Ero Copper’s Tucuma Ramp-Up: A Catalyst for FY25 Free Cash Flow Growth

Ero Copper Corp. (NYSE: ERO) is poised to deliver a significant free cash flow inflection in the second half of fiscal 2025, driven by the successful ramp-up of its Tucuma copper project. A recent note from National Bank highlights the project’s operational progress as a key driver of this transformation, with Ero’s Q1 2025 results validating the pathway to sustained growth. Let’s dissect the data and analyze why investors should take notice.

The Tucuma Ramp-Up: Progress and Momentum

The Tucuma project, Ero’s flagship asset, has been a focal point of its growth strategy. In Q1 2025, the operation produced 5,067 tonnes of copper, a 32% quarter-on-quarter increase in ore processed, with output accelerating in March after resolving bottlenecks from late 2024. A critical milestone was achieved in April 2025: the commissioning of the third tailings filter enabled commercial production to begin in H1 2025, a prerequisite for full cost accounting and cash flow recognition.

This ramp-up is already bearing fruit. Ero’s consolidated copper production for Q1 hit 12,424 tonnes, with Tucuma contributing over half of this total. Management emphasized that Q2 production will surpass Q1 levels, as Tucuma’s stabilized operations and higher throughput volumes drive sequential growth. Full-year copper production is guided to 75,000–85,000 tonnes, a significant increase from 2024’s 52,600 tonnes.

The Free Cash Flow Case: Liquidity, Costs, and Capital Allocation

National Bank’s note likely hinges on three pillars: improved liquidity, cost efficiencies, and disciplined capital spending. Let’s unpack the data:

1. Liquidity and Funding Strength:
   Ero’s liquidity position is robust, with $115.6 million available at Q1-end, including $80.6 million in cash and a $35 million undrawn credit facility. A $50 million upfront payment from Royal Gold’s amended gold streaming agreement (extending delivery thresholds to 160,000 ounces) further bolstered cash reserves. This liquidity buffer provides flexibility to manage capital expenditures and prioritize high-return projects.

1. Cost Management and Tucuma’s Full-Cycle Efficiency:
   While Tucuma’s C1 cash costs were deferred until commercial production (now achieved), the project’s scale and metallurgical efficiency—2.18% copper head grades and 89.4% recovery rates—position it competitively. Once costs are reported, they’re expected to align with Caraíba’s $2.22/lb, ensuring strong margins. Meanwhile, Xavantina’s AISC dropped to $2,228/oz in Q1, with mechanization efforts set to reduce costs further.

2. Capital Expenditure Discipline:
   Ero reaffirmed its $230–$270 million FY25 CapEx budget, excluding Tucuma’s pre-commercial costs. This prioritizes sustaining current operations and advancing the Furnas Copper-Gold Project, where eight drill rigs are active. Crucially, the company plans to begin repaying its revolving credit facility in H2 2025, signaling confidence in improving free cash flow.

The Free Cash Flow Inflection Point: When Does It Arrive?

National Bank’s note likely emphasizes that H2 2025 is the inflection point for Ero’s free cash flow. Here’s why:
- Commercial Production EBITDA Boost: With Tucuma’s costs now expensed post-H1 2025, higher production volumes will directly translate to EBITDA growth.
- Sequential Production Growth: Q2’s output will exceed Q1’s 12,424 tonnes, with H2 benefiting from full operational capacity.
- Cost Leverage: Fixed costs spread over higher volumes, while lower unit costs from scale further improve margins.

Risks to the Narrative

While the outlook is positive, risks remain:
- Metals Prices: Copper prices averaged $3.61/lb in Q1 2025, down from $4.21/lb in . A sustained dip below $3.50/lb could pressure margins.
- Operational Execution: Any delays in achieving Tucuma’s throughput targets or cost overruns could delay the free cash flow turnaround.
- CapEx Overruns: While guidance is intact, unexpected spending on Furnas or Tucuma’s sustaining capital could strain liquidity.

Investment Implications

Ero’s stock rose 7.55% post Q1 results, closing at $12.71, as investors priced in Tucuma’s progress. With $160 million in streaming proceeds secured and $115 million in liquidity, the company is well-positioned to execute its strategy.

Conclusion: A Free Cash Flow Turnaround in H2 2025

The data supports National Bank’s thesis: Ero Copper is on track to deliver a free cash flow inflection in the second half of 2025. With Tucuma’s commercial production achieved, sequential production growth, and disciplined capital allocation, the company is primed to capitalize on higher volumes and cost efficiencies.

Key metrics to watch:
- H2 2025 production: Must exceed Q2’s expected 13,000+ tonnes to hit the full-year 75,000–85,000 target.
- Tucuma’s C1 costs: Must align with Caraíba’s $2.22/lb to sustain margins.
- Liquidity: The $115 million buffer and debt repayment plans signal financial prudence.

Investors seeking exposure to copper’s long-term demand story should take note: Ero’s execution on Tucuma positions it to deliver meaningful free cash flow growth, making it a compelling play on the sector’s recovery.

Final Note: Monitor Ero’s Q2 results for confirmation of Tucuma’s stabilized operations and cost metrics to validate this narrative.