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Thank you for standing by. This is the conference operator. Welcome to the Ero Copper second quarter 2026 operating and financial 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 reach an operator by pressing star then zero. I would now like to turn the conference over to Farooq Hamed, VP, Investor Relations. Please go ahead.

Thank you, operator. Good morning and welcome to Ero Copper's second quarter earnings call. Our operating and financial results were released yesterday afternoon and are available on our website, along with our financial statements and MD&A for the three and six months ended June 30th, 2026. A corresponding earnings presentation can be downloaded directly from the webcast and is also available in the presentation section of our website. Joining me on the call today are Makko DeFilippo, President and Chief Executive Officer, Wayne Drier, Executive Vice President and Chief Financial Officer, Gelson Batista, Executive Vice President and Chief Operating Officer, and Courtney Lynn, Executive Vice President, External Affairs and Strategy. Before we begin, I'd like to remind everyone that today's discussion will include forward-looking statements, which involve risks and uncertainties that may cause actual results to differ materially.

For a detailed discussion of these risks and their potential impact on our business, please refer to our most recent annual information form available on our website as well as on SEDAR and EDGAR. Unless otherwise noted, all figures discussed today are in US dollars. With that, I'll now turn the call over to Makko DeFilippo.

Thank you, Farooq, and good morning. I appreciate everyone taking the time to join us today. As I reflected on our results this quarter, what stood out most was not any one individual metric, but the breadth of progress we were seeing across the business. Our efforts to reshape Ero are now increasingly visible in both our operating and financial results. A meaningful part of that progress traces back to One Ero, a company-wide initiative we launched at the start of 2025. One Ero is designed to streamline how we operate, improve efficiency, and unlock synergies across operations, human resources, procurement, and finance while investing in people, systems and processes to drive frontline excellence in data and analytics. We have fundamentally changed how we work together, brought leadership changes on-site and across the organization.

These changes are translating into safer, stronger operational performance, higher cash flows, and meaningful balance sheet improvements, allowing us to accelerate longer term growth within our portfolio. These were the commitments I made to shareholders at the start of 2025, and we are delivering on them. These changes are coming together at exactly the right time. Paired with commodity price tailwinds, our operational momentum drove another quarter of solid financial performance. Cash flow from operations increased nearly 50% quarter-on-quarter to approximately $138 million, and adjusted EBITDA increased to $144 million. Stepping back to the first half as a whole really illustrates how much our business has changed over the past year.

Cash flow from operations for the first six months of 2026 increased to approximately $231 million from $156 million in the first half of 2025. Adjusted EBITDA increased to $269 million from $146 million over the same period. Stronger cash generation has enabled us to make significant progress on deleveraging our balance sheet, one of our key strategic priorities this year. Over the past 18 months, we've reduced net debt by approximately $100 million while improving our net debt leverage ratio to 0.8 from a peak of 2.6 at the start of 2025. As outlined in our news release, we repaid an additional $25 million in our revolving credit facility in July, bringing total payments in 2026 to $60 million.

One Ero has been an important contributor to that progress, we can point to several tangible examples of the value it is creating across the business. Operationally, investments we continue to make in infrastructure, equipment, people, processes and technology are increasingly being reflected in our results. Our copper operations produced a combined 17,315 tons of copper during the second quarter at a consolidated shipping cash cost of $2.42 per pound. At Caraíba, we are sustaining the higher throughput rates we achieved at the end of last year, following our completion of a substantial debottlenecking effort, and remain on track for a new annual throughput record in 2026. At Tucumã, plant throughput increased 27% quarter-on-quarter, and in June we completed the first phase of our tailings filtration expansion.

During the second half of the year, we are on track to install and commission three new modular filters, which are expected to significantly increase filtration capacity and support higher plant throughputs into the future. At Xavantina, important investments in ventilation and cooling are supporting improved mining and development rates, and we saw that reflected during the quarter. Our focus on bringing forward value from our gold concentrate program coincided with the end of the rainy season, which allowed us to recover more gold from our historical concentrates. Together, improved mine performance and increased contributions from historical concentrates drove 170% quarter-over-quarter increase in total gold from Xavantina to more than 20,000 ounces. This included 8,693 ounces of mined gold production at C1 cash cost of $1,586 per ounce and 11,860 ounces recovered from historic concentrates at a C1 cash cost of $633 per ounce.

We expect a successful commissioning and ramp-up of our mobile filter press and industrial dryer to be a real benefit to our concentrate operations through the rest of this year. The collective improvements we have made and are making across our portfolio have positioned us for a strong second half of 2026. Our copper operations remain well-positioned against full-year guidance, with stronger production expected in the second half. We have also maintained consolidated copper C1 cash cost guidance, with unit costs expected to decline sequentially through the remainder of the year. At Xavantina, we expect mining rates throughput and mined gold production to be meaningfully higher in the second half, with unit cost declining as production increases. The slower start to the year means we now expect mined gold production at the low end of the maintained guidance range.

As a result, we have updated full-year C1 cash cost guidance to $1,100-$1,350 per ounce, and our all-in sustaining cost guidance to $2,200-$2,700 per ounce. We have also increased our consolidated capital expenditure guidance by $10 million to include the approval of a new power line at Xavantina. Once operational, the power line is expected to strengthen site infrastructure, support our ongoing efforts to grow our operational footprint at Xavantina, and importantly, reduce power transmission costs, allowing this investment to effectively pay for itself within two years. At Furnas, our June project update showed continued high-grade continuity with mineralization extending both at depth and along strike. An encouraging sign for the life of mine production plan we outlined in the PEA. We are well advanced on the 45,000-meter phase 3 drill program and remain firmly on track to complete it before year-end.

In parallel, we are progressing various work streams in support of a pre-feasibility study that we expect to publish in 2027. In summary, our strategy is working. We are investing in and strengthening operating performance across the portfolio, realizing measurable benefits from One Ero, converting that progress into cash flow and balance sheet improvement, and rapidly advancing Furnas as Ero's next major leg of growth. Before I turn the call over to Gelson, I also want to remind everyone that we'll be hosting our capital markets day in São Paulo on Monday, September 14th. For those of you interested in attending, please reach out to our investor relations team for more information and to register. We look forward to seeing many of you there. With that, I will turn the call over to Gelson.

Thank you, Makko, good morning, everyone. As Makko outlined, we are entering the second half with improving performance across all three operations. I will provide some additional detail on the underlying operating drivers and our expectation for the remaining on our key projects. At Caraíba, copper production totaled 8,351 tons during the quarter. Lower plane head grades were partially offset by slightly higher throughput and improved recoveries. Looking ahead, we expect stronger production at Caraíba in the second half. This should be driven by access to higher-grade benches at Surubim, as well as higher grades and tonnage from Pilar due to planned stope sequencing. We expect the higher throughput levels, grades, and production in the second half of the year. As a result, C1 cash costs are expected to decline sequentially through the remainder of the year.

At Tucumã, copper production increased approximately 6% quarter-over-quarter to 8,964 tons. A 27% increase in plant throughput more than offset the plant decrease in processed grades. Looking to the balance of the year at Tucumã, we expect sustained higher throughput rates to increase overall processed tons. While copper grades are expected to moderate in accordance with the mine plan. As a result, production is expected to be modestly higher in the second half, while C1 cash costs should remain relatively stable, supporting our maintained full-year production and cost guidance for Tucumã. As Makko discussed, we completed the expansion of Tucumã, three existing filter presses in June. We continue to expect the new three modular filters to be delivered through the third quarter and commissioned during the fourth quarter. The combined initiatives are expected to increase filtration capacity and support higher plant throughput as we exit 2026.

At Xavantina, completion of the ventilation and cool tie-in supported higher mining rates, increased throughput, and improved access to higher-grade stopes beginning in May. We expect these benefits to become increasingly visible through the second half as mining rates continue to improve quarter-on-quarter. During Q2, we also advanced process optimization work at the Xavantina processing plant to improve plant recoveries and increase efficiency.

This work included a modest change to the overall process flow sheet, as well as new investments in flotation cells and a new Falcon concentrator. Our quarter-on-quarter increase in recoveries reflect these improvements and ongoing optimization work. For the remaining of the year, we expect mining rates and throughput to increase significantly. Approximately 65% of full-year mine gold production is expected in the second half, with unit cost declining as production increases. We are focusing on delivering value from our historical gold concentrate initiative. During the second quarter, we recovered 11,860 ounces of gold, with sales volumes increasing significantly from Q1. We expect volumes to continue benefiting from drier seasonal conditions as well as from the mobile filter press and industrial dryer we successfully commissioned at the end of the quarter. I will now turn the call over to Wayne to walk through our financial results.

Thank you, Gelson, and good morning all. Our second quarter financial results reflected solid copper production, strong metal prices, and a 65% quarter-on-quarter increase in gold sales. These factors drove quarterly revenue to $284.3 million, up 8% from the first quarter. As Makko noted, cash flow from operations increased to $138 million, while Adjusted EBITDA increased to $144 million. The stronger cash generation has provided us with the financial capacity to accelerate debt reduction. Net debt declined by $38 million during Q2 to approximately $453 million, while last 12-month Adjusted EBITDA increased to $533 million. Together, these factors reduced our net debt leverage ratio to approximately 0.8 times. We continued that progress after quarter end, repaying an additional $25 million on our revolving credit facility in July, bringing total repayments in 2026 to $60 million.

Our liquidity position also improved during the period, increasing $36 million to $182 million, including $102 million of cash and cash equivalents and $80 million of availability under the revolver. Turning to foreign exchange. While the stronger BRL continued to impact our reported operating costs and capital expenditures during the quarter, on a cash basis, our hedge program worked as intended, generating $13 million of realized gains, bringing the total gains for the first half of the year to $20 million. The hedge program is designed to protect approximately 70% of our consolidated full-year operating and capital costs at an average floor of 554 Brazilian reais per US dollar, as described on slide eight of our results presentation.

Assuming an exchange rate of 510 through year-end, we expect the hedge book to generate an additional $20 million-$25 million of realized gains, resulting in potential full-year gains of approximately $40 million-$45 million. While these gains substantially mitigate the cash impact of the stronger real, they are not included in C1 cash costs. As a result, reported unit costs remain sensitive to the local currency and to inflationary pressures on inputs such as fuel, consumables, transportation, and freight. If current currency and inflationary conditions persist through year-end, we estimate potential incremental impacts of approximately $0.10 per pound on reported consolidated copper C1 cash costs and approximately $100 per ounce on reported mined gold C1 cash costs at Xavantina. Again, the cash impact associated with the stronger real is expected to be substantially offset by realized gains from the hedge program.

Turning to capital expenditures, we have updated full-year consolidated guidance to $285 million-$330 million, an increase of $10 million from our previous range. The increase reflects the approval of a new power line at Xavantina. As Makko discussed, this investment is expected to strengthen site infrastructure, support future growth, and reduce ongoing power transmission costs once operational. If current currency and inflationary conditions persist, we estimate a potential incremental impact of approximately $20 million-$25 million on reported capital expenditures. The cash impact associated with the stronger real is also expected to be substantially offset by the hedge gains I just discussed. With that, I'll pass the call back to Makko for some closing remarks.

Thank you, Wayne. Before we open it up to questions, a few points I would like to leave everyone with this morning. First, our operations are performing well and we are positioned to deliver on our full-year guidance with stronger performance at both our copper and gold operations expected in the second half of the year. Second, with strong cash flows, we expect to continue to deliver on our commitment of deleveraging our balance sheet. Third, we are rapidly advancing Furnas, where we are on track to complete the phase three drill program well before year-end and deliver a pre-feasibility study in 2027. With that, we'll open the line for questions.

Thank you. We'll now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You'll hear a tone acknowledging your request.

Operator, if you can open the line for questions. Thank you.

Yes. Are you not hearing me? We'll now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad.

Sorry. Operator? Are you able to hear me now?

Apologies. We seem to be having some technical difficulties here. Just stay tuned. We're trying to open the line here for questions. Thank you.

I'm sorry. Can you hear me now? This is the operator. Are you able to hear me now? Okay. I'm getting word that others in the call can hear me. What I'm going to do is ask the presenter line to reconnect. Perhaps the issue is on their end. If the presenter I'll just ask them now. Please stand by. We'll get this resolved. Okay. We have our presenter line reconnected, and they are able to hear me. Let's get the question and answer session underway. As I said, if you wish to ask a question, press star then one. If you wish to remove yourself, press star then two. Our first question is from Matt Murphy with BMO Capital Markets. Please go ahead.

Hello. First question would be on the Tucumã tailings expansion. Can you just remind me what expansion was completed? What timeline are you currently looking at for adding these filters in the second half?

Yeah. Hey, Matt. Apologies for the delay there, everyone. The expansion that we completed so far was with our existing circuit. During the quarter, we added additional filtration plates to our three existing filters. That's about a net 8% improvement to tailings filtration capacity. That was completed successfully during the quarter. Right now, our three modular filters are expected to arrive on site this quarter and be installed and operational in the fourth quarter.

Okay, got it. Thank you. Then on Xavantina, the addition of a dryer and filter press, what could that do for your Q3 concentrate sales?

Yeah, look, obviously, under the confines that we're at, we're unable to provide forward-looking guidance, as we've talked about multiple times. That's related to the technical and scientific information that we have available. What I can tell you, Matt, is that if you look at June and July when we had those operational, both those months, we achieved more than 7,000 ounces of gold. I think that speaks really well for Q3 and through the rest of the year.

Okay, that's interesting. Thank you.

The next question is from Guilherme Rosito with Bank of America. Please go ahead.

Hi, everyone. Thanks for taking my questions here. My first question is on Xavantina and maybe Makko. Maybe, Makko, if you could just explore, you have an adjusted production guidance and it sounded pretty confident on the call. Maybe if you could just give us some color on what you guys are seeing right now from July at Xavantina. What makes you so confident that you're reaching guidance even after a rough first half of the operation? Maybe just if you could comment on that and what you guys are seeing in terms of grades and, because they've been pretty volatile ever since you made the mechanization investments, right? Maybe if you could just touch on that a bit. Second question is, we're at 0.8 times net debt to EBITDA. You generated cash this quarter.

From everything, that looks like second half is stronger in production, therefore in cash generation. Probably moving lower there. What's next now? What are your priorities in terms of capital allocation? Is this the time to, maybe we can discuss shareholder returns or anything else. Just wanted to pick your brains there. Thank you.

That's perfect. We'll go through those in detail. Few things to unpack, but starting with Xavantina, I would say, look, as taking a step back here, as we discussed last quarter, we've made very important investments at Xavantina in ventilation and cooling. What we've seen since we completed that tie-in, is that we've been able to get back on track in terms of development rates. The reason that we're focused on the second half of the year at Xavantina and why we firmly expect to have a better second half is when you look at the stopes that we're developing into, particularly in Santo Antônio, we're developing into stopes that are higher grade and they're also much thicker. What that translates to in operational terms is that every meter of development that we're doing now is releasing more ore to feed to the mill.

When you look at where we've been in the last several months, again, sort of May, June, July, all hitting those development rates that we need to achieve and really working towards getting these higher grade stopes, larger stopes, into the mine plan as we expect. Obviously that is a slightly slower ramp-up than we anticipated at the end of Q2, both in development in terms of getting to those development rates that we're achieving now, and also as a consequence, mining rates. I think really the main thing to look forward to is how we see that translate into second half production at Xavantina.

I was just there with Gelson two weeks ago and really pleased to see the progress the team's making on-site there to improve performance again, not just at the mine as we discussed, but as Matt asked, our gold concentrate sales and as I mentioned, we're seeing really good progress on the Not only the end of the rainy season, but also the filter and dryer that we put in place and achieving elevated levels for two months. Obviously, two months don't make a quarter and don't make a year, so we've got a lot more work to do. We're feeling good about where the mine's positioned and certainly where the gold concentrate program is positioned.

This quarter, we talked a little bit more about the operating costs associated with gold concentrates, and as you can see, that's very high-margin material and hence our focus on delivering that to the bottom line. Hopefully, that answers your question on Xavantina. Happy to expand on that in a follow-up question. Getting to your second point on leverage and cash generation, absolutely, I would say the cash inflection of our business, it's clear that it's already happened. We saw that happen in Q2 and into July where we made another $25 million repayment on our revolver. Our objectives for this year that we set out were threefold. Number one, to get below one times leverage. We did that at the end of Q1. Obviously coming at 0.8, we're progressing below that level. Step two is to pay down a revolver.

As we mentioned, we've paid to date $60 million in that revolver through the end of July. That means we have an additional $95 million to go. I think from our perspective as a management team, we want to make sure that that pace continues to decrease. We're making excellent progress so far. I think it's still too early to talk about shareholder return program, obviously it is top of mind, as everyone knows in this call, we've talked about many times. Ero Copper was built around a philosophy return on invested capital, that certainly is one of our objectives. We want to see us really achieving that second milestone, which is to pay down our revolver. We've made excellent progress so far this year. We've got a bit more to go.

Super clear, Makko. Appreciate it. Thanks.

The next question is from Craig Hutchison with TD Cowen. Please go ahead.

Hi, guys. I wanted to ask about Tucumã and specifically, I guess around the reserves. It's been about five years since you guys provided an updated reserve report. Over that period of time, obviously, copper prices have nearly doubled here. Just curious whether there's a plan to put up an updated report, whether you guys have done some drilling there, and whether there's a potential to see some of the measured indicated resources come into the mine plan over the next couple of years. Thanks.

Yeah, thanks for the question. For sure, that's something top of mind, and we've been working. We do expect to publish a tech report on Tucumã this year, so stay tuned for that.

Okay, great. Thanks, guys.

The next question is from Emerson Vieira with Goldman Sachs. Please go ahead.

Hey everyone. Good morning. I have three questions, maybe. First one on Caraíba. I think despite the low production grades and FX impacting costs, Q1 declined quarter-over-quarter, it was helped by lower TCRCs, right? That offset those impacts. You guys mentioned that you were able to achieve a $20 million savings due to renegotiations in TCRCs. Just wanted to confirm if going forward, into second half, TCRCs will continue to be running at those lower levels that we saw in the second quarter and maybe providing some offset to other cost pressures. That's the first question. Thank you.

Yeah, sure. It's Wayne speaking here. I think it's important to point out, yeah, we did get the benefit of renegotiated contracts for our concentrate sales. We sell our concentrate on term contracts, not on spot contracts, some of our historical contracts rolled off and we were able to negotiate obviously much more favorable terms given the current environment. I would say, though, the $20 million you referred to is the total savings. We didn't get the full benefit of the $20 in Q2, that benefit will be spread over the remainder of the year. Our contracts allow us to basically sell both mines production into each contract. That benefit you may see, depending on shipping schedule and depending on which contract we're selling into, you could see some of that benefit flow to Tucumã in the second half of the year, rather than Caraíba.

Right. Thank you. My second question goes on Tucumã. Can you please comment on what was the exit throughput at the plant? What could be, I don't know, increments in throughput in the second half, given that you have increased the tailing filtration capacity by 8%?

Yeah, I would say, we're really encouraged by what we're seeing at Tucumã. If you look at where we were at too in Q2 and some of the levels that we're achieving there. I think the most important thing to probably look at is if you take what we achieved in the second half of the quarter, end of July, we've been able to maintain a rate of between 250,000 and 260,000 tons per month. I think what's particularly noteworthy is that in July, we achieved a rate of throughput right around 250,000, that included five days of downtime for a mill liner replacement. I think, we're really pleased to see the daily progress that's happening there and increasing production rates. Again, we think that bodes well for the second half of the year as we outlined in our guidance discussion.

Okay. Thank you. Just last one here. On the capital allocation, just to follow up, actually. The company has $120 million in the revolving credit, that facility, right? If we take the same money, the same pace of amortization, does it make sense to believe that the company will be in a better position, by third Q or four Q of next year to maybe update us on the shareholder distribution policies? Does it make sense about the timing?

Yeah, look, I think if you go back to whenever we talked about shareholder returns and the commitments we made, it was a three-step process. Number one, get leverage below one, which we achieved in Q1. We're doing great there. The second was to pay down our revolver. Again, coming back to the payment we made in July, that brings year-to-date total payments on our revolver to $60 million, meaning that we have $95 million left to go in that program. I think the pace of that second step obviously depends on commodity prices. We continue to see very strong tailwinds there and also operational performance in the second half of the year. I would say stay tuned on both those things, and we'll give more clarity on what that looks like later in the year once we achieve the second step.

All right. Thank you. Very clear.

The next question is from Fahad Tariq with Jefferies. Please go ahead.

Hi. Thanks for taking my questions. On the Xavantina concentrate, can you just remind us where we are on the remaining 80% of the stockpiles that were not sampled and when we should expect the next update? Thanks.

Yeah. Thank you. Just going back to Q4 last year for a bit of context. I'm sure everyone on this call is aware, that was a value initiative that we announced in October of last year. At that time, we had sampled 20% of the known volume to develop a resource estimate. As we've discussed before, under NI 43-101, we can't provide forward-looking guidance on information that's not supported by a 43-101 estimate. Really unfortunately, unable to provide that information and clarity that you're looking for, other than to say, we've seen really strong sales, June, July, coming a dry season on the back of our filtration and concentrate program.

We continue to expect this program to last through at least mid-2027 as we put out early in the year. We see really strong sales in the second half again, with the effort that we put into the filter press and dryer.

Okay, great. Then just maybe a high level question. Given where copper prices are now, is there anything in the portfolio that you're looking at differently, whether it's a brownfield opportunity or additional exploration spend at a particular asset? Just wondering if you're thinking about anything differently given how elevated copper prices are. Thanks.

Yeah. I don't think it's fundamentally changed the way we think about our business. We've continued to invest in exploration across the portfolio. It's been part of our strategy from day one when we started the company. Obviously, if you look at where our exploration dollars are allocated today, obviously we're putting a big focus in Furnas, as we've spoken to, but we've continued to allocate exploration dollars to earlier stage opportunities throughout our portfolio. The last decade, we've built a really strong knowledge of the regions that we're operating in, and we're seeking to leverage those through some earlier stage opportunities. Again, that's not a change in strategy. That's continued over the last couple of years. Could we in the second half see some of those programs getting a little bit more capital allocation? Perhaps.

It's not going to fundamentally change the way that we think about our business, or how we're operating.

Thank you very much.

The next question is from Stefan Ioannou with Cormark Securities. Please go ahead.

Yeah, thanks very much. Just back on to Xavantina. You mentioned this is kind of the first quarter where we're seeing reported C1 and AISC costs for the concentrate gold production. Just looking at the numbers for the latest quarter, can we sort of interpolate those as sort of a steady state run rate for costs, or do you think they could come down even further going forward?

Yeah, look, I think they're pretty steady state. Obviously, it's mostly variable costs, right? Because if you look at the component that makes up that C1, the overwhelming majority is going to be on transport costs. We don't see much of an opportunity even with increased sales to reduce those costs further. We obviously now are operating the filter and the dryer, which has increased that cost, relative to where we were last year. As you can see, $700 all in sustaining cost at $4,200 gold is a pretty healthy margin by any measure.

Definitely. Yeah. Just while I got you, sorry to pile these on mine, maybe just one housekeeping question. Just when Wayne was talking about the FX hedge program, sorry, Wayne, did you say that the effect of the hedges are reflected in the C1 cash cost or not?

They are not reflected, Stefan.

Not, okay.

Yes. They're below the line.

Got it.

we run the business and we think about the business is around the exchange rate that we guided to at the beginning of the year, which was 540, and we structure our hedges to protect that level. That's why you see the fairly significant gains year to date.

Got it. Okay, great. Thanks very much, guys.

The next question is from Orest Wowkodaw with Scotiabank. Please go ahead.

Hi, good morning. I wonder if you could give us an update on the shaft sinking project at Caraíba and what the timeline is for, I guess, that to go into operation next year.

Yeah. Thanks, Orest. Good question. We'll have the opportunity in a few weeks to be there in person to review the progress there. Right now, we're just over 1,100 meters below surface. We continue to see our sinking rate improve month on month since we started connecting that third leg, which is a fairly significant milestone in that project. I think the thing to keep in mind about the shaft, we started engineering on this back in 2020. The last shaft that was built at Pilar was in 1986, and we're making this investment for the next several decades, not for one quarter or the next. As we said last quarter, our objective is to get to shaft bottom by year-end. With the progress that we've made so far and increasing, I talk to Gelson about this nearly daily.

You look at some of the projects that are happening in the world today. I think if the team needs an extra month or two to make sure that we can deliver that project safely, we're going to go ahead and make that call 10 times out of 10. We'll have the opportunity to be on site in a few weeks to review that progress. I would say that, as I said, our sinking rate's improving. We're continuing to make significant improvements month-on-month. We need to see a bit faster pace here through the balance of the year to hit that milestone. We're going to make sure that we do that safely and deliver that project for the next several decades.

No, that all totally makes sense. What about the budget? Where are you in terms of the capital spend on that, and are you seeing inflationary pressures?

Yeah, we're not seeing much inflationary pressures there. We've got a small team that's on site that you'll meet, that are coming in from South Africa. It's a third-party contractor that's doing that sinking rate. We don't have the same type of exposure that we do to operations in terms of diesel prices because the hoist is all electrical powered. We're not seeing much in the way of inflation on the shaft itself. Obviously, if we make the decision to slow that rate down to make sure we deliver that project safely, there'll be an incremental cost component, but it's been relatively minor, and we think that if you look at where we're at against that budget, as I've said many times, we're very much through peak CapEx in our business.

Irrespective of kind of where we land through year-end, we see that capital coming down significantly into next year, with this year being the last big year of CapEx that we have to spend.

Okay. Just to clarify, how much was left in the budget as of June 30th for that project?

Yeah. If you look at what we said early on in the year, we had about $80 million-$90 million to spend this year with a stub into next year. We are about halfway through the budget on this year's spend. What will be next year, we expect is a stub year of CapEx, right? As we switch that shaft over from its sinking phase into its operational phase.

Okay. Thank you very much.

Once again, if you have a question, please press star then one. Our next question is from Rafael Barcellos with Bradesco BBI. Please go ahead.

Hi, thanks for taking my questions. My first question on Caraíba. Can you please provide like an update on the Pilar shaft in terms of the potential for productivity gains going forward, and the timing for these gains? Of course, more color on what you're expecting in terms of the ramp-up of this project. Then moving to capital allocation, just a quick follow-up. I mean, the company will probably turn into a net cash position by the end of the year. Just wondering if you could discuss more shareholder remuneration versus the preparation for starting the investment plans for Furnas. How do you expect to balance those things? That could be interesting. Thank you.

Yeah. Perfect. Thank you. I think as Orest allude to, the shaft's making good progress. We continue to expect the full first year of full benefit to be 2028. Obviously, next year, 2027, we'll be focused on transitioning that from the sinking phase into the operational phase, after we reach shaft bottom. I think the easiest way to talk about the benefit is to give you the current experience in the future state. If you go right now to the deeper part of Pilar mine and you drive down the ramp, that can take up to about an hour and a half. As you well know, underground mines in Brazil operate on six-hour shifts. What that means in practical terms is we're starting out with 50% availability of our workforce, in the deepest part of the mine.

Obviously, we operate at multiple different levels, that's not true for the entire operation, but in the deeper, higher grade zones, that's the reality today. When the shaft is completed, it's been designed to get our entire workforce in and out of the mine in under an hour. We expect a very significant improvement in workforce productivity, improved access, improved ventilation. It'll be a transformational investment that, again, if you go back to when the last shaft was built, 1986, this one happening now, it's going to support the operation for decades to come. There's no one more excited about finishing that project than me, having been involved with it since 2019, and we're making good progress.

As I said to Orest, we're going to make sure that we deliver that project safely and on budget, that's what we're committed doing over the next, the second half of this year and into next year. On the cash position and shareholder returns, yeah, look, we're excited as everybody here. We're making great progress on our objectives that we committed to in 2025. I think the way that I would characterize our priorities in terms of capital allocation, we're still focused on that second step, which is paying down our revolver. We have $95 million left to pay down after the payment that we made in July. We're continuing to accelerate Furnas. I would say it's not one or the other. If you look at where we're at in Furnas, we're going to finish effectively a five-year drill program in the better part of two years.

If you look at when we started drilling to this in October 2024 to the end of this year, we're going to complete all the 90,000 meters that were envisioned under that project, or we completed the PEA. We're rapidly advancing the PFS. I wouldn't look at it as an either/or. Obviously, if we see opportunity to accelerate Furnas and put more capital to work there, that's a great place to put capital. We're working flat out on that project already. Taking a big step back again, for us, first priority here. Well, first priority was to get to below one times leverage. We did that. Second priority, pay down our revolver. Number 3, I think come back to the market later this year when we've met that second milestone, which is to pay down our revolver.

If I may, one follow-up. Still on this part of the capital location topic. How do you see Ero Copper in the middle of this recent M&A trend that we have seen over the past few years in the copper sector? I mean, how do you see the company in this environment?

Look, as I always say, we have a corporate development team. They have a very, very important job in our organization. We look at opportunities in the Americas for growth. We do that pretty thoughtfully in the lens of what our existing portfolio looks like. We have, I would say, one of the better, if not the best from our perspective, development projects in the market, which is Furnas. We have incredible pipeline of early-stage exploration projects that our exploration team's working on. We look at opportunities outside of our business through that lens. We take reviews in the Americas very, very seriously. I think our focus is really on executing on our own portfolio. As I said, we have a corporate development team.

They have an important job to do in our company, but we're really happy with where our portfolio sits today, and that's what we're focused on executing.

Okay, thank you.

This concludes the question and answer session. I'd like to turn the call back over to Makko DeFilippo for any closing remarks.

Yeah. Thank you, everyone. As always, our team's available. We appreciate your patience as we redialed back in here. Just one last reminder on our Capital Markets Day in São Paulo, look forward to seeing many of you there. Thank you very much. Have a great day.

Brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.

Thank you for standing by. This is the conference operator. Welcome to the Ero Copper 1st quarter 2026 operating and financial 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. I would now like to turn the conference over to Farooq Hamed, VP, Investor Relations. Please go ahead.

Thank you, operator. Good morning, and welcome to Ero Copper's first quarter earnings call. Our operating and financial results were released yesterday afternoon and are available on our website, along with our financial statements and MD&A for the 3 months ended March 31, 2026. A corresponding earnings presentation can be downloaded directly from the webcast and is also available in the Presentation section of our website. Joining me on the call today are Makko DeFilippo, President and Chief Executive Officer, Wayne Drier, Executive Vice President and Chief Financial Officer, Gelson Batista, Executive Vice President and Chief Operating Officer, and Courtney Lynn, Executive Vice President, External Affairs and Strategy. Before we begin, I'd like to remind everyone that today's discussion will include forward-looking statements, which involve risks and uncertainties that may cause actual results to differ materially.

For a detailed discussion of these risks and their potential impact on our business, please refer to our most recent annual information form available on our website, as well as on SEDAR and EDGAR. Unless otherwise noted, all figures discussed today are in US dollars. With that, I'll now turn the call over to Makko DeFilippo.

Thank you, Farooq. Good morning. These days, it is difficult to know exactly what each morning's news will bring. Let me start by saying I appreciate all of you dialing in for this. Before diving into the quarter, I wanted to share 3 observations on the back of several weeks of travel throughout Brazil, New York, Boston, comparing notes with Wayne from Cesco and a recent trip to Washington, D.C., all of which have implications for our sector and are highly relevant for Ero. First, we see broad enthusiasm for copper, backstopped by tight supply and a serious lack of quality development assets at a time where there is a structural shift occurring across the copper demand landscape. Second, sector-wide cost inflation is not only topical, it is a ground truth reality.

While we are better inflated than many of our peers, and I'll come back to that shortly, we're not immune from it. Third, and perhaps most relevant for our business, is that Brazil is getting a lot of attention. The world has woken up to Brazil's deep capital markets, its economic diversity, resource production capacity, and its relative strategic positioning in an increasingly complex world. Capital inflows into Brazil have, unsurprisingly against this backdrop, resulted in a considerable strengthening of the Brazilian real against the US dollar, which has a direct impact on our business. These observations matter because a lot of our work and strategy over the past year has been focused on making sure that Ero is as well-positioned as possible to benefit from these copper market tailwinds, advancing our long-term growth strategy while protecting our bottom line from cost and currency pressures.

I see this happening in 3 ways. First, our operating portfolio prominently features the right mix of commodities at the right time in the sector, and we are developing an extremely high-quality long-term asset in Furnas. Second, our operations do not rely on sulfuric acid. A considerable portion of our production base is from underground, and we operate in Brazil, where power is majority sourced from renewables, there are well-established local supply chains, and diesel is subsidized. Third, with Brazil in the global spotlight, initiatives we undertook last year, particularly around foreign exchange rate risk management, are serving to offset cost impacts from the rapid strengthening of the BRL we have seen so far this year. Circling back to Q1, from my perspective, this is the first quarter that shows our portfolio of investments and risk management in action.

It shows where those investments are delivering and where there is more progress to come. Before I turn the call to Gelson and Wayne to cover the details on our Q1 performance, I want to offer some perspective on what a difference a year makes. Looking back on the last 12 months, our consolidated copper production is up nearly 40%, and gold sales volumes, when including gold concentrates, are up 77% year-over-year. Quarterly revenue and adjusted EBITDA over the same period are up 110 and 100% respectively. Our focus on debt reduction has resulted in year-over-year decreases in net debt of approximately $70 million, while our leverage ratio has reached targeted levels of 1x, down markedly from approximately 2.4x this time last year.

Most importantly, over the past year, we have put considerable focus on transforming safety across our operations. A few weeks ago, while in Brazil, I was with our teams at Tucumã to mark a significant milestone. four years without a lost time injury, representing more than 11 million hours worked from the moment we first broke ground. This milestone is rare in our business. I am cognizant it was earned shift by shift, and it belongs to our entire organization, past and present. Operationally during the quarter, our mines tracked largely to plan across our copper operations, Q1 production and cost performance have us well-positioned against full-year guidance. At Xavantina, Q1 was the trough quarter we expected due to necessary ventilation and cooling investments as we advance that operation forward.

With that work substantially completed by the end of April, we expect to see mining rates and throughput show a step change increase in the second half of the year, supporting full-year gold production and cost guidance. Gelson will speak to this in more detail. As Wayne will discuss, our financial results in Q1 were bolstered by strong copper and gold prices, while our foreign exchange risk management program helped to mitigate some of the external cost pressures we are seeing elsewhere across the sector. With that, and to ensure sufficient time for questions, I will turn the call over to Gelson, who will walk you through our operational performance, our production outlook for the remainder of the year, and an update on key projects.

Thank you, Marco. Good morning, everyone. As Marco said at the outset, the work we have done across our operations is starting to come through in the numbers. At Caraíba, new throughput in Q1 exceeded 1 million tons. I would highlight this is the only second quarter in the history where we have achieved that level, with the first being Q4 of last year following the completion of our debottlenecking program. Copper production declined from Q4 on lower head grades, reflecting plant stop sequencing at Pilar and reduced our feed from the Surubi open pit, where heavier than average rainfall in January and February constrained mining rates. Caraíba's C1 cash cost for the quarter of $2.79 per pound reflected these operational dynamics, as well as the impact of a stronger BRL.

Looking ahead at Caraíba, we expect process tons and grade in Q2 to be broadly similar to Q1, with strong production in the second half, driven by a normalization of mining rates and access to deeper and higher grade benches at Surubi. As well as higher grades and tonnage from Pilar and Vermelhos due to plant stop sequencing. Q1 cash costs are expected to decline in step with high grades in the third and fourth quarters, supporting our reaffirmed full-year cost guidance. At Tucumã, copper production decreased modestly from Q4 on lower process grades, partially offset by higher throughput. Tucumã Q1 cash cost for the quarter was $1.97 per pound, in line with our expectations as well as full-year guidance. Looking to the balance of the year at Tucumã, we expect processed tons to increase from Q1 levels, with processed copper grades projected to moderate. As a result, production is expected to be slightly weighted towards the second half on higher throughput, with Q1 cash costs expected to be relatively stable for the year, supporting our reaffirmed full-year guidance at Tucumã. With respect to Tucumã's tailings filtration circuit, we have 2 initiatives on the way to unlock further capacity and increase overall throughput. First, as you know, we have placed orders for 3 new modular tailings filters. We continue to expect delivery of these units on-site during the 3rd quarter and for them to be operational during the 4th quarter. We are in the process of adding additional filter plates to each of our 3 existing filter presses, which the fulfillment of orders placed this time last year. The expansion of our existing installations will result in an increase in the capacity of each installed filter press by approximately 7%.

Taken together, these two initiatives are expected to meaningfully increase Tucumã's total tailings filtration capacity and allow us to achieve a significant increase in plant throughput as we exit 2026. To reiterate, while there continues to be potential for these two initiatives to deliver throughput benefit in later part of the year, they are not reflected in our 2026 guidance. At Xavantina, this quarter was transitional as we completed necessary upgrades of our ventilation and cooling infrastructure required to support higher mining rates going forward, particularly as the mine gets deeper. While this investment impacted 1st quarter gold production and costs, we expected Q1 to be the weakest gold production quarter of the year due to this critical infrastructure work alongside additional ground support investments made to enhance operational performance beginning in the 2nd quarter.

Looking to the remainder of the year, we expect mining rates and throughput to pick up through the end of Q2 and maintain higher rates in Q3 and Q4. As a result, we expect 60%-65% of Xavantina's production to be in the second half, with costs declining significantly from Q1 levels and allowing us to maintain our full-year operating production and cost guidance at Xavantina. We also sold approximately 4,300 ounces of gold and concentrate in Q1. Concentrate sales volumes declined from Q4 due to the rainy season, which impacts our ability to dry the material before transporting to port. We expect gold concentrate sales volumes to benefit significantly from the drier condition we are experiencing now. Currently on site, we have approximately 12,000 tons of concentrate in the drying phase.

As we have outlined on page 9 in our results presentation, while we are now firmly in the dry season, we are in the process of finalizing the installation of an industrial dryer and a mobile filter press to proactively support continuity of concentrate sales through the next rainy season. With that, I'll turn the call over to Wayne to walk through our financial results.

Thank you, Gelson, and good morning all. Revenue in the first quarter was $263.2 million, up from $125.1 million in Q1 2025, driven by stronger copper production from both Caraíba and Tucumã, higher realized prices for both copper and gold, and the contribution of gold concentrate sales at Xavantina. Our consolidated copper C1 cash cost for the quarter was $2.39 per pound, up approximately 8% year-over-year. This increase reflects, in part, a stronger Brazilian real against the US dollar, which impacted our reported C1 costs in Q1 by approximately $0.06 per pound relative to our budgeted 5.40 BRL rate.

This Real impact was fully offset on a cash flow basis by the $7.3 million realized gain from our foreign exchange hedge program during the period. Page 8 of our results presentation shows the movement of the Brazilian real so far this year against our existing foreign exchange collars, which protects our cash flows below the 5.54 level. If the Real remains at current levels, the impacts on reported C1 cash costs would be offset by an estimated realized foreign exchange gain of approximately $45 million-$50 million for the full year. From an absolute cost perspective, we are reasonably well-insulated for the reasons Marco mentioned earlier.

As you can see on page 7 of our results presentation, which lays out our consolidated operating cost structure, the ongoing Middle East conflict has the potential, all else being equal, to add $0.05-$0.10 per pound to operating costs if key inputs such as diesel, consumables, road transport, and ocean freight stay at current levels. That said, we are not seeing any supply-related shortages at this time. Turning to earnings, adjusted EBITDA doubled year-over-year to $125.2 million for Q1. Adjusted net income attributable to shareholders was $72.4 million or $0.69 per share on a fully diluted basis. From a balance sheet perspective, we ended the first quarter with $91.2 million of cash and $55 million available under our senior revolving credit facility for a total available liquidity of $146 million. We continued to deleverage our balance sheet with net debt of $491 million at the end of Q1, an $11 million decrease compared to year-end 2025, and a $70 million year-over-year decrease. Combined with significantly higher 12-month trailing EBIT, EBITDA, this resulted in a material improvement in our net debt leverage ratio, which decreased to approximately 1 times from 2.4 times at the end of Q1 2025. Our top capital allocation priority remains the continued deleveraging of our balance sheet.

Having reached our target net debt leverage ratio of 1 times, the $145 million currently drawn on our revolver is our next focus for debt reduction. Beyond deleveraging, we are funding our internal growth projects and over time, expect to begin returning capital to shareholders. As we advance these objectives, we look forward to providing the market with additional color on our broader capital return framework. With that, I'll pass the call back to Marco for some closing remarks.

Thank you, Wayne. Before we open up to questions, two things I would like to leave everyone with this morning. First, we are focused on executing against our reaffirmed full-year operational guidance. The first quarter was aligned with our expectations, with our copper business achieving approximately 24% of our consolidated midpoint on the full year, which we still expect to be back half-weighted. At Xavantina, we completed a necessary long-term investment in ventilation and cooling and are ramping up concentrate sales volumes now that we are in the dry season. Second, we've now drilled more than 60,000 meters at Furnas, and it's worth reminding everyone that PEA, as strong as it is, only reflects the first 28,000 meters. We are planning a mid-year update on our exploration results since then, plus progress on key PFS work streams. Stay tuned for that.

With that operator, we will open the line up for Q&A.

Thank you. The first question comes from Fahad Tariq with Jefferies. Please go ahead.

Hi. Thanks for taking my question. You mentioned quite a bit about Brazil and the dynamics there. Can you just talk about what you're seeing in terms of labor inflation?

Yeah, thanks. Thank you for the question. I think more broadly speaking, I'll give a bit of nuance about our labor negotiations, which happen annually in the fall. Those are typically set around the standard inflation rate. Going back to last year, in the fall, we negotiated on average, a 5% increase on labor year on year. If you go back over the last, you know, 10 years, this was historically absorbed by the depreciation of the Brazilian real. Obviously, as Wayne alluded to, and we spoke in the prepared remarks, the BRL strengthened significantly and hence the hedge program that we put in place to help offset some of that inflation. 5% was the negotiated rate last year in the fall.

Okay, great. Just staying on the topic of just input cost, the slide is really helpful, so thanks for presenting that. Any issues on supply? The cost part I understand, but are there any concerns around any of these input supplies coming into Brazil?

No concerns at this time. We monitor that pretty closely. Our organization lived through both COVID and a trucker strike in the past several years, and so we've been able to dust off those playbooks and proactively build up key consumables as a risk mitigation across all of our assets. That's something that we continue to monitor pretty closely. As I said, deep knowledge across the organization, what to do in these type of environments. We proactively increased our reserve of imported consumables into Brazil. Again, we see no issues at this time.

Okay, great. Thanks so much.

The next question comes from Orest Wowkodaw with Scotiabank. Please go ahead.

Hi, good morning. The comment earlier about that there's currently, I think, 12,000 tons of gold concentrate drying. Is that indicative of what you expect to sell in Q2? I'm wondering if you could provide any guidance for the year with respect to contained ounces in the gold concentrate.

Yes. Thank you, Orest. Both great questions. We do have 12,000 tons drying. As we saw in our Q1 performance, and looking back at Q4, the rate of drying and transportation, is a function of the sunny days during the month. As you can see on the slide 9 that we prepared showing average rainfall, obviously May, you know, May, June, July, and August have very low rainfall on average, you know, less than 10 millimeters. We're expecting to ramp up sales volume pretty meaningfully here in Q2. In terms of giving the exact amount, it's gonna be predicated by the amount of sunny days during that time period. Hesitant to do that for obvious reasons.

When I look ahead to Q4, as Gelson Batista mentioned and as shown on slide 9, we did make progress on some installations of equipment we ordered last year to help ensure continuity of deliveries and shipments through next year's rainy season. Again, for reasons that I think everyone on this call is well aware, we're unable to provide forward-looking guidance on concentrate sales. What I can tell you is that we have seen nothing to date in terms of grade that suggests anything different from the resource that we put out on the sampled volume. We still see, you know, right around 1 ounce per ton or a bit higher as being the benchmark there. As I said, haven't seen any evidence that the grades are lower. Again, giving exact delivery schedule and timing, still requires additional sampling from the material that we're extracting, and then obviously additional weather, favorable sunny weather to get that support.

Thanks for the color, Makko. As a follow-up, as your free cash flow starts to accelerate here, I think Wayne Drier talked about the revolver being the first focus in terms of paying that down. You know, can you walk us through your thinking on cadence after that with respect to either debt reduction or capital returns?

Thanks, Orest. I mean, obviously we've achieved our net leverage ratio, as I said, at 1 times. Obviously bringing the revolver down further will reduce that leverage even further. I think as we start to think about Furnas and, you know, the longer medium-term plans that for that asset or that project, we know we will keep in mind what those potential requirements are. I would say all things else being equal in this price environment, the free cash flow generation is gonna accelerate meaningfully, and hopefully we'll be in a position here, you know, in the not too distant future to talk about our plans for, you know, returning capital to shareholders.

Thanks. Look forward to that.

The next question comes from Stefan Ioannou with Cormark Securities. Please go ahead.

Yeah, thanks very much. Just wondering, is there any updates or color on just how the shaft project's going at Pilar?

Yeah. Great, Stefan. I'll jump in and then Gelson Batista can carry off if I miss any details here. Shaft is progressing well. As we discussed last quarter, we've now finalized the completion of the second leg, so we're starting the third and final leg of the shaft, which is a very important connection for us that was completed this year. Still targeting the shaft, reaching shaft bottom at the end of this year or early into next year. That's really the critical path for that project. When you look at the surface installation, substantively complete the underground installation of conveyors and crusher chambers, you know, or the excavations are complete. We're installing that equipment very soon. We're in the process now. We're pretty happy with the progress. As I said, critical path for us is reaching shaft bottom, at the tail end of this year or early next year, so that we can transition from sinking into transitioning that shaft over to the operational phase.

Great. Thanks very much, guys.

The next question comes from Mateus Moreira with Bradesco BBI. Please go ahead.

Hi. Thank you for taking my questions. First question on your sales versus production gap for copper specifically. I noticed that sales for the quarter came above production figures for both Caraíba and Tucumã. I was just wondering how should we think about the gap between sales and production going forward? That's the first question.

Thanks for the question. Look, obviously, sales and production for us do, on a quarterly basis, vary slightly. You know, if you look at the volume of concentrate we produce, it's not as significant as some of the larger copper producers. We sell in 10,000 ton lots. Depending on the timing of when we invoice and we close a lot, you can see some inventory buildup. We did have inventory build in the back end of Q4, which was sold early in Q1. You know, that timing will always vary just depending on how we assemble our lots. I mean, obviously we try our very best to sell everything we produce, but sometimes the timing just doesn't work.

That's clear. Moving to Tucumã, I mean, regarding the tailings filtration capacity at Tucumã, how has that been progressing? You previously shared that the equipment has been ordered and was in manufacturing. I just wondering, is there any updates there?

Yes. Gelson spoke to equipment is being manufactured. We still expect delivery here in the third quarter. That remains on track, so we're doing work on site now to prepare for those deliveries, and we expect them to be operational in the fourth quarter. I think the most probably salient point for this call is that, you know, that is not reflected in our full year guidance. I think we've made that abundantly clear, but to stress it is not included in our full year guidance. So far remains on track to be operational in the fourth quarter. As I said in our last quarterly call, it's very important that that equipment's operational for 2027, not included in 2026 guidance.

Okay, that's clear. Thank you very much.

The next question comes from Dalton Baretto with Canaccord Genuity. Please go ahead.

Thanks. Good morning, guys. Marco, I thought I heard you say in your comments that your travels took you through Washington D.C. I'm wondering if you can add some context around that. You know, what sort of discussions you're having, given that your assets are in Brazil, anything that you can wrap around that. Thanks.

Thanks, Dalton. I was in D.C., as you can probably imagine, being an operating company, a well-established operating company in Brazil, and the focus on diversifying supply chains across the western world, including Canada and the United States, there's a big focus on investments into strategically aligned countries. You've seen the U.S. government and the Canadian government enact critical minerals programs. We were invited to participate in a discussion around that. I think at this point, Dalton, there's not much more to say than that. I think the reality is, it's an exciting time to be producing copper. It's an exciting time to be producing copper in Brazil and to be building a business in Brazil.

We take the relationships with our government partners in Brazil, Canada, and the U.S. very seriously. We're invited to participate in critical minerals events. We show up in force to do that.

Got it. Thanks for that. I wanted to ask about Paranapanema and how they're doing these days, and whether, you know, given the rise in shipping costs and, you know, everything that's going on, whether that's becoming, you know, an option to place more concentrate there. Thanks.

Look, it's Paranapanema is its own organization. They're working through some of the challenges they have. Obviously, it's a public company, so they disclose what they're doing there. I think the reality in today's market is that the attention on Paranapanema is really one that's more strategic in nature. You know, for our business, the change in global TCRCs has, you know, offset the cost benefit of shipping locally to the local smelter.

I think when you're looking forward at the future of PMA, and there continues to be a lot of interest, in ramping up that operation, I think it's really around the strategic nature of that asset being one of the few smelters in the world and one of the few smelters, in the Western world. As I said, we continue to monitor what happens there. We don't see it as being a huge benefit or impediment to our businesses in any way. Obviously, it's down the road from us, so we'd like to see, you know, continued movement and progress on that. As I said, there's quite a bit of interest in getting PMA back up and running full steam ahead. We closely monitor the situation there.

Thanks, Marco.

The next question comes from Guilherme Rosito with Bank of America. Please go ahead.

Thank you. Can you guys hear me?

Yes.

Perfect. Thank you for taking my questions. My first one is on cost. Marco, I know you guys mentioned mine was very clear with the sensitivities and hedges, so that's really appreciated. As we look to all the trends that we're starting at first quarter at a high level, like higher than we were expecting for Xavantina, for instance, which I know, understand is according to plan. You know, BRL is BRL 4.90. We have pressures from potentially chemicals, fuel surcharges. I'm just wondering, when you look to the distribution of probabilities, does it make more sense for us to expect costs closer to the higher end of your C1 guidance versus the midpoint? My second question is just maybe if you could comment a bit on the discussions around the mine shift law here in Brazil, what has evolved, what not.

As we approach elections, do you think there's still time for any change to be made into this year, or is it now a next year story as elections approach and we don't have any climate to prove anything? Thank you.

Thanks. Thank you for the questions. Both very good ones. On the cost side, look, I think, you know, when it comes to cost being elevated in Q1, particularly at Xavantina, but also at Caraíba, you know, I would point to the second half waiting. We do expect all else being equal for cost to fall back down in line. Xavantina being the biggest outlier, but again, almost pure denominator volume-based when you look at the impact of C1 versus the full year guide. As Wayne outlined and as we've shown on slide 7, I believe, of the webcast presentation, the implied impact on diesel consumables that are diesel linked right now at steady state is about $0.05-$0.10.

That's part of the reason that we do provide a cost guidance range, is there's uncertainty around those. With respect to the BRL, your guess is as good as mine. In fact, it's probably better than mine at this point. I think what we can say is that we've protected our business against a floor of BRL 5.54, and that's really the most important message for the BRL. Again, all else being equal and ignoring foreign exchange, given that $0.05-$0.10 impact that we're seeing, notwithstanding the various gives and take both on byproduct credits and on FX, I think it's reasonable to assume that we'd be trending at present moment towards the high end of the cash cost guidance range.

Again, we have a number of months ahead of us, and it's a very, very volatile time. I think it's really too early to give a clear steer one way or another. We do see costs coming down pretty meaningfully as production volumes ramp up in the second half of the year. On shift change, for context, for the rest of the people on this call, there's a movement happening in Brazil right now and some legislation being proposed in Congress to eliminate the six by one shift schedule. What that means in practical terms is that most of our operators, like all industrial operations in Brazil or most industrial operations, operate six days on, one day off, and on a six-hour shift basis. The proposal is to, I would say, more closely align with conventional shift schedules, meaning that, towards 8 hours, that incremental underground time would be a gain for us. I think it would be a gain for our workforce, quite frankly. It's one of those rare opportunities where you have a proposal at the federal level that is good for companies, good for our workforce. In fact, when you look at what we've done over the last 12 months, all of our surface operations operate on 12-hour shifts. We've made some of those changes within the last 6 months, and the feedback from our operators has been fantastic. We'd really like to see that legislation get passed through and change.

Obviously, there's a few roadblocks and hurdles to that getting passed. Difficult to say whether it's this year or next year. Given the positive momentum that we're seeing, not only within our own operations, but Brazil more broadly, we're hopeful that that shift change gets implemented or that legislation gets passed. Again, not including our guidance, it's more of a longer-term benefit. Again, when I look at the continuity of shift change, I look at the feedback from our employees where we have made those changes, and moving people to a 4 day on, 4 day off rotation has just been such a positive change, not only for operations, but also for quality of life for our workforce. Really love to see it happen.

Again, I think it would be a nice boost to productivity. We're not relying on it for our guidance for this year.

All right. Thanks, Marco. If only I had a good guess for the BRL. Thank you for answering the question. Bye.

If you do, please let us know.

The next question comes from Anita Soni with CIBC. Please go ahead.

Hi, Marco and team. Thanks for taking my question. I think that most of them have been asked and answered, I just wanted to get a little bit of detail on the grade profile at Xavantina into the back half of the year. I just wanna understand how those costs will come down from the level that they were in Q1.

Thank you, Anita. The main difference we see is really in the 2 halves, so stronger grades second half. I think really when you look at, you know, the 1st half and is really about the change in volume from Q1 to Q2. We expect grades to be relatively similar with a step up in the 2nd half. I would say full year still very closely aligned with reserve grade. We don't, you know, see a major delta in terms of overall reserve grade for, you know, for this year's production. Obviously, that depends a lot on sequence. We've got in aggregate, you know, near close to 1 million ounces of reserves when you include the resources, when you include all categories. There's a lot of material there relative to our 1-year production.

We see grades this year, full year on a blended basis, being fairly well aligned with our reserve grade.

Okay. Just in terms of the recovery rates, is that kind of the level at around 81%, or would that also improve into the back half of the year? Just trying to get an understanding where recovery is going.

Yeah. Yeah. Thank you, Anita. We see that improving for a couple reasons. First quarter, we did replace some equipment that was aging in our operations, so we put in a new Falcon concentrator, gravity concentrator, that we expect to increase performance, and we were seeing that. We also are getting a little bit higher throughput volumes, which tends to stabilize the operation, and also a little bit higher grades. You know, when we look out to the rest of the year, we see recoveries normalizing in the high 80s at this grade profile. While that may be different from prior years, say that, obviously it depends on the amount of organic carbon that's coming in feed.

We see the high eighties for this year as being the right number to look at on a normalized basis.

Okay. As you go into next year, that would it climb to say the 90%, or is that the high 80s where we should have it?

Yeah. Look, we're putting in considerable effort this year to improve operations. I think our target still remains, you know, low 90s. That's for sure still our target. We have a few initiatives ongoing to help achieve that. I would say stay tuned for that. We hope to be talking around some of those objectives and plans at Xavantina on our Capital Markets Day in the fall.

Thank you very much.

The next question comes from Emerson Vieira with Goldman Sachs. Please go ahead.

Hello. Good morning, team. Can you hear me?

Barely, to be honest.

Is it better now?

Yes. Just speak slowly, and I think we'll be able to. It'll come through.

All right. All right. Thanks for the time, guys. Just on Xavantina, I just want to understand what is your guys' expectations for gold production comparing to the guidance. I mean, it's pretty clear that grades should improve as well as throughput because you're getting access to the higher stilts, right? Even so, I mean, the change in production should be quite material to deliver on the low end of the guidance. Just trying to understand here, if you guys think that Xavantina gold production is now more skewed to the low end of the guidance. This is the first question. Just a second one on Tucumã. I mean, it's also pretty clear that we should see an improvement in second Q, just looking at, I mean, second half. Just looking at 2Q specifically, I mean, what are your expectations for throughput in grades, given that, I mean, grades should decline materially by the second half, but on the other hand, the throughput should also improve. So just specifically on 2Q for Tucumã and on Xavantina's group production guidance, please. Thank you.

Yeah. When we think about Xavantina, I think it's important looking at throughput volume and I hear what you're saying on the step-up. I would look at Q4, really the second half of last year in terms of throughput volume and what we achieved there, as being, you know, aligned with our expectation. Obviously, a little bit of a step-up given some of the work we're doing now in development. When I look at the second half of April, into May and the development rates that we're achieving, as well as some of the productivity in preparing stopes and having better access to higher grade, we still see ourselves firmly within that guidance range. I understand the nature of the question.

If we felt the guidance was at risk, then obviously we'd be talking about a different guidance range. We still feel comfortable with where we're at, particularly looking at second half of April and the first few days in May here. I hope that addresses the question on Xavantina. At Tucumã, in terms of grade, when I think about the full year, I think you used the word material decrease in grade, but we're looking at a, you know, a fairly elevated grade profile for the whole year. We were at 1.66 in Q1. Full year average, we're still looking around 1.4. You know, you can look at the rate of decline there, and I would argue that it's still very high grade across the full year.

All right. Very clear. Thank you.

This concludes the question and answer session. I would like to turn the conference back over to Makko DeFilippo for any closing remarks. Please go ahead.

Thank you everyone for joining us this morning. Thank you for the questions. As always, we appreciate the thoughtful dialogue. We're available for any follow-up questions. Please feel free to reach out to our investor relations team directly. We will make ourselves available as needed as always. Lastly, just a reminder that we have our Ero Capital Markets Day, September 14th, that we are hosting in São Paulo. Look forward to seeing many of you there. Thank you again. Have a great day, everyone.

This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.