Investment Review №338. Change in Direction

About company

Ero Copper is a copper and gold producer with operating assets in Brazil. The сompany has entered a phase of active scaling following the successful ramp-up of its key assets. Operating results released in early 2026, together with an updated three-year plan, support a favorable investment case over the next 12 months.

 

Price dynamics ERO, $

 

Key Investment Theses

Record performance and confirmed growth trajectory through 2028. In Q4 2025, Ero Copper delivered a record quarterly copper output of 19.7 kt and strong gold production, including sales of previously accumulated concentrates. As a result, the company ended the year with approximately $150 mn in cash, materially strengthening its financial position. Against this backdrop, management reaffirmed copper production guidance of 67.5–77.5 kt in 2026, with a further increase to 80–90 kt by 2028, providing clear visibility on medium-term growth.

Capital program focused on capacity expansion. For 2026, Ero Copper plans capital expenditures of $275–320 mn, including around $80 mn allocated to the construction of the Pilar shaft. Elevated investment is aimed at enhancing operational resilience and expanding throughput across the existing asset base, which is a key prerequisite for achieving the targeted production levels by 2028.

Supportive copper market fundamentals. Global copper demand continues to rise, driven by electrification of energy systems, transportation, and grid infrastructure, while current production and the project pipeline are insufficient to meet this growth. According to S&P Global estimates, the market could face a supply deficit of up to 10 Mt by 2040, underpinning long-term fundamentals and supporting producers capable of near- to medium-term volume growth.

Gold as a cash-flow buffer and additional growth lever. The Xavantina gold asset, together with ongoing sales of gold concentrates through mid-2027, provides incremental cash flow during the peak capex period. This helps mitigate near-term pressure on free cash flow and reduces the Ero Copper’s sensitivity to short-term copper price volatility.

We estimate a 12-month upside potential of approximately 13.3% for ERO shares. Our target price is $36 with a Buy recommendation. As a risk-management level, we suggest considering a stop-loss at $28.5.