I have lost track of ERO. Do you have an idea of what the change in production tons from last Q to the coming Q3? Yes I know a crystal ball is required; an idea ?
“ Company Protects Floor Price of $3.50 per pound of Copper for 2023
Subsequent to year-end, the Company entered into a zero-cost collar program on 3,000 tonnes of copper per month for February through December of 2023. The collars establish a floor price at $3.50 per pound of copper on total hedged volumes of 33,000 tonnes of copper, representing approximately 75% of full-year production volumes. The program protects a meaningful portion of the Company's revenue at the Company's 2023 budget copper price which was used for capital, cash flow and liquidity planning purposes, while providing upside to increases in the copper price up to a cap of $4.76 per pound - within 5% of the all-time high copper price. The hedge contracts are financially settled on a monthly basis.”
"At March 31, 2024, the Company has entered into zero-cost copper derivative contracts on 1,000 tonnes of copper per month from April 2024 to June 2024, representing approximately 25% of estimated production volumes over the period. As of March 31, 2024, the fair value of these contracts was a net liability of $0.5 million (December 31, 2023 - liability of $0.6 million). The fair value of copper collar contracts was determined based on option pricing models, forward copper price and information provided by the counter party.
During the three months ended March 31, 2024, the Company recognized an unrealized gain of $0.1 million (unrealized gain of $0.2 million for the three months ended March 31, 2023) and a realized loss of nil (realized loss of $1.8 million for the three months ended March 31, 2023) in relation to its copper hedge derivatives in other income or loss."
That was for 2023? In 2024 they say they have hedged 1000 tonnes per month (~ 25% of production), and only up to June. They don't give prices, but at end Q1 they had a gain of $0.1m and were projecting a loss of $0.5m in Q2. Given prices went up maybe $1k/t since then, perhaps they will realise a further loss of $3m?
Hmm, not sure about that! Do we know the hedged range? Correct me if I'm wrong but the numbers in the quote you provided were for 2023. In the 2024 statements they don't give any numbers.
Also the hedges are zero-cost collars, which means there is no cost and no financial impact if prices remain in the collared range. (Basically they buy put options and cover the cost by selling calls of equivalent value. So they gain if copper goes below the strike price of the puts and lose if copper goes above the strike of the calls. Otherwise the options all expire worthless.)
BTW Please ignore my suggestion of a $3m loss. It was based on the fair value of the contracts at end Q1 being a liability of $0.5m, but I think that could simply mean there is/was more time value remaining in the calls than in the puts. Prices could still be in range. It's hard to know for sure.
Alberto - thanks for the update. My concern is the very high capex of $200mm with Caraiba. Do you know how much of it is exploration vs. growth vs. sustaining capex? Using mid-point of production guidance of 44.5kt for Caraiba, and a $2.00 /lb cash cost, ERO would need $8.9k/t ($4 / lb) copper price just to cover the capex and cash cost.
Great question. Mostly growth and some sustaining. They are building the second deepest shaft in South America to access very high grade copper. Four comments regarding your calculations:
1) NX is producing 65k ounces of gold a year with AISC of $1050. At $2400 gold that will cover a lot of CAPEX
2) ERO is here for the long run: massive growth. If you are looking for dividends or buybacks this isnt your stock.
3) A portion of the copper production is hedged, even if copper falls well below $4/lb that will not be a problem.
4) Tucuma is achieving commercial production at the end of Q3. Meaning total guidance for Ero is in the range of 59-72t of copper.
Hope it helps, if you have any more questions please ask.
Thank you! This is very helpful. I was of the view that Tucuma is the growth project, and that Caraiba production would be more or less held flat / constant at current levels. The 3 year prodxn outlook for Caraiba shows flat production of 42-47 kt Cu. Do you have a sense for how much Caraiba production could grow in the coming years with the growth capex? The higher gold prices are definitely a big cash flow support.
That´s the thing: the shaft wont be ready until 2026. After that is done we shall see the high grade coming in and management will be able to give us guidance as to the new life of mine and production profile . Also bear in mind management knows there are ore bodies in the northern part of the property as I mentioned in the report. Caraiba could have decades of life of mine ahead
Hello, I knew about the company from your post in VIE. I wish I would have read your first post back in February!!!!:) Does the management impaled any kind of intention to return money to shareholders in the future or they just want to grow? Thx
No, and I don’t wish any dividends or buybacks. I want them to build a tier 1 copper producer so that large copper miners will have a bidding war for them. It may sound strange but if I wanted cash I would just keep it in my bank account, I want a business run by great people that achieve great return on investments, and that is Ero Copper. They are focused on investing on this great business and I like that approach. This isn’t shipping, Ero needs to grow and that’s what they are aiming for. Returns for shareholders will be in the form of capital appreciation. Hope that helps, if you have any further questions please don’t hesitate to ask
Alberto, What are your thoughts on ERO at this difficult time?
I am buying more shares
I have lost track of ERO. Do you have an idea of what the change in production tons from last Q to the coming Q3? Yes I know a crystal ball is required; an idea ?
In 2023 they produced just under 44k t of Cu. In 2024 they will produce somewhere between 59k t and 72k t
What os the percentage of the hedged copper? Do they have a maximum selling price for the hedged copper? Thx
“ Company Protects Floor Price of $3.50 per pound of Copper for 2023
Subsequent to year-end, the Company entered into a zero-cost collar program on 3,000 tonnes of copper per month for February through December of 2023. The collars establish a floor price at $3.50 per pound of copper on total hedged volumes of 33,000 tonnes of copper, representing approximately 75% of full-year production volumes. The program protects a meaningful portion of the Company's revenue at the Company's 2023 budget copper price which was used for capital, cash flow and liquidity planning purposes, while providing upside to increases in the copper price up to a cap of $4.76 per pound - within 5% of the all-time high copper price. The hedge contracts are financially settled on a monthly basis.”
Q1 MD&A:
"At March 31, 2024, the Company has entered into zero-cost copper derivative contracts on 1,000 tonnes of copper per month from April 2024 to June 2024, representing approximately 25% of estimated production volumes over the period. As of March 31, 2024, the fair value of these contracts was a net liability of $0.5 million (December 31, 2023 - liability of $0.6 million). The fair value of copper collar contracts was determined based on option pricing models, forward copper price and information provided by the counter party.
During the three months ended March 31, 2024, the Company recognized an unrealized gain of $0.1 million (unrealized gain of $0.2 million for the three months ended March 31, 2023) and a realized loss of nil (realized loss of $1.8 million for the three months ended March 31, 2023) in relation to its copper hedge derivatives in other income or loss."
That was for 2023? In 2024 they say they have hedged 1000 tonnes per month (~ 25% of production), and only up to June. They don't give prices, but at end Q1 they had a gain of $0.1m and were projecting a loss of $0.5m in Q2. Given prices went up maybe $1k/t since then, perhaps they will realise a further loss of $3m?
Yes thats probable, so far copper prices have stayed within the range that’s hedged. So they must pay for the option premium
Hmm, not sure about that! Do we know the hedged range? Correct me if I'm wrong but the numbers in the quote you provided were for 2023. In the 2024 statements they don't give any numbers.
Also the hedges are zero-cost collars, which means there is no cost and no financial impact if prices remain in the collared range. (Basically they buy put options and cover the cost by selling calls of equivalent value. So they gain if copper goes below the strike price of the puts and lose if copper goes above the strike of the calls. Otherwise the options all expire worthless.)
BTW Please ignore my suggestion of a $3m loss. It was based on the fair value of the contracts at end Q1 being a liability of $0.5m, but I think that could simply mean there is/was more time value remaining in the calls than in the puts. Prices could still be in range. It's hard to know for sure.
Hi Tom:
Weighted average floor is $3.6/lb on 3000 tonnes and Weighted
average cap / forward price of $4.03/lb. However, this matured on June 2024. I dont know what the new prices are.
Hope it helps.
Thanks Alberto. Looks like my guess ($3m loss) was about right then.
Alberto - thanks for the update. My concern is the very high capex of $200mm with Caraiba. Do you know how much of it is exploration vs. growth vs. sustaining capex? Using mid-point of production guidance of 44.5kt for Caraiba, and a $2.00 /lb cash cost, ERO would need $8.9k/t ($4 / lb) copper price just to cover the capex and cash cost.
Great question. Mostly growth and some sustaining. They are building the second deepest shaft in South America to access very high grade copper. Four comments regarding your calculations:
1) NX is producing 65k ounces of gold a year with AISC of $1050. At $2400 gold that will cover a lot of CAPEX
2) ERO is here for the long run: massive growth. If you are looking for dividends or buybacks this isnt your stock.
3) A portion of the copper production is hedged, even if copper falls well below $4/lb that will not be a problem.
4) Tucuma is achieving commercial production at the end of Q3. Meaning total guidance for Ero is in the range of 59-72t of copper.
Hope it helps, if you have any more questions please ask.
Thank you! This is very helpful. I was of the view that Tucuma is the growth project, and that Caraiba production would be more or less held flat / constant at current levels. The 3 year prodxn outlook for Caraiba shows flat production of 42-47 kt Cu. Do you have a sense for how much Caraiba production could grow in the coming years with the growth capex? The higher gold prices are definitely a big cash flow support.
That´s the thing: the shaft wont be ready until 2026. After that is done we shall see the high grade coming in and management will be able to give us guidance as to the new life of mine and production profile . Also bear in mind management knows there are ore bodies in the northern part of the property as I mentioned in the report. Caraiba could have decades of life of mine ahead
🙏 much appreciated
Hello, I knew about the company from your post in VIE. I wish I would have read your first post back in February!!!!:) Does the management impaled any kind of intention to return money to shareholders in the future or they just want to grow? Thx
No, and I don’t wish any dividends or buybacks. I want them to build a tier 1 copper producer so that large copper miners will have a bidding war for them. It may sound strange but if I wanted cash I would just keep it in my bank account, I want a business run by great people that achieve great return on investments, and that is Ero Copper. They are focused on investing on this great business and I like that approach. This isn’t shipping, Ero needs to grow and that’s what they are aiming for. Returns for shareholders will be in the form of capital appreciation. Hope that helps, if you have any further questions please don’t hesitate to ask
What web is VIE? Would you mind to share the link? Thx
Its a service subscription on Seeking Alpha managed by J Mintzmyer
Hello, thanks for the post. Is it CAD or USD? Thx
USD
Good. Thanks a lot.
I’ve a position but I think I’ll be looking to own a bit more