Southern Copper Q3 2024 Earnings Call Transcript

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Provided by Quartr
October 23, 2024

Key Takeaways

  • Strong Q3 performance: Copper production rose 11% QoQ to 252,218 t, driving sales of $2.9 billion (+17%), adjusted EBITDA of $1.685 billion (+31%) and net income of $897 million (+45%).
  • Raised 2024 output guidance: The company expects to produce 975,000 t of copper (+7% YoY), 28,200 t of molybdenum (+5%), 20.8 Moz of silver (+13%) and 120,300 t of zinc (+84%), with further increases penciled in for 2025.
  • Improved unit costs: Operating cash cost net of byproduct credits held steady at $0.76/lb Cu, while cost before credits fell 9% to $1.95/lb and byproduct credits averaged $1.19/lb.
  • $15 billion expansion pipeline: Major projects include Tía María, Los Chancas and Michiquillay in Peru plus the Buenavista zinc concentrator in Mexico, with $792 million spent in 9M 2024 (31% of net income).
  • ESG certifications & dividends: All open-pit copper and moly production earned Responsible Production marks, and a Q4 dividend of $0.70/share plus 0.0062 stock shares was declared alongside community investments in health, education and culture.
AI Generated. May Contain Errors.
Earnings Conference Call
Southern Copper Q3 2024
00:00 / 00:00

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Operator

Hello, and welcome to Southern Copper Corporation's third quarter and nine months two thousand and twenty-four 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 third quarter and nine months, two thousand and twenty-four, 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. 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.

Operator

All results are expressed in full U.S. GAAP. Now I will pass the call on to Mr. Raul Jacob.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

Thank you very much, Carmen, and good morning to everyone, and welcome to Southern Copper's third quarter 2024 results conference call. At today's conference, I'm joined by Mr. Oscar González Rocha, CEO of Southern Copper and board member, as well as Mr. Leonardo Contreras, who is also a 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. 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 third quarter of 2023, up to $4.17 this past quarter.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

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. 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.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

Copper production registered an increase of 11% in the third quarter of 2024, on a quarter-on-quarter basis, to stand at 252,218 tons. Our quarterly results reflect an 18% increase in production in Peru, which was driven by higher mineral throughput at Cuajone, and higher ore grades and recoveries in Toquepala. Production at our Mexican operations increased 7% on a quarter-on-quarter basis, mainly due to higher production at our Buenavista and La Caridad mines. For 2024, we expect to produce 975,000 tons of copper, an increase of 7% over 2023's final results.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

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. For molybdenum, it represented 10% of the company's sales value in the third quarter of this year, and is currently our first by-product. Molybdenum prices averaged $21.68 per pound in the quarter. This compares to $23.59 per pound in the third quarter of 2023, a decrease of 8% in price. Molybdenum production increased by 6% in the third quarter of this year, compared to the third quarter of 2022. This was mainly driven by higher production at the Peruvian operations and the Buenavista mine, due to higher ore grades and recoveries.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

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 third quarter of this year, with an average price of $29.43 per ounce this quarter. This represented growth of 25% versus the third quarter 2023 price. Silver is currently our second by-product. Mine silver production increased 22% in the third quarter of 2024 versus the same period of 2023. This was after production rose at all our operations, with the exception of La Caridad.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

Refined silver production 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 20.8 million ounces of silver, an increase of 13% compared to 2023. Zinc represented 4% of our sales value in the third quarter of 2024, with an average price of $1.26 per pound in the quarter. This represents a 15% increase compared to the third quarter of 2023's figure. Mine production for zinc increased a remarkable 91%. I repeat, 91% increase in zinc mine production. This was at a total 31,078 tons.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

This was mainly driven by new production at the Buenavista Zinc Concentrator, that contributed with 14,453 tons over the period, and by an increase in production at the Santa Bárbara mine. Refined zinc production increased by 9% in the third quarter of this year, vis-à-vis the third quarter of 2023. 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 tons of zinc. The ramp up has been faster than expected.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

For next year and on, we expect to produce over 154,000 tons of zinc per year. Looking at our financial results, for the third quarter of 2024, sales were $2.9 billion. This is $425 million higher than sales for the third quarter 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 prices. Regarding our main by-products, we register a drop in sales of molybdenum due to lower prices and open sales adjustments. These negative variances were partially offset by an increase in volume of molybdenum sold of 6%. Zinc sales rose 61% due to much higher volumes, thanks to the contribution of the Buenavista Zinc plant and better prices.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

Finally, silver sales grew 46% due to higher prices and volume. Our total operating costs and expenses increased $44 million, or 3%, compared to the third quarter of 2023. The main cost increments has been in repair materials, translation difference, workers participation, inventory consumption, leachable materials, and other factors. These cost increments were partially offset by reductions in the cost of energy, operating and services contractors, purchased copper, water consumption, and diesel and fuel. The third quarter of 2024 Adjusted EBITDA was $1,685 million, which represented an increase of 31% with regards to the $1,291 million registered in the third quarter of 2023. The Adjusted EBITDA margin in this past quarter stood at 57% versus 52% in the third quarter of 2023.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

Adjusted EBITDA for the nine months of two thousand and twenty-four was $2,489 million. This is 23% higher than the same for the nine months of two thousand and twenty-three. The adjusted EBITDA margin in this year to date, as of September, stood at 57% versus 52% for the nine months of two thousand and twenty-three. Southern Copper operating cash costs, including the benefit of by-product credit, was $0.76 per pound in the third quarter of two thousand and twenty-four. This cash cost was similar to the cash cost for the second quarter of this year, two thousand and twenty-four. So we had seventy-six cents this past quarter of cash cost, and in the second quarter of this year, we had $0.758, so pretty much the same.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

The operating cash cost per pound of copper before by-product credits was $1.95 per pound in the third quarter of this year. This is $0.20 below the value for the second quarter of two thousand and twenty-four. 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 million, which is $1.19 per pound of credits in the third quarter of this year.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

These figures represent an 11% decrease when compared to the credit of $716 million, or $1.44 per pound of credits that we had in the second quarter. Other credits have decreased for molybdenum and silver, and increased for zinc and sulfuric acid when we compare the third quarter to the second one of this year. Net income in the third quarter of 2024 was $897 million, which represented a 45% increase with regard to the $620 million registered in the third quarter of 2023. The net income margin in the third quarter of this year stood at 31% versus 25% in the third quarter of 2023.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

These improvements were mainly driven by an increase in sales and our strict cost control measures. In the nine months of 2024, the net income was $2,583 million, which represents growth of 30% compared to the $1,980 million reported for the nine months of 2023. The net income margin for first three quarters of the year stood at 30% versus 26% for the nine months of 2023. Cash flow from operating activities in the third quarter of 2024 was $1,440 million, an increase of 37% versus the figure in the third quarter of 2023.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

In the nine months of this year, cash flow from operating activities stood at $3,061 million, which represented an increase of 1% over the $3,032 million posted in the nine months of 2023. For capital investments, our current capital investment program exceeds $15 billion and includes investments in the Tía María, Los 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. In the nine months of this year, we spent $792 million on capital investments, which represents 31% of net income and reflects a 5% uptick in capital expenses year on year.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

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 Tía María project, which is located in the Arequipa region of Peru, we have, as of September of this year, the company generated more than 422 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 Tía María's construction with workers from the Islay province. When we start operations in 2027, the project will generate 600 direct jobs and 4,800 indirect jobs.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

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 earth-moving facilities. For two thousand and twenty-five, our board has approved a CapEx budget of $363 million for the project and its related activities. In the case of the Los Chancas project in Apurímac, 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 hydrogeological and geotechnical studies. We will also begin a 40,000-meter in-field drilling campaign to gather additional information on the geological characteristics of the Los Chancas deposit.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

For the Michiquillay project in the Peruvian region of Cajamarca, as of September thirtieth of this year, the total progress on the exploration program is 30%. We have drilled a hundred and twenty-one thousand meters on a total program of a hundred and forty-eight thousand meters and obtained thirty-nine thousand two hundred and thirty-four 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. Hydrological and hydrogeological studies for the project will begin shortly. Regarding environmental, social, and corporate governance practices, our three operations in Peru 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.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

We're proud to report that all our open pit copper and molybdenum production has been certified under these standards. This applies also, obviously, for the Mexican operations. Regarding education, we delivered the Center for Research with specialized engineering studies, engineering laboratories to the Universidad Nacional de San Agustín de Arequipa, named UNSA, in Peru. This facility, which was built under the Works for Taxes mechanism at a cost of $18 million, is equipped with 24 laboratories and will benefit 6,500 students and 174 researchers. In Mexico, the cultural center located in Charcas, in San Luis Potosí, obtained first place in the Awards in the categories Private Institute, Institutional Architecture and Repurposing of Buildings.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

This space, which began operations in the summer of 2023, has hosted over 4,700 participants and 121 and 20 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 México has a program named Doctor Vagón that has provided more than 80,000 medical services in Sonora over the last 10 years. In September of this year, Dr. Vagón, which is our Fundación Grupo México's health program, visited Cananea to provide more than 6,000 free medical services to 2,050 people. Patients were evaluated by specialists, and needy candidates received medicine, eyeglasses, and hearing aids.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

During these interventions, a hundred and two elderly residents received cataract surgery to help them recover their sight. 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 seventeenth of 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 twenty-one of this year to shareholders of record at the close of business on November sixth. Ladies and gentlemen, with these comments, we end our presentation today. Thank you very much for joining us.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

Now, we would like to open the forum for questions.

Operator

Thank you so much, and as a reminder, to ask a question, simply press star one one on your telephone and wait for your name to be announced. To remove yourself, press star one one again. Please stand by for our first question, and it comes from the line of Gabriel Simoes with Goldman Sachs. Please proceed.

Gabriel Simoes
Gabriel Simoes
Executive Director and Analyst at Goldman Sachs

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 fourth quarter, right? My second question is about Tía María. We saw some news this week on protests regarding the project, so it'll 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.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

Okay, thank you very much for your question, Gabriel. Regarding the gap between corporate 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 a material in process at our smelters and refineries at this point, so we should close that gap shortly. Regarding the Tía María, well, we have not had much activity on the protests. On 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.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

So far now, as well as in the last two days, we haven't, we have, we have seen that things are peacefully at the area of the project. Today our workforce is working with no interruptions. I mentioned that we have over four hundred employees working at this, at this moment in Tía María, and they are- they, they went to work with no problems, no, no issues at all. So we want to, we want to move on with the project as soon as we can. I mentioned already that there is a, 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 Tapada mine.

Gabriel Simoes
Gabriel Simoes
Executive Director and Analyst at Goldman Sachs

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

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

No, the idea is to have our inventory coming back to the appropriate level.

Gabriel Simoes
Gabriel Simoes
Executive Director and Analyst at Goldman Sachs

Oh, okay. So, a reversion, is that expected already for the fourth quarter? Just to be clear, sorry.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

Yes, we would like to do that in the fourth quarter.

Gabriel Simoes
Gabriel Simoes
Executive Director and Analyst at Goldman Sachs

Okay. All right. Thank you very much.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

You're welcome.

Operator

Thank you so much, and stand by for our next question. It's from the line of Carlos de Alba with Morgan Stanley.

Carlos de Alba
Carlos de Alba
Managing Director and Senior Equity Research Analyst at Morgan Stanley

Yes. Hello, Raul. Thank you very much. A couple of questions. First, can you give us the guidance for cash costs before by-products for 2024 and 2025? 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?

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

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 by-products and your production, no? But we believe that we should maintain the current cash cost of about in the seventies. Let's say seventy-six was the last mark, but about around that number, as long as we have the prices that we have for the different by-products, but mainly molybdenum, silver, and zinc.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

Obviously, the better production of zinc that we have, it's significant for improving this, and it depends on, as I say, on the production. We believe that we will fill up with the estimates that I provide you. Then the difference is for prices on the by-products and for the current production. We believe that we're at about $2 less, a little bit less than $2 that we have reported for the past quarter.

Carlos de Alba
Carlos de Alba
Managing Director and Senior Equity Research Analyst at Morgan Stanley

So, the cash cost before the benefit of by-products should remain around $2 per pound?

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

Yes, we believe so.

Carlos de Alba
Carlos de Alba
Managing Director and Senior Equity Research Analyst at Morgan Stanley

This year and next year?

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

For 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. The board has been approving dividends of 50/50, a portion in cash and a portion in shares. We think that this is a good way to maintain the company liquidity. As you may imagine, we will be using some of the cash generated for the projects that we have, mainly Tía María, and we do have next year to pay $500 million in a bond that matures in the second quarter of the year.Current number of shares after recently announced dividends in treasury, it's, no? Ninety-nine million. Ninety-nine. Okay, we have ninety-nine million shares in the treasury at this point, Carlos.

Carlos de Alba
Carlos de Alba
Managing Director and Senior Equity Research Analyst at Morgan Stanley

Thank you very much, Raul.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

You're welcome.

Operator

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

Rafael Barcellos
Rafael Barcellos serves as Head of Latin America Metals and Mining, Pulp and Paper, and Cement at Bradesco BBI

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

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

Okay, thank you very much for your question, 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.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

The case of the regulatory environment in Mexico, so far, we had some changes last year regarding that mainly affected the exploration activities and concessions. In our case, we were not affected by the new regime of concessions. So far, we're 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. 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.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

For 2024, in copper, we're expecting 975,000 tons. For next year, the number should be 978,300. That's our latest estimate. For molybdenum, this year, we're expecting 28,200 tons, 28,200 tons, and for next year, 26,200 tons. For zinc, we're expecting this year, a 120,300 tons of zinc. For next year, a 154,600 for 2025. Silver, we're increasing our production from 20.8 million ounces to 22.9 million ounces. So as you can see, we're improving a little bit our copper production. That's our current view.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

On molybdenum, we're expecting a little bit less than what we're producing this year, but hopefully, we will have some catch up on this as we have done in some other years. For zinc, we're increasing it from 120,200 to 154,600. For silver, from 20.8 million ounces to 22.9 million ounces. I think that's for our main product, which is copper, and our main byproducts as well.

Rafael Barcellos
Rafael Barcellos serves as Head of Latin America Metals and Mining, Pulp and Paper, and Cement at Bradesco BBI

Okay, thank you.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

You're welcome.

Operator

Thank you. Our next question comes from the line of Ian, or Ian Snyder with J.P. Morgan. Please proceed.

Ian Snyder
Ian Snyder
Executive Director and Senior Equity Research Analyst at JPMorgan

Great. Thanks for taking my question. I had two, but that 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 twelve months? First, regarding the 2025 bond maturity that you mentioned, and second, anything related to the elevated CapEx for greenfield projects, Tía María in particular, could we see you upsize, you know, do a 2025 refinancing and upsize the notional to account for some expansion CapEx?

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

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. 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 a major project. Right now, we are considering the initiation of Tía María, 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.

Ian Snyder
Ian Snyder
Executive Director and Senior Equity Research Analyst at JPMorgan

Understood. Thank you very much. Nothing further for me.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

Thank you.

Operator

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

David Feng
David Feng
Equity Analyst at CICC

Good morning, Raul 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, we can see that there is about a positive $188 million of treatment and refining charges. And then, negative $262 million in other charges, which are both with some significant changes than previous quarters. We all know that the TC/RC in the market has been staying at very low level or even negative sometimes. I think the majority of your concentrate is melted and refined by yourself. How should we understand the figures of these two 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, second.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

Hold on a sec, please. Okay, there has been a mistake on the information. It should, this, treatment and refining should be a negative number, 11.1%, for the nine months of this year, and that is creating the difference that we're talking about.

David Feng
David Feng
Equity Analyst at CICC

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

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

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

David Feng
David Feng
Equity Analyst at CICC

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 Tía María by the end of this year. So I just wonder, how's the progress on the re-evaluation, and is there any color on what should we expect from what would be the main items in the CapEx to be revised?

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

We're looking at the different CapEx that we are using for Tía María was approved in 2016, so eight years have passed by. Obviously, there has been some technological improvements in the process, we want to start a new solvent extraction electrowinning 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. 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 a cost, and we're including that in the budget.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

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 had. For instance, the road is something that we believe will be very helpful to eliminate any complaints or of the people in the valley, because we will pass through a desertic area all the way down to the coast, and then to the Mollendo, Matarani cities, which are okay with the project. That's the kind of things that are being considered. 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.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

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 $1.8 billion, but we still are looking into this number to be sure that that's the one that we want to execute.

David Feng
David Feng
Equity Analyst at CICC

Okay. That's really helpful. Thanks for calling. I'll pass it on.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

You're welcome.

Operator

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

Alejandro Demichelis
Alejandro Demichelis
Managing Director of Latin America Equity Research at Jefferies

Yes, good morning. Thank you very much for taking my question. So one quick question. So, you mentioned the copper production for next year, and that's great. Could you please give us some indication of CapEx for next year? That's the first question, please.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

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

Alejandro Demichelis
Alejandro Demichelis
Managing Director of Latin America Equity Research at Jefferies

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

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

For now, we have all the water that is required for our operations for what is remaining in two thousand twenty-four and next year. Obviously we are looking into this matter with extreme care because it is a key element that we need to develop our operations. But so far, we're happy that we 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 two thousand and twenty-five.

Alejandro Demichelis
Alejandro Demichelis
Managing Director of Latin America Equity Research at Jefferies

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, you know, the incidents that happened in the past. How do you see the situation at the moment?

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

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

Alejandro Demichelis
Alejandro Demichelis
Managing Director of Latin America Equity Research at Jefferies

That's perfect. Thank you very much.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

You're welcome.

Operator

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

Pablo Abraham Peregrina
Equity Research Analyst at BBVA

Hi, guys. Thanks for your time. Well, my question has been answered. It was about the other charges here and the three hundred and sixty-four million, but apparently it was-

Operator

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

Pablo Abraham Peregrina
Equity Research Analyst at BBVA

Yeah, sorry about that. My question has been answered, and it was about the $364 million from the other charges line. But just to clarify, the $1.95 for the cash costs before by-products remains unchanged, right?

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

That's our number for the third quarter.

Pablo Abraham Peregrina
Equity Research Analyst at BBVA

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.

Timna Tanners
Timna Tanners
Managing Director at Wolfe Research

Yeah, 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 gonna, you know, see a decent decline? Why is the zinc production number lower than expected, and why the lower CapEx number? Thanks very much.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

Okay. On the CapEx, on the CapEx number, it's basically what we are expecting at this point, Tina. We're 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 big increase in production this year. 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 the SX-EW facilities, and higher production at the Peruvian operations.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

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. And for zinc, we're moving forward with the production of the new facility, which is the Buenavista Zinc Concentrator. It will be producing about 92,000 tons next year. And the IMMSA 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 thousand tons that we are forecasting for this year, for 2024.

Timna Tanners
Timna Tanners
Managing Director at Wolfe Research

Okay, thanks. 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 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?

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

We will we have to stick to our mine plans, and in some times, 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 a 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 and 2026. And as you well mentioned 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.

Timna Tanners
Timna Tanners
Managing Director at Wolfe Research

Understood. Thank you again.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

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.

Jonathan Brandt
Jonathan Brandt
Senior Analyst at HSBC

Good morning, Raul. Thanks for taking my questions. I just first wanted to just go back quickly to Tía María. You mentioned you had set these targets in 2016. There's been a lot of improvement, so I'm just wondering, you know, I understand the CapEx is going to go up, but 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? I mean, it seems like every quarter we talk about sort of the illegal mining activities.

Jonathan Brandt
Jonathan Brandt
Senior Analyst at HSBC

Is there any scope to, you know, sort of have this finalized so you can start, you know, operations there again? Or do you expect that this is going to carry on for the foreseeable future? Thank you.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

The second point is regarding Los Chancas, right?

Jonathan Brandt
Jonathan Brandt
Senior Analyst at HSBC

Yes, correct. Los Chancas.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

Okay. Well, we're 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 Los Chancas deposit. But, and this takes a while. We have been making some progress, but we still have to do more work and coordination with the national police. So, I'm sorry that I can't provide you any specific timeline on this. Our expectation is that between now and, say, the first quarter of next year, we will be able to remove them, but that's our expectation. We have to see how things evolve.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

On the other point, on production for Tía María, we're basically maintaining the forecast that was prepared a couple of years ago. It's mainly what you have seen. We have on the cash cost, about $1.16 per pound. That's our current cash cost for the first 10 years of the project. Obviously, it's a little bit higher than the dollar that we have been using in the past, $1.10. At the same time, the price deck that we're considering now has increased just due to inflation. We were doing cash cost estimations considering $3 per pound of copper.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

Now we're using $3.80 as a reference for our long-term market. So we believe that the project is still very profitable. We have even though we have some changes in our CapEx, still will be a very good project with an extremely low cost per ton of installed capacity. And I think that is something very positive for the Tía María project.

Jonathan Brandt
Jonathan Brandt
Senior Analyst at HSBC

Great. Thank you.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

So-

Operator

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

Alfonso Salazar
Alfonso Salazar
Senior Equity Analyst at Scotiabank

Hi, Raul. I have two questions. The first one, if we can go back to the water situation in Mexico. Is there any update on the pipeline that you need to build at Buenavista? And if you are moving your water by truck, what is the increase in operating costs by doing that? And the second question that I have is, if you can remind us the breakdown of costs in Mexican pesos, what percentage is in Mexican pesos at your Mexican mine? Thank you.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

Okay. Thank you, Alfonso. Regarding the water pipeline, we are still working on getting the permit to build the pipeline. At this point, we're not using water trucks 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. Regarding your second question, cost, Mexican pesos, it's 39% according to our estimation. 39% of our total cost, it's in Mexican pesos, Alfonso.

Alfonso Salazar
Alfonso Salazar
Senior Equity Analyst at Scotiabank

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

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

Yes, that's for Mexico.

Alfonso Salazar
Alfonso Salazar
Senior Equity Analyst at Scotiabank

Excellent. Thank you.

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

You're welcome.

Operator

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

Raul Jacob
Raul Jacob
VP, Finance, Treasurer, and CFO at Southern Copper Corporation

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

Operator

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

Executives
    • Raul Jacob
      Raul Jacob
      VP, Finance, Treasurer, and CFO
Analysts
    • Jonathan Brandt
      Senior Analyst at HSBC
    • Rafael Barcellos
      Rafael Barcellos serves as Head of Latin America Metals and Mining, Pulp and Paper, and Cement at Bradesco BBI
    • Timna Tanners
      Managing Director at Wolfe Research
    • Alfonso Salazar
      Senior Equity Analyst at Scotiabank
    • Alejandro Demichelis
      Managing Director of Latin America Equity Research at Jefferies
    • Gabriel Simoes
      Executive Director and Analyst at Goldman Sachs
    • Ian Snyder
      Executive Director and Senior Equity Research Analyst at JPMorgan
    • Pablo Abraham Peregrina
      Equity Research Analyst at BBVA
    • David Feng
      Equity Analyst at CICC
    • Carlos de Alba
      Managing Director and Senior Equity Research Analyst at Morgan Stanley
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