Ero Copper Corp. (ERO) Q2 2026 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the Ero Copper Second Quarter 2026 Operating and Financial Results Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Farooq Hamed, VP, Investor Relations. Please go ahead.

Thank you, operator. Good morning, and welcome to Ero Copper's second quarter earnings call. Our operating and financial results were released yesterday afternoon and are available on our website, along with our financial statements and MD&A for the 3 and 6 months ended June 30, 2026. A corresponding earnings presentation can be downloaded directly from the webcast and is also available in the Presentations section of our website. Joining me on the call today are Makko DeFilippo, President and Chief Executive Officer; Wayne Drier, Executive Vice President and Chief Financial Officer; Gelson Batista, Executive Vice President and Chief Operating Officer; and Courtney Lynn, Executive Vice President, External Affairs and Strategy. Before we begin, I'd like to remind everyone that today's discussion will include forward-looking statements, which involve risks and uncertainties that may cause actual results to differ materially. For a detailed discussion of these risks and their potential impact on our business, please refer to our most recent annual information form available on our website, as well as on SEDAR and EDGAR. Unless otherwise noted, all figures discussed today are in U.S. dollars. With that, I'll now turn the call over to Makko DeFilippo.

Thank you, Farooq, and good morning. I appreciate everyone taking the time to join us today. As I reflected on our results this quarter, what stood out most was not any one individual metric, but the breadth of progress we are seeing across the business. Our efforts to reshape Ero are now increasingly visible in both our operating and financial results. A meaningful part of that progress traces back to OneEro, a company-wide initiative we launched at the start of 2025. OneEro is designed to streamline how we operate, improve efficiency and unlock synergies across operations, human resources, procurement and finance, while investing in people, systems and processes to drive frontline excellence in data and analytics. We have fundamentally changed how we work together, brought leadership changes on site and across the organization. These changes are translating into safer, stronger operational performance, higher cash flows and meaningful balance sheet improvements, allowing us to accelerate longer-term growth within our portfolio. These were the commitments I made to shareholders at the start of 2025, and we are delivering on that. These changes are coming together at exactly the right time. Paired with commodity price tailwinds, our operational momentum drove another quarter of solid financial performance. Cash flow from operations increased nearly 50% quarter-on-quarter to approximately $138 million, and adjusted EBITDA increased to $144 million. Stepping back to the first half as a whole, really illustrates how much our business has changed over the past year. Cash flow from operations for the first 6 months of 2026 increased to approximately $231 million from $156 million in the first half of 2025. Adjusted EBITDA increased to $269 million from $146 million over the same period. Stronger cash generation has enabled us to make significant progress on deleveraging our balance sheet, one of our key strategic priorities this year. Over the past 18 months, we have reduced net debt by approximately $100 million, while improving our net debt leverage ratio to 0.8 from a peak of 2.6 at the start of 2025. As outlined in our news release, we repaid an additional $25 million on our revolving credit facility in July, bringing total payments in 2026 to $60 million. OneEro has been an important contributor to that progress, and we can point to several tangible examples of the value it is creating across the business. Operationally, investments we continue to make in infrastructure, equipment, people, processes and technology are increasingly being reflected in our results. Our copper operations produced a combined 17,315 tonness of copper during the second quarter at a consolidated C1 cash cost of $2.42 per pound. At Caraiba, we are sustaining the higher throughput rates we achieved at the end of last year following our completion of a substantial debottlenecking effort and remain on track for a new annual throughput record in 2026. At Tucuma, plant throughput increased 27% quarter-on-quarter. And in June, we completed the first phase of our tailings filtration expansion. During the second half of the year, we are on track to install and commission 3 new modular filters, which are expected to significantly increase filtration capacity and support higher plant throughput into the future. At Xavantina, important investments in ventilation and cooling are supporting improving -- improved mining and development rates, and we saw that reflected during the quarter. Our focus on bringing forward value from our gold concentrate program coincided with the end of the rainy season, which allowed us to recover more gold from our historic gold concentrates. Together, improved mine performance and increased contributions from historic gold concentrates drove 170% quarter-over-quarter increase in total gold from Xavantina to more than 20,000 ounces. This included 8,693 ounces of mined gold production at a C1 cash cost of $1,586 per ounce and 11,860 ounces recovered from historic concentrates at a C1 cash cost of $633 per ounce. We expect the successful commissioning and ramp-up of our mobile filter press and industrial dryer to be a real benefit to our concentrate operations through the rest of this year. The collective improvements we have made and are making across our portfolio have positioned us for a strong second half of 2026. Our copper operations remain well positioned against full year guidance with stronger production expected in the second half. We have also maintained consolidated copper C1 cash cost guidance with unit costs expected to decline sequentially through the remainder of the year. At Xavantina, we expect mining rates, throughput and mine gold production to be meaningfully higher in the second half, with unit costs declining as production increases. The slower start to the year means we now expect mine gold production at the low end of the maintained guidance range. And as a result, we have updated full year C1 cash cost guidance to $1,100 to $1,350 per ounce and our all-in sustaining cost guidance to $2,200 to $2,700 per ounce. We have also increased our consolidated capital expenditure guidance by $10 million to include the approval of a new power line at Xavantina. Once operational, the power line is expected to strengthen site infrastructure, support our ongoing efforts to grow our operational footprint at Xavantina and importantly, reduce power transmission costs, allowing this investment to effectively pay for itself within 2 years. At Furnas, our June project update showed continued high-grade continuity with mineralization extending both at depth and along strike, an encouraging sign for the life of mine production plan we outlined in the PEA. We are well advanced on the 45,000-meter Phase 3 drill program and remain firmly on track to complete it before year-end. In parallel, we are progressing various work streams in support of a pre-feasibility study that we expect to publish in 2027. In summary, our strategy is working. We are investing in and strengthening operating performance across the portfolio, realizing measurable benefits from OneEro, converting that progress into cash flow and balance sheet improvement and rapidly advancing Furnas as Ero's next major leg of growth. Before I turn the call over to Gelson, I also want to remind everyone that we'll be hosting our Capital Markets Day in Sao Paulo on Monday, September 14. For those of you interested in attending, please reach out to our Investor Relations team for more information and to register. We look forward to seeing many of you there. With that, I will turn the call over to Gelson.

Thank you, Makko, and good morning, everyone. As Makko outlined, we are entering the second half with improving performance across all 3 operations. I will provide some additional detail on the underlying operating drivers and our expectation for the remaining on our key projects. At Caraiba, copper production totaled 8,351 tonnes during the quarter. Lower planned head grades were partially offset by slightly higher throughput and improved recoveries. Looking ahead, we expect stronger production at Caraiba in the second half. This should be driven by access to higher grade benches at Surubim, as well as higher grades and tonnage from Pilar due to planned stope sequencing. We expect the higher throughput levels, grades and production in the second half of the year. And as a result, C1 cash costs are expected to decline sequentially through the remainder of the year. At Tucuma, copper production increased approximately 6% quarter-over-quarter to 8,964 tonnes as the 27% increase in plant throughput more than offset the planned decrease in processed grades. Looking to the balance of the year at Tucuma, we expect sustained higher throughput rates to increase overall processed tonnes, while copper grades are expected to moderate in accordance with the mine plan. As a result, production is expected to be modestly higher in the second half, while C1 cash costs should remain relatively stable, supporting our maintained full year production and cost guidance for Tucuma. As Makko discussed, we completed the expansion of Tucuma 3 existing filter presses in June. We continue to expect the new 3 modular filters to be delivered through the third quarter and commissioned during the fourth quarter. The combined initiatives are expected to increase filtration capacity and support higher plant throughput as we exit 2026. At Xavantina, completion of the ventilation and cool tie-ins supported higher mining rates, increased throughput and improved access to higher-grade stopes beginning in May. We have these benefits to become increasingly visible through the second half as mining rates continue to improve quarter-on-quarter. During Q2, we also advanced process optimization work at Xavantina processing plant to improve plant recoveries and increase efficiency. This work included a modest change to the overall process to achieved as well as new investments in flotation cells and the new Falcon concentrator. Our quarter-on-quarter increase in recoveries reflect these improvements and ongoing optimization work. For the remaining of the year, we expect mining rates and throughput to increase significantly. Approximately 65% of full year mine gold production is expected in the second half with unit cost declining as production increases. We are focusing on delivering value from our historical gold concentrate initiative. During the second quarter, we recovered 11,860 ounces of gold with sales volumes increasing significantly from Q1. We expect volumes to continue benefiting from dryer seasonal conditions, as well as from the mobile filter press and industrial dryer we successfully commissioned at the end of the quarter. I will now turn the call over to Wayne to walk through our financial results.

Thank you, Gelson, and good morning, all. Our second quarter financial results reflected solid copper production, strong metal prices and a 65% quarter-on-quarter increase in gold sales. These factors drove quarterly revenue to $284.3 million, up 8% from the first quarter. As Makko noted, cash flow from operations increased to $138 million, while adjusted EBITDA increased to $144 million. This stronger cash generation has provided us with the financial capacity to accelerate debt reduction. Net debt declined by $38 million during Q2 to approximately $453 million, while last 12-month adjusted EBITDA increased to $533 million. Together, these factors reduced our net debt leverage ratio to approximately 0.8x. We continued that progress after quarter end, repaying an additional $25 million on our revolving credit facility in July, bringing total repayments in 2026 to $60 million. Our liquidity position also improved during the period, increasing $36 million to $182 million, including $102 million of cash and cash equivalents and $80 million of availability under the revolver. Turning to foreign exchange. While the stronger BRL continued to impact our reported operating costs and capital expenditures during the quarter, on a cash basis, our hedge program worked as intended, generating $13 million of realized gains, bringing the total gains for the first half of the year to $20 million. The hedge program is designed to protect approximately 70% of our consolidated full year operating and capital costs at an average floor of BRL 5.54 per U.S. dollar as described on Slide 8 of our results presentation. Assuming an exchange rate of $5.10 through year-end, we expect the hedge book to generate an additional $20 million to $25 million of realized gains, resulting in potential full-year gains of approximately $40 million to $45 million. While these gains substantially mitigate the cash impact of the stronger real, they are not included in C1 cash costs. As a result, reported unit costs remain sensitive to the local currency and to inflationary pressures on inputs such as fuel, consumables, transportation and freight. If current currency and inflationary conditions persist through year-end, we estimate potential incremental impacts of approximately $0.10 per pound on reported consolidated copper C1 cash costs and approximately $100 per ounce on reported mined gold C1 cash costs at Xavantina. Again, the cash impact associated with the stronger real is expected to be substantially offset by realized gains from the hedge program. Turning to capital expenditures. We have updated full year consolidated guidance to $285 million to $330 million, an increase of $10 million from our previous range. The increase reflects the approval of a new power line at Xavantina. As Makko discussed, this investment is expected to strengthen site infrastructure, support future growth and reduce ongoing power transmission costs once operational. If current currency and inflationary conditions persist, we estimate a potential incremental impact of approximately $20 million to $25 million on reported capital expenditures. The cash impact associated with the stronger real is also expected to be substantially offset by the hedge gains I just discussed. With that, I'll pass the call back to Makko for some closing remarks.

Thank you, Wayne. Before we open it up to questions, a few points I would like to leave everyone with this morning. First, our operations are performing well, and we are positioned to deliver on our full year guidance with stronger performance at both our copper and gold operations expected in the second half of the year. Second, with strong cash flows, we expect to continue to deliver on our commitment of deleveraging our balance sheet. And third, we are rapidly advancing Furnas, where we are on track to complete the Phase 3 drill program well before year-end and deliver a pre-feasibility study in 2027. With that, we'll open the line for questions.

[Operator Instructions]

Operator, you can open the line for questions.

Yes. Are you not hearing me? [Operator Instructions] Sorry? Are you able to hear me now?

We seem to be having some technical difficulties here. Just stay tuned. We're trying to open the line here for questions. Thank you.

I'm sorry, can you hear me now? This is the operator. Are you able to hear me now? Okay. I'm getting worried that everyone else that others in the call can hear me. So what I'm going to do is ask the presenter line to reconnect. Perhaps the issue is on their end. So, if the presenter -- I'll just ask them now. Please standby, we'll get this resolved. Okay. We have our presenter line reconnected and they are able to hear me. So, let's get the question-and-answer session underway. [Operator Instructions] And our first question is from Matthew Murphy with BMO Capital Markets.

First question would be on the Tucuma tailings expansion. Can you just remind me what expansion was completed? And then what timeline are you currently looking at for adding these filters in the second half?

Yes. Hey, Matt, apologies for the delay there, everyone. So, the expansion that we completed so far was with our existing circuit. So, during the quarter, we added additional filtration plates to our 3 existing filters. That's about a net 8% improvement to tailings filtration capacity, and that was completed successfully during the quarter. Right now, our 3 modular filters are expected to arrive on site this quarter and be installed and operational in the fourth quarter.

Okay. Got it. And then on Xavantina, the addition of a dryer and filter press, what could that do for your Q3 concentrate sales?

Yes. Look, obviously, under the confines that we're at, we were unable to provide forward-looking guidance as we've talked about multiple times. That's related to the technical and scientific information that we have available. But what I can tell you, Matt, is that if you look at June and July, when we had those operational, both those months, we achieved more than 7,000 ounces of gold. And I think that speaks really well for Q3 and through the rest of the year.

The next question is from Guilherme Rosito with Bank of America.

So, my first question is on Xavantina and maybe, Makko, if you could just explore -- you haven't adjusted your production guidance and it sounded pretty confident on the call. So, maybe if you could just give us some color on what you guys are seeing already from July at Xavantina, what gives you -- makes you so confident that you're reaching guidance even after a rough first half of the operation? And maybe just if you could comment on that and what you guys are seeing in terms of grades and because they've been pretty volatile ever since you made the mechanization investments, right? So, maybe if you could just touch on that a bit. And second question is we're at 0.8x net debt to EBITDA, you generated cash this quarter from everything that looks like second half is stronger in production, therefore, in cash generation, so you're probably moving lower there. So, what's next now? What are your priorities in terms of capital allocation? Is this the time to maybe we can discuss shareholder returns or anything else? So, I just wanted to pick your brains there.

Perfect. Yes, we'll go through those in detail. A few things to unpack, but starting with Xavantina. I would say, look, as taking a step back here, as we discussed last quarter, we made very, very important investments at Xavantina in ventilation and cooling. What we've seen since we completed that tie-in is that we've been able to get back on track in terms of development rates. The reason that we're focused on the second half of the year at Xavantina and why we firmly expect to have a better second half is when you look at the stopes that we're developing into, particularly in San Antonio, we're developing into stopes that are higher grade, and they're also much thicker. What that translates to in operational terms is that every meter of development that we're doing now is releasing more ore to feed to the mill. And so, when you look at where we've been in the last several months, again, sort of May, June, July, all hitting those development rates that we need to achieve and really working towards getting these higher-grade stopes, larger stopes into the mine plan as we expect. Obviously, that we had a slightly slower ramp-up than we anticipated at the end of Q2, both in development in terms of getting to those development rates that we're achieving now and also as a consequence, mining rates -- but again, I think really the main thing to look forward to is how we see that translate into second half production at Xavantina. And I was just there with Gelson 2 weeks ago and really pleased to see the progress the team is making on site there to improve performance. Again, not just at the mine as we discussed, but as Matt asked, our concentrate -- gold concentrate sales. And as I mentioned, we're seeing really good progress on the -- not only the end of the rainy season, but also the filter and dryer that we put in place and achieving elevated levels for 2 months. Obviously, 2 months don't make a quarter and don't make a year. So, we've got a lot more work to do, but we're feeling good about where the mine is positioned and certainly where the gold concentrate program is positioned. This quarter, we -- I talked a little bit more about the operating costs associated with gold concentrates and as you can see, that's a very, very high-margin material and hence, our focus on delivering that to the bottom line. Hopefully, that answers your question, Xavantina. Happy to expand on that in a follow-up question. But getting to your second point on leverage and cash generation, absolutely, I'd say the cash inflection of our business, it's clear that it's already happened. We saw that happen in Q2 and in July, where we made another $25 million repayment on our revolver. Our objectives for this year that we set out were threefold. So, number one, to get below 1x leverage. We did that at the end of Q1. Obviously, coming at 0.8, we're progressing below that level. And step 2 is to pay down our revolver. As we mentioned, we paid to date $60 million in that revolver through the end of July. That means we have an additional $95 million to go. I think from our perspective, as a management team, we want to make sure that, that pace continues to decrease. We're making excellent progress so far. I think it's still too early to talk about shareholder return program. But obviously, it is top of mind, as everyone knows on this call, and we've talked about many times, Ero Copper was built around a philosophy of return on invested capital, and that certainly is one of our objectives. But we want to see us really achieving that second milestone, which is to pay down our revolver, and we've made excellent progress so far this year. We've got a bit more to go.

The next question is from Craig Hutchison with TD Cowen.

I wanted to ask about Tucuma and specifically, I guess, around the reserves. It's been about 5 years since you guys provided an updated reserve report. And over that period of time, obviously, copper prices have nearly doubled here. Just curious whether there's a plan to put up an updated report, whether you guys have done some drilling there and whether there's a potential to see some of the measured indicated resources come into the mine plan over the next couple of years.

Yes. Thanks for the question. For sure, that's something top of mind, and we've been working. We do expect to publish a technical report on Tucuma this year. So, stay tuned for that.

The next question is from Emerson Vieira with Goldman Sachs.

I have 3 questions maybe. First one on Caraiba. I think despite the low production grades and FX impacting costs, I mean, Q1 declined quarter-over-quarter, but it was helped by lower TC/RCs, right, that offset those impacts. You guys mentioned that you were able to achieve a $20 million savings due to renegotiations in TC/RCs. So, I just want to confirm if going forward into second half, TC/RCs will continue to be running at those lower levels that we saw in the second quarter and maybe providing some offset to other cost pressures? That's the first question.

Yes, sure. It's Wayne speaking here. I think it's important to point out, yes, we did get the benefit of renegotiated contracts for our concentrate sales. We sell our concentrate on term contracts, not on spot contracts. And so some of our historical contracts rolled off, and we were able to negotiate obviously much more favorable terms given the current environment. I would say though the $20 million you referred to is the total savings. We didn't obviously benefit, we didn't get the full benefit of the $20 million in Q2. So, that benefit will be spread over the remainder of the year. And we are -- our contracts allow us to basically sell both mines production into each contract. So, that benefit you may see depending on shipping schedule and depending on which contract we're selling into, you could see some of that benefit flow to Tucuma in the second half of the year rather than Caraiba.

Right. So, my second question goes on Tucuma. Can you please comment on what was the exit throughput at the plant? And what could be, I don't know, incremental throughput in the second half, given that you have increased the tailings filtration capacity by 8%.

Yes. I would say we're really encouraged by what we're seeing at Tucuma. If you look at where we got to in Q2 and some of the levels that we're achieving there, I think the most important thing to probably look at is if you take what we achieved in the second half of the quarter into July, we've been able to maintain a rate of between 250,000 and 260,000 tonnes per month. I think what's particularly noteworthy is that in July, we achieved a rate of throughput right around 250,000, but that included 5 days of downtime for a mill liner replacement. And so, I think we're really pleased to see the daily progress that's happening there and increasing production rates. And again, we think that bodes well for the second half of the year as we outlined in our guidance discussion.

Okay. Just last one here. On the capital allocation, just a follow-up actually. The company has $120 million in the revolving debt facility, right? And if we just assume, I mean, the same pace of amortization, does it make sense to believe that the company will be in a better position by 3Q, 4Q of next year to maybe update us on the shareholder distribution policy, please? Does it make sense about the timing?

Yes. Look, I think if you go back to whenever we talk about shareholder returns and the commitments we made, it was a 3-step process. So, number one, get leverage below 1, which we achieved in Q1. Obviously, we're doing great there. The second was to pay down our revolver. Again, coming back to the payment we made in July, that brings year-to-date total payments on our revolver to $60 million, meaning that we have $95 million left to go in that program. I think the pace of that second step obviously depends on commodity prices. We continue to see very strong tailwinds there and also operational performance in the second half of the year. So, I would say stay tuned on both those things, and we'll give more clarity on what that looks like later in the year once we achieve the second step.

The next question is from Fahad Tariq with Jefferies.

On the Xavantina concentrate, can you just remind us where we are on the remaining 80% of the stockpiles that were not sampled and when we should expect the next update?

Yes. Thank you. Look, just going back to Q4 last year for a bit of context, I'm sure everyone on this call is aware, but that was a value initiative that we announced in October of last year. At that time, we had sampled 20% of the known volume to develop a resource estimate. For -- as we've discussed before, under NI 43-101, we can't provide forward-looking guidance on information that's not supported by a 43-101 estimate. So really, unfortunately, unable to provide that information and clarity that you're looking for other than to say we've seen really strong sales in June, July coming out of dry season on the back of our filtration and concentrate program. We continue to expect this program to last through at least mid-2027 as we put out early in the year, and we see really strong sales in the second half, again, with the effort that we put into the filter press and dryer.

Okay. Great. And then just maybe a high-level question. Given where copper prices are now, is there anything in the portfolio that you're looking at differently, whether it's a brownfield opportunity or additional exploration spend at a particular asset? Just wondering if you're thinking about anything differently given how elevated copper prices are.

Yes. I don't think it's fundamentally changed the way we think about our business. We've continued to invest in exploration across the portfolio. It's been part of our strategy from day 1 when we started the company. Obviously, we've -- if you look at where our exploration dollars are allocated today, obviously, we're putting a big focus in Furnas as we've spoken to, but we've continued to allocate exploration dollars to earlier-stage opportunities throughout our portfolio. The last decade, we've built a really strong knowledge of the regions that we're operating in, and we're seeking to leverage those through some earlier-stage opportunities. But again, that's not a change in strategy that's continued over the last couple of years. Like could we, in the second half, see some of those programs getting a little bit more capital allocation perhaps but it's not going to fundamentally change the way that we think about our business or how we're operating.

The next question is from Stefan Ioannou with Cormark Securities.

Just back on Xavantina, just you mentioned this is kind of the first quarter where we're seeing reported C1 and AISC costs for the concentrate gold production. And just looking at the numbers for the latest quarter, should we sort of interpolate those as sort of a steady state run rate for costs? Or do you think they could come down even further going forward?

Yes. Look, I think they're pretty steady state. Obviously, there's a -- it's mostly variable costs, right? Because if you look at the component that makes up that C1 the overwhelming majority is going to be on transport costs. So, we don't see much of an opportunity even with increased sales to reduce those costs further. We obviously now are operating the filter and the dryer, which has increased that cost relative to where we were last year. But as you can see, $700 all-in sustaining cost at $4,200 gold is a pretty healthy margin by any means.

Definitely, definitely. And just before I got you, sorry, apologies to mine, maybe just one housekeeping question. Just when Wayne was talking about the FX hedge program, sorry, Wayne, did you say that the effect of the hedges are reflected in the C1 cash cost or not?

They are not reflected, Stefan.

Not. Okay, okay, okay.

Yes, they're below the line. But obviously, the way we run the business and we think about the business is around the exchange rate that we guided to at the beginning of the year, which was $5.40, and we structure our hedges to protect that level. So, that's why you see the fairly significant gains year-to-date.

The next question is from Orest Wowkodaw with Scotiabank.

I was wondering if you could give us an update on the shaft sinking project at Caraiba and what the time line is for, I guess, that to go into operation next year.

Yes. Thanks, Orest. Good question, and we'll have the opportunity in a few weeks to be the perfect person to review the progress there. Right now, we're just over 1,100 meters below surface. We've continued to see our sinking rate improve month-on-month since we started connecting that third leg, which is a fairly significant milestone in that project. I think the thing to keep in mind about the shafts, we started engineering on this back in 2020. The last shaft that was built at Polar was in 1986, and we're making this investment for the next several decades, not for one quarter or the next. But as we said last quarter, our objective is to get to shaft bottom by year-end with the progress that we've made so far and increasing. I talk to Gelson about this nearly daily. You look at some of the projects that are happening in the world today. I think that the team needs an extra month or 2 to make sure that we can deliver that project safely. We're going to go ahead and make that call 10 times out of 10. So, we'll have the opportunity to be on site in a few weeks to read that progress. I would say that, as I said, our sinking rate is improving. We're continuing to make significant improvements month-on-month. We need to see a bit faster pace here through the balance of the year to hit that milestone, but we're going to make sure that we do that safely and deliver that project for the next several decades.

No, that all totally makes sense. And then can you give us what about the budget? Where are you in terms of the capital spend on that? And are you seeing inflationary pressures?

Yes. We're not seeing much inflationary pressures there. We've got a small team that's on site that you'll meet that are coming in from South Africa. It's a third-party contractor that's doing that sinking rate. We'd have the same type of exposure that we do to our operations in terms of diesel prices because the hoist electrical powered. So, we're not seeing much in the way of inflation on the shaft itself. Obviously, if we make the decision to slow that rate down to make sure we deliver that project safely, there will be an incremental cost component, but it's relatively minor. And we think that if you look at where we're at against that budget, as I've said many times, we're very much through peak CapEx in our business. And so irrespective of kind of where we land through year-end, we see that capital coming down significantly into next year with this year being the last big year of CapEx that we have to spend.

Okay. And just to clarify, how much was left in the budget as of June 30 for that project?

Yes. So, if you look at what we said early on in the year, we had about $80 million to $90 million to spend this year with a stub into next year. We're about halfway through the budget on this year's spend. And what will be -- next year, we expect is a stub year of CapEx, right, as we switch that shaft over from its thinking phase into its operational phase.

[Operator Instructions] Our next question is from Rafael Barcellos with Bradesco.

My first question on Caraiba. Can you please provide like an update on the Pilar shaft in terms of the potential for productivity gains going forward and the timing for these gains? And of course, more color on what you're expecting in terms of the ramp-up of this project. And then moving to capital allocation, just a quick follow-up. I mean the company will probably turn into a net cash position by the end of the year. So, I'm just wondering if you could discuss more shareholder remuneration versus the preparation for starting the investment plans for Furnas. How do you expect to balance those things that could be interesting.

Yes. Perfect. Thank you. I think as Orest alluded to the shaft is making good progress. We continue to expect the full first year of full benefit to be 2028. Obviously, next year, '27 will be focused on transitioning that from the sinking phase into the operational phase after we reached shaft bottom. I think the easiest way to talk about the benefit is to give you the current experience in the future state. So, if you go right now to the deeper part of Pilar mine and you drive down the ramp, that can be -- can take up to about 1.5 hours. As you well know, underground mines in Brazil operate on 6-hour shifts. What that means in practical terms is we're starting out with 50% availability of our workforce in the deepest part of the mine. Obviously, we operate at multiple different levels. So, that's not true for the entire operation. But in the deeper higher-grade zones, that's the reality today. When the shaft is completed, it's been designed to get our entire workforce in and out of the mine in under an hour. So, we expect a very significant improvement in workforce productivity, improved access, improved ventilation. It will be a transformational investment that, again, if you go back to when the last shaft was built 1986, this one happening now, it's going to support the operation for decades to come. And there's no one more excited about finishing that project than me, having been involved with this since 2019, and we're making good progress. As I said to Orest, we're going to make sure that we deliver that project safely and on budget, and that's what we're committed to doing over the next -- the second half of this year and into next year. On the cash position and shareholder returns, yes, look, we're excited as everybody here. We're making great progress on our objectives that we committed to in 2025. I think the way that I would characterize our priorities in terms of capital allocation, we're still focused on that second step, which is paying down our revolver, right? We have $95 million left to pay down after the payment that we made in July. We're continuing to accelerate Furnas. It's not -- I would say it's not one or the other. If you look at where we're at in Furnas, we're going to finish effectively a 5-year drill program in the better part of 2 years, right? If you look at when we started drilling to this in October 2024 to the end of this year, we're going to complete all the 90,000 meters that were envisioned under that project, where we completed the PEA. We're rapidly advancing the PFS. So, I wouldn't look at it as an either/or. Obviously, if we see opportunity to accelerate Furnas and put more capital to work there, that's a great place to put capital. But we're working flat out on that project already. And so, taking a big step back, again, Furnas, first priority here, well, first priority was to get to below 1x leverage. We did that. Second priority, pay down our revolver. And number three, I think, come back to the market later this year when we've met that second milestone, which is to pay down our revolver.

If I may, like one follow-up, still on this part of the capital allocation topic. How do you see Ero Copper in the middle of these recent M&A trend that we have seen over the past few years in the copper sector. I mean, how do you see the company in this environment?

Look, as I always say, we have a corporate development team. They have a very, very important job in organization. We look at opportunities in the Americas for growth. We do that pretty thoughtfully in the lens of what our existing portfolio looks like. We have, I would say, one of the better, if not the best, from our perspective, development projects in the market, which is Furnas. We have an incredible pipeline of early-stage exploration projects that our exploration team is working on. And so, we look at opportunities outside of our business through that lens. So, we take reviews in the Americas very, very seriously. But I think our focus is really on executing on our own portfolio. We -- as I said, we have a corporate development team. They have an important job to do in our company, but we're really happy with where our portfolio sits today, and that's what we're focused on executing.

This concludes the question-and-answer session. I'd like to turn the call back over to Makko DeFilippo for any closing remarks.

Yes. Thank you, everyone. As always, our team is available. We appreciate your patience as we redial back in here. And just one last reminder on our Capital Markets Day in Sao Paulo. Look forward to seeing many of you there. Thank you very much. Have a great day.

This brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.