Ero Copper (ERO) 6-KCurrent report (foreign)

MANAGEMENT’S DISCUSSION

AND ANALYSIS

FOR THE THREE AND NINE MONTHS ENDED

SEPTEMBER 30, 2024

This MD&A refers to various alternative performance (Non-IFRS) measures, including copper C1 cash cost, copper C1 cash cost including foreign exchange hedges, realized copper price, gold C1 cash cost, gold all-in sustaining cost (“AISC”), realized gold price, EBITDA, adjusted EBITDA, adjusted net income attributable to owners of the Company, adjusted net income per share attributable to owners of the Company, net (cash) debt, working capital and available liquidity. Please refer to the section titled "Alternative Performance (Non-IFRS) Measures" for a discussion of non-IFRS measures.

This MD&A contains “forward‐looking statements” that are subject to risk factors set out in a cautionary note contained at the end of this MD&A. The Company cannot assure investors that such statements will prove to be accurate, and actual results and future, events may differ materially from those anticipated in such statements. The results for the periods presented are not necessarily indicative of the results that may be expected for any future period. Investors are cautioned not to place undue reliance on such forward-looking statements. All information contained in this MD&A is current and has been approved by the Board of Directors of the Company (the “Board”) as of November 5, 2024, unless otherwise stated.

Ero Copper is a high-margin, high-growth copper producer with operations in Brazil and corporate headquarters in Vancouver, B.C. The Company's primary asset is a 99.6% interest in the Brazilian copper mining company, Mineração Caraíba S.A. ("MCSA"), 100% owner of the Company's Caraíba Operations (formerly known as the MCSA Mining Complex), which are located in the Curaçá Valley, Bahia State, Brazil and include the Pilar and Vermelhos underground mines and the Surubim open pit mine, and the Tucumã Operation (formerly known as Boa Esperança), an open pit copper mine located in Pará, Brazil. The Company also owns 97.6% of NX Gold S.A. ("NX Gold") which owns the Xavantina Operations (formerly known as the NX Gold Mine), comprised of an operating gold and silver mine located in Mato Grosso, Brazil. Additional information on the Company and its operations, including technical reports on the Caraíba Operations, Xavantina Operations and Tucumã Operation, can be found on SEDAR+ (www.sedarplus.ca/landingpage/) and on EDGAR (www.sec.gov). The Company’s shares are publicly traded on the Toronto Stock Exchange and the New York Stock Exchange under the symbol “ERO”.

($ in millions, except per share amounts)

(1) Please refer to the section titled "Alternative Performance (Non-IFRS) Measures" within this MD&A.

The Caraíba Operations achieved quarterly copper production of 9,920 tonnes in concentrate, bringing YTD 2024 production to 26,878 tonnes. Higher mined and processed copper grades drove an 11.9% quarter-on-quarter increase in copper production and contributed to a 24.5% decrease in C1 cash costs, which averaged $1.63 per pound of copper produced for the quarter. C1 cash costs and margins also benefited from improved concentrate treatment and refining charges, secured as of May 2024, as well as a more favorable USD to BRL exchange rate, resulting in weighted average YTD 2024 C1 cash costs of $2.01 per pound of copper produced.

Tonnes of ore mined in Q3 2024 included:

During the quarter, efforts to increase underground development rates at the Pilar Mine were impacted by slower-than-anticipated progress by a third-party development contractor. Consequently, the Company expects lower mined and processed tonnage at the Caraíba Operations

through year-end. To support accelerated development rates, the Company intends to engage an additional contractor in Q4 2024.

Exploration activities during Q3 2024 at the Caraíba Operations continued to focus on advancing the Company's full-year exploration objectives of (i) delineating high-grade mineralization within the upper levels of the Pilar and Vermelhos Mines, (ii) outlining extensions of regional targets with known copper mineralization near the Vermelhos Mine, and (iii) testing regional nickel and copper targets throughout the Curaçá Valley.

The Tucumã Operation achieved a significant commissioning milestone during the quarter with the production of first saleable copper concentrate in July 2024 resulting in the first sale of concentrate near the end of the quarter. Mining operations continued ahead of schedule during the quarter, contributing to a buildup of ore stockpiles that are expected to be processed in Q4 2024 and throughout 2025. The ramp-up of Tucumã's processing plant progressed well through July and the majority of August; however, as the plant moved toward continuous operations, the Company detected intermittent voltage oscillations within the third-party regional power grid. These oscillations limited the ability to run the mill at full capacity on a continuous basis, resulting in quarterly production of 839 tonnes of copper in concentrate.

In addition, the Tucumã Operation experienced a temporary power disruption following a severe localized windstorm that impacted the regional power grid, including the main 230kV transmission line servicing the southwest region of the Carajás Mineral Province. Power was restored after approximately 10 days, allowing the Company to safely resume ramp-up activities on October 16, 2024. For further details on the power disruption and resumption of ramp-up activities, please refer the Company's press releases dated October 5, 2024 and October 16, 2024.

To address ongoing intermittent voltage oscillations, the Company implemented a mill power management solution that enables continuous plant operations despite minor voltage fluctuations. Since this implementation, the plant has maintained continuous operations and is advancing toward full capacity.

(1)    Realized Au price includes the effect of ounces sold under the stream arrangement with Royal Gold. See "Realized Gold Price" section of "Non-IFRS Measures" for detail.

The Xavantina Operations delivered quarterly gold production of 13,485 ounces, with higher mill throughput partially offsetting a planned decrease in mined and processed gold grades, bringing YTD 2024 gold production to 48,274 ounces.

C1 cash costs and AISC for the quarter were $539 and $1,034, respectively, per ounce of gold produced, resulting in YTD 2024 C1 cash costs and AISC of $447 and $879 per ounce of gold produced.

Exploration activities at the Xavantina Operations during the quarter continued to focus on testing the down plunge extension of the Santo Antônio vein as well as drill testing the intersection of the Santo Antônio and Brás Veins. Regional surface exploration efforts focused on identifying additional gold systems in the vicinity of the Xavantina mine system.

The Company is updating production guidance for both the Caraíba and Tucumã Operations, resulting in a consolidated copper production guidance for the year of 43,000 to 48,000 tonnes in concentrate.

Due to the anticipated delay in achieving commercial production at the Tucumã Operation, the Company is narrowing 2024 C1 cash cost guidance to only include the Caraíba Operations. The Company is reaffirming full-year C1 cash cost guidance for the Caraíba Operations of $1.80 to $2.00 per pound of copper produced. Positive factors, including improved concentrate treatment and refining charges secured as of May 2024, a higher gold byproduct credit, and a more favorable USD to BRL exchange rate, are expected to more than offset the impact of lower projected copper production.

At the Xavantina Operations, the Company is reaffirming increased full-year gold production guidance of 60,000 to 65,000 ounces, with similar production levels and unit cost performance expected in Q4 2024 compared to Q3 2024. Consequently, the Company is reaffirming its reduced cost guidance ranges, including C1 cash cost guidance of $450 to $550 per ounce of gold produced, and AISC guidance of $900 to $1,000 per ounce of gold produced.

The Company is also reaffirming consolidated 2024 capital expenditure guidance of $303 to $348 million.

2024 Production and Cost Guidance

The Company's cost guidance for 2024 assumes a foreign exchange rate of 5.00 BRL per USD, a gold price of $1,900 per ounce and a silver price of $23.00 per ounce for Q4 2024.

The following table provides a summary of the financial results of the Company for Q3 2024 and Q3 2023. Tabular amounts are in thousands of US dollars, except share and per share amounts.

7.    The foreign currency translation gain is a result of a fluctuation of the BRL against the USD during Q3 2024, which strengthened from approximately 5.56 BRL per US dollar at the beginning of Q3 2024 to approximately 5.45 BRL per US dollar by the end of the quarter, when translating the net assets of the Company’s Brazilian subsidiaries to USD for presentation in the Company’s condensed consolidated interim financial statements.

The following table provides a summary of the financial results of the Company for YTD 2024 and 2023. Tabular amounts are in thousands of US dollars, except share and per share amounts.

The following table presents selected financial information for each of the most recent eight quarters. Tabular amounts are in millions of US Dollars, except share and per share amounts.

exchange gain of $15.1 million in the preceding quarter. The change in foreign exchange gain or loss was primarily driven by volatility of the Brazilian Real against the US Dollar during the respective periods.

As at September 30, 2024, the Company had cash and cash equivalents of $20.2 million and available liquidity of $125.2 million. Cash and cash equivalents were primarily comprised of cash held with reputable financial institutions and are invested in highly liquid short-term investments with maturities of three months or less. The funds are not exposed to liquidity risk and there are no restrictions on the ability of the Company to use these funds to meet its obligations.

Cash and cash equivalents decreased by $91.5 million from December 31, 2023. The Company’s cash flows from operating, investing, and financing activities during 2024 are summarized as follows:

net of:

Partially offset by:

net of:

net of:

As at September 30, 2024, the Company had working capital deficit of $60.9 million.

At September 30, 2024, the Company had available liquidity of $125.2 million, including $20.2 million in cash and cash equivalents, $80.0 million of undrawn availability under its senior secured revolving credit facility and $25.0 million of undrawn availability under its copper repayment facility.

In May 2024, to support the commencement of production and associated working capital needs at the Tucumã Project, the Company entered into a $50.0 million non-priced copper prepayment facility, structured by the Bank of Montreal and with participation by CIBC Capital Markets. This facility will be repaid over 27 equal monthly installments, beginning in October 2024, through the delivery of 272 tonnes of copper each month. Each monthly delivery's value will be determined based on prevailing market copper prices at the time of delivery. Should the value of any delivery exceed the amount of the monthly installment payment of $2.1 million, the excess value will be repaid to the Company. The copper to be delivered by the Company will be in the form of LME Copper Warrants. Through the end of 2024, the Company has the option to increase the size of the non-priced copper prepayment facility from $50.0 million to $75.0 million.

The Company’s primary sources of capital are comprised of cash from operations, and cash and cash equivalents on hand. The Company continuously monitors its liquidity position and capital structure and, based on changes in operations and economic conditions, may adjust such structure by issuing new common shares or new debt as necessary. Taking into consideration expected cash flow from existing operations and available liquidity, management believes that the Company has sufficient capital to fund its planned operations and activities, including the capital expenditures to complete the Tucumã Project, and other initiatives, for the foreseeable future.

In relation to its loans and borrowings, the Company is required to comply with certain financial covenants. As of the date of the condensed consolidated interim financial statements, the Company is in compliance with these covenants. The loan agreements also contain covenants that could restrict the ability of the Company and its subsidiaries, MCSA, Ero Gold, and NX Gold, to, among other things, incur additional indebtedness needed to fund its respective operations, pay dividends or make other distributions, make investments, create liens, sell or transfer assets or enter into transactions with affiliates. There are no other restrictions or externally imposed capital requirements of the Company.

The Company has a precious metals purchase agreement with RGLD Gold AG ("Royal Gold"), a wholly-owned subsidiary of Royal Gold, Inc., whereby the Company is obligated to sell a portion of its gold production from the Xavantina Operations at contract prices.

Refer to the "Liquidity Risk" section for further information on the Company's contractual obligations and commitments.

The Company thoroughly examines the various financial instruments and risks to which it is exposed and assesses the impact and likelihood of those risks. These risks may include credit risk, liquidity risk, currency risk, commodity price risk and interest rate risk. Where material, these risks are reviewed and monitored by the Board.

Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company’s receivables from customers. The carrying amount of the financial assets below represents the maximum credit risk exposure as at September 30, 2024 and December 31, 2023:

The Company invests cash and cash equivalents with financial institutions that are financially sound based on their credit rating.

The Company’s exposure to credit risk associated with accounts receivable is influenced mainly by the individual characteristics of each customer.

In November 2022, Paranapanema S/A ("PMA"), one of the Company's customers in Brazil, filed for bankruptcy protection. According to PMA, the action was attributed to working capital challenges following an operational halt at one of their facilities. Progress was noted in August 2023 when PMA and its creditors agreed on a judicial recovery plan, which subsequently received approval from the judicial recovery court in November 2023. As a preferred supplier to PMA, the Company has entered into a note receivable arrangement with PMA. The arrangement is excluded from the judicial recovery process and provides the Company with certain judicial guarantees. According to the note receivable

arrangement, repayment was structured over 24 monthly installments beginning in March 2024, with an annual interest rate equivalent to Brazil's CDI rate of approximately 11.65%.

At September 30, 2024, the gross amount of accounts and note receivable from PMA was $23.2 million (December 31, 2023 - $25.2 million). PMA continued to miss its installment due in 2024, and is currently in default of the agreement. Accordingly, the note receivable is considered credit impaired, and the Company increased the expected credit loss provision by $1.8 million and $6.3 million in the three and nine months ended September 30, 2024, respectively. After adjusting for credit loss provision and present value discount of $13.0 million (December 31, 2023 - $7.7 million), the amortized cost of the note receivable at September 30, 2024 was $10.3 million (December 31, 2023 - $17.4 million), of which $5.1 million (December 31, 2023 - $8.3 million) was classified as current and $5.2 million (December 31, 2023 - $9.1 million) as non-current.

Liquidity risk

Liquidity risk is the risk associated with the difficulties that the Company may have meeting the obligations associated with financial liabilities that are settled with cash payments or with another financial asset. The Company's approach to liquidity management is to ensure as much as possible that sufficient liquidity exists to meet their maturity obligations on the expiration dates, under normal and stressful conditions, without causing unacceptable losses or with risk of undermining the normal operation of the Company.

The table below shows the Company's maturity of non-derivative financial liabilities on September 30, 2024:

As at September 30, 2024, the Company has capital commitments, which is net of advances to suppliers, of $65.3 million through contracts and purchase orders which are expected to be incurred over a six-year period. In the normal course of operations, the Company may also enter into long-term contracts which can be cancelled with certain agreed customary notice periods without material penalties.

The Company also has a derivative financial liability for foreign exchange collar contracts whose notional amounts and maturity information are disclosed below under foreign exchange currency risk.

Foreign exchange currency risk

The Company’s subsidiaries in Brazil are exposed to exchange risks primarily related to the US dollar. In order to minimize currency mismatches, the Company monitors its cash flow projections considering future sales expectations indexed to US dollar variation in relation to the cash requirement to settle the existing financings.

The Company's exposure to foreign exchange currency risk at September 30, 2024 relates to $67.3 million (December 31, 2023 – $17.2 million) in loans and borrowings of MCSA denominated in US dollars and Euros. In addition, the Company is also exposed to foreign exchange currency risk at September 30, 2024 on $485.3 million of intercompany loan balances (December 31, 2023 - $342.2 million) which have contractual repayment terms. Strengthening (weakening) in the Brazilian Real against the US dollar at September 30, 2024 by 10% and 20%, would have decreased (increased) pre-tax net loss by $55.2 million and $110.4 million, respectively. This analysis is based on the foreign currency exchange variation rate that the Company considered to be reasonably possible at the end of the period and excluding the impact of the derivatives below. The analysis assumes that all other variables, especially interest rates, are held constant.

The Company may use certain foreign exchange derivatives, including collars and forward contracts, to manage its foreign exchange risks. A summary of the Company's foreign exchange derivatives at September 30, 2024 is summarized as follows:

The aggregate fair value of the Company's foreign exchange derivatives was a net liability of $4.1 million (December 31, 2023 - asset of $11.3 million). The fair values of foreign exchange contracts were determined based on option pricing models, forward foreign exchange rates, and information provided by the counter party.

The change in fair value of foreign exchange derivatives was a gain of $9.8 million and a loss of $15.6 million for the three and nine months ended September 30, 2024, respectively (a loss of $7.5 million and $2.3 million for the three and nine months ended September 30, 2023, respectively), which have been recognized in foreign exchange gain (loss).

In addition, during the three and nine months ended September 30, 2024, the Company recognized a realized loss of $3.4 million and $2.3 million, respectively (realized gain of $3.5 million and $7.2 million for the three and nine months ended September 30, 2023, respectively), related to the settlement of foreign exchange derivatives.

Interest rate risk

The Company is principally exposed to the variation in interest rates on loans and borrowings with variable rates of interest. Management reduces interest rate risk exposure by entering into loans and

borrowings with fixed rates of interest or by entering into derivative instruments that fix the ultimate interest rate paid.

The Company is principally exposed to interest rate risk through its Senior Credit Facility and Brazilian Real denominated bank loans. Based on the Company’s net exposure at September 30, 2024, a 1% change in the variable rates would not materially impact its pre-tax annual net income.

Price risk

The Company may use derivatives, including forward contracts, collars and swap contracts, to manage commodity price risks.

At September 30, 2024, the Company has entered into zero-cost gold collar contracts on 2,500 ounces of gold per month from January 2025 to December 2025, representing just over 50% of its estimated production volumes for the period. As of September 30, 2024, the fair value of these contracts was a net liability of $0.4 million (December 31, 2023 - nil). The fair value of gold collar contracts was determined based on option pricing models, forward gold price, and information provided by counter party. At September 30, 2024, the Company does not have any outstanding copper collar contracts (December 31, 2023 - liability of $0.6 million).

During the three and nine months ended September 30, 2024, the Company recognized an unrealized gain of $0.4 million and an unrealized impact of nil (unrealized loss of $1.8 million and unrealized gain of $0.8 million for the three and nine months ended September 30, 2023), respectively, on its commodity derivatives.

During the three and nine months ended September 30, 2024, the Company also recognized a realized loss of $0.8 million and a realized loss of $2.6 million, respectively, in relation to its commodity derivatives in other income or loss (nil and $1.8 million realized loss for three and nine months ended September 30, 2023).

At September 30, 2024, the Company had provisionally priced sales that are exposed to commodity price changes. Based on the Company’s net exposure at September 30, 2024, a 10% change in the price of copper would have changed pre-tax net income (loss) $1.0 million.

For a discussion of additional risks applicable to the Company and its business and operations, including risks related to the Company’s foreign operations, the environment and legal proceedings, see “Risk Factors” in the Company’s AIF.

Off-Balance Sheet Arrangements

As at September 30, 2024, the Company had no material off-balance sheet arrangements.

Outstanding Share Data

As of November 5, 2024, the Company had 103,304,418 common shares issued and outstanding.

The preparation of condensed consolidated interim financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions about future events that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Although these estimates are based on management’s best knowledge of the amount, events or actions, actual results may differ from these estimates.

The Company’s material accounting policies and accounting estimates are contained in the Company’s consolidated financial statements for the year ended December 31, 2023 and condensed consolidated interim financial statements for the three and nine months ended September 30, 2024. Judgements have been made in the determination of the functional currency of the Company and its subsidiaries, assessment of the probability of cash outflow related to legal claims and contingent liabilities, and commencement of commercial production. Certain of accounting policies, such as derivative instruments, deferred revenue, carrying amounts of mineral properties and associated mine closure and reclamation costs, provision for mine closure and reclamation costs, income tax including tax uncertainties, expected credit losses involve critical accounting estimates. Certain of these estimates are dependent on mineral reserves and resource estimates. Changes in estimates of mineral reserves and resources could impact depreciation and depletion rates, asset carrying amounts and the provisions for mine closure and reclamation costs. The Company estimates its mineral reserves and resources based on information compiled by competent individuals. Estimates of mineral reserves and resources are used in the calculation of depreciation, depletion and determination, when applicable, of the recoverable amount of CGUs, and for forecasting the timing of reclamation and closure cost expenditures. There are numerous uncertainties inherent in estimating mineral reserves, and assumptions that are valid at the time of estimation may change significantly when new information becomes available. Changes in the estimation methodology, forecasted prices of commodities, exchange rates, production costs or recovery rates may change the economic status of mineral reserves and may, ultimately, result in changes in the mineral reserves.

Management continuously reviews its estimates, judgments and assumptions on an ongoing basis using the most current information available. Revisions to estimates are recognized prospectively.

The following table presents capital expenditures at the Company’s operations on an accrual basis and are net of any sales and value-added taxes.

The Company utilizes certain alternative performance (non-IFRS) measures to monitor its performance, including copper C1 cash cost, copper C1 cash cost including foreign exchange hedges, realized copper price, gold C1 cash cost, gold AISC, realized gold price, EBITDA, adjusted EBITDA, adjusted net income attributable to owners of the Company, adjusted net income per share, net (cash) debt, working capital and available liquidity. These performance measures have no standardized meaning prescribed within generally accepted accounting principles under IFRS and, therefore, amounts presented may not be comparable to similar measures presented by other mining companies. These non-IFRS measures are intended to provide supplemental information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. The tables below provide reconciliations of these non-IFRS measures to the most directly comparable IFRS measures as contained in the Company’s financial statements.

Unless otherwise noted, the non-IFRS measures presented below have been calculated on a consistent basis for the periods presented.

Copper C1 Cash Cost and Copper C1 Cash Cost including Foreign Exchange Hedges

Copper C1 cash cost and copper C1 cash cost including foreign exchange hedges are non-IFRS performance measures used by the Company to manage and evaluate the performance of its copper mining operations.

Copper C1 cash cost is calculated as C1 cash costs divided by total pounds of copper produced during the period. C1 cash costs comprise the total cost of production, including expenses related to transportation, and treatment and refining charges. These costs are net of by-product credits, incentive payments and certain tax credits associated with sales invoiced to the Company's Brazilian customer.

Copper C1 cash cost including foreign exchange hedges is calculated as C1 cash costs, adjusted for realized gains or losses from its operational foreign exchange hedges, divided by total pounds of copper produced during the period. Although the Company does not apply hedge accounting in its consolidated financial statements and recognizes these contracts at fair value through profit or loss,

the Company believes it appropriate to present cash costs including the impact of realized gains and losses as these contracts were entered into to mitigate the impact of changes in exchange rates.

While copper C1 cash cost is widely reported in the mining industry as a performance benchmark, it does not have a standardized meaning and is disclosed as a supplement to IFRS measures.

The following table provides a reconciliation of copper C1 cash cost to cost of production, its most directly comparable IFRS measure.

(1)     Copper C1 cash costs for the three and nine months ended September 30, 2024 exclude Tucumã Operation's results as the mine has not yet achieved commercial production.

(1)     Copper C1 cash costs for the three and nine months ended September 30, 2024 exclude Tucumã Operation's results as the mine has not yet achieved commercial production.

Realized copper price is a non-IFRS ratio that is calculated as gross copper revenue divided by pounds of copper sold during the period. Management believes measuring realized copper price enables investors to better understand performance based on the realized copper sales in each reporting period.

The following table provides a calculation of realized copper price and a reconciliation to copper segment .

(1) Copper revenue includes provisional price and volume adjustments

(2) Realized Copper Price for the three and nine months ended September 30, 2024 exclude Tucumã Operation's results as the mine has not yet achieved commercial production.

Gold C1 cash cost is a non-IFRS performance measure used by the Company to manage and evaluate the operating performance of its gold mining segment and is calculated as C1 cash costs divided by total ounces of gold produced during the period. C1 cash cost includes total cost of production, net of by-product credits and incentive payments. Gold C1 cash cost is widely reported in the mining industry as benchmarks for performance but does not have a standardized meaning and is disclosed in supplemental to IFRS measures.

Gold AISC is an extension of gold C1 cash cost discussed above and is also a key performance measure used by management to evaluate operating performance of its gold mining segment. Gold AISC is calculated as AISC divided by total ounces of gold produced during the period. AISC includes C1 cash costs, site general and administrative costs, accretion of mine closure and rehabilitation provision, sustaining capital expenditures, sustaining leases, and royalties and production taxes. Gold AISC is widely reported in the mining industry as benchmarks for performance but does not have a standardized meaning and is disclosed in supplement to IFRS measures.

The following table provides a reconciliation of gold C1 cash cost and gold AISC to cost of production, its most directly comparable IFRS measure.