Ero Copper's Undervaluation Amid Rising Copper Demand

The global copper market is entering a pivotal phase, driven by structural demand from electrification, artificial intelligence (AI) infrastructure, and power grid modernization. According to J.P. Morgan, a refined copper deficit of ~330 kmt is projected for 2026, exacerbated by supply constraints at key mines like Grasberg and Quebrada Blanca. Meanwhile, structural demand is surging, with data centers alone expected to add 475 kmt of copper demand in 2026. Against this backdrop, Ero Copper Corp. (ERO) emerges as a compelling investment opportunity, combining operational resilience with attractive valuation metrics in a sector poised for long-term growth.

Operational Strength: Cost Efficiency and Production Momentum

Ero Copper's operational performance in 2025 underscores its competitive positioning. For Q3 2025, the company produced 16,664 tonnes of copper and 9,073 ounces of gold, with adjusted EBITDA reaching $77.1 million. Notably, the Tucumã mine achieved a 19% quarter-on-quarter production increase, with C1 cash costs at $1.62 per pound-a stark contrast to the industry's 90th percentile benchmark of $3.04 per pound. At Xavantina, gold production rose 17%, supported by higher grades and mechanized mining. These improvements highlight Ero's ability to optimize operations amid rising input costs.

The company's cost structure further strengthens its appeal. Ero's blended C1 cash cost of $2.00 per pound in Q3 2025 lags behind industry leaders like Freeport-McMoRan (FCX), whose non-Grasberg operations generate operating income that has more than doubled at Morenci and increased by 28% at Cerro Verde. However, Ero's costs remain well below the marginal production threshold, ensuring profitability even if copper prices dip toward the lower end of the $10,000–$11,000/mt range projected by Goldman Sachs.

Valuation Metrics: Attractive Multiples in a High-Growth Sector

Ero's valuation metrics suggest it is undervalued relative to peers and broader industry trends. As of late 2025, the stock trades at a P/E ratio of 10.05, a price-to-book ratio of 3.42, and an EV/EBITDA of 17.90. These figures compare favorably to industry benchmarks: Freeport-McMoRan's EV/EBITDA stands at 8.1x, while Vale S.A. (VALE) trades at a forward P/E of 6.46x and an EV/EBITDA of 4.18x. Ero's EV/EBITDA of 9.51x aligns closely with the industry median of 9.39x, suggesting it is neither overpriced nor significantly undervalued.

What sets Ero apart is its forward-looking potential. Fitch Ratings upgraded the company's issuer default rating to 'B+' with a stable outlook in December 2025, reflecting improved financial stability. This upgrade, coupled with Ero's maintained 2025 production guidance and Q4 2025 efficiency initiatives, positions it to capitalize on tightening copper markets. Analysts project copper prices to average $12,075/mt in 2026, with Goldman Sachs forecasting a rise to $15,000/mt by 2035. Ero's cost discipline and production scalability could amplify its margins in this environment.

Strategic Positioning in a Supply-Constrained Market

The copper sector's long-term fundamentals are robust. The International Energy Agency estimates a 30% supply deficit by 2035, driven by declining ore grades, limited new discoveries, and lengthy mine development timelines. Ero's operations in Brazil-Tucumã and Xavantina-are well-positioned to benefit from this scarcity. The company's focus on mechanized mining and grade optimization aligns with the industry's shift toward higher-margin, lower-cost production.

Moreover, Ero's dual focus on copper and gold provides diversification. While copper demand is surging, gold's role as a hedge against macroeconomic uncertainty adds resilience to Ero's revenue streams. This duality is rare in the sector and enhances the company's appeal in a volatile market.

Conclusion: A Compelling Case for Ero Copper

Ero Copper's combination of operational efficiency, favorable valuation metrics, and strategic alignment with global copper demand trends makes it a standout in a sector facing acute supply constraints. While peers like Freeport-McMoRan and Vale S.A. command premium valuations, Ero offers a more attractive risk-reward profile for investors seeking exposure to the copper boom. With a stable outlook from Fitch, a production guidance intact for 2025, and a cost structure that outperforms industry benchmarks, Ero is well-positioned to deliver outsized returns as copper prices climb toward long-term projections.

In a market where structural demand is outpacing supply, Ero Copper represents a rare opportunity to invest in a company that is both operationally disciplined and financially undervalued.