Southern Copper Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
October 23, 2024

There are 10 speakers on the call.

Operator

Hello, and welcome to Southern Copper Corporation's 3rd Quarter 9 Months 20 24 Results Conference Call. With us this morning, we have Southern Copper Corporation, Mr. Raul Jacob, Vice President, Finance, Treasurer and CFO, who will discuss the results of the company for the Q3 9 months 2024 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

Thank you very much, Carmen, and good morning to everyone, and welcome to Southern Copper's Q3 2024 results conference call. 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, who is also Board Member. In today's call, we will begin with an update on our view of the copper market and then review Southern Copper's key results related to production, sales, operating costs, financial results, expansion projects and ESG.

Speaker 1

After this, we will open the session for questions. Now let us focus on the copper market. The London Metal Exchange copper price increased 10% from an average of $3.79 per pound in the Q3 of 2023, up to $4.17 this past quarter. Just as a reference, today the copper market the copper price is about $4.30 Based on supply and demand dynamics, we're expecting a slight market surplus of about 100,000 tons of copper for 2024. Looking at copper demand, although we see a weak one from China, we believe the recently announced economic measures will promote economic growth and fuel demand from the world's largest copper consumer.

Speaker 1

Furthermore, a resilient U. S. Economy and new demand from decarbonization technologies coupled with needs driven by artificial intelligence are expected to bolster support for long term copper demand. Now let's look at Southern Copper's production for the past quarter. Copper represented 77% of our sales in the past quarter.

Speaker 1

Copper production registered an increase of 11% in the Q3 of 2024 in a quarter on quarter terms to stand at 252,218 tons. Our quarterly results result reflects 18% increase in production in Peru, which was driven by higher mineral throughput at Cuajone and higher ore grades and recoveries at Toquepala. Production at our Mexican operations increased 7% in a quarter to quarter terms, mainly due to higher production at our Buena Vista and La Caridad market. For 2024, we expect to produce 975,000 tons of copper, an increase of 7% over the 2023's final trends. This growth will be fueled by recovery at our SX EW facilities at Buenavista, higher production in Peru and copper production at our new Buenavista zinc concentrator, which is operating at full capacity.

Speaker 1

For molybdenum, it represented 10% of the company's sales value in the Q3 of this year and is currently our 1st byproduct. Molybdenum prices averaged $21.68 per pound in the quarter. This compares to $23.59 per pound in the Q3 of 2023, a decrease of 8% in price. Molybdenum production increased by 6% in the Q3 of this year compared to the Q3 of 2023. This was mainly driven by higher production at the Peruvian operations and the Buenavista mine due to higher ore grades and recoveries.

Speaker 1

These results were partially offset by lower production at La Caridad mine and also due to lower ore grades and recoveries. For 2024, we expect to produce 28,200 tons of molybdenum, which represents an increase of 5% over our 2023 production level. Silver represented 5% of our sales value in the Q3 of this year with an average price of $29.43 per ounce this quarter. This represented growth of 25% versus the 2023 Q3 price. Silver is currently our 2nd byproduct.

Speaker 1

Mine silver production increased 22% in the Q3 of 2024 versus the same period of 2023. This was after production rose at all our operations with the exception of La Caridad. Refined silver production increased by decreased by 3% quarter over quarter, which was mainly driven by a reduction at our La Caridad refinery. This result was partially offset by higher production at the Ilo refinery. In 2024, we expect to produce 20,800,000 ounces of silver, an increase of 13% compared to 2023.

Speaker 1

Zinc represented 4% of our sales value in the Q3 of 2024 with an average price of $1.26 per pound in the quarter. This represents a 15% increase compared to the Q3 of 2023 figure. Mine production for zinc increased a remarkable 91%, I repeat, 91% increase in zinc mine production. This was a total 31,078 tons. This was mainly driven by new production at the Buena Vista Zinc concentrator that contributed with 14,453 tons over the period.

Speaker 1

And by an increasing production at the Santa Barbara mine, Refined zinc production increased by 9% in the Q3 of this year visavis Q3. For 2024, we expect to produce 120,300 tons of zinc, which represents an increase of 84% over our 2023 production level. This growth will be driven by the production of our Buenavista zinc concentrator that will we're expecting it to produce 54,800 pounds of zinc. The ramp up has been faster than expected. For next year and on, we expect to produce over 154,000 tons of zinc per year.

Speaker 1

Looking at our financial results. For the Q3 of 2024, sales were $2,900,000,000 This is $425,000,000 higher than sales for the Q3 of 2023. This is a 17% increase in sales. Copper sales value increased by 21% and the volume by 8%. Obviously, the difference came from better price.

Speaker 1

Regarding our main byproducts, we've registered a drop in sales of molybdenum due to lower prices and optimum sales adjustments. These negative variances were partially offset by an increase in volume of molded and unsold of 6%. Zinc sales rose 61% due to much higher volumes, thanks to the contribution of the Buenavista zinc plant and better price. Finally, silver sales grew 46% due to higher prices and volumes. Our total operating costs and expenses increased $44,000,000 or 3% compared to the Q3 of 2023.

Speaker 1

The main cost increments has been in repair materials, translation difference, workers' participation, inventory consumption, leachable material and other factors. These cost increments were partially offset by reductions in the cost of energy, operating and services contractors, purchase copper, water consumption and diesel and fuel. The Q3 of 2024 adjusted EBITDA was $1685,000,000 which represented an increase of 31% with regard to the 1291,000,000 dollars registered in the Q3 of 2023. The adjusted EBITDA margin in this past quarter stood at 57% versus 52% in the Q3 of 2023. Adjusted EBITDA for the 9 months of 2024 was $4,899,000 This is 23% than the mark for the 9 months of 2023.

Speaker 1

The adjusted EBITDA margin in this year to date as of September stood at 57% versus 52% for the 9 months of 2023. 1,000 copper operating cash costs, including the benefit of byproduct credit was 0.76 dollars per pound in the Q3 of 2024. This cash cost was similar to the cash cost for the Q2 of this year 2024. So we had $0.76 this past quarter of cash cost and in the Q2 of this year, we had $0.758 so pretty much the same. The operating cash cost per pound of copper before by product credits was $1.95 per pound in the Q3 of this year.

Speaker 1

This is $0.20 below the value for the Q2 of 2024. This 9% decrease in the operating cash cost is a result of lower cost per pound from production cost, treatment and refining charges and administrative expenses. These were partially offset by lower premiums on our refined sales. Regarding by products, we had a total credit of $639,000,000 which is $1.19 per pound of credit in the Q3 of this year. These figures represent an 11% decrease when compared to the credit of 716 $1,000,000 or $1.40 per pound of credits that we had in the Q2.

Speaker 1

Other credits have decreased for molybdenum and silver and increased for zinc and sulfuric acid when we compare the Q3 to the second one of this year. Net income in the Q3 of 2024 was 897,000,000 which represented a 45% increase with regard to the $620,000,000 registered in the Q3 of 2023. The net income margin in the Q3 of this year stood at 31% versus 25% in the Q3 of 2023. These improvements were mainly driven by an increase in sales and our strict cost control measures. In the 9 months of 2024, the net income was $2,583,000 which represents growth of 30% compared to the $1980,000,000 reported for the 9 months of 2023.

Speaker 1

The net income margin for 1st 3 quarters of the year stood at 30% versus 26% for the 9 months of 2023. Cash flow from operating activities in the Q3 of 2024 was $1440,000,000 an increase of 37% versus the figure in the Q3 of 2023. In the 9 months of this year, cash flow from operating activities stood at $3,061,000,000 which represented an increase of 1% over the $3,032,000,000 posted in the 9 months of 2023. For capital investments, our current capital investment program exceeds $15,000,000,000 and includes investments in the Tia Maria, Toh Chancas and Michiquillay projects in Peru and in the Buenavista Zinc, El Pilar and El Arco projects in Mexico. This capital forecast includes several infrastructure investments including key investments to bolster competitiveness of the El Arco project.

Speaker 1

In the 9 months of this year, we spent $792,000,000 on capital investments, which represents 31% of net income and reflects a 5% uptick in capital expenses year on year. Given that there is a description of our main capital project in Southern Copper's press release, I'm going to focus on updating new developments for each of them. For the Tia Maria project, which is located in the Arequipa region of Peru, we have as of September of the year, the company generated more than 4 22 jobs. Of those, 355 were filled with local applicants. To the fullest extent possible, we intend to fill the 9,000 jobs estimated to be required during Tia Maria's construction with workers from the slide province.

Speaker 1

When we start operations in 2027, the project will generate 600 direct jobs and 4,800 indirect jobs. In the coming months, we expect to build roads and access points, train operators, update topographic network, install and delimit properties along the living fence, install a temporary camp and begin earthmoving facilities. For 2025, our Board has approved a CapEx budget of $363,000,000 for the project and its related activity. In the case of the Los Chancas project in Apurima, in coordination with the Peruvian authorities, efforts continue to eradicate illegal mining activities. Once this process has concluded, we will resume the environmental impact assessment and begin hydro geological and geotechnical studies.

Speaker 1

We will also begin a 40,000 meter infield drilling campaign to gather additional information on the geological characteristics of the Los Chancas deposit. For the Michiquillay project in the Peruvian region of Cajamarca, as of September 30 this year, the total progress on the exploration program is 30%. We have drilled 121,000 meters on a total program of 148,000 meters and obtained 39,234 drill core samples for chemical analysis. Diamond drilling will continue and will provide information for the interpretation of geological sections related to mineralization, geological modeling and mineral resource evaluation. Geometallurgical studies are currently underway.

Speaker 1

Hydrological and hydrogeological studies for the project will begin shortly. Regarding environmental, social and corporate governance practices, Our 3 operations in Peru, Coajone, Coquepala and Hilo were awarded with the copper mark and the molybdenum mark certifications for responsible production following an independent third party assessment of environmental, social and governance performance. We are proud to report that all our open pit copper and molybdenum production has been 35 and then this is standard. This applies also obviously for the Mexican operations. Regarding education, we delivered the Center For Research with a specialized engineering study engineering laboratories to the Universidad Nacionales and Agustin de Arequipa, named UNSA in Peru.

Speaker 1

This facility, which was built under the work for tax mechanism at a cost of $18,000,000 is equipped with 24 laboratories and will benefit 6,500 students and 174 researchers. In Mexico, the cultural center located in Charkas in San Luis Potosi obtained 1st place in the Noni Frac Awards in the categories Private Institutional Architecture and Repurposing of Buildings. This space which began operations in the summer of 2023 has hosted over 4,700 participants and 120 volunteers across 200 activities related to education, culture, health and sports. The cultural center, which is open to the public, is now considered a cultural attraction and receive visits from tourists, locals and state authorities. We have Grupo Mexico has a program named Doctor.

Speaker 1

Bagon that has provided more than 80,000 medical services in Sonora over the last 10 years. In September of this year, Doctor. Bagon, which is our Fundacion Group of Mexico's health program, visit Cananea to provide more than 6,000 free medical services to 2,000 and 50 people. Patients were evaluated by specialists and needy candidates received medicine, eyeglasses and hearing aids. During these interventions, 102 elderly residents received cataract surgery to help them recover their sight.

Speaker 1

Switching gears, we are going to talk about dividends. As you know, it is the company's policy to review our cash position, expected cash flow generation from operations, capital investment plans and other financial needs at each Board meeting to determine the appropriate quarterly dividend. Accordingly, on October 17th this year, Southern Copper Corporation announced a quarterly cash dividend of $0.70 per share of common stock and a stock dividend of 0.0062 shares of common stock per share, payable on November 21 this year to shareholders of record at the close of business on November 6. Ladies and gentlemen, with these comments, we end our presentation today. Thank you very much for joining us.

Speaker 1

Now we would like to open the

Operator

And it comes from the line of Gabriel Simoes with Goldman Sachs. Please proceed.

Speaker 2

Hi all. Thank you for taking my questions. I would first like to understand if you could please comment on the gap between that we saw between copper production and sales this quarter. And if we should see that effect being reversed potentially in the Q4, right? My second question is about Tia Maria.

Speaker 2

We saw some news this week on protests regarding the project. So it will be interesting to understand how fast you're being able to move forward with this project. And if you could comment on local community support for the project and your actions in the region, that would also be great. Thank you.

Speaker 1

Okay. Thank you very much for your question, Gabriel. Regarding the gap between copper production and sales, well, we are also concerned about that. But we have identified that, well, we have a portion of our copper production. It's embedded in the it's a material in process at our smelters and refineries at this point.

Speaker 1

So we should close that gap shortly. Regarding the Tia Maria, well, we haven't had much activity on the protest. Today and tomorrow, in Peru, several organizations are calling for a protest against the government, which is not specifically related to the project. And that is basically it. So far now, as well as in the last two days, we haven't we have seen that things are peacefully at the area of the project.

Speaker 1

Today, our workforce is working with no interruptions. I mentioned that we have over 400 employees working at this moment in Tia Maria, and they are they went to work with no problems, no issues at all. So we want to move on with the project as soon as we can. I mentioned already that there is a budget approved for the project for next year. Obviously, we'll be entitling several activities, among them initial pre stripping work of the La Patzata mine.

Speaker 2

Okay. Thank you. Just a quick follow-up, if I may, on the first question. So you mentioned you expect the gap to close in the future, right, not to be reversed necessarily, right? If you could just confirm that and potentially add some more color on the issues that you're having.

Speaker 2

So like you'd be if the gap closes, but doesn't reverse, it'd be like working with higher inventories. Is that the plan? So just to

Speaker 1

No, the did to have our inventory coming back to the property level.

Speaker 2

Okay. So a reversion is that expected already for the Q4? Just to be clear, sorry.

Speaker 1

Yes, we would like to do that in the Q4.

Speaker 2

Okay. All right. Thank you very much.

Operator

Thank you so much and stand by for our next question. And it's from the line of Carlos De Alba with Morgan Stanley.

Speaker 3

Yes. Hello, Raul. Thank you very much. A couple of questions. First, can you give us the guidance for cash cost before byproducts for 2024 2025?

Speaker 3

And then what can you share in terms of the potential for dividends to continue to come in the coming quarters, with a combination of cash and shares? And maybe to that last point, can you let us know what is the current or what will be the current number of treasury shares after the recently announced dividend is paid out?

Speaker 1

Okay. On the cash cost, Carlos, I think we obviously, this is one of the most difficult data to forecast because you have not only what you do on the cost, but also what happens with the prices of your byproducts and your production. But we believe that we should maintain the current cash cost of about in the 70s. Let's say, 76 was the last mark, but about around that number as long as we have the prices that we have for the different byproducts, but mainly molybdenum, silver and zinc. Obviously, the better production of zinc that we have, it's significant for improving this.

Speaker 1

And it depends on, as I say, on the production, we believe that we will fill up with the estimates that I provide you. And then the difference is for prices on the byproducts. And for the current production, we believe that we're at about this less a little bit less than $2 that we have reported for the past quarter.

Speaker 3

So the cash the cost before the benefit of byproducts should remain around $2 per pound?

Speaker 1

Yes, we believe so.

Speaker 3

This year and next year?

Speaker 1

Next year, we'll see, but we're expecting to have more production of zinc and silver next year. So that should be a little bit better. On dividends, it's always up to the board. We have been the Board has been approving dividends of fifty-fifty, a portion in cash and a portion in shares. We think that this is a good way to maintain the company liquidity.

Speaker 1

As you may imagine, we will be using some of the cash generated for the projects that we have, mainly Tia Maria. And we do have next year to pay $500,000,000 in a bond that matures in the Q2 of the year. Current number of shares after recently announced dividend in treasury, it's

Operator

99,000,000.

Speaker 1

Okay. We have 99,000,000 shares in treasury at this point, Carlos. Thank you very much, Raul. You're welcome.

Operator

Thank you. And one moment for our next question, please. And it's from the line of Rafael Barcelos with Bradesco BBI. Please proceed.

Speaker 4

Hello, good morning and thanks for taking my question. Could you please elaborate further on the regulatory environment in both Mexico and Peru? It would also be interesting to hear from you, I mean, specific about your growth initiatives in Mexico, whether there's any news on the discussions related to open pit operations in Mexico and so on. So if you can comment anything here, it would be interesting. And my second question is about production.

Speaker 4

I mean, I wanted to understand your expectations for copper production into 2025, if possible. Thank you.

Speaker 1

Okay. Thank you very much for your questions, Rafael. Well, on the regulatory environment in Mexico and Peru, in the case of let me start by Peru first. In the case of Peru, the government is proposing some changes in current procedures in order to shorten the time lag that the time that they take to obtain the different permits. This is a positive thing that we're seeing and working with the National Society of Mining of Peru in order to produce a proposal that is good for mining companies that are here and for projects as well.

Speaker 1

In the case of regulatory environment in Mexico, so far, we had some changes last year that mainly affected exploration activities and concessions. In our case, we were not affected by the new regime of concessions. So far, we are okay on that. On the open pit mining, well, we have to see what happens at the end of the day. However, it will not affect companies and projects that have already concessions.

Speaker 1

That's our understanding on this matter. On the production expectations for 2025, let me give you our repeat our forecast on this. Okay. I'm sorry. I think I haven't said for 2025, but I'm going to repeat 2024 and what we're expecting for 2025 at this point.

Speaker 1

For 2024 copper, we're expecting 975,000 tonnes. For next year, the number should be 978,300. That's our latest estimate. For molybdenum, this year, we're expecting 28,200,000 1,000 tons 28,200 tons and for next year 26,200 tons. For zinc, we're expecting this year 120,300 tons of zinc for next year, 154,600 for 2025.

Speaker 1

Silver, we're increasing our production from 20,800,000 ounces to 22,900,000 ounces. So as you can see, we're improving a little bit our copper production. That's our current view. On molybdenum, we're expecting a little bit less than what we are producing next this year. But hopefully we will have some catch up on this as we have done in some other years.

Speaker 1

For zinc, we're increasing it from $120,200 to 154,600 for silver from 20,800,000 ounces to 22,900,000 ounces. And I think that that's for our main product, which is copper and our main byproducts as well.

Speaker 4

Okay. Thank you.

Speaker 1

You're welcome.

Operator

Thank you. Our next question comes from the line of Ian Snyder with JPMorgan. Please proceed.

Speaker 5

Great. Thanks for taking my question.

Speaker 6

I had 2, but that

Speaker 5

was covered on the open pit mining question on Mexico. But my other question, can you talk about your plans for debt issuance in the upcoming 12 months? First regarding the 2025 bond maturity that you mentioned and second anything related to the elevated CapEx for greenfield projects at Tia Maria in particular, could we see you upsize, do a 2025 refinancing and upsize a notional to account for some expansion CapEx?

Speaker 1

Well, we will eventually tap the debt markets in the next few quarters. But so far, we have not closed a specific proposal. We want to understand what will be the environment in which such an issuance will have to be put in the market. And we want to obviously find a time where interest rates are okay for this kind of financing. As we have done in the past, we will very likely go to the debt market as we initiate the construction of major projects.

Speaker 1

Right now, we're considering the initiation of Tia Maria. So we will consider a new debt for financing the project and some other activities, corporate activities as well in the next few months. But so far, we have not put in place any specific structure or anything similar to that.

Speaker 5

Understood. Thank you very much. And that's it for me.

Speaker 1

Thank you.

Operator

Thank you so much. Our next question comes from the line of David Feng with CICC. Please proceed.

Speaker 6

Good morning, Roy and Victor. Thanks for taking my question. My first question is regarding the operating cash cost reconciliation on the last page of your press release. So firstly, you can see that there is about a positive $188,000,000 of treatment and refining charges and then an active $262,000,000 in other charges, which are both with some significant changes than previous quarters. We all know that the PCLC in the market has been staying at very low level or even negative sometimes.

Speaker 6

I think the majority of your concentrate is smelted and refined by yourself. How should we understand the figures of these 2, like, significant changes here? And how should we expect, like how about your outlook for this in the following quarters? I'll come up with a second.

Speaker 1

Yes. Hold on a second. Okay. There has been a mistake on the information that should be treatment and refining should be a negative number, 11.1% for the 9 months of this year. And that is creating the difference that we're talking about.

Speaker 1

You mean that the

Speaker 6

I mean, we can see that the 9 month number is basically brought by the significant changes for the 3 months in the last quarter. So would you mind just give me some like extra clarification on that?

Speaker 1

It's a typo. It's so sorry about that. Basically, the press release has should be a negative number of the 11.1.

Speaker 6

Okay, got it. Understood. Maybe I'll come with my second one. So previously, I think you've mentioned that you may provide a revised CapEx estimate for Tia Maria by the end of this year. So I just wonder how's the progress on the reevaluation and is there any color on what should we expect from what would be the main items in the CapEx to be revised?

Speaker 1

We're looking at the different the CapEx that we are using for Tia Maria was approved in 2016. So 8 years has passed by. Obviously, there has been some technological improvements in the process. We want to start a new solar instruction electroweaning operation. And there are also some other parts of the project that we are looking into considering them or not for this new stage of the project.

Speaker 1

We have, for instance, a new road that we will want to build between where the plant is going to be in the middle of this desert down to the coast. That road has obviously cost and we're including that in the budget. So it's a mix of changes due to technology or better processes that are available now and some changes that we want to do on the structure and some things that we have asked. For instance, the road is something that we believe will be very helpful to eliminate any complaints of the people in the valley because we will pass through the CERTIC area all the way down to the coast and then to the Muyendomatarani cities, which are okay with the project. So that's the kind of things that are being considered.

Speaker 1

We're also looking into different ways to transport the production and the sulfuric acid required by the project. By this, I mean that we have our main idea is to have a railroad. However, we want to design or decide on the proper way or the proper part of the area where the railroad will pass by. So they are a little bit different and that's why we are not providing at this point a specific budget. The ballpark number that we're seeing is about $1,800,000,000 but we still are looking into this number to be sure that that's the one that we want to execute.

Speaker 6

Okay. That's really helpful. Thanks for the color. You're welcome.

Operator

Thank you. Our next question is from Alejandro De Michelis with Jefferies. Please proceed.

Speaker 3

Yes. Good morning. Thank you very much for taking my questions. So one quick question. So you mentioned the copper production for next year and that's great.

Speaker 3

Could you please give us some indication of CapEx for next year? That's the first question, please.

Speaker 1

Okay. Well, we are still looking into our budgets for CapEx for next year. We have been considering about $920,000,000 for CapEx for 2025. That number may vary a little bit, where but we're still don't have we don't have a definite number at this point. So we're maintaining our latest forecast on this.

Speaker 3

Okay. That's right. And then the second question is, could you please comment on the situation of water in Mexico and how that's how you are seeing that evolving over the next few quarters, please?

Speaker 1

Well, for now, we have all the water that is required for our operations for what is remaining in 2024 and next year. Obviously, we are looking into this matter with extremely care because it's a key element that we need to develop our operations. But so far, we're happy that we have currently have all the water all our water needs are filled and we're okay with that and expecting that that will be the case in 2025.

Speaker 3

Okay. And just to kind of finish on the water situation, we have seen new reports about the situation of the Sonora River and kind of the incidents that happened in the past. What how do you see the situation at the moment?

Speaker 1

Well, generally speaking, we have been looking to different sources that we have for water. And we believe that we are fine with what we have. We We're storing water for our needs next year and a small cushion in case that something does not go as we expect.

Speaker 3

That's perfect. Thank you very

Speaker 1

much. You're welcome.

Operator

Thank you. Our next question is from Pablo Abraham Peregrina with BBVA. Please proceed.

Speaker 3

Hi, guys. Sorry for your time. Well, my question has been answered. It was about the other charge here and the $364,000,000 Pablo,

Operator

if you can maybe slow down a little bit. You have some background noise.

Speaker 3

Yes. Sorry about that.

Speaker 6

My question has been answered and

Speaker 3

it was about the $654,000,000 from the other charge line. But just to clarify the $1.95 for the cash cost before by product remains unchanged, right?

Speaker 1

Well, that's our number for the Q3.

Speaker 6

Okay, great. Thanks.

Operator

One moment for our next question, please. And it's from the line of Timna Tanners with Wolfe Research. Please proceed.

Speaker 7

Yes. Hey, good morning. I just wanted to follow-up. I know you provided new numbers for production for copper and zinc and new CapEx, but I didn't really get the why, like why is the copper production number now seem flat when before it was going to see a decent decline? Why is the zinc production number lower than expected and why the lower CapEx number?

Speaker 7

Thanks

Speaker 6

very much.

Speaker 1

Okay. On the CapEx number, it's basically what we are expecting at this point, Tina. We're reviewing currently our budgets. So I'll ask you to wait for our next conference call in January, where we will provide a much more defined information on CapEx specifically. In the case of copper production, well, we have had a bigger increase in production this year.

Speaker 1

We're expecting to close 2024 with 975,000 tons, which compares with 911,000 tons in 2023. So that's and this is basically the result of a recovery of the Mexican operations, particularly SX EW facilities and higher production at the Peruvian operations. So for next year, we're expecting to maintain the current levels, which is that's why we're forecasting 978,000 tons for next year.

Speaker 3

And

Speaker 1

for zinc, we're moving forward with the production of the new facility, which is the Buenavista Zinc concentrator. We'll be producing about 92,000 tons next year. And the IMIS operations are also recovering and increasing their production to 85,000 tons. Altogether, that is 178,000 tons of zinc. I think that this is a much higher number than the 121,000 tons that we are forecasting for this year for 2024.

Speaker 7

Okay. One quick follow-up, if I could. For 2026, and I know that's pretty far out, but you had also guided to kind of a 938,000 tons for copper. But with the revised higher 2025, is it fair to say that that value could be sustained at the more recent annual run rate going forward or is there something on the horizon that could cause that to correct?

Speaker 1

We will we have to stick to our mine plans. And in some sometimes in some circumstances, ore grades as well as recoveries are affected by different circumstances at the deposits in the deposits. And that's why we have variances in our total production. For now, we expect slightly lower production of copper for 2026, but we still are working on revising the mining plans and see if we can improve it. So we don't have a significant variance between 2025 2026.

Speaker 1

And as you will mention, Timna, we're a little bit far away right now from it. So let's wait until we have more information and we can provide a more solid forecast on this.

Speaker 7

Understood. Thank you again.

Speaker 1

You're welcome.

Operator

Thank you. One moment for our next question, please. And it's from the line of John Brandt with HSBC. Please proceed.

Speaker 8

Good morning, Raul. Thanks for taking my questions. I just first wanted to just go back quickly to Tia Maria. You mentioned you had set these targets in 2016. There's been a lot of improvement.

Speaker 8

So I'm just wondering, I understand the CapEx is going to go up, but are there is there any other sort of changes that we could expect? Could you see an increase in production or capacity above the 120,000 tons? How should we think about unit cost expectations at the mine? And then my second question is just on Los Chancas. Could you provide a bit of an update there?

Speaker 8

I mean, it seems like every quarter we talk about sort of the illegal mining activities. Is there any scope to sort of have this finalized so you can start operations there again? Or do you expect that this is going to carry on for the foreseeable future? Thank you.

Speaker 1

The second point is regarding Los Chancas, right?

Speaker 8

Yes, correct, Los Chancas.

Speaker 1

Okay. Well, we are working on this with the national police. We are taking certain actions that we believe will be very helpful for removing these illegal miners from the Chancas deposit. And this takes a while. We have been doing some progress, but we still have to do more work and coordination with the national police.

Speaker 1

So I'm sorry that I can't provide you any specific timeline on this. Our expectation is that between now and say, the Q1 of next year, we will be able to remove them, but that's our expectation. We have to see how things evolve. And on the other point, on production for Tia Maria, we're basically maintaining the forecast that was prepared a couple of years ago. It's mainly what you have seen.

Speaker 1

And we have on the cash cost about $1.16 per pound. That's our current cash cost for the 1st 10 years of the project. And well, obviously, it's a little bit higher than the dollar that we have been using in the past and $1.10 But at the same time, the price drag that we're considering now has increased just due to inflation. We were doing cash cost estimations considering a dollar a $3 per pound of copper. Now we're using $3.80 as a reference for a long term market.

Speaker 1

So we believe that the project is still very profitable. We have even though we have some changes in our CapEx, it still will be a very good project with extremely low cost per ton of installed capacity. And I think that is something very positive for the project of Tia Maria.

Speaker 2

Great. Thank you.

Speaker 1

Thank you

Operator

so much. One moment for our next question. That is from Alfonso Salazar with Scotiabank. Please proceed.

Speaker 9

Hi, Raul. I have two questions. The first one, if you can go back to the water situation in Mexico. Is there any update on the pipeline that you need to beat at Buenavista? And if you are moving your water by truck, what is the increase in operating costs by doing that?

Speaker 9

And the second question that

Speaker 1

I have is, if you

Speaker 9

can remind us the breakdown of costs in Mexican pesos, what percentage is in Mexican pesos at your Mexican mine? Thank you.

Speaker 1

Okay. Thank you, Alfonso. Regarding the water pipeline, we have no we are still working on getting the permit to build the pipeline. At this point, we're not using water tracks to provide the water that the Buenavista operation requires. So we're using our own other sources of water for filling up the water needs of Buenavista at this point.

Speaker 1

Regarding your second question, cost, Mexican pesos, it's a 39% according to our estimation, 39% of our total cost is in Mexican pesos, Alfonso.

Speaker 9

Thank you. That is only for Mexican mines, right?

Speaker 1

Yes, that's for Mexico. Excellent. Thank you. You're welcome.

Operator

Thank you so much. And one moment for our last question. I'm sorry, but it seems that there is no more questions in the queue, sir.

Speaker 1

Thank you very much, Carmen. With this, we conclude our conference call for Southern Copper's Q3 2024 results. We certainly appreciate your participation and hope to have you back with us when we report the Q4 of this year and the full 2024 results. Thank you very much for being with us today and have a nice day.

Operator

And thank you, ladies and gentlemen, for participating in today's conference. You may now disconnect.

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Earnings Conference Call
Southern Copper Q3 2024
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