Filed Pursuant to General
Instruction II.L. of Form F-10
File Number 333-274097
The information contained
in this preliminary prospectus supplement is not complete and may be changed. This preliminary prospectus supplement and the accompanying
prospectus are not an offer to sell and are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale
is not permitted.
SUBJECT
TO COMPLETION, DATED NOVEMBER 6, 2023
PRELIMINARY PROSPECTUS SUPPLEMENT
To the Short Form Base Shelf Prospectus
dated August 18, 2023
| New Issue | November 6, 2023 |
ERO COPPER CORP.
US$ ●
● Common Shares
This prospectus supplement (this
“Prospectus Supplement”) of Ero Copper Corp. (the “Company” or “Ero”),
together with the short form base shelf prospectus dated August 18, 2023 (the “Prospectus”), qualifies the
distribution (the “Offering”) of ● common shares of the Company (the “Common Shares”) at
a price of US$ ● per Common Share (the “Offering Price”). The Common Shares will be issued pursuant to an
underwriting agreement (the “Underwriting Agreement”) dated as of November ●, 2023 among the Company, BMO
Nesbitt Burns Inc., as sole bookrunner and lead underwriter (the “Lead Underwriter”), ● and ●
(collectively with the Lead Underwriter, the “Underwriters”). The Common Shares will be offered in each of the
provinces and territories of Canada, except Quebec, in the United States and, subject to applicable law, in certain
jurisdictions outside of Canada and the United States through the Underwriters either directly or through their respective Canadian
or U.S. broker-dealer affiliates or agents in accordance with the Underwriting Agreement. See “Plan of
Distribution” and “Description of the Securities Being Distributed”.
Unless the context otherwise requires, references
to “Offering” and “Common Shares” include the additional Common Shares issuable upon exercise of
the Over-Allotment Option (as defined herein). The Offering Price has been determined by arm’s length negotiations between the
Company and the Lead Underwriter, on behalf of the Underwriters, with reference to the prevailing market price of the Common Shares.
The outstanding Common Shares are listed on
the Toronto Stock Exchange (the “TSX”) and the New York Stock Exchange (“NYSE”) under the
symbol “ERO”. The closing prices of the Common Shares on the TSX and NYSE on November 3, 2023, the last trading day prior
to the date of this Prospectus Supplement, were C$18.50 and US$13.52, respectively. The Company intends to apply to list the Common Shares distributed hereunder on
the TSX and NYSE. Listing will be subject to Ero fulfilling all listing requirements of the TSX and NYSE.
| Price
US$● per Common Share |
| |
|
Price
to
the Public |
|
|
Underwriting
Commission(1) |
|
|
Net
Proceeds
to the Company(2) |
|
| Per Common Share |
|
|
US$● |
|
|
|
US$● |
|
|
|
US$● |
|
| Total(3) |
|
|
US$● |
|
|
|
US$● |
|
|
|
US$● |
|
Notes:
| (1) | Pursuant to the Underwriting Agreement, the
Company has agreed to pay to the Underwriters a cash fee (the “Underwriting Fee”)
representing ●% of the aggregate gross proceeds of the Offering, (including any proceeds
realized from the sale of any Over-Allotment Shares (as defined herein)). The total “Price
to the Public”, the “Underwriting Fee” and the “Net Proceeds to the
Company” (before deducting expenses of the Offering) will be US$●, US$●
and US$●. See “Plan of Distribution”. |
| (2) | After deducting the Underwriting Fee, but
before deducting expenses related to the Offering estimated at US$1,000,000, which will be
paid from the proceeds of the Offering. See “Use of Proceeds”. |
| (3) | The Company has granted to the Underwriters
an option (the “Over-Allotment Option”), exercisable in whole or in part
in the sole discretion of the Underwriters at any time until the date which is 30 days following
the Closing Date (as defined herein), to purchase up to an additional ● Common Shares
(the “Over-Allotment Shares”) at a price of US$● per Over-Allotment
Share to cover over-allotments, if any, and for market stabilization purposes. In all circumstances,
the number of Over-Allotment Shares available to be sold is subject to the maximum amounts
allowable under the Company’s final base shelf prospectus dated August 18, 2023.
If the Over-Allotment Option is exercised in full, the total “Price to the Public”,
the “Underwriting Fee” and the “Net Proceeds to the Company” (before
deducting expenses of the Offering) will be US$●, US$● and US$●,
respectively. This Prospectus Supplement and the Prospectus also qualify the grant of the
Over-Allotment Option and the distribution of the Over-Allotment Shares upon exercise of
the Over-Allotment Option. Any purchaser who acquires Common Shares forming part of the over-allotment
position of the Underwriters pursuant to the Over-Allotment Option acquires such securities
under this Prospectus Supplement and the Prospectus, regardless of whether the over-allocation
position is ultimately filled through the exercise of the Over-Allotment Option or secondary
market purchases. See “Plan of Distribution”. |
The following table sets forth the number of
Over-Allotment Shares issuable under the Over-Allotment Option:
Underwriters’
Position | |
Maximum
Number of
Available Securities | |
Exercise
Period | |
Exercise
Price |
| Over-Allotment Option | |
● Over-Allotment Shares | |
Up to 30 days from the Closing Date | |
US$● per Over-Allotment Share |
The Underwriters, as principals, conditionally
offer the Common Shares, subject to prior sale, if, as and when issued by the Company and accepted by the Underwriters in accordance
with the conditions contained in the Underwriting Agreement referred to under “Plan of Distribution” and subject to
approval of certain Canadian legal matters on behalf of the Company by Blake, Cassels & Graydon LLP, certain United States legal
matters on behalf of the Company by Paul, Weiss, Rifkind, Wharton & Garrison LLP, certain Canadian legal matters on behalf of
the Underwriters by Cassels Brock & Blackwell LLP, and certain United States legal maters on behalf of the Underwriters by Skadden,
Arps, Slate, Meagher & Flom LLP.
Subscriptions for the Common Shares will be received
subject to rejection or allotment in whole or in part and the right is reserved to close the subscription books at any time without notice.
The Underwriters may decrease the price of which the Common Shares are distributed from the Offering Price specified on the cover
page. See “Plan of Distribution”.
It is expected that the completion of the
sale of the Common Shares pursuant to the Offering (the “Closing”) will take place on or about November
14, 2023, or on such other date as may be agreed upon by the Company and the Lead Underwriter and, in any event, on or before
a date not later than 42 days after the date of this Prospectus Supplement (the “Closing Date”). Except as may be
otherwise agreed by the Company and the Lead Underwriter, the Offering will be conducted under the book-based system operated by CDS
Clearing and Depository Services Inc. (“CDS”). No certificates evidencing the Common Shares will be issued to
purchasers of the Common Shares. A purchaser who purchases Common Shares will receive only a customary confirmation from the
registered dealer from or through whom Common Shares are purchased and who is a CDS participant. CDS will record the CDS
participants who hold Common Shares on behalf of owners who have purchased Common Shares in accordance with the book-based system.
See “Plan of Distribution”.
In connection with the Offering and subject to
applicable laws, the Underwriters may over-allot or effect transactions that stabilize or maintain the market price of the Common Shares
in accordance with applicable market stabilization rules. Such transactions, if commenced, may be discontinued at any time. See “Plan
of Distribution”.
Ero
is a foreign private issuer under United States securities laws and is permitted under the multi-jurisdictional disclosure system adopted
by the securities regulatory authorities in Canada and the United States (“MJDS”) to prepare this Prospectus Supplement in
accordance with Canadian disclosure requirements. Prospective investors should be aware that such requirements are different from those
of the United States. Ero has prepared its financial statements, included or incorporated herein by reference, in accordance with International
Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”) which is incorporated within
Part 1 of the CPA Canada Handbook - Accounting, and Ero’s consolidated financial statements are subject to Canadian generally
accepted auditing standards and auditor independence standards, in addition to the standards of the Public Company Accounting Oversight
Board (United States) and the United States Securities and Exchange Commission (the “SEC”) independence standards. Thus,
they may not be comparable to the financial statements of United States companies.
Prospective
investors should be aware that the acquisition and disposition of the Common Shares described herein may have tax consequences both in
the United States and in Canada. Such consequences for investors who are resident in, or citizens of, the United States or who are resident
in Canada may not be described fully herein. Prospective investors should read the tax discussion in this Prospectus Supplement and consult
their own tax advisors with respect to their particular circumstances. See “Certain Canadian Federal Income Tax Considerations”
and “Certain United States Federal Income Tax Considerations”.
The
ability of investors to enforce civil liabilities under United States federal securities laws may be affected adversely because Ero is
incorporated in British Columbia, Canada, some of Ero’s officers and directors and some or all of the experts named in this Prospectus
Supplement and the Prospectus are Canadian residents and a substantial portion of Ero’s assets are located outside of the United
States. See “Enforceability of Civil Liabilities”.
NONE
OF THE CANADIAN SECURITIES REGULATORY AUTHORITIES, THE SEC NOR ANY UNITED STATES STATE SECURITIES COMMISSION OR OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE.
Certain of the Company’s directors and
officers reside outside of Canada and have appointed an agent for service of process in Canada. Purchasers are advised that it may not
be possible for investors to enforce judgments obtained in Canada against any person or company that is incorporated, continued or otherwise
organized under the laws of a foreign jurisdiction or resides outside of Canada, even if the person or company has appointed an agent
for service of process in Canada. See “Agent for Service of Process”.
A Canadian chartered bank affiliate of
the Lead Underwriter and ● and ● are lenders to the Company under the Company’s second amended and restated credit
agreement dated January 12, 2023, as amended on November 2, 2023 (the “Senior Credit Facility Agreement”).
Consequently, the Company may be considered to be a “connected issuer”, as defined in National Instrument 33-105 — Underwriting
Conflicts, of the Lead Underwriter and ● and ● under applicable securities laws in certain Canadian provinces and
territories. See “Plan of Distribution – Connected Issuer”.
The Company’s head office is located at
Suite 1050, 625 Howe Street, Vancouver, British Columbia, V6C 2T6, Canada and our registered office is located at Suite 3500,
1133 Melville Street, Vancouver, British Columbia, V6E 4E5, Canada.
An investment in the Common Shares is highly
speculative and involves significant risks that potential investors should consider before purchasing such Common Shares. Potential investors
should carefully review the “Risk Factors” section of this Prospectus Supplement, the Prospectus and the documents
incorporated by reference herein and therein as well as the information under the heading “Cautionary Note Regarding Forward-Looking
Statements”.
TABLE OF CONTENTS
Page
TABLE OF CONTENTS OF THE SHORT FORM BASE
SHELF PROSPECTUS
ABOUT
THIS PROSPECTUS
This document is in two parts.
The first part is this Prospectus Supplement, which describes the terms of the Offering and also adds to and updates information contained
in the Prospectus and the documents incorporated by reference therein. The second part, the Prospectus, gives more general information,
some of which may not apply to the Common Shares being offered under this Prospectus Supplement. This Prospectus Supplement is deemed
to be incorporated by reference into the Prospectus solely for the purpose of the Offering constituted by this Prospectus Supplement.
Other documents are also incorporated, or are deemed to be incorporated by reference, into the Prospectus and reference should be made
to the Prospectus for full particulars thereof.
Potential investors should
rely only on the information contained in or incorporated by reference in this Prospectus Supplement and the Prospectus. The Company
has not, and the Underwriters have not, authorized anyone to provide potential investors with different or additional information. Neither
the Company nor the Underwriters are making an offer of the Common Shares in any jurisdiction where such offer is not permitted. This
Prospectus Supplement does not constitute, and may not be used in connection with, an offer to sell, or a solicitation of an offer to
buy, any securities offered by this Prospectus Supplement by any person in any jurisdiction in which it is unlawful for such person to
make such an offer or solicitation. A potential investor should assume that the information appearing in this Prospectus Supplement or
the Prospectus is accurate only as of the date on the front of those documents and that information contained in any document incorporated
by reference herein or therein is accurate only as of the date of that document unless specified otherwise. The Company’s business,
financial condition, results of operations and prospects may have changed since those dates.
Market data and certain industry
forecasts used in this Prospectus Supplement and the Prospectus and the documents incorporated by reference herein and therein were obtained
from market research, publicly available information and industry publications. The Company believes that these sources are generally
reliable, but the accuracy and completeness of this information is not guaranteed. The Company has not independently verified such information,
and it does not make any representation as to the accuracy of such information.
In this Prospectus Supplement
and the Prospectus, unless otherwise indicated, all dollar amounts and references to “US$” are to U.S. dollars, references
to “C$” are to Canadian dollars and references to “R$” are to Brazilian Reais. See “Exchange Rate Information”.
In this Prospectus Supplement
and the Prospectus, unless the context otherwise requires, references to “we”, “us”, “our” or similar
terms, as well as references to “Ero” or the “Company”, refer to Ero Copper Corp. together with our subsidiaries.
CAUTIONARY
NOTE TO UNITED STATES INVESTORS
Unless otherwise indicated,
all mineral reserve and mineral resource estimates included in this Prospectus Supplement and the documents incorporated by reference
herein have been prepared in accordance with Canadian National Instrument 43-101 - Standards of Disclosure for Mineral Projects
(“NI 43-101”) and the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) Standards
on mineral resources and mineral reserves, as amended (the “CIM Standards”). NI 43-101 is a rule developed by
the Canadian Securities Administrators that establishes standards for all public disclosure an issuer makes of scientific and technical
information concerning mineral projects. Canadian standards, including NI 43-101, differ significantly from the requirements of the SEC,
and mineral reserve and mineral resource information included herein may not be comparable to similar information disclosed by U.S. companies.
In particular, and without limiting the generality of the foregoing, this Prospectus Supplement and the documents incorporated by reference
herein use the terms “measured mineral resources,” “indicated mineral resources” and “inferred mineral
resources” as defined in accordance with NI 43-101 and the CIM Standards.
Further to recent amendments,
mineral property disclosure requirements in the United States (the “U.S. Rules”) are governed by subpart 1300 of Regulation
S-K of the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”) which differ from the CIM Standards.
As a foreign private issuer that is eligible to file reports with the SEC pursuant to the multi-jurisdictional disclosure system, the
Company is not required to provide disclosure on its mineral properties under the U.S. Rules and will continue to provide disclosure
under NI 43-101 and the CIM Standards. If the Company ceases to be a foreign private issuer or loses its eligibility to file its annual
report on Form 40-F pursuant to the multi-jurisdictional disclosure system, then the Company will be subject to the U.S. Rules,
which differ from the requirements of NI 43-101 and the CIM Standards.
Pursuant to the U.S. Rules,
the SEC recognizes estimates of “measured mineral resources”, “indicated mineral resources” and “inferred
mineral resources.” In addition, the definitions of “proven mineral reserves” and “probable mineral reserves”
under the U.S. Rules are now “substantially similar” to the corresponding standards under NI 43-101. Mineralization
described using these terms has a greater amount of uncertainty as to its existence and feasibility than mineralization that has been
characterized as reserves. Accordingly, U.S. investors are cautioned not to assume that any measured mineral resources, indicated mineral
resources, or inferred mineral resources that the Company reports are or will be economically or legally mineable. Further, “inferred
mineral resources” have a greater amount of uncertainty as to their existence and as to whether they can be mined legally or economically.
Under Canadian securities laws, estimates of “inferred mineral resources” may not form the basis of feasibility or pre-feasibility
studies, except in rare cases. While the above terms under the U.S. Rules are “substantially similar” to the standards
under NI 43-101 and CIM Standards, there are differences in the definitions under the U.S. Rules and CIM Standards. Accordingly,
there is no assurance any mineral reserves or mineral resources that the Company may report as “proven mineral reserves”,
“probable mineral reserves”, “measured mineral resources”, “indicated mineral resources” and “inferred
mineral resources” under NI 43-101 would be the same had the Company prepared the mineral reserve or mineral resource estimates
under the standards adopted under the U.S. Rules.
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This Prospectus Supplement,
the Prospectus and the documents incorporated by reference herein and therein contain “forward-looking information”, “forward-looking
statements”, “future oriented financial information” and “financial outlook” within the meaning of applicable
Canadian and United States securities legislation (collectively herein referred to as “forward-looking information”),
including the “safe harbour” provisions of Canadian provincial securities legislation and the U.S. Private Securities Litigation
Reform Act of 1995, Section 21E of the U.S. Exchange Act of 1934, as amended (the “U.S. Exchange Act”), and Section 27A
of the U.S. Securities Act. The purpose of disclosing future oriented financial information and financial outlook is to provide a general
overview of management’s expectations regarding the anticipated results of operations including cash generated therefrom and costs
thereof and readers are cautioned that future oriented financial information and financial outlook may not be appropriate for other purposes.
Future oriented financial information and financial outlook has been prepared by the Company’s management. KPMG LLP, Chartered
Professional Accountants (“KPMG”), the Company’s independent registered public accounting firm, has not performed
any audit, review or compilation procedures with respect to the prospective information and accordingly does not provide any form of
assurance with respect thereto for the purpose of this offering.
Wherever possible, words
such as “plans”, “expects”, “guidance”, “projects”, “assumes”, “budget”,
“strategy”, “scheduled”, “estimates”, “forecasts”, “anticipates”, “believes”,
“intends”, “modeled”, “targets” and similar expressions or statements that certain actions, events
or results “may”, “could”, “would”, “might” or “will” be taken, occur or
be achieved, or the negative forms of any of these terms and similar expressions, have been used to identify forward-looking information.
Forward-looking information may include, but is not limited to, statements with respect to: the timing and closing of the Offering; the
listing of the Common Shares on the TSX and NYSE; the potential for the Underwriters to exercise the Over-Allotment Option or undertake
market stabilization transactions; the satisfaction of the conditions to closing of the Offering, including the receipt, in a timely
manner, of regulatory and other required approvals; the proposed use of proceeds of the Offering; mineral reserve and mineral resource
estimates; targeting additional mineral resources and expansion of deposits; the capital and operating cost estimates and the economic
analyses (including cash flow projections) from the Caraíba Operations Technical Report (as defined in the Prospectus), the Xavantina
Operations Technical Report (as defined in the Prospectus) and the Tucumã Project Technical Report (as defined in the Prospectus);
the Company’s expectations, strategies and plans for the Caraíba Operations (as defined below), the Xavantina Operations
(as defined below) and the Tucumã Project (as defined below), including the Company’s planned exploration, development and
production activities; the results of future exploration and drilling; estimated completion dates for certain milestones; successfully
adding or upgrading mineral resources and successfully developing new deposits; the costs and timing of future exploration, development
and construction including but not limited to the deepening extension project at the Caraíba Operations and the Tucumã
Project; the timing and amount of future production at the Caraíba Operations, the Tucumã Project and the Xavantina Operations;
the impacts of COVID-19 on the Company’s business and operations; the timing, receipt and maintenance of necessary approvals, licenses
and permits from applicable governments, regulators or third parties; expectations regarding consumption, demand and future price of
copper, gold and other metals; future financial or operating performance and condition of the Company and its business, operations and
properties, including expectations regarding liquidity, capital structure, competitive position and payment of dividends; the possibility
of entering judgments outside of Canada; expectations regarding future currency exchange rates; and our financing activities. Any statements
that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or
future events or performance are not statements of historical fact and may be forward-looking information.
Forward-looking information
is subject to a variety of known and unknown risks, uncertainties and other factors that could cause actual results, actions, events,
conditions, performance or achievements to materially differ from those expressed or implied by the forward-looking information, including,
without limitation, risks related to:
| · | copper
and gold prices are volatile and may be lower than expected; |
| · | mining
operations are risky; |
| · | mining
operations require geologic, metallurgic, engineering, title, environmental, economic and
financial assessments that may be materially incorrect and thus the Company may not produce
as expected; |
| · | geotechnical,
hydrological and climatic events could suspend mining operations or increase costs; |
| · | actual
production, capital and operating costs may be different than those anticipated; |
| · | the
Company’s financial performance and results of operations are dependent on the Caraíba
Operations; |
| · | infectious
diseases, such as COVID-19, may affect the Company’s business and operations; |
| · | changes
in climate conditions may affect the Company’s operations; |
| · | currency
fluctuations can result in unanticipated losses; |
| · | the
successful operation of the Caraíba Operations and the Xavantina Operations and the
successful development, construction and operation of the Tucumã Project depend on
the skills of the Company’s management and teams; |
| · | operations
during mining cycle peaks are more expensive; |
| · | title
to the Caraíba Operations, the Xavantina Operations and/or the Tucumã Project
may be disputed; |
| · | the
Company may fail to comply with the law or may fail to obtain or renew necessary permits
and licenses; |
| · | the
failure of a tailings dam could negatively impact the Company’s business, reputation
and results of operations; |
| · | compliance
with environmental regulations can be costly; |
| · | social
and environmental activism can negatively impact exploration, development and mining activities; |
| · | the
construction and start-up of new mines and projects at existing mines is subject to a number
of factors and the Company may not be able to successfully complete new construction projects; |
| · | land
reclamation and mine closure requirements may be burdensome and costly; |
| · | the
mining industry is intensely competitive; |
| · | inadequate
infrastructure may constrain mining operations; |
| · | operating
cash flow may be insufficient for future needs; |
| · | fluctuations
in the market prices and availability of commodities and equipment affect the Company’s
business; |
| · | the
Company is subject to restrictive covenants that limit its ability to operate its business; |
| · | the
Company’s indebtedness could adversely affect its financial condition and prevent the
Company from fulfilling its obligations under debt instruments; |
| · | the
Company may not be able to generate sufficient cash to service all of its indebtedness and
may be forced to take other actions to satisfy its obligations under such indebtedness, which
may not be successful; |
| · | counterparties
may default on their contractual obligations to the Company; |
| · | a
failure to maintain satisfactory labour relations can adversely impact the Company; |
| · | the
Company’s insurance coverage may be inadequate to cover potential losses; |
| · | it
may be difficult to enforce judgments and effect service of process on directors, officers
and experts named herein; |
| · | the
directors and officers may have conflicts of interest with the Company; |
| · | future
acquisitions may require significant expenditures and may result in inadequate returns; |
| · | disclosure
and internal control deficiencies may adversely affect the Company; |
| · | failures
of information systems or information security threats can be costly; |
| · | the
Company may be subject to costly legal proceedings; |
| · | the
Company may be subject to shareholder activism; |
| · | product
alternatives may reduce demand for the Company’s products; |
| · | a
lowering or withdrawal of the ratings assigned to the Company’s debt securities by
rating agencies may increase the Company’s future borrowing costs and reduce its access
to capital; |
| · | the
Company’s Brazilian operations are subject to political and other risks associated
with operating in a foreign jurisdiction; |
| · | the
Company may be negatively impacted by changes to mining laws and regulations; |
| · | a
failure to maintain relationships with the communities in which the Company operates and
other stakeholders may adversely affect the Company’s business; |
| · | inaccuracies,
corruption and fraud in Brazil relating to ownership of real property may adversely affect
the Company’s business; |
| · | the
Company is exposed to the possibility that applicable taxing authorities could take actions
that result in increased tax or other costs that might reduce the Company’s cash flow; |
| · | inflation
in Brazil, along with Brazilian governmental measures to combat inflation, may have a significant
negative effect on the Brazilian economy and also on the Company’s financial condition
and results of operations; |
| · | exchange
rate instability may have a material adverse effect on the Brazilian economy; |
| · | the
Company’s operations may be impaired as a result of restrictions to the acquisition
or use of rural properties by foreign investors or Brazilian companies under foreign control; |
| · | recent
disruptions in international and domestic capital markets may lead to reduced liquidity and
credit availability for the Company; |
| · | the
Company may be responsible for corruption and anti-bribery law violations; |
| · | investors
may lose their entire investment; |
| · | dilution
from equity financing could negatively impact holders of the Common Shares; |
| · | equity
securities are subject to trading and volatility risks; |
| · | sales
by existing shareholders can reduce share prices; |
| · | the
Company does not currently intend to pay dividends; |
| · | public
companies are subject to securities class action litigation risk; |
| · | if
securities or industry analysts do not publish research or publish inaccurate or unfavourable
research about the Company’s business, the price and trading volume of the Common Shares
could decline; |
| · | global
economic conditions can reduce the price of the Common Shares; |
| · | the
Company’s broad discretion relating to the use of any proceeds raised hereunder; |
| · | the
uncertainty of maintaining a liquid trading market for the Common Shares; |
| · | though
not expected, the Company may be classified as a passive foreign investment company within
the meaning of section 1297 of the U.S. Internal Revenue Code of 1986, as amended; and |
| · | other
risks relating to the completion of the Offering. |
This list is not exhaustive
of the factors that may affect any of our forward-looking information. Although we have attempted to identify important factors that
could cause actual results, actions, events, conditions, performance or achievements to differ materially from those contained in forward-looking
information, there may be other factors that cause results, actions, events, conditions, performance or achievements to differ from those
anticipated, estimated or intended.
Forward-looking information
is not a guarantee of future performance. There can be no assurance that forward-looking information will prove to be accurate, as actual
results and future events could differ materially from those anticipated in such information. Forward-looking information involves statements
about the future and is inherently uncertain, and our actual results, achievements or other future events or conditions may differ materially
from those reflected in the forward-looking information due to a variety of risks, uncertainties and other factors, including, without
limitation, those referred to in this Prospectus Supplement and the Prospectus under the heading “Risk Factors” and
elsewhere in this Prospectus Supplement, the Prospectus and the documents incorporated, or deemed to be incorporated, by reference.
Our forward-looking information
is based on the assumptions, beliefs, expectations and opinions of management on the date the statements are made, many of which may
be difficult to predict and beyond our control. In connection with the forward-looking information contained in this Prospectus Supplement,
the Prospectus and the documents incorporated, or deemed to be incorporated, by reference, we have made certain assumptions about, among
other things: favourable equity and debt capital markets; the ability to raise any necessary additional capital on reasonable terms to
advance the production, development, construction and exploration of the Company’s properties and assets; future prices of copper,
gold and other metals; the timing and results of exploration and drilling programs; the accuracy of any mineral reserve and mineral resource
estimates; the geology of the Caraíba Operations, the Xavantina Operations and the Tucumã Project being as described in
the Caraíba Operations Technical Report, the Xavantina Operations Technical Report and the Tucumã Project Technical Report,
respectively; production costs; the accuracy of budgeted exploration, development and construction costs and expenditures; the price
of other commodities such as fuel; future currency exchange rates and interest rates; operating conditions being favourable such that
the Company is able to operate in a safe, efficient and effective manner; work force continuing to remain healthy in the face of prevailing
epidemics, pandemics or other health risks (including COVID-19), political and regulatory stability; the receipt of governmental, regulatory
and third party approvals, licenses and permits on favourable terms; obtaining required renewals for existing approvals, licenses and
permits on favourable terms; requirements under applicable laws; sustained labour stability; stability in financial and capital goods
markets; availability of equipment; positive relations with local groups and the Company’s ability to meet its obligations under
its agreements with such groups; and satisfying the terms and conditions of the Company’s current loan arrangements. Although we
believe that the assumptions inherent in forward-looking information are reasonable as of the date of this Prospectus Supplement, these
assumptions are subject to significant business, social, economic, political, regulatory, competitive and other risks and uncertainties,
contingencies and other factors that could cause actual actions, events, conditions, results, performance or achievements to be materially
different from those projected in the forward-looking information. The Company cautions that the foregoing list of assumptions is not
exhaustive. Other events or circumstances could cause actual results to differ materially from those estimated or projected and expressed
in, or implied by, the forward-looking information contained in this Prospectus Supplement, the Prospectus and the documents incorporated,
or deemed to be incorporated, by reference.
We do not assume any obligation
to update forward-looking information, whether as a result of new information, future events or otherwise, other than as required by
applicable law. For the reasons set forth above, prospective investors should not place undue reliance on forward-looking information.
DOCUMENTS
INCORPORATED BY REFERENCE
This Prospectus Supplement
is deemed to be incorporated by reference in the Prospectus solely for the purpose of the Offering. Other documents are also incorporated
or deemed to be incorporated by reference in the Prospectus and reference should be made to the Prospectus for full particulars thereof.
Information has been incorporated
by reference in this Prospectus Supplement and the Prospectus from documents filed with the securities commissions or similar authorities
in Canada and with the SEC in the United States. Copies of the documents incorporated herein by reference may be obtained on request
without charge from the Corporate Secretary of the Company at the address set forth on the cover page of this Prospectus Supplement
and are also available electronically at https://www.sedarplus.ca/landingpage/ (“SEDAR”). Documents filed with,
or furnished to, the SEC are available through the SEC’s Electronic Data Gathering and Retrieval System (“EDGAR”)
at www.sec.gov.
The following documents of
the Company filed with the securities commissions or similar authorities in each of the provinces and territories of Canada, and filed
with, or furnished to, the SEC are specifically incorporated by reference into, and form an integral part of, this Prospectus Supplement:
| · | our
annual information form for the fiscal year ended December 31, 2022, dated as of March 7,
2023 (the “AIF”); |
| | | |
| · | our
audited annual consolidated financial statements for the fiscal years ended December 31,
2022 and 2021, together with the notes thereto and the reports of the independent registered
public accounting firm thereon (the “Annual Financial Statements”); |
| | | |
| · | our
management’s discussion and analysis for the years ended December 31, 2022 and
2021; |
| | | |
| · | our
unaudited condensed consolidated interim financial statements for the three and nine months
ended September 30, 2023 and 2022 (the “Interim Financial Statements”); |
| | | |
| · | our
management’s discussion and analysis for the three and nine months ended September 30,
2023; and |
| | | |
| · | our
management information circular dated March 7, 2023, distributed in connection with
our annual general and special meeting of shareholders held on April 26, 2023. |
Any document of the type
required by National Instrument 44-101 – Short Form Prospectus Distributions to be incorporated by reference into this
Prospectus Supplement, including any annual information forms, material change reports (except confidential material change reports),
business acquisition reports, interim financial statements, annual financial statements and the independent auditor’s report thereon,
management’s discussion and analysis and information circulars of Ero and any template version of “marketing materials”
(as defined in National Instrument 41-101 — General Prospectus Requirements) filed with securities commissions or similar
authorities in Canada after the date of this Prospectus Supplement and prior to the completion or withdrawal of the distribution of securities
shall be deemed to be incorporated by reference into this Prospectus Supplement.
In addition, to the extent
that any document or information incorporated by reference into this Prospectus Supplement is filed with, or furnished to, the SEC pursuant
to the U.S. Exchange Act after the date of this Prospectus Supplement, such document or information will be deemed to be incorporated
by reference as an exhibit to the Registration Statement of which this Prospectus Supplement forms a part. In
addition, if and to the extent indicated therein, the Company may incorporate by reference in this Prospectus documents that it files
with or furnishes to the SEC pursuant to Section 13(a), 13(c) or 15(d) of the U.S. Exchange Act.
Any statement in this
Prospectus Supplement, the Prospectus or a document incorporated or deemed to be incorporated by reference herein or therein is deemed
to be modified or superseded, for purposes of this Prospectus Supplement, to the extent that a statement contained herein or in the Prospectus
or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein or in the Prospectus, modifies
or supersedes such statement. The modifying or superseding statement need not state that it has modified or superseded a prior statement
or include any other information set forth in the document that it modifies or supersedes. The making of a modifying or superseded statement
shall not be deemed an admission for any purposes that the modified or superseded statement, when made, constituted a misrepresentation,
an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to
make a statement not misleading in light of the circumstances in which it was made. Any statement so modified or superseded will not
be deemed in its unmodified or superseded form, to constitute a part of this Prospectus Supplement, except as so modified or superseded.
References to the Company’s
website or any other website in this Prospectus Supplement, the Prospectus or any documents that are incorporated by reference herein
and therein do not incorporate by reference the information on such website into the Prospectus Supplement and the Prospectus, and we
disclaim any such incorporation by reference.
MARKETING MATERIALS
In connection with the Offering,
the Underwriters may use “marketing materials” (as such term is defined in NI 44-101 Short Form Prospectus Distributions).
The marketing materials do not form part of this Prospectus Supplement and the Prospectus to the extent that the contents of the marketing
materials have been modified or superseded by a statement contained in this Prospectus Supplement. Any template version of any “marketing
materials” filed after the date of this Prospectus Supplement and before the termination of the distribution of the securities
offered pursuant to this Prospectus Supplement (together with the Prospectus) is deemed to be incorporated by reference in this Prospectus
Supplement.
FINANCIAL INFORMATION
The financial statements
of the Company included or incorporated by reference in this Prospectus Supplement and the Prospectus are reported
in United States dollars. Ero’s financial statements included or incorporated by reference in this Prospectus Supplement and the Prospectus are
prepared in accordance with IFRS, which differs from accounting principles generally accepted in the United States (“U.S. GAAP”).
The SEC has adopted rules to allow foreign private issuers, such as Ero, to prepare and file financial statements prepared in accordance
with IFRS without reconciliation to U.S. GAAP. Accordingly, Ero will not be providing a description of the principal differences between
U.S. GAAP and IFRS. Unless otherwise indicated, all financial information contained and incorporated or deemed incorporated by reference
in this Prospectus Supplement and the Prospectus is presented in accordance with IFRS. As a result, Ero’s
financial statements and other financial information included or incorporated by reference in this Prospectus Supplement and the Prospectus may
not be comparable to financial statements and financial information of United States companies.
EXCHANGE
RATE INFORMATION
The following table sets
forth for each period indicated: (i) the exchange rates in effect at the end of the period; (ii) the high and low exchange
rates during such period; and (iii) the average exchange rates for such period, for one Canadian dollar, expressed in U.S. dollars,
as quoted by the Bank of Canada.
| | |
Three
Months Ended September 30, | |
| | |
2023 | | |
2022 | | |
2021 | |
| | |
US$ | | |
US$ | | |
US$ | |
| Closing | |
| 0.7396 | | |
| 0.7296 | | |
| 0.7849 | |
| High | |
| 0.7617 | | |
| 0.7841 | | |
| 0.8102 | |
| Low | |
| 0.7313 | | |
| 0.7285 | | |
| 0.7778 | |
| Average | |
| 0.7457 | | |
| 0.7662 | | |
| 0.7937 | |
| | |
Year Ended
December 31, | |
| | |
2022 | | |
2021 | | |
2020 | |
| | |
US$ | | |
US$ | | |
US$ | |
| Closing | |
| 0.7383 | | |
| 0.7888 | | |
| 0.7854 | |
| High | |
| 0.8031 | | |
| 0.8306 | | |
| 0.7863 | |
| Low | |
| 0.7217 | | |
| 0.7727 | | |
| 0.6898 | |
| Average | |
| 0.7692 | | |
| 0.7980 | | |
| 0.7461 | |
On November 3, 2023, the daily
average exchange rate as quoted by the Bank of Canada was C$1.00 = US$0.7308 (US$1.00 = C$1.3683).
The following table sets
forth for each period indicated: (i) the exchange rates in effect at the end of the period; (ii) the high and low exchange
rates during such period; and (iii) the average exchange rates for such period, for one Canadian dollar, expressed in Brazilian
Real, as quoted by the Bank of Canada.
| | |
Three
Months Ended September 30, | |
| | |
2023 | | |
2022 | | |
2021 | |
| | |
R$ | | |
R$ | | |
R$ | |
| Closing | |
| 3.7078 | | |
| 3.9386 | | |
| 4.2571 | |
| High | |
| 3.7397 | | |
| 4.2553 | | |
| 4.2790 | |
| Low | |
| 3.5727 | | |
| 3.8226 | | |
| 4.0502 | |
| Average | |
| 3.6398 | | |
| 4.0187 | | |
| 4.1525 | |
| | |
Year Ended
December 31, | |
| | |
2022 | | |
2021 | | |
2020 | |
| | |
R$ | | |
R$ | | |
R$ | |
| Closing | |
| 3.9032 | | |
| 4.3956 | | |
| 4.0800 | |
| High | |
| 4.4763 | | |
| 4.6062 | | |
| 4.3535 | |
| Low | |
| 3.6900 | | |
| 3.9904 | | |
| 3.0998 | |
| Average | |
| 3.9701 | | |
| 4.3058 | | |
| 3.8433 | |
On November 3, 2023, the daily average
exchange rate as quoted by the Bank of Canada was C$1.00 = R$3.5765 (R$1.00 = C$ 0.2796).
DOCUMENTS
FILED AS PART OF THE REGISTRATION STATEMENT
The following documents have
been, or will be, filed with the SEC as part of a registration statement on Form F-10 (File No. 333-274097) (the “Registration
Statement”) of which this Prospectus Supplement forms a part: (1) the Underwriting Agreement; (2) the documents listed
under “Documents Incorporated by Reference”; (3) the consent of KPMG LLP with respect to their independent registered
public accounting firm's report on the Annual Financial Statements; (4) powers of attorney from certain of the Company's directors
and officers (included on the signature page to the Registration Statement); and (5) the consents of the "qualified persons"
referred to in the Prospectus under "Interest of Experts".
THE
COMPANY
Name, Address and Incorporation
The Company was incorporated
under the Business Corporations Act (British Columbia) (“BCBCA”) on May 16, 2016. Ero’s head office is
located at Suite 1050, 625 Howe Street, Vancouver, British Columbia, Canada, V6C 2T6 and its registered office is located at Suite 3500,
1133 Melville Street, Vancouver, British Columbia, V6E 4E5, Canada.
Intercorporate Relationships
The Company indirectly holds
approximately 99.6% of the voting shares of Mineração Caraíba S.A. (“MCSA”) through its wholly-owned
subsidiary, Ero Brasil Participações Ltda., and indirectly holds approximately 97.6% of the voting shares of NX Gold S.A.
(“NX” or “NX Gold”) through its wholly-owned subsidiary, Ero Gold Corp. (“Ero Gold”),
incorporated under the BCBCA. MCSA holds a 100% interest in each of the Company’s mining operations located within the Curaçá
Valley, northeastern Bahia State, Brazil (the “Caraíba Operations” and formerly known as the MCSA Mining Complex)
and the Tucumã Project, which is located within southeastern Pará State, Brazil (referred to herein as the “Tucumã
Project” and formerly known as the “Boa Esperança Project”). NX Gold holds a 100% interest in the Company’s
mining operations located approximately 18 kilometers west of the town of Nova Xavantina, southeastern Mato Grosso State, Brazil (the
“Xavantina Operations” formerly known as the “NX Gold Mine”). MCSA and NX Gold were formed under the laws
of Brazil. The remaining voting shares of MCSA are held by a minority group of shareholders, including former employees of MCSA. The
remaining voting shares of NX Gold are held by a minority group of shareholders, including former employees of NX Gold. The following
chart illustrates the Company’s principal subsidiaries, together with the governing law of each subsidiary and the percentage of
voting securities beneficially owned or over which control or direction is exercised by the Company, as well as the Company’s operating
mines and development projects.
RISK
FACTORS
Investing in our securities is speculative
and involves a high degree of risk due to the nature of our business and the present stage of its development. The following risk factors,
as well as risks currently unknown to us, could materially and adversely affect our current or future business, properties, operations,
results, cashflows, financial condition and prospects and could cause them to differ materially from the statements made in forward-looking
statements relating to the Company, or its business, properties or financial results, each of which could cause purchasers of our securities
to lose part or all of their investment. The risks discussed below also include forward-looking statements, and our actual results may
differ substantially from those discussed in these forward-looking statements. The risks set out below are not the only risks we face;
risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect
our business, financial condition, results of operations and prospects. Potential investors should also refer to the other information
set forth or incorporated by reference (including subsequently filed documents incorporated by reference) in this Prospectus Supplement,
the Prospectus or any applicable prospectus supplement, including our AIF, Annual Financial Statements, and related notes.
Risks Related to our Securities
Investors may lose their entire investment
An investment in our securities is speculative
and may result in the loss of an investor’s entire investment. Only potential investors who are experienced in high risk investments
and who can afford to lose their entire investment should consider an investment in the Company.
Dilution from equity financing could negatively
impact holders of Common Shares
The Company may from time to time raise funds
through the issuance of Common Shares or the issuance of debt instruments or other securities convertible into Common Shares. The Company
cannot predict the size or price of future issuances of Common Shares or the size or terms of future issuances of debt instruments or
other securities convertible into Common Shares, or the effect, if any, that future issuances and sales of the Company’s securities
will have on the market price of the Common Shares. Sales or issuances of substantial numbers of Common Shares, or the perception that
such sales or issuances could occur, may adversely affect prevailing market prices of the Common Shares. With any additional sale or issuance
of Common Shares, or securities convertible into Common Shares, investors will suffer dilution to their voting power and the Company may
experience dilution in its earnings per share.
Additional issuances of our securities may involve
the issuance of a significant number of our Common Shares at prices less than the current market price for the Common Shares. Any transaction
involving the issuance of previously authorized but unissued Common Shares, or securities convertible into Common Shares, would result
in dilution, possibly substantial, to security holders. Sales of substantial amounts of our securities by us or our existing shareholders,
or the availability of such securities for sale, could adversely affect the prevailing market prices for our securities and, in the case
of sales of our securities from treasury, dilute investors’ earnings per share. Sales of our Common Shares by shareholders might
also make it more difficult for us to sell equity securities at a time and price that we deem appropriate. Exercises of presently outstanding
share options (“Options”) or settlement of presently outstanding restricted share units (“RSUs”)
or performance share units (“PSUs”) in Common Shares may also result in dilution to security holders. A decline in
the market prices of our securities could impair our ability to raise additional capital through the sale of securities should we desire
to do so.
Equity securities are subject to trading
and volatility risks
The securities of publicly traded companies can
experience a high level of price and volume volatility and the value of the Company’s securities can be expected to fluctuate depending
on various factors, not all of which are directly related to the success of the Company and its operating performance, underlying asset
values or prospects. These include the risks described elsewhere in this Prospectus Supplement, the Prospectus and the AIF. Factors which
may influence the price of the Company’s securities, including the Common Shares, include, but are not limited to:
| · | worldwide economic conditions; |
| · | global political conditions or events such as the ongoing conflict in the Middle East and Russia-Ukraine
conflict; |
| · | changes in government policies; |
| · | investor perceptions; |
| · | movements in global interest rates and global stock markets; |
| · | variations in operating costs; |
| · | the cost of capital that the Company may require in the future; |
| · | metals prices; |
| · | currency exchange fluctuation; |
| · | the price of commodities necessary for the Company’s operations; |
| · | recommendations by securities research analysts; |
| · | issuances of equity securities or debt securities by the Company; |
| · | operating performance and, if applicable, the share price performance of the Company’s competitors; |
| · | the addition or departure of key management and other personnel; |
| · | significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments
by or involving the Company or its competitors; |
| · | news reports relating to trends, concerns, technological or competitive developments, regulatory changes,
global health crises, such as COVID-19, and other related industry and market issues affecting the mining sector; |
| · | litigation; |
| · | publicity about the Company, the Company’s personnel or others operating in the industry; |
| · | loss of a major funding source; and |
| · | all market conditions that are specific to the mining industry. |
There can be no assurance that such factors will
not affect the price of the Company’s securities, and consequently purchasers of Common Shares may not be able to sell Common Shares
at prices equal to or greater than the price or value at which they purchased the Common Shares or acquired them by way of the secondary
market.
Sales by existing shareholders can reduce
share prices
Sales of a substantial number of Common Shares
in the public market could occur at any time. These sales, or the market perception that the holders of a large number of Common Shares
intend to sell Common Shares, could reduce the market price of the Common Shares. If this occurs and continues, it could impair the Company’s
ability to raise additional capital through the sale of securities.
The Company does not currently intend to
pay dividends
The Company has not, since the date of its incorporation,
declared or paid any dividends or other distributions on its Common Shares. The Senior Credit Facility Agreement and the Note Indenture
(as defined in the Prospectus) impose certain restrictions on the Company’s ability to declare or pay dividends or distributions.
The declaration and payment of any dividends in
the future is at the discretion of the Board and will depend on numerous factors, including compliance with applicable laws, financial
performance, contractual restriction (as noted above), working capital requirements of the Company and its subsidiaries and such other
factors as its directors consider appropriate.
Public companies are subject to securities
class action litigation risk
In the past, securities class action litigation
has often been brought against a company following a decline in the market price of its securities. If the Company faces such litigation,
it could result in substantial costs and a diversion of management’s attention and resources, which could materially harm its business.
If securities or industry analysts do not
publish research or publish inaccurate or unfavourable research about the Company’s business, the price and trading volume of the
Common Shares could decline
The trading market for the Common Shares will
depend on the research and reports that securities or industry analysts publish about the Company and its business. The Company does not
have any control over these analysts. The Company cannot assure that analysts will cover it or provide accurate or favourable coverage.
If one or more of the analysts who cover the Company downgrade its stock or change their opinion of the Common Shares, price of Common
Shares would likely decline. If one or more of these analysts cease coverage of the Company or fail to regularly publish reports, the
Company could lose visibility in the financial markets, which could cause the price and trading volume of the Common Shares to decline.
Global economic conditions can reduce the
price of the Common Shares
Global economic conditions may adversely affect
the Company’s growth, profitability and ability to obtain financing. Events in global financial markets continue to be characterized
as volatile. In recent years, global markets have been adversely impacted by various credit crises and significant fluctuations in fuel
and energy costs and metals prices, including because of COVID-19 and due to significant fluctuations in commodity prices because of the
continuance or escalation of the conflict in the Middle East and/or Russia-Ukraine conflict and the economic sanctions imposed thereon
in connection therewith. Many industries, including
the mining industry, have been impacted by these market conditions. Global economic conditions remain subject to sudden and rapid destabilizations
in response to future events, as government authorities may have limited resources to respond to future crises. A continued or worsened
slowdown in the financial markets or other economic conditions, including but not limited to consumer spending, employment rates, business
conditions, inflation, fuel and energy costs, consumer debt levels, lack of available credit, the state of the financial markets, interest
rates and tax rates, may adversely affect the Company’s growth, profitability and ability to obtain financing. A number of issues
related to economic conditions could have a material adverse effect on the Company’s business, financial condition, results of operations,
cash flows or prospects, including, but not limited to: (i) contraction in credit markets could impact the cost and availability
of financing and the Company’s overall liquidity; (ii) the volatility of copper, gold and other metal prices would impact the
Company’s revenues, profits, losses and cash flow; (iii) recessionary pressures could adversely impact demand for the Company’s
production; (iv) volatile energy, commodity and consumables prices and currency exchange rates could impact the Company’s production
costs; and, (v) the devaluation and volatility of global stock markets could impact the valuation of the Company’s equity and
other securities.
The Company will have broad discretion in
the use of the net proceeds of the Offering
While detailed information regarding the use of
proceeds from the sale of our securities are described in this Prospectus Supplement, we will have broad discretion over the use of the
net proceeds from the Offering and future offerings of securities. Because of the number and variability of factors that will determine
our use of such proceeds, our ultimate use might vary substantially from our planned use. Purchasers may not agree with how we allocate
or spend the proceeds from the Offering of our securities. We may pursue acquisitions, collaborations or other opportunities that do not
result in an increase in the market value of our securities, including the market value of our Common Shares, and may increase our losses.
There is no assurance of a sufficient liquid
trading market for the Common Shares in the future
Shareholders of the Company may be unable to sell
significant quantities of Common Shares into the public trading markets without a significant reduction in the price of their Common Shares,
or at all. There can be no assurance that there will be sufficient liquidity of the Common Shares on the trading market, and that the
Company will continue to meet the listing requirements of the TSX or the NYSE or achieve listing on any other public listing exchange.
Although not expected, the Company may be
classified as a passive foreign investment company (“PFIC”) within the meaning of section 1297 of the U.S. Internal Revenue
Code of 1986, as amended (the “Code”).
Prospective U.S. investors should be aware that
although the Company does not expect to be classified as a PFIC for the current taxable year or any future taxable year, in the event
that the Company is classified as a PFIC for the current taxable year or a future taxable year, such investors could be subject to certain
adverse U.S. federal income tax consequences. The determination of the Company’s PFIC status for any year is very fact specific,
being based on the types of income the Company earns and the types and value of the Company’s assets from time to time, all of which
are subject to change, as well as, in part, the application of complex U.S. federal income tax rules, which are subject to differing
interpretations. The Company believes that it likely was not classified as a PFIC for the preceding taxable year and likely will not be
classified as a PFIC for the current taxable year or any future taxable year. Prospective investors should consult their own tax advisors
regarding the likelihood and consequences of the Company being treated as a PFIC for U.S. federal income tax purposes, including the advisability
of making certain elections that may mitigate certain possible adverse U.S. federal income tax consequences that may result in an inclusion
in gross income without receipt of such income.
CONSOLIDATED
CAPITALIZATION
Other than as set out under
the heading “Prior Sales”, there have been no material changes in the share and loan capital of the Company since September 30,
2023 to the date of this Prospectus Supplement. The following table outlines the consolidated capitalization of the Company as at September 30,
2023 and as at September 30, 2023 after giving effect to the Offering:
| | |
As at September 30, 2023 (expressed in thousands of
US dollars except equity
security amounts) | | |
As at September 30, 2023,
after giving effect to the
Offering(5) (expressed in thousands of US
dollars except equity security
amounts) | |
As at September 30, 2023,
after giving effect to the
Offering, and including
the full exercise of the
Over-Allotment Option(5) (expressed in thousands of
US dollars except equity
security amounts) |
| Cash and cash equivalents(1) | |
US$87,600 | | |
US$● | |
US$● |
| Share Capital | |
| | |
| |
|
| Common Shares | |
93,437,575
US$163,131 | | |
●
US$● | |
●
US$● |
| Equity Reserves(2)(3)(4) | |
US($42,351) | | |
US($42,351) | |
US($42,351) |
| Retained Earnings | |
512,981 | | |
512,981 | |
512,981 |
| Total Shareholder’s Equity | |
US$633,761 | | |
US$● | |
US$● |
| Loan Capital | |
| | |
| |
|
| Loans and borrowings | |
US$419,420 | | |
US$419,420 | |
US$419,420 |
| Total Capitalization | |
US$1,140,781 | | |
US$● | |
US$● |
| (1) | Includes US$42.8 million in short-term investments. |
| (2) | Excludes 773,726 Performance Share Units and 233,544 Deferred Share Units which are treated as liability awards to be settled in cash
for accounting purposes. |
| (3) | Includes 1,440,274 Options and 257,810 Restricted Share Units which are treated as equity awards for accounting purposes. |
| (4) | Each Option is exercisable by the holder thereof into one Common Share. Each Restricted Share Unit, Performance Share Unit and Deferred
Share Unit entitles the holder thereof to receive one Common Share, its equivalent cash value, or a combination thereof as determined
by the Compensation Committee in its sole discretion. |
| (5) | Excluding the related costs of the Offering. |
| (6) | This table should be read in conjunction with the Interim Financial Statements, including the notes thereto. |
USE
OF PROCEEDS
The estimated net proceeds
received by the Company from the Offering (assuming no exercise of the Over Allotment Option) will be approximately US$● (determined
after deducting the Underwriting Fee of US$● and estimated expenses of the Offering of US$1,000,000). If the Over Allotment Option
is exercised in full, the estimated net proceeds received by the Company from the Offering will be US$● (determined after deducting
the Underwriting Fee of US$● and estimated expenses of the Offering of US$1,000,000).
The Company intends to use
the net proceeds of the Offering for the following principal purposes:
| Use of Proceeds | |
Approximate
Amount | |
| Growth initiatives at the Tucumã Project | |
| US$● | |
| Growth initiatives at the Caraíba Operations | |
| US$● | |
| Regional exploration expenditures | |
| US$● | |
| Working Capital and Other General Corporate Purposes | |
| US$● | |
| Total | |
| US$● | |
The key business objective
the Company intends to meet with the net proceeds of the Offering, together with existing cash and equivalents, are:
| · | advancement of construction of the Tucumã Project; |
| | | |
| · | advancement of growth initiatives at the Caraiba Operations, including construction of the new external
shaft; and |
| | | |
| · | advancement of regional exploration in Brazil. |
It is anticipated that the applicable net proceeds
of the Offering will be spent for the principal purposes set out above approximately over the next 18 months.
If the Underwriters’
Over-Allotment Option is exercised in whole or in part, the Company will use the additional net proceeds from such exercise for working
capital and other general corporate purposes.
While the Company intends
to use the net proceeds of the Offering as described, the Company’s actual use may vary depending on its operating and capital needs
from time to time, and as such, there may be circumstances where, for sound business reasons, a reallocation of the use of proceeds is
necessary. See “Risk Factors”.
PLAN
OF DISTRIBUTION
Pursuant to the Underwriting
Agreement, the Company has agreed to issue and sell and the Underwriters have severally (and not jointly nor jointly and severally) agreed
to purchase, as principals, subject to compliance with all necessary legal requirements and the terms and conditions contained in the
Underwriting Agreement, a total of ● Common Shares at the Offering Price of US$● per Common Share, payable in cash to
the Company against delivery of such Common Shares on the Closing Date. The obligations of the Underwriters under the Underwriting Agreement
are conditional and may be terminated at their discretion on the basis of “material change out”, “disaster out”,
“regulatory out”, and “breach out” termination provisions in the Underwriting Agreement and may also be terminated
upon the occurrence of certain other stated events. The Underwriters are, however, obligated to take up and pay for all of the Common
Shares offered by this Prospectus Supplement (not including the Over-Allotment Shares issuable upon exercise of the Over-Allotment Option)
if any Common Shares are purchased under the Underwriting Agreement, subject to certain exceptions.
Pursuant to the Underwriting
Agreement, Ero has granted to the Underwriters the Over-Allotment Option, exercisable in whole or in part at any time up to 30 days after
the Closing Date, to purchase up to an additional ● Common Shares at the Offering Price to cover over-allocations, if any, and
for market stabilization purposes, on the same terms and conditions as apply to the purchase of Common Shares thereunder (provided that
such issuance does not exceed the aggregate maximum number of shares issuable under the Prospectus). This Prospectus Supplement qualifies
for distribution the Common Shares as well as the grant of the Over-Allotment Option and the issuance of the Over-Allotment Shares pursuant
to the exercise of the Over-Allotment Option. A purchaser who acquires Over-Allotment Shares forming part of the Underwriters’ over-allocation
position acquires those Over-Allotment Shares under this Prospectus Supplement, regardless of whether the over-allocation position is
ultimately filled through the exercise of the Over-Allotment Option or secondary market purchases.
In consideration for their
services in connection with the Offering, the Underwriters will be paid the Underwriting Fee equal to ●% of the gross proceeds
of the Offering (including in connection with any gross proceeds from the sale of the Over-Allotment Shares). The Offering Price was determined
by arm’s length negotiation between the Company and the Lead Underwriter, on behalf of the Underwriters, with reference to the prevailing
market price of the Common Shares. See “Risk Factors”.
The Common Shares will be
offered in each of the provinces and territories of Canada, except Quebec, in the United States and, subject to applicable law,
in certain jurisdictions outside of Canada and the United States through the Underwriters either directly or through their respective
Canadian or U.S broker-dealer affiliates or agents in accordance with the Underwriting Agreement.
The Company intends to apply to list the Common Shares distributed hereunder on the TSX and NYSE. Listing will be subject to Ero fulfilling
all listing requirements of the TSX and NYSE.
Pursuant to rules and
policy statements of certain securities regulators, the Underwriters may not, at any time during the period of distribution under the
Offering, bid for or purchase Common Shares for their own accounts or for accounts over which they exercise control or direction. The
foregoing restriction is subject to certain exceptions, including: (i) a bid or purchase permitted under the Universal Market Integrity
Rules for Canadian Marketplaces administered by the Investment Industry Regulatory Organization of Canada relating to market stabilization
and passive market making activities; (ii) a bid or purchase made for or on behalf of a customer where the order was not solicited
during the period of the distribution, provided that the bid or purchase was for the purpose of maintaining a fair and orderly market
and not engaged in for the purpose of creating actual or apparent active trading in, or raising the price of, such securities, or (iii) a
bid or purchase to cover a short position entered into prior to the commencement of the prescribed restricted period. Consistent with
these requirements, and in connection with the Offering, the Underwriters may over-allot and effect transactions which are intended to
stabilize or maintain the market price of the Common Shares at levels other than those which otherwise might prevail on the open market.
If these activities are commenced, they may be discontinued by the Underwriters at any time. The Underwriters may carry out these transactions
on the TSX, in the over-the-counter market or otherwise.
Certain of the Underwriters
and their affiliates have performed investment banking, commercial banking and advisory services for the Company from time to time for
which they have received customary fees and expenses. The Underwriters and their affiliates may, from time to time, engage in transactions
with and perform services for the Company in the ordinary course of their business.
The Common Shares sold
by the Underwriters to the public will initially be offered at the Offering Price specified on the cover page. After the Underwriters
have made a reasonable effort to sell all of the Common Shares at the Offering Price specified on the cover page, the Underwriters may
decrease the Offering Price to an amount not greater than the Offering Price set forth on the cover page, and the compensation realized
by the Underwriters will be decreased by the amount that the aggregate price paid by the purchasers for the Common Share is less than
the gross proceeds paid by the Underwriters to the Company. The decrease in the Offering Price will not decrease the amount of net proceeds
of the Offering to the Company.
Ero has agreed in the
Underwriting Agreement to reimburse the Underwriters for certain legal fees and certain other expenses in connection with the
Offering, including for the Underwriters’ Canadian counsel and the Underwriters’ U.S. counsel (plus applicable taxes and
disbursements).
The Company has agreed, pursuant
to the Underwriting Agreement, to indemnify and save harmless the Underwriters and their respective subsidiaries and affiliates, and each
of their respective directors, officers, employees, partners, agents, and shareholders against certain liabilities, including civil liabilities
under Canadian and United States securities legislation in certain circumstances or to contribute to payments the Underwriters may have
to make because of such liabilities.
The Company has agreed in
the Underwriting Agreement that the Company will not, directly or indirectly issue any Common Shares or securities or other financial instruments convertible into
or having the right to acquire Common Shares (other than pursuant to rights or obligations under securities or instruments outstanding)
or enter into any agreement or arrangement under which the Company acquires or transfers to another, in whole or in part, any of the economic
consequences of ownership of Common Shares, or agree to become bound to do so, or disclose to the public any intention to do so, for a
period of 90 days following the Closing Date without the prior written consent of the Lead Underwriter, which consent
will not be unreasonably withheld provided that, notwithstanding the foregoing, the Company may: (i) grant options, share units or
other securities pursuant to the Company’s stock option plan or other equity compensation plans made in accordance with the terms
of such plans, and issue Common Shares upon the exercise of such options or vesting of such securities, or (ii) issue equity securities
pursuant to the exercise or conversion, as the case may be, of any warrants, incentive securities or other convertible securities of the
Company outstanding as of November 6, 2023.
Except for any Common Shares
that are issued pursuant to the exercise of stock options or settlement of share units where such stock options or share units have an
expiry date or settlement date, as applicable, on or prior to January 2, 2024, the Company has agreed to cause each of its directors
and executive officers to enter into lock-up agreements, evidencing their agreement to not sell, or agree to sell (or announce any intention
to do so), any Common Shares or securities exchangeable or convertible into Common Shares of the Company for a period of 90 days following
Closing Date without the prior written consent of the Lead Underwriter, which consent will not be unreasonably withheld, other than in
connection with a third party take-over bid made to all holders of Common Shares or a similar business combination transaction and other
than securities sold to satisfy the exercise price or the tax obligations on the exercise of convertible securities of the Company held
by such person.
Subscriptions for the Common
Shares will be received subject to rejection or allotment in whole or in part and the right is reserved to close the subscription books
at any time without notice. Except as may be otherwise agreed by the Company and the Lead Underwriter, the Offering will be conducted
under the book-based system operated by CDS. No certificates evidencing the Common Shares will be issued to purchasers of the Common Shares.
A purchaser who purchases Common Shares will receive only a customary confirmation from the registered dealer from or through whom Common
Shares are purchased and who is a CDS participant. CDS will record the CDS participants who hold Common Shares on behalf of owners who
have purchased Common Shares in accordance with the book-based system.
Connected Issuer
A Canadian chartered
bank affiliate of the Lead Underwriter and ● and ● are lenders to the Company under the Senior Credit Facility
Agreement. Consequently, the Company may be considered a “connected issuer”, as defined in National Instrument 33-105
— Underwriting Conflicts, of the Lead Underwriter and ● and ● under applicable securities laws in certain
Canadian provinces and territories. As a consequence of the Offering, the Lead Underwriter and ● and ● will receive the
Underwriting Fee.
As at the date hereof, the
Company has not drawn any amount of US$150 million available under the Senior Credit Facility Agreement. As at the date hereof, the Company
is in compliance with all material terms of the agreements governing the Senior Credit Facility Agreement and none of the lenders under
the Senior Credit Facility Agreement has waived any breach by the Company thereunder since the execution of the Senior Credit Facility
Agreement. The Senior Credit Facility Agreement is secured by the shares of MCSA, NX Gold, Ero Gold and Ero Brasil Participacoes Ltd.
The decision to
distribute the Common Shares offered hereunder and the determination of the terms of the distribution were made through arm’s
length negotiations between the Company and the Lead Underwriter. The lenders under the Senior Credit Facility Agreement did not
have any involvement in such decision or determination. The Lead Underwriter, ● and ● and its affiliates will not
receive any direct benefit from the Offering other than receipt of the Underwriting Fee. However, the Company intends to use a
portion of the net proceeds of the Offering for working capital purposes and other general corporate purposes, which may include the
reduction of any future debt outstanding under the Senior Credit Facility Agreement.
DESCRIPTION
OF THE SECURITIES BEING DISTRIBUTED
As at the date hereof, there are 93,437,575
Common Shares issued and outstanding. All of the Common Shares rank equally as to voting rights, participation in a distribution of the
assets of the Company on a liquidation, dissolution or winding-up of the Company and entitlement to any dividends declared by the Company.
The holders of the Common Shares are entitled to receive notice of, and to attend and vote at, all meetings of shareholders (other than
meetings at which only holders of another class or series of shares are entitled to vote). Each Common Share carries the right to one
vote. In the event of the liquidation, dissolution or winding-up of the Company, or any other distribution of the assets of the Company
among its shareholders for the purpose of winding-up its affairs, the holders of the Common Shares will be entitled to receive, on a pro
rata basis, all of the assets remaining after the payment by the Company of all of its liabilities. The holders of Common Shares are entitled
to receive dividends as and when declared by the Board in respect of the Common Shares on a pro rata basis. The Common Shares do not have
pre-emptive rights, conversion rights or exchange rights and are not subject to redemption, retraction purchase for cancellation or surrender
provisions. There are no sinking or purchase fund provisions, no provisions permitting or restricting the issuance of additional securities
or any other material restrictions, and there are no provisions which are capable of requiring a security holder to contribute additional
capital. Any alteration of the rights, privileges, restrictions and conditions attaching to the Common Shares under the Company’s
Articles of Incorporation must be approved by at least two-thirds of the Common Shares voted at a meeting of the Company’s shareholders.
PRIOR
SALES
The following table sets forth
the prior sales for the 12 month period prior to the date of this Prospectus Supplement, for the Common Shares and the Options, RSUs and
PSUs convertible into Common Shares, the price at which such securities have been issued, the number of securities issued and the date
of which such securities were issued:
| Date Issued | |
Number of
Securities
Issued | | |
Type of
Securities Issued | |
Type of
Transaction | |
Issuance
Price Per
Security
C$ | | |
Exercise Price
(if applicable) C$ | |
| September 29, 2022 | |
| 4,167 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.76 | |
| October 4, 2022 | |
| 55,000 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 6.74 | |
| October 4, 2022 | |
| 50,000 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.01 | |
| November 9, 2022 | |
| 2,500 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 6.74 | |
| November 10, 2022 | |
| 33,334 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 6.74 | |
| November 11, 2022 | |
| 12,100 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 6.74 | |
| November 14, 2022 | |
| 250,000 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 6.74 | |
| November 14, 2022 | |
| 60,000 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 7.95 | |
| November 16, 2022 | |
| 25,000 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 6.74 | |
| November 22, 2022 | |
| 325,000 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 6.74 | |
| November 23, 2022 | |
| 30,000 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 6.74 | |
| November 28, 2022 | |
| 62,900 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 6.74 | |
| December 5, 2022 | |
| 4,167 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.76 | |
| December 8, 2022 | |
| 20,000 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.76 | |
| December 13, 2022 | |
| 30,000 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 10.25 | |
| December 14, 2022 | |
| 407,686 | | |
Options | |
Option Grant | |
| - | | |
| 18.21 | |
| December 14, 2022 | |
| 328,078 | | |
PSUs | |
PSU Grant | |
| - | | |
| - | |
| December 14, 2022 | |
| 143,583 | | |
RSUs | |
RSU Grant | |
| - | | |
| - | |
| December 16, 2022 | |
| 128,598 | | |
Common Shares | |
Settlement of PSUs | |
| 19.70 | | |
| - | |
| December 16, 2022 | |
| 37,099 | | |
Common Shares | |
Settlement of RSUs | |
| 19.70 | | |
| - | |
| December 22, 2022 | |
| 24,000 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 10.25 | |
| December 22, 2022 | |
| 25,200 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.01 | |
| January 3, 2023 | |
| 24,800 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.01 | |
| January 10, 2023 | |
| 1,271 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 18.90 | |
| January 12, 2023 | |
| 50,000 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 10.25 | |
| February 1, 2023 | |
| 1,596 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 20.52 | |
| March 9, 2023 | |
| 19,364 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.76 | |
| March 10, 2023 | |
| 15,534 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 18.90 | |
| March 10, 2023 | |
| 66,426 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.76 | |
| March 10, 2023 | |
| 11,908 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 20.52 | |
| March 14, 2023 | |
| 52,283 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.76 | |
| March 15, 2023 | |
| 25,000 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.76 | |
| Date Issued | |
Number of
Securities
Issued | | |
Type of
Securities Issued | |
Type of
Transaction | |
Issuance
Price Per
Security
C$ | | |
Exercise Price
(if applicable) C$ | |
| March 29, 2023 | |
| 22,596 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 18.90 | |
| March 29, 2023 | |
| 17,348 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 20.52 | |
| March 29, 2023 | |
| 4,653 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 18.69 | |
| March 31, 2023 | |
| 25,000 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.80 | |
| April 4, 2023 | |
| 25,000 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.76 | |
| April 12, 2023 | |
| 3,601 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 18.90 | |
| May 11, 2023 | |
| 25,000 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.80 | |
| May 16, 2023 | |
| 60,010 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.76 | |
| May 16, 2023 | |
| 92,948 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.76 | |
| May 25, 2023 | |
| 6,383 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 20.52 | |
| May 25, 2023 | |
| 4,802 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 18.90 | |
| May 25, 2023 | |
| 879 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 18.69 | |
| June 5, 2023 | |
| 12,500 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.80 | |
| June 12, 2023 | |
| 23,902 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.76 | |
| June 13, 2023 | |
| 25,000 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.80 | |
| June 14, 2023 | |
| 48,728 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.76 | |
| June 14, 2023 | |
| 3,192 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 20.52 | |
| June 14, 2023 | |
| 1,694 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 18.90 | |
| June 14, 2023 | |
| 413 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 18.69 | |
| June 15, 2023 | |
| 47,110 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.76 | |
| June 16, 2023 | |
| 7,500 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 23.42 | |
| June 19, 2023 | |
| 20,000 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.76 | |
| June 20, 2023 | |
| 56,175 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.76 | |
| June 20, 2023 | |
| 20,000 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.76 | |
| June 23, 2023 | |
| 12,500 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.80 | |
| June 28, 2023 | |
| 1,946 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 23.37 | |
| June 28, 2023 | |
| 1,034 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 18.69 | |
| June 28, 2023 | |
| 57,457 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.76 | |
| June 30, 2023 | |
| 116,185 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.76 | |
| June 30, 2023 | |
| 17,500 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.80 | |
| August 3, 2023 | |
| 25,000 | | |
RSUs | |
RSU Grant | |
| - | | |
| - | |
| August 10, 2023 | |
| 32,631 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.76 | |
| August 11, 2023 | |
| 4,137 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 18.69 | |
| August 11, 2023 | |
| 4,040 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 18.21 | |
| August 16, 2023 | |
| 58,092 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.76 | |
| August 22, 2023 | |
| 23,237 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.76 | |
| August 23, 2023 | |
| 1,946 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 23.37 | |
| August 23, 2023 | |
| 15,534 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 18.90 | |
| August 23, 2023 | |
| 7,979 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 20.52 | |
| August 24, 2023 | |
| 2,327 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 18.69 | |
| August 25, 2023 | |
| 6,383 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 20.52 | |
| August 25, 2023 | |
| 3,389 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 18.90 | |
| August 25, 2023 | |
| 879 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 18.69 | |
| August 30, 2023 | |
| 3,102 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 18.69 | |
| August 30, 2023 | |
| 31,916 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 20.52 | |
| August 30, 2023 | |
| 6,463 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 18.69 | |
| August 30, 2023 | |
| 12,000 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.76 | |
| August 30, 2023 | |
| 5,649 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 18.90 | |
| September 1, 2023 | |
| 6,000 | | |
Common Shares | |
Exercise of Options | |
| - | | |
| 9.76 | |
TRADING
PRICE AND VOLUME
The Common Shares are listed
under the trading symbol “ERO” on the TSX in Canada and on NYSE in the United States. The Common Shares began trading on the
TSX on October 19, 2017. The following table sets forth, for the periods indicated, the reported high and low prices (in Canadian
dollars) and volume traded on the TSX.
| Month | |
High | | |
Low | | |
Total Volume | |
| November 1-3, 2023 | |
C$ |
19.48 | | |
C$ |
17.60 | | |
| 816,267 | |
| October 2023 | |
C$ |
23.31 | | |
C$ |
18.19 | | |
| 5,937,737 | |
| September 2023 | |
C$ |
28.46 | | |
C$ |
22.49 | | |
| 4,667,844 | |
| August 2023 | |
C$ |
31.88 | | |
C$ |
25.93 | | |
| 4,825,948 | |
| July 2023 | |
C$ |
32.12 | | |
C$ |
25.64 | | |
| 4,151,841 | |
| June 2023 | |
C$ |
27.97 | | |
C$ |
22.45 | | |
| 5,181,090 | |
| May 2023 | |
C$ |
28.05 | | |
C$ |
22.04 | | |
| 7,817,405 | |
| April 2023 | |
C$ |
27.56 | | |
C$ |
22.64 | | |
| 4,951,583 | |
| March 2023 | |
C$ |
25.40 | | |
C$ |
20.75 | | |
| 8,212,040 | |
| February 2023 | |
C$ |
22.65 | | |
C$ |
19.95 | | |
| 4,113,991 | |
| January 2023 | |
C$ |
21.94 | | |
C$ |
18.49 | | |
| 5,451,732 | |
| December 2022 | |
C$ |
20.20 | | |
C$ |
16.55 | | |
| 4,109,006 | |
| November 2022 | |
C$ |
17.99 | | |
C$ |
13.20 | | |
| 5,396,235 | |
The Common
Shares began trading on NYSE on June 15, 2021. The following table sets forth, for the periods indicated, the reported high and low
prices (in U.S. dollars) and volume traded on NYSE.
| Month | |
High | | |
Low | | |
Total Volume | |
| November 1-3, 2023 | |
US$ |
14.21 | | |
US$ |
13.01 | | |
| 213,268 | |
| October 2023 | |
US$ |
17.05 | | |
US$ |
13.14 | | |
| 1,144,833 | |
| September 2023 | |
US$ |
20.95 | | |
US$ |
16.66 | | |
| 931,100 | |
| August 2023 | |
US$ |
24.01 | | |
US$ |
19.04 | | |
| 929,352 | |
| July 2023 | |
US$ |
24.37 | | |
US$ |
19.18 | | |
| 655,295 | |
| June 2023 | |
US$ |
21.14 | | |
US$ |
16.47 | | |
| 574,622 | |
| May 2023 | |
US$ |
20.98 | | |
US$ |
16.24 | | |
| 616,984 | |
| April 2023 | |
US$ |
20.49 | | |
US$ |
16.83 | | |
| 474,101 | |
| March 2023 | |
US$ |
18.72 | | |
US$ |
15.13 | | |
| 630,179 | |
| February 2023 | |
US$ |
16.91 | | |
US$ |
14.81 | | |
| 318,622 | |
| January 2023 | |
US$ |
16.44 | | |
US$ |
13.61 | | |
| 301,081 | |
| December 2022 | |
US$ |
14.76 | | |
US$ |
12.185 | | |
| 210,271 | |
| November 2022 | |
US$ |
13.53 | | |
US$ |
9.59 | | |
| 290,717 | |
CERTAIN
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The following is, as of the
date hereof, a general summary of the principal Canadian federal income tax considerations under the Income Tax Act (Canada) and
the regulations thereunder (collectively, the “Tax Act”) generally applicable to a holder who acquires Common Shares
as beneficial owner pursuant to this Offering who, at all relevant times, for the purposes of the Tax Act, deals at arm’s length
with the Company and each of the Underwriters, is not affiliated with the Company or any of the Underwriters, and will acquire and hold
such Common Shares as capital property (each, a “Holder”), all within the meaning of the Tax Act. The Common Shares
will generally be considered to be capital property to a Holder unless the Holder holds or uses the Common Shares or is deemed to hold
or use the Common Shares in the course of carrying on a business of trading or dealing in securities or has acquired them or is deemed
to have acquired them in a transaction or transactions considered to be an adventure or concern in the nature of trade.
This summary does not apply
to (a) a Holder that is a “financial institution” for purposes of the mark-to-market rules contained in the Tax
Act; (b) a Holder an interest in which is or would constitute a “tax shelter investment” as defined in the Tax Act; (c) a
Holder that is a “specified financial institution” as defined in the Tax Act; (d) a Holder that reports its “Canadian
tax results”, as defined in the Tax Act, in a currency other than Canadian currency; (e) a Holder that is exempt from tax under
the Tax Act; (f) a Holder that has entered into, or will enter into, a “synthetic disposition arrangement” or a “derivative
forward agreement” with respect to the Common Shares as those terms are defined in the Tax Act; or (g) that will receive dividends
on Common Shares under or as part of a “dividend rental arrangement” as defined in the Tax Act. Such Holders should consult
their own tax advisors with respect to an investment in the Common Shares.
Additional considerations,
not discussed herein, may be applicable to a Holder that is a corporation resident in Canada (or does not deal at arm's length for purposes
of the Tax Act with a corporation resident in Canada) that is, or becomes as part of a transaction or series of transactions or events
that includes the acquisition of the Common Shares, controlled by a non-resident person, or group of non-resident persons that do not
deal with each other at arm’s length for the purposes of the “foreign affiliate dumping” rules in section 212.3
of the Tax Act. Such Holders should consult their own tax advisors with respect to an investment in the Common Shares.
This summary does not address
the deductibility of interest by a Holder who has borrowed money or otherwise incurred debt in connection with the acquisition of the
Common Shares.
This summary is based upon
the facts set out in this Prospectus Supplement, the provisions of the Tax Act in force as of the date prior to the date hereof, and counsel’s
understanding of the current administrative policies and assessing practices of the Canada Revenue Agency (the “CRA”)
published in writing by the CRA prior to the date hereof. This summary takes into account all specific proposals to amend the Tax Act
(the “Tax Proposals”) which have been announced by or on behalf of the Minister of Finance (Canada) prior to the date
hereof. This summary assumes that the Tax Proposals will be enacted in the form proposed, although no assurance can be given that the
Tax Proposals will be enacted in their current form or at all.
This summary does not take
into account or anticipate any other changes in law, whether by way of judicial, legislative or governmental decision or action, or changes
in administrative policies or assessing practices of the CRA, nor does it take into account provincial, territorial or foreign income
tax legislation or considerations, which may differ significantly from the Canadian federal income tax considerations discussed herein.
This summary is not exhaustive
of all possible Canadian federal income tax considerations applicable to an investment in the Common Shares. This summary is of a general
nature only and is not, and is not intended to be, and nor should it be construed to be, legal or income tax advice to any particular
Holder. The tax consequences of acquiring, holding and disposing of Common Shares will vary according to the Holder’s particular
circumstances. Holders should consult their own tax advisors regarding the tax considerations applicable to them having regard to their
particular circumstances.
Currency
Generally, for purposes of
the Tax Act, all amounts relating to the acquisition, holding or disposition of Common Shares must be expressed in Canadian dollars based
on the relevant exchange rate as determined in accordance with the Tax Act.
Residents of Canada
The following portion of this
summary is generally applicable to a Holder who, for the purposes of the Tax Act, is resident or deemed to be resident in Canada at all
relevant times (each, a “Resident Holder”). Certain Resident Holders whose Common Shares might not otherwise constitute
capital property may be entitled to make an irrevocable election pursuant to subsection 39(4) of the Tax Act to have the Common Shares,
and every other “Canadian security” (as defined in the Tax Act) owned by such Resident Holder in the taxation year of the
election and in all subsequent taxation years, deemed to be capital property. Resident Holders should consult their own tax advisors for
advice as to whether an election under subsection 39(4) of the Tax Act is available or advisable in their particular circumstances.
Taxation of Dividends
In the case of a Resident
Holder who is an individual (including certain trusts), dividends (including deemed dividends) received on the Common Shares will be included
in the Resident Holder’s income and be subject to the gross-up and dividend tax credit rules applicable to “taxable dividends”
received by an individual from “taxable Canadian corporations”, each as defined in the Tax Act, including the enhanced gross-up
and dividend tax credit rules for “eligible dividends” (as defined in the Tax Act) properly designated as such by the
Company in accordance with the Tax Act. There may be limitations on the ability of the Company to designate dividends as eligible dividends.
In the case of a Resident
Holder that is a corporation, dividends (including deemed dividends) received on the Common Shares will be included in the Resident Holder’s
income and will generally be deductible in computing such Resident Holder’s taxable income. In certain circumstances, subsection
55(2) of the Tax Act will treat a taxable dividend received (or deemed to be received) by a Resident Holder that is a corporation
as proceeds of disposition or a capital gain. Resident Holders that are corporations should consult their own tax advisors having regard
to their own circumstances.
A Resident Holder that is
a “private corporation” or “subject corporation” (as such terms are defined in the Tax Act) may be liable to pay
a tax (refundable in certain circumstances) under Part IV of the Tax Act on dividends received or deemed to be received on the Common
Shares to the extent that such dividends are deductible in computing the Resident Holder’s taxable income for the year.
A Resident Holder that is
throughout the relevant taxation year a “Canadian-controlled private corporation”, as defined in the Tax Act, may be liable
for an additional tax (refundable in certain circumstances) in respect of its “aggregate investment income” for the year,
which is defined in the Tax Act to include dividends received or deemed to be received in respect of Common Shares, but not dividends
or deemed dividends that are deductible in computing the dividend recipient’s taxable income. Tax Proposals released on August 9,
2022, are intended to extend this additional tax and refund mechanism in respect of “aggregate investment income” to “substantive
CCPCs” as defined in such Tax Proposals. Resident Holders are advised to consult their own tax advisors regarding the possible implications
of these Tax Proposals in their particular circumstances.
Dividends received by a Resident
Holder who is an individual (including certain trusts) may result in such Resident Holder being liable for alternative minimum tax under
the Tax Act. Resident Holders who are individuals should consult their own tax advisors in this regard.
Disposition of Common Shares
A Resident Holder who disposes
of, or is deemed to have disposed of, a Common Share (other than to the Company unless purchased by the Company in the open market in
the manner in which shares are normally purchased by any member of the public in the open market) will realize a capital gain (or incur
a capital loss) equal to the amount by which the proceeds of disposition in respect of the Common Share exceed (or are exceeded by) the
aggregate of the adjusted cost base to the Resident Holder of such Common Share immediately before the disposition or deemed disposition
and any reasonable expenses incurred for the purpose of making the disposition. The adjusted cost base to a Resident Holder of a Common
Share acquired pursuant to this Offering will be determined by averaging the cost of that Common Share with the adjusted cost base (determined
immediately before the acquisition of the Common Share) of all other Common Shares held as capital property at that time by the Resident
Holder, if any. The tax treatment of capital gains and capital losses is discussed in greater detail below under the heading “Residents
of Canada – Taxation of Capital Gains and Losses”.
Taxation of Capital Gains and Losses
Generally, one-half of any
capital gain (a “taxable capital gain”), realized by a Resident Holder in a taxation year must be included in the Resident
Holder’s income for that year and one-half of any capital loss (an “allowable capital loss”) realized by a Resident
Holder in a taxation year must be deducted against taxable capital gains realized by the Resident Holder in the year. Allowable capital
losses in excess of taxable capital gains realized in a particular taxation year generally may be carried back and deducted in any of
the three preceding taxation years or carried forward and deducted in any subsequent taxation year against net taxable capital gains realized
by the Resident Holder in such years, to the extent and in the circumstances described in the Tax Act.
A capital loss realized on
the disposition or deemed disposition of a Common Share by a Resident Holder that is a corporation may in certain circumstances be reduced
by the amount of dividends received or deemed to have been received by the Resident Holder on the Common Shares (or a share substituted
for such Common Share) to the extent and in the circumstances prescribed by the Tax Act. Similar rules may apply where a corporation
is, directly or indirectly through a trust or partnership, a member of a partnership or a beneficiary of a trust that owns Common Shares.
A Resident Holder to which these rules may be relevant is urged to consult its own tax advisor.
A Resident Holder that is
throughout the relevant taxation year a “Canadian-controlled private corporation” (as defined in the Tax Act) may be liable
to pay an additional tax (refundable in certain circumstances) on its “aggregate investment income” (as defined in the Tax
Act) including an amount in respect of taxable capital gains. Tax Proposals released on August 9, 2022, are intended to extend this
additional tax and refund mechanism in respect of “aggregate investment income” to “substantive CCPCs” as defined
in such Tax Proposals. Resident Holders are advised to consult their own tax advisors regarding the possible implications of these Tax
Proposals in their particular circumstances.
Capital gains realized by
a Resident Holder who is an individual (including certain trusts) may result in such Resident Holder being liable for alternative minimum
tax under the Tax Act. Resident Holders who are individuals should consult their own tax advisors in this regard.
Non-Residents of Canada
The following portion of this
summary is generally applicable to a Holder who, for purposes of the Tax Act and any applicable tax treaty or convention and at all relevant
times, is not resident or deemed to be resident in Canada and does not use or hold, and is not deemed to use or hold, Common Shares in
connection with a business carried on in Canada (each, a “Non-Resident Holder”).
The term “U.S. Holder,”
for the purposes of this summary, means a Non-Resident Holder who, for purposes of the Canada-U.S. Tax Convention (1980) (the “Convention”),
is at all relevant times a resident of the United States and is a “qualifying person” within the meaning of Convention eligible
for the full benefits of the Convention. In some circumstances, persons deriving amounts through fiscally transparent entities (including
limited liability companies) may be entitled to benefits under the Convention. U.S. Holders are urged to consult their own tax advisors
to determine their entitlement to benefits under the Convention and related compliance requirements based on their particular circumstances.
Special considerations, which
are not discussed in this summary, may apply to a Non-Resident Holder that is an insurer that carries on an insurance business in Canada
and elsewhere or is an “authorized foreign bank” (as defined in the Tax Act). Such Non-Resident Holders should consult their
own advisors.
Taxation of Dividends
Dividends paid or credited,
or deemed to be paid or credited, to a Non-Resident Holder on the Common Shares will be subject to Canadian withholding tax under the
Tax Act at the rate of 25% of the gross amount of the dividend unless reduced by the terms of an applicable tax treaty or convention between
Canada and the country in which the Non-Resident Holder is resident. For example, such rate is generally reduced under the Convention
to 15% if the beneficial owner of such dividend is a U.S. Holder. The rate of withholding tax may be reduced to 5% if the beneficial owner
of such dividend is a U.S. Holder that is a company that owns, directly or indirectly, at least 10% of the voting stock of the Company.
Non-Resident Holders should consult their own tax advisors to determine their entitlement to benefits under any applicable tax treaty
or convention based on their particular circumstances.
Disposition of Common Shares
A Non-Resident Holder generally
will not be subject to tax under the Tax Act in respect of any capital gain realized by such Non-Resident Holder on a disposition or deemed
disposition of Common Shares, unless the Common Shares constitute or are deemed to constitute “taxable Canadian property”
(as defined in the Tax Act) of the Non-Resident Holder at the time of the disposition and the Non-Resident Holder is not entitled to relief
under an applicable income tax convention between Canada and the country in which the Non-Resident Holder is resident at the time of the
disposition.
Generally, as long as the
Common Shares are listed on a “designated stock exchange” as defined in the Tax Act (which currently includes the TSX and
NYSE) at the time of disposition, the Common Shares will not constitute taxable Canadian property of a Non-Resident Holder at that time,
unless at any time during the 60-month period immediately preceding the disposition the following two conditions are met concurrently:
(a) the Non-Resident Holder, persons with which the Non-Resident Holder does not deal at arm’s length, partnerships
whose members include, either directly or indirectly through one or more partnerships, the Non-Resident Holder and/or persons which do
not deal at arm’s length with the Non-Resident Holder, or any combination of the foregoing, owned 25% or more of the issued shares
of any class or series of shares of the capital stock of the Company, and (b) more than 50% of the fair market value of the Common
Shares was derived directly or indirectly, from one or any combination of real or immovable property situated in Canada, “Canadian
resource properties” or “timber resource properties” (each as defined in the Tax Act), and options in respect of or
interests in, or for civil law rights in, any such property (whether or not such property exists). Notwithstanding the foregoing, a Common
Share may also be deemed to be taxable Canadian property to a Non-Resident Holder in certain other circumstances under the Tax Act.
If Common Shares are taxable
Canadian property of a Non-Resident Holder and any capital gain that would be realized on the disposition thereof is not exempt from tax
under the Tax Act or pursuant to an applicable income tax treaty or convention, the income tax consequences described above under “Residents
of Canada – Disposition of Common Shares” and “Residents of Canada - Taxation of Capital Gains and Losses”
will generally apply.
Non-Resident Holders whose
Common Shares may constitute taxable Canadian property or treaty-protected property should consult their own advisors.
cERTAIN
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general
summary of certain anticipated material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising
from and relating to the acquisition, ownership and disposition of Common Shares acquired pursuant to the Offering.
This summary is for general
information purposes only and does not purport to be a complete analysis of all potential U.S. federal income tax consequences that may
apply to a U.S. Holder arising from and relating to the acquisition, ownership and disposition of Common Shares. This summary only applies
to “U.S. Holders” that hold Common Shares as “capital assets” within the meaning of Section 1221 of the Code
(generally, property held for investment) and that do not own and are not treated as owning (directly, indirectly, or by attribution)
10% or more of the total combined voting power or value of all outstanding shares of the Company. In addition, this summary does not take
into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences
to such U.S. Holder, including specific tax consequences to a U.S. Holder under an applicable tax treaty. This summary does not address
estate or gift, any U.S. federal tax consequences other than income, or any U.S. state and local, or non-U.S. tax consequences to U.S.
Holders of the acquisition, ownership and disposition of Common Shares. Each U.S. Holder is urged to consult its own tax advisor regarding
the U.S. federal income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences
relating to the acquisition, ownership and disposition of Common Shares.
The Company has not requested,
and will not request, a ruling from the U.S. Internal Revenue Service (the “IRS”) regarding the U.S. federal income tax consequences
of the acquisition, ownership and disposition of Common Shares. This summary is not binding on the IRS, and the IRS is not precluded from
taking a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities on
which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the
conclusions described in this summary.
The following discussion is
not intended to be, nor should it be construed as, legal or tax advice to any holder or prospective holder of Common Shares and no opinion
or representation with respect to the U.S. federal income tax consequences to any such holder or prospective holder is made.
This summary is based on the
Code, U.S. Treasury Regulations (whether final, temporary, or proposed) (“Treasury Regulations”), published administrative
positions of the IRS, the Canada-U.S. Tax Convention, and U.S. court decisions that are applicable and, in each case, as in effect and
available as of the date of this Prospectus Supplement. Any of the authorities on which this summary is based could be changed in a material
and adverse manner at any time, and any such change could be applied on a retroactive basis, which could affect the U.S. federal income
tax considerations described in this summary. This summary does not discuss the potential effects, whether adverse or beneficial, of any
proposed legislation that, if enacted, could be applied on a retroactive basis.
This summary does not address
the U.S. federal income tax consequences of the acquisition, ownership and disposition of Common Shares to U.S. Holders that are subject
to special provisions under the Code, including, but not limited to, the U.S. Holders that: (a) are tax-exempt entities; (b) are
banks, financial institutions, insurance companies, real estate investment trusts, or regulated investment companies; (c) are partnerships
or their partners; (d) are dealers or traders in securities or currencies; (e) are traders in securities that elect to apply
a mark-to-market accounting method; (f) have a “functional currency” other than the U.S. dollar; (g) own Common
Shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other integrated security transaction
for U.S. federal income tax purposes; (h) acquired Common Shares in connection with the exercise or cancellation of employee stock
options or otherwise as compensation for services; (i) are U.S. expatriates; (j) are subject to the alternative minimum tax
or (k) are required to accelerate the recognition of any item of gross income as a result of such income being recognized on an applicable
financial statement. U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders described
immediately above, are urged to consult their own tax advisors regarding the U.S. federal income, U.S. federal alternative minimum, U.S.
federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition of
Common Shares.
For purposes of this summary,
the term “U.S. Holder” means a beneficial owner of Common Shares that is: (i) an individual who is a citizen or resident
of the United States as determined for U.S. federal income tax purposes, (ii) a corporation (or other entity treated as a corporation
for U.S. federal income tax purposes) created in or organized under the law of the United States, any State thereof, or the District of
Columbia, (iii) an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its
source, or (iv) a trust (A) the administration of which is subject to the primary supervision of a U.S. court and which has
one or more U.S. persons who have the authority to control all substantial decisions of the trust, or (B) that has validly elected
to be subject to tax as a U.S. person under the Code and applicable Treasury Regulations.
If an entity or arrangement
that is classified as a partnership (or other “pass-through” entity) for U.S. federal income tax purposes holds, or is the
beneficial owner of, Common Shares, the U.S. federal income tax consequences to such entity and the partners (or other owners) of such
entity generally will depend on the activities of the entity and the status of such partners (or owners). This summary does not address
the tax consequences to any such entity or owner. Partners (or other owners) of entities or arrangements that are classified as partnerships
or as “pass-through” entities for U.S. federal income tax purposes are urged to consult their own tax advisors regarding the
U.S. federal income tax consequences arising from and relating to the acquisition, ownership and disposition of Common Shares.
Ownership and Disposition of Common Shares
The following discussion is
subject to the rules described below under the heading “Passive Foreign Investment Company Rules.”
Distributions on Common Shares
A U.S. Holder that receives
a distribution with respect to a Common Share will be required to include the amount of such distribution in gross income as a dividend
(without reduction for the amount of any Canadian income tax withheld from such distribution) to the extent of the current or accumulated
“earnings and profits” of the Company, as calculated for U.S. federal income tax purposes. Such amount will be includable
in gross income by a U.S. Holder as ordinary income on the date that the U.S. Holder actually or constructively receives the
distribution in accordance with its regular method of accounting for U.S. federal income tax purposes. The amount of any distribution
made by the Company in property other than cash will be the fair market value of such property on the date of the distribution. See “Foreign
Tax Credits” below for a discussion of the availability of any foreign tax credits related to Canadian taxes withheld.
To the extent that a distribution
exceeds the current and accumulated “earnings and profits” of the Company, such distribution will be treated first as a tax-free
return of capital to the extent of a U.S. Holder’s adjusted tax basis in its Common Shares, causing a reduction in the U.S. Holder’s
adjusted tax basis in its Common Shares (thereby increasing the amount of gain, or decreasing amount of loss, to be recognized by such
U.S. Holder upon a subsequent disposition of such Common Shares), with any amount that exceeds such U.S. Holder’s adjusted tax basis
being treated as a capital gain recognized on a sale, exchange or other taxable disposition of such Common Shares. See “Sale, Exchange
or Other Taxable Disposition of Common Shares” below. However, the Company does not intend to maintain calculations of its earnings
and profits in accordance with U.S. federal income tax principles, and each U.S. Holder should therefore assume that any distribution
by the Company with respect to Common Shares will be treated as a dividend for U.S. federal income tax purposes. In the case of a U.S.
Holder that is a corporation, dividends paid on Common Shares generally will not be eligible for the “dividends received deduction.”
The dividend rules are complex, and each U.S. Holder are urged to consult its own tax advisor regarding the application of such rules.
Subject to applicable exceptions
with respect to short-term and hedged positions, dividends received by non-corporate U.S. Holders from a “qualified foreign corporation”
will be eligible for reduced rates of taxation. A qualified foreign corporation includes a foreign corporation that is eligible for the
benefits of a comprehensive income tax treaty with the United States that the U.S. Treasury Department determines to be satisfactory for
these purposes and that includes an exchange of information provision. The U.S. Treasury Department has determined that the Canada-U.S.
Tax Convention meets these requirements, and the Company believes that it is eligible for the benefits of the Canada-U.S. Tax Convention.
A foreign corporation is also treated as a qualified foreign corporation with respect to dividends paid by that corporation on ordinary
shares that are readily tradeable on an established securities market in the United States. U.S. Treasury Department guidance indicates
that Common Shares are readily tradeable on an established securities market in the United States. However, there can be no assurance
that Common Shares will be considered readily tradeable on an established securities market in the United States in future years. If the
Company is classified as a PFIC (as defined below) in the taxable year of distribution or in the preceding taxable year, then dividends
received by U.S. Holders will not be qualified dividends. As discussed below in “Passive Foreign Investment Company Rules,”
although not free from doubt, the Company believes that it likely was not classified as a PFIC for the preceding taxable year and likely
will not be classified as a PFIC for the current taxable year or any future taxable year.
Sale, Exchange or Other
Taxable Disposition of Common Shares
A U.S. Holder generally
will recognize gain or loss upon the sale, exchange or other taxable disposition of Common Shares in an amount equal to the difference
between (i) the amount realized upon such sale, exchange or other taxable disposition and (ii) such U.S. Holder’s
adjusted tax basis in Common Shares. Such gain or loss will generally be capital gain or loss and will be long-term capital gain or loss
if, on the date of the sale, exchange or other taxable disposition, the U.S. Holder has held Common Shares for more than one year.
Certain non-corporate U.S. Holders (including individuals) may qualify for preferential rates of U.S. federal income taxation in respect
of long-term capital gains. The deductibility of capital losses is subject to limitations. Gain or loss, if any, realized by U.S. Holders
upon a sale, exchange or other taxable disposition of Common Shares generally will be treated as income from sources within the United
States for U.S. foreign tax credit limitation purposes.
Passive Foreign Investment Company Rules
Special, generally unfavourable,
U.S. federal income tax rules apply to U.S. persons owning stock of a Passive Foreign Investment Company (“PFIC”).
A foreign corporation will be considered a PFIC for any taxable year in which, after taking into account the income and assets of the
corporation and certain subsidiaries pursuant to applicable “look through” rules, either (1) at least 75 percent
of its gross income is “passive” income (the “income test”) or (2) at least 50 percent of the average
value of its assets is attributable to assets that produce passive income or are held for the production of passive income (the “asset
test”). For this purpose, passive income generally includes, among other things, dividends, interest, certain rents and royalties,
gains from the disposition of passive assets and certain net gains from commodities transactions. For purposes of determining whether
a foreign corporation will be considered a PFIC, such foreign corporation will be treated as holding its proportionate share of the assets
and receiving directly its proportionate share of the income of any other corporation in which it owns, directly or indirectly, at least
25 percent (by value) of the stock. PFIC status is fundamentally factual in nature, and generally cannot be determined until
the close of the taxable year in question. PFIC status is determined annually.
Under certain attribution
rules, if the Company were a PFIC, U.S. Holders would generally be deemed to own their proportionate share of the Company’s direct
or indirect equity interest in any company that is also a PFIC (a “Subsidiary PFIC”), and would be subject to U.S. federal
income tax on any indirect gain realized on the stock of a Subsidiary PFIC upon the sale of Common Shares, as well as their proportionate
share of (a) any “excess distributions” (as discussed below) on the stock of a Subsidiary PFIC and (b) any gain
realized upon the disposition or deemed disposition of stock of a Subsidiary PFIC by the Company or by another Subsidiary PFIC, both as
if such U.S. Holders directly held the shares of such Subsidiary PFIC.
The Company believes that
it likely was not classified as a PFIC for the preceding taxable year and likely will not be classified as a PFIC for the current taxable
year or any future taxable year. The determination of the Company’s PFIC status for any year is very fact specific, being based
on the types of income the Company earns and the types and value of the Company’s assets from time to time, all of which are subject
to change, as well as, in part, the application of complex U.S. federal income tax rules, which are subject to differing interpretations.
As a result, there can be no assurance that the Company will not be classified as a PFIC in any given taxable year. If the Company is
classified as a PFIC in any taxable year during which a U.S. Holder holds Common Shares, the Company generally will continue to be
treated as a PFIC as to such U.S. Holder in all succeeding years regardless of whether the Company continues to meet the income or
asset test discussed above, unless a U.S. Holder makes certain elections, for such year and all succeeding years during which such U.S.
Holder holds Common Shares.
If the Company were classified
as a PFIC for any taxable year during which a U.S. Holder holds Common Shares, such U.S. Holder would be subject to increased
tax liability (generally including an interest charge) upon the sale or other disposition of Common Shares or upon the receipt of certain
distributions treated as “excess distributions”, regardless of whether such income was actually distributed. An excess distribution
generally would be the portion of any distributions to a U.S. Holder with respect to Common Shares during a single taxable year that
are in total greater than 125% of the average annual distributions received by such U.S. Holder with respect to Common Shares during
the three preceding taxable years or, if shorter, during such U.S. Holder’s holding period for such Common Shares. Generally,
a U.S. Holder would be required to allocate any excess distribution or gain from the sale or other disposition of Common Shares ratably
over its holding period for Common Shares. Such amounts would be taxed as ordinary income at the highest applicable rate in effect for
each taxable year of the holding period, and amounts allocated to prior taxable years would be subject to an interest charge at a rate
applicable to underpayments of tax.
If the Company were to be
classified as a PFIC, certain elections could be available to mitigate such consequences. If Common Shares are regularly traded on a registered
national securities exchange or certain other exchanges or markets, then such Common Shares will constitute “marketable stock”
for purposes of the PFIC rules. The Company expects that Common Shares will constitute “marketable stock” for purposes of
the PFIC rules. U.S. Holders that make a “mark-to-market election” with respect to such marketable stock would not be
subject to the foregoing PFIC rules. After making such an election, a U.S. Holder generally would include as ordinary income each
year during which the election is in effect and during which the Company is a PFIC, or treated as a PFIC, the excess, if any, of the fair
market value of Common Shares at the end of the taxable year over the U.S. Holder’s adjusted tax basis in such Common Shares.
These amounts of ordinary income would not be eligible for the favorable tax rates applicable to qualified dividend income or long-term
capital gains. A U.S. Holder with a mark-to-market election in effect also would be allowed to take an ordinary loss in respect of
the excess, if any, of its adjusted tax basis in Common Shares over their fair market value at the end of the taxable year (but only
to the extent of the net amount of income that was previously included as a result of the mark-to-market election). A U.S. Holder’s
tax basis in its Common Shares would be adjusted to reflect any income or loss amounts resulting from a mark-to-market election. If made,
a mark-to-market election would be effective for the taxable year for which the election was made and for all subsequent taxable years
unless Common Shares ceased to qualify as “marketable stock” for purposes of the PFIC rules, the U.S. Holder elects, or is
required, to mark its Common Stock to market under another section of the Code (e.g., section 47), or the IRS consented to the revocation
of the election. However, the mark-to-market election will not be available with respect to any Subsidiary PFIC. Accordingly, U.S. Holders
making a mark-to-market election would be subject to unfavorable tax consequences described above with respect to any Subsidiary PFIC.
In the event that the Company is classified as a PFIC, U.S. Holders are urged to consult their own tax advisor regarding the availability
of the mark-to-market election, and whether such election would be advisable in their particular circumstances.
The PFIC tax rules outlined
above also would not apply to a U.S. Holder that elected to treat the Company as a “qualified electing fund” (a “QEF”).
An election to treat the Company as a QEF will not be available, however, if the Company does not provide the information necessary to
make such an election. The Company does not intend to provide the information necessary to make a QEF election, and thus, a QEF election
will not be available with respect to Common Shares.
As discussed above in “Distributions
on Common Shares”, notwithstanding any election made with respect to Common Shares, if the Company is a PFIC in either the taxable
year of the distribution or the preceding taxable year, dividends received with respect to Common Shares will not qualify for reduced
rates of taxation.
Additional Considerations
Tax on Passive Income
U.S. Holders that are individuals, estates and
trusts are required to pay a 3.8 percent additional tax on the lesser of (1) the U.S. Holder’s “net investment income”
for the relevant taxable year and (2) the excess of the U.S. Holder’s modified adjusted gross income for the taxable year over
a certain threshold. A U.S. Holder’s “net investment income” generally includes, among other things, dividends and net
gains from disposition of property (other than property held in the ordinary course of the conduct of a trade or business). Accordingly,
dividends on and capital gain from the sale or other taxable disposition of Common Shares may be subject to this additional tax. U.S.
Holders are urged to consult their own tax advisors regarding the additional tax on passive income.
Receipt of Foreign Currency
The gross amount of any payment
in a currency other than U.S. dollars will be included by each U.S. Holder in income in a U.S. dollar amount calculated
by reference to the exchange rate in effect on the day such U.S. Holder actually or constructively receives the payment in accordance
with its regular method of accounting for U.S. federal income tax purposes regardless of whether the payment is in fact converted into
U.S. dollars at that time. If the foreign currency is converted into U.S. dollars on the date of the payment, the U.S. Holder
should not be required to recognize any foreign currency gain or loss with respect to the receipt of foreign currency. If, instead, the
foreign currency is converted at a later date, any currency gains or losses resulting from the conversion of the foreign currency will
be treated as U.S. source ordinary income or loss. U.S. Holders are urged to consult their own U.S. tax advisors regarding
the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.
Foreign Tax Credits
In general, any Canadian income
tax imposed on dividend payments (whether directly or through withholding) in respect of Common Shares will be treated as a foreign income
tax eligible for credit against a U.S. Holder’s U.S. federal income tax liability (or, at a U.S. Holder’s election,
may, in certain circumstances, be deducted in computing taxable income). Dividends paid on Common Shares will be treated as foreign-source
income, and generally will be treated as “passive category income” or “general category income” for U.S. foreign
tax credit purposes. The Code applies various complex limitations on the amount of foreign taxes that may be claimed as a credit by U.S. taxpayers.
Accordingly, U.S. Holders are urged to consult their and rely solely upon their own tax advisors regarding the availability of the
foreign tax credit under their particular circumstances.
Disclosure Requirements for Specified Foreign
Financial Assets
Certain U.S. Holders that,
during any taxable year, hold an interest in “specified foreign financial assets” with an aggregate value in excess of US$50,000
(and in some circumstances, a higher threshold), may be required to file an information report with respect to such assets with their
tax returns. “Specified foreign financial assets” generally include any financial accounts maintained by foreign financial
institutions, as well as any of the following, but only if they are not held in accounts maintained by financial institutions: (i) stocks
and securities issued by non-U.S. persons, (ii) financial instruments and contracts held for investment that have non-U.S. issuers
or counterparties and (iii) interests in foreign entities. U.S. Holders are urged to consult their own tax advisors regarding
the application of the information reporting rules to Common Shares and their particular situations.
Backup Withholding and Additional Information
Reporting
In general, dividends paid
to a U.S. Holder in respect of Common Shares and the proceeds received by a U.S. Holder from the sale, exchange or other disposition of
Common Shares within the United States or through certain U.S. related financial intermediaries will be subject to U.S. information reporting
rules, unless a U.S. Holder is a corporation or other exempt recipient and properly establishes such exemption. Backup withholding may
apply to such payments if a U.S. Holder does not establish an exemption from backup withholding and fails to provide a correct taxpayer
identification number and make any other required certifications.
Backup withholding is not
an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a refund or credit against U.S. federal
income tax liability, provided that the required information is timely furnished to the IRS. Each U.S. Holder is urged to consult its
own tax advisor regarding the information reporting and backup withholding rules.
AGENT
FOR SERVICE OF PROCESS
Christopher Noel Dunn and
Robert Getz, directors of the Company, reside outside of Canada. Each has appointed the following agent for service of process in Canada:
| Name of Person | |
Name and Address of Agent |
| Christopher Noel Dunn and Robert Getz | |
Blakes Vancouver Services Inc.
c/o Blake, Cassels & Graydon LLP
Suite 3500 – 1133 Melville Street, Vancouver, British
Columbia, V6E 4E5, Canada |
Purchasers are advised that
it may not be possible for investors to enforce judgments obtained in Canada against any person or company that is incorporated, continued
or otherwise organized under the laws of a foreign jurisdiction or resides outside of Canada, even if the party has appointed an agent
for service of process.
LEGAL
MATTERS
Certain legal matters in connection
with the Offering will be passed upon on behalf of the Company by Blake, Cassels & Graydon LLP with respect to matters of Canadian
law, and Paul, Weiss, Rifkind, Wharton & Garrison LLP, with respect to matters of United States law. Certain Canadian legal matters
on behalf of the Underwriters will be passed upon on behalf of the Underwriters by Cassels Brock & Blackwell LLP and certain
United States legal maters on behalf of the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP.
As at the date of this Prospectus
Supplement, the partners and associates of Blake, Cassels & Graydon LLP, as a group, and the partners and associates of Cassels
Brock & Blackwell LLP, as a group, beneficially own, directly or indirectly, in the aggregate less than 1% of the issued and
outstanding Common Shares of the Company.
INTEREST
OF EXPERTS
The Xavantina Operations Technical
Report was authored by Porfírio Cabaleiro Rodriguez, FAIG, Leonardo de Moraes Soares, MAIG and Guilherme Gomides Ferreira, MAIG
all of GE21. Each of Porfírio Cabaleiro Rodriguez, FAIG, Leonardo de Moraes Soares, MAIG and Guilherme Gomides Ferreira, MAIG is
a “qualified person” and “independent” of the Company within the meanings of NI 43-101, prepared the Xavantina
Operations Technical Report in accordance with NI 43-101 and also reviewed and approved the scientific and technical information relating
to the Xavantina Operations incorporated by reference in this Prospectus Supplement.
All scientific and technical
information contained in or incorporated into this Prospectus Supplement, and in the AIF, the Annual MD&A and the Interim MD&A which are incorporated by reference
herein, excluding the Xavantina Operations Technical Report, the Caraíba Operations Technical Report and the Tucumã Project
Technical Report which are incorporated by reference herein, has been reviewed and approved by Cid Gonçalves Monteiro Filho, SME
RM (04317974), MAIG (No. 8444), FAusIMM (No. 3219148), Resource Manager, who is an employee of the Company and who is a “qualified
person” for the purposes of NI 43-101.
The aforementioned persons
beneficially owned, or controlled or directed, directly or indirectly, either less than one percent or no securities of the Company or
of any associate or affiliate of the Company when they prepared the reports and statements referred to, or following the preparation of
the reports and statements, and did not receive any direct or indirect interest in any securities of the Company or of any associate or
affiliate of the Company in connection with the preparation of such reports and statements.
None of the aforementioned
firms or persons, nor any directors, officers or employees of such firms, are currently, or are expected to be elected, appointed or employed
as, a director, officer or employee of the Company or of any associate or affiliate of the Company other than Mr. Monteiro, who has
been employed by the Company, as Resource Manager, since February 2023.
AUDITORS,
TRANSFER AGENT AND REGISTRAR
The auditors of the Company
are KPMG, Chartered Professional Accountants, having an address at Suite 1100 – 777 Dunsmuir Street, PO Box 10426 Pacific Centre,
Vancouver, British Columbia, Canada, V7Y 1K3. KPMG have confirmed with respect to the Company that they are independent within the meaning
of the relevant rules and related interpretations prescribed by the relevant professional bodies in Canada and any applicable legislation
or regulation and also that they are independent accountants with respect to Ero under all relevant U.S. professional and regulatory standards.
The Company’s transfer
agent and registrar in Canada is Computershare Investor Services Inc. at its offices in Vancouver, British Columbia. The transfer and
co-agent for the Common Shares in the United States is Computershare Trust Company, N.A., having an address at 150 Royall Street, Canton,
Massachusetts 02021, United States.
WHERE
YOU CAN FIND MORE INFORMATION
The Company is required to
file with the securities commission or authority in each of the applicable provinces and territories of Canada, annual and quarterly reports,
material change reports and other information. In addition, the Company is subject to the informational requirements of the U.S. Exchange
Act, and, in accordance with the U.S. Exchange Act, is also required to file reports with, and furnish other information to, the SEC.
Under a multijurisdictional disclosure system adopted by the securities regulatory authorities in Canada and the United States, these
reports and other information (including financial information) may be prepared in accordance with the disclosure requirements of Canada,
which differ in certain respects from those in the United States. As a foreign private issuer, the Company is exempt from the rules under
the U.S. Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders
are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the U.S. Exchange Act. In addition,
the Company is not required to publish financial statements as promptly as U.S. companies.
Potential investors may read
any document the Company files with or furnishes to the securities commissions and authorities of the applicable provinces and territories
of Canada through SEDAR and any document the Company files with, or furnishes to, the SEC is electronically available on the SEC’s
EDGAR website, accessible at www.sec.gov.
ENFORCEABILITY
OF CIVIL LIABILITIES
Ero is a company incorporated
under the BCBCA. A number of the Company’s directors and most of its officers and the experts named in this prospectus, are residents
of Canada or otherwise reside outside the United States, and all or a substantial portion of their assets may be, and a substantial portion
of the Company’s assets are, located outside the United States. The Company has appointed an agent for service of process in the
United States (as set forth below), but it may be difficult for holders of securities who reside in the United States to effect service
within the United States upon those directors, officers and experts who are not residents of the United States. It may also be difficult
for holders of securities who reside in the United States to realize in the United States upon judgments of courts of the United States
predicated upon our civil liability and the civil liability of the Company’s directors, officers and experts under the United States
federal securities laws. The Company has been advised that a judgment of a U.S. court predicated solely upon civil liability under U.S.
federal securities laws or the securities or “blue sky” laws of any state within the United States, would likely be enforceable
in Canada if the United States court in which the judgment was obtained has a basis for jurisdiction in the matter that would be recognized
by a Canadian court for the same purposes. The Company also been advised, however, that there is substantial doubt whether an action could
be brought in Canada in the first instance on the basis of the liability predicated solely upon U.S. federal securities laws.
The Company has filed with
the SEC, concurrently with the Registration Statement of which this Prospectus Supplement is a part, an appointment of agent for service
of process on Form F-X. Under the Form F-X, the Company has appointed CT Corporation System, 28 Liberty Street, New York, New
York 10005, as its agent for service of process in the United States in connection with any investigation or administrative proceeding
conducted by the SEC, and any civil suit or action brought against or involving us in a U.S. court arising out of or related to or concerning
the offering of securities under this Prospectus Supplement.
SHORT FORM BASE SHELF PROSPECTUS
| New Issue |
August 18, 2023 |
ERO COPPER CORP.
Common Shares
Debt Securities
Warrants
Units
Subscription Receipts
Share Purchase Contracts
This short form base shelf prospectus relates
to the offering for sale from time to time, during the 25-month period that this prospectus, including any amendments hereto, remains
effective, of the securities of Ero Copper Corp. (the “Company”, “Ero”, “we”,
“us” or “our”) listed above in one or more series or issuances. The securities may be offered separately
or together, in amounts, at prices and on terms to be determined based on market conditions at the time of the sale and set forth in
an accompanying prospectus supplement.
The common shares of the Company (the “Common
Shares”) are listed for trading on the Toronto Stock Exchange (the “TSX”) and the New York Stock Exchange
(“NYSE”) under the trading symbol “ERO”. On August 17, 2023 being the last trading day prior to the
date hereof, the closing price of the Common Shares on the TSX and NYSE was C$26.59 and US$19.65, respectively. Unless otherwise specified
in an applicable prospectus supplement, our debt securities, subscription receipts, units, warrants and share purchase contracts will
not be listed on any securities or stock exchange or on any automated dealer quotation system. There is currently no market through
which these securities, other than our Common Shares, may be sold and purchasers may not be able to resell such securities purchased
under this short form prospectus. This may affect the pricing of our securities, other than our Common Shares, in the secondary market,
the transparency and availability of trading prices, the liquidity of these securities and the extent of issuer regulation. See “Risk
Factors”.
We are permitted under a multijurisdictional
disclosure system adopted by the securities regulatory authorities in Canada and the United States to prepare this prospectus in accordance
with Canadian disclosure requirements, which are different from those of the United States. We prepare our financial statements in accordance
with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. They
may not be comparable to financial statements of United States companies.
Owning our securities may subject you to tax
consequences both in the United States and Canada. This prospectus or any applicable prospectus supplement may not describe these tax
consequences fully. You should read the tax discussion in any applicable prospectus supplement with respect to any particular offering
and consult your own tax advisor with respect to your own particular circumstances.
Your ability to enforce civil liabilities
under the United States federal securities laws may be affected adversely because we are incorporated in British Columbia, Canada, some
of our officers and directors and some or all of the experts named in this prospectus are Canadian residents, and the underwriters, dealers
or agents named in any prospectus supplement may be, residents of a country other than the United States, and a substantial portion of
our assets are located outside of the United States.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION
(THE “SEC”) NOR ANY STATE SECURITIES REGULATOR HAS APPROVED OR DISAPPROVED THE SECURITIES OFFERED HEREBY, OR PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
As of the date hereof, the Company has determined
that it qualifies as a “well-known seasoned issuer” under the WKSI Blanket Orders (as defined below). See “Well-Known
Seasoned Issuer”. All applicable information permitted under applicable laws, including as permitted under the WKSI Blanket Orders,
to be omitted from this prospectus that has been omitted will be contained in one or more prospectus supplements that will be delivered
to purchasers together with this prospectus, except in cases where an exemption from such delivery requirements is available. Each prospectus
supplement will be incorporated by reference into this prospectus for the purposes of securities legislation as of the date of the prospectus
supplement and only for the purposes of the distribution of the securities to which the prospectus supplement pertains. Prospective investors
should read this prospectus and any applicable prospectus supplement carefully before investing in any securities issued pursuant to
this prospectus.
No underwriter or agent has been involved
in the preparation of this prospectus or performed any review of the contents of this prospectus.
Our
securities may be sold pursuant to this prospectus through underwriters or dealers or directly or through agents designated from
time to time at amounts and prices and other terms determined by us, including by way of an “at-the-market distribution”
as defined in National Instrument 44-102 – Shelf Distributions (an “ATM Distribution”). In connection
with any underwritten offering of securities, excluding an ATM Distribution, the underwriters may over-allot or effect transactions which
stabilize or maintain the market price of the securities offered. Such transactions, if commenced, may discontinue at any time. A purchaser
who acquires securities forming part of the underwriters’ over-allocation position acquires those securities under this prospectus,
regardless of whether the over-allocation position is ultimately filled through the exercise of the over-allotment option or secondary
market purchases. No underwriter of an ATM Distribution, and no person or company acting jointly or in concert with an underwriter, may,
in connection with the distribution, enter into any transaction that is intended to stabilize or maintain the market price of the securities
or securities of the same class as the securities distributed under the ATM Distribution prospectus, including selling an aggregate number
or principal amount of securities that would result in the underwriter creating an over-allocation position in the securities. See “Plan
of Distribution”.
A prospectus supplement will set out the names
of any underwriters, dealers or agents involved in the sale of our securities, the amounts, if any, to be purchased by underwriters,
the plan of distribution for such securities, including the anticipated net proceeds to the Company from the sale of such securities,
the amounts and prices at which such securities are sold and, if applicable, the compensation of such underwriters, dealers or agents.
Investment in the securities being offered
is highly speculative and involves significant risks that you should consider before purchasing such securities. You should carefully
review the risks outlined in this prospectus (including any prospectus supplement) and in the documents incorporated by reference as
well as the information under the heading “Cautionary Note Regarding Forward-Looking Statements” and consider such
risks and information in connection with an investment in the securities. See “Risk Factors”.
Our head office is located at Suite 1050,
625 Howe Street, Vancouver, British Columbia, V6C 2T6, Canada and our registered office is located at Suite 3500, 1133 Melville
St, Vancouver, British Columbia, V6E 4E5, Canada.
Certain
of the Company’s directors and executive officers reside outside of Canada and have appointed an agent for service of process
in Canada. See “Agent for Service of Process”.
Investors should rely only on the information
contained in or incorporated by reference into this prospectus and any applicable prospectus supplement. We have not authorized anyone
to provide investors with different information. Information contained on our website shall not be deemed to be a part of this prospectus
(including any applicable prospectus supplement) or incorporated by reference and should not be relied upon by prospective investors
for the purpose of determining whether to invest in the securities. We will not make an offer of these securities in any jurisdiction
where the offer or sale is not permitted. Investors should not assume that the information contained in this prospectus is accurate as
of any date other than the date on the face page of this prospectus, the date of any applicable prospectus supplement, or the date
of any documents incorporated by reference herein.
TABLE OF CONTENTS
ABOUT
THIS PROSPECTUS
You should rely only on the information contained
or incorporated by reference in this prospectus or any applicable prospectus supplement and on the other information included in the
registration statement of which this prospectus forms a part. We have not authorized anyone to provide you with different or additional
information. If anyone provides you with different or additional information, you should not rely on it. We are not making an offer to
sell or seeking an offer to buy the securities offered pursuant to this prospectus in any jurisdiction where the offer or sale is not
permitted. You should assume that the information contained in this prospectus or any applicable prospectus supplement is accurate only
as of the date on the front of those documents and that information contained in any document incorporated by reference is accurate only
as of the date of that document, regardless of the time of delivery of this prospectus or any applicable prospectus supplement or of
any sale of our securities pursuant thereto. Our business, financial condition, results of operations and prospects may have changed
since those dates.
Market data and certain industry forecasts used
in this prospectus or any applicable prospectus supplement and the documents incorporated by reference in this prospectus or any applicable
prospectus supplement were obtained from market research, publicly available information and industry publications. We believe that these
sources are generally reliable, but the accuracy and completeness of this information is not guaranteed. We have not independently verified
such information, and we do not make any representation as to the accuracy of such information.
In this prospectus and any prospectus supplement,
unless otherwise indicated, all dollar amounts and references to “US$” are to U.S. dollars, references to “C$”
are to Canadian dollars and references to “R$” are to Brazilian Reais. See “Exchange Rate Information”.
In this prospectus and in any prospectus supplement,
unless the context otherwise requires, references to “we”, “us”, “our” or similar terms, as well
as references to “Ero” or the “Company”, refer to Ero Copper Corp. together with our subsidiaries.
CAUTIONARY
NOTE TO UNITED STATES INVESTORS
Unless
otherwise indicated, all reserve and resource estimates included in this prospectus and the documents incorporated by reference herein
have been prepared in accordance with Canadian National Instrument 43-101 - Standards of Disclosure for Mineral Projects (“NI
43-101”) and the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) Standards on mineral resources
and mineral reserves, as amended (the “CIM Standards”). NI 43-101 is a rule developed by the Canadian
Securities Administrators that establishes standards for all public disclosure an issuer makes of scientific and technical information
concerning mineral projects. Canadian standards, including NI 43-101, differ significantly from the requirements of the SEC, and reserve
and resource information included herein may not be comparable to similar information disclosed by U.S. companies. In particular, and
without limiting the generality of the foregoing, this prospectus and the documents incorporated by reference herein use the terms “measured
resources,” “indicated resources” and “inferred resources” as defined in accordance with NI 43-101 and
the CIM Standards.
Further to recent amendments, mineral property
disclosure requirements in the United States (the “U.S. Rules”) are governed by subpart 1300 of Regulation S-K of
the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”) which differ from the CIM Standards. As a
foreign private issuer that is eligible to file reports with the SEC pursuant to the multi-jurisdictional disclosure system, the Company
is not required to provide disclosure on its mineral properties under the U.S. Rules and will continue to provide disclosure under
NI 43-101 and the CIM Standards. If the Company ceases to be a foreign private issuer or loses its eligibility to file its annual report
on Form 40-F pursuant to the multi-jurisdictional disclosure system, then the Company will be subject to the U.S. Rules, which differ
from the requirements of NI 43-101 and the CIM Standards.
Pursuant to the new U.S. Rules, the SEC recognizes
estimates of “measured mineral resources”, “indicated mineral resources” and “inferred mineral resources.”
In addition, the definitions of “proven mineral reserves” and “probable mineral reserves” under the U.S. Rules are
now “substantially similar” to the corresponding standards under NI 43-101. Mineralization described using these terms has
a greater amount of uncertainty as to its existence and feasibility than mineralization that has been characterized as reserves. Accordingly,
U.S. investors are cautioned not to assume that any measured mineral resources, indicated mineral resources, or inferred mineral resources
that the Company reports are or will be economically or legally mineable. Further, “inferred mineral resources” have a greater
amount of uncertainty as to their existence and as to whether they can be mined legally or economically. Under Canadian securities laws,
estimates of “inferred mineral resources” may not form the basis of feasibility or pre-feasibility studies, except in rare
cases. While the above terms under the U.S. Rules are “substantially similar” to the standards under NI 43-101 and CIM
Standards, there are differences in the definitions under the U.S. Rules and CIM Standards. Accordingly, there is no assurance any
mineral reserves or mineral resources that the Company may report as “proven mineral reserves”, “probable mineral reserves”,
“measured mineral resources”, “indicated mineral resources” and “inferred mineral resources” under
NI 43-101 would be the same had the Company prepared the reserve or resource estimates under the standards adopted under the U.S. Rules.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus and the documents incorporated by reference herein contain “forward-looking information”, “forward-looking
statements”, “future oriented financial information” and “financial outlook” within the meaning of applicable
Canadian and United States securities legislation (collectively herein referred to as “forward-looking information”),
including the “safe harbour” provisions of Canadian provincial securities legislation and the U.S. Private Securities
Litigation Reform Act of 1995, Section 21E of the U.S. Exchange Act of 1934, as amended (the “U.S. Exchange Act”),
and Section 27A of the U.S. Securities Act. The purpose of disclosing future oriented financial information and financial outlook
is to provide a general overview of management’s expectations regarding the anticipated results of operations including cash generated
therefrom and costs thereof and readers are cautioned that future oriented financial information and financial outlook may not be appropriate
for other purposes. Future oriented financial information and financial outlook has been prepared by the Company’s management.
KPMG LLP, Chartered Professional Accountants (“KPMG”), the Company’s independent registered public accounting
firm, has not performed any audit, review or compilation procedures with respect to the prospective information and accordingly does
not provide any form of assurance with respect thereto for the purpose of this offering.
Wherever possible, words such as “plans”,
“expects”, “guidance”, “projects”, “assumes”, “budget”, “strategy”,
“scheduled”, “estimates”, “forecasts”, “anticipates”, “believes”, “intends”,
“modeled”, “targets” and similar expressions or statements that certain actions, events or results “may”,
“could”, “would”, “might” or “will” be taken, occur or be achieved, or the negative forms
of any of these terms and similar expressions, have been used to identify forward-looking information. Forward-looking information may
include, but is not limited to, statements with respect to: mineral reserve and mineral resource estimates; targeting additional mineral
resources and expansion of deposits; the capital and operating cost estimates and the economic analyses (including cash flow projections)
from the Caraíba Operations Technical Report (as defined below), the Xavantina Operations Technical Report (as defined below)
and the Tucumã Project Technical Report (as defined below); the Company’s expectations, strategies and plans for the Caraíba
Operations (as defined below), the Xavantina Operations (as defined below) and the Tucumã Project (as defined below), including
the Company’s planned exploration, development and production activities; the results of future exploration and drilling; estimated
completion dates for certain milestones; successfully adding or upgrading mineral resources and successfully developing new deposits;
the costs and timing of future exploration, development and construction including but not limited to the deepening extension project
at the Caraíba Operations and the Tucumã Project (the “Deepening Extension Project”); the timing and
amount of future production at the Caraíba Operations, the Tucumã Project and the Xavantina Operations; the impacts of
COVID-19 on the Company’s business and operations; the timing, receipt and maintenance of necessary approvals, licenses and permits
from applicable governments, regulators or third parties; expectations regarding consumption, demand and future price of copper, gold
and other metals; future financial or operating performance and condition of the Company and its business, operations and properties,
including expectations regarding liquidity, capital structure, competitive position and payment of dividends; the possibility of entering
judgments outside of Canada; expectations regarding future currency exchange rates; and our financing activities, including plans for
the use of proceeds thereof. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans,
projections, objectives, assumptions or future events or performance are not statements of historical fact and may be forward-looking
information.
Forward-looking information is subject to a variety
of known and unknown risks, uncertainties and other factors that could cause actual results, actions, events, conditions, performance
or achievements to materially differ from those expressed or implied by the forward-looking information, including, without limitation,
risks related to:
| · | copper
and gold prices are volatile and may be lower than expected; |
| · | mining
operations are risky; |
| · | mining
operations require geologic, metallurgic, engineering, title, environmental, economic and
financial assessments that may be materially incorrect and thus the Company may not produce
as expected; |
| · | geotechnical,
hydrological and climatic events could suspend mining operations or increase costs; |
| · | actual
production, capital and operating costs may be different than those anticipated; |
| · | the
Company’s financial performance and results of operations are dependent on the Caraíba
Operations; |
| · | infectious
diseases, such as COVID-19, may affect the Company’s business and operations; |
| · | changes
in climate conditions may affect the Company’s operations; |
| · | currency
fluctuations can result in unanticipated losses; |
| · | the
successful operation of the Caraíba Operations and the Xavantina Operations and the
successful development, construction and operation of the Tucumã Project depend on
the skills of the Company’s management and teams; |
| · | operations
during mining cycle peaks are more expensive; |
| · | title
to the Caraíba Operations, the Xavantina Operations and/or the Tucumã Project
may be disputed; |
| · | the
Company may fail to comply with the law or may fail to obtain or renew necessary permits
and licenses; |
| · | the
failure of a tailings dam could negatively impact the Company’s business, reputation
and results of operations; |
| · | compliance
with environmental regulations can be costly; |
| · | social
and environmental activism can negatively impact exploration, development and mining activities; |
| · | the
construction and start-up of new mines and projects at existing mines is subject to a number
of factors and the Company may not be able to successfully complete new construction projects; |
| · | land
reclamation and mine closure requirements may be burdensome and costly; |
| · | the
mining industry is intensely competitive; |
| · | inadequate
infrastructure may constrain mining operations; |
| · | operating
cash flow may be insufficient for future needs; |
| · | fluctuations
in the market prices and availability of commodities and equipment affect the Company’s
business; |
| · | the
Company is subject to restrictive covenants that limit its ability to operate its business; |
| · | the
Company’s indebtedness could adversely affect its financial condition and prevent the
Company from fulfilling its obligations under debt instruments; |
| · | the
Company may not be able to generate sufficient cash to service all of its indebtedness and
may be forced to take other actions to satisfy its obligations under such indebtedness, which
may not be successful; |
| · | counterparties
may default on their contractual obligations to the Company; |
| · | a
failure to maintain satisfactory labour relations can adversely impact the Company; |
| · | the
Company’s insurance coverage may be inadequate to cover potential losses; |
| · | it
may be difficult to enforce judgments and effect service of process on directors, officers
and experts named herein; |
| · | the
directors and officers may have conflicts of interest with the Company; |
| · | future
acquisitions may require significant expenditures and may result in inadequate returns; |
| · | disclosure
and internal control deficiencies may adversely affect the Company and failures of information
systems or information security threats can be costly; |
| · | the
Company may be subject to costly legal proceedings; |
| · | the
Company may be subject to shareholder activism; |
| · | product
alternatives may reduce demand for the Company’s products; |
| · | a
lowering or withdrawal of the ratings assigned to the Company’s debt securities by
rating agencies may increase the Company’s future borrowing costs and reduce its access
to capital; |
| · | the
Company’s Brazilian operations are subject to political and other risks associated
with operating in a foreign jurisdiction; |
| · | the
Company may be negatively impacted by changes to mining laws and regulations; |
| · | a
failure to maintain relationships with the communities in which the Company operates and
other stakeholders may adversely affect the Company’s business; |
| · | inaccuracies,
corruption and fraud in Brazil relating to ownership of real property may adversely affect
the Company’s business; |
| · | the
Company is exposed to the possibility that applicable taxing authorities could take actions
that result in increased tax or other costs that might reduce the Company’s cash flow; |
| · | inflation
in Brazil, along with Brazilian governmental measures to combat inflation, may have a significant
negative effect on the Brazilian economy and also on the Company’s financial condition
and results of operations; |
| · | foreign
exchange rate instability may have a material adverse effect on the Brazilian economy; |
| · | the
Company’s operations may be impaired as a result of restrictions to the acquisition
or use of rural properties by foreign investors or Brazilian companies under foreign control; |
| · | recent
disruptions in international and domestic capital markets may lead to reduced liquidity and
credit availability for the Company; |
| · | the
Company may be responsible for corruption and anti-bribery law violations; |
| · | investors
may lose their entire investment; |
| · | dilution
from equity financing could negatively impact holders of the Common Shares; |
| · | equity
securities are subject to trading and volatility risks; |
| · | sales
by existing shareholders can reduce share prices; |
| · | the
Company does not currently intend to pay dividends; |
| · | public
companies are subject to securities class action litigation risk; |
| · | if
securities or industry analysts do not publish research or publish inaccurate or unfavourable
research about the Company’s business, the price and trading volume of the Common Shares
could decline; |
| · | global
financial conditions can reduce the price of the Common Shares; |
| · | the
Company’s broad discretion relating to the use of any proceeds raised hereunder; |
| · | the
uncertainty of maintaining a liquid trading market for the Common Shares; |
| · | the
absence of a market through which the Company’s securities, other than Common Shares,
may be sold; and |
| · | risks
related to the debt securities being unsecured. |
This list is not exhaustive of the factors that
may affect any of our forward-looking information. Although we have attempted to identify important factors that could cause actual results,
actions, events, conditions, performance or achievements to differ materially from those contained in forward-looking information, there
may be other factors that cause results, actions, events, conditions, performance or achievements to differ from those anticipated, estimated
or intended.
Forward-looking information is not a guarantee
of future performance. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future
events could differ materially from those anticipated in such information. Forward-looking information involves statements about the
future and is inherently uncertain, and our actual results, achievements or other future events or conditions may differ materially from
those reflected in the forward-looking information due to a variety of risks, uncertainties and other factors, including, without limitation,
those referred to in this prospectus under the heading “Risk Factors” and elsewhere in this prospectus and the documents
incorporated, or deemed to be incorporated, by reference.
Our forward-looking information is based on the
assumptions, beliefs, expectations and opinions of management on the date the statements are made, many of which may be difficult to
predict and beyond our control. In connection with the forward-looking information contained in this prospectus and the documents incorporated,
or deemed to be incorporated, by reference, we have made certain assumptions about, among other things: continued effectiveness of the
measures taken by the Company to mitigate the possible impact of COVID-19 on its workforce and operations; favourable equity and debt
capital markets; the ability to raise any necessary additional capital on reasonable terms to advance the production, development, construction
and exploration of the Company’s properties and assets; future prices of copper, gold and other metals; the timing and results
of exploration and drilling programs; the accuracy of any mineral reserve and mineral resource estimates; the geology of the Caraíba
Operations, the Xavantina Operations and the Tucumã Project being as described in the Caraíba Operations Technical Report,
the Xavantina Operations Technical Report and the Tucumã Project Technical Report, respectively; production costs; the accuracy
of budgeted exploration, development and construction costs and expenditures; the price of other commodities such as fuel; future currency
exchange rates and interest rates; operating conditions being favourable such that the Company is able to operate in a safe, efficient
and effective manner; work force continuing to remain healthy in the face of prevailing epidemics, pandemics or other health risks (including
COVID-19), political and regulatory stability; the receipt of governmental, regulatory and third party approvals, licenses and permits
on favourable terms; obtaining required renewals for existing approvals, licenses and permits on favourable terms; requirements under
applicable laws; sustained labour stability; stability in financial and capital goods markets; availability of equipment; positive relations
with local groups and the Company’s ability to meet its obligations under its agreements with such groups; and satisfying the terms
and conditions of the Company’s current loan arrangements. Although we believe that the assumptions inherent in forward-looking
information are reasonable as of the date of this prospectus, these assumptions are subject to significant business, social, economic,
political, regulatory, competitive and other risks and uncertainties, contingencies and other factors that could cause actual actions,
events, conditions, results, performance or achievements to be materially different from those projected in the forward-looking information.
The Company cautions that the foregoing list of assumptions is not exhaustive. Other events or circumstances could cause actual results
to differ materially from those estimated or projected and expressed in, or implied by, the forward-looking information contained in
this prospectus and the documents incorporated, or deemed to be incorporated, by reference.
We do not assume any obligation to update forward-looking
information, whether as a result of new information, future events or otherwise, other than as required by applicable law. For the reasons
set forth above, prospective investors should not place undue reliance on forward-looking information.
DOCUMENTS
INCORPORATED BY REFERENCE
Information has been incorporated by reference
in this short form prospectus from documents filed with the securities commissions or similar authorities in Canada and with the SEC
in the United States.
Copies
of the documents incorporated herein by reference may be obtained on request without charge from the Corporate Secretary of Ero at Suite 1050,
625 Howe Street, Vancouver, British Columbia, V6C 2T6, Canada, telephone: (604) 449-9244 or by accessing the disclosure documents through
the internet on the Canadian System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedarplus.ca/landingpage/.
Documents filed with, or furnished to, the SEC are available through the SEC’s Electronic Data Gathering and Retrieval System (“EDGAR”)
at www.sec.gov.
The following documents, filed with the securities
commissions or similar regulatory authorities in certain provinces and territories of Canada and filed with, or furnished to, the SEC
are specifically incorporated by reference into, and form an integral part of, this short form prospectus:
| · | our
annual information form for the fiscal year ended December 31, 2022, dated as of March 7,
2023 (the “AIF”); |
| · | our
audited annual consolidated financial statements for the fiscal years ended December 31,
2022 and 2021, together with the notes thereto and the reports of the independent registered
public accounting firm thereon (the “Annual Financial Statements”); |
| · | our
management’s discussion and analysis for the years ended December 31, 2022 and
2021; |
| · | our
unaudited condensed consolidated interim financial statements for the three and six months
ended June 30, 2023 and 2022; |
| · | our
management’s discussion and analysis for the three and six months ended June 30,
2023 and 2022; and |
| · | our
management information circular dated March 7, 2023, distributed in connection with
our annual general and special meeting of shareholders held on April 26, 2023. |
Any documents of the type described in Section 11.1
of Form 44-101F1 Short Form Prospectuses filed by the Company with a securities commission or similar authority in any
province or territory of Canada subsequent to the date of this prospectus and prior to the expiry of this prospectus, or the completion
of the issuance of securities pursuant hereto, will be deemed to be incorporated by reference into this prospectus.
In
addition, to the extent that any document or information incorporated by reference into this prospectus is filed with, or furnished to,
the SEC pursuant to the U.S. Exchange Act after the date of this prospectus, such document or information will be deemed to be incorporated
by reference as an exhibit to the registration statement of which this prospectus forms a part. In
addition, if and to the extent indicated therein, we may incorporate by reference in this prospectus documents that we file with or furnish
to the SEC pursuant to Section 13(a), 13(c) or 15(d) of the U.S. Exchange Act.
A prospectus supplement containing the specific
terms of any offering of our securities will be delivered to purchasers of our securities together with this prospectus and will be deemed
to be incorporated by reference in this prospectus as of the date of the prospectus supplement and only for the purposes of the offering
of our securities to which that prospectus supplement pertains.
Any statement contained in this prospectus
or in a document incorporated or deemed to be incorporated by reference in this prospectus will be deemed to be modified or superseded
for purposes of this prospectus to the extent that a statement contained herein, in any prospectus supplement hereto or in any other
subsequently filed document that also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. The
modifying or superseding statement need not state that it has modified or superseded a prior statement or include any other information
set forth in the document that it modifies or supersedes. The making of a modifying or superseding statement is not to be deemed an admission
for any purposes that the modified or superseded statement, when made, constituted a misrepresentation, an untrue statement of material
fact or an omission to state a material fact that is required to be stated or is necessary to make a statement not misleading in light
of the circumstances in which it was made. Any statement so modified or superseded will not be deemed, except as so modified or superseded,
to constitute a part of this prospectus.
Any template version of any “marketing
materials” (as such term is defined in National Instrument 44-101 - Short Form Prospectus Distributions) filed after
the date of a prospectus supplement and before the termination of the distribution of the securities offered pursuant to such prospectus
supplement (together with this prospectus) is deemed to be incorporated by reference in such prospectus supplement.
Upon our filing of a new annual information form
and the related annual financial statements and management’s discussion and analysis with applicable securities regulatory authorities
during the currency of this prospectus, the previous annual information form, the previous annual financial statements and management’s
discussion and analysis and all interim financial statements, supplemental information, material change reports and information circulars
filed prior to the commencement of our financial year in which the new annual information form is filed will be deemed no longer to be
incorporated into this prospectus for purposes of future offers and sales of our securities under this prospectus. Upon interim consolidated
financial statements and the accompanying management’s discussion and analysis and material change report being filed by us with
the applicable securities regulatory authorities during the duration of this prospectus, all interim consolidated financial statements
and the accompanying management’s discussion and analysis filed prior to the new interim consolidated financial statements shall
be deemed no longer to be incorporated into this prospectus for purposes of future offers and sales of securities under this prospectus.
Upon our filing of an information circular in connection with an annual general meeting, the information circular filed in connection
with the previous annual general meeting (unless such information circular also related to a special meeting) will be deemed no longer
to be incorporated into this prospectus for purposes of future offers and sales of securities under this prospectus.
References to our website in any documents that
are incorporated by reference into this prospectus do not incorporate by reference the information on such website into this prospectus,
and we disclaim any such incorporation by reference.
DOCUMENTS
FILED AS PART OF THE REGISTRATION STATEMENT
The following documents have been or will be
filed or furnished with the SEC as part of the registration statement on Form F-10 of which this prospectus forms a part: (i) the
documents listed under the heading “Documents Incorporated by Reference”; (ii) powers of attorney from our directors
and officers, as applicable; (iii) the consent of KPMG; (iv) the consent of each expert listed in the exhibit index of the
registration statement; and (v) the form of debt indenture. A copy of the form of warrant indenture, subscription receipt agreement
or statement of eligibility of trustee on Form T-1, as applicable, will be filed by post-effective amendment or by incorporation
by reference to documents filed or furnished with the SEC under the U.S. Exchange Act.
EXCHANGE
RATE INFORMATION
The following table sets forth for each period
indicated: (i) the exchange rates in effect at the end of the period; (ii) the high and low exchange rates during such period;
and (iii) the average exchange rates for such period, for one Canadian dollar, expressed in U.S. dollars, as quoted by the Bank
of Canada.
| | | |
Three Months Ended June 30, | |
| | | |
2023 | | |
2022 | | |
2021 | |
| | | |
US$ | | |
US$ | | |
US$ | |
| | Closing | | |
| 0.7553 | | |
| 0.7760 | | |
| 0.8068 | |
| | High | | |
| 0.7604 | | |
| 0.8031 | | |
| 0.8306 | |
| | Low | | |
| 0.7338 | | |
| 0.7669 | | |
| 0.7926 | |
| | Average | | |
| 0.7447 | | |
| 0.7834 | | |
| 0.8144 | |
| | |
Year Ended December 31, | |
| | |
2022 | | |
2021 | | |
2020 | |
| | |
US$ | | |
US$ | | |
US$ | |
| Closing | |
| 0.7383 | | |
| 0.7888 | | |
| 0.7854 | |
| High | |
| 0.8031 | | |
| 0.8306 | | |
| 0.7863 | |
| Low | |
| 0.7217 | | |
| 0.7727 | | |
| 0.6898 | |
| Average | |
| 0.7692 | | |
| 0.7980 | | |
| 0.7461 | |
On August 17, 2023, the daily average exchange
rate as quoted by the Bank of Canada was C$1.00 = US$0.7394 (US$1.00 = C$1.3524).
The following table sets forth for each period
indicated: (i) the exchange rates in effect at the end of the period; (ii) the high and low exchange rates during such period;
and (iii) the average exchange rates for such period, for one Canadian dollar, expressed in Brazilian Real, as quoted by the Bank
of Canada.
| | |
Three Months Ended June 30, | |
| | |
2023 | | |
2022 | | |
2021 | |
| | |
R$ | | |
R$ | | |
R$ | |
| Closing | |
| 3.6337 | | |
| 4.0535 | | |
| 4.0306 | |
| High | |
| 3.7779 | | |
| 4.0733 | | |
| 4.5434 | |
| Low | |
| 3.6179 | | |
| 3.6900 | | |
| 3.9904 | |
| Average | |
| 3.6857 | | |
| 3.8568 | | |
| 4.3074 | |
| | |
Year Ended December 31, | |
| | |
2022 | | |
2021 | | |
2020 | |
| | |
R$ | | |
R$ | | |
R$ | |
| Closing | |
| 3.9032 | | |
| 4.3956 | | |
| 4.0800 | |
| High | |
| 4.4763 | | |
| 4.6062 | | |
| 4.3535 | |
| Low | |
| 3.6900 | | |
| 3.9904 | | |
| 3.0998 | |
| Average | |
| 3.9701 | | |
| 4.3058 | | |
| 3.8433 | |
On
August 17, 2023, the daily average exchange rate as quoted by the Bank of Canada was C$1.00 = R$3.6819 (R$1.00 = C$0.2716).
THE
COMPANY
Name, Address and Incorporation
The Company was incorporated under the Business
Corporations Act (British Columbia) (“BCBCA”) on May 16, 2016. Ero’s head office is located at Suite 1050,
625 Howe Street, Vancouver, British Columbia, Canada, V6C 2T6 and its registered office is located at Suite 3500, 1133 Melville
St, Vancouver, British Columbia, Canada, V6E 4E5.
Intercorporate Relationships
The Company directly holds approximately 99.6%
of the voting shares of Mineração Caraíba S.A. (“MCSA”) and indirectly holds approximately 97.6%
of the voting shares of NX Gold S.A. (“NX” or “NX Gold”) through its wholly-owned subsidiary, Ero
Gold Corp. (“Ero Gold”), incorporated under the BCBCA. MCSA holds a 100% interest in each of the Company’s mining
operations located within the Curaçá Valley, northeastern Bahia State, Brazil (the “Caraíba Operations”
and formerly known as the MCSA Mining Complex) and the Tucumã Project, which is located within southeastern Pará State,
Brazil (referred to herein as the “Tucumã Project” and formerly known as the “Boa Esperança Project”).
NX Gold holds a 100% interest in the Company’s mining operations located approximately 18 kilometers west of the town of Nova Xavantina,
southeastern Mato Grosso State, Brazil (the “Xavantina Operations” formerly known as the “NX Gold Mine”).
MCSA and NX Gold were formed under the laws of Brazil. The remaining voting shares of MCSA are held by a minority group of shareholders,
including former employees of MCSA. The remaining voting shares of NX Gold are held by a minority group of shareholders, including former
employees of NX Gold. The following chart illustrates the Company’s principal subsidiaries, together with the governing law of
each subsidiary and the percentage of voting securities beneficially owned or over which control or direction is exercised by the Company,
as well as the Company’s operating mines and development projects.
Summary Description of the Business
The Company is a high-margin, high-growth, low-carbon
intensity copper producer with operations in Brazil and corporate headquarters in Vancouver, British Columbia, Canada. The Company
is listed on the TSX and the NYSE, in each case under the symbol “ERO”.
The
Company’s principal asset is its approximately 99.6% ownership interest in MCSA. MCSA’s predominant activity is the production
and sale of copper concentrate from the Caraíba Operations, located within the Curaçá Valley, northeastern
Bahia State, Brazil, with gold and silver produced and sold as by-products. The Caraíba Operations have been in operation for
over 40 years and consist of a fully integrated hub-and-spoke operating model, with current mining activities conducted at the Pilar
underground mine (the “Pilar Mine”), the Vermelhos underground mine (the “Vermelhos Mine”), and
the Surubim open pit mine (the “Surubim Mine”) feeding the central Caraíba mill, a conventional crushing, grinding
and flotation mill located adjacent to the Pilar Mine (the “Caraíba Mill”). In addition, MCSA holds a 100%
interest in the Tucumã Project, a copper development project located within southeastern Pará State, Brazil, which is currently
under construction with initial production expected to occur during the third quarter of 2024. The Company also owns an approximately
97.6% ownership interest in NX Gold, held indirectly through its wholly-owned subsidiary, Ero Gold. NX Gold’s predominant activity
is the production and sale of gold from the Xavantina Operations, located in Mato Grosso State, Brazil, with silver produced as a by-product.
The Company’s principal product is copper
produced and sold from the Caraíba Operations, with gold and silver produced and sold as by-products from the Caraíba Operations.
Gold and, as a by-product, silver is also produced and sold from the Xavantina Operations. During the financial year ended December 31,
2022, the operations of the Caraíba Operations processed 2,864,230 tonnes of material, producing 46,371 tonnes of copper and the
operations of the Xavantina Operations processed 189,743 tonnes of material, producing 42,669 ounces of gold.
Recent Developments
On January 11, 2023, the Company announced
the retirement of Christopher Noel Dunn from his executive position of Executive Chairman as part of the Company’s overall succession
planning. Mr. Dunn remains Chairman of the Company’s board of directors (the “Board”).
On
January 12, 2023, the Company entered into a second amended and restated credit facility (the “2022 Senior Credit Facility
Agreement”) among the Company, as borrower, the Bank of Montreal, as administrative agent, joint lead arranger and sole bookrunner,
Scotiabank as joint lead arranger, the Canadian Imperial Bank of Commerce as documentation agent, and the lenders party thereto from
time to time, as lenders, pursuant to which, amongst other things, the senior secured revolving term credit facility was increased
to US$150 million (the “2022 Senior Credit Facility”) payable in a lump sum at maturity in December 2026. The
2022 Senior Credit Facility bears interest on a sliding scale of secured overnight financing rate (SOFR) plus an applicable margin of
2.00% to 4.00% depending on the Company’s consolidated leverage ratio. Commitment fees for the undrawn portion of the 2022 Senior
Credit Facility will also be based on a sliding scale ranging from 0.45% to 0.90%.
On January 18, 2023, the Company announced
that it entered into a zero-cost collar program on 3,000 tonnes of copper per month for February through December of 2023.
The collars establish a floor price at US$3.50 per pound of copper and a cap price of US$4.76 per pound on total hedged volumes of 33,000
tonnes of copper, representing approximately 75% of full-year production volumes. The hedge contracts are financially settled on a monthly
basis.
On
March 28, 2023, the Company announced an updated mineral resource and mineral reserve estimate for the Xavantina Operations, which
includes an 18% increase in proven and probable mineral reserves as compared to the 2021 estimate, including a 15% increase at the Santo
Antônio vein and a 45% increase at the Matinha vein, a 22% increase in measured and indicated mineral resources, inclusive of mineral
reserves, as compared to the 2021 estimate, and an extension of mine life to 6 years.
On May 8, 2023, the Company announced the
resignation of Anthea Bath as Chief Operating Officer of the Company and the appointment of Makko DeFilippo as President and Chief Operating
Officer of the Company. Mr. DeFilippo, who has been with the Company since 2017, has served as President of the Company since January 2021
and prior to that as Vice President, Corporate Development.
On
June 8, 2023, the Company announced an update on its ongoing regional nickel sulphide exploration program within the Curaçá
Valley. Drilling activity over the last several months has focused on delineating the Umburana System, which has a current strike length
of approximately five kilometers. Mineralization, which outcrops at surface, remains open to depth, to the north and between the VB and
Lazaro Zones.
MATERIAL PROPERTIES
Caraíba Operations
The
Caraíba Operations are located in the Curaçá Valley, northeastern Bahia State, Brazil. The Caraíba Operations
have over 40 years of operating history in the region and consist of fully integrated processing operations and, currently, three
active producing mining locations within the Curaçá Valley. The active operations include the Caraíba Complex (comprised
of the Pilar Mine, the Vermelhos Mine, the Surubim Mine and the integrated Caraíba Mill, which includes an inactive solvent extraction
electrowinning plant). The Company has a 99.6% ownership interest in MCSA, the 100% owner of the Caraíba Operations.
A NI 43-101 technical report with respect to
the Caraíba Operations, titled “2022 Mineral Resources and Mineral Reserves of the Caraíba Operations, Curaçá
Valley, Bahia, Brazil”, dated December 22, 2022 with an effective date of September 30, 2022 was filed on SEDAR on December 22,
2022 (the “Caraíba Operations Technical Report”).
Xavantina Operations
The
Xavantina Operations, a producing underground gold mining operation, are located approximately 18 kilometers west of the town
of Nova Xavantina in the eastern portion of the State of Mato Grosso, Brazil. NX Gold is the 100% owner of the Xavantina Operations.
The Company owns a 97.6% ownership interest in NX Gold, held indirectly through its wholly-owned subsidiary, Ero Gold.
Since filing of the AIF, the Company filed a
new technical report for the gold production from the Xavantina Operations, titled “Technical Report on the Xavantina Operations,
Mato Grosso, Brazil, dated May 12, 2023 with an effective date of October 31, 2022, filed on SEDAR on May 12, 2023 (the
“Xavantina Operations Technical Report”).
Unless
otherwise indicated, the information that follows relating to Xavantina Operations is based on, derived substantially from, and in
some instances is a direct extract from, the Xavantina Operations Technical Report. The information below does not purport to be a
complete summary of the Xavantina Operations Technical Report and is based on assumptions, qualifications and procedures that are
set out only in the Xavantina Operations Technical Report. Reference should be made to the full text of the Xavantina Operations
Technical Report, which is available on the Company’s website and under the Company’s profile on SEDAR at www.sedarplus.ca/landingpage/ and
on EDGAR at www.sec.gov.
Tucumã Project
The Tucumã Project is located in the municipality
of Tucumã, Pará State, Brazil. On August 30, 2021, MCSA received the Installation License, which allows for the commencement
of surface and civil construction activities. On February 15, 2022, the Board approved the construction of the Tucumã Project.
The Company commenced construction in the second quarter of 2022, with initial production expected to occur during the third quarter
of 2024. MCSA holds a 100% interest in the Tucumã Project.
A NI 43-101 technical report with respect to
the Tucumã Project, titled “Boa Esperança Project NI 43-101 Technical Report on Feasibility Study Update”,
dated November 12, 2021 with an effective date of August 31, 2021 was filed on SEDAR on November 12, 2021 (the “Tucumã
Project Technical Report”).
XAVANTINA
OPERATIONS
The
scientific and technical information in this section relating to the Xavantina Operations (in this section of the prospectus, also referred
to as the NX Gold Mine) is a direct extract of the “Executive Summary” section contained in the Xavantina Operations
Technical Report dated May 12, 2023 with an effective date of October 31, 2022, which has been conformed to be consistent with
the formatting and other defined terms within this prospectus. The entire Xavantina Operations Technical Report, a copy of which is available
for review under the Company’s profile on SEDAR at www.sedarplus.ca/landingpage/ and EDGAR at www.sec.gov,
is incorporated by reference into this prospectus and should be consulted for details beyond those incorporated herein.
Executive Summary
1.1 Introduction
The purpose of the Xavantina Operations Technical
Report is to set out and provide background and supporting information on the current mineral resources and mineral reserves for the
Xavantina Operations, a producing underground gold mining operation located in the State of Mato Grosso, Brazil and wholly-owned by NX
Gold, a company formed under the laws of Brazil. The effective date of the Xavantina Operations Technical Report is October 31,
2022 (in this section of the prospectus, the “Effective Date”) and the issue date of the Xavantina Operations Technical
Report is May 12, 2023. The Xavantina Operations Technical Report has been prepared by GE21 Consultoria Mineral Ltda. (“GE21”)
on behalf of Ero of Vancouver, Canada and existing under the BCBCA.
Ero is a Vancouver-based publicly listed copper
mining company that trades on the TSX and NYSE under the ticker “ERO” and exists under the BCBCA. Ero’s principal asset
is its 99.6% ownership interest in MCSA. MCSA’s predominant activity is the production and sale of copper concentrate from the
Caraíba Operations (formerly known as the MCSA Mining Complex), which is located within the Curaçá Valley, northeastern
Bahia State, Brazil, with gold and silver produced and sold as by-products. Ero’s wholly owned subsidiary, Ero Gold (existing under
the BCBCA) currently owns a 97.6% ownership interest in the NX Gold.
The NX Gold Mine was constructed and commenced
commercial production in 2012, with the first full year of production occurring in 2013. As of the end of September 2020, approximately
241,000 ounces of gold had been produced from the NX Gold Mine. As of the date of the Xavantina Operations Technical Report, there are
currently 8 drill rigs operating on the property. Exploration activities are underway on the central Santo Antônio orebody as well
as testing for possible extensions of the Brás and Buracão orebodies to depth and along strike. The first regional exploration
program on the property commenced in 2020.
Doré
bars containing gold and silver, as well as lesser amounts of lead, are shipped from the mine weekly by airplane via a gravel airstrip
located on the property. Xavantina’s current mineral resources and mineral reserves are primarily derived from the Santo
Antônio and Matinha veins, which are east-west striking, shear-zone hosted, quartz veins. Currently, all production is from the
Santo Antônio vein, accessed from a single mine portal and decline and from the Buracão vein. The updated life-of-mine production
plan published in Chapter 16 envisions future production from the Matinha vein commencing in the second half of 2023 in addition to continued
production from the Santo Antônio vein.
The Xavantina Operations Technical Report and
estimates herein have been prepared following the guidelines of the NI 43-101.
The Xavantina Operations Technical Report provides
a summary of the work completed by Xavantina and its independent consultants as of the Effective Date. All dollar amounts presented in
the Xavantina Operations Technical Report are stated in U.S. dollars unless otherwise specified.
1.2 Property
Description and Location
NX Gold owns a 100% interest in the Xavantina
Operations, located in the eastern portion of the State of Mato Grosso, Brazil. The mine is located 18 kilometers west of the town of
Nova Xavantina, with a population of approximately 21,000 people, and approximately 660 kilometers east of Cuiabá, the capital
city of Mato Grosso. The total Xavantina Operations property, including exploration licences, measures approximately 133,770 ha. The
property is comprised of one mining concession, where all current mining and processing activities occur (registration number 866269/1990),
that totals approximately 614 ha and 21 exploration licenses covering an area of approximately 133,156 ha. Within the mining concession,
NX Gold holds 100% legal and beneficial ownership, including surface rights. There are no time constraints provisioned with the mining
concession; however, operating permits and licenses are extended and renewed under normal course of business according to the nature
of each permit and requirements therein. All relevant licenses and operational permits in support of the mine’s operation are in
good standing.
Within the exploration licences, NX Gold’s
interests include the right to access the property and to engage in exploration, development, processing, and construction activities
in support of mineral exploration and development. Where applicable, compensation is provided to the holder of surface rights for occupation
or loss caused by the work. All exploration licenses are currently valid and, for those concessions where expiration dates are approaching,
applications have been, or are expected to be submitted for renewal at the time of expiry.
1.3 Geology
and Mineralization
Gold and silver mineralization at the Xavantina
Operations can be characterized as a shear-zone hosted, sulphide-rich, laminated quartz veins. Economic mineralization on the property,
to date, has been hosted within the northeast trending Araés shear zone that cross-cuts the deformed and metamorphosed volcano-sedimentary
sequence of the Proterozoic Cuiabá Group and is generally associated with felsic dikes.
Economic
gold and silver mineralization at the Xavantina Operations is structurally controlled within the Araés shear zone. Gold and silver
are currently mined from a major sulphide-rich, laminated quartz vein dipping approximately 40 degrees to the north-northwest and striking
to the west-southwest – the Santo Antônio vein. Prior to the second half of 2019, mining activities occurred in the
Brás and Buracão veins, located to the east and west of Santo Antônio, respectively. Vein dimensions are variable
throughout the deposit, with an average thickness of 4 meters. Local occurrences of up to 10 meters in vein thickness are common, particularly
within the Brás and lower levels of the Santo Antônio veins. The Matinha vein plunges in the same direction as the Santo
Antônio vein. Mineralization encountered to date at Matinha is similar to that of the Santo Antônio vein and the economic
quartz veins that have been previously mined on the property. Additional work is ongoing to further evaluate contiuity of grade and thickness
of Matinha and further extend mineralization through exploration drilling. Where gold and silver grades are found in economic concentrations,
quartz veins typically contain approximately 2 to 15 percent total sulphide represented mostly by pyrite and galena, as well as minor
chalcopyrite, bornite, pyrrhotite, and sphalerite. Higher gold and silver grades are generally associated with galena, chalcopyrite,
bornite, and sphalerite.
The
known extent of gold mineralization at the Xavantina Operations, both historic and current, is structurally controlled and hosted in
four major sulphide-rich quartz veins/bodies, from west to east: Buracão, Santo Antônio, Brás and Matinha.
The veins are hosted in strongly deformed metamorphosed sedimentary rock units and diorite that trend generally to the northeast. The
veins exhibit a typical laminated pattern parallel with the vein contacts. The laminations are characterized by alternating quartz bands
and foliated host rocks indicative of multiple pulses of mineralized fluids during formation.
The
Buracão vein is located on the western portion of the mining concession and includes a primary laminated vein measuring 100 meters
in length and dipping 45 degrees to the northwest in the upper portion of the mine and 70 meters in length dipping 40 degrees to the
northwest in the lower portion of the mine. The Brás vein is located to the east of the Buracão vein and includes a primary
laminated vein measuring 220 meters in strike length in the upper part of the mine and 50 meters in strike length in the lower levels
of the mine. The Matinha vein is located east of the Brás, Santo Antônio and Buracão veins and currently extends
over 130 meters in strike length. Continued drill-testing of the Santo Antônio and Matinha veins is planned for 2023 focused on
identifying extensions along strike and to depth. To date, the mineralogical characterization of all of the veins containing economic
values of gold and silver at the Xavantina Operations are the same.
1.4 Exploration
The occurrence of gold in the Araés shear
zone has been known for over 80 years. Although limited information exists, extensive artisanal mining activity occurred in open pit
and in underground operations prior to the formalization of the mine concessions in 1990. Between 1985 and 2004 two companies, Mineração
Araés and Mineração Nova Xavantina, conducted geological and metallurgical studies, geological mapping and a total
of 2,306 meters of drilling in 8 diamond drill holes. In 2004, MCSA acquired the mineral and surface rights for the property. Between
2006 and 2012, MCSA drilled a total of 43,536 meters in 213 surface diamond drill holes. In 2013, the property was transferred to NX
Gold, a subsidiary of MSCA. Between 2013 and 2015, NX Gold drilled a total of 27,802 meters in 104 surface diamond drill holes and a
total of 9,426 meters in 107 underground diamond drill holes. In December of 2016, MCSA (and its interest in NX Gold) was acquired
by Ero.
Other exploration activities undertaken from
2013 to 2015 included regional geological mapping, soil sampling and a 1,969 line-kilometer airborne magnetic survey completed in 2013.
Following
the acquisition of NX Gold in 2016 by Ero, commencing in 2018, NX Gold initiated the largest series of drill programs undertaken on the
property to date, completing a total of 128,875 meters of drilling in 246 surface diamond drill holes and 8,573 meters in 45 underground
drill holes, resulting in the discovery of, and continued delineation of the Santo Antônio and Matinha veins. In total,
the 2018-2022 drill programs conducted by the Company represent more than 60% of the total drill meterage drilled on the property. The
drill programs followed standard industry procedures including measuring core recovery, rock quality design, taking photos of the core
boxes, geological logging of the core, sampling, and assaying. NX Gold inserts a series of certified reference material, blanks, and
laboratory duplicates in the stream of samples to verify the assay results as part of its quality assurance, QA/QC procedures.
1.5 Drilling,
Sample Preparation, Analysis and Security
Several drill programs have been conducted at
the Xavantina Operations. Prior to the 2018-2022 drill programs, the bulk of prior drilling occurred during the period from 2006 to 2012
when the property was held by MCSA. The global drill hole database at the Xavantina Operations includes 746 drill holes, including 183
underground drill holes, totaling 220,011 meters of drilling, of which, 19,798 meters are from underground drilling.
Drilling and assaying undertaken in support of
the current mineral resource and mineral reserve estimate has been carried out using sampling, security and quality assurance, quality
control (“QA/QC”) procedures that are in line with industry best practices.
Beginning in 2015, a full QA/QC program meeting
generally recognized industry best practices has been in use. Standardized procedures are used in all aspects of the exploration data
acquisition and management including surveying, drilling, sampling, sample security, assaying, and database management.
QA/QC measures, as part of the routine core sampling
procedures, use blank, standard and duplicate samples to allow verification of the fire assay results produced by the Xavantina laboratory.
For the 2014 to 2022 drilling programs, control samples were inserted at the frequency of 1 gold certified reference, 1 blank sample
and 1 duplicate pulp sample every 30 samples.
The authors of the Xavantina Operations Technical
Report performed an evaluation of the data used in the determination of Xavantina’s mineral resource estimate and found the results
to be in accordance with industry best practice and appropriate for use in the current mineral resource estimate.
1.6 Mineral
Resource and Mineral Reserve Estimate
Mineral Resources
The mineral resource estimate was prepared in
accordance with the CIM Standards and the CIM Estimation of Mineral Resources and Mineral Reserves Best Practice Guidelines (“CIM
Guidelines”). Grade-shell models using 1.20 gpt were used to generate a 3D model of the NX Gold Mine, and within this, a gold
cut-off grade of 1.90 gpt was considered of mineral resources based upon a gold price of US$1,900 per ounce of gold and total underground
mining and processing costs of US$72 per tonne of ore mined and processed. Mineral resources have been estimated using ordinary kriging
inside block sizes of 10.0 meters (x), by 10.0 meters (y), by 2.0 meters in height (z), a minimum sub-block size of 1.0 meter (x), by
1.0 meter (y), by 0.5 meters in height (z), and a minimum mining stope dimension of 2.00 meters (x), by 2.00 meters (y), by 1.50 meters
in height (z). The Xavantina mineral resource estimate was sub-divided in four mineralized veins: Santo Antônio, Matinha, Brás
and Buracão. Mineral resource effective date of October 31, 2022.
Table 1 - Mineral Resource Estimate
| | |
Tonnage | | |
Grade | | |
Au Contained | |
| Classification | |
(000 tonnes) | | |
(gpt Au) | | |
(000 ounces) | |
| Measured Mineral Resource (inclusive of Reserves) | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | |
| Santo Antônio | |
| 246.4 | | |
| 13.35 | | |
| 105.8 | |
| Total Measured Resource | |
| 246.4 | | |
| 13.35 | | |
| 105.8 | |
| | |
| | | |
| | | |
| | |
| Indicated Mineral Resource (inclusive of Reserves) | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | |
| Santo Antônio | |
| 826.1 | | |
| 10.41 | | |
| 276.5 | |
| Matinha | |
| 185.8 | | |
| 8.92 | | |
| 53.3 | |
| Brás | |
| 6.9 | | |
| 3.36 | | |
| 0.7 | |
| Total Indicated Resource | |
| 1,018.9 | | |
| 10.09 | | |
| 330.6 | |
| | |
| | | |
| | | |
| | |
| Measured and Indicated Mineral Resource (inclusive of Reserves) | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | |
| Santo Antônio | |
| 1,072.6 | | |
| 11.09 | | |
| 382.3 | |
| Matinha | |
| 185.8 | | |
| 8.92 | | |
| 53.3 | |
| Brás | |
| 6.9 | | |
| 3.36 | | |
| 0.7 | |
| Total Measured and Indicated Resource | |
| 1,265.3 | | |
| 10.73 | | |
| 436.4 | |
| | |
| | | |
| | | |
| | |
| Inferred Mineral Resource | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | |
| Santo Antônio | |
| 77.1 | | |
| 9.29 | | |
| 23.0 | |
| Matinha | |
| 207.1 | | |
| 11.03 | | |
| 73.5 | |
| Brás | |
| 149.3 | | |
| 4.81 | | |
| 23.1 | |
| Buracão | |
| 7.7 | | |
| 2.77 | | |
| 0.7 | |
| Total Inferred Resource | |
| 441.1 | | |
| 8.48 | | |
| 120.2 | |
| 1. | Mineral
resource effective date of October 31, 2022 |
| 2. | Presented
mineral resources inclusive of mineral reserves. All figures have been rounded to the relative
accuracy of the estimates. Summed amounts may not add due to rounding. |
| 3. | Grade-shell
3D models using 1.20 gpt gold were used to generate a 3D mineralization model of the Xavantina
Operations. Mineral resources were estimated using ordinary kriging within 10.0 meter by
10.0 meter by 2.0 meter block size, with a minimum sub-block size of 1.0 meter by 1.0 meter
by 0.5 meter. Mineral resources were constrained using a minimum stope dimension of 2.0 meters
by 2.0 meters by 1.50 meters and a cut-off of 1.20 gpt based on gold price of US$1,900 per
ounce of gold and total underground mining and processing costs of US$72.0 per tonne of ore
mined and processed. The mineral resource estimates were prepared in accordance with the
CIM Standards, and the CIM Guidelines, using geostatistical and/or classical methods, plus
economic and mining parameters appropriate to the deposit. |
The mineral reserve estimate was prepared in
accordance with the CIM Standards and the CIM Guidelines, using geostatistical and/or classical methods, plus economic and mining parameters
appropriate for the deposit. Mineral reserves are based on a long-term gold price of US$1,650 per ounce, and a USD:BRL foreign exchange
rate of 5.29. Mineral reserves are the economic portion of the measured and indicated mineral resources. The mineral reserve estimate
includes operational dilution of 17.4% plus planned dilution of approximately 8.5% within each stope for room-and-pillar mining areas
and operational dilution of 3.2% plus planned dilution of 21.2% for cut-and-fill mining areas. It also assumes mining recovery of 92.5%
and 94.7% for room-and-pillar and cut-and-fill areas, respectively. Practical mining shapes (wireframes) were designed using geological
wireframes / mineral resource block models as a guide. The mineral reserve estimate for the Xavantina Operations was prepared in accordance
with the CIM Guidelines and the CIM Standards by the Xavantina Operations engineering personnel under the direct supervision of Guilherme
Gomides Ferreira of GE21, an independent qualified person as such term is defined under NI 43-101.
It is the opinion of GE21 that the current mineral
reserves for the underground operation have been estimated in a manner consistent with industry best practices, CIM Guidelines, and CIM
Standards.
Table 2 - Mineral Reserve Estimate
| Classification | |
Tonnage
(000 tonnes) | | |
Grade
(gpt Au) | | |
Au Contained (000 ounces) | |
| Proven Mineral Reserve | |
| | |
| | |
| |
| | |
| | |
| | |
| |
| Santo Antônio | |
| 301 | | |
| 10.89 | | |
| 105.4 | |
| Matinha | |
| - | | |
| - | | |
| - | |
| Total Proven Reserve | |
| 301 | | |
| 10.89 | | |
| 105.4 | |
| | |
| | | |
| | | |
| | |
| Probable Mineral Reserve | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | |
| Santo Antônio | |
| 799 | | |
| 8.32 | | |
| 213.6 | |
| Matinha | |
| 213 | | |
| 6.24 | | |
| 42.6 | |
| Total Probable Reserve | |
| 1,012 | | |
| 7.88 | | |
| 256.2 | |
| Total Proven and Probable Reserve | |
| 1,313 | | |
| 8.57 | | |
| 361.6 | |
| 1. | Mineral
reserve effective date of October 31, 2022. |
| 2. | All
figures have been rounded to the relative accuracy of the estimates. Summed amounts may not
add due to rounding. |
| 3. | Mineral
reserve estimates were prepared in accordance with the CIM Standards and the CIM Guidelines,using
geostatistical and/or classical methods, plus economic and mining parameters appropriate
for the deposit. Mineral reserves are based on a long-term gold price of US$1,650 per oz,
and a USD:BRL foreign exchange rate of 5.29. Mineral reserves are the economic portion of
the indicated mineral resources. Mineral reserve estimates include operational dilution of
17.4% plus planned dilution of approximately 8.5% within each stope for room-and-pillar mining
areas and operational dilution of 3.2% plus planned dilution of 21.2% for cut-and-fill mining
areas. Assumes mining recovery of 92.5% and 94.7% for room-and-pillar and cut-and-fill areas,
respectively. Practical mining shapes (wireframes) were designed using geological wireframes
/ mineral resource block models as a guide. |
The mineral reserves for the Xavantina Operations
are derived from the measured and indicated mineral resource as defined within the resource block model following the application of
economic and other modifying factors further described below. Inferred mineral resources, where unavoidably mined within a defined mining
shape have been assigned zero grade. Dilution occurring from measured and indicated mineral resource blocks were assigned grade based
upon the current mineral resource grade of the blocks included in the dilution envelope. Mineral reserves were classified according to
the CIM Standards and the CIM Guidelines by Guilherme Gomides Ferreira of GE21, an independent qualified person as such term is defined
under NI 43-101.
Mineral reserve cut-off grades and parameters
applied to the mineral reserve estimate are summarized below:
| · | 4.17
gpt applied to mining stopes, in both room and pillar and cut and fill mining areas, incorporating
mining and development, processing, general and administrative and indirect costs; |
| · | 0.80
gpt applied to gallery development incorporating development and processing costs; and, |
| · | 3.23
gpt applied to mining marginal material adjacent to planned mining stopes incorporating mining,
development and processing costs. |
Mineral reserve cost assumptions are based on
actual operating cost data during the eighteen-month period from May 1, 2021 to October 31, 2022, expressed in USD per tonne
run-of-mine, converted at a USD:BRL foreign exchange rate of 5.29 corresponding to the average foreign exchange rate during this same
period.
A summary of the mineral reserve estimate parameters
is provided below:
Table 3 - Mineral Reserve Cut-off Parameters
| Mining
Costs (US$/tonne ROM) | |
$ | 119.62 | |
| Processing
Costs (US$/tonne ROM) | |
$ | 36.54 | |
| G&A
Costs (US$/tonne ROM) | |
$ | 20.37 | |
| Indirect
Costs (US$/tonne ROM) | |
$ | 24.66 | |
| Metallurgical Recovery (average) | |
| 91.0 | % |
| Gold Price (US$/oz) | |
$ | 1,650 | |
| Foreign
Exchange Rate (USD:BRL) | |
| 5.29 | |
Other modifying factors considered in the determination
of the mineral reserve estimate include:
| · | A
cut-off grade of 4.17 gpt was applied to mining stopes within the room and pillar and the
cut and fill mining areas, in the determination of planned mining stopes within the mineral
resource blocks based on actual operating cost data and past operating performance of the
mine. |
| · | The
mining method employed for the Santo Antônio vein is inclined room and pillar and cut
and fill for the thicker lower-panel of the vein and cut and fill for the thinner upper panel
of the vein incorporating paste-fill. |
| · | Maximum
stope spans in the room and pillar mining area are based on a design stope of 6m by 4m between
pillars. For cut and fill mining areas the size of stopes are based on a designed stope measuring
20m along strike with a frontal slice of 3 vertical meters. |
| · | Within
designed stopes, all contained material was assumed to be mined with no selectivity. Inferred
mineral resources, where unavoidably included within a defined mining shape have been included
in the mineral reserves estimate at zero grade. Mining dilution resulting from measured and
indicated blocks was assigned the grade of those blocks captured in the dilution envelope
using the current mineral resources estimate. |
Mineral reserve effective date of October 31,
2022.
1.7 Mining
Methods
The
mining methods currently used at the Santo Antônio vein, and envisioned for the Matinha vein beginning in the second half
of 2023, are a combination of inclined room and pillar and cut and fill using paste fill as backfill. Prior to commencing operations
within the Santo Antônio vein, the mine employed a combination of inclined room and pillar and cut and fill, with backfill requirements
generated from waste development. Mining method selection has been based upon desired selectivity, geometry of the orebodies (both planned
and previously mined), geotechnical characteristics of the quartz vein as well as the footwall and hanging wall.
For
the purposes of the current mineral reserve and life-of-mine production plan, the Santo Antônio vein has been divided into
two main panels on -65 (upper) and -170 (lower) based upon the relative geomechnical strength characteristics of these zones. In the
upper panel, cut and fill utilizing paste back-fill will be employed, while inclined room in pillar, the current mining method, will
be employed in the lower panel down to level -350. The deeper portion of Santo Antônio and Matinha veins will be mined using ascending
cut and fill. Cemented paste will be employed in the lower panel to enhance pillar recovery following primary panel extraction. In support
of mining method selection, the Company undertook extensive geomechanical analysis and 3D modeling and applied accumulated operational
knowledge gained through prior mining activities within the Brás and Buracão veins. The mine is currently operating within
the Santo Antônio vein using the selected mining methods.
The cut and fill method relies upon removing
the ore in horizontal slices, advancing from top to bottom, utilizing cemented paste (approximately 7% cement by weight) to provide support
to the next series of advances. Each advance will be 3.0 to 5.0 meters. The inclined room and pillar method, currently in use, is based
upon excavating parallel rooms, connected with a cross-section of galleries. Each 6-meter room is supported by pillars measuring approximately
4 meters. During the primary extraction stage, room and pillar mine recovery averages approximately 75%, increasing to approximately
92.5% following secondary extraction of pillars from bottom to top, supported with paste fill.
Based
on operating experience, mining rates from inclined room and pillar operations average approximately 4,500 tonnes per month per level
in operation. The main operational constraint is the number of jackleg operators per shift and number of developed rooms from which to
conduct mining operations. Total production from the Santo Antônio mine, incorporating upper and lower panel averages approximately
15,000 tonnes per month over the life of mine in Santo Antônio. For the Matinha vein, cut and fill mining rate has been planned
for appximately 1,200 tonnes per month per level. The total tonnage for the combined production sequence in both veins is approximately
17,300 tonnes per month over the life of mine, in-line with current mining rates. Actual operating performance from current mine operations
was used to calculate modifying factors applied to the life of mine. Operational dilution of 17.4% plus planned dilution of 8.5% was
applied to lower panel stopes utilizing room and pillar mining method. Operational dilution of 3.2% plus planned dilution of 21.2% was
assumed for stopes within the upper panel and Matinha vein utilizing cut and fill mining method.
1.8 Recovery
Methods
The
metallurgical process currently in place has been engineered and subsequently optimized over the years to extract gold from ore containing
a high content of preg-robbing units capable of adsorbing gold from cyanide solutions. The primary preg-robbing unit is carbonaceous
phyllite that exists throughout the Xavantina Operations orebodies, including at Santo Antônio and Matinha.
Metallurgical recoveries at the Xavantina Operations
have been sequentially optimized since commissioning to recover gold and silver from the quartz vein orebodies containing this carbonaceous
material. Optimization work has resulted in recoveries increasing from approximately 40% in 2012 when the plant was commissioned, to
current metallurgical recoveries in excess of 90% (93.3% average was achieved during third quarter of 2022). 2022 production from the
Xavantina Operations to the Effective Date is shown below in Table 4.
Table 4 - Xavantina Operations Plant Performance
to Effective Date
| | |
Jan 1st - Oct 31st, 2022 | |
| Mill Feed (tonnes) | |
| 167,672 | |
| Gold Grade (gpt Au) | |
| 6.97 | |
| Metallurgical Recovery (%) | |
| 92.3 | |
| Au Production (oz) | |
| 34,684 | |
Processing takes place at the Xavantina plant
(the “Xavantina Plant”). Unit operations include a conventional 3-stage crush, milling and a combination of gravity
concentration with intensive leaching and flotation followed by carbon in leach (“CIL”) and a desorption circuit.
In 2019, a gravity concentrate re-grind mill was added to the circuit to improve gold recoveries and reduce required residence time within
the intensive leaching circuit. Gold and silver are produced from solution via electrolysis followed by smelting of doré bars
containing both gold and silver. The installed crushing and grinding capacities are approximately 80 tph and 45 tph, respectively, resulting
in an installed annual plant capacity in excess of 300,000 tonnes per annum. The plant is currently forecast to operate at approximately
72% of its installed capacity, on average, over the current life of mine.
In
2018 and 2019, Xavantina conducted gravity concentration tests to assess recovery of the Santo Antônio orebody in advance
of mining operations. A composite sample was taken from 9 drill holes and processed in the Falcon concentrator at Xavantina’s laboratory.
Results from this test work demonstrated that the Santo Antônio orebody features similar metallurgical characteristics as the now
historic operations of the Buracão and Brás veins. Upon achieving full production rates from the Santo Antônio vein
in 2020, several processing initiatives were implemented to improve metallurgical recoveries. These efforts contributed to achieving
93.3% metallurgical recovery during the third quarter of 2022, in-line with current forecast recoveries over the life of mine.
Based on the current mineral reserve estimate,
the production plan for the Xavantina Plant is set forth below:
Table 5 - Xavantina Operations Production Plan
| | |
Q4 2022* | | |
2023 | | |
2024 | | |
2025 | | |
2026 | | |
2027 | | |
2028 | | |
LOM | |
| Ore Mined & Processed (kt) | |
| 22.1 | | |
| 169.5 | | |
| 221.8 | | |
| 227.3 | | |
| 224.7 | | |
| 215.8 | | |
| 231.4 | | |
| 1,312.5 | |
| Au Grade (gpt) | |
| 12.43 | | |
| 10.56 | | |
| 9.12 | | |
| 9.09 | | |
| 8.71 | | |
| 7.16 | | |
| 6.88 | | |
| 8.57 | |
| Recovery (%) | |
| 90.5 | % | |
| 93.0 | % | |
| 93.0 | % | |
| 93.0 | % | |
| 93.0 | % | |
| 93.0 | % | |
| 93.0 | % | |
| 92.9 | % |
| Gold Production (oz) | |
| 7,986 | | |
| 53,507 | | |
| 60,506 | | |
| 61,792 | | |
| 58,492 | | |
| 46,179 | | |
| 47,604 | | |
| 336,066 | |
(*)
Q4 2022 production outlines the mineral reserve schedule for the two months from the Effective Date of October 31, 2022 to
December 31, 2022.
Throughout the life of the Xavantina Operations,
the processing plant has successfully processed material with different grades and varying carbon content and has obtained information
essential to improving recoveries, under varying operational conditions. The metallurgical recoveries of the Xavantina Operations have
increased from 40% in 2012 to up to 93.3% in the third-quarter of 2022 (with a 2022 average of approximately 92% prior to the Effective
Date), as summarized in the following table.
Table 6 - Historic Production of the Xavantina
Operations
| Year | |
Tonnes (t) | | |
Au (oz) | | |
Recovery | |
| 2012 | |
| 137,980 | | |
| 6,654 | | |
| 40 | % |
| 2013 | |
| 261,726 | | |
| 26,216 | | |
| 67 | % |
| 2014 | |
| 208,259 | | |
| 23,730 | | |
| 83 | % |
| 2015 | |
| 226,608 | | |
| 35,115 | | |
| 87 | % |
| 2016 | |
| 213,776 | | |
| 29,098 | | |
| 84 | % |
| 2017 | |
| 135,013 | | |
| 25,173 | | |
| 88 | % |
| 2018 | |
| 117,857 | | |
| 39,808 | | |
| 91 | % |
| 2019 | |
| 158,275 | | |
| 29,755 | | |
| 86 | % |
| 2020 | |
| 162,642 | | |
| 36,830 | | |
| 91 | % |
| 2021 | |
| 171,581 | | |
| 37,798 | | |
| 94 | % |
| Jan to Oct 31st 2022 | |
| 167,672 | | |
| 34,684 | | |
| 92 | % |
| Total | |
| 1,961,389 | | |
| 324,861 | | |
| 82 | % |
1.9 Project
Infrastructure
The facilities at the Xavantina Operations include
the mine portal, the processing plant, tailings storage facility, mechanical workshop, administrative offices, metallurgical laboratory,
security gate and guard facilities, medical clinic, a cafeteria and a gravel airstrip used to fly out doré bars after production.
National electrical service is available on site
from the town of Nova Xavantina, located approximately 18 kilometers from the Xavantina Operations. The mine is supplied through a 34.5
kV power transmission line (600 kVA), owned by the state public utility, ENERGISA S/A. Water in sufficient quantities to support mining
and processing operations is sourced primarily from mine dewatering activities with availability, as needed, from surface run-off and
a fully permitted water supply system comprised of a water intake from the neighboring Mortes River, with capacity of 150 cubic meters
per hour, and a water main connecting the sumps of the underground mine.
Processed tailings are disposed into two ponds
in a closed loop with water loss only occurring through evaporation and in the residual moisture content of the tailings. The first pond
receives inert-tailings from flotation, and the second pond receives non-inert tailings from the CIL circuit. The latter tailings pond
is lined with a double layer of HDPE, including leach detection devices, and allows for natural degradation of residual cyanide through
exposure to sunlight, complemented by a cyanide detoxification circuit.
1.10 Permitting,
Environmental and Social Considerations
The Xavantina Operations is a fully permitted
gold mine currently in operation. An environmental action program was developed for NX Gold prior to the mine reaching commercial production.
Xavantina follows the guidelines set forth in the program to reduce its impact and recover impacted areas within the vicinity of the
mine. Xavantina adheres to a program of frequent environmental monitoring including water quality control, as well as re-vegetation of
historic artisanal mining areas that pre-date the commissioning of the mine by NX Gold. As part of its preventative environmental management
methods, Xavantina manages all of its waste with an emphasis on proper segregation, storage, transport, and disposal at the end of the
life cycle. All waste is delivered to a licensed facility.
The mine’s closure plan, adapted to the
current social and environmental context within the area of the Xavantina Operations, has been designed to maximize the physical, chemical,
biological, and socio-economic stability of the area after mining activities have concluded. The current estimated reclamation liabilities
are approximately R$38.7 million.
Xavantina actively maintains excellent relationships
with stakeholders of the Nova Xavantina municipality, including community members, social organizations, local government, and landowners
near the operation. The Company actively takes part in initiatives supported by regional stakeholders for waste collection, river preservation,
educational events, social inclusion, and equity. Xavantina has provided technical and financial support towards the environmental rehabilitation
of areas previously impacted by historic artisanal mining activities and has remained an important economic contributor to the region
through both direct and indirect jobs, royalties and tax revenue. The Xavantina Operations has all required environmental licenses to
conduct its operations. The authors of the Xavantina Operations Technical Report are not aware of any material environmental or permitting
risks to the current operations nor to the envisioned production plan associated with this mineral reserves estimate.
1.11 Capital
and Operating Costs
Capital
and operating costs are shown for 2020 through 2028 reflecting the period of operation from the day immediately following the Effective
Date (commencing November 1, 2022). For the purposes of the Xavantina Operations Technical Report, mine reclamation and closure
are assumed to commence on the conclusion of mining of the mineral reserves; however, Xavantina is actively undertaking exploration activities
to increase the mine’s life. It is anticipated that a combination of mineral resource conversion, extension of the Santo
Antônio and Matinha ore bodies, and delineation of target areas will serve to augment the production profile and increase mine
life subject to satisfactory exploration results, as well as technical, economic, legal and environmental conditions.
Total capital costs over the life of mine are
estimated at US$53.1 million. Details of these capital expenditures are shown below in Table 7.
Table 7 - Total LOM Capital Expenditure Estimate
| Category | |
LOM Total (USD 000s)* | |
| UG Mine Development | |
| 22,516 | |
| Infrastructure | |
| 17,528 | |
| Safety & Environment | |
| 5,337 | |
| UG Equipment | |
| 2,464 | |
| Other Capital Costs | |
| 5,222 | |
| Total Capital Cost | |
| 53,067 | |
*
BRL amounts converted to USD at a USD:BRL foreign exchange rate of 5.29.
An operating cost model was generated based on
actual operating performance at the Xavantina Operations, utilizing specific consumption coefficients incorporating historic operational
data. Cost estimates have been estimated using first principles incorporating both fixed and variable components to account for year-to-year
production rate variations. Costs were adjusted annually based on the changes to ore sources including rock support, transport, and infrastructure
requirements. Underground mining costs consist of the operational costs related to ore extraction at the Xavantina Mine. Direct mining
costs include drilling, blasting, and mucking. Indirect costs include ore and waste transport and mine services. Processing costs include
salaries, operating consumables and power. A summary of the average LOM operating costs is presented in BRL per tonne in Table 8.
Table 8 - Average LOM Operating Costs
| Cost Parameter, Average LOM | |
Cost | |
| Mining
Cost (BRL per tonne mined) | |
| 448.32 | |
| Processing
Cost (BRL per tonne processed) | |
| 246.87 | |
| Operational
Support Costs (BRL per tonne processed) | |
| 111.73 | |
| G&A
Cost (BRL per tonne processed) | |
| 125.55 | |
1.13 Conclusions
and Recommendations
The authors of this Report have carried out a
review and assessment of the material technical issues that could influence the future performance of the Xavantina Operations and classified
the mineral resource and mineral reserve estimates. The authors found that the procedures and processes adopted by Xavantina personnel
to produce geological models were executed according to industry standards. Sampling, QA/QC, security and data control were similarly
in line with industry best practices and support the current mineral resource and mineral reserve estimate. The authors note the following:
| a. | NX Gold holds the surface rights and permits
required to conduct the mining operation as outlined in the mineral reserve estimate. Future
development beyond the stated mineral reserves may require the acquisition of additional
surface rights. |
| b. | The authors have carried out the appropriate
review to satisfy that the mineral reserve can be technically and profitably extracted. Consideration
has been given to all technical areas of the operations, the associated capital and operating
costs, and relevant factors including marketing, permitting, environmental, land use and
social factors. The authors are satisfied that technical and economic feasibility has been
demonstrated. |
| c. | The authors have not identified any known
mining, metallurgical, infrastructure, permitting, legal, political, environmental or other
relevant factors that could materially affect the development or extraction of the stated
mineral reserves. |
Regarding the mineral resource and mineral reserve
estimation process, the authors recommend a work program that includes the following:
| · | Despite
the high variability of gold grades in duplicate samples, results are inside acceptable limits.
It is recommended that a study be performed to determine if the variability for field duplicates
is an expected characteristic of the deposit or if reference values should be revised. |
| · | The
Santo Antônio target remains open at depth. It is recommended that Xavantina conduct
a new drilling campaign to test the extension and continuity of mineralization at depth. |
| · | The
Xavantina Operations should continue to undertake additional infill drilling campaigns to
upgrade the classification of mineral resources of the Matinha vein. |
| · | Undertake
new drill programs to evaluate the potential of regional exploration targets. |
| · | Geomechanical
characterization work should continue to be carried out on an ongoing basis to support mining
operations, mine design and update geotechnical support requirements. It is recommended that
numerical modeling and stress-displacement analysis be performed to assess stress redistribution
and strength factors for both hanging wall and pillars. |
| · | It
is recommended that Xavantina conduct additional studies focused on the recovery of pillars
included in the mineral reserve estimate. |
| · | Xavantina
uses a higher cut-off grade for cut and fill mining areas. It is recommend that Xavantina
perform a study to better define costs in cut and fill areas to support the cut-off grade. |
The
hanging wall of the deposit, in the opinion of the authors of this Report, has been demonstrated competent enough the selected mining
methods with support implemented as designed. GE21 recommends the Company undertake a third-party geotechnical study to further
evaluate the potential of reducing sill pillar thickness with the aim of increasing mine recovery during the primary mining phase of
the operations.
A
summary of the proposed work program is detailed below. At the time of this Report, 3 drill rigs were active on the property and were
undertaking various exploration programs aimed at increasing the current mineral resource and mineral reserves of the property.
Table 9 - GE21 Recommended Work Program
| Program | |
Budget (US$) | |
| Duplicate samples study | |
$ | 20,000 | |
| Down-plunge exploration drill program in Santo Antônio vein | |
$ | 5,000,000 | |
| Infill Exploration drill program in the Matinha vein | |
$ | 3,000,000 | |
| Potential evaluation on other exploration targets including drill program | |
$ | 2,000,000 | |
| Additional studies regarding the recovery of the pillars | |
$ | 20,000 | |
| Study to refine the cut-off-grade values for cut and fill areas | |
$ | 20,000 | |
| Geomechanical numerical modeling and stress-displacement analysis with finite elements | |
$ | 100,000 | |
| Total | |
$ | 10,160,000 | |
RISK
FACTORS
Investing
in our securities is speculative and involves a high degree of risk due to the nature of our business and the present stage of its development.
The following risk factors, as well as risks currently unknown to us, could materially and adversely affect our current or future business,
properties, operations, results, cashflows, financial condition and prospects and could cause them to differ materially from the statements
made in forward-looking statements relating to the Company, or its business, properties or financial results, each of which could cause
purchasers of our securities to lose part or all of their investment. The risks discussed below also include forward-looking
statements, and our actual results may differ substantially from those discussed in these forward-looking statements. The risks set out
below are not the only risks we face; risks and uncertainties not currently known to us or that we currently deem to be immaterial may
also materially and adversely affect our business, financial condition, results of operations and prospects. You should also refer to
the other information set forth or incorporated by reference (including subsequently filed documents incorporated by reference) in this
prospectus or any applicable prospectus supplement, including our AIF, Annual Financial Statements, and related notes.
Risks Related to the Company’s Business
Copper and gold prices are volatile and
may be lower than expected
The Company’s business and its ability
to sustain operations are dependent on, among other things, the market price of copper and gold. The prices of copper and gold realized
by the Company will affect ongoing and future exploration, development and construction programs or decisions, production levels, earnings,
cash flows, financial condition and prospects of the Company. If the world market prices of copper and/or gold were to drop and the prices
realized by the Company on copper and/or gold sales were to decrease significantly and remain at such level for any substantial period,
the Company’s business, financial condition, results of operations, cash flows and prospects would be negatively affected. To help
mitigate the severity of this risk, the Company has entered into a zero-cost collar program on 3,000 tonnes of copper per month for February through
December of 2023. The collars establish a floor price at US$3.50 per pound of copper on total hedged volumes of 33,000 tonnes of
copper, representing approximately 75% of full-year production volumes. The program protects a meaningful portion of the Company’s
revenue at the Company’s 2023 budget copper price which was used for capital, cash flow and liquidity planning purposes, while
providing upside to increases in the copper price up to a cap of US$4.76 per pound, being within 5% of the all-time high copper price.
The hedge contracts are financially settled on a monthly basis.
Some factors that affect the price of copper
and gold include: industrial demand; forward or short sales of copper and gold by producers and speculators; future levels of copper
and gold production; and rapid short-term changes in supply and demand due to speculative or hedging activities by producers, individuals
or funds. Copper and gold prices are also affected by macroeconomic factors including: confidence in the global economy; interest rates
and expectations of the future interest rates; expectations with respect to the rate of inflation or deflation; global and regional supply
and demand for industrial products containing metals generally; the availability and attractiveness of alternative investment vehicles;
the strength of, and confidence in, the U.S. dollar, the currency in which the price of copper and gold is generally quoted, and other
major currencies; global political or economic events (including, without limitation, the continuance or escalation of the military conflict
between Ukraine and Russia and the economic sanctions imposed on Russia in connection therewith); global pandemics, such as COVID-19,
and other health crises; and, costs of production of other copper and gold producing companies. All of the above factors can, through
their interaction, affect the price of copper and gold by increasing or decreasing the demand for or supply of copper and gold.
The price of copper and gold has fluctuated widely
in recent years, and future material price declines could cause commercial production from the Caraíba Operations or the Xavantina
Operations or the development of, and commercial production from, the Tucumã Project to be less profitable than expected and could
render such properties uneconomic. Continuing to conduct mining in a low copper and/or gold price environment would have a material adverse
effect on the Company’s business, financial condition, results of operations, cash flows and prospects. Depending on the current
and expected price of copper and gold, projected cash flows from planned or current mining operations may not be sufficient to warrant
commencing or continuing mining, and the Company could be forced to discontinue exploration, development, construction or commercial
production. The Company may be forced to sell one or more portions of the Caraíba Operations, Xavantina Operations or the Tucumã
Project to generate cash. Future production from the Caraíba Operations, Xavantina Operations and the Tucumã Project will
be dependent on a price of copper or gold, as the case may be, that is adequate to make a deposit economically viable. Furthermore, future
mine plans using significantly lower copper or gold prices could result in material write-downs of the Company’s investment in
the Caraíba Operations, Xavantina Operations and the Tucumã Project, as the case may be, and in reductions in mineral reserve
and mineral resource estimates. The occurrence of any of the foregoing could have a material adverse effect on the Company’s business,
financial condition, results of operations, cash flows and prospects.
A
declining or sustained low price of copper could negatively impact the profitability of the Caraíba Operations or a declining
or sustained low price of gold could negatively impact the profitability of the Xavantina Operations and could affect the Company’s
ability to finance the exploration and development of the Company’s current properties or other properties in the future. In addition,
a declining or sustained low price of copper could require a reassessment of the feasibility of the Tucumã Project or the Deepening
Extension Project at the Caraíba Operations. Although the price of copper is only one of several factors that the Company
will consider in continuing with the construction, development and production decision on the Tucumã Project or the Deepening
Extension Project at the Caraíba Operations, if the Company determines from a reassessment that the Tucumã Project or the
Deepening Extension Project at the Caraíba Operations is no longer economically viable in whole or in part, then operations may
cease or be curtailed and the Tucumã Project or the Deepening Extension Project at the Caraíba Operations may never be
fully constructed or developed or constructed or developed at all. The occurrence of any of the foregoing could have a material adverse
effect on the Company’s business, financial condition, results of operations, cash flows and prospects.
Mining operations are risky
The Company’s current business and any
future exploration, development or mining operations involve various types of risks and hazards typical of companies engaged in the mining
industry. Such risks include, but are not limited to: (i) industrial accidents; (ii) unusual or unexpected rock formations;
(iii) structural cave-ins or slides and pitfall, ground or slope failures and accidental release of water from surface storage facilities;
(iv) fire, flooding and earthquakes; (v) rock bursts; (vi) metal losses in handling and transport; (vii) periodic
interruptions due to inclement or hazardous weather conditions; (viii) environmental hazards; (ix) discharge of pollutants
or hazardous materials; (x) failure of retaining dams and tailings disposal areas; (xi) failure of processing and mechanical
equipment and other performance problems; (xii) geotechnical risks, including the stability of the underground hanging walls and
unusual and unexpected geological conditions; (xiii) unanticipated variations in grade and other geological problems, water, surface
or underground conditions; (xiv) labour disputes or slowdowns; (xv) work force health issues as a result of working conditions
or epidemics, pandemics or other health risks, such as COVID-19; and (xvi) force majeure events, or other unfavourable operating
conditions.
These risks, conditions and events could result
in: (i) damage to, or destruction of, the value of the Caraíba Operations, the Xavantina Operations, the Tucumã Project
or their facilities; (ii) personal injury or death; (iii) environmental damage to the Caraíba Operations, the Xavantina
Operations, the Tucumã Project, surrounding lands and waters, or the properties of others; (iv) temporary or permanent loss
of personnel; (v) delays or prohibitions on mining or the transportation of minerals; (vi) monetary losses; and (vii) potential
legal liability and any of the foregoing could have a material adverse effect on the Company’s business, financial condition, results
of operation, cash flows or prospects. In particular, exploration, development, construction and mining activities present inherent risks
of injury to people and damage to equipment. Significant accidents could potentially result in a complete shutdown of, or modifications
to, the Company’s operations at the Caraíba Operations or the Xavantina Operations or construction and development activities
at the Tucumã Project, as the case may be, and otherwise have a material adverse effect on the Company’s business, financial
condition, results of operations, cash flows or prospects.
There are also risks related to: (i) the
reliance on, and the reliability of, current and new or developing technology; (ii) the reliance on the work performance of outside
consultants, contractors, and manufacturers; (iii) changes to project parameters over which the Company does not have complete control
such as the copper, gold and silver prices or labour or material costs; (iv) unknown or unanticipated or underestimated costs or
expenses; (v) unknown or unanticipated or underestimated additions to the scope of work due to changing or adverse conditions encountered
as a mine is developed or constructed; (vi) unexpected variances in the geometry or quality of ore zones; (vii) unexpected
reclamation requirements or expenses; (viii) permitting time lines; (ix) unexpected or unknown ground conditions; (x) unexpected
changes to estimated parameters utilized to estimate past timelines, projections, or costs; and (xi) liquidity risks. An adverse
change in any one of such factors, hazards and risks may result in a material adverse effect on the Company’s business, financial
condition, results of operations, cash flows or prospects.
Mining operations require geologic, metallurgic,
engineering, title, environmental, economic and financial assessments that may be materially incorrect and thus the Company may not produce
as expected
The operations of mining properties or mining
companies are based in large part on geologic, metallurgic, engineering, title, environmental, economic and financial assessments, which
involve uncertainty. Such assessments may differ materially from actual results, which may result in a material adverse effect on the
Company’s business, financial condition, results of operations, cash flows or prospects. These assessments include a series of
assumptions regarding such factors as the ore body geometries, grades, recoverability, regulatory and environmental restrictions, future
prices of metals and operating costs, future capital expenditures and royalties and government levies which will be imposed over the
producing life of the mineral reserves. There are numerous uncertainties inherent in estimating quantities of mineral resources and mineral
reserves and estimates in projecting potential future rates of mineral production, including factors subject to change and beyond the
Company’s control. Mineral reserves and mineral resources estimates are based on limited samples and interpretations, which may
not be representative of actual mineral reserves and mineral resources. In addition, title and rights of access to the Company’s
properties can never be guaranteed. Although select title and environmental reviews were conducted in connection with the Company’s
acquisition of shares of MCSA and NX Gold on December 12, 2016 (the “Acquisitions”), this review cannot guarantee
that any unforeseen defects in the chain of title will not arise to defeat the Company’s title to certain assets or that environmental
defects, liabilities or deficiencies do not exist or are not greater than anticipated.
The Company’s calculations of mineral resources
and mineral reserves are estimates and depend upon geological interpretation and statistical inferences drawn from drilling and sampling
analysis, which may prove to be inaccurate. Actual recoveries of copper and gold from mineralized material may be lower than those indicated
by test work. Any material change in the quantity of mineralization, grade or stripping ratio, may affect the economic viability of the
Company’s properties. In addition, there can be no assurance that metal recoveries in small-scale laboratory tests will be duplicated
in larger scale tests under on-site conditions or during production. Notwithstanding pilot plant tests for metallurgical recovery and
other factors, there remains the possibility that the mineralized material may not perform in commercial production in the same manner
as it did in testing. Mineral resources that are not mineral reserves do not have demonstrated economic viability. Mining and metallurgy
are inexact sciences and, accordingly, there always remains an element of risk that a mine may not prove to be commercially viable.
Until a deposit is actually mined and processed,
the quantity of mineral resources and mineral reserves and grades must be considered as estimates only. In addition, the quantity of
mineral resources and mineral reserves may vary depending on, amongst other things, metal prices, cut-off grades and operating costs.
Any material change in quantity of mineral reserves, mineral resources, grade, percent extraction of those mineral reserves recoverable
by underground and open pit mining techniques may affect the economic viability of the Company’s mining projects and could have
a material adverse effect on its future revenues, cash flows, profitability, results of operations, financial condition and prospects
and result in write-downs of the Company’s investment in mining properties and increased amortization charges.
Inferred mineral resources are also considered
too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral
reserves. Due to the uncertainty which may attach to inferred mineral resources, there is no assurance that inferred mineral resources
will be upgraded to proven mineral reserves or probable mineral reserves as a result of continued exploration or as a result of economic
considerations being applied to them.
In addition, market fluctuations in the price
of copper, gold and silver, as well as increased production costs, reduced recovery rates or increased operating and capital costs due
to inflation or other factors, may render the exploitation of certain mineral reserves and mineral resources uneconomic and may ultimately
result in a restatement of mineral reserves, mineral resources or both. Such a restatement could affect depreciation and amortization
rates and have an adverse effect on the Company’s financial performance.
Geotechnical, hydrological and climatic
events could suspend mining operations or increase costs
All mining operations face geotechnical, hydrological
and climate challenges. Unanticipated adverse geotechnical and hydrological conditions, such as landslides, subsidence and uplift, embankment
failures and rock fragility may occur in the future and such events may not be detected in advance. Geotechnical instabilities and adverse
climatic conditions can be difficult to predict and are often affected by risks and hazards outside of the Company’s control, such
as severe weather and seismic activity.
Geotechnical failures could result in limited
or restricted access to mines, suspension of operations, environmental damage, government investigations, increased monitoring costs,
remediation costs, loss of ore and other impacts, which could result in loss of revenue or increased costs, and could result in a material
adverse effect on the Company’s business, financial condition, results of operations, cash flows and prospects.
Actual production, capital and operating
costs may be different than those anticipated
The Company prepares estimates of future productions,
capital costs and operating costs of production for operations at the Caraíba Operations and the Xavantina Operations or construction
and development activities at the Tucumã Project, as the case may be, and otherwise. Such guidance is based upon a number of assumptions
and estimates, including but not limited to, mineral reserve estimates, grade and continuity of interpreted geological formations and
metallurgical performance, that, although presented with numerical specificity, are inherently subject to business, economic and competitive
uncertainties and contingencies, many of which are beyond the Company’s control and are based upon specific assumptions with respect
to future business decisions, some of which will change. Guidance is necessarily speculative in nature, and it can be expected that some
or all of the assumptions underlying the guidance furnished by the Company’s will not materialize or will vary significantly from
actual results. Accordingly, the Company’s guidance is only an estimate of what management believes is realizable as of the date
of the AIF. Any failure to successfully implement the Company’s operating strategy or the occurrence of any of the risks or uncertainties
as set forth in the AIF, could result in actual results being different than the guidance, and such differences may be adverse and material.
In
addition, as a result of the substantial expenditures involved in the development and construction of a mineral project such as the Tucumã
Project and the Deepening Extension Project at the Caraíba Operations, the need to project years into the future, the need
to make assumptions and use models that may not adequately approximate reality, and the fluctuation of costs over time, a development
project is prone to material cost overruns.
The Caraíba Operations Technical Report,
the Xavantina Operations Technical Report and the Tucumã Project Technical Report estimate capital costs and cash operating costs
based upon, among other things:
| · | anticipated
tonnage, grades and metallurgical characteristics of the ore to be mined and processed; |
| · | anticipated
recovery rates of copper, gold and other metals from the ore; |
| · | cash
operating costs of comparable facilities and equipment; |
| · | anticipated
availability of labour and equipment; and |
| · | anticipated
foreign exchange rates. |
Capital costs, operating costs, production and
economic returns, and other estimates may differ significantly from those anticipated by the Caraíba Operations Technical Report,
the Xavantina Operations Technical Report and the Tucumã Project Technical Report, and there can be no assurance that the Company’s
actual capital or operating costs will not be higher than currently anticipated or that returns will not be lower than anticipated. The
Company’s actual costs may vary from estimates for a variety of reasons including, without limitation: limitations inherent in
modelling; changes to assumed third party costs; short term operating factors; operational decisions made by the Company; revisions to
mine plans; risks and hazards associated with exploration, development, construction and mining described in this prospectus and the
AIF; natural phenomena, such as inclement weather conditions, water availability, floods, and earthquakes; and unexpected supply chain
distributions, labour shortages or strikes. Operating costs may also be affected by a variety of factors including, without limitation:
changing strip ratios, ore metallurgical grade-recovery curves, the availability of processing operations, the availability of storage
capacity, the availability of supplies, equipment and facilities necessary to continue operations at the Caraíba Operations or
the Xavantina Operations and to complete development and construction work at the Tucumã Project, the cost and availability of
consumables and mining and processing equipment, labour costs, the availability and productivity of skilled labour, the cost of commodities,
general inflationary pressures, currency exchange rates, technological and engineering problems, accidents or acts of sabotage or terrorism,
the regulation of the mining industry by various levels of government and quasi-governmental organizations, global pandemics such as
COVID-19, and political and geopolitical factors such as the continuance or escalation of the military conflict between Ukraine and Russia.
Many of these factors are beyond the Company’s control. Furthermore, significant cost overruns could make the Tucumã Project
uneconomical. Failure to achieve estimates or material increases in costs could have a material adverse effect on the Company’s
business, financial condition, results of operations, cash flows and prospects.
Furthermore, unforeseen delays in the construction
and commissioning of mining projects or other technical difficulties may result in even further capital expenditures being required.
Any delay in the development or construction of a project or cost overruns or operational difficulties with regards to the Caraíba
Operations, the Xavantina Operations or the Tucumã Project may have a material adverse effect on the Company’s business,
financial condition, results of operations, cash flows and prospects.
The Company’s financial performance
and results of operations are dependent on the Caraíba Operations
For the year ended December 31, 2022, approximately
82% of the Company’s revenues were generated by the Caraíba Operations. The Company will continue to be dependent on the
Caraíba Operations for a substantial portion of its revenue and cash flow. Any adverse condition affecting mining conditions at
the Caraíba Operations could have a material adverse effect on the Company’s business, financial condition, results of operations,
cash flows and prospects.
Infectious diseases, such as COVID-19,
may affect the Company’s business and operations
The continued presence of infectious diseases,
such as COVID-19, emerging infectious diseases or the threat of widespread outbreaks, pandemics or epidemics of viruses or other contagions
or diseases, could have a material adverse effect on the Company’s business, financial condition, results of operations, cash flows
or prospects by causing operational and supply chain delays and disruptions (including as a result of governmental regulations and prevention
measures), labour shortages and shutdowns, social unrest, breach of material contracts and customer agreements, governmental or regulatory
actions or inactions, increased insurance premiums, decreased demand for or the inability to sell and delivery the Company’s products,
declines in the price of copper, gold and other metals, delays in permitting or approvals, stock market volatility (including volatility
in the trading price of the Company’s securities, including the Common Shares), capital markets volatility, interest rate volatility,
exchange rate volatility, or other unknown but potentially significant impacts. In addition, governments may reinstate (in the case of
COVID-19) or impose strict emergency measures in response to the threat or existence of an infectious disease.
The Company continues to have no material disruption
to operations, supply chains or sales channels as a result of COVID-19. There is no guarantee that this will continue to be the case.
The extent to which COVID-19 will impact the Company’s workforce, operations, supply chains, or sales channels will depend on future
developments which are highly uncertain and cannot be predicted with confidence. These future developments include, but are not limited
to, the duration of new outbreaks, new information that may emerge concerning the severity of COVID-19 and the mutations thereto, and
the actions taken to contain COVID-19 outbreaks (e.g., reinstatement of restrictions on travel, business closures and quarantines) or
treat it. The impact of governmental restrictions and health and safety protocols could improve or worsen relative to the Company’s
assumptions, depending on how each jurisdiction manages potential outbreaks of COVID-19 and mutations thereto, the development and adequate
supply of vaccines (including new vaccines to counter COVID-19 mutations), and the roll-out of vaccination programs in each jurisdiction.
Accordingly, the continued presence, or spread,
of COVID-19 and mutations thereto, and any future emergence and spread of COVID-19 mutations or other infectious diseases could have
a material adverse effect on the Company’s business, financial condition, results of operations, cash flows or prospects.
Changes in climate conditions may affect
the Company’s operations
The Company recognizes that climate change is
a global challenge that may have both favourable and adverse effects on its business in a range of possible ways. Mining and processing
operations are energy intensive and result in a carbon footprint. As such, the Company is impacted by current and emerging policy and
regulations relating to greenhouse gas emission levels, energy efficiency, and reporting of climate-change related risks. While some
of the costs associated with reducing emissions may be offset by increased energy efficiency, technological innovation, or the increased
demand for copper as part of technological innovations, the current regulatory trend may result in additional transition costs at some
of the Company’s operations.
A number of governments have introduced or are
moving to introduce climate change legislation and treaties at the international, national, state/provincial and local levels. Regulation
relating to emission levels (such as carbon taxes) and energy efficiency is becoming more stringent. If the current regulatory trend
continues, this may result in increased costs at the Company’s operations. Concerns around climate change may also affect the market
price of the Company’s securities, including the Common Shares, as institutional investors and others may divest interests in industries
that are thought to have more environmental impacts. While the Company is committed to operating responsibly and reducing the impact
of its operations on the environment, its ability to reduce emissions, energy and water usage by increasing efficiency and by adopting
new innovation is constrained by technological advancement, operational factors and economics. Adoption of new technologies, the use
of renewable energy, and infrastructure and operational changes necessary to reduce water usage may also increase operating costs significantly.
Concerns over climate change, and the Company’s ability to respond to regulatory requirements and societal pressures, may have
significant impacts on the Company’s operations and reputation, and may even result in reduced demand for its products.
In addition, the physical risks of climate change
may also have an adverse effect on the Company’s operations. These risks include, among others, the following:
| · | changes
in sea levels could affect ocean transportation and shipping facilities that are used to
transport supplies, equipment and workforce, and products from the Company’s operations
to world markets; |
| · | extreme
weather events (such as prolonged drought or rainy seasons) have the potential to disrupt
operations at the Company’s mines and may require the Company to make additional expenditures
to mitigate the impact of such events; and |
| · | the
Company’s facilities depend on regular supplies of consumables (diesel, tires, reagents, etc.)
to operate efficiently. In the event that the effects of climate change or extreme weather
events cause prolonged disruption to the delivery of essential commodities, production levels
at the Company’s operations may be reduced. |
There can be no assurance that the Company will
be able to anticipate, respond to, manage or effectively mitigate the risks associated with physical climate change events or impacts,
and this may have a material adverse effect on the Company’s business, financial condition, results of operations, cash flows or
prospects.
Currency fluctuations can result in unanticipated
losses
Currency fluctuations may affect the Company’s
capital costs and the costs that the Company incurs at its operations. Copper and gold are sold throughout the world based principally
on a U.S. dollar price, but a portion of the Company’s operating and capital expenses are incurred in Brazilian Reais and Canadian
dollars. The appreciation of foreign currencies, particularly the Brazilian Real against the U.S. dollar would increase the costs of
copper and gold production at such mining operations, which could materially and adversely affect the Company’s earnings and financial
condition. The Company has entered into foreign exchange swap contracts to help manage the currency fluctuation risk of the Brazilian
Real against the U.S. dollar. However, there is no assurance that such hedging contracts or any other steps taken to help mitigate foreign
currency fluctuations will be effective.
The successful operation of the Caraíba
Operations and the Xavantina Operations and the successful development, construction and operation of the Tucumã Project depend
on the skills of the Company’s management and teams
The Company’s business is dependent on
retaining the services of its key management personnel with a variety of skills and experience, including in relation to the exploration,
development, construction and operation of mineral projects. The Company’s success is, and will continue to be, dependent to a
significant extent on the expertise and experience of its directors and senior management. Failure to retain, or loss of, one or more
of these people could have a material adverse effect on the Company’s business, financial condition, results of operations, cash
flows or prospects. The Company’s success will also depend to a significant degree upon the contributions of qualified technical
personnel and the Company’s ability to attract and retain highly skilled personnel. Competition for such personnel is intense,
and the Company may not be successful in attracting and retaining qualified personnel, or in obtaining the necessary work permits to
hire qualified expatriates. The Company’s inability to attract and retain these people could have a material adverse effect on
its business, financial condition, results of operations, cash flows or prospects.
Operations during mining cycle peaks are
more expensive
During times of increased demand for metals and
minerals, price increases may encourage expanded mining exploration, development and construction activities. These increased activities
may result in escalating demand for and cost of contract exploration, development and construction services and equipment. Increased
demand for and cost of services and equipment could cause exploration, development and construction costs to increase materially, resulting
in delays if services or equipment cannot be obtained in a timely manner due to inadequate availability, and increased potential for
scheduling difficulties and cost increases due to the need to coordinate the availability of services or equipment, any of which could
materially increase project exploration, development or construction costs, result in project delays, or increase operating costs.
Title to the Caraíba Operations,
the Xavantina Operations and/or the Tucumã Project may be disputed
Although the Company has received title opinions
for the Caraíba Operations, the Xavantina Operations and the Tucumã Project there is no guarantee that title to such properties
will not be challenged or impugned. The Company’s claims may be subject to prior unregistered agreements or transfers and title
may be affected by unidentified or unknown defects. The Company has conducted an investigation on the title of properties that it has
acquired to confirm that there are no known claims or agreements that could affect its title to its mineral tenure or surface rights.
There is no guarantee that such title will not be challenged or impaired. If title to the Company’s properties is disputed, it
may result in the Company paying substantial costs to settle the dispute or clear title and could result in the loss of the property,
which events may affect the economic viability of the Company. Title insurance generally is not available for mineral tenure or surface
rights and the Company’s ability to ensure that it has obtained secure claim to title may be constrained.
The Company may fail to comply with the
law or may fail to obtain or renew necessary permits and licenses
The Company’s operations are subject to
extensive laws and regulations governing, among other things, such matters as environmental protection, management and use of toxic substances
and explosives, health, exploration, development and construction of mines, commercial production and sale of by-products, ongoing and
post-closure reclamation, construction and operation of tailings dams, safety and labour, taxation and royalties, maintenance of mineral
tenure, and expropriation of property. The activities of the Company require licenses and permits from various governmental authorities.
Legal and regulatory requirements to obtain, maintain and remain in compliance with such licenses and permits may change from time to
time.
The costs associated with compliance with these
laws and regulations and of obtaining licenses and permits are substantial, and possible future laws and regulations, changes to existing
laws and regulations and more stringent enforcement of current laws and regulations by governmental authorities, could cause additional
expenses, capital expenditures, restrictions on or suspensions of the Company’s operations and delays in the development or construction
of its properties. There is no assurance that future changes in such laws and regulations, if any, will not adversely affect the Company’s
operations. Moreover, these laws and regulations may allow governmental authorities and private parties to bring lawsuits based upon
damages to property and injury to persons resulting from the environmental, health and safety practices of the Company’s past and
current operations, or possibly even the actions of former property owners, and could lead to the imposition of substantial fines, penalties
or other civil or criminal sanctions. The Company may fail to comply with current or future laws and regulations. Such non-compliance
can lead to financial restatements, civil or criminal fines, penalties, and other material negative impacts on the Company.
The Company is required to obtain or renew further
government permits and licenses for its current and contemplated operations, including the issuance of an operation license with respect
to the Tucumã Project. Obtaining, amending or renewing the necessary governmental permits and licenses can be a time-consuming
process potentially involving numerous regulatory agencies, involving public hearings and costly undertakings on the Company’s
part. The duration and success of the Company’s efforts to obtain, amend and renew permits and licenses are contingent upon many
variables not within its control, including the interpretation of applicable requirements implemented by the relevant permitting or licensing
authority and staffing shortages at such permitting and licensing authorities. The Company may not be able to obtain, amend or renew
permits or licenses that are necessary to its operations, or the cost to obtain, amend or renew permits or licenses may exceed what the
Company believes it can ultimately recover from a given property once in production. Any unexpected delays or costs associated with the
permitting and licensing process could impede the ongoing operation of the Caraíba Operations and the Xavantina Operations, and
could delay the development or construction or impede the operation of the Tucumã Project. To the extent necessary permits or
licenses are not obtained, amended or renewed, or are subsequently suspended or revoked, the Company may be curtailed or prohibited from
proceeding with planned construction, development, commercialization, operation and exploration activities. Such curtailment or prohibition
may result in a material adverse effect on the Company’s business, financial condition, results of operations, cash flows or prospects.
The failure of a tailings dam could negatively
impact the Company’s business, reputation and results of operations
Mining companies face inherent risks in their
operations of tailings dams – structures built for the containment of the mining waste, known as tailings – that exposes
the Company to certain risks. The Company’s tailings dams include, in some cases, materials that could increase the hazard potential
in the event of unexpected failure. If any such risks were to occur, this could materially adversely affect the Company’s reputation
and ability to conduct its operations and could expose the Company to liability and, as a result, have a material adverse effect on its
business, financial position and results of operations.
In addition, the changes in regulation that may
occur as a result of recent dam failures at other operations, like those that have occurred in Brazil, could increase the time and costs
to build, operate, inspect, maintain and decommission tailings dams, obtain new licenses or renew existing licenses to build or expand
tailings dams, or require the use of new technologies. New regulations enacted in Brazil during 2020 may also impose more restrictive
requirements that may exceed the Company’s current standards, including mandated compliance with emergency plans and increased
insurance requirements, or require the Company’s subsidiaries to pay additional fees or royalties to operate tailings dams. The
Company may also be required to provide for and facilitate the relocation of communities and facilities that may be located downstream
of the tailings dams or impacted by tailings dam failures.
Compliance with environmental regulations
can be costly
The Company’s mining operations at the
Caraíba Operations and the Xavantina Operations, the Company’s development and construction of the Tucumã Project,
and the exploration of these properties are all subject to environmental regulation. Regulations cover, among other things, water quality
standards, land reclamation, the generation, transportation, storage and disposal of hazardous waste, the construction and operation
of tailings dams, and general health and safety matters. There is no assurance that the Company has been or will at all times be in full
compliance with all environmental laws and regulations or hold, and be in full compliance with, all required environmental and health
and safety approvals and permits. The potential costs and delays associated with compliance with such laws, regulations, approvals and
permits could prevent the Company from economically operating or proceeding with the further development and exploration of the Caraíba
Operations, the Xavantina Operations and/or the Tucumã Project, and any non-compliance with such laws, regulations, approvals
and permits at the Caraíba Operations, the Xavantina Operations and/or the Tucumã Project could result in a material adverse
effect on the Company’s business, financial condition, results of operations, cash flows or prospects.
Environmental approvals and permits are currently,
and may in the future be, required in connection with the Company’s current and planned operations. To the extent such environmental
approvals and permits are required and not obtained, the Company’s plans and the operation of mines may be curtailed, or it may
be prohibited from proceeding with planned exploration or development of additional mineral properties. Failure to comply with applicable
environmental laws, regulations and permitting requirements may result in enforcement actions, including orders issued by regulatory
or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures,
installation of additional equipment, or remedial actions.
There is no assurance that any future changes
in environmental regulation will not adversely affect the Company’s operations. Changes in government regulations have the potential
to significantly increase compliance costs and thus reduce the profitability of current or future operations.
Environmental hazards may also exist on the properties
on which the Company holds interests that are unknown to the Company at present and that have been caused by previous or existing owners
or operators of the properties and for which the Company may be liable for remediation. Parties engaged in mining operations, including
the Company, may be required to compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal
fines or penalties imposed for violations of applicable environmental laws or regulations, regardless of whether the Company actually
caused the loss or damage. The costs of such compensation, fines or penalties could have a material adverse effect on the Company’s
business, financial condition, results of operations, cash flows or prospects.
Social and environmental activism can negatively
impact exploration, development, construction and mining activities
There is an increasing level of public concern
relating to the effects of mining on the natural landscape, on communities and on the environment. Certain non-governmental organizations,
public interest groups and reporting organizations (“NGOs”) who oppose resource development can be vocal critics of
the mining industry. In addition, there have been many instances in which local community groups have opposed resource extraction activities,
which have resulted in disruption and delays to the relevant operation. While the Company seeks to operate in a socially responsible
manner and believes it has good relationships with local communities in the regions in which it operates, NGOs or local community organizations
could direct adverse publicity against and/or disrupt the operations of the Company in respect of one or more of its properties, regardless
of its successful compliance with social and environmental best practices, due to political factors, activities of unrelated third parties
on lands in which the Company has an interest or the Company’s operations specifically. Any such actions and the resulting media
coverage could have an adverse effect on the reputation and financial condition of the Company or its relationships with the communities
in which it operates, which could have a material adverse effect on the Company’s business, financial condition, results of operations,
cash flows or prospects.
The construction and start-up of new mines
and projects at existing mines is subject to a number of factors and the Company may not be able to successfully complete new construction
projects
The success of construction projects and the
start-up of new mines by the Company is subject to a number of factors including the availability and performance of engineering and
construction contractors, mining contractors, suppliers and consultants, the receipt of required governmental approvals and permits in
connection with the resettlement and use of land of local communities impacted by the planned operations, construction of mining facilities
and the conduct of mining operations (including environmental and regulatory permits), the successful completion and operation of mining
stopes, ventilation systems, shafts, processing plants and conveyors to move ore, among other operational elements. Any delay in the
performance of any one or more of the contractors, suppliers, consultants or other persons on which the Company is dependent in connection
with its construction activities, a delay in or failure to receive the required governmental approvals and permits in a timely manner
or on reasonable terms, or a delay in or failure in connection with the completion and successful operation of the operational elements
in connection with construction projects and/or new mines could delay or prevent the construction and start-up of new mines or projects
at existing mines as planned. There can be no assurance that current or future construction and start-up plans implemented by the Company
will be successful, that the Company will be able to obtain sufficient funds to finance construction and start-up activities, that personnel
and equipment will be available in a timely manner or on reasonable terms to successfully complete construction projects, that the Company
will be able to obtain all necessary governmental approvals and permits or that the completion of the construction, the start-up costs
and the ongoing operating costs associated with the development of new mines or projects at existing mines will not be significantly
higher than anticipated by the Company. Any of the foregoing factors could adversely impact the Company’s business, financial condition,
results of operations, cash flows and prospects.
The capital expenditures and time required to
develop new mines or other projects are considerable and changes in costs or construction schedules can affect project economics. Thus,
it is possible that actual costs may change significantly, and economic returns may differ materially from the Company’s estimates.
The commercial viability of a new mine or development
project is predicated on many factors. mineral reserves and mineral resources projected by feasibility studies and technical assessments
performed on the Company’s projects may not be realized, and the level of future metal prices needed to ensure commercial viability
may not materialize. Consequently, there is a risk that startup of new mine and development projects may be subject to write-down and/or
closure as they may not be commercially viable.
Any uncertainty and inability in the estimation,
recalculation or replacement of mineral reserves and mineral resources could materially affect the Company’s results of operations,
cash flows and financial position.
To ensure the continued operation of the business
and realize the Company’s growth strategy, it is essential that the Company continues to realize its existing identified mineral
reserves, convert mineral resources into mineral reserves, increase the Company’s mineral resource base by adding new mineral resources
from areas of identified mineralized potential and otherwise successfully undertaking exploration, and/or acquire new mineral reserves
and mineral resources. The life of mine estimates included herein may not be correct.
Land reclamation and mine closure requirements
may be burdensome and costly
Land reclamation and mine closure requirements
are generally imposed on mining companies, which may require the Company, among other things, to minimize the effects of land disturbance.
Such requirements may include control and treatment of any discharge of potentially dangerous effluents, including solutions that may
contain cyanide and heavy metals, from the site and restoring the site’s landscape to its pre-disturbance form. The actual costs
of reclamation and mine closure are uncertain and planned expenditures as outlined in the Caraíba Operations Technical Report,
the Xavantina Operations Technical Report and the Tucumã Project Technical Report may differ materially from the actual expenditures
required. Therefore, the amount that the Company will be required to spend could be materially higher than current estimates. Any additional
amounts required to be spent on reclamation and mine closure may have a material adverse effect on the Company’s financial performance,
financial position and results of operations and may cause the Company to alter its operations. Although liabilities for estimated reclamation
and mine closure costs have been included in the Company’s financial statements, it may be necessary to spend higher amounts than
what has been estimated in the financial statements to fund all required reclamation and mine closure activities.
The mining industry is intensely competitive
The mining industry is intensely competitive.
The Company competes with other mining companies, many of which have greater resources and experience. Competition in the mining industry
is primarily for: (i) properties which can be developed and can produce economically; (ii) the technical expertise to find,
develop, and operate such properties; (iii) labour to operate such properties; and (iv) capital to fund such properties. Such
competition may result in the Company being unable to acquire desired properties, to recruit or retain qualified employees and consultants
or to acquire the capital necessary to fund its operations and develop its properties. The Company’s inability to compete with
other mining companies for these resources could have a material adverse effect on the Company’s business, financial condition,
results of operations, cash flows or prospects.
Many competitors not only explore for and mine
minerals but conduct refining and marketing operations on a worldwide basis. In the future, the Company may also compete with such mining
companies in refining and marketing its products to international markets. Any inability to compete with established competitors could
have a material adverse effect on the Company’s business, financial condition, results of operations, cash flows or prospects.
Inadequate infrastructure may constrain
mining operations
Continued production at the Caraíba Operations
and the Xavantina Operations and any potential commercial production at the Tucumã Project, each depend on adequate infrastructure.
In particular, reliable power sources, water supply, ventilation systems, transportation and surface facilities are all necessary to
develop and operate mines. Failure to adequately meet these infrastructure requirements or changes in the cost of such requirements could
affect the Company’s ability to continue production at the Caraíba Operations and the Xavantina Operations or to develop
or commence production at the Tucumã Project and could have a material adverse effect on the Company’s business, financial
condition, results of operations, cash flows or prospects.
Operating cash flow may be insufficient
for future needs
The exploration, development, construction and
operation of the Company’s mineral properties will require the commitment of substantial financial resources that may not be available.
The amount and timing of expenditures will depend on a number of factors, including the progress of ongoing exploration development and
construction activities, success of the Company’s ongoing operations, the results of consultants’ analyses and recommendations,
the rate at which operating losses are incurred, the execution of any joint venture agreements with strategic partners and the acquisition
of additional property interests, some of which are beyond the Company’s control. The Company’s business strategies may not
be successful, and it may not be profitable in any future period.
To the extent that the Company has negative operating
cash flow in future periods, the Company may need to allocate a portion of its cash reserves to fund such negative operating cash flow.
The Company may also be required to raise additional funds through the issuance of equity or debt securities. There can be no assurance
that additional capital or other types of financing will be available when needed or that these financings will be on terms favourable
to the Company.
Fluctuations in the market prices and availability
of commodities and equipment affect the Company’s business
The cash flows and profitability of the Company’s
business will also be affected by the market prices and availability of commodities and equipment that are consumed or otherwise used
in connection with the Company’s operations and development and construction projects. Prices of such commodities and resources
are also subject to volatility, which can be material and can occur over short periods of time due to factors beyond the Company’s
control including, without limitation, the continuance or escalation of the military conflict between Ukraine and Russia and the economic
sanctions imposed on Russia in connection therewith, which have and may continue to result in increased prices for a variety of commodities
and which could have other long-term effects on the global economy in addition to the near-term effects on Ukraine and Russia.
If there is a significant and sustained increase
in the cost of certain commodities, the Company may decide that it is not economically feasible to continue certain or all of the Company’s
commercial production, development, construction and exploration activities and this could have an adverse effect on profitability. Higher
worldwide demand for critical resources like input commodities, drilling equipment, mobile mining equipment, tires and skilled labour
could affect the Company’s ability to acquire them and lead to delays in delivery and unanticipated cost increases, which could
have an effect on the Company’s operating costs, capital expenditures and production schedules. The occurrences of one or more
of these events may result in a material adverse effect on the Company’s business, financial condition, results of operations,
cash flows or prospects.
The Company is subject to restrictive covenants
that limit its ability to operate its business
The
Company and its subsidiaries are subject to certain affirmative and restrictive covenants contained in: (i) the 2022 Senior
Credit Facility Agreement; (ii) the streaming agreement on the Xavantina Operations dated June 29, 2021 (the “NX Gold
Stream Agreement”); and (iii) the indenture dated February 2, 2022 (the “Note Indenture”). These
agreements contain operating and financial covenants that could restrict the Company’s and its subsidiaries’ ability to,
among other things:
| · | incur
additional indebtedness; |
| · | pay
dividends or make other distributions or repurchase or redeem its capital stock; |
| · | prepay,
redeem or repurchase certain debt; |
| · | make
loans and investments; |
| · | sell,
transfer or otherwise dispose of assets; |
| · | incur
or permit to exist certain liens; |
| · | enter
into transactions with affiliates; |
| · | enter
into agreements restricting its subsidiaries’ ability to pay dividends; and |
| · | consolidate,
amalgamate, merge or sell all or substantially all of its assets. |
In addition, the restrictive covenants in the
2022 Senior Credit Facility Agreement and the NX Gold Stream Agreement require the Company and its subsidiaries to maintain specified
financial ratios and satisfy other financial condition tests. Compliance with the covenants and financial ratios may impair the Company
and its subsidiaries and thereby the Company’s ability to finance future operations or capital needs or to take advantage of other
favourable corporate opportunities. The restrictions on the Company’s ability to manage its business in management’s sole
discretion could adversely affect the Company’s business by, among other things, limiting its ability to take advantage of business
opportunities that management believes would be beneficial to shareholders and limiting their ability to adjust to changing market conditions.
The Company’s and its subsidiaries’ ability to comply with such covenants and financial ratios will depend on future performance
and may be affected by events beyond the control of the Company and its subsidiaries, including economic, financial and industry conditions.
A breach of the covenants under the 2022 Senior
Credit Facility Agreement, the Note Indenture or the Company’s and its subsidiaries’ other debt instruments from time to
time could result in an event of default under the applicable indebtedness. Such a default may allow the creditors to accelerate the
related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In
addition, an event of default under the 2022 Senior Credit Facility Agreement would permit the lenders thereunder to terminate all commitments
to extend further credit under that facility. Furthermore, if the Company were unable to repay any amounts due and payable under the
2022 Senior Credit Facility, those lenders could proceed against the collateral granted to them to secure such indebtedness. In the event
the Company and its subsidiaries’ lenders or noteholders accelerate the repayment of the Company’s and its subsidiaries’
borrowings, the Company may not have sufficient assets to repay that indebtedness. As a result of these restrictions, the Company and
its subsidiaries may be:
| · | limited
in how they conduct business; |
| · | unable
to raise additional debt or equity financing to operate during general economic or business
downturns; or |
| · | unable
to compete effectively or to take advantage of new business opportunities. |
These restrictions may affect the Company and
its subsidiaries’ ability to grow in accordance with the Company’s and its subsidiaries’ strategy.
The Company’s indebtedness could
adversely affect its financial condition and prevent the Company from fulfilling its obligations under debt instruments
The Company has a significant amount of indebtedness,
which includes the 2022 Senior Credit Facility and the senior notes due in 2030 (the “Notes”) in connection with the
Company’s offering of US$400,000,000 aggregate principal amount of 6.50% senior notes that was completed on February 2, 2022
(when drawn).
Specifically, the Company’s high level
of indebtedness could have important consequences, including:
| · | limiting
the Company’s ability to obtain additional financing to fund future working capital,
capital expenditures, acquisitions or other general corporate requirements, or requiring
the Company to make non-strategic divestitures; |
| · | requiring
a substantial portion of the Company’s cash flows to be dedicated to debt service payments
instead of other purposes, thereby reducing the amount of cash flows available for working
capital, capital expenditures, acquisitions and other general corporate purposes; |
| · | increasing
the Company’s vulnerability to general adverse economic and industry conditions; |
| · | exposing
the Company to the risk of increased interest rates as certain of its borrowings are at variable
rates of interest; |
| · | limiting
the Company’s flexibility in planning for and reacting to changes in the industry in
which it competes; |
| · | placing
the Company at a disadvantage compared to other, less leveraged competitors; and |
| · | increasing
the Company’s cost of borrowing. |
Subject to the limits contained in the 2022 Senior
Credit Facility Agreement, the NX Gold Stream Agreement, the Note Indenture and any limits under our other debt instruments, the Company
and its subsidiaries may be able to incur additional debt from time to time to finance working capital, capital expenditures, investments
or acquisitions or for other purposes. If the Company does so, the risks related to its high level of indebtedness could intensify.
In addition, from time to time, new accounting
rules, pronouncements and interpretations are enacted or promulgated that may require the Company, depending on the nature of those new
accounting rules, pronouncements and interpretations, to reclassify or restate certain elements of our financing agreements and other
debt instruments, which may in turn cause us to be in breach of the financial or other covenants contained in our financing agreements
and other debt instruments.
The Company may not be able to generate
sufficient cash to service all of its indebtedness and may be forced to take other actions to satisfy its obligations under such indebtedness,
which may not be successful
The Company’s ability to make scheduled
payments on, repay in full or refinance its debt obligations, including the Notes and the 2022 Senior Credit Facility, depends on the
Company’s financial condition and operating performance, which are subject to prevailing economic and competitive conditions and
to certain financial, business, legislative, regulatory and other factors beyond its control, including metal prices. The Company may
be unable to maintain a level of cash flows from operating activities sufficient to permit it to pay the principal, premium, if any,
and interest on its indebtedness, including the Notes and the 2022 Senior Credit Facility.
If the Company’s cash flows and capital
resources are insufficient to fund its debt service obligations, the Company could face substantial liquidity problems and could be forced
to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity
capital or restructure or refinance its indebtedness, including the Notes and the 2022 Senior Credit Facility. The Company may not be
able to effect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternatives may
not allow the Company to meet its scheduled debt service obligations. The 2022 Senior Credit Facility Agreement and the Note Indenture
will restrict the Company’s ability to dispose of assets and use the proceeds from those dispositions and may also restrict the
Company’s ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. The Company may not
be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due.
The Company’s inability to generate sufficient cash flows to satisfy its debt obligations, or to refinance its indebtedness on
commercially reasonable terms or at all, would materially and adversely affect the Company’s financial position and results of
operations and its ability to satisfy its obligations under debt instruments, including the Note Indenture and the 2022 Senior Credit
Facility Agreement.
If the Company cannot make scheduled payments
on its debt, the Company will be in default and holders of the Notes could declare all outstanding principal and interest to be due and
payable, enabling lenders under the 2022 Senior Credit Facility Agreement to cancel their commitments to lend and the Company’s
and its subsidiaries’ other creditors could foreclose against the collateral securing their obligations and the Company could be
forced into bankruptcy, liquidation or restructuring proceedings.
Counterparties may default on their contractual
obligations to the Company
The Company is exposed to various counterparty
risks including, but not limited to: (i) financial institutions that hold its cash and short-term investments; (ii) companies
that have payables to the Company, including copper concentrate and doré bars customers; (iii) providers of the Company’s
risk management services; (iv) shipping service providers that move the Company’s material; (v) the Company’s insurance
providers; and (vi) the Company’s lenders. Although the Company makes efforts to limit its counterparty risk, the Company
cannot effectively operate its business without relying, to a certain extent, on the performance of third-party service providers.
A failure to maintain satisfactory labour
relations can adversely impact the Company
The Company’s operations and further development
of the Caraíba Operations, the Xavantina Operations and the Tucumã Project are dependent upon the efforts of its employees
and the Company’s relations with its unionized and non-unionized employees, and the Company’s operations would be adversely
affected if it failed to maintain satisfactory labour relations. Some of MCSA’s and NX Gold’s employees are represented by
labour unions under various collective bargaining agreements. Collective bargaining agreements of MCSA must be renewed annually, in September of
each year, while NX Gold’s collective bargaining agreements were renewed in May 2022, and every two years thereafter. The
Company may not be able to satisfactorily renegotiate its collective bargaining agreements when they expire and may face tougher negotiations
or higher compensation demands than would be the case for non-unionized labour. In addition, the existing collective bargaining agreements
may not prevent a strike or work stoppage at the Company’s facilities in the future. Further, relations between the Company
and its employees may be affected by changes in the scheme of labour relations that may be introduced by the relevant governmental authorities
who have jurisdiction over the various aspects of the Company’s business. Changes in such legislation or in the relationship between
the Company and its employees may have a material adverse effect on the Company’s business, results of operations and financial
condition.
The Company’s insurance coverage
may be inadequate to cover potential losses
The Company’s business is subject to a
number of risks and hazards (as further described in this prospectus and the AIF). Although the Company maintains insurance to protect
against certain risks in such amounts as it considers to be reasonable, its insurance will not cover all the potential risks associated
with its activities, including current and any future mining operations. The Company may also be unable to obtain or maintain insurance
to cover its risks at economically feasible premiums, or at all. Insurance coverage may not continue to be available or may not be adequate
to cover any resulting liability. Moreover, insurance against risks such as environmental pollution or other hazards as a result of exploration,
development, construction or production may not be available to the Company on acceptable terms. The Company might also become subject
to liability for pollution or other hazards which it is not currently insured against and/or in the future may not insure against because
of premium costs or other reasons. Losses from these events may cause the Company to incur significant costs which could have a material
adverse effect on the Company’s business, financial condition, results of operations, cash flows or prospects.
It may be difficult to enforce judgments
and effect service of process on directors, officers and experts named herein
Some
of the directors and officers of the Company reside outside of Canada, and each of GE21, BNA Mining Solutions (“BNA”),
NCL Ingeniería y Construcción SpA (“NCL”), Ausenco Engineering Canada Inc. (“Ausenco Canada”),
Ausenco Engineering USA South Inc. (“Ausenco USA”) and HCM Consultoria Geologica Eireli (“HCM”)
is incorporated, continued or otherwise organized under the laws of a foreign jurisdiction. Some or all of the assets of those persons
may be located outside of Canada. Therefore, it may not be possible for investors to collect or to enforce judgments obtained in Canadian
courts predicated upon the civil liability provisions of applicable Canadian securities laws against such persons. Moreover, it may not
be possible for investors to effect service of process within Canada upon such persons.
The Company’s directors and officers
may have conflicts of interest with the Company
Certain directors and officers of the Company
are or may become associated with other mining and/or mineral exploration and development companies which may give rise to conflicts
of interest. Directors who have a material interest in any person who is a party to a material contract or a proposed material contract
with the Company are required, subject to certain exceptions, to disclose that interest and generally abstain from voting on any resolution
to approve such a contract. In addition, directors and officers are required to act honestly and in good faith with a view to the best
interests of the Company. Some of the directors and officers of the Company have either other full-time employment or other business
or time restrictions placed on them and accordingly, the Company will not be the only business enterprise of these directors and officers.
Further, any failure of the directors or officers of the Company to address these conflicts in an appropriate manner or to allocate opportunities
that they become aware of to the Company could have a material adverse effect on the Company’s business, financial condition, results
of operations, cash flows or prospects.
Future acquisitions may require significant
expenditures and may result in inadequate returns
The Company may seek to expand through future
acquisitions; however, there can be no assurance that the Company will locate attractive acquisition candidates, or that the Company
will be able to acquire such candidates on economically acceptable terms, if at all, or that the Company will not be restricted from
completing acquisitions pursuant to the terms and conditions from time to time of arrangements with third parties, such as the Company’s
creditors. Future acquisitions may require the Company to expend significant amounts of cash, resulting in the Company’s inability
to use these funds for other business or may involve significant issuances of equity or debt. Future acquisitions may also require substantial
management time commitments, and the negotiation of potential acquisitions and the integration of acquired operations could disrupt the
Company’s business by diverting management and employees’ attention away from day-to-day operations. The difficulties of
integration may be increased by the necessity of coordinating geographically diverse organizations, integrating personnel with different
backgrounds and combining different corporate cultures.
Any future acquisition involves potential risks,
including, among other things: (i) mistaken assumptions and incorrect expectations about mineral properties, mineral resources,
mineral reserves and costs; (ii) an inability to successfully integrate any operation the Company acquired or acquires, as applicable;
(iii) an inability to recruit, hire, train or retain qualified personnel to manage and operate the operations acquired; (iv) the
assumption of unknown liabilities; (v) mistaken assumptions about the overall cost of equity or debt; (vi) unforeseen difficulties
operating acquired projects, which may be in geographic areas new to the Company; and (vii) the loss of key employees and/or key
relationships at the acquired project. In addition, the Acquisitions were completed with certain of the prior shareholders of MCSA and
NX Gold on an “as is where is” basis, and therefore the Company has no rights of recourse and indemnities against the sellers.
Future acquisitions may be subject to similar or other limitations as to rights of recourse and indemnities against the sellers.
Future acquisition candidates may have liabilities
or adverse operating issues that the Company failed or fails to discover through due diligence prior to the acquisition. If the Company
consummates any future acquisitions with, unanticipated liabilities or adverse operating issues or if acquisition-related expectations
are not met, the Company’s business, results of operations, cash flows, financial condition or prospects may be materially adversely
affected. The potential impairment or complete write-off of goodwill and other intangible assets related to any such acquisition may
reduce the Company’s overall earnings and could negatively affect the Company’s balance sheet.
Disclosure and internal control deficiencies
may adversely affect the Company
Internal control over financial reporting is
a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with IFRS. Disclosure controls and procedures are designed to ensure that the information
required to be disclosed by the Company in reports filed with securities regulatory agencies is recorded, processed, summarized and reported
on a timely basis and is accumulated and communicated to the Company’s management, as appropriate, to allow timely decisions regarding
required decisions. The Company has invested resources to document and evaluate its system of disclosure controls and its internal control
over financial reporting. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance
with respect to the reliability of financial reporting and financial statement preparation. The Company’s failure to satisfy the
requirements of applicable Canadian and United States securities laws on an ongoing, timely basis could result in the loss of investor
confidence in the reliability of its financial statements, which in turn could harm its business and negatively impact the trading price
of the Company’s securities, including the Common Shares. In addition, any failure to implement required new or improved controls,
or difficulties encountered in their implementation, could harm the Company’s operating results or cause it to fail to meet its
reporting obligations.
Failures of information systems or information
security threats can be costly
The secure processing, maintenance and transmission
of information and data is critical to the Company’s business. The Company has entered into agreements with third party service
providers for hardware, software, telecommunications and other information technology services in connection with its operations. The
Company and its third party service providers collect and store sensitive data in the ordinary course of the Company’s business,
including personal information of employees, as well as proprietary and confidential business information relating to the Company and,
in some cases, the Company’s customers, suppliers and other stakeholders. With the increasing dependence and interdependence on
electronic data communication and storage, including the use of cloud-based services and personal devices, the Company is exposed to
evolving technological risks relating to this information and data. These risks include, but are not limited to, installation of malicious
software, phishing, targeted attacks on the Company’s systems or on systems of third parties that the Company relies on, failure
or non-availability of a key information technology system, or a breach of security measures designed to protect the Company’s
systems. While the Company employs security measures in respect of its information and data, including implementing systems to monitor
and detect threats; regular information security training for employees with access to sensitive information and data, including the
use of multi-factor authentication and the recent implementation of a formal cyber security awareness, training and testing online platform
that, among other things, deploys phishing email tests at least monthly to evaluate and assess user knowledge of various prevailing security
treats; the performance of periodic audits and penetration testing, the Company cannot be certain that it will be successful in securing
this information and data and there may be instances where the Company is exposed to malware, cyber-attacks or other unauthorized access
or use of the Company’s information and data.
Although, since its incorporation in 2016, the
Company has not experienced any known significant cyber-attacks or other information security breaches, there can be no assurance that
it will not incur such losses in the future. The Company has implemented quarterly reporting to its audit committee and Board of information
security matters, such as the implementation of new information security technology and training initiatives as well as risks. The Company’s
risk and exposure to these matters cannot be fully mitigated because of, among other things, the evolving nature of these threats. Any
data breach or other improper or unauthorized access or use of its information could have a material adverse effect on the Company’s
business and could severely damage its reputation, compromise its network or systems and result in a loss or escape of sensitive information,
a misappropriation of assets or incidents of fraud, disrupt its normal operations, and cause it to incur additional time and expense
to remediate and improve its information systems. As a result, cyber security and the continued development and enhancement of controls,
processes and practices designed to protect systems, computers, software, data and networks from attack, damage or unauthorized access
remain a priority. As cyber threats continue to evolve, the Company may be required to expend additional resources to continue to modify
or enhance protective measures or to investigate and remediate any security vulnerabilities. Any of these factors could have a material
adverse effect on the Company’s results of operations, cash flows and financial position.
The Company may be subject to costly legal
proceedings
The Company may be subject to regulatory investigations,
civil claims, lawsuits and other proceedings in the ordinary course of its business. The results of these legal proceedings cannot be
predicted with certainty due to the uncertainty inherent in regulatory actions and litigation, the difficulty of predicting decisions
of regulators, judges and juries and the possibility that decisions may be reversed on appeal. Defense and settlement costs of legal
disputes can be substantial, even with claims that have no merit. Management is committed to conducting business in an ethical and responsible
manner, which it believes will reduce the risk of legal disputes. However, if the Company is subject to legal disputes, there can be
no assurances that these matters will not have a material adverse effect on the Company’s business, financial condition, results
of operations, cash flows or prospects.
Moreover, pursuant to the Acquisitions, the Company
acquired operations that have been ongoing for a significant period of time. The Company inherited certain liabilities as a result and
has been subject to a number of claims (including claims related to tax, labour and social security matters and civil action) in the
course of its business which individually are not material and have not been accrued for in its financial statements as it is not probable
that a cash outflow will occur. While the Company believes that a significant number of these claims are unlikely to be successful, if
all such existing claims were decided against it, the Company could be exposed to liability of up to approximately US$25.6 million as
at December 31, 2022, which could have an adverse impact on the Company’s business, financial condition, results of operations,
cash flows or prospects.
The Public Prosecutor’s Office of the State
of Bahia (the “PPO”) is mandated to protect the environment and in furtherance of this mandate, the PPO is empowered
to audit the extractive industry’s compliance with environmental laws and regulations. In 2021, the PPO commenced an audit relating
to the Caraíba Operations’ compliance with environmental laws and regulations over its entire operating history, spanning
over 40 years. There is no assurance that the Caraíba Operations has been in full compliance with all environmental laws and regulations
throughout its operating history, and there may be instances of noncompliance that are unknown to the Company, including instances caused
by previous owners or operators, and for which the Company and its subsidiaries may be liable. A determination by the PPO that the Caraíba
Operations has failed to comply with applicable environmental laws and regulations during its extensive operating history may result
in enforcement actions, including corrective measures requiring capital expenditures, installation of additional equipment, remedial
actions or civil or criminal fines or penalties imposed for violations of applicable environmental laws or regulations, and in extreme
cases of noncompliance, orders issued by regulatory or judicial authorities causing operations to cease or be curtailed until such time
as corrective measures and remedial actions are completed. Any such enforcement action relating to extreme cases of noncompliance could
have a material adverse effect on the Company’s business, financial condition, results of operations, cash flows or prospects.
Additionally, the legal system in Brazil has
inherent uncertainties that could limit the legal protections available to the Company, which include: (i) inconsistencies between
and within laws; (ii) limited judicial and administrative guidance on interpreting Brazilian legislation, particularly that relating
to business, corporate and securities laws; (iii) substantial gaps in the regulatory structure due to a delay or absence of enabling
regulations; (iv) a lack of judicial independence from political, social and commercial forces; (v) corruption; and (vi) bankruptcy
procedures that are subject to abuse, any of which could have a material adverse effect on the Company’s business, financial condition,
results of operations, cash flows or prospects. Furthermore, it may be difficult to obtain swift and equitable enforcement of a Brazilian
judgement, or to obtain enforcement of a judgement by a court of another jurisdiction, which could have a material adverse effect on
the Company’s business, financial condition, results of operations, cash flows or prospects.
The Company may be subject to shareholder
activism
In recent years, publicly-traded companies have
been increasingly subject to demands from activist shareholders advocating for changes to corporate governance practices, such as executive
compensation practices, social issues, or for certain corporate actions or reorganizations. There can be no assurances that activist
shareholders will not publicly advocate for the Company to make certain corporate governance changes or engage in certain corporate actions.
Responding to challenges from activist shareholders, such as proxy contests, media campaigns or other activities, could be costly and
time consuming and could have an adverse effect on the Company reputation and divert the attention and resources of the Company management
and the Board, which could have an adverse effect on the Company’s business and results of operations. Even if the Company does
undertake such corporate governance changes or corporate actions, activist shareholders may continue to promote or attempt to effect
further changes, and may attempt to acquire control of the Company to implement such changes. If shareholder activists seeking to increase
short-term shareholder value are elected to the Board, this could adversely affect the Company’s business and future operations.
Additionally, shareholder activism could create uncertainty about the Company’s future strategic direction, resulting in loss of
future business opportunities, which could adversely affect the Company’s business, future operations, profitability and ability
to attract and retain qualified personnel.
Product alternatives may reduce demand
for the Company’s products
Copper and gold have a number of different applications.
Alternative technologies are continually being investigated and developed with a view to reducing production costs or for other reasons,
such as minimizing environmental or social impact. If competitive technologies emerge that use other materials in place of copper or
gold, demand and price for copper or gold might fall, which could have a material adverse effect on the Company’s business, financial
condition, results of operations, cash flows or prospects.
A
lowering or withdrawal of the ratings assigned to the Company’s debt securities by rating agencies may increase
the Company’s future borrowing costs and reduce its access to capital
The Notes have a non-investment grade rating
assigned by Moody’s Investors Service, S&P Global Ratings and Fitch Ratings, and could be lowered or withdrawn entirely by
a particular rating agency in the future if, in that rating agency’s judgment, circumstances relating to the basis of the rating,
such as adverse changes, so warrant. Consequently, real or anticipated changes in the Company’s credit ratings likely would make
it more difficult or more expensive for the Company to obtain additional debt financing.
Risks Related to the Company’s Foreign
Operations
The Company’s Brazilian operations
are subject to political and other risks associated with operating in a foreign jurisdiction
The Caraíba Operations, the Xavantina
Operations and the Tucumã Project are located in Brazil, exposing the Company to the socioeconomic conditions as well as the laws
governing the mining industry in the country. Inherent risks with conducting foreign operations include, but are not limited to: high
rates of inflation; extreme fluctuations in currency exchange rates, military repression; war or civil war; social and labour unrest;
organized crime; hostage taking; terrorism; violent crime; expropriation and nationalization; renegotiation or nullification of existing
concessions, licenses, approvals, permits and contracts; illegal mining; changes in taxation policies; restrictions on foreign exchange
and repatriation; and changing political norms, currency controls and governmental regulations that favour or require the Company to
award contracts in, employ citizens of, or purchase supplies from, the jurisdiction.
The Brazilian government frequently intervenes
in the Brazilian economy and occasionally makes significant changes in policies and regulations. Changes, if any, in mining or investment
policies or shifts in political attitude in Brazil (stemming from the recent changes to the Brazilian government or otherwise) may adversely
affect the Company’s operations or profitability. Operations may be affected in varying degrees by government regulations with
respect to, but not limited to, restrictions on production, price controls, export controls, currency remittance, importation of parts
and supplies, income and other taxes, royalties, the repatriation of profits, expropriation of property, foreign investment, awarding
of concessions under the new land tender system in Brazil, maintenance of concessions, licenses, approvals and permits, environmental
matters, construction and operation of tailings dams, land use, land claims of local people, water use and mine safety. Failure to comply
strictly with applicable laws, regulations and local practices relating to mineral right applications and tenure could result in loss,
reduction or expropriation of entitlements, or the imposition of additional local or foreign parties as joint venture partners with carried
or other interests.
In addition, uncertainty over whether the new
Brazilian government will implement changes in policy or regulation may contribute to economic uncertainty in Brazil. Historically, Brazilian
politics have affected the performance of the Brazilian economy. Past political crises have affected the confidence of investors and
the public, generally resulting in an economic slowdown.
Global economic crises, including the economic
impacts of COVID-19, could negatively affect investor confidence in emerging markets or the economies of the principal countries in Latin
America, including Brazil. Such events could materially and adversely affect the Company’s business, financial condition, results
of operations, cash flows or prospects.
The Company continues to monitor developments
and policies in Brazil and the impact thereof to its operations; however, they cannot be accurately predicted and could have an adverse
effect on the Company’s operations or profitability.
The Company may be negatively impacted
by changes to mining laws and regulations
The Company’s activities are subject to
various laws governing prospecting, exploration, development, production, taxes, labour standards and occupational health, mine safety,
toxic substances, construction and operation of tailings dams and other matters. Mining, exploration and development activities are also
subject to various laws and regulations relating to the protection of the environment. Although the Company believes that its activities
are currently carried out in accordance with all applicable rules and regulations, no assurance can be given that new rules and
regulations will not be enacted or that existing rules and regulations will not be applied in a manner that could limit or curtail
production, development or construction of the Company’s properties, including new rules and regulations or existing rules and
regulations that could be applied in a manner requiring the Company’s mining concessions to be amended to expressly permit the
extraction of certain by-products. Amendments to current laws and regulations governing the Company’s operations and activities,
including the Company’s mining concessions and permits, or more stringent implementation of such laws and regulations could have
a material adverse effect on the Company’s business, financial condition, results of operations, cash flows or prospects.
It is uncertain how the current and past operations
of the Company will be affected by future legal changes or more stringent enforcement of past and current laws and regulations by governmental
authorities. The Company may be subject to administrative, civil and criminal sanctions should a more conservative interpretation of
past and current laws and regulations be adopted by governmental authorities.
In October 2020, the Brazilian government
enacted certain changes to the National Dams Safety Policy and Mining Code, which, among other things, bans the construction and lifting
of tailings dams using the upstream method; requires the decommissioning of existing tailings dams utilizing the upstream method by February 25,
2022 or such later date as agreed between the operator and applicable regulatory agencies; places a higher degree of safety planning,
monitoring and reporting obligations on operators; provides broader enforcement rights to regulatory agencies (such as ANM and environmental
agencies); and, introduces administrative penalties for non-compliance, including, but not limited to, warnings, fines between R$2,000
and R$1,000,000,000, partial or total suspension of activities, seizure of mining products, assets and equipment, cancellation of mining
concessions and/or restriction of other rights. Such penalties are to be applied independently of criminal sanctions or damage repair
obligations.
The
Company operates and maintains tailings facilities at its Caraíba Operations and Xavantina Operations and will operate and maintain
tailings facilities at the Tucumã Project when in operation. Such facilities are maintained and regulated under Brazilian law,
which are subject to change from time to time. All of the Company’s tailings facilities are constructed using a downstream or center-line
method. Each of these facilities is routinely inspected by the Company’s internal technical teams, third-party engineering firms
and applicable regulatory agencies. At the Caraíba Operations, the Company’s largest operation, a conventional tailings
dam is no longer in use due to the implementation of co-disposal. The co-disposal method entails utilizing the inherent void space within
surface waste rock stockpiles by allowing tailings to permeate the piles. The method has produced excellent results since 2011, allowing
increased process water recycling, significantly reduced pumping costs, creating substrate for revegetation of the waste rock stockpiles
and, since implementation, has eliminated the current need for conventional tailings storage. The historic tailings facility is currently
being reclaimed as part of the Company’s revegetation program. At the Xavantina Operations, non-inert tails from the Company’s
carbon in leach process are stored in a high density polyethylene (HDPE) lined excavated pit. Inert tails are stored in a single-lift
rockfill dam of segmented ring-dyke design, with only one cell operational at any given time until the tails are de-watered. De-watered
inert tails are transported periodically from the tailings storage facility to legacy areas disturbed by artisanal mining activity prior
to construction of the mine or within permitted long-term storage facilities. Once filled, these areas are revegetated and reclaimed
as part of the Company’s ongoing environmental sustainability efforts. A comprehensive guide to the Company’s tailings facilities
can be found on the Company’s website (www.erocopper.com) under “Sustainability - Tailings Management”.
For additional scientific and technical information regarding the Company’s tailings management practices, please refer to the
Caraíba Operations Technical Report, the Xavantina Operations Technical Report and the Tucumã Project Technical Report,
each of which is available for review on the Company’s website and under the Company’s profile on SEDAR at www.sedarplus.ca/landingpage/
and EDGAR at www.sec.gov.
Should a breach of these facilities occur due
to extreme weather, seismic event, or other incident, the Company could cause a significant environmental incident and/or suffer a material
financial impact on its operations and financial condition, including the potential for criminal and financial liability, suspension
of its operations and/or loss of its mining concessions.
On December 22, 2021, the National Institute
of Colonization and Land Reform (“INCRA”) enacted Rule #112 (Instrução Normativa 112), which came
into force on January 3, 2022, formalizing the process by which approval is to be obtained from INCRA for the use of land in areas
designated for land settlement programs in the case of mining, energy or infrastructure projects. In August 2015, MCSA resettled
residents of a designated land settlement area that would be impacted by operations at the Tucumã Project. Such residents were
resettled onto equal, if not superior, land. Prior to the enactment of Rule #112, MCSA submitted its request for INCRA’s final
approval of the resettlement process, required to formally cede the use of the land to MCSA. Due to administrative limitations within
INCRA stemming, in part, from COVID-19, INCRA is currently scheduled to undertake its final review of the resettlement process during
the third quarter of 2023 (previously scheduled to complete this review in the first half of 2022), any unexpected further delay in or failure
to receive the required final approval from INCRA in a timely manner or on reasonable terms given the enactment of Rule #112 or
otherwise, could delay or, in the extreme case where the resettlement process is determined by INCRA to be materially deficient, prevent
the commissioning and operation of the mine as planned, which could adversely impact the Company’s business, financial condition,
results of operations, cash flows and prospects.
A failure to maintain relationships with
the communities in which the Company operates and other stakeholders may adversely affect the Company’s business
The Company’s relationships with the communities
in which it operates and other stakeholders are critical to ensure the future success of its existing operations and the construction
and development of its projects. There is an increasing level of public concern relating to the perceived effect of mining activities
on the environment and on communities impacted by such activities. The evolving expectations related to human rights and environmental
protection may result in opposition to the Company’s current and future operations or further development or new development of
the Company’s projects and mines. Such opposition may be directed through legal or administrative proceedings or expressed in manifestations
such as protests, roadblocks or other forms of public expression against the Company’s activities and may have a negative impact
on the Company’s reputation and operations.
Opposition by any of the aforementioned groups
to the Company’s operations may require modification of, or preclude the operation or development of, the Company’s projects
and mines or may require the Company to enter into agreements with such groups or local governments with respect to the Company’s
projects and mines, in some cases, causing increased cost and considerable delays to the advancement of the Company’s projects.
Further, publicity adverse to the Company, its operations or extractive industries generally, could have an adverse effect on the Company
and may impact relationships with the communities in which the Company operates and with other stakeholders. While the Company is committed
to operating in a socially responsible manner, there can be no assurance that its efforts in this respect will mitigate this potential
risk.
Inaccuracies, corruption and fraud in Brazil
relating to ownership of real property may adversely affect the Company’s business
Under Brazilian law, real property ownership
is normally transferred by means of a transfer deed, and subsequently registered at the appropriate real property registry office under
the corresponding real property record. There are uncertainties, corruption and fraud relating to title ownership of real property in
Brazil, mostly in rural areas. In certain cases, a real property registry office may register deeds with errors, including duplicate
and/or fraudulent entries, and, therefore, deed challenges frequently occur, leading to judicial actions. Property disputes over title
ownership are frequent in Brazil, and, as a result, there is a risk that errors, fraud or challenges could adversely affect the Company’s
ability to operate, although ownership of mining rights are separate from ownership of land.
The Company is exposed to the possibility
that applicable taxing authorities could take actions that result in increased tax or other costs that might reduce the Company’s
cash flow
The Company pays a variety of taxes, fees and
other governmental charges in connection with the operation of the Company’s business, including income taxes, mining royalties,
ad valorem property taxes, sales and use taxes, inventory taxes, social security contributions and various assessments. These taxes,
fees and other charges are assessed by a variety of taxing authorities pursuant to applicable laws, regulations and rules. The Brazilian
tax regime is complex and subject to a variety of interpretations by government authorities. Such complexity may expose the Company to
unpredicted challenges to day-to-day practices in bookkeeping, accounting and payment of taxes. From time to time, the Company may enter
into specific agreements with such taxing authorities that provide for the reduction, abatement or deferral of such taxes, fees or charges
in exchange for certain payments or undertakings on the Company’s part. If the Company enters into any such arrangements, the Company
can give no assurance that any such reduction, abatement or deferral arrangements will be honored or that the applicable taxing authorities
will not take actions that materially increase the amount of such taxes, fees or other governmental charges that the Company is required
to pay. In addition, the Company may incur additional and unanticipated costs and expenses in connection with the Company’s efforts
to resist any proposed increases in such taxes, fees or other charges or in connection with the Company’s efforts to enforce any
reduction, abatement or deferral arrangements that the Company has previously put in place.
The Brazilian government may implement changes
to the Brazilian tax regime that may affect the Company. These changes could include changes in prevailing tax rates and the imposition
of new or temporary taxes, the proceeds of which are earmarked for designated government purposes. Some of these changes may result in
increases in the Company’s tax payments, which could have an adverse effect on the Company’s operations or profitability.
The Company cannot provide assurance that it will be able to be profitable following any increases in Brazilian taxes applicable to the
Company and its operations.
The Company is subject to a number of ongoing
proceedings in Brazil related to tax matters that have not been accounted for in its financial statements, given the Company’s
assessment of the probability of adverse judgment against it. If all such tax matters were decided against it, the Company could be exposed
to liability of up to approximately US$12.0 million as at December 31, 2022 (this amount forms part of the US$25.6 million referred
to above under the subheading “The Company may be subject to costly legal proceedings”), which could have an adverse
impact on the Company’s business, financial condition, results of operations, cash flows or prospects.
Inflation in Brazil, along with Brazilian
governmental measures to combat inflation, may have a significant negative effect on the Brazilian economy and also on the Company’s
financial condition and results of operations
Over the past year and historically, high levels
of inflation have adversely affected the economies and financial markets of Brazil, and the ability of its government to create conditions
that stimulate or maintain economic growth. Moreover, governmental measures to curb inflation and speculation about possible future governmental
measures have contributed to the negative economic impact of inflation in Brazil and have created general economic uncertainty. As part
of these measures, the Brazilian government has at times maintained a restrictive monetary policy and high interest rates that have limited
the availability of credit and economic growth. Brazil may continue to experience high levels of inflation in the future. Inflationary
pressures may weaken investor confidence in Brazil and lead to further government intervention in the economy, including interest rate
increases, restrictions on tariff adjustments to offset inflation, intervention in foreign exchange markets and actions to adjust or
fix currency values, which may trigger or exacerbate increases in inflation, and consequently have an adverse impact on the Company.
In an inflationary environment, the value of uncollected accounts receivable, as well as of unpaid accounts payable, declines rapidly.
If Brazil experiences high levels of inflation in the future and price controls are imposed, the Company may not be able to adjust the
rates the Company charges its customers to fully offset the impact of inflation on the Company’s cost structures, which could adversely
affect the Company’s results of operations or financial condition.
Exchange rate instability may have a material
adverse effect on the Brazilian economy
The Brazilian Real has experienced frequent and
substantial variations in relation to the U.S. dollar and other foreign currencies during the last decades. Depreciation of the Brazilian
Real against the U.S. dollar could create inflationary pressures in Brazil and cause increases in interest rates, which could negatively
affect the growth of the Brazilian economy as a whole and harm the Company’s financial condition and results of operations. On
the other hand, appreciation of the Brazilian Real relative to the U.S. dollar and other foreign currencies could lead to a deterioration
of the Brazilian foreign exchange current accounts, as well as dampen export-driven growth. Depending on the circumstances, either depreciation
or appreciation of the Brazilian Real could have a material adverse effect on the Brazilian economy.
The Company’s operations may be impaired
as a result of restrictions to the acquisition or use of rural properties by foreign investors or Brazilian companies under foreign control
Non-resident individuals and non-domiciled foreign
legal entities are subject to restrictions for the acquisition or lease for agricultural purpose or ownership or access rights in respect
of rural properties in Brazil. Limitations also apply to legal entities domiciled in Brazil controlled by foreign investors, such as
the Company’s subsidiaries through which the Company operates in Brazil.
Accordingly, the Company’s current and
future operations may be impaired as a result of such restrictions on the acquisition or use of rural properties, and the Company’s
ownership or access rights in respect of any rural properties in Brazil may be subject to legal challenges, all of which could result
in a material adverse effect on the Company’s business, results of operations, financial condition and cash flows.
Recent disruptions in international and
domestic capital markets may lead to reduced liquidity and credit availability for the Company
The disruptions recently experienced in the international
and domestic capital markets have led to reduced liquidity and increased credit risk premiums for certain market participants and have
resulted in a reduction of available financing. Companies located in countries in the emerging markets may be particularly susceptible
to these disruptions and reductions in the availability of credit or increases in financing costs, which could result in them experiencing
financial difficulty. In addition, the availability of credit to entities operating within the emerging and developing markets is significantly
influenced by levels of investor confidence in such markets as a whole and as such any factors that impact market confidence (for example,
the impacts of global health crises, such as COVID-19, an increase in the rate of inflation, an increase to interest rates, a decrease
in credit ratings, state or central bank intervention in one market, or terrorist activity and conflict, and global political or economic
events such as the continuance or escalation of the military conflict between Ukraine and Russia and the economic sanctions imposed on
Russia in connection therewith) could affect the price or availability of funding for entities within any of these markets.
The Company may be responsible for corruption
and anti-bribery law violations
The Company’s business is subject to the
United States Foreign Corrupt Practices Act of 1977 (“FCPA”) and the Corruption of Foreign Public Officials
Act (Canada) (“CFPOA”), which generally prohibit companies and company employees from engaging in bribery or other
prohibited payments to foreign officials for the purpose of obtaining or retaining business. The FCPA also requires companies to maintain
accurate books and records and internal controls, including at foreign-controlled subsidiaries. Since all of the Company’s presently
held interests are located in Brazil, there is a risk of potential FCPA violations. In addition, the Company is subject to the anti-bribery
laws of Brazil and of any other countries in which it conducts business in the future. The Company’s employees or other agents
may, without its knowledge and despite its efforts, engage in prohibited conduct under the Company’s policies and procedures and
the FCPA, the CFPOA or other anti-bribery laws for which the Company may be held responsible. The Company’s Code of Business Conduct
and Ethics, Supplier Code of Conduct and Anti-Corruption Policy mandate compliance with these anti-corruption and anti-bribery laws and
the Company has implemented training programs, internal monitoring and controls, and reviews and audits to ensure compliance with such
laws. However, there can be no assurance that the Company’s internal control policies and procedures will always protect it from
recklessness, fraudulent behavior, dishonesty or other inappropriate acts committed by its affiliates, employees, contractors or agents.
If the Company’s employees or other agents are found to have engaged in such practices, the Company could suffer severe penalties
and other consequences that may have a material adverse effect on its business, financial condition and results of operations.
Risks Related to our Securities
Investors may lose their entire investment
An investment in our securities is speculative
and may result in the loss of an investor’s entire investment. Only potential investors who are experienced in high risk investments
and who can afford to lose their entire investment should consider an investment in the Company.
Dilution from equity financing could negatively
impact holders of Common Shares
The Company may from time to time raise funds
through the issuance of Common Shares or the issuance of debt instruments or other securities convertible into Common Shares. The Company
cannot predict the size or price of future issuances of Common Shares or the size or terms of future issuances of debt instruments or
other securities convertible into Common Shares, or the effect, if any, that future issuances and sales of the Company’s securities
will have on the market price of the Common Shares. Sales or issuances of substantial numbers of Common Shares, or the perception that
such sales or issuances could occur, may adversely affect prevailing market prices of the Common Shares. With any additional sale or
issuance of Common Shares, or securities convertible into Common Shares, investors will suffer dilution to their voting power and the
Company may experience dilution in its earnings per share.
Additional issuances of our securities may involve
the issuance of a significant number of our Common Shares at prices less than the current market price for the Common Shares. Any transaction
involving the issuance of previously authorized but unissued Common Shares, or securities convertible into Common Shares, would result
in dilution, possibly substantial, to security holders. Sales of substantial amounts of our securities by us or our existing shareholders,
or the availability of such securities for sale, could adversely affect the prevailing market prices for our securities and, in the case
of sales of our securities from treasury, dilute investors’ earnings per share. Sales of our Common Shares by shareholders might
also make it more difficult for us to sell equity securities at a time and price that we deem appropriate. Exercises of presently outstanding
share options (“Options”) or settlement of presently outstanding restricted share units (“RSUs”)
or performance share units (“PSUs”) in Common Shares may also result in dilution to security holders. A decline in
the market prices of our securities could impair our ability to raise additional capital through the sale of securities should we desire
to do so.
Equity securities are subject to trading
and volatility risks
The securities of publicly traded companies can
experience a high level of price and volume volatility and the value of the Company’s securities can be expected to fluctuate depending
on various factors, not all of which are directly related to the success of the Company and its operating performance, underlying asset
values or prospects. These include the risks described elsewhere in this prospectus and the AIF. Factors which may influence the price
of the Company’s securities, including the Common Shares, include, but are not limited to:
| · | worldwide
economic conditions; |
| · | global
political conditions or events such as the ongoing military conflict between Ukraine and
Russia; |
| · | changes
in government policies; |
| · | movements
in global interest rates and global stock markets; |
| · | variations
in operating costs; |
| · | the
cost of capital that the Company may require in the future; |
| | · | currency
exchange fluctuation; |
| · | the
price of commodities necessary for the Company’s operations; |
| · | recommendations
by securities research analysts; |
| · | issuances
of equity securities or debt securities by the Company; |
| · | operating
performance and, if applicable, the share price performance of the Company’s competitors; |
| · | the
addition or departure of key management and other personnel; |
| · | significant
acquisitions or business combinations, strategic partnerships, joint ventures or capital
commitments by or involving the Company or its competitors; |
| · | news
reports relating to trends, concerns, technological or competitive developments, regulatory
changes, global health crises, such as COVID-19, and other related industry and market issues
affecting the mining sector; |
| · | publicity
about the Company, the Company’s personnel or others operating in the industry; |
| · | loss
of a major funding source; and |
| | · | all
market conditions that are specific to the mining industry. |
There can be no assurance that such factors will
not affect the price of the Company’s securities, and consequently purchasers of Common Shares may not be able to sell Common Shares
at prices equal to or greater than the price or value at which they purchased the Common Shares or acquired them by way of the secondary
market.
Sales by existing shareholders can reduce
share prices
Sales of a substantial number of Common Shares
in the public market could occur at any time. These sales, or the market perception that the holders of a large number of Common Shares
intend to sell Common Shares, could reduce the market price of the Common Shares. If this occurs and continues, it could impair the Company’s
ability to raise additional capital through the sale of securities.
The Company does not currently intend to
pay dividends
The Company has not, since the date of its incorporation,
declared or paid any dividends or other distributions on its Common Shares. The 2022 Senior Credit Facility Agreement and the Note Indenture
impose certain restrictions on the Company’s ability to declare or pay dividends or distributions.
The declaration and payment of any dividends
in the future is at the discretion of the Board and will depend on numerous factors, including compliance with applicable laws, financial
performance, contractual restriction (as noted above), working capital requirements of the Company and its subsidiaries and such other
factors as its directors consider appropriate.
Public companies are subject to securities
class action litigation risk
In the past, securities class action litigation
has often been brought against a company following a decline in the market price of its securities. If the Company faces such litigation,
it could result in substantial costs and a diversion of management’s attention and resources, which could materially harm its business.
If securities or industry analysts do not
publish research or publish inaccurate or unfavourable research about the Company’s business, the price and trading volume of the
Common Shares could decline
The trading market for the Common Shares will
depend on the research and reports that securities or industry analysts publish about the Company and its business. The Company does
not have any control over these analysts. The Company cannot assure that analysts will cover it or provide accurate or favourable coverage.
If one or more of the analysts who cover the Company downgrade its stock or change their opinion of the Common Shares, price of Common
Shares would likely decline. If one or more of these analysts cease coverage of the Company or fail to regularly publish reports, the
Company could lose visibility in the financial markets, which could cause the price and trading volume of the Common Shares to decline.
Global economic conditions can reduce the
price of the Common Shares
Global economic conditions may adversely affect
the Company’s growth, profitability and ability to obtain financing. Events in global financial markets continue to be characterized
as volatile. In recent years, global markets have been adversely impacted by various credit crises and significant fluctuations in fuel
and energy costs and metals prices, including because of COVID-19 and due to significant fluctuations in commodity prices because of
the continuance or escalation of the military conflict between Ukraine and Russia and the economic sanctions imposed on Russia in connection
therewith. Many industries, including the mining industry, have been impacted by these market conditions. Global economic conditions
remain subject to sudden and rapid destabilizations in response to future events, as government authorities may have limited resources
to respond to future crises. A continued or worsened slowdown in the financial markets or other economic conditions, including but not
limited to consumer spending, employment rates, business conditions, inflation, fuel and energy costs, consumer debt levels, lack of
available credit, the state of the financial markets, interest rates and tax rates, may adversely affect the Company’s growth,
profitability and ability to obtain financing. A number of issues related to economic conditions could have a material adverse effect
on the Company’s business, financial condition, results of operations, cash flows or prospects, including, but not limited to:
(i) contraction in credit markets could impact the cost and availability of financing and the Company’s overall liquidity;
(ii) the volatility of copper, gold and other metal prices would impact the Company’s revenues, profits, losses and cash flow;
(iii) recessionary pressures could adversely impact demand for the Company’s production; (iv) volatile energy, commodity
and consumables prices and currency exchange rates could impact the Company’s production costs; and, (v) the devaluation and
volatility of global stock markets could impact the valuation of the Company’s equity and other securities.
We will have broad discretion in the use
of the net proceeds of an offering of our securities
While detailed information regarding the use
of proceeds from the sale of our securities will be described in the applicable prospectus supplement, we will have broad discretion
over the use of the net proceeds from an offering of our securities. Because of the number and variability of factors that will determine
our use of such proceeds, our ultimate use might vary substantially from our planned use. You may not agree with how we allocate or spend
the proceeds from an offering of our securities. We may pursue acquisitions, collaborations or other opportunities that do not result
in an increase in the market value of our securities, including the market value of our Common Shares, and may increase our losses.
There is no assurance of a sufficient liquid
trading market for the Company’s Common Shares in the future
Shareholders of the Company may be unable to
sell significant quantities of Common Shares into the public trading markets without a significant reduction in the price of their Common
Shares, or at all. There can be no assurance that there will be sufficient liquidity of the Company’s Common Shares on the trading
market, and that the Company will continue to meet the listing requirements of the TSX or the NYSE or achieve listing on any other public
listing exchange.
There is currently no market through which
our securities, other than our Common Shares, may be sold
There is currently no market through which our
securities, other than our Common Shares, may be sold and, unless otherwise specified in the applicable prospectus supplement, our debt
securities, subscription receipts, units, warrants or share purchase contracts will not be listed on any securities or stock exchange
or any automated dealer quotation system. As a consequence, purchasers may not be able to resell debt securities, subscription receipts,
units, warrants or share purchase contracts purchased under this prospectus. This may affect the pricing of our securities, other than
our Common Shares, in the secondary market, the transparency and availability of trading prices, the liquidity of these securities and
the extent of issuer regulation. There can be no assurance that an active trading market for our securities, other than our Common Shares,
will develop or, if developed, that any such market, including for our Common Shares, will be sustained.
Effect of changes in interest rates on
debt securities
Prevailing interest rates will affect the market
price or value of any debt securities. The market price or value of any debt securities may increase or decline as prevailing interest
rates for comparable debt instruments rise or decline.
Effect of fluctuations in foreign currency
markets on debt securities
Debt securities denominated or payable in foreign
currencies may entail significant risk. These risks include, without limitation, the possibility of significant fluctuations in the foreign
currency markets, the imposition or modification of foreign exchange controls and potential liquidity restrictions in the secondary market.
These risks will vary depending upon the currency or currencies involved and will be more fully described in the applicable prospectus
supplement.
The debt securities will be unsecured and
will rank equally in right of payment with all of our other future unsecured debt
Unless otherwise indicated in the applicable
prospectus supplement, the debt securities will be unsecured and will rank equally in right of payment with all of our other existing
and future unsecured debt. The debt securities will be effectively subordinated to all of our existing and future secured debt to the
extent of the assets securing such debt. If we are involved in any bankruptcy, dissolution, liquidation or reorganization, the secured
debt holders would, to the extent of the value of the assets securing the secured debt, be paid before the holders of unsecured debt
securities, including the debt securities. In that event, a holder of debt securities may not be able to recover any principal or interest
due to it under the debt securities. See “Description of Debt Securities”.
USE
OF PROCEEDS
Unless we otherwise indicate in a prospectus
supplement relating to a particular offering, we currently intend to use the net proceeds from the sale of our securities for exploration
and development of the Company’s mineral properties and for working capital requirements. However, the final use of proceeds with
respect to any particular offering may be impacted by various risk factors, including the impact of the COVID-19 outbreak on the Company’s
business, financial condition and results of operations. See “Risk Factors”.
In order to raise additional funds to finance
future growth opportunities, we may, from time to time, issue securities (including debt securities). More detailed information regarding
the use of proceeds from the sale of securities, including any determinable milestones at the applicable time, will be described in a
prospectus supplement. We may also, from time to time, issue securities otherwise than pursuant to a prospectus supplement to this prospectus.
CONSOLIDATED
CAPITALIZATION
Since December 31, 2022, the date of our
financial statements for the most recently completed financial period, there have been no material changes in our consolidated share
and loan capital. Information relating to any issuances of our Common Shares and securities exercisable for or exchangeable into Common
Shares within the previous twelve-month period will be provided as required in a prospectus supplement under the heading “Prior
Sales”.
PRIOR
SALES
Information in respect of our Common Shares and
securities exchangeable for or exercisable into Common Shares issued within the previous twelve month period, as well as in respect of
Common Shares that we issued upon the exercise of Options or share units granted under our equity incentive plans, and in respect of
such equity securities exercisable or convertible into Common Shares that we granted under such equity incentive plans, will be provided
as required in a prospectus supplement with respect to the issuance of securities pursuant to such prospectus supplement.
TRADING
PRICE AND VOLUME
The Common Shares are listed and posted for trading
on the TSX and the NYSE under the symbol “ERO”. Trading price and volume of the Company’s securities will be provided
as required for all of our Common Shares, as applicable, in each prospectus supplement to this prospectus.
EARNINGS
COVERAGE
If we offer debt securities having a term to
maturity in excess of one year under this prospectus and any applicable prospectus supplement, the applicable prospectus supplement will
include earnings coverage ratios giving effect to the issuance of such securities.
DESCRIPTION
OF SHARE CAPITAL
The Company’s authorized share capital
consists of an unlimited number of Common Shares without par value. As at August 17, 2023, there are 93,310,771 Common Shares issued
and outstanding, 1,628,322 Common Shares issuable pursuant to outstanding Options pursuant to the stock option plan of the Company approved
by the shareholders of the Company on April 26, 2023, 842,076 Common Shares issuable pursuant to outstanding PSUs and 264,966 Common
Shares issuable pursuant to outstanding RSUs pursuant to the share unit plan of the Company approved by the shareholders of the Company
on April 26, 2023.
Common Shares
All of the Common Shares rank equally as to voting
rights, participation in a distribution of the assets of the Company on a liquidation, dissolution or winding-up of the Company and entitlement
to any dividends declared by the Company. The holders of the Common Shares are entitled to receive notice of, and to attend and vote
at, all meetings of shareholders (other than meetings at which only holders of another class or series of shares are entitled to vote).
Each Common Share carries the right to one vote. In the event of the liquidation, dissolution or winding-up of the Company, or any other
distribution of the assets of the Company among its shareholders for the purpose of winding-up its affairs, the holders of the Common
Shares will be entitled to receive, on a pro rata basis, all of the assets remaining after the payment by the Company of all of its liabilities.
The holders of Common Shares are entitled to receive dividends as and when declared by the Board in respect of the Common Shares on a
pro rata basis. The Common Shares do not have pre-emptive rights, conversion rights or exchange rights and are not subject to redemption,
retraction purchase for cancellation or surrender provisions. There are no sinking or purchase fund provisions, no provisions permitting
or restricting the issuance of additional securities or any other material restrictions, and there are no provisions which are capable
of requiring a security holder to contribute additional capital. Any alteration of the rights, privileges, restrictions and conditions
attaching to the Common Shares under the Company’s Articles of Incorporation must be approved by at least two-thirds of the Common
Shares voted at a meeting of the Company’s shareholders.
Dividend Policy
The Company has not, since the date of its incorporation,
declared or paid any dividends or other distributions on its Common Shares, and does not currently have a policy with respect to the
payment of dividends or other distributions. Pursuant to the terms of the 2022 Senior Credit Facility Agreement and the Note Indenture,
other than dividends payable in shares of the Company, the Company may only declare and pay dividends on the Company’s shares in
an amount not exceeding US$45,000,000 in the aggregate during any twelve-month period, provided that no default or event of default has
occurred and is continuing or would occur as a result of such payment under the 2022 Senior Credit Facility Agreement. Additionally,
under the Note Indenture the Company may also declare and pay dividends provided that (a) such payment, together with all other
Restricted Payments (as defined in the Note Indenture) to not exceed the greater of US$60,000,000 and 10% of Total Assets (as defined
in the Note Indenture) or (b) the Leverage Ratio (as defined in the Note Indenture) does not exceed 1.00:1.00 on a pro forma
basis after giving effect to such payment provided that, in each case, no default or event of default has occurred and is continuing
as a result of such payment. Otherwise, the Company is currently restricted from declaring or paying dividends or distributions until
the secured obligations under the 2022 Senior Credit Facility Agreement and the Note Indenture have been satisfied pursuant to the terms
and conditions set out in the 2022 Senior Credit Facility Agreement or the Note Indenture, as applicable.
The declaration and payment of any dividends
in the future is at the discretion of the Board and will depend on numerous factors, including compliance with applicable laws, financial
performance, contractual restrictions (as noted above), working capital requirements of the Company and its subsidiaries and such other
factors as the Board considers appropriate. See “Risk Factors”.
DESCRIPTION
OF DEBT SECURITIES
In this description of debt securities, “we”,
“us”, “our” or “Ero” refer to Ero Copper Corp., but not to our subsidiaries. This section describes
the general terms that will apply to any debt securities issued pursuant to this prospectus. We may issue debt securities in one or more
series under an indenture, or the indenture, to be entered into between us and one or more trustees. The indenture will be subject to
and governed by the United States Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”), and
the BCBCA. A copy of the form of the indenture will be filed with the SEC as an exhibit to the registration statement of which this prospectus
forms a part. The following description sets forth certain general terms and provisions of the debt securities and is not intended to
be complete. For a more complete description, prospective investors should refer to the indenture once it has been entered into and the
terms of the debt securities. If debt securities are issued, we will describe in the applicable prospectus supplement the particular
terms and provisions of any series of the debt securities and a description of how the general terms and provisions described below may
apply to that series of the debt securities. Prospective investors should rely on information in the applicable prospectus supplement
and not on the following information to the extent that the information in such prospectus supplement is different from the following
information.
We may also issue debt securities and incur additional
indebtedness other than through the offering of debt securities pursuant to this prospectus.
General
The indenture will not limit the aggregate principal
amount of debt securities that we may issue under the indenture and will not limit the amount of other indebtedness that we may incur.
The indenture will provide that we may issue debt securities from time to time in one or more series and may be denominated and payable
in U.S. dollars, Canadian dollars or any foreign currency. Unless otherwise indicated in the applicable prospectus supplement, the debt
securities will be our unsecured obligations. The indenture will also permit us to increase the principal amount of any series of the
debt securities previously issued and to issue that increased principal amount.
The applicable prospectus supplement for any
series of debt securities that we offer will describe the specific terms of the debt securities and may include, but is not limited to,
any of the following:
| · | the
title of the debt securities; |
| · | the
aggregate principal amount of the debt securities; |
| · | the
percentage of principal amount at which the debt securities will be issued; |
| · | whether
payment on the debt securities will be senior or subordinated to our other liabilities or
obligations; |
| · | whether
the payment of the debt securities will be guaranteed by any other person; |
| · | the
date or dates, or the methods by which such dates will be determined or extended, on which
we may issue the debt securities and the date or dates, or the methods by which such dates
will be determined or extended, on which we will pay the principal and any premium on the
debt securities and the portion (if less than the principal amount) of debt securities to
be payable upon a declaration of acceleration of maturity; |
| · | whether
the debt securities will bear interest, the interest rate (whether fixed or variable) or
the method of determining the interest rate, the date from which interest will accrue, the
dates on which we will pay interest and the record dates for interest payments, or the methods
by which such dates will be determined or extended; |
| · | the
place or places we will pay principal, premium, if any, and interest, if any, and the place
or places where debt securities can be presented for registration of transfer or exchange; |
| · | whether
and under what circumstances we will be required to pay any additional amounts for withholding
or deduction for Canadian taxes with respect to the debt securities, and whether and on what
terms we will have the option to redeem the debt securities rather than pay the additional
amounts; |
| | · | whether
we will be obligated to redeem or repurchase the debt securities pursuant to any sinking
or purchase fund or other provisions, or at the option of a holder and the terms and conditions
of such redemption; |
| · | whether
we may redeem the debt securities at our option and the terms and conditions of any such
redemption; |
| · | the
denominations in which we will issue any registered debt securities, if other than denominations
of US$2,000 and any multiple of US$l,000 in excess thereof and, if other than denominations
of US$5,000, the denominations in which any unregistered debt security shall be issuable; |
| · | whether
we will make payments on the debt securities in a currency or currency unit other than U.S.
dollars or by delivery of our Common Shares or other property; |
| · | whether
payments on the debt securities will be payable with reference to any index or formula; |
| · | whether
we will issue the debt securities as global securities and, if so, the identity of the depositary
for the global securities; |
| · | whether
we will issue the debt securities as unregistered securities (with or without coupons), registered
securities or both; |
| · | the
periods within which and the terms and conditions, if any, upon which we may redeem the debt
securities prior to maturity and the price or prices of which and the currency or currency
units in which the debt securities are payable; |
| · | any
changes or additions to events of default or covenants; |
| · | the
applicability of, and any changes or additions to, the provisions for defeasance described
under “Defeasance” below; |
| · | whether
the holders of any series of debt securities have special rights if specified events occur; |
| · | any
mandatory or optional redemption or sinking fund or analogous provisions; |
| · | the
terms, if any, for any conversion or exchange of the debt securities for any other securities; |
| · | rights,
if any, on a change of control; |
| · | provisions
as to modification, amendment or variation of any rights or terms attaching to the debt securities;
and |
| · | any
other terms, conditions, rights and preferences (or limitations on such rights and preferences)
including covenants and events of default which apply solely to a particular series of the
debt securities being offered which do not apply generally to other debt securities, or any
covenants or events of default generally applicable to the debt securities which do not apply
to a particular series of the debt securities. |
Unless stated otherwise in the applicable prospectus
supplement, no holder of debt securities will have the right to require us to repurchase the debt securities and there will be no increase
in the interest rate if we become involved in a highly leveraged transaction or we have a change of control.
We may issue debt securities bearing no interest
or interest at a rate below the prevailing market rate at the time of issuance, and offer and sell these securities at a discount below
their stated principal amount. We may also sell any of the debt securities for a foreign currency or currency unit, and payments on the
debt securities may be payable in a foreign currency or currency unit. In any of these cases, we will describe certain Canadian federal
and U.S. federal income tax consequences and other special considerations in the applicable prospectus supplement.
We may issue debt securities with terms different
from those of debt securities previously issued and, without the consent of the holders thereof, we may reopen a previous issue of a
series of debt securities and issue additional debt securities of such series (unless the reopening was restricted when such series was
created).
Ranking and Other Indebtedness
Unless otherwise indicated in an applicable prospectus
supplement, our debt securities will be unsecured obligations and will rank equally with all of our other unsecured and unsubordinated
debt from time to time outstanding and equally with other securities issued under the indenture. The debt securities will be structurally
subordinated to all existing and future liabilities, including trade payables, of our subsidiaries.
Our Board may establish the extent and manner,
if any, to which payment on or in respect of a series of debt securities will be senior or will be subordinated to the prior payment
of our other liabilities and obligations and whether the payment of principal, premium, if any, and interest, if any, will be guaranteed
by any other person and the nature and priority of any security.
Debt Securities in Global Form
The Depositary and Book-Entry
Unless otherwise specified in the applicable
prospectus supplement, a series of the debt securities may be issued in whole or in part in global form as a “global security”
and will be registered in the name of and be deposited with a depositary, or its nominee, each of which will be identified in the applicable
prospectus supplement relating to that series. Unless and until exchanged, in whole or in part, for the debt securities in definitive
registered form, a global security may not be transferred except as a whole by the depositary for such global security to a nominee of
the depositary, by a nominee of the depositary to the depositary or another nominee of the depositary or by the depositary or any such
nominee to a successor of the depositary or a nominee of the successor.
The specific terms of the depositary arrangement
with respect to any portion of a particular series of the debt securities to be represented by a global security will be described in
the applicable prospectus supplement relating to such series. We anticipate that the provisions described in this section will apply
to all depositary arrangements.
Upon the issuance of a global security, the depositary
therefor or its nominee will credit, on its book entry and registration system, the respective principal amounts of the debt securities
represented by the global security to the accounts of such persons, designated as “participants”, having accounts with such
depositary or its nominee. Such accounts shall be designated by the underwriters, dealers or agents participating in the distribution
of the debt securities or by us if such debt securities are offered and sold directly by us. Ownership of beneficial interests in a global
security will be limited to participants or persons that may hold beneficial interests through participants. Ownership of beneficial
interests in a global security will be shown on, and the transfer of that ownership will be effected only through, records maintained
by the depositary therefor or its nominee (with respect to interests of participants) or by participants or persons that hold through
participants (with respect to interests of persons other than participants). The laws of some states in the United States may require
that certain purchasers of securities take physical delivery of such securities in definitive form.
So long as the depositary for a global security
or its nominee is the registered owner of the global security, such depositary or such nominee, as the case may be, will be considered
the sole owner or holder of the debt securities represented by the global security for all purposes under the indenture. Except as provided
below, owners of beneficial interests in a global security will not be entitled to have a series of the debt securities represented by
the global security registered in their names, will not receive or be entitled to receive physical delivery of such series of the debt
securities in definitive form and will not be considered the owners or holders thereof under the indenture.
Any payments of principal, premium, if any, and
interest, if any, on global securities registered in the name of a depositary or its nominee will be made to the depositary or its nominee,
as the case may be, as the registered owner of the global security representing such debt securities. None of us, the trustee or any
paying agent for the debt securities represented by the global securities will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership interests of the global security or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
We expect that the depositary for a global security
or its nominee, upon receipt of any payment of principal, premium, if any, or interest, if any, will credit participants’ accounts
with payments in amounts proportionate to their respective beneficial interests in the principal amount of the global security as shown
on the records of such depositary or its nominee. We also expect that payments by participants to owners of beneficial interests in a
global security held through such participants will be governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers registered in “street name”, and will be the responsibility of such participants.
Discontinuance of Depositary’s Services
If a depositary for a global security representing
a particular series of the debt securities is at any time unwilling or unable to continue as depositary and a successor depositary is
not appointed by us within 90 days, we will issue such series of the debt securities in definitive form in exchange for a global security
representing such series of the debt securities. If an event of default under the indenture has occurred and is continuing, debt securities
in definitive form will be printed and delivered upon written request by the holder to the trustee. In addition, we may at any time and
in our sole discretion determine not to have a series of the debt securities represented by a global security and, in such event, will
issue a series of the debt securities in definitive form in exchange for all of the global securities representing that series of debt
securities.
Debt Securities in Definitive Form
A series of the debt securities may be issued
in definitive form, solely as registered securities, solely as unregistered securities or as both registered securities and unregistered
securities. Registered securities will be issuable in denominations of US$2,000 and integral multiples of US$1,000 in excess thereof
and unregistered securities will be issuable in denominations of US$5,000 and integral multiples of US$5,000 or, in each case, in such
other denominations as may be set out in the terms of the debt securities of any particular series. Unless otherwise indicated in the
applicable prospectus supplement, unregistered securities will have interest coupons attached.
Unless otherwise indicated in the applicable
prospectus supplement, payment of principal, premium, if any, and interest, if any, on the debt securities (other than global securities)
will be made at the office or agency of the trustee, or at our option we can pay principal, interest, if any, and premium, if any, by
check mailed or delivered to the address of the person entitled at the address appearing in the security register of the trustee or electronic
funds wire or other transmission to an account of the person entitled to receive payments. Unless otherwise indicated in the applicable
prospectus supplement, payment of interest, if any, will be made to the persons in whose name the debt securities are registered at the
close of business on the day or days specified by us.
At the option of the holder of debt securities,
registered securities of any series will be exchangeable for other registered securities of the same series, of any authorized denomination
and of a like aggregate principal amount and tenor. If, but only if, provided in an applicable prospectus supplement, unregistered securities
(with all unmatured coupons, except as provided below, and all matured coupons in default) of any series may be exchanged for registered
securities of the same series, of any authorized denominations and of a like aggregate principal amount and tenor. In such event, unregistered
securities surrendered in a permitted exchange for registered securities between a regular record date or a special record date and the
relevant date for payment of interest shall be surrendered without the coupon relating to such date for payment of interest, and interest
will not be payable on such date for payment of interest in respect of the registered security issued in exchange for such unregistered
security, but will be payable only to the holder of such coupon when due in accordance with the terms of the indenture. Unless otherwise
specified in an applicable prospectus supplement, unregistered securities will not be issued in exchange for registered securities.
The applicable prospectus supplement may indicate
the places to register a transfer of the debt securities in definitive form. Except for certain restrictions set forth in the indenture,
no service charge will be payable by the holder for any registration of transfer or exchange of the debt securities in definitive form,
but we may, in certain instances, require a sum sufficient to cover any tax or other governmental charges payable in connection with
these transactions.
We shall not be required to:
| · | issue,
register the transfer of or exchange any series of the debt securities in definitive form
during a period beginning at the opening of business 15 days before any selection of securities
of that series of the debt securities to be redeemed and ending on the relevant redemption
date if the debt securities for which such issuance, registration or exchange is requested
may be among those selected for redemption; |
| · | register
the transfer of or exchange any registered security in definitive form, or portion thereof,
called for redemption, except the unredeemed portion of any registered security being redeemed
in part; |
| · | exchange
any unregistered security called for redemption except to the extent that such unregistered
security may be exchanged for a registered security of that series and like tenor; provided
that such registered security will be simultaneously surrendered for redemption with written
instructions for payment consistent with the provisions of the indenture; or |
| · | issue,
register the transfer of or exchange any of the debt securities in definitive form which
have been surrendered for repayment at the option of the holder, except the portion, if any,
thereof not to be so repaid. |
Merger, Amalgamation or Consolidation
The indenture will provide that we may not consolidate
with or amalgamate or merge with or into any other person, enter into any statutory arrangement with any person or convey, transfer or
lease our properties and assets substantially as an entirety to another person, unless among other items:
| · | we
are the surviving person, or the resulting, surviving or transferee person, if other than
us or a co-issuer, is organized and existing under the laws of the United States, any state
thereof or the District of Columbia, Canada, or any province or territory thereof, or, if
the amalgamation, merger, consolidation, statutory arrangement or other transaction would
not impair the rights of holders, any other country; |
| · | the
successor person (if not us) assumes all of our obligations under the debt securities and
the indenture; and |
| · | we
or such successor person will not be in default under the indenture immediately after the
transaction. |
When such a person assumes our obligations in
such circumstances, subject to certain exceptions, we shall be discharged from all obligations under the debt securities and the indenture.
Provision of Financial Information
We will file with the trustee, within 20 days
after we file or furnish them with the SEC, copies of our annual reports and of the information, documents and other reports (or copies
of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which we are required to file or furnish
with the SEC pursuant to Section 13 or 15(d) of the U.S. Exchange Act.
Notwithstanding that we may not remain subject
to the reporting requirements of Section 13 or 15(d) of the U.S. Exchange Act or otherwise report on an annual and quarterly
basis on forms provided for such annual and quarterly reporting pursuant to rules and regulations promulgated by the SEC, we will
continue to provide the trustee:
| · | within
20 days after the time periods required for the filing or furnishing of such forms by the
SEC, annual reports on Form 40-F or Form 20-F, as applicable, or any successor
form; and |
| · | within
20 days after the time periods required for the filing of such forms by the SEC, reports
on Form 6-K (or any successor form), which, regardless of applicable requirements shall,
at a minimum, contain such information required to be provided in quarterly reports under
the laws of Canada or any province thereof to security holders of a company with securities
listed on the TSX, whether or not we have any of the debt securities listed on such exchange.
Each of such reports, to the extent permitted by the rules and regulations of the SEC,
will be prepared in accordance with Canadian disclosure requirements and generally accepted
accounting principles provided, however, that we shall not be obligated to file or furnish
such reports with the SEC if the SEC does not permit such filings. |
Notwithstanding the foregoing, to the extent
permitted by the indenture, we will be deemed to have filed such reports referred to above with the trustee if we have filed or furnished
such reports with the SEC via the EDGAR filing system and such reports are publicly available.
Events of Default
Unless otherwise specified in the applicable
prospectus supplement relating to a particular series of debt securities, the following is a summary of events which will, with respect
to any series of the debt securities, constitute an event of default under the indenture with respect to the debt securities of that
series:
| · | we
fail to pay principal of, or any premium on, any debt security of that series when it is
due and payable; |
| · | we
fail to pay interest or any additional amounts payable on any debt security of that series
when it becomes due and payable, and such default continues for 30 days; |
| · | we
fail to make any required sinking fund or analogous payment for that series of debt securities; |
| · | we
fail to observe or perform any of the covenants described in the section “Description
of Debt Securities — Merger, Amalgamation or Consolidation” as may be amended
or supplemented by the applicable prospectus supplement for a period of 30 days; |
| · | we
fail to comply with any of our other agreements in the indenture that affect or are applicable
to the debt securities for 60 days after written notice by the trustee or to us and the trustee
by holders of at least 25% in aggregate principal amount of the outstanding debt securities
of any series affected thereby; |
| · | a
default (as defined in any indenture or instrument under which we or one of our subsidiaries
has at the time of the indenture relating to the applicable prospectus supplement or will
thereafter have outstanding any indebtedness) has occurred and is continuing, or we or any
of our subsidiaries has failed to pay principal amounts with respect to such indebtedness
at maturity and such event of default or failure to pay has resulted in such indebtedness
under such indentures or instruments being declared due, payable or otherwise being accelerated,
in either event so that an amount in excess of the greater of US$5,000,000 and 2% of our
shareholders’ equity will be or become due, payable and accelerated upon such declaration
or prior to the date on which the same would otherwise have become due, payable and accelerated,
or the accelerated indebtedness, and such acceleration will not be rescinded or annulled,
or such event of default or failure to pay under such indenture or instrument will not be
remedied or cured, whether by payment or otherwise, or waived by the holders of such accelerated
indebtedness, then (i) if the accelerated indebtedness will be as a result of an event
of default which is not related to the failure to pay principal or interest on the terms,
at the times, and on the conditions set out in any such indenture or instrument, it will
not be considered an event of default for the purposes of the indenture governing the debt
securities relating to this prospectus until 30 days after such other indebtedness has been
accelerated, or (ii) if the accelerated indebtedness will occur as a result of such
failure to pay principal or interest or as a result of an event of default which is related
to the failure to pay principal or interest on the terms, at the times, and on the conditions
set out in any such indenture or instrument, then (A) if such accelerated indebtedness
is, by its terms, non-recourse to us or our subsidiaries, it will be considered an event
of default for purposes of the indenture governing the debt securities relating to this prospectus;
or (B) if such accelerated indebtedness is recourse to us or our subsidiaries, any requirement
in connection with such failure to pay or event of default for the giving of notice or the
lapse of time or the happening of any further condition, event or act under such indenture
or instrument in connection with such failure to pay or event of default will be applicable
together with an additional seven days before being considered an event of default for the
purposes of the indenture relating to this prospectus; |
| · | certain
events involving our bankruptcy, insolvency or reorganization; and |
| · | any
other event of default provided for in that series of debt securities. |
A default under one series of debt securities
will not necessarily be a default under another series. The trustee may withhold notice to the holders of the debt securities of any
default, except in the payment of principal or premium, if any, or interest, if any, if in good faith it considers it in the interests
of the holders to do so.
If an event of default for any series of debt
securities occurs and continues, the trustee or the holders of at least 25% in aggregate principal amount of the debt securities of that
series, subject to any subordination provisions, may require us to repay immediately:
| · | the
entire principal and interest and premium, if any, of the debt securities of the series;
or |
| · | if
the debt securities are discounted securities, that portion of the principal as is described
in the applicable prospectus supplement. |
If an event of default relates to events involving
our bankruptcy, insolvency or reorganization, the principal of all debt securities will become immediately due and payable without any
action by the trustee or any holder. Subject to certain conditions, the holders of a majority of the aggregate principal amount of the
debt securities of the affected series can rescind this accelerated payment requirement. If debt securities are discounted securities,
the applicable prospectus supplement will contain provisions relating to the acceleration of maturity of a portion of the principal amount
of the discounted securities upon the occurrence or continuance of an event of default.
Other than its duties in case of a default, the
trustee is not obligated to exercise any of the rights or powers that it will have under the indenture at the request, order or direction
of any holders, unless the holders offer the trustee reasonable indemnity. If they provide this reasonable indemnity, the holders of
a majority in aggregate principal amount of any series of debt securities may, subject to certain limitations, direct the time, method
and place of conducting any proceeding or any remedy available to the trustee, or exercising any power conferred upon the trustee, for
any series of debt securities.
We will be required to furnish to the trustee
a statement annually as to our compliance with all conditions and covenants under the indenture and, if we are not in compliance, we
must specify any defaults. We will also be required to notify the trustee as soon as practicable upon becoming aware of any event of
default.
No holder of a debt security of any series will
have any right to institute any proceeding with respect to the indenture, or for the appointment of a receiver or a trustee, or for any
other remedy, unless:
| · | the
holder has previously given to the trustee written notice of a continuing event of default
with respect to the debt securities of the affected series; |
| · | the
holders of at least 25% in principal amount of the outstanding debt securities of the series
affected by an event of default have made a written request, and the holders have offered
reasonable indemnity, to the trustee to institute a proceeding as trustee; and |
| · | the
trustee has failed to institute a proceeding, and has not received from the holders of a
majority in aggregate principal amount of the outstanding debt securities of the series affected
by an event of default a direction inconsistent with the request, within 60 days after their
notice, request and offer of indemnity. |
However, such above-mentioned limitations do
not apply to a suit instituted by the holder of a debt security for the enforcement of payment of the principal of or any premium, if
any, or interest on such debt security on or after the applicable due date specified in such debt security.
Defeasance
When we use the term “defeasance”,
we mean discharge from some or all of our obligations under the indenture. Unless otherwise specified in the applicable prospectus supplement,
if we deposit with the trustee sufficient cash or government securities to pay the principal, interest, if any, premium, if any, and
any other sums due to the stated maturity date or a redemption date of the debt securities of a series, then at our option:
| · | we
will be discharged from the obligations with respect to the debt securities of that series;
or |
| · | we
will no longer be under any obligation to comply with certain restrictive covenants under
the indenture, and certain events of default will no longer apply to us. |
If this happens, the holders of the debt securities
of the affected series will not be entitled to the benefits of the indenture except for registration of transfer and exchange of debt
securities and the replacement of lost, stolen or mutilated debt securities. These holders may look only to the deposited fund for payment
on their debt securities.
To exercise our defeasance option, we must deliver
to the trustee:
| · | an
opinion of counsel in the United States to the effect that the holders of the outstanding
debt securities of the affected series will not recognize a gain or loss for U.S. federal
income tax purposes as a result of a defeasance and will be subject to U.S. federal income
tax on the same amounts, in the same manner and at the same times as would have been the
case if the defeasance had not occurred; |
| · | an
opinion of counsel in Canada or a ruling from the Canada Revenue Agency to the effect that
the holders of the outstanding debt securities of the affected series will not recognize
income, or a gain or loss for Canadian federal, provincial or territorial income or other
tax purposes as a result of a defeasance and will be subject to Canadian federal, provincial
or territorial income tax and other tax on the same amounts, in the same manner and at the
same times as would have been the case had the defeasance not occurred; and |
| · | a
certificate of one of our officers and an opinion of counsel, each stating that all conditions
precedent provided for relating to defeasance have been complied with. |
If we are to be discharged from our obligations
with respect to the debt securities, and not just from our covenants, the U.S. opinion must be based upon a ruling from or published
by the United States Internal Revenue Service or a change in law to that effect.
In addition to the delivery of the opinions described
above, the following conditions must be met before we may exercise our defeasance option:
| · | no
event of default or event that, with the passing of time or the giving of notice, or both,
shall constitute an event of default shall have occurred and be continuing for the debt securities
of the affected series; |
| · | we
are not an “insolvent person” within the meaning of applicable bankruptcy and
insolvency legislation; and |
| · | other
customary conditions precedent are satisfied. |
Modification and Waiver
Modifications and amendments of the indenture
may be made by us and the trustee with the consent of the holders of a majority in aggregate principal amount of the outstanding debt
securities of each series affected by the modification. However, without the consent of each holder affected, no modification may:
| · | change
the stated maturity of the principal of, premium, if any, or any installment of interest,
if any, on any debt security; |
| · | reduce
the principal, premium, if any, or rate of interest, if any, or any obligation to pay any
additional amounts; |
| · | reduce
the amount of principal of a debt security payable upon acceleration of its maturity; |
| · | change
the place or currency of any payment; |
| · | adversely
affect the holder’s right to require us to repurchase the debt securities at the holder’s
option; |
| · | impair
the right of the holders to institute a suit to enforce their rights to payment; |
| · | adversely
affect any conversion or exchange right related to a series of debt securities; |
| · | reduce
the percentage of debt securities required to modify the indenture or to waive compliance
with certain provisions of the indenture; or |
| · | reduce
the percentage in principal amount of outstanding debt securities necessary to take certain
actions. |
The holders of a majority in principal amount
of outstanding debt securities of any series may on behalf of the holders of all debt securities of that series waive, insofar as only
that series is concerned, past defaults under the indenture and compliance by us with certain restrictive provisions of the indenture.
However, these holders may not waive a default in any payment on any debt security or compliance with a provision that cannot be modified
without the consent of each holder affected.
We may modify the indenture without the consent
of the holders to:
| · | evidence
our successor under the indenture; |
| · | add
covenants or surrender any right or power for the benefit of holders; |
| · | provide
for unregistered securities to become registered securities under the indenture and make
other such changes to unregistered securities that in each case do not materially and adversely
affect the interests of holders of outstanding securities; |
| · | establish
the forms of the debt securities; |
| · | appoint
a successor trustee under the indenture; |
| · | add
provisions to permit or facilitate the defeasance or discharge of the debt securities as
long as there is no material adverse effect on the holders; |
| · | cure
any ambiguity, correct or supplement any defective or inconsistent provision, make any other
provisions in each case that would not materially and adversely affect the interests of holders
of outstanding securities and related coupons, if any; |
| · | comply
with any applicable laws of the United States and Canada in order to effect and maintain
the qualification of the indenture under the Trust Indenture Act; or |
| · | change
or eliminate any provisions where such change takes effect when there are no securities outstanding
under the indenture. |
Governing Law
The indenture and the debt securities will be
governed by and construed in accordance with the laws of the State of New York.
The Trustee
The trustee under the indenture or its affiliates
may provide banking and other services to us in the ordinary course of their business.
The indenture will contain certain limitations
on the rights of the trustee, as long as it or any of its affiliates remains our creditor, to obtain payment of claims in certain cases
or to realize on certain property received on any claim as security or otherwise. The trustee and its affiliates will be permitted to
engage in other transactions with us. If the trustee or any affiliate acquires any conflicting interest and a default occurs with respect
to the debt securities, the trustee must eliminate the conflict or resign.
Resignation of Trustee
The trustee may resign or be removed with respect
to one or more series of the debt securities and a successor trustee may be appointed to act with respect to such series. In the event
that two or more persons are acting as trustee with respect to different series of debt securities, each such trustee shall be a trustee
of a trust under the indenture separate and apart from the trust administered by any other such trustee, and any action described herein
to be taken by the “trustee” may then be taken by each such trustee with respect to, and only with respect to, the one or
more series of debt securities for which it is trustee.
Consent to Service
In connection with the indenture, we will designate
an authorized agent upon which process may be served in any suit or proceeding arising out of or relating to the indenture or the debt
securities that may be instituted in any U.S. federal or New York state court located in the Borough of Manhattan, in the City of New
York, or brought by the trustee (whether in its individual capacity or in its capacity as trustee under the indenture), and will irrevocably
submit to the non-exclusive jurisdiction of such courts.
Enforceability of Judgments
Since all or substantially all of our assets,
as well as the assets of some of our directors and officers, are outside the United States, any judgment obtained in the United States
against us or certain of our directors or officers, including judgments with respect to the payment of principal on the debt securities,
may not be collectible within the United States.
We have been advised that the laws of the Province
of British Columbia and the federal laws of Canada applicable therein permit an action to be brought against us in a court of competent
jurisdiction in the Province of British Columbia on any final and conclusive judgment in personam of any federal or state court located
in the State of New York, or a New York Court, which is subsisting and unsatisfied for a sum certain with respect to the enforcement
of the indenture and the debt securities that is not impeachable as void or voidable under the internal laws of the State of New York
if: (1) the New York Court rendering such judgment had jurisdiction over the judgment debtor, as recognized by the courts of the
Province of British Columbia (and submission by us in the indenture to the jurisdiction of the New York Court will be sufficient for
that purpose); (2) proper service of process in respect of the proceedings in which such judgment was obtained was made in accordance
with New York law; (3) such judgment was not obtained by fraud or in a manner contrary to natural justice and the enforcement thereof
would not be inconsistent with public policy, as such terms are understood under the laws of the Province of British Columbia, the federal
laws of Canada or contrary to any order made by the Attorney General of Canada and under the Foreign Extraterritorial Measures Act
(Canada) or by the Competition Tribunal under the Competition Act (Canada); (4) the enforcement of such judgment would
not be contrary to the laws of general application limiting the enforcement of creditors’ rights, including bankruptcy, reorganization,
winding-up, moratorium and similar laws, and does not constitute, directly or indirectly, the enforcement of foreign laws which a court
in the Province of British Columbia would characterize as revenue, expropriatory or penal laws; (5) in an action to enforce a default
judgment, the judgment does not contain a manifest error on its face; (6) the action to enforce such judgment is commenced within
the appropriate limitation period; (7) interest payable on the debt securities is not characterized by a court in the Province of
British Columbia as interest payable at a criminal rate within the meaning of Section 347 of the Criminal Code (Canada);
and (8) the judgment does not conflict with another final and conclusive judgment in the same cause of action; except that a court
in the Province of British Columbia may stay an action to enforce a foreign judgment if an appeal of a judgment is pending or time for
appeal has not expired; and except that any court in the Province of British Columbia may give judgment only in Canadian dollars.
We have been advised that there is doubt as to
the enforceability in Canada by a court in original actions, or in actions to enforce judgments of U.S. courts, of civil liabilities
predicated solely upon the U.S. federal securities laws.
DESCRIPTION
OF WARRANTS
General
This section describes the general terms that
will apply to any warrants for the purchase of Common Shares, or equity warrants, or for the purchase of debt securities, or debt warrants.
We may issue warrants independently or together
with other securities, and warrants sold with other securities may be attached to or separate from the other securities. Warrants will
be issued under one or more warrant indentures or warrant agency agreements to be entered into by us and one or more banks or trust companies
acting as warrant agent.
The Company will deliver an undertaking to the
securities regulatory authority in each of the provinces and territories of Canada that it will not distribute warrants that, according
to the aforementioned terms as described in the applicable prospectus supplement for warrants supplementing this prospectus, are “novel”
specified derivatives within the meaning of Canadian securities legislation, separately to any member of the public in Canada, unless
the offering is in connection with and forms part of the consideration for an acquisition or merger transaction or unless such prospectus
supplement containing the specific terms of the warrants to be distributed separately is first approved by or on behalf of the securities
commissions or similar regulatory authorities in each of the provinces and territories of Canada where the warrants will be distributed.
This summary of some of the provisions of the
warrants is not complete. The statements made in this prospectus relating to any warrant agreement and warrants to be issued under this
prospectus are summaries of certain anticipated provisions thereof and do not purport to be complete and are subject to, and are qualified
in their entirety by reference to, all provisions of the applicable warrant agreement. You should refer to the warrant indenture or warrant
agency agreement relating to the specific warrants being offered for the complete terms of the warrants. A copy of any warrant indenture
or warrant agency agreement relating to an offering or warrants will be filed by us with the securities regulatory authorities in applicable
Canadian offering jurisdictions and the United States after we have entered into it.
The applicable prospectus supplement relating
to any warrants that we offer will describe the particular terms of those warrants and include specific terms relating to the offering.
Original purchasers of warrants (if offered separately)
will have a contractual right of rescission against us in respect of the exercise of such warrant. The contractual right of rescission
will entitle such original purchasers to receive, upon surrender of the underlying securities acquired upon exercise of the warrant,
the total of the amount paid on original purchase of the warrant and the amount paid upon exercise, in the event that this prospectus
(as supplemented or amended) contains a misrepresentation, provided that: (i) the exercise takes place within 180 days of the date
of the purchase of the warrant under the applicable prospectus supplement; and (ii) the right of rescission is exercised within
180 days of the date of purchase of the warrant under the applicable prospectus supplement. This contractual right of rescission will
be consistent with the statutory right of rescission described under Section 131 of the Securities Act (British Columbia)
(the “B.C. Securities Act”), and is in addition to any other right or remedy available to original purchasers under
Section 131 of the B.C. Securities Act or otherwise at law.
In an offering of warrants, or other convertible
securities, original purchasers are cautioned that the statutory right of action for damages for a misrepresentation contained in the
prospectus is limited, in certain provincial and territorial securities legislation, to the price at which the warrants, or other convertible
securities, are offered to the public under the prospectus offering. This means that, under the securities legislation of certain provinces
and territories, if the purchaser pays additional amounts upon conversion, exchange or exercise of such securities, those amounts may
not be recoverable under the statutory right of action for damages that applies in those provinces or territories. The purchaser should
refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for the particulars of
these rights, or consult with a legal advisor.
Equity Warrants
The particular terms of each issue of equity
warrants will be described in the applicable prospectus supplement. This description will include, where applicable:
| · | the
designation and aggregate number of equity warrants; |
| · | the
price at which the equity warrants will be offered; |
| · | the
currency or currencies in which the equity warrants will be offered; |
| · | the
date on which the right to exercise the equity warrants will commence and the date on which
the right will expire; |
| · | the
number of Common Shares that may be purchased upon exercise of each equity warrant and the
price at which and currency or currencies in which the Common Shares may be purchased upon
exercise of each equity warrant; |
| · | the
terms of any provisions allowing or providing for adjustments in (i) the number and/or
class of shares that may be purchased, (ii) the exercise price per share or (iii) the
expiry of the equity warrants; |
| · | whether
we will issue fractional shares; |
| · | whether
we have applied to list the equity warrants or the underlying shares on a stock exchange; |
| · | the
designation and terms of any securities with which the equity warrants will be offered, if
any, and the number of the equity warrants that will be offered with each security; |
| · | the
date or dates, if any, on or after which the equity warrants and the related securities will
be transferable separately; |
| · | whether
the equity warrants will be subject to redemption or call and, if so, the terms of such redemption
or call provisions; |
| · | material
U.S. and Canadian federal income tax consequences of owning the equity warrants; |
| · | any
terms, procedures and limitations relating to the transferability, exchange or exercise of
the equity warrants; and |
| · | any
other material terms or conditions of the equity warrants. |
Debt Warrants
The particular terms of each issue of debt warrants
will be described in the related prospectus supplement. This description will include, where applicable:
| · | the
designation and aggregate number of debt warrants; |
| · | the
price at which the debt warrants will be offered; |
| · | the
currency or currencies in which the debt warrants will be offered; |
| · | the
designation and terms of any securities with which the debt warrants are being offered, if
any, and the number of the debt warrants that will be offered with each security; |
| · | the
date or dates, if any, on or after which the debt warrants and the related securities will
be transferable separately; |
| · | the
principal amount of debt securities that may be purchased upon exercise of each debt warrant
and the price at which and currency or currencies in which that principal amount of debt
securities may be purchased upon exercise of each debt warrant; |
| · | the
date on which the right to exercise the debt warrants will commence and the date on which
the right will expire; |
| · | the
minimum or maximum amount of debt warrants that may be exercised at any one time; |
| · | whether
the debt warrants will be subject to redemption, and, if so, the terms of such redemption
provisions; |
| · | material
U.S. and Canadian federal income tax consequences of owning the debt warrants; |
| · | whether
the Company has applied to list the debt warrants or the underlying debt securities on an
exchange; |
| · | any
terms, procedures and limitations relating to the transferability, exchange or exercise of
the debt warrants; and |
| · | any
other material terms or conditions of the debt warrants. |
Prior to the exercise of their warrants, holders
of warrants will not have any of the rights of holders of the securities subject to the warrants.
DESCRIPTION
OF UNITS
The Company may issue units, which may consist
of one or more Common Shares, warrants or any combination of securities as is specified in the relevant prospectus supplement. In addition,
the relevant prospectus supplement relating to an offering of units will describe all material terms of any units offered, including,
as applicable:
| · | the
designation and aggregate number of units being offered; |
| · | the
price at which the units will be offered; |
| · | the
designation, number and terms of the securities comprising the units and any agreement governing
the units; |
| · | the
date or dates, if any, on or after which the securities comprising the units will be transferable
separately; |
| · | whether
we will apply to list the units or any of the individual securities comprising the units
on any exchange; |
| · | material
U.S. and Canadian income tax consequences of owning the units, including, how the purchase
price paid for the units will be allocated among the securities comprising the units; and |
| · | any
other material terms or conditions of the units. |
DESCRIPTION
OF SUBSCRIPTION RECEIPTS
We may issue subscription receipts separately
or in combination with one or more other securities, which will entitle holders thereof to receive, upon satisfaction of certain release
conditions and for no additional consideration, Common Shares, warrants or any combination thereof. Subscription receipts will be issued
pursuant to one or more subscription receipt agreements (each, a “Subscription Receipt Agreement”), each to be entered
into between the Company and an escrow agent (the “Escrow Agent”) that will be named in the relevant prospectus supplement.
Each Escrow Agent will be a financial institution organized under the laws of Canada or a province thereof and authorized to carry on
business as a trustee. If underwriters or agents are used in the sale of any subscription receipts, one or more of such underwriters
or agents may also be a party to the subscription agreement governing the subscription receipts sold to or through such underwriter or
agent.
The following description sets forth certain
general terms and provisions of subscription receipts that may be issued hereunder and is not intended to be complete. The statements
made in this prospectus relating to any Subscription Receipt Agreement and subscription receipts to be issued thereunder are summaries
of certain anticipated provisions thereof and are subject to, and are qualified in their entirety by reference to, all provisions of
the applicable Subscription Receipt Agreement. Prospective investors should refer to the Subscription Receipt Agreement relating to the
specific subscription receipts being offered for the complete terms of the subscription receipts. We will file a copy of any Subscription
Receipt Agreement relating to an offering of subscription receipts with the securities regulatory authorities in Canada and the United
States after it has been entered into it.
General
The prospectus supplement and the Subscription
Receipt Agreement for any subscription receipts that we may offer will describe the specific terms of the subscription receipts offered.
This description may include, but may not be limited to, any of the following, if applicable:
| · | the
designation and aggregate number of subscription receipts being offered; |
| · | the
price at which the subscription receipts will be offered; |
| · | the
designation, number and terms of the Common Shares, warrants or a combination thereof to
be received by the holders of subscription receipts upon satisfaction of the Release Conditions
(as defined below), and any procedures that will result in the adjustment of those numbers; |
| · | the
conditions (the “Release Conditions”) that must be met in order for holders
of subscription receipts to receive, for no additional consideration, the Common Shares,
warrants or a combination thereof; |
| · | the
procedures for the issuance and delivery of the Common Shares, warrants or a combination
thereof to holders of subscription receipts upon satisfaction of the Release Conditions; |
| · | whether
any payments will be made to holders of subscription receipts upon delivery of the Common
Shares, warrants or a combination thereof upon satisfaction of the Release Conditions; |
| · | the
identity of the Escrow Agent; |
| · | the
terms and conditions under which the Escrow Agent will hold all or a portion of the gross
proceeds from the sale of subscription receipts, together with interest and income earned
thereon (collectively, the “Escrowed Funds”), pending satisfaction of
the Release Conditions; |
| · | the
terms and conditions pursuant to which the Escrow Agent will hold Common Shares, warrants
or a combination thereof pending satisfaction of the Release Conditions; |
| · | the
terms and conditions under which the Escrow Agent will release all or a portion of the Escrowed
Funds to the Company upon satisfaction of the Release Conditions; |
| · | if
the subscription receipts are sold to or through underwriters or agents, the terms and conditions
under which the Escrow Agent will release a portion of the Escrowed Funds to such underwriters
or agents in payment of all or a portion of their fees or commissions in connection with
the sale of the subscription receipts; |
| · | procedures
for the refund by the Escrow Agent to holders of subscription receipts of all or a portion
of the subscription price of their subscription receipts, plus any pro rata entitlement to
interest earned or income generated on such amount, if the Release Conditions are not satisfied; |
| · | any
contractual right of rescission to be granted to initial purchasers of subscription receipts
in the event that this prospectus, the prospectus supplement under which subscription receipts
are issued or any amendment hereto or thereto contains a misrepresentation; |
| · | any
entitlement of Ero to purchase the subscription receipts in the open market by private agreement
or otherwise; |
| · | whether
we will issue the subscription receipts as global securities and, if so, the identity of
the depository for the global securities; |
| · | whether
we will issue the subscription receipts as bearer securities, as registered securities or
both; |
| · | provisions
as to modification, amendment or variation of the Subscription Receipt Agreement or any rights
or terms of the subscription receipts, including upon any subdivision, consolidation, reclassification
or other material change of the Common Shares, warrants or other Ero securities, any other
reorganization, amalgamation, merger or sale of all or substantially all of the Company’s
assets or any distribution of property or rights to all or substantially all of the holders
of Common Shares; |
| · | whether
we will apply to list the subscription receipts on any exchange; |
| · | material
U.S. and Canadian federal income tax consequences of owning the subscription receipts; and |
| · | any
other material terms or conditions of the subscription receipts. |
Original purchasers of subscription receipts
will have a contractual right of rescission against us in respect of the conversion of the subscription receipt. The contractual right
of rescission will entitle such original purchasers to receive the amount paid on original purchase of the subscription receipt upon
surrender of the underlying securities gained thereby, in the event that this prospectus (as supplemented or amended) contains a misrepresentation,
provided that: (i) the conversion takes place within 180 days of the date of the purchase of the subscription receipt under this
prospectus; and (ii) the right of rescission is exercised within 180 days of the date of purchase of the subscription receipt under
this prospectus. This contractual right of rescission will be consistent with the statutory right of rescission described under Section 131
of the B.C. Securities Act, and is in addition to any other right or remedy available to original purchasers under Section 131 of
the B.C. Securities Act or otherwise at law.
Rights of Holders of Subscription Receipts
Prior to Satisfaction of Release Conditions
The holders of subscription receipts will not
be, and will not have the rights of, shareholders of Ero. Holders of subscription receipts are entitled only to receive Common Shares,
warrants or a combination thereof on exchange of their subscription receipts, plus any cash payments, all as provided for under the Subscription
Receipt Agreement and only once the Release Conditions have been satisfied. If the Release Conditions are not satisfied, holders of subscription
receipts shall be entitled to a refund of all or a portion of the subscription price thereof and all or a portion of the pro rata share
of interest earned or income generated thereon, all as provided in the Subscription Receipt Agreement.
Escrow
The Subscription Receipt Agreement will provide
that the Escrowed Funds will be held in escrow by the Escrow Agent, and such Escrowed Funds will be released to the Company (and, if
the subscription receipts are sold to or through underwriters or agents, a portion of the Escrowed Funds may be released to such underwriters
or agents in payment of all or a portion of their fees in connection with the sale of the subscription receipts) at the time and under
the terms specified by the Subscription Receipt Agreement. If the Release Conditions are not satisfied, holders of subscription receipts
will receive a refund of all or a portion of the subscription price for their subscription receipts, plus their pro-rata entitlement
to interest earned or income generated on such amount, if provided for in the Subscription Receipt Agreement, in accordance with the
terms of the Subscription Receipt Agreement. Common shares or warrants may be held in escrow by the Escrow Agent and will be released
to the holders of subscription receipts following satisfaction of the Release Conditions at the time and under the terms specified in
the Subscription Receipt Agreement.
Modifications
The Subscription Receipt Agreement will specify
the terms upon which modifications and alterations to the subscription receipts issued thereunder may be made by way of a resolution
of holders of subscription receipts at a meeting of such holders or consent in writing from such holders. The number of holders of subscription
receipts required to pass such a resolution or execute such a written consent will be specified in the Subscription Receipt Agreement.
The Subscription Receipt Agreement will also
specify that we may amend any Subscription Receipt Agreement and the subscription receipts, without the consent of the holders of the
subscription receipts, to cure any ambiguity, to cure, correct or supplement any defective or inconsistent provision, or in any other
manner that will not materially and adversely affect the interests of the holder of outstanding subscription receipts or as otherwise
specified in the Subscription Receipt Agreement.
DESCRIPTION
OF SHARE PURCHASE CONTRACTS
We may issue share purchase contracts, representing
contracts obligating holders to purchase from or sell to us, and obligating us to purchase from or sell to the holders, a specified number
of Common Shares at a future date or dates, and including by way of instalment.
The price per Common Share and the number of
Common Shares may be fixed at the time the share purchase contracts are issued or may be determined by reference to a specific formula
or method set forth in the share purchase contracts. We may issue share purchase contracts in accordance with applicable laws and in
such amounts and in as many distinct series as we may determine.
The share purchase contracts may be issued separately
or as part of units consisting of a share purchase contract and beneficial interests in debt securities, or debt obligations of third
parties, including U.S. treasury securities or obligations of our subsidiaries, securing the holders’ obligations to purchase the
Common Shares under the share purchase contracts, which we refer to in this prospectus as share purchase units. The share purchase contracts
may require us to make periodic payments to the holders of the share purchase units or vice versa, and these payments may be unsecured
or refunded and may be paid on a current or on a deferred basis. The share purchase contracts may require holders to secure their obligations
under those contracts in a specified manner.
Holders of share purchase contracts are not shareholders
of the Company. The particular terms and provisions of share purchase contracts offered by any prospectus supplement, and the extent
to which the general terms and provisions described below may apply to them, will be described in the prospectus supplement filed in
respect of such share purchase contracts. This description will include, where applicable: (i) whether the share purchase contracts
obligate the holder to purchase or sell, or both purchase and sell, Common Shares and the nature and amount of each of those securities,
or the method of determining those amounts; (ii) whether the share purchase contracts are to be prepaid or not or paid in instalments;
(iii) any conditions upon which the purchase or sale will be contingent and the consequences if such conditions are not satisfied;
(iv) whether the share purchase contracts are to be settled by delivery, or by reference or linkage to the value or performance
of Common Shares; (v) any acceleration, cancellation, termination or other provisions relating to the settlement of the share
purchase contracts; (vi) the date or dates on which the sale or purchase must be made, if any; (vii) whether the
share purchase contracts will be issued in fully registered or global form; (viii) the material income tax consequences of
owning, holding and disposing of the share purchase contracts; and (ix) any other material terms and conditions of the share
purchase contracts including, without limitation, transferability and adjustment terms and whether the share purchase contracts will
be listed on a stock exchange.
Original purchasers of share purchase contracts
will be granted a contractual right of rescission against the Company in respect of the conversion, exchange or exercise of such share
purchase contract. The contractual right of rescission will entitle such original purchasers to receive the amount paid upon conversion,
exchange or exercise, upon surrender of the underlying securities gained thereby, in the event that this prospectus (as supplemented
or amended) contains a misrepresentation, provided that: (i) the conversion, exchange or exercise takes place within 180 days of
the date of the purchase of the convertible, exchangeable or exercisable security under this prospectus; and (ii) the right of rescission
is exercised within 180 days of the date of the purchase of the convertible, exchangeable or exercisable security under this prospectus.
This contractual right of rescission will be consistent with the statutory right of rescission described under Section 131 of the
B.C. Securities Act, and is in addition to any other right or remedy available to original purchasers under Section 131 of the B.C.
Securities Act or otherwise at law.
The foregoing summary of certain of the principal
provisions of the securities is a summary of anticipated terms and conditions only and is qualified in its entirety by the description
in the applicable prospectus supplement under which any securities are being offered.
CERTAIN
INCOME TAX CONSIDERATIONS
The applicable prospectus supplement may describe
certain Canadian federal income tax consequences to an investor who is a non-resident of Canada or to an investor who is a resident of
Canada of acquiring, owning and disposing of any of our securities offered thereunder. The applicable prospectus supplement may also
describe certain U.S. federal income tax consequences of the acquisition, ownership and disposition of any of our securities offered
thereunder by an initial investor who is a U.S. person (within the meaning of the U.S. Internal Revenue Code of 1986), including,
to the extent applicable, such consequences relating to debt securities payable in a currency other than the U.S. dollar, issued at an
original issue discount for U.S. federal income tax purposes or containing early redemption provisions or other special items. Investors
should read the tax discussion in any prospectus supplement with respect to a particular offering and consult their own tax advisors
with respect to their own particular circumstances.
PLAN
OF DISTRIBUTION
New Issue
We may issue our securities offered by this prospectus
for cash or other consideration (i) to or through underwriters, dealers, placement agents or other intermediaries, (ii) directly
to one or more purchasers, or (iii) in connection with acquisitions of assets or shares or another entity or company. The consideration
for an acquisition of assets or shares of another entity or company may consist of any of the securities covered hereby separately, a
combination of such securities, or any combination of, among other things, securities, cash or the assumption of liabilities.
Each prospectus supplement with respect to our
securities being offered will set forth the terms of the offering, including:
| · | the
name or names of any underwriters, dealers or other placement agents; |
| · | the
number and the purchase price of, and form of consideration for, our securities; |
| · | any
commissions, fees, discounts and other items constituting underwriters’, dealers’
or agents’ compensation. |
Our securities may be sold, from time to time,
in one or more transactions at a fixed price or prices which may be changed or at market prices prevailing at the time of sale, at prices
related to such prevailing market price or at negotiated prices, including sales in transactions that are deemed to be ATM Distributions,
including sales made directly on the TSX, NYSE or other existing trading markets for the securities. The prices at which the securities
may be offered may vary as between purchasers and during the period of distribution. If, in connection with the offering of securities
at a fixed price or prices, the underwriters have made a bona fide effort to sell all of the securities at the initial offering
price fixed in the applicable prospectus supplement, the public offering price may be decreased and thereafter further changed, from
time to time, to an amount not greater than the initial offering price fixed in such prospectus supplement, in which case the compensation
realized by the underwriters will be decreased by the amount that the aggregate price paid by purchasers for the securities is less than
the gross proceeds paid by the underwriters to the Company. The Company reserves the right to issue securities under this prospectus
on terms outside intended parameters disclosed in this prospectus.
Only underwriters named in the prospectus supplement
are deemed to be underwriters in connection with our securities offered by that prospectus supplement.
Under agreements which may be entered into by
us, underwriters, dealers and agents who participate in the distribution of our securities may be entitled to indemnification by us against
certain liabilities, including liabilities under the U.S. Securities Act and applicable Canadian securities legislation, or to contribution
with respect to payments which such underwriters, dealers or agents may be required to make in respect thereof. The underwriters, dealers
and agents with whom we enter into agreements may be customers of, engage in transactions with, or perform services for, us in the ordinary
course of business.
No underwriter or dealer involved in an ATM Distribution,
no affiliate of such underwriter or dealer and no person acting jointly or in concert with such underwriter or dealer has over-allotted,
or will over allot, our securities in connection with an ATM Distribution of our securities or effect any other transactions that are
intended to stabilize the market price of our securities during an ATM Distribution. In connection with any offering of our securities
other than in an ATM Distribution, the underwriters may over-allot or effect transactions which stabilize or maintain the market price
of our securities offered at a level above that which might otherwise prevail in the open market. Such transactions, if commenced, may
be discontinued at any time.
AGENT
FOR SERVICE OF PROCESS
Christopher Noel Dunn and Robert Getz, directors
of the Company, reside outside of Canada. Each has appointed the following agent for service of process in Canada:
Name
of Person |
|
Name
and Address of Agent |
| Christopher
Noel Dunn and Robert Getz |
|
Blakes Vancouver Services Inc. c/o Blake,
Cassels & Graydon LLP
Suite 3500 – 1133 Melville Street,
Vancouver, British Columbia, V6E 4E5, Canada |
Purchasers are advised that it may not be possible
for investors to enforce judgments obtained in Canada against any person or company that is incorporated, continued or otherwise organized
under the laws of a foreign jurisdiction or resides outside of Canada, even if the party has appointed an agent for service of process.
LEGAL
MATTERS
Certain
legal matters related to our securities offered by this prospectus will be passed upon on our behalf by Blake, Cassels & Graydon
LLP, with respect to matters of Canadian law, and Paul, Weiss, Rifkind, Wharton & Garrison LLP, with respect to matters
of United States law.
SCIENTIFIC
AND TECHNICAL INFORMATION
Certain
scientific and technical information relating to the Caraíba Operations, Xavantina Operations and Tucumã Project
contained in this prospectus and the documents incorporated by reference is derived from, and in some instances is an extract from, the
Caraíba Operations Technical Report, the Xavantina Operations Technical Report and the Tucumã Project Technical Report
(collectively, the “Technical Reports”).
Each co-author of the Technical Reports listed
in the section entitled “Interest of Experts” of this prospectus is a “qualified person” as defined in
NI 43-101 (“QP”) and has reviewed, approved and verified certain scientific and technical information in this prospectus
that is derived from the Technical Reports.
Reference
should be made to the full text of the Technical Reports which have been filed with certain Canadian securities regulatory authorities
pursuant to NI 43-101 and is available for review under the Company’s profiles on SEDAR at www.sedarplus.ca/landingpage/
and on EDGAR at www.sec.gov. Alternatively, copies of the Technical Reports may be inspected during normal business hours at the
Company’s head office.
INTEREST
OF EXPERTS
The
scientific and technical information contained in this prospectus and the documents incorporated by reference therein were reviewed and
approved by Cid Gonçalves Monteiro Filho, SME RM (04317974), MAIG (No. 8444), MAusIMM (No. 3219148) and Resource Manager
of the Company, who is a QP.
The Caraíba Operations Technical Report
was authored by Porfírio Cabaleiro Rodriguez, FAIG, Bernardo Horta de Cerqueira Viana, FAIG, Fábio Valério Câmara
Xavier, MAIG and Ednie Rafael Moreira de Carvalho Fernandes, MAIG all of GE21, Dr. Beck Nader, FAIG of BNA and Alejandro Sepulveda,
Registered Member (#0293) (Chilean Mining Commission) of NCL. Each of Porfírio Cabaleiro Rodriguez, FAIG, Bernardo Horta de Cerqueira
Viana, FAIG, Fábio Valério Câmara Xavier, MAIG, Ednie Rafael Moreira de Carvalho Fernandes, MAIG, Dr. Beck Nader,
FAIG and Alejandro Sepulveda, Registered Member (#0293) (Chilean Mining Commission) is a QP and “independent” of the Company
within the meanings of NI 43-101, prepared the Caraíba Operations Technical Report in accordance with NI 43-101 and also reviewed
and approved the scientific and technical information relating to the Caraíba Operations contained in this prospectus.
The Xavantina Operations Technical Report was
authored by Porfírio Cabaleiro Rodriguez, FAIG, Leonardo de Moraes Soares, MAIG and Guilherme Gomides Ferreira, MAIG all of GE21.
Each of Porfírio Cabaleiro Rodriguez, FAIG, Leonardo de Moraes Soares, MAIG and Guilherme Gomides Ferreira, MAIG is a QP and “independent”
of the Company within the meanings of NI 43-101, prepared the Xavantina Operations Technical Report in accordance with NI 43-101 and
also reviewed and approved the scientific and technical information relating to the Xavantina Project contained in this prospectus.
The
Tucumã Project Technical Report was authored by Kevin Murray, P. Eng., Erin L. Patterson, P.E. and Scott C. Elfen, P.E. all of
Ausenco Canada (or its affiliate Ausenco USA in the case of Ms. Patterson), Carlos Guzmán, FAusIMM RM CMC of NCL and Emerson
Ricardo Ré, MSc, MBA, MAusIMM (CP) (No. 305892), Registered Member (No. 0138) (Chilean Mining Commission) and Resource
Manager of the Company on the date of the report (now of HCM). Each of Kevin Murray, P. Eng., Erin L. Patterson, P.E. and Scott C. Elfen,
P.E., Carlos Guzmán, FAusIMM RM CMC and Emerson Ricardo Ré, MAusIMM (CP), is a QP within the meaning of NI 43-101, prepared
the Tucumã Project Technical Report in accordance with NI 43-101 and also reviewed and approved the scientific and technical
information relating to the Tucumã Project contained in this prospectus. Each of Kevin Murray, P. Eng., Erin L. Patterson, P.E.
and Scott C. Elfen, P.E., and Carlos Guzmán, FAusIMM RM CMC are “independent” of the Company within the meaning of
NI 43-101. Emerson Ricardo Ré, MAusIMM (CP), as Resource Manager of the Company (on the date of the report and now of HCM), was
not “independent” of the Company on the date of the report, within the meaning of NI 43-101.
The
aforementioned companies and persons beneficially owned, or controlled or directed, directly or indirectly, either less than one percent
or no securities of the Company or of any associate or affiliate of the Company when they prepared the reports and statements referred
to, or following the preparation of the reports and statements, and did not receive any direct or indirect interest in any securities
of the Company or of any associate or affiliate of the Company in connection with the preparation of such reports and statements other
than Mr. Ré, who was employed by the Company as Resource Manager until April 30, 2022 (now at HCM) and still
holds 13,329 Options, 4,540 PSUs and 964 RSUs as at the date of this prospectus.
None of the aforementioned firms or persons,
nor any directors, officers or employees of such firms, are currently, or are expected to be elected, appointed or employed as, a director,
officer or employee of the Company or of any associate or affiliate of the Company other than Mr. Monteiro, who has been employed
by the Company, as Resource Manager, since February 2023.
AUDITORS,
REGISTRAR AND TRANSFER AGENT
The Company’s auditors are KPMG, having
an address at Suite 1100, 777 Dunsmuir Street, PO Box 10426 Pacific Centre, Vancouver, British Columbia, Canada V7Y 1K3. KPMG has
confirmed that they are independent with respect to the Company within the meaning of the relevant rules and related interpretations
prescribed by the relevant professional bodies in Canada and any applicable legislation or regulation, and that they are independent
accountants with respect to the Company under all relevant U.S. professional and regulatory standards.
The
transfer agent and registrar for the Common Shares in Canada is Computershare Investor Services Inc., having an address at 510 Burrard
Street, 3rd Floor, Vancouver, British Columbia V6C 3B9. The transfer co-agent for the Common Shares in the United States is Computershare
Trust Company, N.A., having an address at 250 Royall Street, Canton, Massachusetts 02021, United States. The registrar and trustee
for the Notes is Computershare Trust Company, N.A., having an address at 6200 South Quebec Street, Denver, Colorado, 80111, United States.
WHERE
YOU CAN FIND MORE INFORMATION
We are required to file with the securities commission
or authority in each of the applicable provinces and territories of Canada annual and quarterly reports, material change reports and
other information. In addition, we are subject to the informational requirements of the U.S. Exchange Act, and, in accordance with the
U.S. Exchange Act, are also required to file reports with, and furnish other information to, the SEC. Under a multijurisdictional disclosure
system adopted by the United States and Canada, these reports and other information (including financial information) may be prepared
in accordance with the disclosure requirements of Canada, which differ in certain respects from those in the United States. As a foreign
private issuer, we are exempt from the rules under the U.S. Exchange Act prescribing the furnishing and content of proxy statements,
and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained
in Section 16 of the U.S. Exchange Act. In addition, we are not required to publish financial statements as promptly as U.S. companies.
You
may read any document we file with or furnish to the securities commissions and authorities of the provinces and territories of Canada
through SEDAR and any document we file with, or furnish to, the SEC are electronically available on the SEC’s EDGAR website, accessible
at www.sec.gov.
A registration statement on Form F-10 has
been or will be filed by the Company with the SEC in respect of the offering of securities. The registration statement, of which this
short form prospectus constitutes a part, contains additional information not included in this short form prospectus, certain items of
which are contained in the exhibits to such registration statement, pursuant to the rules and regulations of the SEC.
ENFORCEABILITY
OF CIVIL LIABILITIES
We are a company incorporated under the BCBCA.
A number of our directors and most of our officers and the experts named in this prospectus, are residents of Canada or otherwise reside
outside the United States, and all or a substantial portion of their assets may be, and a substantial portion of the Company’s
assets are, located outside the United States. We have appointed an agent for service of process in the United States (as set forth above),
but it may be difficult for holders of securities who reside in the United States to effect service within the United States upon those
directors, officers and experts who are not residents of the United States. It may also be difficult for holders of securities who reside
in the United States to realize in the United States upon judgments of courts of the United States predicated upon our civil liability
and the civil liability of our directors, officers and experts under the United States federal securities laws. We have been advised
that a judgment of a U.S. court predicated solely upon civil liability under U.S. federal securities laws or the securities or “blue
sky” laws of any state within the United States, would likely be enforceable in Canada if the United States court in which the
judgment was obtained has a basis for jurisdiction in the matter that would be recognized by a Canadian court for the same purposes.
We have also been advised, however, that there is substantial doubt whether an action could be brought in Canada in the first instance
on the basis of the liability predicated solely upon U.S. federal securities laws.
We will file with the SEC, concurrently with
our registration statement on Form F-10 of which this prospectus is a part, an appointment of agent for service of process on Form F-X.
Under the Form F-X, we will appoint CT Corporation System, 28 Liberty Street, New York, New York 10005, as our agent for service
of process in the United States in connection with any investigation or administrative proceeding conducted by the SEC, and any civil
suit or action brought against or involving us in a U.S. court arising out of or related to or concerning the offering of securities
under this prospectus.
WELL-KNOWN
SEASONED ISSUER
On
December 6, 2021, the securities regulatory authorities in each of the provinces and territories of Canada each independently adopted
a series of substantively harmonized blanket orders, including in British Columbia, BC Instrument 44--503 – Exemption from Certain
Prospectus Requirements for Canadian Well-known Seasoned Issuers (together with the equivalent local blanket orders in each of the
other provinces and territories of Canada, collectively, the “WKSI Blanket Orders”). The WKSI Blanket Orders were
adopted to reduce regulatory burden for certain large, established reporting issuers with strong disclosure records associated with certain
prospectus requirements under National Instrument 44-101 – Short Form Prospectus Distributions and National
Instrument 44-102 – Shelf Distributions (“NI 44-102”). The WKSI Blanket Orders came into force on January 4,
2022 and allow “well-known seasoned issuers”, or “WKSIs”, to file a final short form base shelf prospectus as
the first public step in an offering, and exempt qualifying issuers from certain disclosure requirements relating to such final short
form base shelf prospectus. As of the date hereof, the Company has determined that it qualifies as a “well-known seasoned issuer”
under the WKSI Blanket Orders.
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