Thank you for standing by. This is the conference operator. Welcome to the Ero Copper Q1 2023 Financial and Operating 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. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. I would now like to turn the conference over to Courtney Lynn, Vice President, Corporate Development and Investor Relations for opening remarks. Please go ahead.
Thank you, operator. Good morning and welcome to Ero Copper's first-quarter 2023 earnings call. Our operating and financial results were released yesterday afternoon and are available on our website, as are our financial statements and MD&A for the three months ended 31 March 2023. On the call today are David Strang, Ero's Co-founder and Chief Executive Officer, Makko DeFilippo, President and Chief Operating Officer, and Wayne Drier, Chief Financial Officer. We will be making forward-looking statements that involve risks and uncertainties from which actual results may differ materially. We would refer you to our most recent annual information forum available on our website, SEDAR, and EDGAR for a discussion of the risk factors of our business and their potential impact on future performance. As a reminder, unless otherwise noted, all amounts are in US dollars.
I will now pass the call over to CEO, David Strang.
Thank you, Courtney, and thank you everyone for joining us today. I'm pleased to report that we've had a strong start to 2023 at Ero. Despite ongoing global economic uncertainty, both copper and gold prices remained at favorable levels during the period, and we expect global policies aimed at reducing carbon emissions will continue to support copper prices for the foreseeable future. During the Q1, favorable metal price dynamics combined with strong operating performance, including record quarterly gold production, drove solid first-quarter financial results, including adjusted EBITDA of $48.2 million and adjusted net income attributable to the owners of the company of $22.5 million or $0.24 per share on a diluted basis.
As important, we continue to progress our strategic growth initiatives with the Tucumã project and our new external shaft at Caraíba, reaching approximately 30% and 20% physical completion, respectively, as of quarter end. We executed several important contracts for each project during the period, bringing visibility on capital expenditures to approximately 90% at Tucumã and 70% on the shaft. Forecast total cost to completion for both projects remain within 5% of original project debt. Before I turn the call to Makko to provide more detail on these projects, I will run through our Q1 operating performance and provide color on the expected cadence of production through the rest of 2023. At our Caraíba operations, we produced 9,327 tons of copper and concentrate at C1 cash costs of $1.70 per pound of copper produced.
Lower mine copper grades from the Pilar and Vermelhos mines, driven by plant stope sequencing, resulted in lower processed copper grades and production compared to the Q4 of 2022. As expected, this resulted in Q1 C1 cash costs above the high end of our full year guidance range. While we resumed shipments to our domestic smelter during the quarter on a limited and prepaid basis, the associated reduction in concentrate sales costs was offset by a stronger foreign exchange rate. With respect to full-year production cadence, we expected Q1 copper production to be the lowest of the year and anticipate full-year copper production to be second half-weighted due to higher anticipated mill throughput volumes during ramp-up and commissioning of the new ball mill during the Q4.
We are reaffirming our full-year copper production guidance of 44,000-47,000 tons of copper at C1 cash costs of between $1.40 and $1.60 produced. Turning to our Xavantina Operations, we achieved record quarterly gold production of 12,443 ounces due to an increase in grade of over 16% quarter-on-quarter and approximately 100% year-on-year. As a result, Xavantina's C1 cash costs for the quarter were $436 per ounce of gold produced. Gold production at Xavantina is also expected to be second half-weighted. We remain on track to commence production from the Matinha vein later this year, which should contribute to higher mill throughput volumes during the H2 of the year.
We are reaffirming Xavantina's 2023 gold production guidance of 50,000-53,000 ounces at C1 cash costs of between $475 and $575 per ounce of gold produced. With each quarter that passes, operational execution and the development of our growth projects is bringing us closer to our objective of achieving over 100,000 tons of copper production by 2025, and sustained annual gold production of between 55,000 and 60,000 ounces beginning in 2024. With that, I will now pass the call to Makko to discuss the highlights around our year-to-date project execution, after which Wayne will discuss our financial results for the quarter.
Thank you, David, and good morning, everyone. As David mentioned, we've made strong progress on the execution of our growth projects since the beginning of the year and are extremely well positioned to continue to execute. At our Tucumã project, we completed critical path earthworks around our process plant infrastructure and poured first concrete in February on schedule. Overall, civil works are progressing well, and we expect completion of the primary crusher foundation later this month and the foundation for the ball mill to be completed in June. Electromechanical erection for both areas is scheduled to commence in July. I am pleased to report that equipment deliveries also commenced this quarter, most notably with the arrival of our ball mill on-site. On the mining side, pre-stripping activities remain firmly ahead of schedule with approximately 20% of total pre-strip volume completed as of quarter end.
With all major outstanding contracts concluded during the period, capital expenditures under contract increased from 55% at year-end to approximately 85% at the end of March. With an additional 5% of capital expenditures currently in the final stages of negotiation, our overall visibility on total project spend is over 90%. Our capital estimate for project completion remains unchanged at approximately $305 million, which is within 4% of the feasibility study estimate. With a significant workforce mobilization currently underway at Tucumã, we have ramped up local labor training programs in partnership with the National Service for Industrial Training, a well-known nonprofit organization focused on technical and vocational education in Brazil. In part due to the success of this program, approximately 60% of our 700-member workforce currently at the Tucumã project are from the surrounding communities.
Switching gears to our Caraíba operations, we continue to advance surface infrastructure installation for the new external shaft, as can be seen in the photos included in yesterday afternoon's press release. Main activities underway on surface include final civil, erection of steelwork for the headgear, center tower, as well as installations of the stage and personnel winders. In parallel, we are making excellent progress on underground infrastructure related to the shaft. Subsequent to quarter end, our shaft sinking contractor, UMS Group, mobilized to site and conducted the first blast of our pre-sink, an important milestone for the project. Looking ahead, we remain fully on track to complete remaining surface infrastructure installation, conclude the pre-sink phase, and initiate our main sink by year-end.
Planned capital expenditures for the new external shaft under contract or in the final stages of negotiation increased from approximately 35% at year-end to over 70% at the end of March. With additional equipment orders expected to be placed this quarter, total visibility on project capital is approaching 75%. Like the Tucumã project, I'm pleased to share that our projected capital spend on the shaft remains within 5% of budget. I will now turn the call to Wayne to discuss our financial results for the quarter.
Thank you, Makko. As Dave mentioned earlier, our Q1 financial results reflected solid operating performance, including record quarterly gold production, bolstered by a favorable copper and gold price environment. This contributed to a stronger than budgeted liquidity position at quarter end of approximately $387 million, which includes approximately $210 million of cash and cash equivalents, $27 million in short-term investments, and $150 million of undrawn capacity under our senior secured revolving credit facility. The change in our liquidity position compared to year-end of approximately $81 million was driven primarily by elevated capital expenditures related to the execution of our peer-leading organic growth strategy, as well as approximately $28 million of working capital changes. We continue to manage our exchange rate exposure through opportunistic hedging of the BRL using zero-cost collars.
During the Q1, this resulted in realized and unrealized gains on our foreign exchange derivative contracts of $0.9 million and $3.2 million, respectively. While the BRL has continued to strengthen into the Q2, we are hedged on approximately $30 million worth of monthly BRL exposure for this quarter, come this upcoming quarter, and approximately $15 million per month for the H2 of the year at an average floor of around 5.16 and an average cap rate of 6.34 BRL per USD. We also remain hedged on approximately 75% of our copper production for the remainder of the year through a zero-cost collar hedge program we put in place in January.
The hedge contracts provide a floor price of $3.50 per pound on 3,000 tons of copper per month through December 2023, protecting a meaningful portion of our revenues and cash flows during the construction of Tucumã. With that, I'll hand the call back to David to share some final comments.
Thank you, Wayne, and thanks to everybody who joined the call today. Before we open the call up to Q&A, I'd like to thank our colleagues here in Canada and Brazil who continue to execute on our operating plans while also advancing our organic growth projects. I would also like to congratulate Makko on this expansion in his role from President to President and Chief Operating Officer. I would like to note that Makko has been an integral member of the executive team since the founding of the company. Upon his appointment as President in January 2021, he assumed oversight for the implementation of the company's strategic plan, including day-to-day operations and major projects. I'd also like to thank Anthea for her contributions to the organization. Along with the rest of my colleagues on the executive team, wish her all the best for her future.
I will now turn the call back to the operator to open the line for questions.
Thank you. We will now begin the question-answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. The first question comes from Gordon Lawson with Paradigm Capital. Please go ahead.
Hey, good morning, everyone. Congratulations on another great quarter. Can you please elaborate on the Honeypot Deposit in terms of some of the challenges and respective operating costs associated with mining this area?
That's a good question, and it's gonna take a long answer. Essentially, Honeypot is not a new deposit. It's part of the original upper levels of the ore body that had been left behind early in the mine's life when they went underground, and they was, at that time, trying to use pay dirt back in the 1980s. Honeypot is a well-understood area, and it's just being integrated into our plan with respect to how it fits into our operating plan. Issues that we deal with with regards to Honeypot is there's a lot of development drives that had been done back in the 1980s that need to be rehabilitated.
As we continue to work, we have taken, on all of our assumptions in our capital and operating costs, have all assumed that we have to, in terms of rehabilitate those drives, assume that those drives essentially have to be re-drilled, re-mined. We've taken a very conservative approach with regards to Honeypot. The initial responses in terms of operating of Honeypot have been great in terms of grade, and we continue to look forward to integrating it and continue to integrate it over the next four to five years as we get deeper into it and as we start to also find new areas associated with it and include it in our mine plan in the next time period.
That's fantastic. Thank you. In terms of the excess mill capacity at Xavantina, reported at around 45% in the 2022 AIF. Are there any plans to boost mining rates, or does this setup allow you to minimize scheduled maintenance downtime?
Sorry, Gordon, you went very muffled there, so we're struggling to hear you. Could you just repeat that again?
Oh, sure. In terms of the excess mill capacity at Xavantina.
Yeah.
It was last reported at around 45%. Are there plans to boost the mining rates, or do you prefer this setup as it now minimize scheduled maintenance downtime?
Our operating plans. If you look at our life of mine plan, coincidentally, the new technical report for Xavantina is being released over the next couple of days, you'll see that our plans do include increased production that will take the capacity of the mill up from its current 55% of utilization up to 75%. We will have some areas of excess capacity. As we look down the road, we really feel that taking that plant from the 75% capacity to 100% is really involving some of the new exploration work we're doing on some lateral projects that we're working on. We hope to be able to talk to the marketplace later in the year with regards to the work that we're doing there.
Hopefully, at that particular time, it starts to show a roadmap, towards how we can move to full utilization of the mill.
Okay, fantastic. Thanks very much. That's it for me.
The next question comes from Stefan Ioannou with Cormark Securities. Please go ahead.
Okay. Thanks very much, guys. Yeah, again, great to see the quarter. Just to base on the exploration front, can you maybe just give us an update on where things are at Caraíba and specifically with regards to nickel?
Thanks, Stefan. Things continue to progress well on nickel. I think as a team, we'd like to try and give the marketplace an update over the course of the next two months with the work that we're doing in the Umburana district, along with some preliminary metallurgical test work results. I think a more fundamental or more comprehensive update of exactly what we're working with here will be later in the year. We are looking at timing that sometime in October. We ask for patience and bearing with us. What we are working on is, in our minds, quite significant. We wanna get it right. For our shareholders, in terms of the work here.
Yeah, I think by the Q4 of this year, I think we'll be in a comprehensive discussion with investors and shareholders to exactly what we are starting to uncover with respect to nickel and the unfolding of the nickel district at Caraíba.
Okay, great. That's very helpful. Thanks, guys.
The next question comes from Orest Wowkodaw with Scotiabank. Please go ahead.
Hi, good morning. On the Tucumã project, it looks like you've got a pretty good handle on the CapEx. Where do you see the biggest risk going forward to completing this on time and on budget at this point?
Yeah. Thanks, Orest. Look, very, you know, great question. As you said, high degree of confidence in the capital numbers where we're seeing them. I think from, you know, the operational perspective that we have now, especially with equipment starting to arrive on site and the conclusion of the rainy season, everything right now, remains on track. Obviously, in the Carajás, you know, we're alive to the fact that, you know, next year's rainy season is critical path for us, so getting ahead on civils and electromechanical erection, which are all well underway. We, you know, currently have strong visibility on the schedule, on the CapEx, and everything is progressing according to plan.
The CapEx that you've got the visibility on, does that still depend on productivity? I realize, like, you've, you know, you've got a fixed price say for mining equipment, but you ultimately still have to succeed in terms of meeting the productivity goals that are embedded in that?
Yeah, for sure. I mean, if you look at, you know, the schedule that we've built out and some of the work that we've done to make sure that we're in a great position to execute on the schedule we've outlined, is we've looked at several projects throughout Brazil and in fact all over the world, and we've indexed our productivity factors based on relevant peers in the region to account for the rainy season. You know, when you look at our scheduling and loading factors and our construction schedule, they're in line with what's been achieved in projects in the region. I think that's an important benchmark for us.
We went through, you know, as with all projects in our portfolio, a series of independent peer reviews. We're confident that the loading factors that are assumed, are in line with the industry. Obviously, you know, achieving the $305 million and the overall project schedule are both tied to achieving those productivity rates.
Thanks very much, Makko.
Welcome.
Once again, if you have a question, please press star then 1. The next question comes from Alexandra Symeonidou with William Blair. Please go ahead.
Hi, thanks for taking my question. Can you please elaborate a bit on the lower grade in Caraíba? Was it due to regular maintenance, perhaps Pilar 3 or an incident occurred during the quarter?
No. Thanks for the question. The Pilar in particular mine is not a homogeneous ore body, it's quite heterogeneous. As such, we're always trying to do our best to select stopes and areas to mine that we're trying to have as smooth a grade as possible over an annualized basis. Our history in terms of working here over the last six years tells us that we do have quarters where grade is lower than other quarters. It's just the nature of the ore bodies and the stopes that we're able to mine. I certainly try and put a lot of pressure on the team to try and smooth that out. Unfortunately, we don't have it on a smooth basis.
The Q1 was lower grade due to the stope selections that we had within the mine plan. I can tell you right now on the dailies that our grades are significantly higher right now due to the fact that we have now accessed another stope in another part of the mine that is significantly higher grade. It's just the rhythm of how the mine works, unfortunately.
This concludes the question-answer session. I would like to turn the conference back over to David Strang for any closing remarks.
Thank you, operator, thanks to everybody again for attending our Q1 results. We look forward to presenting to you again our Q2 results. During the quarter, we will be excited to share, some of you will be sharing time with us, on our visit to the operations, and we look forward to seeing a lot of you in person. With that, thank you, operator, and thanks again everybody for attending. Bye-bye.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.