Executive Summary / Key Takeaways

• Ero Copper Corp. has successfully transitioned to a new phase of growth, marked by the commercial production of its Tucumã operation and a robust operational excellence framework across its portfolio.
• The company's strategic focus on optimizing existing assets, advancing long-term growth projects like Furnas, and deleveraging its balance sheet is yielding tangible financial and operational improvements.
• Recent financial performance in Q2 2025 highlights record consolidated copper production, adjusted EBITDA of $82.7 million, and adjusted net income of $48.1 million, driven by favorable metal prices and operational efficiencies.
• Ero Copper is leveraging technological advancements in predictive maintenance, fleet management, and power stability to enhance productivity and reduce costs, providing a competitive edge in a tightening copper market.
• With a strong outlook for the second half of 2025 and 2026, including sequential production increases and accelerated deleveraging, Ero Copper is positioning itself for potential shareholder returns and sustained long-term value creation.

A New Era for Ero Copper: Setting the Scene

Ero Copper Corp. ($ERO) stands at a pivotal juncture, having successfully navigated a period of significant operational transformation to emerge as a compelling investment in the dynamic copper and gold sectors. Incorporated in 2016, the Vancouver-headquartered company has rapidly grown its footprint in Brazil, establishing itself as a specialized producer with a strategic focus on high-quality assets. The overarching investment thesis for Ero Copper centers on its ability to unlock substantial value through disciplined operational execution, strategic growth initiatives, and a commitment to technological differentiation, all set against a backdrop of robust global copper demand.

The global copper market is experiencing a "perfect storm" of tightening supply and surging demand, driven by the accelerating energy transition and the proliferation of AI-driven infrastructure. Global copper demand is projected to rise 40% by 2040, with electric vehicles alone expected to drive a tenfold increase in copper demand by the same year. Mine output growth, however, is projected at a modest 3% for 2025, creating a critical bottleneck for energy transition technologies. This imbalance is expected to push copper prices to $10,400–$11,000 per tonne by 2025–26. Ero Copper, with its primary focus on copper production, is strategically positioned to capitalize on these powerful macroeconomic tailwinds.

Ero Copper's core business revolves around its Caraíba and Tucumã copper operations, complemented by the Xavantina gold mine, all located in Brazil. The company's strategy is underpinned by a four-step framework: achieving commercial production at Tucumã, deleveraging the balance sheet, aggressively advancing long-term growth initiatives like the Furnas Copper-Gold Project, and initiating returns to shareholders. This disciplined approach, combined with a "back-to-basics" operational excellence framework, is designed to stabilize performance and prepare the organization for sustainable long-term growth.

Technological Edge and Operational Excellence

Ero Copper's competitive positioning is significantly bolstered by its commitment to technological differentiation and operational excellence. The company has implemented an operational excellence framework that refines operating strategies, improves predictive maintenance, reduces unplanned downtime, and enhances fleet management and dispatch systems. These initiatives are not merely theoretical; they are delivering tangible benefits across operations. At Caraíba, for instance, the company achieved a 50% reduction in unplanned infrastructure downtime and a more than 10% improvement in mobile equipment fleet availability in Q2 2025. This was further supported by the deployment of new, well-established technologies in dispatch, tracking, and monitoring, transforming operational efficiency.

At the Tucumã operation, the company faced initial challenges with intermittent voltage fluctuations on the regional power grid, which caused frequent mill trips. To address this, Ero Copper deployed an engineering team to implement a mill power management solution. This involved software adjustments to the mill drive to accommodate voltage variability, allowing for continuous plant operations despite minor fluctuations. Management clarified that these voltage interruptions were extremely brief, typically 0.7 milliseconds, and the solution effectively "desensitized" the mill's software to prevent it from entering standby mode during these micro-fluctuations. The permanent fix, if a more extensive solution is required, is estimated to be a small investment of approximately $1 million. This proactive technological adaptation ensures operational continuity and maximizes throughput, a critical advantage in a capital-intensive industry.

The Xavantina operations are also undergoing a significant technological shift towards full mechanization. This long-term investment aims to increase productivity, reduce costs, and, crucially, enhance workforce safety by reducing exposure. Initial results from mechanized mining methods have been promising, demonstrating less dilution of stopes compared to manual mining. This strategic investment in modern mining techniques is expected to unlock considerable value and support increased production volumes in the coming months and years.

Operational Performance and Financial Strength

Ero Copper's recent operational and financial performance reflects the positive impact of its strategic initiatives and technological advancements. The second quarter of 2025 was a landmark period, culminating in the announcement of commercial production at Tucumã effective July 1, 2025. This milestone, achieved after successfully addressing initial bottlenecks and completing repairs to the third tailings filter by the end of April 2025, positions Tucumã as a significant contributor to the company's future. In Q2 2025, Tucumã produced approximately 6,400 tonnes of copper, operating at over 75% of design capacity in the latter half of June. The company expects to exit 2025 operating above 80% of design capacity, with full design capacity rolling into Q1 2026.

The Caraíba operations demonstrated a solid turnaround in Q2 2025, with copper production increasing by 25% quarter-on-quarter. This improvement, coupled with favorable treatment and refining terms secured in May 2024 and higher gold byproduct credits, contributed to strong C1 cash costs. Despite a strategic shift in Pilar to optimize mining in upper levels, which may lead to full-year copper production trending to the low end of guidance, C1 cash costs are expected to be in the bottom half of the guidance range for the full year. The ongoing Pilar shaft project, approximately halfway down at 700 meters below surface by June 2025, is tracking expectations and is anticipated to be operational in 2027, further enhancing Caraíba's long-term outlook.

Xavantina also delivered impressive results, with gold production up 17% versus Q1 2025. The full benefits of mine mechanization are expected to flow through in the second half of 2025 as mine tonnages improve sequentially. The company reaffirmed its full-year 2025 gold production guidance of 60,000 to 65,000 ounces, with C1 cash costs maintained at $450 to $550 per ounce and all-in sustaining costs at $900 to $1,000 per ounce.

Financially, Ero Copper's Q2 2025 results were robust, driven by record consolidated copper production and favorable metal prices. The company reported adjusted EBITDA of $82.7 million and adjusted net income attributable to owners of $48.1 million, or $0.46 per share. This strong performance supported deleveraging efforts, with the net debt-to-EBITDA ratio decreasing from 2.4x to 2.1x in Q2 2025. The company's liquidity remains solid at $113 million, including $68.3 million in cash and $45 million of undrawn credit facility. Ero Copper has also strategically utilized hedging programs, including zero-cost copper collars for 3,000 tonnes per month (April-September 2025) with a floor of $4/lb, and gold collars for 2,500 ounces per month (January-December 2025) with a floor of $2,200/oz, to protect cash flows amidst commodity price volatility.

Competitive Positioning and Strategic Growth

Ero Copper occupies a competitive, albeit niche, position within the global copper mining market. While it may not possess the sheer scale of diversified mining giants like Freeport-McMoRan (FCX), Southern Copper (SCCO), Rio Tinto (RIO), or BHP Group (BHP), its focused expertise and operational presence in Brazil provide distinct advantages. Ero's C1 cash costs at Tucumã, projected at $1.10–$1.30/lb, are notably below industry averages, enabling it to outperform peers through significant production growth. This cost efficiency, coupled with its unique position as the "only sulfide mill operating on the western side of the Carajas," provides a strategic advantage in the region.

The company's financial flexibility is further enhanced by an amended $200 million credit facility with an extended maturity to 2028, providing the necessary liquidity to fund expansion and mitigate capital-intensive project risks. This contrasts sharply with the broader industry, where aging infrastructure, port congestion, and resource nationalism have increased operational costs by 18–22% for many producers. Ero's ability to secure favorable treatment and refining terms in a tight copper concentrate market further underscores its competitive strength.

Looking ahead, the Furnas Copper-Gold Project represents a significant long-term growth driver. The Phase 1 drill program was completed in early July 2025, with the majority of the 17,000-meter Phase 2 program expected to be completed by year-end 2025. Technical work for a Preliminary Economic Analysis (PEA) is ongoing, with the study anticipated in the first half of 2026. The initial Mineral Resource Estimate for Furnas, published in October 2024, outlined an Indicated Mineral Resource of 35.2 million tonnes grading 1.04% copper and 0.69 gpt gold (1.36% CuEq), and an Inferred Mineral Resource of 61.3 million tonnes grading 1.06% copper and 0.63 gpt gold (1.36% CuEq). This partnership with Vale Base Metals (VALE) on a high-grade project in a prolific mining region offers substantial future upside.

Outlook, Guidance, and Risks

Ero Copper's management has provided a clear outlook, characterizing 2025 as a "year of 2 halves," with sequential improvements expected throughout the year and 2026 projected to be better than 2025. The revised guidance reflects a commitment to consistent operating performance and transparency. Consolidated copper production for 2025 is anticipated to surge by 85–110% to 75,000–85,000 tonnes. Specifically, Tucumã's production guidance was adjusted to 30.0-37.5 kt Cu, with C1 cash costs of $1.10-$1.30/lb. Caraíba's guidance remains unchanged at 37.5-42.5 kt Cu production with C1 cash costs of $2.15-$2.35/lb. Xavantina's gold production guidance was revised to 40-50 koz Au, with C1 cash costs of $850-$1,000/oz.

Key assumptions underpinning this outlook include the successful ramp-up of Tucumã to over 80% of design capacity by year-end, the full realization of mechanization benefits at Xavantina in the second half of the year, and the continued operational improvements at Caraíba, supported by a second development contractor. The company expects to accelerate deleveraging in the coming months due to higher projected production levels.

However, investors should be mindful of potential risks. While power stability issues at Tucumã have been largely addressed, ongoing monitoring is crucial. The performance of third-party contractors, particularly at Caraíba, remains a factor influencing development rates and access to high-grade stopes. Grade variability at Xavantina, influenced by carbonaceous material, can temporarily impact recovery rates. Furthermore, broader macroeconomic factors such as commodity price volatility and foreign exchange rate fluctuations (despite hedging programs) could impact financial results. The recent announcement of potential 50% tariffs on copper and goods from Brazil by President Trump also introduces a geopolitical risk factor to monitor.

Conclusion

Ero Copper Corp. is emerging from a period of significant operational adjustments with renewed momentum, driven by the successful commercialization of its Tucumã operation and a company-wide commitment to operational excellence. The company's strategic focus on optimizing its asset base, leveraging technological advancements for efficiency and stability, and aggressively pursuing long-term growth through projects like Furnas, positions it favorably within a robust copper market. With strong financial performance in Q2 2025, a clear path to deleveraging, and a positive outlook for sequential improvements in production and profitability, Ero Copper presents a compelling investment narrative. The company's ability to maintain its cost advantages and expand its resource base, underpinned by its operational capacity and strategic partnerships, suggests a promising trajectory for sustained value creation for discerning investors.