ERO COPPER CORP.
Fitch Ratings has affirmed
In addition, Fitch has affirmed Ero's senior unsecured notes at 'B'/'RR4' and affirmed and withdrawn its secured revolving credit facility rating at 'B'/'RR4' for commercial reasons. The Rating Outlook is Stable.
Ero's ratings are constrained by its relatively small size and concentration of operating production with one copper and one gold mine site in
Fitch is withdrawing Ero's secured revolving credit facility rating for commercial reasons.
Key Rating Drivers
Small Concentrated Production: Ero's cash flow is dependent upon the output of Caraiba, which Fitch forecasts to contribute with 43,200 MT of copper in 2023, and Xavantina, with 48,900 oz of gold. The company aims to increase annual copper output to 95,000 MT through the development of a third mining unit, Tucuma. Given the conventional mining method, recent nature of the technical report and available infrastructure near Tucuma, Fitch views the risk of delay and cost over-run as lower than average. The onset of operations will be seen as a credit positive event. Construction for this mine started in 2022. Production should begin ramping up in 2024 and Tucuma should hit nominal capacity in late 2025.
Average Cost Position: Ero's Caraiba operations, from which it sources all its copper, are placed in the second quartile of the global copper cash cost curve, according to
Reliance on Exploration:
High Capex Pressures FCF: The largest capital projects are Pilar 3.0, which includes the Caraiba mill expansion and the construction of a new external shaft in the Pilar mine, with
Decreasing Leverage: Fitch calculates 2023 EBITDA of approximately
Derivation Summary
Ero's scale of production and degree of diversification with 46,300 MT of copper from a single site plus 42,700 oz of gold from a different operation in 2022 is larger and less concentrated than
Copper contributes with more than 85% of Ero's revenue. Most of Ero's peers have a degree of revenue concentration on either copper (Taseko at 90%, Hudbay at 55%) or gold (Aris and Eldorado at 100%), but Hudbay shows a wider product diversification into gold (20%), zinc (10%), molybdenum (12%) and silver (3%).
The mine life of Ero (17 years in Caraiba) is larger than Aris Mining's four years, similar to Hudbay's 16 years or
The second quartile cost position in the cost curve of the most relevant metals and operations of Ero is slightly worse than that of
Profitability in the near term of more than 50% for Ero is expected to be the highest among peers, such as Aris Mining (40%),
The gross leverage expected for Ero of about 2.0x over the rated horizon is lower than that of Taseko (4.0x) or Aris Mining (2.5x), and similar to that of Hudbay (2.0x) and
Under Fitch's Country-Specific Treatment of Recovery Ratings Rating Criteria, recovery ratings are capped at 'RR4' given concentration of operations in
Key Assumptions
Fitch's Key Assumptions Within the Rating Case for the Issuer
Copper price at
Gold price at
Average annual copper sold at about 44,200 tonnes in 2023-2025 from Caraiba, 5% below guidance midpoint;
Average annual gold sold at 52,700 oz in 2023-2025, 5% below guidance midpoint;
Tucuma begins producing in 2H24;
No dividends or share-repurchases;
Capex average
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Visibility into successful completion of the Tucuma project;
Increasing size and diversification over the medium term;
Financial policies in place resulting in consolidated total debt/EBITDA after minority distributions anticipated to be sustained below 3.0x.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Increased costs or material disruption at Caraiba;
Total debt/EBITDA after minority distributions anticipated to be sustained above 4.0x;
Large debt-funded acquisitions;
Negative FCF on a sustained basis.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Satisfactory Liquidity: As of
Issuer Profile
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
RATING ACTIONS
Entity / Debt
Rating
Recovery
Prior
LT IDR
B
Affirmed
B
senior unsecured
LT
B
Affirmed
RR4
B
senior secured
LT
WD
Withdrawn
B
senior secured
LT
B
Affirmed
RR4
B
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VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
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