Ero Copper (NYSE:ERO) reported first-quarter financial results on Tuesday. The transcript from the company's first-quarter earnings call has been provided below.

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The full earnings call is available at https://event.choruscall.com/mediaframe/webcast.html?webcastid=A9tf7UE9

Summary

Ero Copper reported a significant increase in copper production (up nearly 40%) and gold sales volumes (up 77%) year on year, with quarterly revenue and adjusted EBITDA increasing by 110% and 100%, respectively.

Strategic initiatives include a focus on copper demand, cost inflation management, and advantageous positioning in Brazil's market. The company is progressing with its long-term growth strategy, notably with the Firdas project.

Future guidance remains positive, with expectations to maintain full-year production and cost guidance. The company is focusing on deleveraging its balance sheet, having achieved a 1x leverage ratio, and plans to eventually return capital to shareholders.

Operational highlights include a milestone of four years without a lost time injury at Tukemah and significant investments in infrastructure, which are expected to improve production rates in the second half of the year.

Management highlighted the importance of Brazil's strategic positioning and capital markets, alongside the benefits of their foreign exchange rate risk management in offsetting cost impacts from currency fluctuations.

Full Transcript

OPERATOR

Thank you for standing by. This is the conference Operator welcome to the Ero Copper First 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 Ahmed, VP Investor Relations. Please go ahead.

Farooq Ahmed (VP Investor Relations)

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 three 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 Mako Di Filippo, President and Chief Executive Officer Wayne Dreier, Executive Vice President and Chief Financial Officer Jelson 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 Mako Di Filippo.

Mako Di Filippo (President and Chief Executive Officer)

Thank you Farooq and good morning. These days it is difficult to know exactly what each morning's news will bring, so let me start by saying I appreciate all of you dialing in for this. Before diving into the quarter, I wanted to share three observations on the back of several weeks of travel throughout Brazil, New York, Boston, comparing notes with Wayne from Sesco 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 insulated 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 arrow 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 three 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 source 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 on 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 on year decreases in in net debt of approximately 70 million, while our leverage ratio has reached targeted levels of 1 times, down markedly from approximately 2.4 times 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 discussed and 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.

Gelson Batista

Thank you Mako and good morning everyone. As Mako said at the outset, the work we have done across our operations is starting to come through in the numbers at Caraiba, mil throughput in Q1 exceeded 1 million tonnes. I would highlight this is the only second quarter in history where we have achieved that level of, 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 stope 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 tones 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 Surubim as well as higher grades and tonnage from Pilar and Vermelius. Due to planned stope sequencing, T1 cash costs are expected to decline in step with high grades in the third and fourth quarters supporting our reaffirm full year cost guidance. At Tucuman, copper production decreased modestly from Q4 on lower process grades, partially offset by higher throughput. Tucumã C1 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 Tucuman, we expect process 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 C1 cash costs expected to be relatively stable for the year. Supporting our reaffirmed full year guidance at Tucuma with respect to Tucuman Stainless Filtration circuit, we have two initiatives underway to unlock further capacity and increase overall throughput. First, as you know, we have placed orders for three new modular Thailand filters. We continue to expect delivery of these units on site during the third quarter and for them to be operational during the fourth quarter parallel. We are in the process of adding additional filter plates to each of our three existing filter presses, which is 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 Tucuman'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 first quarter gold production and costs, we expected Q1 to be the weakest gold production quarter of the year due to discrete CO infrastructure work alongside additional ground support investments made to enhance operational performance beginning in the second quarter. Looking to the remainder of the year, we expect mining rates and throughput to pick up through the end of Q2 and maintain mine rates in Q3 and Q4. As a result, we expect 60 to 65% of 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 Chavutina, 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 nine 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.

Wayne Dreier (Executive Vice President and Chief Financial Officer)

Thank you Jelson 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 Tucuma, 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 6 cents per pound relative to our budgeted 5 real 40 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 554 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 to $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 seven 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 5 to 10 cents per pound to operating costs if key inputs such as diesel consumables, road transportation and ocean freights 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 1.25.2 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 continue 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 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 1x, 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.

Mako Di Filippo (President and Chief Executive Officer)

Thank you Wayne. Before we open it 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 the 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, so stay tuned for that. With that operator we will open the lineup for Q and A.

OPERATOR

Thank you. To join the question queue you may press star then 1. On your telephone keypad you will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, Please press star then 2. The first question comes from Fahad Tariq with Jeffries. Please go ahead.

Fahad Tariq (Equity Analyst)

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?

Mako Di Filippo (President and Chief Executive Officer)

Yeah, thanks. Thank you for the question. So I think more broadly speaking, I'll give a a bit of nuance about our labor negotiations which happen annually in the fall. Those are typically set around the standard inflation rate. So 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 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 Brazilian Real strengthened significantly and hence the hedge program that we put in place to help offset some of that inflation. But 5% was the negotiated rate last year in the fall.

Fahad Tariq (Equity Analyst)

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

Mako Di Filippo (President and Chief Executive Officer)

No concerns at this time. We monitor that pretty closely. 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 organization what to do in these type of environments. And so we proactively increased our reserve of imported consumables into Brazil. But again, we see no issues at this time. Okay, great.

Fahad Tariq (Equity Analyst)

Thanks so much.

OPERATOR

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

Orest Wakada (Equity Analyst)

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? And I'm wondering if you could provide any guidance for the year with respect to contained ounces in the gold concentrate.

Mako Di Filippo (President and Chief Executive Officer)

Yeah, 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 nine that we prepared showing average rainfall. Obviously maybe, you know, May, June, July and August have very low rainfall on average, you know, less than 10 millimeters. And so we're expecting to, to ramp up sales volume pretty meaningfully here in, in Q2. But in terms of giving the exact amount, it's going to be predicated by the amount of sunny days during that time period. So, so hesitant to do that for obvious reasons. When I Look ahead to Q4, as Gelson 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. But 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. So we still see, you know, right around 1 ounce per ton or a bit higher as being the benchmark. There haven't seen any evidence that the grades are lower. But 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.

Orest Wakada (Equity Analyst)

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

Mako Di Filippo (President and Chief Executive Officer)

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

Orest Wakada (Equity Analyst)

Thanks. Look forward to that.

OPERATOR

The next question comes from Stefan Ioannu with ATB Core. Mark, please go ahead.

Stefan Ioannu (Equity Analyst)

Yeah, thanks very much. Just wondering, is there any updates or

Mako Di Filippo (President and Chief Executive Officer)

color on just how the shaft projects going at Pilar? Yeah, great Stefan. I'll jump in and then Gelson can carry on 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. And that's really the critical path for that, 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 or in the process now. And so 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, early next year so that we can transition from sinking into transitioning that, that shaft over to the operational phase.

Stefan Ioannu (Equity Analyst)

Okay, great. Thanks very much, guys.

OPERATOR

The next question comes from Matthias Moreira with Brandesco bvi. Please go ahead.

Matthias Moreira (Equity Analyst)

Hi, thank you for taking my questions. First question on our sales versus production gap for copper. Specifically, I noticed that sales for the quarter came above production figures for both Caraiba and Tucuma. I was just wondering how should we think about the gap between sales and production going forward? That's the first question.

Mako Di Filippo (President and Chief Executive Officer)

Thanks for the question. And 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. So we sell in 10,000 ton lots of. And so 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, sold early in Q1. So you know that that timing will always vary just depending on how we, how we assemble our lots. I mean obviously we try our very best to sell everything we produce, but sometimes it's just the timing just doesn't work.

Matthias Moreira (Equity Analyst)

Okay, that's clear. And then moving to Tucuma, I mean regarding the tailings filtration capacity at Tacuma, how has that been progressing? You previously shared that the equipment has been ordered and was in manufacturing. I'm just wondering if there are any updates there.

Mako Di Filippo (President and Chief Executive Officer)

Yes, Jelson spoke to Equipment is being manufactured. We still expect delivery here in the 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 and I think we've made that abundantly clear. But to stress it is not included in our full year guidance but 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 is operational for 2027, not included in 2026 guidance.

Matthias Moreira (Equity Analyst)

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

OPERATOR

The next question comes from Dalton Barreto with Can Occurred Genuity. Please go ahead.

Dalton Barreto (Equity Analyst)

Thanks. Good morning, guys. Marco, I thought I heard you say in your comments that your travels took you through washing and I'm wondering if you can add some context around that. So what sort of discussions you're having given that your assets are in Brazil. Anything that you can wrap around that. Thanks.

Mako Di Filippo (President and Chief Executive Officer)

Yeah, 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 US Government and the Canadian government enact critical minerals programs. We are 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 US Very seriously. And so we're invited to participate in critical minerals events. We show up in force to do that.

Dalton Barreto (Equity Analyst)

Got it. Thanks for that. And then just I wanted to ask about Piranha Panema 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 an option to place more concentrate there.

Mako Di Filippo (President and Chief Executive Officer)

Thanks. Look, 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 for our business. The change in global TCRCS has, you know, offset the cost benefit of shipping locally to local smelter. And so I think when you're looking forward at the future of Paranapanema 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. So we continue to monitor what happens there. We don't see it as being a huge benefit or impediment to our business 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. And as I said, there's quite a bit of interest in getting Paranapanema back up and running full steam ahead. We closely monitor the situation there.

Dalton Barreto (Equity Analyst)

Thanks, Mongo.

OPERATOR

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

Guillermozito

Thank you. Can you guys hear me? Yes. Perfect.

Mako Di Filippo (President and Chief Executive Officer)

So thank you for taking my questions. So my first one is on the cost. Mako, I know you guys mentioned Wayne was very clear with the sensitivities and hedges. That's really appreciated. But as we look to all the trains that we started first quarter at a high level, higher than we were expecting for 17, for instance, which I understand is according to plan, you know, BRL is 490. We have pressures from potentially chemicals, fuels. 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? And then 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 are approaching elections, do you think there's still time for any change to be made into this year or is it now a next year? So this election is approaching and we don't have any climate to prove anything. Thank you. Yeah, thanks. Thank you for the questions, both very good ones. On the cost side, look, I think you know, when it comes to costs being elevated in Q1, particularly at Javon Sheena but also at Kariba, you know, I would point to the second half weighting. So we do expect all it's being equal for cost to fall back down in line 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 5 to 10 cents. That's part of the reason that we do provide a cost guidance range as 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 5.54 and that's really the most important message for the BRL. Again, all else being equal and ignoring foreign exchange, given that 5 to 10 cent 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. But again, we have a number of months ahead of us and it's a very, very volatile time. So I think it's really too early to give a cleared or clear steer one way or another. But we do see costs coming down pretty meaningfully as production volumes ramp up in the second half of the year on shift change. So for, 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 and 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 basis, six hour shift basis. So the proposal is to, I would say, more closely align with conventional shift schedules, meaning that towards eight hours, that incremental underground time would be a. 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, surface operations operate on 12 hour shifts. We've made some of those changes within the last six months and the feedback from our operation, our operators, has been fantastic. And so 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. So difficult to say whether it's this year or next year. But 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 included in our guidance. So it's more of a longer term benefit. But 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 four day on, four day off rotation has just been such a positive change, not only for operations, but also for quality of life for our workforce. So really love to see it happen again. I think it would be a nice boost to productivity, but we're not relying on it for our guidance for this year.

Guillermozito

All right, thanks, Michael. If only I had a good guess for the Bureau. But thank you for answering the question. Bye.

Mako Di Filippo (President and Chief Executive Officer)

If you do, please let us know.

OPERATOR

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

Anita Soni (Equity Analyst)

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

Mako Di Filippo (President and Chief Executive Officer)

Yeah, thank you, Anita. The main difference we see is really in the two halves, so stronger grades. Second half, I think really when you look at the first half is really about the change in volume from Q1 to Q2, but we expect rates to be relatively Similar with a step up in the second half, I would say full year still very closely aligned with reserve grade. So 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 a million ounces of reserves when you, when you include the. There are resources when you include all categories. So there's a lot of material there relative to our one year production. But we see grades this year, full year, on a blended basis, being fairly well aligned with our reserve grade.

Anita Soni (Equity Analyst)

Okay. And then 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 we're.

Mako Di Filippo (President and Chief Executive Officer)

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, 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. So you know, when we look out to the rest of the year, we see recoveries normalizing in the high 80s of this grade profile. While that may be different from prior years, say that obviously depends on the amount of organic carbon that's coming in feed. And so we see the high 80s for this year as being the right number to look at on a normalized basis.

Anita Soni (Equity Analyst)

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

Mako Di Filippo (President and Chief Executive Officer)

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 and I would say stay tuned for that. We hope to be talking around some of those objectives and plans at Javantina on our capital markets day in the fall.

Anita Soni (Equity Analyst)

Thank you very much.

OPERATOR

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

Emerson Viera (Equity Analyst)

Hello, Good morning team. Can you hear me?

Mako Di Filippo (President and Chief Executive Officer)

Barely, to be honest.

Emerson Viera (Equity Analyst)

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. So 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 we're getting access to the higher stops. Right. But even so, I mean, the change in production should be quite material to deliver on the low end of the guidance. So just trying to understand here, if you guys think that 17 a good production is now more skewed to the low end of the guidance. So this is the first question and just a second one on Tucuma. I mean, it's also pretty clear that we should see an improvement in second Q. But just looking at, I mean, in terms of hat, but just looking at second Q 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, throughput should also improve. So just specifically on second Q for Tucuma and on good production guidance, please.

Mako Di Filippo (President and Chief Executive Officer)

Thank you. Yeah, so when we think about Xavantina, I think it's important, looking at throughput volume, and I hear what you're saying, 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 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. So 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. So we still feel comfortable with where we're at, particularly looking at second half of April and the first few days in May here. So I hope that addresses the question on Javoncina at Tucuma 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 fairly elevated grade profile for the whole year. So we were 1.66 in Q1 full year average. We're still looking around 1.4. So you can look at the. The rate of decline there. And I would argue that it's still very high grid across the full year.

Emerson Viera (Equity Analyst)

All right, very clear. Thank you.

OPERATOR

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

Marco de Filippo

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

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