Southern Copper Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 27, 2023

There are 6 speakers on the call.

Operator

Good morning, and welcome to Southern Copper Corporation's First Quarter 2023 Results Conference Call. With us this morning, we have Southern Copper Corporation's Mr. Raul Jacob, Vice President, Finance Treasurer and CFO, who will discuss the results of the company for the Q1 2023 as well as answer any questions that you may have. The information discussed on today's call may include forward looking statements regarding the company's results and prospects, which are subject to risks and uncertainties. Actual results may differ materially and the company cautions not to place undue reliance on these forward looking statements.

Operator

Southern Copper Corporation undertakes no obligation to publicly update or revise any forward looking statements whether as a result of new information, future events or otherwise. All results are expressed in full U. S. GAAP. Now I will pass the call on to Mr.

Operator

Raul Jacob.

Speaker 1

Copper. Thank you very much, Carmen. Good morning, everyone, and welcome to Southern Copper's Q3 2023 Results Conference Call. In today's call, we will begin with an update on our view of the copper market Coopers' key results related to production, sales, operating costs, financial results, Expansion Projects and Environmental, Social and Government. After this, we will open the session for questions.

Speaker 1

Copper. At today's conference, I'm joined by Mr. Oscar Gonzalez Rocha, CEO of Southern Copper and Board Member as well as Mr. Leonardo Contreras, Board Member also a Board Member. Let's focus now on the copper market.

Speaker 1

In the Q1 of this year, the London Metal Exchange copper price decreased by 11% from the average of 4 point $0.53 per pound that we have in the Q1 of 2022. The average price as being $4.05 this past quarter. The price reduction, which is slightly lower And that this has been partially offset by the good news on China's economy. Our current copper prices are, as I say, at around $3.90 per pound. And we believe The prices are being affected by the following factors.

Speaker 1

One is the Reduction in global inflation, which may slow down or even stop interest rates the interest rate hike Coal, led by the Fed and the ECB. The bouncing back of the Chinese economy after its openness after the COVID strong COVID measures that they had. China's GDP has been growing at 4.5%, which is slightly higher than the expected 4% We do have some uncertainty regarding future production growth in Chile and Peru. These two countries together represent about 40 percent of the global supply and Chile recently reported that copper production declined in the 4th in the first quarter This year of about 4%. Considering how demand and supply are Evolving, the most relevant market intelligence houses for the copper market are currently expecting a market imbalance or small deficit K-1,000 tons for this year.

Speaker 1

This assumes our growth in demand between 2% and 2.5% the lower than expected supply growth estimated now between 1.5% 2%. And this is basically Due to the Q1 stoppages that we had in South America. Inventories are still very low Copper at about 411,000 tons as of March 31. These are one of the lowest marks since 2,005. Cooley.

Speaker 1

It is important to emphasize that copper plays a leading role in the global shift to clean energy, which correlates positively with our assertion that Copper. The underlying demand for copper will be strong in the long term. In this scenario, we believe the current cycle of low prices will be short lived. Copper. Now let's look at Southern Copper's production for the past quarter.

Speaker 1

Copper represented 77% of Coal sales in the Q1 of 2023. SEC's copper production registered an increase of 4% in the first Quarter in a quarter on quarter terms to stand at 223,272 tons. Our quarterly results reflects a 16% increase in production in Peru, mainly from the Cuajone operation that grew 48.5 percent. And this was basically the result of much more mineral production in Cuajone. As you may recall, this operation had and it was affected by an illegal stoppage in the first and Second quarters of 2022.

Speaker 1

So coming back to operation and operating at full capacity now, Cuajone had much more mineral production and better ore grades and recoveries. That certainly helped crude of 2.4%, mainly coming from La Caridad, whose production decreased by 11% due to a temporary lower ore grade. For 2023, we expect to produce 940,000 tons of copper, an increase of 5% over the 2022's final print. This goal will unfold as we have the Peruvian production at full speed, Copper, which coupled with new production in our Mexican operations through our Pilares and Buenavista Zinc concentrator projects. For molybdenum, it represented 11% of the company's sales value in the Q1 of this year and is currently our 1st sector.

Speaker 1

Molybdenum prices averaged $32 per pound in the quarter compared to the $19 that they averaged in the Q1 of 2022. This represents an increase in price Co 69%. Molybdenum production decreased by 9% in the Q1 of this year, And this was mainly driven by a drop in production at the Toquepala mine due to lower ore grades. The results were partially offset by higher production at Suajone, which increased its molybdenum production by 67% and La Caridad, which increased its moving production by 5%. These mines had a higher ore grade.

Speaker 1

In the case of Cuajone, obviously more volume as well and more better recoveries Coahuas. As you know, molybdenum is primarily used to produce special alloys for stainless steel Copper that requires significant levels of hardness and resistance to corrosion and heat. New uses for this metal are associated with lubricants, Sulfur filtering of heavy oil and shale gas production. Silver Represented 4% of our sales value in the Q1 of 2023 with an average price COO $20.53 per ounce in the quarter. This reflected a decrease of 6% in silver Copper is currently our 2nd byproduct.

Speaker 1

Mine silver production increased by 3% in the Q1 of this year after production rose at Cuajone and Toquepala. This was partially offset by a decrease in production at the Mexican operations. Refined silver production fell by 12% quarter over quarter, mainly driven by a drop in production at our IMSA refinery Consolidated, due to a temporary slowdown in purchases of 3rd party material. For zinc, it represented 3% of our sales value in Q1 of 2023 with an average price of $1.42 per pound in the quarter. This represents a decrease with regard to the 1st quarters of 2022 figure.

Speaker 1

Zinc mine production increased by 2% quarter on quarter and totaled 15,075 tons. This was driven primarily by an increase in production at the Santa Barbara and San Martin mines. Refined zinc production increased by 11% Copper in the Q1 of this year. For 2023, we expect to produce 116 1,000 tons of zinc, which represents an increase of 94% over the 2022 production level. This growth will be driven by the production and start up of the Buenavista zinc operations that should contribute this year with 52,000 tons Copperfield, more zinc production and by the recovery of the Inza mines production where better ore grade areas has been identified.

Speaker 1

For next year and on, we expect to produce over 200,000 tons of zinc per year. Financial results. For the Q1 of 2023, Company's sales were $2,800,000,000 This is $30,000,000 higher than sales for the Q1 of 2022. Copper. Expansion was primarily fueled by an increase in the sales volume of copper that grew by 10%, silver grew 15% and zinc 6%.

Speaker 1

This was partially offset by a decrease in the sales volume of molybdenum that decreased by 8% in sales. Metal prices fell for most of our products with the assumption of malignant that increased, as I mentioned, by 69%. Our total operating cost and expenses increased by $146,000,000 or 11% when compared to the Q1 of 2022. Main cost increment has been in inventory, consumption, repair materials, explosive reagents, sales expenses, diesel and fuel and operations contractors. These cost increases were partially compensated by exchange rate differences, purchased copper, lower purchased copper and other factors.

Speaker 1

When looking at our cost Copper. This past quarter, please keep in mind the following events. The Quahone mine illegal stoppage affected our Q1 production costs. The Russian invasion to Ukraine started in February of last year had an inflationary impact on costs that was mainly reflected The first quarter adjusted EBITDA was $1568,000,000 which represented a decrease C300,000,000 of 7% with regard to the $1678,000,000 registered in the Q1 of 2020. The adjusted EBITDA margin was 56% in the Q1 of this year versus 61% in the Q1 Copper of 2022.

Speaker 1

Operating cash cost per pound of copper before byproduct credits was $2.09 per pound in the Q1 of this year. That is $0.51 higher than the value for the Q4 of 2022. This 2% increase in operating cash costs before credits is a result of higher cost per pound from production, partially compensated by lower treatment and refining charges, Lower administrative expenses and higher premiums on refined copper sands. Regarding by products, we had a total credit of $631,000,000 or $1.33 per pound in the Q1 of this year. These figures represent a 16.3% decrease when compared with the credit $406,000,000 or $1.59 per pound that we had in the Q4 of last year.

Speaker 1

Total credit has increased for zinc and silver and decreased for molybdenum C. And Sulphuric acid. Let me point out that we had an adjustment Co. A negative adjustment on open sales of molybdenum this past quarter of $265,000,000 and that was compared to a positive adjustment on operating sales at the closing of the 4th quarter $141,000,000 So that is a main event that obviously affected our byproduct revenues in this past quarter visavis the Q4 of last year. Copper operating cash costs, including the benefit of byproduct credits, was 0.75 $0.04 per pound in the Q1 of this year.

Speaker 1

This cash cost was $0.31 higher than the cash cost of 0.44 Cents that we had in the Q4 of 2022. Of this increase, as I mentioned already, $0.05 came from higher cost per pound, mainly due to lower volume and $0.26 came from lower by product sales, resulting, as I mentioned, from lower prices of silver and zinc and the very significant open sales adjustment, a negative adjustment that we have some molybdenum sales in this Q1. Our net income in the Q1 of this year was $813,000,000 which represented a 4% increase when compared to a $784,000,000 registered in the Q1 of 2022. The net income margin in the Q1 of this year was 29% versus 28% in the Q1 Cross of 20.22. Cash flow from operating activities in the Q1 was $1185,000,000 which represented an increase of 44% over the 820 $1,000,000 post in the Q1 of 2022 and an increase of 10% over the $1082,000,000 post in the Q4 of last year.

Speaker 1

For capital investments, our current capital investment program for this decade exceeds $15,000,000,000 and includes investments in Buenavista Zinc, Co. Pilares, Pilar and El Arco projects in Mexico and in the Tia Maria, Los Chancas and Michiquillay projects in Peru. Capital forecast includes several infrastructure investments, including key investments to bolster Competitiveness of El Arco Projects. For the Mexican Projects, let me Concentrator in Sonora. As I say, this is a project located in the Buenavista deposit.

Speaker 1

We are building a new concentrator for zinc, and we are expecting this production facility to produce to add 100,000 tons of zinc and 20,000 tons of copper capacities per year. When operating, this facility will double the company's zinc production capacity and provide more than 2,000 operational jobs. Krohn. Currently, the capital budget for the project is $416,000,000 most of which has already been invested, and we are about to initiate operations this quarter, this Q2. For Pilares, also located in Sonora, This

Operator

is a

Speaker 1

former or a brownfield mine that we acquired a few years back. Cores located 6 kilometers away from La Caridad, and the project consists of an open pit mine operation with Copper production capacity of 35,000 tons of copper in concentrate. For the Pilares budget, it's 176 $1,000,000 of which $114,000,000 has been invested. The project is currently operating and delivering copper mineral oxide CACW facilities of the Caridad operation, and we expect to produce mineral for the Caridad concentrator at full capacity This is a copper greenfield project, which is strategically located 45 kilometers away from the Buenavista mines. We anticipate that Epirilar will operate as a conventional open pit mine with annual production capacity of 36,000 tons of copper capitals.

Speaker 1

This operation will use highly cost efficient and environmentally friendly SX EW technology. The budget for Pilar is R310 $1,000,000 The results from the experimental cats in the leaching process for Epirilar, have confirmed adequate levels of copper recovery. Basic engineering study is finished and the company continues to develop the project and engage in on-site environmental activities. The SX EW plant detail engineering is being developed on an ongoing basis, and we expect production to begin in 2020 Codified mine life is estimated at 13 years. For El Arco, Copper, located in the Baja California Peninsula.

Speaker 1

This is a world class copper deposit located in the central part Co. Of the Baja California Peninsula. The project includes an open pit mine combining concentrator and FXEW operations. And our production is expected to total 190,000 tons of copper and 105,000 ounces of gold. As of March 31, the company has completed environmental baseline study for the mine and industrial facilities and is reviewing basic engineering analysis to request environmental impact permits.

Speaker 1

For the Peruvian projects, We have the Tia Maria project located in the Arequipa region in Peru. And this is a project that will use state of the art SX EW technology Co. With the highest international environmental standards to produce 120,000 tons of refined copper capitals per year. The estimated capital budget for the project is $1,400,000,000 In the case of Los Chancas, also in Peru, it's a project located in the Apurimac region in Peru. Copperfield project located, as I say, in Apuimac, it's a copper and molybdenum porphyry deposit.

Speaker 1

The Los Chancas project envisions an open pit mine with a combined operation of concentrator and SXSW processes to produce 130,000 tons of copper and 7,500 tons of molybdenum annually. The estimated capital investment is $2,600,000,000 and the project is expected to begin operating in 2030. As of March of this year, part of the project's land continued to be occupied by illegal miners, Company, seventy of whom has been regularly registered their stakes in the Integral Registry of Mining Formalization or REINFO Pacific snow in Spanish. The company has requested and the authority has ordered the exclusion of these 70 informal miners from the REIT4 registry, so that they are now all illegal minors. The company has also filed criminal complaints and other legal remedies to physically expel illegal miners from the project.

Speaker 1

Michiquillay project. Copper. In June of 2018, Southern Copper signed a contract for the acquisition of the Michiquillay project in Cajamarca in Peru. Michiquillay is a world class mining project with inferred mineral resources of 2,300,000,000 tons with an estimated copper grade of 0.43. When developed, we expect Michiquillay to produce 225,000 tons of copper per year, Consolidated, along with byproducts of molybdenum, gold and silver.

Speaker 1

It will have an initial mine life of more than 25 years Consolidated and a competitive cash cost. We estimate an investment of approximately $2,500,000,000 that will be required and expect to initiate production by 2,030. In the Q4 of 2022, the company informed the Ministry of Energy and Mines that it has begun exploration activities and initiated an assessment of the Coastal Minerals Resource at depth. In 2023, in accordance with our social agreements with the Michiquillay and Encana communities, The company has hired unskilled labor and is paying for the use of surface land. We're supporting social programs communities as we roll out exploration activities.

Speaker 1

Environmental, social and governance Investment. SEC is committed to improving its ESG record by adopting best practices and informing Investment Committee and other stakeholders about our progress in these matters. This year, Cribo Mexico will present Edition number 15 of the Sustainable Development Report, Copper Corporation, which contains disaggregated information from Southern Copper Corporation and reaffirms our commitment to transparency and ongoing improvement. In 2022, we have placed particular importance on updating our strategy Cores for Climate Change, which includes targets to reduce greenhouse gas emissions. This year's report also Co.

Speaker 1

Provides information on our program and objectives with regard to promoting diversity and inclusion both Sustainable Development Committee. Corporate Corporation set up a sustainable development committee, Co, which is preside by an independent director. This committee's main objective is to support SEC's Corp's Board of Directors in its endeavors to supervise management of risks and opportunities in the Environment in the ambit of environmental, safety and health, community development, human rights and corporate governance. Co. The committee meets every quarter and has assessed diverse aspects of the company's ESG trajectory, including the addition to international agreements and management of water and mineral waste.

Speaker 1

The Sustainable Development Committee in its 3rd session, address climate change as well as diversity and inclusion and identified opportunities on the corporate governance front. 3rd party certification. In recognition of our commitment to implement best environmental, social and corporate government practices, our Buenavista del Cobre Mine, located in Mexico in Sonora, has obtained certification for 3 important ISO International Organization For Standardization Standards ISO 9,001 for Quality Management ISO 14,001 for environmental management and ISO 45,001 for occupational safety and health management. These certificates are further proof of our commitment to quality, the environment and the occupational safety Occupational Safety and Health. At Southern Copperas Corporation, Our employees' safety is our priority.

Speaker 1

Our unit in Hill located in Moquewa region in Peru have earned 1st place in the smelter and refinery category of the 26 national competition for mining spaces, organized by the Peruvian Institute of Mining Safety. This extension recognizes SCC's performance with regard to indicators of our employees, occupational safety and health and is a reflection of our ongoing commitment to ensuring Cognizant, the sustainability of our operations. Biodiversity, in March 2023, Environmental Management Unit at Buenavista del Cobre obtained certification from the Wildlife Habit Council Cognizant's recognition for our contributions to efforts to prevent the extension of the Mexican gray world. Thanks to these actions, populations of these species, which was on the brink of extension in the wild, has multiplied their natural habitat in Mexico. Going forward, we will continue to work side by side with society and authorities to serve the common good in the regions in which we operate.

Speaker 1

Community Development. At SEC, we continue to strengthen our community development model and currently operate 29 community centers that provide services Credit and the quality of life of the residents in the communities where we work. Recently, we renovated 2 community centers called Casa Grande in Santa Barbara, Chihuahua and Charcas in San Luis Potosi. These facilities will serve an Additional 21,000 peaks. Diversity and Inclusion.

Speaker 1

At the SEC, we're convinced Co. That valuing diversity, preventing discrimination and promoting openness to different ways of thinking are fundamental in all efforts Cores to develop inclusive workplace environments that promote the internal development of our employees and stakeholders. We're committed to driving the agenda for diversity and inclusion transversely throughout the company and in the communities around our operations. Our results in 2022 reflect the fruit of our efforts with a 16% increase in the number of women employed by SCC. Dividend announcement.

Speaker 1

Regarding dividends, as you know, it is the company policy COO, to review our cash position, effective cash flow generation from operations, capital investment plans and other financial needs at each Board meeting to determine the appropriate quarterly dividend. Accordingly, Copper. As announced to the market on April 20, the Board of Directors authorized a cash dividend of $1 per share of common stock Capital on May 23 to shareholders of record at the close of business on May 9, 2023. Cooley. Ladies and gentlemen, with these comments, we would like to end up our presentation today.

Speaker 1

Thank you very much for joining us and we would like now to open the floor for questions.

Operator

Thank you. And our first question comes from the line of Carlos De Alba with Morgan Stanley. Please proceed.

Speaker 2

Yes. Good morning, Raul, and everyone. Thank you for the call. Raul, would you please comment on how you see costs trending in the coming quarters. Clearly, the industry is facing a lot of cost pressures, but Southern Copper has always been a low cost producer.

Speaker 2

We've seen recent pressures obviously affecting the company, but any guidance will be very interesting to hear. And then my second question is regarding growth with specific wondering specifically wondering about Los Chancas. How quickly can you solve the situation there? We shared what you said that you got positive core rulings, but how quickly can you restart exploration or the works that you were doing at Los Chancas if you had to stop them? And combined with this, given the attractive profile of organic growth that you have, but with some of the challenges regarding the timing to execute on those.

Speaker 2

Would the company consider M and A opportunities? You've heard obviously that there is a couple of recent transactions where copper assets have been in focus. So I wonder to what extent the company will have appetite for a large relatively large medium acquisition in copper, given that so far you have focused the company has focused on smaller opportunities. Thank you.

Speaker 1

Okay. Thank you for your set of questions, Carlos. Okay. I'm going to touch base on each of them. If I skip one of your concerns, please let me know.

Speaker 1

Let me start by cost and production. We already mentioned that we're expecting an increase production of about 5% visavis last year for copper. And we are also expecting to have a much more production from for zinc In the case of our cost, we're expecting a better cash cost for the next quarters. And the reason for that is twofold. I mentioned already that we had to including our financials, a significant open sales reduction In molybdenum, it was $265,000,000 that we had to charged or decreased our sales at that amount.

Speaker 1

That obviously explain why the company visavis the market has shown this quarter lower than expected results regarding particularly EBITDA and some other So we're expecting not to have this type of adjustments in the second quarter. We're already Current prices for molybdenum are at about $22 per pound and we closed The past quarter at $24 per pound. So if there is an adjustment due to negative or To open sales of Linden, we will be relatively small than the one much more smaller than the one that we have acknowledge or register in the Q1. So that should improve our byproduct revenues in the Q2. We're also seeing on the total cost production, some trends that will reflect a better cost.

Speaker 1

Particularly in energy, we're seeing a much lower gas price than we had before. This that is helping our Energy Costs at the Mexican operations. We're seeing some lower fuel prices as well, and that will be much more noticeable in this Q2. So for production, our expectation is to produce for copper, 940,000 tons. For some cost reduction that should help to reduce our cash cost and some by product revenues, particularly in molybdenum this quarter and also through the year in zinc because we will have 52,000 tons coming from the new zinc concentrator that we're about to initiate production in the Buenavista mine.

Speaker 1

Considering the growth in the case of Los Chancas, we believe that we are in a different environment visavis the government relation that the company has had. Currently, We're seeing a much stronger commitment from the Peruvian authorities regarding promoting private investments in Peru, which is a positive event for us. In the case of Los Chancas in particular, we believe that Through the year, we will be able to remove these illegal miners from the Chancas premises. And with that, we can come back to exploration efforts. And more important than that, the beginning of Environmental Impact Assessment, which is after the feasibility study, the next step in our Corporate Solutions.

Speaker 1

Finally, in M and A, well, at this point, We have no we are not considering anything specific for M and A. However, it is The responsible thing to do in this case is to review any opportunities that may arise. And obviously, after a thoughtful review, advise our Board on or recommend our Board some action in this matter. But For now, we're not considering anything specific.

Speaker 2

All right. Thank you,

Speaker 1

You're welcome, Carlos.

Operator

Thank you. One moment for our next question please. And it comes from the line of Isabella Vasconcellos with Bradesco BBI. Please proceed.

Speaker 3

Corlikh. How will I have a couple of questions? So the first one, in terms of mining regulation and particularly in Mexico, what are the kind of expected impacts on your operations deriving from the new mining law and whether it changes anything for El Arco and the development of El Arco. Co. And my second question is specifically on the outlook for production for the coming years.

Speaker 3

We noticed that there was a slight delay on the startup of Pilares, if I'm not mistaken. So if you could comment a little bit on the expected production outlook for the coming years for the key commodities. So those are my questions. Thank you.

Speaker 1

Cooley. Thank you very much, Isabella. Okay. At this point, regarding the new mining law in Mexico, We don't see us let me first mention that currently the bill is not It has to pass the process in the Mexican Senate and the Senate has to approve it. There also the text that was Copper, approved by the House of Representatives of Mexico, has not significant effect in our current business and our organic growth so far.

Speaker 1

Now once we have A definite law, we will review it carefully and see if there are any points where it may impact And your second question is the outlook for production in the coming years. Already I mentioned on copper, we're expecting Cores to be at about 940,000 tons this year. For 2022 2024, we expect to produce 1,026,000 tons of copper. And the contribution at full capacity of Pilares and Buenavista Zinc. The copper production of the Buena Vista Zinc Concentrator.

Speaker 1

As you know, in this case, it is a zinc concentrator, but it does have some copper production. In the case of zinc, let me go on excuse me, for copper. In 2025, we're expecting to produce 1,020,000 tons of copper 2026, 1,100,000 Tons Copper and for 2027, 1,071,000 tons. In the case of zinc, This year, we will be we're expecting to produce 116,000 tons of zinc. And after that, we will be over 205,000 tons for the next 4 years No, no.

Speaker 1

It's the ore grades and the expected production of the new zinc concentrator will feed our production significantly for zinc in the next few years.

Speaker 3

That's very helpful. Thank you.

Speaker 1

You're welcome.

Operator

And it comes from the line of Hernan Kisluk with MetLife. Please proceed.

Speaker 1

Good morning. Thank you for taking my question. Actually an extension of the question on cost made by Carlos before. So I understand that cost inflation has affected not only you guys, but the industry as a whole. But at the end of the day, in mining, it's a game of who is at the lowest percentile of the cash cost curve.

Speaker 1

So season in the cash cost curve has changed during this period. To put it simply, Hernan, no. We have some change. We have we're still we believe that we're still in the 1st quartile of cash cost. I haven't seen the latest, I mean, this quarter's information.

Speaker 1

I'm not sure if it is available, But so far at the end of 2022, we were certainly at a very competitive Cross position. I mentioned already that we had some events that affected our cash cost In the Q1, mainly the impact of these negative sales adjustment on molybdenum. And for the next quarters, we should be lower than our $0.75 per pound that we marked in this past quarter due to more production coming from our operations and more credits visavis the same prices of coal by products due to higher zinc production and lower open sales adjustment for Malibu. That's our expectation. Obviously, we'll see what happens At the end of the day, what we're seeing in cost, generally speaking, is a reduction in several costs That has affected our operations in Mexico and Peru.

Speaker 1

Let me put you a practical example of what I mean. When the Russian invasion to Ukraine started, Well, Russia has been for many years a significant ammonia producer, And ammonia is one of the key elements for open pit explosives. So We had a tenfold increase in the price of the ammonia, tenfold. And that has decreased Significantly, now that there are some other sources that has been developed for these key elements for open pit explosives and some Russian production that has been passing through The different markets. So that is a practical example of what I mean.

Speaker 1

Some costs some higher costs related to This TRYI event has been coming back down. Copper and the company is doing its part by working on producing more copper as well as some more of our byproducts. Got it. Thank you very much. You're welcome.

Operator

Thank you. One moment for our next question please. Cross and Company. And it comes from the line of John Tumazos with Very Independent Research. Please proceed.

Speaker 4

Cooley. Thank you. The dividend of $1 was almost as large as net income. Should we infer from this that management expects net income to rebound to the $1.52 a Not likely to need money next year or the year after or Is the dividend a candidate to get adjusted because the payout is too large?

Speaker 1

Well, it's up to the Board. The Board, as I mentioned, look at the cash position of the company, see any requirements of cash. For instance, in terms of debt payments, we have no payments up to 2025 where we will pay $500,000,000 in debt. Last year, we have to pay $300,000,000 So we at this point have no significant debt payments. Prices were well better than what they are today.

Speaker 1

So For a forward looking on dividends, I would say that it will be a discussion at the board level. For now, the Board decided to pay a $1 dividend this past quarter to approve a $1 dividend that will be paid this quarter. But no, there are no One of the things that we stress is that our dividend policy is flexible depending on the conditions of the market, our cash flow generation and some and our growth plans. So this is something that we will review and the Board will make a decision

Speaker 4

So there is no simple mechanical formula Like 50% or 70% of earnings or cash flow?

Speaker 1

Yes, that's correct. There is no CAGR, which is tied to a specific payout ratio or anything similar. It depends on the way that the company Company, it's commitments to capital as well as any duties that we have regarding debts Group or things like that. So there is no specific rule regarding dividends.

Speaker 4

Thank you.

Speaker 1

Cooley. You're welcome. One thing that I'd like to stress is that even though we don't have a specific rule, We do have a very good track record of recognizing our shareholders through dividends. And depending on the company possibilities, the company has always paid a dividend. In certain moments, It has been a relatively higher one, as you mentioned, John, regarding the relationship between net earnings and the dividend pay, but it is always an ongoing discussion.

Speaker 1

But one thing that I can tell is that we don't want to hoard cash. That is something That is important for I believe that for our shareholders.

Operator

All right. And it comes from the line of Marcio Farid with Goldman Sachs.

Speaker 1

Cooley. Please proceed.

Speaker 5

Thank you, Jose. Hey, Hal. Thanks for the time. A quick two follow ups for me on my side, please.

Speaker 1

So could you a little bit closer to the microphone? We can't listen to you, Will. Is that a no? Cooley.

Operator

Please proceed.

Speaker 5

All right. Okay. Yes, so couple of follow ups for me. First of all, on the Malibu Daniel prices, Just wondering if you have any outlook that you can provide

Speaker 1

to us is a market that we have a hard

Speaker 5

time trying to track. So just trying to understand how sustainable the current high prices are, what has been the main drivers and how to think about it going into the end of the year because Yes, obviously, provided good core support after by products for Southern Copper, right? And secondly, specifically on Peru, it does feel like the worst of the social arrests have been left behind for now. Just trying to understand how you see the current operational environment in Peru. If there is anything that you would highlight going forward and How confident you are that we're going to be seeing some sort of instability when it comes to mining production in Peru.

Speaker 5

Thanks, Al.

Speaker 1

Co. You're welcome, Mario, and thank you very much for your question. On the drivers for molybdenum prices, it's very hard to What is going to happen? And let me explain you why. This is an extremely shallow market.

Speaker 1

Just to give you an idea in copper, on a yearly basis, there are about 25,000,000 tons of copper refined copper being produced and consumed. For molybdenum, it's less than $300,000 So It's a fraction, almost 10%, a little bit more than that, 15% in the volume of developed markets such as the copper one. What has happened in the Q4 as low as much as we understand and our commercial team has shared with us is that given the uncertainties that we had In Chile and Peru, major aluminum suppliers as well as copper. Some consumers decided to increase their inventories just to protect pipelines of production in their own activity, these industrial consumers. And that somehow move up Copper.

Speaker 1

The price of molybdenum. Well, production in Peru has been much more stable in some other locations. So that has made the prices to adjust downward. At this point, prices are at about $20 per pound for molybdenum, which is a good level for us. We regret receiving these prices for our production, will be always better if they are higher, but that's Where we are and as long as it is stable, we will not have these bounce up and down in open sales that we have in both the Q4 and the Q1 of this year.

Speaker 1

Regarding Peruvian social unrest, As you will mention, Mario, it's left behind. The environment the current environment operation is absolutely normal. All the mines and different mining facilities in Peru are operating right now. There is no mining, say, operation being affected significantly by any kind of stoppages, and we believe that this is something that will certainly help to make a more peaceful social environment through 2023. So, I think that's it.

Speaker 1

Go on.

Speaker 5

Josh, I just want to say thank you very much. This is very clear. Thank you very much.

Speaker 1

You're welcome. Thank you.

Operator

Thank you. And sir, I'm not showing any questions in the queue. You may proceed with any final remarks.

Speaker 1

Karp. Thank you, Carmen. Well, with this, we conclude our conference call for Consolidated Solutions, Inc. And I hope to have you back with us when we report the Q2 quarter results. Thank you very much and have a very nice day today.

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Earnings Conference Call
Southern Copper Q1 2023
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