Key insights
- The author identifies ERO Copper as undervalued relative to peers like FCX and SCCO, citing a low P/E ratio and growth potential from its Brazilian mining operations. Production increases are expected in 2026, driven by mechanization and mine extensions. Recent downgrades are viewed as an opportunity, with the author considering the increased capex as a prudent investment. The analysis suggests a bullish outlook on copper demand due to AI, EV, and infrastructure buildout.
Hey everyone wanna share with you ideas on a copper mining company stock - ERO, stands for ERO Copper Corporation.
The headquarters of the company is in Vancouver, Canada but all the mining operations take place in Brazil.
Now why I initially wanted to buy some copper stocks is because it seems like an obvious commodity play for forseable future. I've read some articles on how by 2030-2035 the sharp supply deficit of copper are expected to hit the AI buildout, power infrastructure build out, EV business, etc.. Copper is very needed in many places. (Link to article below)
But many copper companies are already priced very high on that expectation. Such as FCX at PE of 46 or SCCO at PE of 36 and even Chinese company Zijin mining is selling at PE of 18. And I don't like paying fair price for the business, as many of you value investors I am hunting for Mr Market to hand me a mispriced asset.
ERO copper I believe is that, at PE of 11 and forward PE of 6.27, the company is very modestly priced.
They guide for production increase in 2026, with execution heavier on H2 of 2026 which resulted in recent downgrade of the stock by Goldman and Bofa. The issue is that they had to add capex to mechanize their extraction in one of the mines. I see it as a necessary capex, prudent even which is simply part of the business, after all what do we expect. You can't just hit land with shovel and make it print money.
So they have three mines:
Caraiba - which is also going through deepening extension project, basically building a deeper shaft to reach the richer ore bodies. Production grow a little in 2025 to 36K tonnes from 35K tonnes in 2024. Guided to grow to 35K to 40K in 2026.
Tucuma - is the one undergoing mechanization effort to further increase throughput. Production grew to 27K tonnes in 2025 from 4K in 2024. And guided to grow to 32.5K to 37.5K in 2026.
Their copper mixed cost is at $2.06 per lb or year 2025, while the price of realization at 4.46. The company has an operating margin of 34%, pretty good for a mining company.
And there is also a gold mine that they own
Xavantina - also going through mechanization and in Q4 2025 production grew 50% quarter over quarter to 13K oz in Q4. Guiding for 40K to 50K oz of gold in 2026.
But That is not the reason I am buying the stock. The company also owns 60% of Furnas mine that is scouted to have a very low cost production at $0.24 per lb. Which is one of the cheapest costs worldwide. And they expect this mine to be operational for 15 years at that cost and 24 years at cost of $0.30 per lb. It is expected to go online in 2028, but I am willing to wait and I think even the growth on existing mines at PE of 11 is still quite cheap even if we look one year forward.
Long story short even if price of realization remains flat this new mine is expected to return 27% return. At price of $6.1 per lb rate of return is 44%.
Also I liked that they de-leveraged their company meaningfully in last year from net debt leverage ratio of 2.9 to 1.2. Healthier balance sheet always a positive in my mind.
So... I am planning to buy a bit and just wait for new mine to open and copper price to keep growing. What do you think?
Retail investor youtuber review of the company: https://youtu.be/FWi1qwxTS7o?si=iwgaT7CJrCeQ\_VC7
Supply deficit article: https://www.iea.org/commentaries/copper-prices-have-hit-record-highs-but-smelters-face-mounting-strategic-pressures