million aggregate principal amount of Senior Notes
due 2030 (the “Notes”). Interest on the Notes accrues at an annual rate of 6.50%, payable semi-annually in
arrears. The Notes mature on February 15, 2030. MCSA is currently the only guarantor of the Notes on a senior
unsecured basis. The Notes are direct, senior obligations of the Company and MCSA, and are not secured by any
mortgage, pledge or charge. Estimated transaction costs related to the offering of the Notes was $8.5 million.
Pursuant to closing of the Notes offering, the Company repaid the outstanding balance under its New Revolving
Credit Facility of approximately $50 million and reduced the size of its New Revolving Senior Credit Facility from
$150 million to $75 million, with an accordion option to increase to $100.0 million at the election of the
Company.
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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.
In August 2021, the Company completed the closing of a precious metals purchase agreement with Royal Gold
whereby the Company is obligated to sell a portion of its gold production from the NX gold mine at contract
prices (see "NX Gold Transaction" section in this MD&A for further information).
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
COVID-19 continues to have a significant impact on the volatility of commodity prices and USD/BRL exchange
rates, and governmental actions to contain COVID-19 and mutations thereto 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 and mutations thereto 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.
New waves of COVID-19 and mutations thereto 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 imposing entry restrictions at or 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,
2021 and December 31, 2020:
Cash and cash equivalents
Accounts receivable
Deposits and other non-current assets
December 31, 2021
$
130,129 $
December 31, 2020
62,508
20,353
595
83,456
30,704
1,295
162,128 $
$
The Company invests cash and cash equivalents and short-term investments 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
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five 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, 2021 and 2020 nor recognized a provision for credit
losses.
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, 2021 relates to $7.8 million
(December 31, 2020 – $7.4 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, 2021 on $63.8 million
due to an intercompany loan balance (December 31, 2020 - $83.1 million) which has contractual repayment
terms. Strengthening (weakening) in the Brazilian Real against the US dollar at December 31, 2021 by 10% and
20%, would have increased (decreased) pre-tax net income by $7.0 million and $13.9 million, respectively (2020
– $8.9 million and $17.7 million). Strengthening (weakening) in the Brazilian Real against the Euro at December
31, 2021 by 10% and 20%, would have increased (decreased) pre-tax net income by $0.2 million and $0.4
million, respectively (2020 – $0.2 million and $0.4 million). This analysis is based on the foreign currency
exchange variation rate that the Company considered to be reasonably possible at the end of the year. The
analysis assumes that all other variables, especially interest rates, are held constant.
The Company may use derivatives, including forward contracts, collars and swap contracts, to manage market
risks. At December 31, 2021, the Company has entered into foreign exchange collar contracts at zero cost for
notional amounts of $179.5 million (December 31, 2020 - notional amount of $285.7 million) with an average
floor rate of 4.24 BRL to US Dollar and an average cap rate of 4.76 BRL to US Dollar. The maturity dates of these
contracts are from January 3, 2022 to December 28, 2022 and are financially settled on a net basis. The fair value
of these contracts at December 31, 2021 was a liability of $28.7 million, (December 31, 2020 - $34.5 million)
which is included in Derivatives in the statement of financial position. The fair value of these forward contracts
as at December 31, 2021 was determined using an option pricing model with the following assumptions:
discount rate of 2.74% - 2.80%, foreign exchange rate of approximately 5.59—6.17, and volatility of 15.69% -
17.92%.
The change in fair value of foreign exchange collar contracts was a gain of $3.9 million for the year ended
December 31, 2021 (a loss of $34.5 million for the year ended December 31, 2020) and has been recognized in
foreign exchange loss. In addition, during the year ended December 31, 2021, the Company recognized a
realized loss of $22.2 million (realized loss of $20.8 million for the year ended December 31, 2020) 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 New Revolving Credit Facility of $50.0 million
and Brazilian Real denominated bank loans of $3.5 million. Based on the Company’s net exposure at December
31, 2021, a 1% change in the variable rates would have an impact of $0.5 million on pre-tax annual net income,
without consideration of the effects of the interest rate swap contract below.
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In order to mitigate the above volatility due to variable rates on loans, December 31, 2021the Company entered
into an interest rate swap contract to manage interest rate risk. At December 31, 2021, the floating interest on a
notional amount of $50.0 million was swapped for a fixed interest rate of 1.68%. This interest rate swap
transaction is in effect until March 31, 2025, with settlements made on a monthly basis. The fair value of this
contract at December 31, 2021 was a liability of $1.0 million (December 31, 2020 - $2.5 million) and was
included in Derivatives in the statement of financial position.
For the year ended December 31, 2021, the Company recognized a realized loss of $0.8 million (a realized loss of
$1.6 million for the year ended December 31, 2020) and an unrealized gain of $1.3 million (an unrealized loss of
$1.1 million for the year ended December 31, 2020), respectively, in relation to its interest rate swap derivatives.
Price risk
The Company may use derivatives, including forward contracts, collars and swap contracts, to manage
commodity price risks. At December 31, 2021, the Company has provisionally priced sales that are exposed to
commodity price changes. Based on the Company’s net exposure at December 31, 2021, a 10% change in the
price of copper would have an impact of $0.2 million on pre-tax net income.
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, 2021 (the “AIF”).
OTHER FINANCIAL INFORMATION
Off-Balance Sheet Arrangements
As at December 31, 2021, the Company had no material off-balance sheet arrangements.
Contingencies
Due to the nature of the Company’s operations, various legal, tax, environmental and regulatory matters are
outstanding from time to time. By their nature, contingencies will only be resolved when one or more future
events occur or fail to occur. The assessment of contingencies inherently involves the exercise of significant
judgement and estimates of the outcome of future events. While the outcomes of these matters are uncertain,
based upon the information currently available, the Company does not believe that these matters in aggregate
will have a material adverse effect on its consolidated financial statements. In the event that management’s
estimate of the future resolution of these matters changes, the Company will recognize the effect of these
changes in its consolidated financial statements in the period in which such changes occur.
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 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 $21.0 million as at December 31, 2021 (December 31, 2020
- $21.8 million), which could have an adverse impact on the Company’s business, financial condition, results of
operations, cash flows or prospects.
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Outstanding Share Data
As of March 8, 2022, the Company had 90,234,378 common shares issued and outstanding.
Related Party Disclosures
For the year ended December 31, 2021, 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.
Related party transactions are disclosed in the consolidated financial statements for the year ended December
31, 2021.
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
consolidated financial statements for the year ended December 31, 2021. Certain of these policies, such as
deferred revenue, capitalization and depreciation of property, plant and equipment and mining interests,
derivative instruments, mine reclamation and closure costs, decommissioning liabilities provisions and income
taxes 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. Actual
results may differ from these estimates.
Management continuously reviews its estimates, judgments and assumptions on an ongoing basis using the
most current information available. Revisions to estimates are recognized prospectively.
Local Currency Operating Metrics – Presented in Brazilian Real
Costs (MSCA Operations)
Mining:
UG (Pilar)
UG (Vermelhos)
OP
Processing
Indirect
Production costs
By-product credits
Treatment, refining and other
C1 cash costs
2021 - Q4
2021 - Q3
2021
2020 - Q4
2020
R$
48,665 R$
40,335
14,644
35,237
22,467
161,348
(34,922)
14,815
45,235 R$ 168,130 R$
36,899
—
27,613
23,506
133,253
(26,138)
1,420
140,431
14,644
116,337
78,360
517,902
(124,281)
22,676
R$ 141,241 R$ 108,535 R$ 416,297 R$
40,532 R$ 140,335
121,950
28,149
—
—
82,905
21,657
60,756
18,897
405,946
109,235
(88,328)
(24,246)
(2,854)
6,637
82,135 R$ 324,255
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Breakdown Mined and Processed (tonnes)
Total Mined (t)
Total Processed (t)
Cu Production (t)
UG Mining Total - R$/tonne mined
Pilar - R$/tonne mined
Vermelhos - R$/tonne mined
OP Mining - R$/tonne mined
Processing - R$/S tonne processed
Indirect - R$/S tonne processed
2021 - Q4
2021 - Q3
649,566
646,319
11,918
150.59
149.28
152.21
10.45
54.46
34.72
518,432
572,666
10,057
131.16
121.29
145.71
n/a
48.24
41.06
2021
2,258,807
2,370,571
45,511
2020 - Q4
588,792
483,447
10,018
2020
2,521,263
2,271,625
42,814
133.69
121.22
152.48
10.45
49.07
33.05
116.65
103.55
142.63
n/a
44.80
39.09
104.03
89.60
127.70
n/a
36.50
26.75
The above only includes amounts from MCSA. NX Gold operations are excluded.
Capital Expenditures
The following table presents capital expenditures at the Company’s operations.
2021 - Q4
2021 - Q3
2021
2020 - Q4
2020
MCSA Operations
Pilar Mine and Caraíba Mill Complex
Vermelhos Mine
Boa Esperanҫa Project
Capital Expenditure
$
37,845 $
36,910 $
Capex Development (included in above)
7,898
8,374
31,965
7,111
$
32,300 $
33,322 $
95,721 $
12,464 $
1,490
4,055
1,932
1,656
8,015
6,107
109,843 $
3,579
61
16,104 $
54,487
14,022
178
68,687
31,929
Exploration
7,639
13,788
38,436
7,702
31,880
NX Gold Operations
Capital Expenditure
$
13,269 $
Capex Development (included in above)
1,522
3,916 $
2,145
24,299 $
7,038
3,843 $
1,407
12,981
6,675
Exploration
3,976
3,000
11,195
1,454
4,257
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ALTERNATIVE PERFORMANCE (NON-IFRS) MEASURES
The Company utilizes certain alternative performance (non-IFRS) measures to monitor its performance, including
C1 cash cost of copper produced (per lb), C1 cash cost of gold produced (per ounce), AISC of gold produced (per
ounce), realized gold price (per ounce), EBITDA, adjusted EBITDA, adjusted net income attributable to owners of
the Company, adjusted net income per share, net (cash) debt, working capital and available liquidity. These
performance measures have no standardized meaning prescribed within generally accepted accounting
principles under IFRS and, therefore, amounts presented may not be comparable to similar measures presented
by other mining companies. These non-IFRS measures are intended to provide supplemental 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 reconciliations 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.
C1 Cash Cost of Copper Produced (per lb)
C1 cash cost of copper produced (per lb) is a non-IFRS performance measure used by the Company to manage
and evaluate the operating performance of its copper mining segment and is calculated as C1 cash costs divided
by total pounds of copper produced during the period. C1 cash costs includes total cost of production,
transportation, treatment and refining charges, and certain tax credits relating to sales invoiced to the
Company's Brazilian customer on sales, net of by-product credits and incentive payments. C1 cash cost of copper
produced per pound is widely reported in the mining industry as benchmarks for performance but does not have
a standardized meaning and is disclosed in supplement to IFRS measures.
The following table provides a reconciliation of C1 cash cost of copper produced per pound to cost of
production, its most directly comparable IFRS measure.
Reconciliation:
Cost of production
Add (less):
2021 - Q4
2021 - Q3
2020 - Q4
2021
2020
$
30,016 $
24,693 $
17,850 $
96,975 $
73,893
Transportation costs & other
Treatment, refining, and other
By-product credits
Incentive payments
Net change in inventory
Foreign exchange translation and other
C1 cash costs
$
1,998
2,645
(6,250)
(3,482)
654
(293)
25,288 $
1,842
277
(5,011)
(663)
(384)
(3)
20,751 $
1,040
(554)
(4,493)
(761)
888
1,225
15,195 $
6,331
4,093
(22,983)
(5,527)
(1,697)
(97)
77,095 $
3,947
1,192
(17,005)
(2,741)
2,271
1,525
63,082
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Costs
Mining
Processing
Indirect
Production costs
By-product credits
Treatment, refining and other
C1 cash costs
Costs per pound
Payable copper produced (lb, 000)
2021 - Q4
2021 - Q3
2020 - Q4
2021
2020
$
18,560 $
15,706 $
12,727 $
6,365
3,968
28,893
(6,250)
2,645
$
25,288 $
5,282
4,497
25,485
(5,011)
277
20,751 $
4,013
3,502
20,242
(4,493)
(554)
15,195 $
59,867 $
21,585
14,533
95,985
(22,983)
4,093
77,095 $
51,007
16,124
11,764
78,895
(17,005)
1,192
63,082
26,275
22,170
22,086
100,333
94,388
Mining
Processing
Indirect
By-product credits
Treatment, refining and other
C1 cash costs of copper produced (per lb)
$
$
$
$
$
$
0.71 $
0.24 $
0.15 $
(0.24) $
0.10 $
0.96 $
0.71 $
0.24 $
0.20 $
(0.23) $
0.02 $
0.94 $
0.58 $
0.18 $
0.16 $
(0.20) $
(0.03) $
0.69 $
0.60 $
0.22 $
0.14 $
(0.23) $
0.04 $
0.77 $
0.54
0.17
0.12
(0.18)
0.01
0.67
C1 Cash Cost of Gold produced (per ounce) and AISC of Gold produced (per ounce)
C1 cash cost of gold produced (per ounce) is a non-IFRS performance measure used by the Company to manage
and evaluate the operating performance of its gold mining segment and is calculated as C1 cash costs divided by
total ounces of gold produced during the period. C1 cash cost includes total cost of production, net of by-
product credits and incentive payments. C1 cash cost of gold produced per ounce is widely reported in the
mining industry as benchmarks for performance but does not have a standardized meaning and is disclosed in
supplemental to IFRS measures.
AISC of gold produced (per ounce) is an extension of C1 cash cost of gold produced (per ounce) discussed above
and is also a key performance measure used by management to evaluate operating performance of its gold
mining segment. AISC of gold produced (per ounce) is calculated as AISC divided by total ounces of gold
produced during the period. AISC includes C1 cash costs, site general and administrative costs, accretion of mine
closure and rehabilitation provision, sustaining capital expenditures, sustaining leases, and royalties and
production taxes. AISC of gold produced (per ounce) is widely reported in the mining industry as benchmarks for
performance but does not have a standardized meaning and is disclosed in supplement 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 production, its most directly comparable IFRS measure.
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Ero Copper Corp. December 31, 2021 MD&A | Page 24
Reconciliation:
Cost of production
Add (less):
2021 - Q4
2021 - Q3
2020 - Q4
2021
2020
$
4,737 $
4,936 $
4,349 $
19,837 $
17,480
Incentive payments
Net change in inventory
By-product credits
Foreign exchange translation and other
C1 cash costs
Site general and administrative
Accretion of mine closure and rehabilitation
provision
Sustaining capital expenditure
Sustaining leases
Royalties and production taxes
AISC
$
$
(150)
(16)
(128)
533
4,976 $
699
42
736
1,083
235
7,771 $
(145)
(176)
(153)
608
5,070 $
601
285
552
216
261
6,985 $
(120)
255
(141)
26
4,369 $
721
88
600
502
281
6,561 $
(788)
(27)
(586)
1,398
19,834 $
1,976
215
2,300
2,326
1,036
27,687 $
(511)
140
(424)
140
16,825
2,420
268
1,033
1,613
952
23,111
2021 - Q4
2021 - Q3
2020 - Q4
2021
2020
Costs
Mining
Processing
Indirect
Production costs
By-product credits
C1 cash costs
Site general and administrative
Accretion of mine closure and rehabilitation
provision
Sustaining capital expenditure
Sustaining leases
Royalties and production taxes
AISC
Costs per ounce
Payable gold produced (ounces)
Mining
Processing
Indirect
By-product credits
C1 cash costs of gold produced (per ounce)
AISC of gold produced (per ounce)
$
$
$
$
$
$
$
$
$
2,403 $
1,843
858
5,104
(128)
4,976 $
699
42
736
1,083
235
7,771 $
2,247 $
2,005
971
5,223
(153)
5,070 $
601
285
552
216
261
6,985 $
2,280 $
1,624
606
4,510
(141)
4,369 $
721
88
600
502
281
6,561 $
9,394 $
7,465
3,561
20,420
(586)
19,834 $
1,976
215
2,300
2,326
1,036
27,687 $
8,544
9,426
10,789
37,798
281 $
216 $
100 $
(15) $
582 $
910 $
238 $
213 $
103 $
(16) $
538 $
741 $
211 $
151 $
56 $
(13) $
405 $
608 $
249 $
197 $
94 $
(15) $
525 $
732 $
8,194
6,462
2,593
17,249
(424)
16,825
2,420
268
1,033
1,613
952
23,111
36,830
222
175
70
(12)
457
628
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Ero Copper Corp. December 31, 2021 MD&A | Page 25
Realized Gold Price (per ounce)
Realized Gold Price (per ounce) is a non-IFRS ratio that is calculated as gross gold revenue divided by ounces of
gold sold during the period. Management believes measuring Realized Gold Price (per ounce) enables investors
to better understand performance based on the realized gold sales in each reporting period. The following table
provides a calculation of Realized Gold Price (per ounce) and a reconciliation to gold segment revenues, its most
directly comparable IFRS measure.
(in '000s except for ounces and price per ounce)
NX Gold revenue
less: by-product credits
Gold revenue, net
add: royalty taxes
add: smelting and refining charges
add: metal discounts
Gold revenue, gross
- spot (cash)
- stream (cash)
- stream (amortization of deferred revenue)
Total gold ounces sold(1)
- spot
- stream
Realized gold price (per ounce)
- spot
- stream (cash + amort. of deferred revenue)
- cash (spot cash + stream cash)
2021 - Q4
2021 - Q3
2020 - Q4
2021
2020
$
$
$
$
$
$
$
$
$
$
14,924 $
(128)
14,796 $
174
49
33
15,052 $
11,649 $
682 $
2,721 $
8,437
6,517
1,920
1,784 $
1,787 $
1,772 $
1,462 $
15,535 $
(153)
15,382 $
261
81
35
15,759 $
10,058 $
1,143
4,558
9,027
5,774
3,253
1,746 $
1,742 $
1,753
1,241 $
18,606 $
(141)
18,465 $
283
71
41
18,861 $
18,861 $
n/a $
n/a $
10,100
10,100
n/a
1,867 $
1,867 $
n/a $
1,867 $
65,961 $
(586)
65,375 $
976
263
147
66,761 $
57,657 $
1,825
7,279
37,437
32,264
5,173
1,783 $
1,787 $
1,760
1,589 $
63,188
(424)
62,764
962
483
142
64,351
64,351
n/a
n/a
35,855
35,855
n/a
1,795
1,795
n/a
1,795
(1) Gold ounces delivered under the stream during 2021 Q3 included May and June production based on effective date of the NX Gold
Transaction.
Earnings before interest, taxes, depreciation, and amortization (“EBITDA”) and Adjusted EBITDA
EBITDA and adjusted EBITDA are non-IFRS performance measures used by management to evaluate its debt
service capacity and performance of its operations. EBITDA represents earnings before finance expense, income
taxes, depreciation and amortization. Adjusted EBITDA is EBITDA before the pre-tax effect of adjustments for
non-cash and/or non-recurring items required in determination of EBITDA under its revolving credit facility for
covenant calculation purposes.
The following table provides a reconciliation of EBITDA and Adjusted EBITDA to net income, its most directly
comparable IFRS measure.
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Ero Copper Corp. December 31, 2021 MD&A | Page 26
Reconciliation:
Net Income
Adjustments:
Finance expense
Income tax expense
Amortization and depreciation
EBITDA
Foreign exchange loss (gain)
Share based compensation
Incremental COVID-19 costs
NX Gold stream transaction fees
Adjusted EBITDA
2021 - Q4
2021 - Q3
2020 - Q4
2021
2020
$
60,212 $
26,384 $
66,342 $ 202,632 $
52,498
2,296
4,528
13,675
80,711 $
4,419
981
669
—
86,780 $
3,787
6,069
12,233
48,473 $
19,642
2,041
1,485
1,219
72,860 $
2,556
13,234
9,161
15,449
12,159
8,925
34,288
39,348
47,291
91,293 $ 296,370 $ 116,220
79,805
21,968
(27,142)
9,064
7,848
2,549
1,968
4,459
481
—
1,219
—
67,181 $ 331,864 $ 207,057
$
$
Adjusted net income attributable to owners of the Company and Adjusted net income per share
attributable to owners of the Company
“Adjusted net income attributable to owners of the Company” is net income attributed to shareholders as
reported, adjusted for certain types of transactions that, in management's judgment, are not indicative of our
normal operating activities or do not necessarily occur on a recurring basis. “Adjusted net income per share
attributable to owners of the Company” (“Adjusted EPS”) is calculated as "adjusted net income attributable to
owners of the Company" divided by weighted average number of outstanding common shares in the period. The
Company believes that, in addition to conventional measures prepared in accordance with IFRS, the Company
and certain investor and analysts use these supplemental non-IFRS performance measures to evaluate the
normalized performance of the Company. 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 reconciliation of Adjusted net income attributable to owners of the Company and
Adjusted EPS to net income attributable to the owners of the Company, its most directly comparable IFRS
measure.
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Reconciliation:
Net income as reported attributable to the
2021 - Q4
2021 - Q3
2020 - Q4
2021
2020
owners of the Company
$
59,804 $
26,081 $
65,786 $ 201,053 $
51,622
Adjustments:
Share based compensation
Unrealized foreign exchange loss (gain) on
USD denominated balances in MCSA
Unrealized foreign exchange (gain) loss on
foreign exchange derivative contracts, net
of tax
Incremental COVID-19 costs
NX Gold stream transaction fees
Unrealized (gain) loss on interest rate
derivative contracts
Adjusted net income attributable to owners of
981
2,041
2,549
7,848
9,064
1,642
4,618
(7,682)
5,348
24,093
(2,648)
664
—
10,417
1,479
1,219
(23,077)
481
—
(3,188)
4,434
1,219
29,411
1,968
—
(714)
(147)
(640)
(1,270)
1,137
the Company
$
59,729 $
45,708 $
37,417 $ 215,444 $ 117,295
Weighted average number of common shares
Basic
Diluted
Adjusted EPS
Basic
Diluted
Net (Cash) Debt
89,637,768
91,727,452
88,449,567
93,255,615
87,321,832
92,642,103
88,602,367
90,963,452
86,368,535
92,213,628
$
$
0.67 $
0.65 $
0.52 $
0.49 $
0.43 $
0.40 $
2.43 $
2.37 $
1.36
1.27
Net (cash) debt is a performance measure used by the Company to assess its financial position and ability to pay
down its debt. Net (cash) debt is determined based on cash and cash equivalents, short-term investments, net of
loans and borrowings as reported in the Company’s consolidated financial statements. The following table
provides a calculation of net (cash) debt based on amounts presented in the Company’s consolidated financial
statements as at the periods presented.
Current portion of loans and borrowings
Long-term portion of loans and borrowings
Less:
Cash and cash equivalents
Short-term investments
Net (cash) debt
December 31, 2021
$
September 30, 2021 December 31, 2020
12,539
155,563
3,713 $
51,667
4,344 $
54,906
(130,129)
—
(70,879) $
(92,646)
(26,408)
(63,674) $
(62,508)
—
105,594
$
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Ero Copper Corp. December 31, 2021 MD&A | Page 28
Working Capital and Available Liquidity
Working capital is calculated as current assets less 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 ability to meet its current obligations using its current assets. Available liquidity is calculated as the
sum of cash and cash equivalents, short-term investments and the undrawn amount available on its revolving
credit facilities. The Company uses this information to evaluate the liquid assets available. The following table
provides a calculation for these based on amounts presented in the Company’s consolidated financial
statements as at the periods presented.
Current assets
Less: Current liabilities
Working capital
Cash and cash equivalents
Available undrawn revolving credit facilities
Available liquidity
December 31, 2021
$
208,686 $
(122,660)
86,026 $
December 31, 2020
127,541
(91,720)
35,821
130,129
100,000
230,129 $
62,508
11,621
74,129
$
$
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”) using Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO") as its internal control framework.
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.
As required by National Instrument 52-109, Certification of Disclosure in Issuers' Annual and Interim Filings, the
Company’s management conducted an evaluation of 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, 2021.
There were no changes in the Company’s DC&P and ICFR that materially affected, or are reasonably likely to
materially affect, ICFR during the year ended December 31, 2021.
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Ero Copper Corp. December 31, 2021 MD&A | Page 29
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:
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 “Boa Esperança Project NI 43-101 Technical
Report on Feasibility Study Update”, dated November 12, 2021 with an effective date of August 31, 2021,
prepared by Kevin Murray, P. Eng., Erin L. Patterson, P.E. and Scott C. Elfen, P.E. all of Ausenco Engineering
Canada Inc. (or its affiliate Ausenco Engineering USA South Inc. in the case of Ms. Patterson), Carlos Guzmán,
FAusIMM RM CMC of NCL Ingeniería y Construcción SpA and Ricardo Emerson Re, MSc, MBA, MAusIMM (CP)
(No. 305892), Registered Member (No. 0138) (Chilean Mining Commission) and Resource Manager of the
Company (the “Boa Esperança Technical Report”).
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 on the Company's website
at www.erocopper.com and under the Company’s profile on SEDAR at www.sedar.com, and EDGAR at
www.sec.gov.
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
legislation
(collectively, “forward-looking statements”). Forward-looking statements
This MD&A contains “forward-looking statements” within the meaning of the United States Private Securities
Litigation Reform Act of 1995 and “forward-looking information” within the meaning of applicable Canadian
securities
include
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. Forward-looking statements may include, but are not limited to, statements with respect to
mineral reserve and mineral resource estimates; targeting additional mineral resources and expansion of
deposits; capital and operating cost estimates and economic analyses (including cash flow projections), including
those from the MCSA Mining Complex Technical Report, the NX Gold Technical Report and the Boa Esperança
Technical Report; the Company’s expectations, strategies and plans for the MCSA Mining Complex, the NX Gold
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Ero Copper Corp. December 31, 2021 MD&A | Page 30
Property and the Boa Esperança Property, including the Company’s planned exploration, development,
construction and production activities; the results of future exploration and drilling; estimated completion dates
for certain milestones; successfully adding or upgrading mineral resources and successfully developing new
deposits; the costs and timing of future exploration, development and construction including but not limited to
the Deepening Extension Project at the MCSA Mining Complex and the Boa Esperança Property; the timing and
amount of future production at the MCSA Mining Complex, the Boa Esperança Property and the NX Gold
Property; the impacts of COVID-19 on the Company’s business and operations; the timing, receipt and
maintenance of necessary approvals, licenses and permits from applicable governments, regulators or third
parties; expectations regarding consumption, demand and future price of copper, gold and other metals; future
financial or operating performance and condition of the Company and its business, operations and properties,
including expectations regarding liquidity, capital structure, competitive position and payment of dividends; the
possibility of entering judgments outside of Canada; expectations regarding future currency exchange rates; and
any other statement that may predict, forecast, indicate or imply future plans, intentions, levels of activity,
results, performance or achievements.
Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other
factors that could cause actual results, actions, events, conditions, performance or achievements to materially
differ from those expressed or implied by the forward-looking statements, including, without limitation, risks
discussed in this MD&A and in the AIF under the heading “Risk Factors”. The risks discussed in this MD&A and in
the AIF are not exhaustive of the factors that may affect any of the Company’s forward-looking statements.
Although the Company has attempted to identify important factors that could cause actual results, actions,
events, conditions, performance or achievements to differ materially from those contained in forward-looking
statements, there may be other factors that cause results, actions, events, conditions, performance or
achievements to differ from those anticipated, estimated or intended.
Forward-looking statements are not a guarantee of future performance. There can be no assurance that
forward-looking statements will prove to be accurate, as actual results and future events could differ materially
from those anticipated in such statements. Forward-looking statements involves statements about the future
and are inherently uncertain, and the Company’s actual results, achievements or other future events or
conditions may differ materially from those reflected in the forward-looking statements due to a variety of risks,
uncertainties and other factors, including, without limitation, those referred to herein and in the AIF under the
heading “Risk Factors”.
The Company’s forward-looking statements are based on the assumptions, beliefs, expectations and opinions of
management on the date the statements are made, many of which may be difficult to predict and beyond the
Company’s control. In connection with the forward-looking statements contained in this MD&A, the Company
has made certain assumptions about, among other things: 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, gold
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, the NX Gold Property and
the Boa Esperança Property being as described in the MCSA Mining Complex Technical Report, the NX Gold
Technical Report and the Boa Esperança Technical Report, respectively; production costs; the accuracy of
budgeted exploration, development and construction 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 continuing 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;
3 9
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Ero Copper Corp. December 31, 2021 MD&A | Page 31
requirements under applicable laws; sustained labour stability; stability in financial and capital goods markets;
availability of equipment; positive relations with local groups and the Company’s ability to meet its obligations
under its agreements with such groups; and satisfying the terms and conditions of the Company’s current loan
arrangements. Although the Company believes that the assumptions inherent in forward-looking statements are
reasonable as of the date of this MD&A, these assumptions are subject to significant business, social, economic,
political, regulatory, competitive 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 statements. The Company cautions that the foregoing list of assumptions
is 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 statements contained in this MD&A.
Forward-looking statements contained herein are made as of the date of this MD&A and the Company disclaims
any obligation to update or revise any forward-looking statement, 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 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”). NI 43-101 is a rule developed by the Canadian Securities Administrators that establishes
standards for all public disclosure an issuer makes of scientific and technical information concerning mineral
projects. NI 43-101 differs significantly from the disclosure requirements of the Securities and Exchange
Commission (the “SEC”) generally applicable to U.S. companies. For example, the terms “mineral reserve”,
“proven mineral reserve”, “probable mineral reserve”, “mineral resource”, “measured mineral resource”,
“indicated mineral resource” and “inferred mineral resource” are defined in NI 43-101. These definitions differ
from the definitions in the disclosure requirements promulgated by the SEC. Accordingly, information contained
in this MD&A may not be comparable to similar information made public by U.S. companies reporting pursuant
to SEC disclosure requirements.
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 and www.sec.gov.
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Ero Copper Corp. December 31, 2021 MD&A | Page 32
C O N S O L I D A T E D F I N A N C I A L
S T A T E M E N T S
F O R T H E Y E A R S E N D E D
D E C E M B E R 3 1 , 2 0 2 1 A N D 2 0 2 0
4 1
E R O C O P P E R A N N U A L R E P O R T 2 0 2 1
KPMG LLP
Chartered Professional Accountants
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada
Telephone
Fax
Internet
(604) 691-3000
(604) 691-3031
www.kpmg.ca
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Ero Copper Corp.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of Ero Copper Corp. (the Company) as of
December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive income, cash flows
and changes in shareholders’ equity for the years then ended, and the related notes (collectively, the consolidated financial
statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the
years then ended, in conformity with International Financial Reporting Standards as issued by the International Accounting
Standards Board.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
Chartered Professional Accountants
We have served as the Company’s auditor since 2017.
Vancouver, Canada
March 8, 2022
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TABLE OF CONTENTS
CONSOLIDATED FINANCIAL STATEMENTS
44 Consolidated Statements of Financial Position
45 Consolidated Statements of Operations and Comprehensive Income
46 Consolidated Statements of Cash Flow
47 Consolidated Statements of Changes in Shareholders’ Equity
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
General
48 Note 1. Nature of Operations
Statements of Earnings
74 Note 15. Revenue
48 Note 2. Basis of Preparation
74 Note 16. Cost of Sales
52 Note 3. Significant Accounting Policies
74 Note 17. General and Administrative Expenses
61 Note 4. Segment Disclosure
75 Note 18. Finance Expense
Statements of Financial Position
63 Note 5. Inventories
75 Note 19. Foreign Exchange Loss
75 Note 20. Income Taxes
64 Note 6. Other Current Assets
Other Items
65 Note 7. Mineral, Property, Plant
77 Note 21. Related Party Transactions
and Equipment
66 Note 8. Exploration and Evaluation Assets
77 Note 22. Financial Instruments
80 Note 23. Capital Management
66 Note 9. Accounts Payable and
Accrued Liabilities
66 Note 10. Loans and Borrowings
68 Note 11. Deferred Revenue
69 Note 12. Provision for rehabilitation
and closure costs
69 Note 13. Other Non-current Liabilities
69 Note 14. Share Capital
80 Note 24. Supplemental Cash Flow Information
80 Note 25. Contingencies
81 Note 26. Subsequent events
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Ero Copper Corp.
Consolidated Statements of Financial Position
(Amounts in thousands of US Dollars)
Notes
December 31, 2021
December 31, 2020
ASSETS
Current
Cash and cash equivalents
Accounts receivable
Inventories
Other current assets
Non-Current
Mineral, property, plant and equipment
Exploration and evaluation assets
Deferred income tax assets
Deposits and other non-current assets
Total Assets
LIABILITIES
Current
Accounts payable and accrued liabilities
Current portion of loans and borrowings
Current portion of deferred revenue
Income taxes payable
Current portion of derivatives
Current portion of lease liabilities
Non-Current
Loans and borrowings
Deferred revenue
Provision for rehabilitation and closure costs
Derivatives
Lease liabilities
Other non-current liabilities
Total Liabilities
SHAREHOLDERS’ EQUITY
Share capital
Equity reserves
Retained earnings
Equity attributable to owners of the Company
Non-controlling interests
$
130,129 $
$
$
5
6
7
8
20
9
10
11
22
10
11
12
22
13
14
30,704
26,019
21,834
208,686
445,428
32,038
2,315
1,295
481,076
689,762 $
66,546 $
4,344
10,511
7,191
29,357
4,711
122,660
54,906
83,711
19,037
366
2,399
11,193
171,612
294,272
133,072
(94,910)
354,895
393,057
2,433
395,490
Total Liabilities and Equity
$
689,762 $
Contingencies (Note 25); Commitments (Note 11); Subsequent Events (Notes 8, 10, and 26)
APPROVED ON BEHALF OF THE BOARD:
"David Strang"
, CEO and Director
"Matthew Wubs"
, Director
62,508
20,353
25,496
19,184
127,541
333,702
21,024
14,223
609
369,558
497,099
47,243
12,539
—
3,996
26,540
1,402
91,720
155,563
—
18,970
10,811
346
5,614
191,304
283,024
126,152
(67,291)
153,842
212,703
1,372
214,075
497,099
The accompanying notes are an integral part of these consolidated financial statements
Page 1
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E R O C O P P E R A N N U A L R E P O R T 2 0 2 1
Ero Copper Corp.
Consolidated Statements of Operations and Comprehensive Income
(Amounts in thousands of US Dollars, except share and per share amounts)
Notes
2021
2020
Year ended December 31,
Revenue
Cost of sales
Gross profit
Expenses
General and administrative
Share-based compensation
Income before the undernoted
Finance income
Finance expense
Foreign exchange loss
Recovery of value added taxes
NX Gold PMPA transaction fees
Other expenses
Income before income taxes
Income tax expense
Current
Deferred
Net income for the year
Other comprehensive loss
Foreign currency translation loss
Comprehensive income
Net income attributable to:
Owners of the Company
Non-controlling interests
Comprehensive income attributable to:
Owners of the Company
Non-controlling interests
Net income per share attributable to owners of the Company
Basic
Diluted
Weighted average number of common shares outstanding
Basic
Diluted
15
16
17
14 (f)
18
19
6
15
20
14 (g)
14 (g)
14 (g)
14 (g)
$
489,915 $
(171,057)
318,858
(38,846)
(7,848)
272,164
2,991
(12,159)
(21,968)
—
(1,219)
(2,889)
236,920
(22,428)
(11,860)
(34,288)
202,632 $
(24,252)
178,380 $
201,053
1,579
202,632 $
176,898
1,482
178,380 $
2.27 $
2.21 $
$
$
$
$
$
$
324,076
(135,939)
188,137
(27,927)
(9,064)
151,146
1,346
(15,449)
(79,805)
8,886
—
(4,701)
61,423
(9,675)
750
(8,925)
52,498
(49,553)
2,945
51,622
876
52,498
2,267
678
2,945
0.60
0.56
88,602,367
90,963,452
86,368,535
92,213,628
The accompanying notes are an integral part of these consolidated financial statements
Page 2
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Ero Copper Corp.
Consolidated Statements of Cash Flow
(Amounts in thousands of US Dollars)
Cash Flows from Operating Activities
Net income for the year
Adjustments for:
Amortization and depreciation
Income tax expense
Amortization of deferred revenue
Recovery of value added taxes
Share-based compensation
Finance income
Finance expenses
Foreign exchange loss
Other
Changes in non-cash working capital items
Upfront advance from NX Gold PMPA
Derivative contract settlements
Provision settlements
Income taxes paid
Cash Flows used in Investing Activities
Additions to mineral property, plant and equipment
Additions to exploration and evaluation assets
Other investments
Cash Flows (used in) / from Financing Activities
Restricted cash
Lease liability payments
New loans and borrowings, net of finance costs
Loans and borrowings repaid
Interest paid on loans and borrowings
Other finance expenses paid
Proceeds from exercise of stock options and warrants
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents - beginning of year
Cash and cash equivalents - end of year
Supplemental cash flow information (note 24)
Year ended December 31,
Notes
2021
2020
$
202,632 $
52,498
15
14 (f)
18
24
11
19
47,290
34,288
(7,279)
—
7,848
(2,991)
12,159
20,277
(1,164)
(15,098)
297,962
100,000
(22,240)
(2,039)
(9,094)
364,589
(169,159)
(12,672)
2,305
(179,526)
—
(4,843)
5,471
(113,240)
(4,164)
(4,204)
5,550
(115,430)
(2,012)
67,621
62,508
$
130,129 $
39,348
8,925
—
(8,886)
9,064
(1,346)
15,449
79,805
1,697
(9,532)
187,022
—
(20,804)
(1,585)
(1,796)
162,837
(117,607)
(199)
1,250
(116,556)
1,500
(4,337)
68,997
(57,425)
(9,693)
(3,156)
4,402
288
(5,546)
41,023
21,485
62,508
The accompanying notes are an integral part of these consolidated financial statements
Page 3
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E R O C O P P E R A N N U A L R E P O R T 2 0 2 1
Ero Copper Corp.
Consolidated Statements of Changes in Shareholders' Equity
(Amounts in thousands of US Dollars, except share and per share amounts)
Exercise of options and warrants
2,175,615
5,660
Balance, December 31, 2019
Income for the year
Other comprehensive loss for the year
Total comprehensive income (loss) for the year
Shares issued for:
Share-based compensation
14 (f)
Dividends to non-controlling interest
Balance, December 31, 2020
Income for the year
Other comprehensive loss for the year
Total comprehensive income (loss) for the year
Shares issued for:
Share Capital
Equity Reserves
Notes
Number of
shares
Amount
Contributed
Surplus
Foreign
Exchange
Retained
Earnings
Total
Non-
controlling
interest
Total equity
85,703,646 $ 120,492 $
9,084 $
(33,573) $ 102,220 $ 198,223 $
835 $
199,058
—
—
—
—
—
—
—
—
—
—
51,622
(49,355)
(49,355)
—
51,622
51,622
(49,355)
2,267
—
—
—
—
(1,258)
7,811
—
—
—
—
—
—
—
4,402
7,811
—
—
—
—
—
—
—
—
—
—
—
201,053
(24,155)
(24,155)
—
201,053
201,053
(24,155)
176,898
87,879,261 $ 126,152 $
15,637 $
(82,928) $ 153,842 $ 212,703 $
1,372 $
214,075
876
(198)
678
—
—
(141)
52,498
(49,553)
2,945
4,402
7,811
(141)
1,579
(97)
1,482
—
—
—
(421)
202,632
(24,252)
178,380
5,550
7,295
(9,389)
(421)
Exercise of options and warrants
2,325,117
6,920
14 (f)
14 (b)
—
—
—
—
—
—
(1,370)
7,295
(9,389)
—
—
—
—
—
—
—
—
—
5,550
7,295
(9,389)
—
Share-based compensation
Reclassified as cash-based equity awards
Dividends to non-controlling interest
Balance, December 31, 2021
90,204,378 $ 133,072 $
12,173 $ (107,083) $ 354,895 $ 393,057 $
2,433 $
395,490
The accompanying notes are an integral part of these consolidated financial statements
Page 4
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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)
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 and the New York 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 8). 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 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 production and sale 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
Aventine, 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.
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 in early 2020, the Company has continued to take measures to
mitigate the possible impact of COVID-19 on its workforce and operations. There is no guarantee that this will continue to
be the case. The extent to which COVID-19 will impact the Company’s workforce, operations, supply chains, or sales
channels will depend on future developments which are uncertain and cannot be predicted with confidence. These impacts
could include an impact on the Company’s ability to obtain equity financing and/or additional financing, 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 8, 2022.
(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.
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
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Notes to Financial Statements | Page 5
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
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.
Certain comparative amounts have been reclassified to conform with the current year’s financial statement
presentation. Such reclassifications were not considered material.
(c) Foreign Currency Translation
The functional currency and presentation currency of the Company is the US dollar. The monetary assets and liabilities
of the Company that are denominated in foreign currencies are translated at the rate of exchange at the statement of
financial position date while non-monetary assets and liabilities are translated at historical rates. Revenues and
expenses are translated at the exchange rates approximating those in effect on the date of the transactions. Exchange
gains and losses arising on translation are included in profit or loss.
The functional currency of MCSA and NX Gold is the Brazilian Real (“BRL”). The assets and liabilities of MCSA and NX
Gold are translated into the US dollar presentation currency using the rate of exchange at the statement of financial
position date while revenues and expenses are translated at the exchange rates approximating those in effect on the
date of the transactions. Exchange gains and losses arising on translation are included in a separate component of
shareholders’ equity.
(d) Use of Estimates and Judgments
In preparing these financial statements, management has made judgments, estimates and assumptions that affect the
application of the Company’s accounting policies and the reported amounts of the assets, liabilities, revenues and
expenses. Actual results may differ from these estimates.
The estimates and assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively.
Critical Judgments
Functional currency
The functional currency of the Company and each of its subsidiaries is the currency of the primary economic
environment in which the entities operate. The Company has determined that the functional currency for the
Company is the US dollar while the functional currency for MCSA and NX Gold is the Brazilian Real. Assessment of
functional currency involves certain judgments 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 judgments 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:
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Notes to Financial Statements | Page 6
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
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 resources based on information compiled by competent individuals.
Mineral reserves are used in the calculation of depreciation, impairment assessments, for forecasting the timing of
payment of mine closure and rehabilitation costs, as well as amortization of deferred revenues.
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, amortization of deferred revenue, and may also result in impairment charges on non-current assets.
Mine closure and reclamation costs
Significant estimates and assumptions are made in determining the provision for mine closure and reclamation costs 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.
Income taxes
The determination of the Company’s tax expense for the period and deferred tax assets and liabilities involves
significant estimation and judgment 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
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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)
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.
Deferred Revenue
Judgment and estimates were required in determining the accounting for the precious metal purchase agreement with
RGLD Gold AG, a subsidiary of Royal Gold Inc. (collectively "Royal Gold"), which is accounted for as deferred revenue in
accordance with IFRS 15 Revenue from Contracts with Customers (“IFRS 15”). As the Company’s obligation under the
precious metal purchase agreement will be satisfied through deliveries of a non-financial item (i.e. deliveries of gold
ounces), rather than cash or other financial assets, it was determined to be entered into and continued to be held for
the purpose of the delivery of a non-financial item in accordance with the Company’s expected sale or usage
requirements and thus not within the scope of IFRS 9 Financial Instruments (“own use exemption”). The determination
of whether the own use exemption applies requires management’s judgements.
Each period management estimates the cumulative amount of the deferred revenue obligation that has been satisfied
and, therefore, recognized as revenue. Key inputs into the estimate of the amount of deferred revenue that should be
recognized include the following:
a.
b.
Future gold prices are used to estimate the expected total consideration to be received under the contract
including variable consideration and is used as the stand alone selling price to allocate the consideration to each
ounce of gold to be delivered to Royal Gold, and
Expected life of mine gold production and the timing thereof, which is estimated based on the approved life of
mine for the NX Gold mine and the portion of mineral resources anticipated to be converted to mineral reserves.
(e) New Accounting Policies, Standards and Interpretations
Property, Plant and Equipment - Proceeds before Intended Use
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 cost in profit or loss. The effective date is for annual periods beginning on or
after January 1, 2022, with early adoption permitted. The Company has elected to early adopt this standard in 2021,
which did not have a material impact on its consolidated financial statements.
(f) Future Changes in Accounting Policies Not Yet Effective as of December 31, 2021
The following amendment to accounting standards has been issued but not yet adopted in the financial statements:
•
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. Phase 2 of the Interest Rate Benchmark Reform refers to a global reform of interest rate
benchmarks, which includes the replacement of some interbank offered rates (“LIBOR”) with alternative
benchmark rates. Phase 2 amendments require the effective interest rate to be adjusted when accounting for
changes in the basis for determining the contractual cash flows of financial assets and liabilities that relate
directly to this reform rather than applying modification accounting. In addition, the Phase 2 amendments
require disclosures to assist users in understanding the effect of the reform on the Company’s financial
instruments and risk management strategy.
At December 31, 2021, Company had a $150.0 million senior secured revolving credit facility, of which
$50.0 million was drawn, which bears interest on a sliding scale at a rate of LIBOR plus 2.25% to 4.25%
depending on the Company’s consolidated leverage ratio. The Company also maintained an interest rate swap
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Notes to Financial Statements | Page 8
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
contract on a notional amount of $50.0 million, which was swapped for a fixed interest rate of 1.68%.
Subsequent to year end, the senior secured revolving credit facility was fully repaid and the interest rate swap
contracts were fully settled. There is currently no specific timeline on when the use of LIBOR will cease, but
the switch to Secured Overnight Financing Rate (SOFR) is not expected to have a significant impact on the
consolidated financial statements.
•
In May 2021, the IASB issued Deferred Tax related to Assets and Liabilities Arising from a Single Transaction
which amended IAS 12, Income Taxes ("IAS 12"). The amendments narrowed the scope of the recognition
exemption in IAS 12, relating to the recognition of deferred tax assets and liabilities, so that it no longer
applies to transactions that, on initial recognition, give rise to equal taxable and deductible temporary
differences such as leases and reclamation and closure cost provisions. The amendments are effective for
annual reporting periods beginning on or after January 1, 2023 to transactions that occur on or after the
beginning of the earliest comparative period presented. Earlier application is permitted. The Company is
currently assessing the impact of the amendments on its consolidated financial statements.
3.
Significant Accounting Policies
(a) Revenue
Revenue relating to the sale of metals is recognized at the point the customer obtains control of the product and when
the Company has satisfied its performance obligations. 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 doré is delivered
to a location designated by the customer, or when gold credits are transferred to 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.
Deferred Revenue (note 11)
In August 2021, the Company received an upfront cash deposit in connection with a precious metal purchase
agreement with Royal Gold, which is accounted for as deferred revenue in accordance with IFRS 15. Deferred revenue
consists of payments received by the Company in consideration for future commitments to deliver an amount of gold
equivalent to a percentage of the gold produced from its NX Gold operations. As gold deliveries are made, the
Company recognizes a portion of the deferred revenue as revenue, calculated on a per unit basis using the total
number of gold ounces expected to be delivered over the life of the mine. The current portion of deferred revenue is
based on deliveries anticipated over the next twelve months.
Interest expense on deferred revenue is recognized in finance costs as there is a significant financing component
related to the precious metal purchase agreement, resulting from a difference in the timing of the upfront
consideration received and delivery of the gold. The interest rate is determined based on the rate implicit in the
precious metal purchase agreement at the date of inception.
Revenue to be recognized from the initial consideration received from the precious metal purchase agreement is
considered variable, subject to changes in the total gold ounces to be delivered. Changes to variable consideration are
reflected in revenue in profit or loss. The additional consideration to be received under the precious metal purchase
agreement is considered variable, subject to changes in the total estimated gold ounces to be delivered and gold prices.
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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)
Changes to variable consideration are accounted for prospectively as a cumulative catch-up and are recorded in
revenue in profit or loss.
(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 comprises of interest expense on loans and borrowings, accretion expense on provisions, leases and
deferred revenue, commitment fees and losses related to changes in the fair value of financial assets measured at fair
value through profit or loss. Borrowing costs that are not directly attributable to the acquisition, construction or
production of a qualifying asset are recognized in profit or loss using the effective interest method.
(d) Employee Benefits
Short-term employee benefit obligations are recognized as personnel expenses as the corresponding service is
provided. Liabilities are recognized at the amount that is expected to be paid if the Company has a present legal or
constructive obligation to pay that amount based on past services rendered by the employee, and the obligation can be
estimated reliably. There are no long-term employee benefit plans.
(e) Taxation
Income tax expense comprises current and deferred tax. Current income tax is the expected tax payable or receivable
on the taxable income or loss for the year using tax rates enacted or substantively enacted at the reporting date.
Deferred income tax is recognized in respect of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred income tax is
measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the
tax laws that have been enacted or substantively enacted at the reporting date. Deferred income tax assets and
liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to
income taxes levied by the same tax authority on the same taxable entity. Deferred income tax is not recognized for
the initial recognition of assets or liabilities in a transaction that is not a business combination and that effects neither
accounting nor taxable income or loss, differences related to investments in subsidiaries to the extent that it is
probable that they will not reverse in the foreseeable future and taxable differences arising from the initial recognition
of goodwill.
A deferred income tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to
the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred
income tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that
the related tax benefit will be realized.
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.
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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)
(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. Write-downs of inventories to net
realizable value are included in the cost of sales in the period of the write-down. A write-down of inventories is
reversed in a subsequent period if there is a subsequent increase in the net realizable value of the related inventories.
Provisions for low turnover or obsolete supplies and consumables inventory are established by management as
deemed necessary and is included in cost of sales.
(g) Mineral, Property, Plant and Equipment
Mineral, property, plant and equipment is measured at acquisition or construction cost, including capitalized borrowing
costs, less accumulated depreciation and accumulated impairment losses.
(i) Acquisition and disposal
The cost of mineral, property, plant and equipment include expenditures directly attributable to an asset’s acquisition.
The cost of assets constructed by Company includes the cost of materials and direct labor, any other costs to bring the
asset in the place and conditions required to be operated in the manner intended by management, costs of
disassembly and restoration of the site and borrowing costs on qualifying assets.
When parts of mineral, property, plant and equipment have different useful lives, they are accounted for as separate
items (major components) of mineral, property, plant and equipment.
Gains and losses on disposal of mineral, property, plant and equipment are determined by comparing the proceeds
from disposal with the carrying amount of equipment and are recognized net within other income.
(ii) Subsequent costs
The cost of replacing plant and equipment is recognized in the carrying amount of the item if it is probable that the
future economic benefits embodied within the item will flow to the Company and its cost can be measured reliably.
The carrying amount of the replaced item is derecognized. The maintenance service costs 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. 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 an asset is available for use, 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
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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 underground mines are capitalized as pre-production stripping or development costs respectively and are included
within mineral, property, plant and equipment.
(iv) Mineral properties
Mineral properties consist of the cost of acquiring and developing mineral properties. Once in production, mineral
properties are amortized on a units-of-production basis over the component of the ore body to which they relate.
(v) Stripping costs and development in the production phase
Where open pit production stripping or underground development activities do not result in inventory produced, but
does provide improved access to the ore body, the costs are classified as mineral properties when these activities meet
all of the following criteria: (1) it is probable that the future economic benefit associated with the activity will flow to
the Company; (2) the Company can estimate the mineral reserve of the ore body for which access has been improved;
and (3) the costs relating to the activity associated with that mineral reserve can be measured reliably.
For underground mines, costs incurred to access a mineral reserve of the ore body are capitalized to mineral properties
or construction-in-progress and are depreciated on a units-of-production basis over the expected useful life of the
identified mineral reserve of the ore body to which access has been improved as a result of the development activity.
For open pit mines, stripping costs above average life of mine strip ratio (waste/ore) are capitalized to mineral
properties or construction-in-progress and 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
Lessor of life of mine or 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
tonnes 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.
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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)
(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 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.
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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)
When applicable, additional information on the assumptions used in the fair value calculations are disclosed in the
specific notes of the corresponding asset or liability.
Financial assets at FVTPL
Financial assets carried at FVTPL are initially recorded at fair value and transaction costs are expensed in the income
statement. Realized and unrealized gains and losses arising from changes in the fair value of the financial asset held at
FVTPL are included in profit or loss in the period in which they arise. Derivatives are also categorized as FVTPL unless
they are designated as hedges.
Financial assets at FVTOCI
Investments in equity instruments at FVTOCI are initially recognized at fair value plus transaction costs. Subsequently
they are measured at fair value, with gains and losses arising from changes in fair value recognized in other
comprehensive income. Gains or losses on financial assets classified as FVTOCI remain within accumulated other
comprehensive income following the derecognition of the investment.
Financial assets at amortized cost
Financial assets at amortized cost are initially recognized at fair value and subsequently carried at amortized cost less
any impairment. They are classified as current assets or non-current assets based on their maturity date. Gains and
losses on derecognition of financial assets classified amortized cost are recognized in profit or loss.
Financial liabilities
Financial liabilities are recognized initially at fair value, net of transaction costs incurred, and are subsequently
measured at amortized cost. Any difference between the amounts originally received, net of transaction costs, and the
redemption value is recognized in profit and loss over the period to maturity using the effective interest method.
Derivative instruments
Derivative instruments, including embedded derivatives in executory contracts or financial liability contracts, are
classified as at FVTPL and, accordingly, are recorded in the statement of financial position at fair value. Unrealized gains
and losses on derivatives not designated in a hedging relationship are recorded as part of the revenue or expense item
to which the derivative relates, depending on the nature of the derivative. Fair values for derivative instruments are
determined using inputs based on market conditions existing at the balance sheet date or settlement date of the
derivative. Derivatives embedded in non-derivative contracts are recognized separately unless they are closely related
to the host contract.
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.
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Notes to Financial Statements | Page 14
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
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:
Financial Assets
Cash and cash equivalents
Trade receivables related to provisional priced sales
Other receivables
Deposits
Financial Liabilities
Trade payables
Loans and borrowings
Derivatives
Cash and cash equivalents and deposits
Measurement Category
Amortized Cost
Fair value through profit or loss
Amortized Cost
Amortized Cost
Amortized Cost
Amortized Cost
Fair value through profit or loss
Cash is comprised of cash on hand and demand deposits. Cash equivalents 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
five 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, 2021. Accordingly, the
Company did not record a provision for expected credit losses for trade receivables.
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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)
ii) Non-Financial assets
At each reporting date, the carrying amounts of the Company’s mineral, property, plant and equipment and
exploration and evaluation assets are reviewed to determine whether there is any indication that those assets are
impaired. If such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of
the impairment, if any. The recoverable amount is the higher of fair value less costs to sell and value in use, which is the
present value of future cash flows expected to be derived from the asset or its related cash generating unit. For
purposes of impairment testing, assets are grouped at the lowest levels that generate cash inflows from continuing use
that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”).
If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the
carrying amount of the associated assets are reduced to their recoverable amount and the impairment loss is
recognized in the profit or loss for the period.
Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has
decreased or no longer exists. An impairment charge is reversed through profit or loss only to the extent that the
asset’s carrying amount does not exceed the carrying amount that would have been determined, net of any applicable
depreciation, if no impairment loss had been recognized.
(k) Provisions
i) Mine closure and rehabilitation provision
The Company records the present value of estimated costs of legal and constructive obligations related to mine closure
and rehabilitation in the period in which the obligation occurs. Mine closure and rehabilitation activities include facility
decommissioning and dismantling; removal and treatment of waste materials; site and land rehabilitation, including
compliance with and monitoring of environmental regulations; and related costs required to perform this work and/or
operate equipment designed to reduce or eliminate environmental effects. The provision is adjusted each period for
new disturbances, and changes in regulatory requirements, the estimated amount of future cash flows required to
discharge the obligation, the timing of 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 included in 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.
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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)
(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 share-based compensation, with a corresponding increase in equity,
over the period that the optionee 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.
Performance share units and 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.
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 per Share
Basic income per share is calculated by dividing the net income attributable to common shareholders of the Company
by the weighted average number of common shares outstanding during the period. Diluted income 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
6 0
E R O C O P P E R A N N U A L R E P O R T 2 0 2 1
Notes to Financial Statements | Page 17
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
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 equity-settled share units (as defined herein, see note 14(d)), 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 net income attributable to common shareholders
is adjusted to eliminate related interest costs of dilutive securities recognized in net income for the period.
(o) Business combinations
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.
4.
Segment Disclosure
Operating segments are determined by the way information is reported and used by the Company's Chief Operating
Decision Maker ("CODM") to review operating performance. The Company’s reporting segments include its two operating
mines in Brazil, MCSA and NX Gold, and its corporate head office in Canada. The Company monitors the operating results of
its operating segments independently for the purpose of making decisions about resource allocation and performance
assessment.
Significant information relating to the Company's reportable segments is summarized in the tables below:
6 1
E R O C O P P E R A N N U A L R E P O R T 2 0 2 1
Notes to Financial Statements | Page 18
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
Year ended December 31, 2021
MCSA
(Brazil)
NX Gold
(Brazil)
Corporate
(Canada)
Consolidated
Revenue
$
423,954 $
65,961 $
— $
489,915
Cost of production
Depreciation and depletion
Sales expense
Cost of sales
Gross profit
Expenses
General and administrative
Share-based compensation
Finance income
Finance expenses
Foreign exchange loss
NX Gold PMPA transaction fees
Other expenses
Income (loss) before taxes
Current tax expense
Deferred tax expense
Net income (loss)
Assets
Current
Non-current
Total Assets
Total Liabilities
(96,975)
(39,202)
(6,726)
(142,903)
281,051
(20,444)
—
1,031
(5,622)
(21,225)
—
(2,382)
232,409
(15,087)
(11,482)
205,840 $
(19,837)
(7,800)
(517)
(28,154)
37,807
(2,560)
—
1,092
(889)
(360)
(1,219)
(507)
33,364
(4,406)
(378)
28,580 $
—
—
—
—
(15,842)
(7,848)
868
(5,648)
(383)
—
—
(28,853)
(2,935)
—
(31,788) $
152,703 $
435,265
587,968 $
116,905 $
35,734 $
45,791
81,525 $
109,679 $
20,249
20
20,269 $
67,688
(116,812)
(47,002)
(7,243)
(171,057)
318,858
(38,846)
(7,848)
2,991
(12,159)
(21,968)
(1,219)
(2,889)
236,920
(22,428)
(11,860)
202,632
208,686
481,076
689,762
294,272
$
$
$
$
During the year ended December 31, 2021, MCSA had three customers (2020 - two) while NX Gold had two customers
(2020 - one).
6 2
E R O C O P P E R A N N U A L R E P O R T 2 0 2 1
Notes to Financial Statements | Page 19
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
Year ended December 31, 2020
MCSA
(Brazil)
NX Gold
(Brazil)
Corporate
(Canada)
Consolidated
Revenue
$
260,888 $
63,188 $
— $
324,076
Cost of production
Depreciation and depletion
Sales expenses
Cost of sales
Gross profit
Expenses
General and administrative
Share-based compensation
Finance income
Finance expenses
Foreign exchange loss
Recovery of value added taxes
Other expenses
Income (loss) before income taxes
Current tax expense
Deferred tax recovery
Net income (loss)
Assets
Current
Non-current
Total Assets
Total Liabilities
5.
Inventories
Supplies and consumables
Stockpiles
Work in progress
Finished goods
(73,893)
(35,674)
(4,937)
(114,504)
146,384
(16,471)
—
430
(5,789)
(77,235)
7,564
(3,825)
51,058
(5,117)
418
46,359 $
(17,480)
(3,538)
(417)
(21,435)
41,753
(1,712)
—
143
(805)
(2,563)
1,322
(876)
37,262
(4,558)
332
33,036 $
—
—
—
—
—
(9,744)
(9,064)
773
(8,855)
(7)
—
—
(26,897)
—
—
(26,897) $
(91,373)
(39,212)
(5,354)
(135,939)
188,137
(27,927)
(9,064)
1,346
(15,449)
(79,805)
8,886
(4,701)
61,423
(9,675)
750
52,498
72,080 $
340,487
412,567 $
102,789 $
31,516 $
26,364
57,880 $
19,467 $
23,945
2,707
26,652 $
160,768
127,541
369,558
497,099
283,024
$
$
$
$
December 31, 2021
$
19,144 $
December 31, 2020
15,619
3,569
5,234
1,074
25,496
2,880
1,658
2,337
$
26,019 $
6 3
E R O C O P P E R A N N U A L R E P O R T 2 0 2 1
Notes to Financial Statements | Page 20
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
6. Other Current Assets
Advances to suppliers
Prepaid expenses
Advances to employees
Value added taxes recoverable(1)
December 31, 2021
$
402 $
December 31, 2020
500
2,635
2,091
13,958
19,184
5,865
458
15,109
21,834 $
$
(1) 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. No additional value
added tax recoveries were recognized in 2021.
6 4
E R O C O P P E R A N N U A L R E P O R T 2 0 2 1
Notes to Financial Statements | Page 21
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
7. Mineral, Property, Plant and Equipment
Cost:
Balance, December 31, 2019
$
17,609 $
103,175 $
261,392 $
52,705 $
9,481 $
14,107 $
7,231 $
465,700
Buildings
Mining
Equipment
Mineral
Properties
Projects in
Progress
Equipment &
Other Assets
Mine Closure
Costs
Right-of-Use
Assets
Total
Additions
Disposals
Transfers
Foreign exchange
Balance, December 31, 2020
Additions
Disposals
Transfers
Foreign exchange
54
—
1,546
(4,327)
14,882
19
—
4,626
(1,175)
10,515
(16,671)
19,940
(24,257)
92,702
7,538
(1,004)
33,217
(7,678)
6,747
—
56,346
(59,173)
265,312
7,580
—
74,951
(20,942)
81,332
(80)
(64,888)
(12,297)
56,772
130,821
(1,821)
(94,599)
(4,867)
18,942
(522)
(12,958)
(2,139)
12,804
26,826
(10)
(18,195)
(1,118)
197
(3,803)
—
(2,965)
7,536
5,162
—
—
(688)
2,982
(291)
14
(1,614)
8,322
10,425
(575)
—
(874)
120,769
(21,367)
—
(106,772)
458,330
188,371
(3,410)
—
(37,342)
Balance, December 31, 2021
$
18,352 $
124,775 $
326,901 $
86,306 $
20,307 $
12,010 $
17,298 $
605,949
Accumulated depreciation:
Balance, December 31, 2019
Depreciation expense
Disposals
Foreign exchange
Balance, December 31, 2020
Depreciation expense
Disposals
Foreign exchange
Balance, December 31, 2021
Net book value, December 31, 2020
Net book value, December 31, 2021
$
(4,047) $
(25,599) $
(85,293) $
— $
(4,572) $
(2,958) $
(3,715) $
(126,184)
(785)
—
916
(3,916)
(808)
—
296
(10,882)
14,999
5,827
(15,655)
(12,664)
913
1,463
(24,597)
—
19,351
(90,539)
(26,475)
—
7,125
—
—
—
—
—
—
—
(1,317)
446
860
(4,583)
(1,489)
3
336
(1,029)
—
672
(3,315)
(985)
—
260
(3,865) $
(42,475)
168 $
792 $
(6,620)
(4,869)
413
588
15,613
28,418
(124,628)
(47,290)
1,329
10,068
(4,428) $
(25,943) $
(109,889) $
— $
(5,733) $
(4,040) $
(10,488) $
(160,521)
10,966 $
13,924 $
77,047 $
174,773 $
98,832 $
217,012 $
56,772 $
86,306 $
8,221 $
14,574 $
4,221 $
7,970 $
1,702 $
6,810 $
333,702
445,428
$
$
$
Certain equipment has been provided as security for the equipment finance loans (note 10(b)).
Page 22
6 5
E R O C O P P E R A N N U A L R E P O R T 2 0 2 1
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
8.
Exploration and Evaluation Assets
Exploration and evaluation assets relate primarily to the Boa Esperança development project located in Tucumã, State of
Pará, Brazil. Subsequent to December 31, 2021, the Company’s board of directors approved construction of the project and
accordingly the project will be reclassified as Projects in Progress.
9. Accounts Payable and Accrued Liabilities
Trade suppliers
Payroll and labour related liabilities
Value added tax and other tax payable
Other accrued liabilities
10. Loans and Borrowings
Description
Denomination
Security
Time to
Maturity
Senior credit facility
Equipment finance loans
USD
USD
Secured
39 months
Secured
5 months - 48
months
6 months - 54
months
Equipment finance loans
EURO
Secured
BRL
BRL
BRL
BRL
BRL
Unsecured
59 months
Unsecured
Unsecured
Secured
Secured
0
0
0
0
Bank loan (MCSA)
Line of credit (MCSA)
Lines of credit (MCSA)
Equipment finance loan (Plural)
Equipment finance loans
Total
Current portion
Non-current portion
$
Coupon rate
LIBOR + 2.25% -
4.25%
5.00% - 7.95%
5.50% - 7.00%
CDI + 0.50%
CDI + 9.00%
8.60% - 14.30%
CDI + 7.00%
11.88% -
16.49%
December 31, 2021
$
December 31, 2020
14,480
17,914
9,365
5,484
47,243
24,012 $
26,248
9,664
6,622
66,546 $
Carrying value,
including accrued interest
Principal to
be repaid
December 31,
2021
December 31,
2020
$
50,000 $
48,303 $
148,386
5,759
2,005
3,458
—
—
—
—
5,805
2,005
3,137
—
—
—
—
5,605
1,791
3,980
1,447
4,221
1,065
1,607
$
61,222 $
59,250 $
168,102
$
$
4,344 $
12,539
54,906 $
155,563
The movements in loans and borrowings during the years ended December 31, 2021 and 2020 are comprised of the
following:
Balance, beginning of year
Proceeds from new senior revolving credit facility, net
Proceeds from new equipment finance loans
Proceeds from new lines of credit
Principal and interest payments
Interest expenses
Foreign exchange
Balance, end of year
December 31, 2021
$
168,102 $
—
4,826
645
(117,404)
5,177
(2,096)
59,250 $
December 31, 2020
159,370
13,652
19,278
36,726
(67,118)
9,921
(3,727)
168,102
$
6 6
E R O C O P P E R A N N U A L R E P O R T 2 0 2 1
Notes to Financial Statements | Page 23
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
At December 31, 2020, the Company had a $150.0 million credit facility from a syndicate of Canadian financial institutions.
The credit facility was comprised of $75.0 million in senior secured non-revolving credit facility (“Term Facility”) and a
$75.0 million senior secured revolving credit facility (“Revolving Credit Facility”) (collectively, the "Old Facilities). The Term
Facility was to mature on March 31, 2024 and required principal repayments on a quarterly basis commencing on March 31,
2022, while the Revolving Credit Facility was payable in full at maturity on March 31, 2024. The Old Facilities bore interest
on a sliding scale at a rate of LIBOR plus 2.50% to 4.25%, depending on the Company’s consolidated leverage ratio.
During the year ended December 31, 2021, the Old Facilities were amended and combined into a new $150.0 million senior
secured revolving credit facility (“New Revolving Credit Facility”) with maturity date of March 31, 2025. The New Revolving
Credit Facility bears interest on a sliding scale at a rate of LIBOR plus 2.25% to 4.25% depending on the Company’s
consolidated leverage ratio. Commitment fees for any undrawn portion of the New Revolving Credit Facility are on a sliding
scale between 0.56% to 1.06%.
During the year ended December 31, 2021, the Company also paid down the New Revolving Credit Facility by $100.0 million
with $50.0 million remaining outstanding as at December 31, 2021. The Company has an interest rate swap arrangement
whereby floating interest on $50.0 million (2020 - $50.0 million) of the New Revolving Credit Facility was swapped for a
fixed interest rate of 1.68% (2020 - 2.69%). The interest rate swap arrangement is in effect until March 31, 2025.
Subsequent to year end, pursuant to completion of an offering of $400.0 million in Senior Notes (note 26), the Company
repaid the outstanding $50.0 million balance of the New Revolving Credit Facility and settled the interest rate swap
arrangement for nominal consideration. The New Revolving Credit Facility was further amended to reduce its limit from
$150.0 million to $75.0 million, with an accordion option to increase to $100.0 million at the election of the Company.
The New Revolving Credit Facility is secured by pledges of shares of MCSA, NX Gold and Ero Gold. The Company is required
to comply with certain financial covenants. As December 31, 2021, the Company is in compliance with these covenants.
(b) Bank Loan and Equipment Finance Loans
The MCSA bank loan was recognized at fair value when the Company acquired MCSA and has subsequently been measured
at amortized cost, net of settlements. Interest is being recognized using the effective interest rate method at an interest
rate of 11.50%.
MCSA is subject to certain financial covenants which the Company is in compliance with at December 31, 2021. The
equipment finance loans are secured by the corresponding equipment relating to them and a guarantee by the Company.
At December 31, 2020, MCSA had entered into 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. MCSA had also entered into an interest rate swap transaction
and a foreign exchange swap transaction with Plural Bank related to this loan 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 loan was repaid during the year
ended December 31, 2021 and the interest rate and foreign currency swap contracts terminated.
6 7
E R O C O P P E R A N N U A L R E P O R T 2 0 2 1
Notes to Financial Statements | Page 24
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
(c) MCSA and NX Gold Lines of Credit
As at December 31, 2020, the Company’s subsidiaries, MCSA and NX Gold, had entered into various lines of credit for a total
amount of BRL $154.6 million of which BRL $21.8 million ($4.2 million) was outstanding. These credit facilities bore interest
at various rates ranging from 9.60% to 24.34%. During the year ended December 31, 2021, the Company’s subsidiaries,
MCSA and NX Gold, terminated all remaining available credit facilities.
During the year ended December 31, 2020, the Company repaid BRL $162.2 million on various lines of credit entered into in
the years ended December 31, 2020 and 2019.
(d) Debt Repayments
Repayments of the principal portion of loans and borrowings is as follows:
2022(1)
2023
2024
2025
2026 and beyond
December 31, 2021
54,282
2,917
1,602
1,615
806
61,222
$
(1) Includes $50.0 million of the New Revolving Credit Facility repaid in February 2022 which does not mature until March 31, 2025.
11. Deferred Revenue
In August 2021, the Company completed the closing of a precious metals purchase agreement (the “NX Gold PMPA”) with
Royal Gold in relation to gold production from the NX Gold mine. The Company received upfront cash consideration of
$100.0 million for the purchase of 25% of an equivalent amount of gold to be produced from the NX Gold mine until 93,000
ounces of gold have been delivered and thereafter decreasing to 10% of gold produced over the remaining life of the mine.
Royal Gold will make ongoing payments equal to 20% of the then prevailing spot gold price for each ounce of gold delivered
until 49,000 ounces of gold have been received and 40% of the prevailing spot gold price for each ounce of gold delivered
thereafter. Additional payment obligations of Royal Gold include:
i.
Up to US$5 million, available through the end of 2024, payable based upon the number of ounces of gold added to
the Measured and Indicated mineral resource categories as compared to the mineral resources as of the effective
date of the NX Gold Transaction at a rate of US$20 per ounce;
ii. Up to US$5 million, available from 2022 through the end of 2024, payable based upon completion of planned meters
of drilling within the exploration concessions of the NX Gold mine at a rate of US$100 per meter; and,
iii. US$5 per ounce of gold delivered under the NX Gold Transaction payable to the Company as contribution towards
ongoing environmental, social and governance initiatives within the area of influence of the mine.
The contract will be settled by the Company delivering gold to Royal Gold. The $100.0 million upfront proceeds from Royal
Gold has been recognized as deferred revenue and the Company recognizes amounts in revenue as gold is delivered. Each
period, management estimates the cumulative amount of the deferred revenue obligation that has been satisfied and,
therefore, recognized as revenue. Key inputs into the estimate at closing of the transaction included an estimated long-term
gold price of $1,750 per ounce and a life of mine production schedule for the NX Gold mine that includes mineral reserves
and a portion of the mineral resources.
During the year ended December 31, 2021, the Company delivered 5,173 ounces of gold to Royal Gold for average
consideration of $353 per ounce and recognized $7.3 million in amortization of deferred revenue. As at December 31, 2021,
6 8
E R O C O P P E R A N N U A L R E P O R T 2 0 2 1
Notes to Financial Statements | Page 25
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
the aggregate carrying value of deferred revenue was $94.2 million, of which $10.5 million was classified as current and
$83.7 million was classified as non-current.
As part of the NX Gold PMPA, the Company incurred $1.2 million in transaction fees during the year ended December 31,
2021. In addition, the Company pledged its equity interest in Ero Gold and NX Gold to Royal Gold as collateral and provided
unsecured limited recourse guarantees from Ero and NX Gold.
12. Provision for rehabilitation and closure costs
Balance, beginning of year
Change in estimates
Accretion expense
Settled
Foreign exchange
Balance, end of year
December 31, 2021
18,970 $
2,225
1,077
(2,039)
(1,196)
19,037
$
December 31, 2020
30,197
(3,803)
902
(1,585)
(6,741)
18,970
Provision for rehabilitation and closure costs is measured using management’s assumptions and estimates for future cash
outflows in relation to mine closure and rehabilitation activities based on known disturbances as 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 8.23% – 8.81% (2020 – 5.75% - 7.37%) and an inflation factor in
the range of 3.00% - 5.03% (2020 – 3.25% - 3.50%) in preparing the Company’s provision for rehabilitation and closure
costs. Although the ultimate amount to be incurred is uncertain, based on development, legal requirements and estimated
costs as at December 31, 2021, the undiscounted inflation-adjusted liability for provision for rehabilitation and closure costs
is estimated to be approximately $65.5 million (2020 - $37.0 million), of which $59.4 million (2020 - $31.4 million) relates to
MCSA and $6.1 million (2020 - $5.6 million) relates to NX Gold. The cash expenditures are expected to commence upon
projected closure and occur over a period of time, which for MCSA is in a range from 2026 to 2046 and for NX Gold is 2027
to 2031.
13. Other Non-current Liabilities
Cash-settled equity awards (Note 14(b) and (c))
Value added tax and other taxes payable
Income taxes payable
Provision for legal and tax matters
Other liabilities
14. Share Capital
December 31, 2021
$
2,524 $
861
2,935
2,331
2,542
December 31, 2020
—
1,299
169
2,480
1,666
5,614
$
11,193 $
As at December 31, 2021, the Company’s authorized share capital consists of an unlimited number of common shares
without par value. As at December 31, 2021, 90,204,378 common shares were outstanding.
6 9
E R O C O P P E R A N N U A L R E P O R T 2 0 2 1
Notes to Financial Statements | Page 26
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
(a) Options
During the year ended December 31, 2021, the Company granted 316,910 (2020 - 489,295) options to employees of the
Company at weighted average exercise price of $15.66 per share (2020 - $15.38) 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 $1.8 million, which is recognized over the vesting period.
Outstanding stock options, December 31, 2019
Issued
Exercised
Outstanding stock options, December 31, 2020
Issued
Exercised
Cancelled
Outstanding stock options, December 31, 2021
Number of
Stock Options
Weighted Average
Exercise Price
5,061,417
489,295
(908,949)
4,641,763 $
316,910
(725,121)
(31,163)
4,202,389 $
6.23
15.38
3.13
7.91
15.66
4.64
15.78
8.98
The weighted average share price on the date of exercise for options exercised during the year ended December 31, 2021
was $19.01 (year ended December 31, 2020 - $13.74).
As at December 31, 2021, the following stock options were outstanding:
Expiry Date
May 15, 2022
July 10, 2022
November 24, 2022
December 7, 2022
January 18, 2023
June 19, 2023
July 16, 2023
December 31, 2023
January 2, 2024
August 15, 2024
December 12, 2024
January 2, 2025
December 17, 2025
March 18, 2026
August 19, 2026
December 15, 2026
Number of
Stock Options
Weighted
Average
Exercise Price
Vested and
Exercisable
Number of Stock
Options
Weighted
Average
Remaining Life in
Years
190,334 $
60,000
159,000
1,142,501
60,000
104,000
100,000
1,004,828
125,000
20,000
448,951
73,456
397,409
50,000
17,514
249,396
4,202,389 $
1.50 USD
1.50 USD
6.48 CAD
6.74 CAD
7.95 CAD
10.25 CAD
9.01 CAD
9.76 CAD
9.80 CAD
21.09 CAD
20.52 CAD
23.42 CAD
18.90 CAD
24.45 CAD
23.37 CAD
18.69 CAD
8.98 USD
190,334
60,000
159,000
1,142,501
60,000
104,000
100,000
1,004,828
125,000
20,000
292,203
53,456
136,980
—
—
28,959
3,477,261
0.37
0.52
0.90
0.93
1.05
1.47
1.54
2.00
2.01
2.62
2.95
3.01
3.96
4.21
4.64
4.96
2.06
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, 2021 exchange rate of 1.2677.
7 0
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Notes to Financial Statements | Page 27
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
The fair value of options granted in the years ended December 31, 2021 and 2020 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:
Expected term (years)
Forfeiture rate
Volatility
Dividend yield
Risk-free interest rate
Weighted-average fair value per option
2021
2020
3.0
— %
56 %
— %
1.10 %
5.57
$
3.0
— %
53 %
— %
0.58 %
6.00
$
For the year ended December 31, 2021, the Company recorded share-based compensation of $2.9 million (year ended
December 31, 2020 - $3.9 million) with respect to its outstanding stock options.
(b) Performance Share Unit Plan
The Company has a performance share unit ("PSU") plan pursuant to which the Compensation Committee may grant PSUs
to any director, officer, employee, or consultant of the Company or its subsidiaries. At the time of grant of PSUs, the
Compensation Committee, may establish performance conditions for the vesting of the PSUs. The performance conditions
may be graduated such that different percentages (which may be greater or lower than 100%) of the PSUs 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 PSUs. The Compensation Committee may,
in its discretion, subsequent to the grant of a PSU, waive any such performance condition or determine that it has been
satisfied subject to applicable law, as well as determine the settlement of PSUs in shares or in cash. Each PSU entitles the
holder thereof to receive one common share, or its equivalent cash value, on the redemption date selected by the
Compensation Committee.
The continuity of PSUs issued and outstanding is as follows:
Outstanding balance, beginning of year
Issued
Settled
Cancelled
Outstanding balance, end of year
Year ended December 31,
2020
2021
727,761
310,287
(223,231)
(21,774)
793,043
437,463
290,298
—
—
727,761
These PSUs will vest three years from the date of grant by the Compensation Committee and the number of PSUs 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 PSU 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. Prior to December 2021, the Company had intended to settle its PSUs using common shares and, accordingly,
the PSUs were classified as equity settled instruments. In December 2021, the Company elected to settle its PSUs in cash
and, therefore, $9.4 million of PSUs were reclassified from contributed surplus to liabilities. On reclassification, the
Company recognized the liability at its fair value and recognized a reduction in shared-based compensation of $1.2 million.
7 1
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Notes to Financial Statements | Page 28
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
For PSUs with non-market performance conditions, the fair value of the share units granted was initially recognized at the
fair value using the share price at the date of grant, and subsequently remeasured at fair value on each balance sheet date.
For PSUs with market performance conditions, the fair value was determined using a Geometric Brownian Motion model.
During the year ended December 31, 2021, the Company recorded share-based compensation of $4.1 million (year ended
December 31, 2020 - $3.9 million) with respect to the PSUs. As at December 31, 2021, the fair value of the PSU liability was
$5.8 million (December 31, 2020 - $nil), of which $3.3 million (December 31, 2020 - nil) has been recognized in accounts
payable and accrued liabilities and $2.5 million (December 31, 2020 - $nil) has been recognized in other non-current
liabilities.
(c) Deferred Share Unit Plan
The Deferred Share Unit ("DSU") plan was established by the Board as a component of compensation for the Company's
independent directors. Only independent directors are eligible to participate and to receive 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, 2021, 51,855 DSUs (year ended December 31, 2020 - 79,230) were issued to
independent directors.
As at December 31, 2021, the fair value of the DSU liability was $2.0 million (December 31, 2020 - $1.3 million) which has
been recognized in accounts payable and accrued liabilities, with $0.7 million recognized in share-based compensation
expense for the year ended December 31, 2021 (year ended December 31, 2020 - $1.3 million).
(d) Restricted Share Unit Plan
The Company has a restricted share unit ("RSU") plan pursuant to which the Compensation Committee may grant share
units to any officer, employee, or consultant of the Company or its subsidiaries. RSUs issued under the plan 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. RSUs granted will vest in three
equal installments on each anniversary date from the date of grant. The fair value of these restricted share units is
determined on the date of grant using the market price of the Company’s shares.
During the year ended December 31, 2021, 171,106 share units (year ended December 31, 2020 - nil) were issued and
outstanding.
(e) Warrants
During the year ended December 31, 2021, all of the remaining 1,599,996 warrants were exercised for gross proceeds of
$1.9 million (year ended December 31, 2020 - 1,266,666 warrants for gross proceeds of $1.5 million).
7 2
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Notes to Financial Statements | Page 29
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
(f) Share-based compensation
Stock options
Performance share unit plan
Deferred share unit plan
Restricted share unit plan
Share-based compensation(1)
Year ended December 31,
2020
2021
$
$
2,925 $
4,124
734
65
7,848 $
3,864
3,900
1,300
—
9,064
(1) For the year ended December 31, 2021, the Company recorded $7.3 million (year ended December 31, 2020 - $7.8 million) of share-based
compensation in contributed surplus, and the remaining share-based compensation was recorded in liabilities. In addition, the Company reclassified
$9.4 million (year ended December 31, 2020 - nil) in share-based compensation from contributed surplus to liabilities.
(g) Net Income per Share
Weighted average number of common shares outstanding
Dilutive effects of:
Warrants
Stock options
Share units
Weighted average number of diluted common shares outstanding(1)
Net income attributable to owners of the Company
$
Basic net income per share
Diluted net income per share
Year ended December 31,
2020
2021
88,602,367
86,368,535
—
2,353,584
7,501
90,963,452
201,053 $
2.27
2.21
2,397,518
2,355,933
1,091,642
92,213,628
51,622
0.60
0.56
(1) Weighted average number of diluted common shares outstanding for the year ended December 31, 2021 excluded 390,366 (2020 - 999,523) stock
options that were anti-dilutive.
7 3
E R O C O P P E R A N N U A L R E P O R T 2 0 2 1
Notes to Financial Statements | Page 30
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
15. Revenue
Copper
Sales within Brazil
Export sales
Adjustments on provisionally priced sales(1)
Gold
Export sales
Amortization of deferred revenue(2)
Year ended December 31,
2020
2021
$
$
$
131,595 $
295,682
(3,323)
423,954
58,682
7,279
65,961 $
489,915 $
161,803
96,852
2,233
260,888
63,188
—
63,188
324,076
(1) Under the terms of the Company’s contract with its domestic customer, sales are provisionally priced on the date of sale based on the previous
month’s average copper price and subsequently settled based on the average copper price in the month of shipment. Provisionally priced sales to the
Company's international customer are settled with a final sales price between one to four months after shipment takes place and, therefore, are
exposed to commodity price changes.
(2) During the year ended December 31, 2021, the Company delivered 5,173 ounces of gold under a precious metals purchase agreement with Royal
Gold (note 11) for average cash consideration of $353 per ounce and recognized $7.3 million in amortization of deferred revenue.
16. Cost of Sales
Materials
Salaries and benefits
Depreciation and depletion
Contracted services
Maintenance costs
Utilities
Sales expense
Other costs
17. General and Administrative Expenses
Accounting and legal
Amortization and depreciation
Office and administration
Salaries and consulting fees
Incentive payments
Other
Year ended December 31,
2020
2021
26,343 $
39,497
47,002
21,373
18,162
10,721
7,243
716
171,057 $
18,912
30,044
39,212
18,463
14,672
8,728
5,354
554
135,939
Year ended December 31,
2020
2021
1,625 $
288
9,143
16,962
7,126
3,702
38,846 $
1,079
136
7,066
12,206
6,116
1,324
27,927
$
$
$
$
7 4
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Notes to Financial Statements | Page 31
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
18. Finance Expense
Interest on loans and borrowings
(Gain) loss on interest rate swap derivatives
Accretion of deferred revenue
Accretion of mine closures and rehabilitation provisions
Commitment fees
Interest on lease liabilities
Other finance expenses
19. Foreign Exchange Loss
Year ended December 31,
2020
2021
$
5,177 $
(469)
1,501
1,077
1,027
413
3,433
$
12,159 $
9,921
2,720
—
902
484
229
1,193
15,449
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 Reals (BRL$), which is their functional currency.
Foreign exchange loss on USD denominated debt in Brazil
Realized foreign exchange loss on derivative contracts (note 22)
Unrealized foreign exchange gain (loss) on derivative contracts (note 22)
Other
Year ended December 31,
2020
2021
$
$
(5,370) $
(22,240)
3,911
1,731
(21,968) $
(24,190)
(20,804)
(34,548)
(263)
(79,805)
20. 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% (2020 – 27%) is as follows:
Net income in the year before tax
Tax rate
Income tax expense at statutory rate
Tax effect of:
Difference in tax rate of foreign jurisdictions
Non-taxable items
Change in temporary differences not previously recognized
Other
Income tax expense
Year ended December 31,
2020
2021
$
$
$
236,920
27 %
63,968
$
$
(29,888)
(7,465)
6,618
1,055
34,288
$
61,423
27 %
16,584
(6,227)
(1,792)
(113)
473
8,925
7 5
E R O C O P P E R A N N U A L R E P O R T 2 0 2 1
Notes to Financial Statements | Page 32
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
Current income tax:
Relating to current income tax charge
Deferred income tax:
Relating to origination and reversal of temporary differences
Income tax expense recognized in net income
Income tax expense (recovery) recognized in other comprehensive income
Total income tax expense
(b) Deferred income tax assets
The general movement in the deferred income tax assets is as follows:
At the beginning of the year
Deferred income tax (expense) recovery
Income tax expense (recovery) recognized in OCI
Foreign exchange
At the end of the year
Recognized deferred tax and assets and liabilities consist of the following:
Deferred tax assets:
Non-capital losses - Brazil
Foreign exchange - Brazil
Other - Brazil
Mine closure and rehabilitation provision - Brazil
Non-capital losses - Canada
Financing fees and other - Canada
Deferred tax liabilities:
Mineral property, plant and equipment - Brazil
Loans and borrowings - Brazil
Other - Brazil
Loans and borrowings - Canada
Year ended December 31,
2020
2021
22,428 $
9,675
11,860
34,288 $
576
34,864 $
(750)
8,925
(3,073)
5,852
Year ended December 31,
2020
2021
14,223 $
(11,860)
(576)
528
2,315 $
13,099
750
3,073
(2,699)
14,223
$
$
$
$
$
December 31, 2021
December 31, 2020
$
1,924 $
8,458
3,409
2,903
981
289
17,964
(4,986)
(8,775)
(618)
(1,270)
(15,649)
15,688
9,412
2,167
3,110
737
823
31,937
(6,179)
(9,431)
(544)
(1,560)
(17,714)
Net deferred income tax assets
$
2,315 $
14,223
7 6
E R O C O P P E R A N N U A L R E P O R T 2 0 2 1
Notes to Financial Statements | Page 33
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
Deferred tax assets of $21.4 million (December 31, 2020 - $13.5 million) have not been recognized for the following
deductible temporary differences as it is not probable that the benefits of these temporary differences will be realized:
Exploration and evaluation assets
Mineral property, plant and equipment
Non-capital losses
Other
Year ended December 31, 2021
Year ended December 31, 2020
Brazil
Canada
Brazil
Canada
$
$
34,660 $
—
—
—
34,660 $
— $
922
44,521
16,213
61,656 $
37,213 $
—
—
—
37,213 $
—
90
22,194
7,238
29,522
The Company has loss carry forwards in Brazil totalling $7.7 million (December 31, 2020 - $46.7 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 $48.0 million (December 31, 2020 - $24.9 million)
which may be carried forward for 20 years to offset future taxable income, which expire between 2036 and 2041.
21. Related Party Transactions
Key management personnel consist of the Company’s directors and officers. The remuneration of key management
personnel during the year was as follows:
Year ended December 31,
2020
2021
$
$
10,282 $
5,702
15,984 $
7,400
5,100
12,500
Salaries and short-term benefits(1)
Share-based payments(2)
(1)
(2)
Includes annual salary and short-term incentives or bonuses earned in the year.
Includes PSUs, RSUs, DSUs and stock option grants.
22. 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. 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, 2021, derivatives were measured at fair value based on Level 2 inputs.
The carrying values of cash and cash equivalents, short-term investments, 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. At December 31, 2021, the carrying value of loans and borrowings is $59.3 million while the face
value is approximately $61.2 million. The contractual interest rates on these loans and borrowings are a close
approximation of market rates of interest at December 31, 2021 (Level 2 of the fair value hierarchy).
7 7
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Notes to Financial Statements | Page 34
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
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, 2021 and December 31, 2020:
Cash and cash equivalents
Accounts receivable
Deposits and other non-current assets
December 31, 2021
$
130,129 $
December 31, 2020
62,508
20,353
595
83,456
30,704
1,295
162,128 $
$
The Company invests cash and cash equivalents and short-term investments 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 five 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, 2021 and 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, 2021:
Non-derivative financial liabilities
Loans and borrowings (including
interest)
Accounts payable and accrued
liabilities
Other non-current liabilities
Leases
Total
Carrying
value
Contractual
cash flows
Up to
12 months
1 - 2
years
3 - 5
years
More than
5 years
$
59,250 $
62,041 $
54,789 $
3,066 $
4,186 $
—
66,546
5,067
7,110
66,546
16,246
7,265
66,546
308
4,867
—
7,302
1,770
$ 137,973 $ 152,098 $ 126,510 $
12,138 $
—
7,984
628
12,798 $
—
652
—
652
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.
7 8
E R O C O P P E R A N N U A L R E P O R T 2 0 2 1
Notes to Financial Statements | Page 35
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
(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, 2021 relates to $7.8 million (December 31,
2020 – $7.4 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, 2021 on $63.8 million due to an intercompany loan balance
(December 31, 2020 - $83.1 million) which has contractual repayment terms. Strengthening (weakening) in the Brazilian
Real against the US dollar at December 31, 2021 by 10% and 20%, would have increased (decreased) pre-tax net income by
$7.0 million and $13.9 million, respectively (2020 – $8.9 million and $17.7 million). Strengthening (weakening) in the
Brazilian Real against the Euro at December 31, 2021 by 10% and 20%, would have increased (decreased) pre-tax net
income by $0.2 million and $0.4 million, respectively (2020 – $0.2 million and $0.4 million). This analysis is based on the
foreign currency exchange variation rate that the Company considered to be reasonably possible at the end of the year. The
analysis assumes that all other variables, especially interest rates, are held constant.
The Company may use derivatives, including forward contracts, collars and swap contracts, to manage market risks. At
December 31, 2021, the Company has entered into foreign exchange collar contracts at zero cost for notional amounts of
$179.5 million (December 31, 2020 - notional amount of $285.7 million) with an average floor rate of 4.24 BRL to US Dollar
and an average cap rate of 4.76 BRL to US Dollar. The maturity dates of these contracts are from January 3, 2022 to
December 28, 2022 and are financially settled on a net basis. The fair value of these contracts at December 31, 2021 was a
liability of $28.7 million, (December 31, 2020 - $34.5 million) which is included in Derivatives in the statement of financial
position. The fair value of these forward contracts as at December 31, 2021 was determined using an option pricing model
with the following assumptions: discount rate of 2.74% - 2.80%, foreign exchange rate of approximately 5.59—6.17, and
volatility of 15.69% - 17.92%.
The change in fair value of foreign exchange collar contracts was a gain of $3.9 million for the year ended December 31,
2021 (a loss of $34.5 million for the year ended December 31, 2020) and has been recognized in foreign exchange loss. In
addition, during the year ended December 31, 2021, the Company recognized a realized loss of $22.2 million (realized loss
of $20.8 million for the year ended December 31, 2020) 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 New Revolving Credit Facility of $50.0 million and
Brazilian Real denominated bank loans of $3.5 million. Based on the Company’s net exposure at December 31, 2021, a 1%
change in the variable rates would have an impact of $0.5 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, the Company entered into an interest rate swap
contract to manage interest rate risk (see note 10(a)). At December 31, 2021, the floating interest on a notional amount of
$50.0 million was swapped for a fixed interest rate of 1.68%. This interest rate swap transaction is in effect until March 31,
2025, with settlements made on a monthly basis. The fair value of this contract at December 31, 2021 was a liability of $1.0
million (December 31, 2020 - $2.5 million) and was included in Derivatives in the statement of financial position.
For the year ended December 31, 2021, the Company recognized a realized loss of $0.8 million (a realized loss of
$1.6 million for the year ended December 31, 2020) and an unrealized gain of $1.3 million (an unrealized loss of $1.1 million
for the year ended December 31, 2020), respectively, in relation to its interest rate swap derivatives.
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Notes to Financial Statements | Page 36
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, 2021, the Company has provisionally priced sales that are exposed to commodity price changes
(note 15). Based on the Company’s net exposure at December 31, 2021, a 10% change in the price of copper would have an
impact of $0.2 million on pre-tax net income.
23. 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.
The Company's capital consists of items included in shareholders’ equity, debt facilities net of cash and cash equivalents.
Management reviews the capital structure on a regular basis to ensure that the above-noted objectives are met. 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.
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.
24. Supplemental Cash Flow Information
Net change in non-cash working capital items:
Accounts receivable
Inventories
Other assets
Accounts payable and accrued liabilities
Value added, payroll and other taxes
Non-cash investing and financing activities:
Change in mineral, property, plant and equipment from change in
estimates for provision for rehabilitation and closure costs
Additions to property, plant and equipment by leases
Non-cash changes in accounts payable in relation to capital expenditures
Transfer of PSU from equity reserves to liabilities
$
$
Year ended December 31,
2020
2021
(12,180) $
(2,325)
(8,297)
10,366
(2,662)
(15,098) $
2,225
10,205
3,551
9,389
(13,266)
(6,360)
6,858
(3,885)
7,121
(9,532)
(3,803)
2,439
(581)
—
25. Contingencies
Due to the nature of the Company’s operations, various legal, tax, environmental and regulatory matters are outstanding
from time to time. By their nature, contingencies will only be resolved when one or more future events occur or fail to
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Notes to Financial Statements | Page 37
Ero Copper Corp.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
occur. The assessment of contingencies inherently involves the exercise of significant judgement and estimates of the
outcome of future events. While the outcomes of these matters are uncertain, based upon the information currently
available, the Company does not believe that these matters in aggregate will have a material adverse effect on its
consolidated financial statements. In the event that management’s estimate of the future resolution of these matters
changes, the Company will recognize the effect of these changes in its consolidated financial statements in the period in
which such changes occur.
As of December 31, 2021, based on the opinion of its legal advisers, the Company has not recognized a provision for the
following claims of MCSA and NX Gold as it is not probable that a cash outflow will occur.
Social security tax (a)
Taxes (b)
Labour
Mining and other (c)
(a) Social security tax
December 31, 2021
$
December 31, 2020
2,879
11,633
968
6,346
21,826
3,415 $
9,531
1,219
6,791
20,956 $
$
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 $9.5 million is included in the table above.
(b) Tax
There are 122 tax claims (2020 – 121 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.
(c) 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.
26. Subsequent events
In February 2022, the Company closed an offering of $400 million aggregate principal amount of Senior Notes due 2030 (the
“Notes”). Interest on the Notes accrues at an annual rate of 6.50%, payable semi-annually in arrears. The Notes mature on
February 15, 2030. MCSA is currently the only guarantor of the Notes on a senior unsecured basis. The Notes are direct,
senior obligations of the Company and MCSA, and are not secured by any mortgage, pledge or charge. Estimated
transaction costs related to the offering of the Notes was $8.5 million.
Pursuant to closing of the Notes offering, the Company repaid the outstanding balance under its New Revolving Credit
Facility of approximately $50 million and reduced the size of its New Revolving Senior Credit Facility from $150 million to
$75 million, with an accordion option to increase to $100.0 million at the election of the Company.
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Notes to Financial Statements | Page 38
NOTE REGARDING SCIENTIFIC AND TECHNICAL INFORMATION
Unless otherwise indicated, scientific and technical information in this Annual Report relating to Ero’s properties (“Technical Information”) is based
on information contained in the following:
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 “Boa Esperança Project NI 43-101 Technical Report on Feasibility Study Update”, dated
November 12, 2021 with an effective date of August 31, 2021, prepared by Kevin Murray, P. Eng., Erin L. Patterson, P.E. and Scott C. Elfen, P.E. all of Ausenco
Engineering Canada Inc. (or its affiliate Ausenco Engineering USA South Inc. in the case of Ms. Patterson), Carlos Guzmán, FAusIMM RM CMC of NCL Ingeniería
y Construcción SpA and Ricardo Emerson Re, MSc, MBA, MAusIMM (CP) (No. 305892), Registered Member (No. 0138) (Chilean Mining Commission) and
Resource Manager of the Company (the “Boa Esperança Technical Report”).
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 on the Company’s website at www.erocopper.com and under the Company’s profile on SEDAR at www.sedar.
com, and EDGAR at www.sec.gov.
The disclosure of Technical Information in this Annual Report 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 Annual Report contains “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995 and
“forward-looking information” within the meaning of applicable Canadian securities legislation (collectively, “forward-looking statements”). Forward-looking
statements include 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. Forward-looking statements may include, but are not limited to, statements with respect to mineral reserve and mineral
resource estimates; targeting additional mineral resources and expansion of deposits; capital and operating cost estimates and economic analyses (including
cash flow projections), including those from the MCSA Mining Complex Technical Report, the NX Gold Technical Report and the Boa Esperança Technical
Report; 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, construction and production activities; the results of future exploration and drilling; estimated completion
dates for certain milestones; successfully adding or upgrading mineral resources and successfully developing new deposits; the costs and timing of future
exploration, development and construction including but not limited to the Deepening Extension Project at the MCSA Mining Complex and the Boa Esperança
Property; the timing and amount of future production at the MCSA Mining Complex, the Boa Esperança Property and the NX Gold Property; the impacts of
COVID-19 on the Company’s business and operations; the timing, receipt and maintenance of necessary approvals, licenses and permits from applicable
governments, regulators or third parties; expectations regarding consumption, demand and future price of copper, gold and other metals; future financial or
operating performance and condition of the Company and its business, operations and properties, including expectations regarding liquidity, capital structure,
competitive position and payment of dividends; the possibility of entering judgments outside of Canada; expectations regarding future currency exchange
rates; and any other statement that may predict, forecast, indicate or imply future plans, intentions, levels of activity, results, performance or achievements.
Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors that could cause actual results, actions,
events, conditions, performance or achievements to materially differ from those expressed or implied by the forward-looking statements, including, without
limitation, risks discussed in this Annual Report and in the AIF under the heading “Risk Factors”. The risks discussed in this Annual Report and in the AIF are
not exhaustive of the factors that may affect any of the Company’s forward-looking statements. Although the Company has attempted to identify important
factors that could cause actual results, actions, events, conditions, performance or achievements to differ materially from those contained in forward-
looking statements, there may be other factors that cause results, actions, events, conditions, performance or achievements to differ from those anticipated,
estimated or intended.
Forward-looking statements are not a guarantee of future performance. There can be no assurance that forward-looking statements will prove to be
accurate, as actual results and future events could differ materially from those anticipated in such statements. Forward-looking statements involves
statements about the future and are inherently uncertain, and the Company’s actual results, achievements or other future events or conditions may differ
materially from those reflected in the forward-looking statements due to a variety of risks, uncertainties and other factors, including, without limitation, those
referred to herein and in the AIF under the heading “Risk Factors”.
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The Company’s forward-looking statements are based on the assumptions, beliefs, expectations and opinions of management on the date the statements
are made, many of which may be difficult to predict and beyond the Company’s control. In connection with the forward-looking statements contained in this
Annual Report, the Company has made certain assumptions about, among other things: 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, gold 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, the NX Gold Property and the Boa Esperança Property being as described in the MCSA Mining Complex
Technical Report, the NX Gold Technical Report and the Boa Esperança Technical Report, respectively; production costs; the accuracy of budgeted exploration,
development and construction 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 continuing 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;
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. Although the Company believes that the assumptions inherent in forward-looking statements are
reasonable as of the date of this Annual Report, these assumptions are subject to significant business, social, economic, political, regulatory, competitive 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 statements. The Company cautions that the foregoing list of assumptions is 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 statements contained in this Annual Report.
Forward-looking statements contained herein are made as of the date of this Annual Report and the Company disclaims any obligation to update or
revise any forward-looking statement, 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 in
this ANNUAL REPORT 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”).
NI 43-101 is a rule developed by the Canadian Securities Administrators that establishes standards for all public disclosure an issuer makes of scientific and
technical information concerning mineral projects. NI 43-101 differs significantly from the disclosure requirements of the Securities and Exchange Commission
(the “SEC”) generally applicable to U.S. companies. For example, the terms “mineral reserve”, “proven mineral reserve”, “probable mineral reserve”, “mineral
resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral resource” are defined in NI 43-101. These definitions differ from
the definitions in the disclosure requirements promulgated by the SEC. Accordingly, information contained in this ANNUAL REPORT may not be comparable
to similar information made public by U.S. companies reporting pursuant to SEC disclosure requirements.
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.
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Ero Copper Corp
Suite 1050 – 625 Howe St
Vancouver, BC V6C 2T6
Canada
T:+1 604 429 9244
info@erocopper.com
TSX: E RO NYSE : E RO
WWW. EROCOPPER.COM