Ero Copper's Transformation Bearing Fruit: Cash Flow Inflection and Deleveraging
Operational and Financial Momentum
Ero Copper's Q2 2026 report marks a clear inflection point: the OneEro transformation is now visible in both operational and financial results. Cash flow from operations jumped nearly 50% quarter-over-quarter to $138 million, and adjusted EBITDA reached $144 million, setting the stage for further deleveraging. As CEO Makko DeFilippo noted, “Cash flow from operations increased nearly 50% quarter-on-quarter to approximately $138 million, and adjusted EBITDA increased to $144 million.” — Makko Defilippo · 2026-08-06 This cash generation enabled a $38 million net debt reduction to ~$453 million, pushing leverage to 0.8x from a peak of 2.6x.
The copper operations are delivering: Caraíba sustained higher throughput rates, while Tucumã saw plant throughput increase 27% quarter-on-quarter. The completion of the first phase of tailings filtration expansion, along with the imminent installation of three new modular filters, supports a continued ramp. This filtration capacity is critical to unlocking higher throughput and further cost dilution.
Xavantina: A Unique Value Driver
At Xavantina, the gold concentrate program is a standout. The company recovered 11,860 ounces from historic concentrates at a C1 cash cost of $633 per ounce, a high-margin stream that contributed to a 170% quarter-over-quarter increase in total gold production. The successful commissioning of a mobile filter press and industrial dryer—and approval of a new power line—should drive further gains. As Makko highlighted, “In June and July, when we had those operations... we achieved more than 7,000 ounces of gold.” — Makko Defilippo · 2026-08-06 This is a continuation of a theme seen in prior calls, but now with tangible results. Last quarter, the company had tempered expectations due to the rainy season, but now the dry season and new equipment are clearly bearing fruit.
The value creation initiative at Xavantina was not a hasty reaction to gold prices; Makko had noted earlier, “It's worth stressing this is not an initiative that began in earnest when gold price hit $4,000 an ounce.” — Makko Defilippo, CEO · 2025-11-05 The program now contributes meaningfully to both revenue and margins, with the company expecting strong sales through at least mid-2027.
Capital Allocation and Furnas
With leverage now well below 1x and the revolver being paid down, the company is approaching the point where shareholder returns become a realistic discussion. In response to an analyst question, Makko stated: “I think it's still too early to talk about shareholder return program. But obviously, it is top of mind... we want to see us really achieving that second milestone, which is to pay down our revolver.” — Makko Defilippo · 2026-08-06 This echoes the commitments made last year, but the pace of progress is accelerating.
The hedge program remains a key buffer against the stronger Brazilian real, generating $13 million in realized gains in Q2. With expected additional gains of $20-$25 million in H2, the company is effectively mitigating FX headwinds on cash costs.
Looking ahead, Furnas continues to be a major growth catalyst. The Phase 3 drill program is on track to complete by year-end, and a pre-feasibility study is expected in 2027. The company is also considering a technical report on Tucumã, which could re-rate the asset.
This quarter's results are a clear validation of the strategic direction set in early 2025. The combination of operational improvements, cash flow inflection, and disciplined capital allocation positions Ero Copper favorably, even as global copper prices remain elevated. The market context shows no direct thematic overlap with broader trends like Batch Zero or tariff-related themes, making this an idiosyncratic story of self-help and delivering on promises.
As Makko concluded in his closing remarks,
First, our operations are performing well, and we are positioned to deliver on our full year guidance... Second, with strong cash flows, we expect to continue to deliver on our commitment of deleveraging our balance sheet. And third, we are rapidly advancing Furnas.