Earnings Call: Q1 2021

May 5, 2021

Earnings release

Thank you for standing by. This is the conference operator. Welcome to the Eero Copper First Quarter Results Conference Call. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Noel Dunn, Executive Chairman of Eero Copper, for opening remarks. Please go ahead. Thank you, and good morning, everyone. The news release announcing Era's first quarter twenty twenty one financial results is available on our website and on SEDAR as are our financial statements and the MD and A for the three months ended 03/31/2021. As usual, we will be making forward looking statements on this call that involve risks and uncertainties concerning the businesses, operations, financial performance of the company. We would refer you to our most recent AIF, also available on SEDAR, for a discussion of the risk factors of our business and their potential impact on future performance. Unless otherwise noted on this call, all amounts are in US dollars. Joining me on the call today are David Strang, Bureau's Co Founder and Chief Executive Officer Vane Dreyer, Chief Financial Officer Mike Richard, Chief Geological Officer Marco DiFilippo, President and Courtney Lynn, Vice President, Corporate Development and Investor Relations. Before diving into our operating and financial results, I'd like to recognize the boarder team at Euro, especially our colleagues in Brazil, who have helped us deliver a remarkable first quarter in what continues to be a challenging operating environment. Our team has shown resilience and maintaining focus on our operations and continue to advance all growth objectives whilst offering critical support to our local communities. We are optimistic over the near term with respect to COVID nineteen as we're seeing both moderating COVID cases in Brazil and benefiting from the global vaccination programs as they roll out. Our strategy has and continues to center upon investing in our own assets to increase production whilst maintaining first quartile operating costs. This quarter is a great example of this. While these efforts continue to focus primarily within the Curacao Valley, where we still see tremendous growth opportunities in front of us, in parallel, we are looking at unlocking value at both the NX Gold Mine and our Bow Esperanza project, which we expect to provide updates on in the coming months. As we continue to advance optimization studies on BOEsperanza, it is worth noting that in '2 that in 2000 that the 2017 feasibility study already outlined a fantastic project before any optimization studies with an after tax IRR of 32.7 percent, a $3 copper, and a BLL exchange rate of three eighty. Copper price aside, we continue to believe the Boa Esperanza project represents a high quality actionable project that is aligned with our return on invested capital focus. With respect to our Q1 results, we reported several record quarterly figures including copper production of 12,638 tons, E1 cash cost of $0.49 per pound copper produced, adjusted EBITDA of $86,700,000 and an operating cash flow of $62,100,000. As a result of this performance, our balance sheet has never been stronger with $84,600,000 of cash and equivalents and a peer leading net debt level of 0.3 times on a trailing twelve month EBITDA. With that, I will now pass the call over to David to provide a brief review and update of our operations. As our exploration update was released at the in the end of last week, Mike will provide additional color on that and Wayne will provide a review of the company's financial performance. We will all be available for questions immediately following the Thank you, Noel. Our first quarter results were released last night and reflect excellent performance at the MCSA Mining Complex, driven by higher than planned grades at our Palar And Vimeos underground mines and continued improvements in metallurgical recoveries. We processed nearly 600,000 tons of ore at an average grade of 2.3% copper and achieved record metallurgical recoveries during the quarter averaging 92%. I'm pleased to see that overall metallurgical recoveries and concentrate grades continue to improve in parallel with increasing mill throughputs, largely due to successful integration of our new HIG mill, which completed commissioning in late twenty twenty and is performing better than expected. Strong operating performance across the MCSA mining complex contributed to record quarterly copper production of 12,638 tonnes and record quarterly C1 cash costs of $0.49 a pound of copper produced, a $0.20 per pound improvement as compared to the fourth quarter of twenty twenty. Entering the second quarter, we have continued pre operational activities relating to the restart of the Surabin Open Pit, which we forecast will commence mining operations during the second half of this year. As we both plan for an expanded operational footprint and actively make the first steps in preparing our operations to run at high mill throughputs, we will undertake consecutive planned ore mill maintenance at the end of the second quarter and beginning of the third quarter. This maintenance is reflected in our full year copper production guidance range of 42,000 to 45,000 tons of copper produced, which we expect to be equally weighted between the first and second halves of the year. While early in our production cycle for the year, we see opportunities to moderate the second and third quarter impacts of this mill maintenance with higher than planned grades at the Palal mine as we saw during the first quarter. But these opportunities remain under analysis. At the moment, our C1 cash cost guidance range remains unchanged at $0.75 to $0.85 per pound of copper produced. Panex Gold mine also delivered a strong quarter producing 9,451 ounces of gold at C1 cash costs of $487 per ounce and all in sustaining costs of $643 per ounce of gold produced. Lower tonnes milled quarter over quarter was partially offset by higher head grades compared to the fourth quarter, along with continued strong metallurgical performance. With respect to full year guidance, we are reaffirming our range of 34,500 to 37,500 ounces of gold produced at all in sustaining costs of between $875 and $975 per ounce. As Noel mentioned, we continue to actively advance our optimization study for the Boasporanda project, which started as a bottom up analysis last year. The 2017 feasibility study outlined a seven point five year mine life averaging approximately 21,000 tons of payable copper production per year. And with the early results of our team's work, we believe we can significantly improve upon this. In tandem with the optimization studies in the geology and mining side, we are reviewing a redesign of the processing plant strategy, the use of ore sorting technology and several other levers that have not been previously explored. We expect to provide an update on this ongoing work during the third quarter. Lastly, I would like to quickly touch upon results that were released last week and then return the call over to Mike to provide more detail. I believe that last week's announcement illustrates our disciplined and systematic exploration strategy continues to demonstrate the Curacao values potential and inherent optionality. We have one of the largest ongoing exploration programs globally and we are committed to unlocking this value for our shareholders. Our exploration program at our NX gold mine with 10 drill rigs are currently operating is progressing according to plan and we expect to provide more color on these results during our next quarterly update as third party assay labs in Brazil reopen and hopefully clear a backlog of our pending METELIC screen results. With that, I'll now pass it over to Mike to provide some additional context and color to our quarterly exploration news release. Thank you, David. Our exploration program has had a great start to the year and I am pleased with the results we are seeing come together throughout the Corusall Valley. The announcement of the identification of two mineralized systems, Terre Dosal and C4 are examples of the systematic work we have completed over the past two years to identify new greenfields mineral districts. So far, we have identified extensive copper mineralization extending up to 2.2 kilometers in the case of C4. Our experience in the Curacao Valley tells us that higher grade pods occur within broad zones of lower grade mineralization. Context is important and is worth reminding everyone that the discovery of the high grade Vermeilus Mine started with the discovery of lower grade mineralization some two kilometers to the north. Likewise, the first hole we drilled into the new C4 system intercepted approximately 700 meters of multiple mineralized lenses ranging in grade from 0.2% copper. The hole ended in mineralization and the drill results released last week from C4 discovery reflect our first past review of the system. We will continue to explore these systems and refine drill targets within them using systematic data driven analysis and the combined use of ground geophysics and borehole EM. This work is being conducted in parallel with other identified systems and targets in the belt. Drill targets throughout the belt are continuously being prioritized. While the regional exploration program is targeting medium to longer term opportunities, we're also focusing on several nearer term opportunities within our portfolio, highlighted by the discovery of the novel zone at Bermeos and our reevaluation of the past producing open pit mines of the company. At Bermeos, the Novo Zone discovery has identified a new high grade lens of massive sulfide mineralization in an untested area approximately 200 meters below the existing Vermeos mine infrastructure. Extending the grade profile of an overall mine life of Vermeos is a key objective of this year's program, and I am pleased to see a new zone developing out of the gate. Our past producing mine revaluation efforts, which commenced late last year, integrating a number of new regional datasets is already generating excellent results, highlighted by an exciting high grade zone of plus 3% copper identified just beneath the bottom of the Lagoa Da Mina Open pit. While this zone existed previously, it was lost within the totality of a much lower grade inferred resource and continuity of the high grade has never been evaluated, which we are doing now. Within the deepening extension zone of the Pilar Mine, exploration efforts continue to focus on extending mineralization at depth and upgrade the inferred mineral resource within this zone. Through the use of directional drilling technology, which offers greater drill placement accuracy than traditional drilling technology, we've achieved better than expected results that we look forward to sharing with you next quarter. When viewed in the context of year round drilling, a strong in country geology team and our available excess mill capacity, our programs continue to show the variety of potential ore sources for future mill feed over a full complement of development timelines. Thanks, Mike, and good morning, everyone. It's Wayne here. I want to echo Noel and David's comments about the first quarter being an outstanding start to the year. Copper sales volumes were up over 20% quarter on quarter, while gold sales moderated compared to the fourth quarter and combined with higher realized metal prices, we achieved record quarterly revenues of $122,500,000 an improvement of 34 percent over the prior period. Higher copper grades mined and processed as well as sustained weakness of the Brazilian real against the US dollar drove record low C1 cash costs at MCSA during the quarter. It should be no surprise that record quarterly revenue together with these operating results in record quarterly adjusted EBITDA and cash flow from operations of $86,000,000 and $62,100,000 respectively. Due to the worsening of the COVID-nineteen pandemic in Brazil during the first quarter, the Brazilian real weakened relative to the U. S. Dollar after year end. As such, we recognized realized and unrealized losses on our foreign exchange derivative contracts of $5,700,000 and $17,000,000 respectively, and a noncash 7,800,000.0 loss related to the translation of our U. S. Dollar denominated debt held in Brazil. The benefits of sustained weakness of the Brazilian real relative to the U. S. Dollar continue to more than offset the impact of our foreign exchange derivative losses as perhaps best evidenced by this quarter's record financial performance. Our headline net income for the first quarter was $32,100,000 or $0.34 per fully diluted share. After adjusting for noncash items, including the unrealized foreign exchange losses, our adjusted net income was $56,300,000 or $0.61 per fully diluted share. In addition to amending our corporate credit facility to extend our debt maturities and lower our ongoing interest expense, we repaid approximately $7,000,000 in short term credit lines during the quarter. These Brazilian lines have now been fully settled and retired. Our balance sheet is the strongest it's been since we IPO ed in 2017 with cash and equivalents of $84,600,000 and a very impressive net debt leverage ratio of 0.3 times on trailing twelve month EBITDA. I'll now hand the call back to Noel to share some final comments. Thank you, Wayne, and everyone who joined the call today. Before we open it up to questions, I'd like to again thank the Eero team for continuing to execute on our strategy and vision for this company. The takeaway being made globally in the fight against COVID-nineteen and tailwinds building around a greener decarbonized world that is heavily reliant on copper, the future is looking very bright. We have a strong balance sheet, an incredible growth strategy and a very attractive asset portfolio that we are confident will continue to deliver many more record metrics in the near future. Thanks for joining the call. We will turn it back to the operator to open up the line for questions. Thank you. We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2. We will pause for a moment as callers join the queue. The first question comes from Orest Wowkodaw with Scotiabank. I was wondering if we could get some more color on the BOA project. I realize you're working on a study. But I'm just curious, I mean, given that the current reserves only represent about 30% of the M and I resources, Should we be anticipating a much bigger scale to the project that was envisioned, I guess, a couple of years ago? Orest, thanks for the question. Yes, I think, obviously, from the perspective of where we stand, we've got to be careful with what we can and cannot say. As I think I highlighted in my comments that the work that has been completed to date as we progress towards the end game with regards to the study in the way we've looked at resources, the way we've looked at reserves and preliminary production schedules. I think you could see that there is a little bit of a disconnect or significant disconnect between the current reserves and the resources. And I think we're starting to see that we're seeing that differential decline, possibly, significantly. I think that's the best we can do right now with regards to giving you that kind of guidance. We're very, very happy, as I said in my notes, with regards to the progress of the study. Okay. And you indicated that will come out in the third quarter. Should we take that to that would likely come out with your Q2 results, kind of an early August or should I say earlier? I think it will be after the Q2 results will be released the August. I think we're going to be a little bit later than that. It's certainly in the Okay. Third then just finally, assuming the economics look attractive and given that my understanding is the project's permitted, should we be anticipating that this could move into development fairly quickly and potentially as early as the beginning of next year? Or how should we think about this? I don't think your thinking is too far off where our thinking is right now. We'd certainly like to move the project forward, assuming, the economics are what we believe they will be. We'd like to move that project forward as quickly as we can. We certainly, from an internal perspective, doing our planning as though we're trying to move that as as quickly as we can. Okay. And then just finally, is there anything standing in the way of development right now? Like, there any, perhaps, social issues or anything that need to get resolved? Or could you start building tomorrow if you so chose so? Well, we have our constraints. We've always said we've had our construction permit sitting with the government agencies. It's been held off in the past because as you may or may not know in Brazil, once you initiate a construction permit, you have to build within the two year period. We have re visited that with the relative authorities state and that process is now moving forward with regards to clearing us, our construction permit so we can move forward with construction of BOA. Great. Thank you very much. The next question comes from Alex Hunchak with CIBC. Please go ahead. Hi, everyone, and congrats congrats on a great first quarter. I wanted to ask on the on the grades. So, obviously, they're they're better than we expected in in q one. Was that is that in line with the mine plan, or was that a positive surprise? And then, you know, how should we think about grades for the rest of the year at MCSA? Alex, it's a great question. We are pleasantly surprised with the grades that we've seen particularly in Palar right now and the mining areas that we're mining from. They certainly have been better than where we expected in that area. Current forecasts suggest that it will continue. But we're going to like anything else that we do, we're going to take a cautious approach. But so far preliminary work that's looked at the grades that we'll be mining for the remaining part of the year and the areas that we'll be mining in the Pilar, we certainly see opportunity that the grade could stay high. Higher. Okay. Perfect. Thank you for that. And then, you know, in exploration update, you highlighted sort of a new area at Vimeos that was that was also higher grade, and it was pretty close to infrastructure. So so when might that make it to the mill? Is that something that could benefit the grade profile this year, or is that, you know, next year? I don't think that is in the plans this year. Mike and the team have to drill that zone off. That will be a focus on the second half of the year in terms of not only drilling that, but the South Emmaus Corridor. So if you were to look at it from a planning perspective or in your modeling or reviewing the work that we've done in the past in terms of our life of mine plan at Emmaus, we would anticipate that you would see us moving the East zone at Vermeer further down in the mine's life and and looking to replace that, with material mine from Novo as well as the South Vermeer Corridor. I don't know when exactly we're meant to be doing that. I think it's in eighteen months from now. So we would expect those areas to start entering the mine plan in that kind of time frame. Okay. Great. Thank you. And then maybe just one more on the exploration side. So with those new discoveries C4 and Parrot De Fel, you know, what what should we expect in terms of next steps? Like, gonna move those quickly towards a resource? Or or do you wanna kind of keep testing regionally before you sort of prioritize where you put the lion's share of the effort? Or how do we think about that going forward? Well, think as you can see in the exploration update at Teradata Cell right now, we've got the teams on the ground doing a lot of work with regards to EM, etcetera, in that particular project. The hope would be that we'll start drilling again there in the second half of the year, maybe the third quarter. We do have rigs right now at C4 and we are drilling there. We are drilling in another area in that general facility vicinity as well in terms of another target zone. Maybe we'll be able to talk about that in the next exploration update. I'm not sure. So, it's a combination of continued to work in these mineralized systems that we've identified to, as Mike said in his piece, start narrowing in on massive sulfide mineralization and higher grades than what we've seen. But also we do continue to look and we do have part of our program continues to look for new mineralized systems as well. So it's a combination of both. Like anything else that we have done as company, we have been generally quite aggressive with our exploration programs with regards to converting discovery into resource. But I think at this particular stage with the work that Mike's doing, a lot of the regional work that we're doing right now is targeting and looking to move in from these disseminated lower grade mineralized zones into the higher grade massive sulfide zones as illustrated what we've done in the past with regards to what was done in the past in terms of the Emmaus and that whole region up there. Okay. That's great. Okay, thanks. That's it for me. Congrats again on a great quarter. Thanks Alex. This concludes the question and answer session. I would like to turn the conference back over to management for any closing remarks. Thanks, operator, and appreciate every like we've said in the past, we really appreciate everybody's time and consideration in terms of following our company, following our story. Thanks to all the analysts for their consideration with regards to the coverage of that. I'd like to just reiterate, thanks again to our team in Brazil who have done an outstanding job again on another great quarter. And we look forward to talking to you all in between quarter and at the next quarterly update financial results in August. Thanks very much, operator. This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.