Southern Copper Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 22, 2024

Key Takeaways

  • Southern Copper reported Q2 net sales of $3.818 billion, up 36% year-over-year, with adjusted EBITDA rising 61% to $1.797 billion and a margin of 58%.
  • Copper production in Q2 reached 242,474 tons, and the company maintained full-year 2024 guidance of 963,200 tons.
  • Operating cash cost, including by-product credits, fell to $0.76 per pound in Q2 2024, marking a 29% sequential reduction and strengthening unit margins.
  • The new Buenavista zinc concentrator is fully ramped up, driving a 71% quarter-on-quarter increase in zinc output and lifting 2024 zinc production guidance by 86% to 121,800 tons.
  • Tia Maria activities have resumed with its $1.4 billion capital budget under revision; the project aims to deliver 600 direct jobs at start-up and $17.5 billion in exports over 20 years, though final approvals and timelines remain pending.
AI Generated. May Contain Errors.
Earnings Conference Call
Southern Copper Q2 2024
00:00 / 00:00

There are 11 speakers on the call.

Operator

Good morning, and welcome to Southern Copper Corporation's 2nd Quarter and 6 Months 2024 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 Q2 6 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. Good morning, everyone, and welcome to Southern Copper's Q2 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 a Board Member.

Speaker 1

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 ESC. After this, we will open the session for questions. Now let us focus on the copper market. The London Metal Exchange copper price increased 15% from an average of 3.8 $5 per town in the Q2 of 2023, up to $4.42 this quarter. Based on the production cuts announced by several producers and other information to date, we're expecting a market deficit of about 217,000 tons of copper for 2024.

Speaker 1

At this point in time, we estimate that the copper supply will increase slightly by 0.6%. That's about 0.5 percent of a percentage point. Looking at the demand, even though we see weak China's demand mainly from its real estate market, a resilient U. S. Economy and new demand from decarbonization technologies as well as artificial intelligence are supporting copper demand and price.

Speaker 1

Now let's look at Southern Copper's production for the past quarter. Copper represented 70 6% of our sales in the Q2 of this year. Copper production percent in the 2nd quarter in quarter on quarter terms to stand at 242,474 tons. Our quarterly results reflect a 15% increase in production in Peru and this improvement was driven by growth at the Toquepala mine, which increased its production by 21%, which was boosted by higher ore grades. Production at our Mexican operations increased by 0.7% in quarter to quarter terms, mainly due to higher production at our La Caridad mine, partially offset by a decrease in the production at Buenavista and Inza.

Speaker 1

For 20 24, we expect to produce 963,200 and 2023 final print. This growth will be fueled by recovery at our SXSW facilities at Buenavista and by the copper production of our new Buenavista zinc concentrator, which is operating at full capacity. Molybdenum production represented 12% of the company's sales value in the Q2 of this year and is currently our first pipeline. Molybdenum prices averaged $21.69 per pound to $20.87 per pound in the Q2 of last year. This represents an increase of 4%.

Speaker 1

Molybdenum production increased by 21% in the Q2 compared to the same period of last year. This was mainly driven by higher production at the Peruvian operations and the Buenavista mine due to higher ore grades. These results were partially offset by lower production at La Carrias mine. In 2024, we expect to produce 27,400 tons of molybdenum, which represents an increase of 2% over our 20 23 production level. Silver represented 5% of our sales value in the Q2 of this year with an average price of $28.84 per ounce in the quarter, which reflected an increase of 19% versus the 2023 second quarter price.

Speaker 1

Silver is currently our 2nd buy flow. Mine silver production increased 8% in the Q2 of 2024 versus the same period of 2023. With the sole exemption of IMSA, production rose at all our operations. Refined silver production increased by 28% quarter over quarter, which was mainly driven by growth in our La Caridad and Ilo refineries. In 2024, we expect to produce 20,600,000 ounces of silver, an increase of 12% compared to 2023.

Speaker 1

Zinc represented 4% of our sales value in the Q2 of this year with an average price of $1.29 per pound in the quarter, which represents a 12% increase in price compared to the Q2 of last year. Zinc mine production increased 71 percent quarter on quarter and totaled 29,000 419 tons. Growth was driven primarily by the 13,653 tons produced at the new Buenavista zinc concentrator and by an increase in production at the Charkas mine. Refining production increased 6% in the Q2 of 2024 visavis the Q2 of last year. For this year, we expect to produce 121,000 800 tons of zinc, which represents an increase of 86% over our 2023 production level.

Speaker 1

So we're increasing our expected production for zinc in 86% this year. This growth will be driven by production at our Buenavista zinc concentrator that will add 55,400 tons, which has ramped up to better than planned. For 2025 and on, we expect to produce 178,000 tons of zinc per year. Financial results. This year, net sales were $3,818,000,000 which represented growth of 36% with regard to the 2nd quarter of the past year.

Speaker 1

Expansion was primarily fueled by an increase in sales volumes of copper, which grew 5.5%, molybdenum by 21% increase silver 32% increase and zinc 78 percent increase in sales volumes. Also, we had an increase in metal prices for all of our products. Our total operating costs and expenses increased $111,000,000 or 8% when compared to the Q2 of last year. The main cost increment has been in workers' participation, repair materials, contractors and operating materials, sales expenses, copper and other factors. These cost increments were partially offset by a decrease in the energy cost and in exchange rate variance.

Speaker 1

In the first half of the year, we saw unitary cost reductions for several materials and services such as branding media, steel, explosive, tires and power costs. These savings, however, has been somewhat offset by higher cost associated with growth in production and sales volume and by an increase in maintenance and contractors expenditures, which we are closely monitoring and controlling. Looking at our EBITDA, the 2nd quarter of this year adjusted EBITDA was $1797,000,000 which represented an increase of 61% with regard to the $1116,000,000 registered in the same period of 2023, the Q2. The adjusted EBITDA margin in the Q2 of this year stood at 58% versus 49% in the same period of 2023. Adjusted EBITDA in the 6 months of 2024 was $3,215,000,000 This is 20% higher than when we had at the 6 months of last year.

Speaker 1

The adjusted EBITDA margin for the first half of the year stood at 56% versus 53% in the same period of 2023. Cash cost. Southern Copper's operating cash cost, including the benefit of byproduct credits was $0.76 per pound in the Q2 of 2024. This cash cost was $0.31 lower than the cash cost of $1.07 as we had for the Q1 of 2024. This is a 29% reduction in cash costs.

Speaker 1

Before byproduct credit, the operating cash cost was $2.15 per pound this past quarter. This is $0.04 higher than the value that we had for the Q1 of 2024. This 2% increase in the operating cash cost before by total credit reflects an increase in cost per pound from production cost, administrative expenses, lower premium and these higher costs were partially offset by higher that by lower treatment and refining charges. Regarding by products, we had a total credit of $716,000,000 or $1.40 per pound in the Q2 of this year. These figures represent a 34% increase in byproducts when compared with the credit of $532,000,000 or $1.04 that we had in the Q1 of this year.

Speaker 1

Total credits have increased for molybdenum, zinc and sugar and decreased somehow for sulfuric acid. The Q2 of 2024 net income was $950,000,000 which represents a 74% increase with regard to a $548,000,000 registered in the 2nd quarter of last year. The net income margin in the 2nd quarter stood at 31% versus 24% in the Q2 of 2023. This increase was mainly driven by a 36% increase in sales, which was partially offset by higher operating costs related to sales volume, G and A and exploration expenses. On a year on year basis, net income was 24% higher than in 2023 for similar reasons.

Speaker 1

Cash from operations. Cash flow from operating activities in the 6 months of this year was $1622,000,000 which represents a decrease of 18% compared to the $192,000,000 posted in the 6 months of 2023. Cash flow in the first half of this year was affected by a significant increase in working capital of $511,000,000 which was mainly driven by an increase in accounts receivable at our Mexican operations. For capital investments, our current capital investment program exceeds 15,000,000,000 dollars and it includes investments in the Tia Maria, 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 both of the El Arco project.

Speaker 1

In the Q2 of this year, we spent $332,000,000 on capital investments, which reflected a 31% increase over the figure reported in the Q2 of 2023 and represents 36% of net income this quarter. In the first half of the year, we spent $546,000,000 on capital investments, which represents 33% of net income and reflects the impact of an 11% increase in capital expenses year on year. Since there is a description of our main capital projects in Southern Copper's press release, I'm going to focus on updating new developments for each. This past quarter, we completed ramp up at the Buena Vista Zinc concentrator, which graduated from project to operating unit status. The zinc concentrator is operating according to our expectations, producing 23,300 tons of zinc and 5,500 tons of copper to date.

Speaker 1

Our projections indicate that we will comply with the 2024 plan of producing 55,400 tons this year. And we expect this facility to generate an average of 90,200 tons of zinc and 20,000 tons of copper per year in the next 5 years. For the Peruvian projects, we have the Tia Maria project, which is a greenfield project. This project will use a state of the art SX EW technology with the highest international environmental standard to produce 120,000 tons of FxEW copper cathodes per year. Southern Copper has consistently promoted the welfare of the population of Islay Province and the Arequipa region.

Speaker 1

As part of these efforts, we have implemented successful social programs in education, health care and productive development to improve the quality of life in the region. As of July 1 this year, the company has restarted activities at the Tia Maria in the province of Islay, the Arequipa region and at the national level. We reiterate our view that Tia Maria will generate significant economic and social opportunities for the Islay Province and the Arequipa region. In 2024, the company will, among other scheduled activities, install a life fence as well as 1,000 foxcatchers. Southern Copper will also roll out air moving work this year.

Speaker 1

All these activities will generate 2 70 direct jobs in 2024 for the local population. In 2025, we expect to begin mine construction, which will generate 1100 direct jobs. With workers from the Islay Province, when we start operations in 2027, the project will generate 600 direct jobs and an estimate of 4,800 indirect jobs. Our social programs in July totaled $6,300,000 in the last 2 years. Our current programs promote a reduction in the cost of agricultural production by improving productivity with cutting edge technology.

Speaker 1

Additionally, we're working to provide Internet access to 4,600 school students. On top of this, we're committed to developing health facilities, high performance schools, research centers and roads in the Arequipa region via the word for taxes mechanism. Tia Maria will generate significant revenues for the Arequipa region from day 1 of its operation. At current copper prices, we expect to export $17,500,000,000 and continue with $3,400,000,000 in taxes and royalties during the 1st 20 years of operation. The company is currently reviewing its historical capital budget for Tia Maria of $1,400,000,000 We will update this budget by year end.

Speaker 1

For Los Chancas project located in the Apolima region in Peru, the company continues to coordinate efforts with the Peruvian authorities to eradicate illegal mining activity. 40,000 meters gather additional information on the characteristics of the Los Chancas deposit. For the Michiquillay project in the Cajamarca region of Peru, as of June 30 this year, total advancing on the exploration project stood at 30%. We drilled 104,000 meters on a total program of 148,000 meters and obtained 33,991 core samples for chemical analysis. Diamond drilling is underway, which will provide data for cross section interpretation, geological modeling and resource evaluation.

Speaker 1

This month, we will begin hydro geological studies and in August, geotechnical studies will commence. We will also assess the results of metallurgical testing at the deposit in August. For environmental, social and corporate governance or ESG practices, we are glad to report that on August 1 this year, the company will begin receiving Eolic Energy from the Finisias Wind Park, which is operated by Grupo Mexico Infrastructure. This will reduce our CO2 emission by approximately 250,000 tons per year, which is equivalent to 7% of Southern Copper's carbon footprint. Southern Copper recently published its sustainability redevelopment report significantly improving the granularity and specificity of information regarding our performance, commitment and efforts in environmental, social and government areas.

Speaker 1

Our Buenavista mine in Sonora, Mexico has received the copper mark, the zinc mark and the Moabdo mark certifications for responsible production following a 3rd party independent evaluation of our performance in environmental, social and government matters, including on this human rights. Consequently, all open pit, copper, zinc and molybdenum production from our Mexican operation is currently certified by MARC standards. For allocation, our impulsa program seeks to provide our workers in Mexico with opportunity to qualify for certification of obtaining of primary and secondary education and bachelor's degrees. From 2022 to date, more than 970,000 people have participated in this program and 430 have graduated. At present, there are 540 workers actively participating in Poiza.

Speaker 1

For Human Development, the sports advisor and coach of the Sonora Operations swimming team, Jorge Iga, qualified for the Paris 2024 Olympic Games after breaking the Mexican record for the 100 meter freestyle. Thanks to Mr. Yiga's support in 2024, 17 students from our academies participated in 6 top level competitions. Dividend announcement. Regarding dividends, as you know, it is a company policy to review our cash position, expected cash flow generation from operations, capital investment plans and all the financial needs at each Board meeting to determine the appropriate quarterly dividend.

Speaker 1

Accordingly, on July 18 this year, Southern Copper Corporation announced a quarterly cash dividend of $0.60 per share of common stock and a stock dividend of 0.0056 shares of common stock per share. This is payable on August 26 of the year, 2024, to shareholders of record at the close of business on August 9, 2024. Ladies and gentlemen, with these comments, we end our presentation today. Thank you very much for joining us. Now we would like to open the forum for questions.

Operator

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

Speaker 2

Thank you very much, I will and everyone. Good talking to you. Just on Tia Maria, I would like to understand the rationale behind the new environmental approval that or study the company is doing or getting trying to get from the government that would be in relation to a dam that will supply water and not pursue the original desalination planned for pumping station and pipeline. Given the less than positive history of the project, why would the company introduce this new uncertainty, which honestly, in my opinion, is just going to complicate matters for the company. Potentially, but I want to clarify with you, this is because the CapEx will be lower and or the OpEx will be lower.

Speaker 2

Can you talk about like the magnitude, if I'm correct, the magnitude of the return on investment that the company would get with a dam as opposed to a desalination plant? Or how much is the CapEx for the desalination, the pumping station and the pipeline relative to the construction of Baidan? And what is the difference in the OpEx going forward between the two projects? Thank you.

Speaker 1

Okay. Thank you very much for your question, Carlos. At this point, we are maintaining our approved project, which considers the diesel plant. This is what we are developing right now. If there is a possibility later on in time of including them to get the water that the project requires, we will consider that.

Speaker 1

But at this point, we have we are following our current diesel plan for the project. Regarding the costs, we're currently that has been as you know, we have been reporting capital expense of about $1,400,000,000 for the project, but we are currently revising it because we want to add some facilities that were not considered in the first project and we have obviously we need to accommodate some inflation cost in the project total CapEx. For new facilities, I mean a new road that will connect the project to the coast of Islay, not passing through the Tambo Valley. That will remove one of the concerns that the farmers Islay or the Vale have about the trucks and all the materials that will move on for the project construction that will disturb the various environment. So for avoiding that, we're considering building a new road that will it's a 20 kilometer road, roughly speaking.

Speaker 1

And some other changes since the project was approved in 2014, we have seen some technological advances that we want to include in the capital budget as well. So as we indicated in the press release, we are expecting to announce this by year end at the most. So that's the current status.

Speaker 3

Thanks. Just one clarification.

Speaker 1

So you will

Speaker 2

build a road, not a railway, right?

Speaker 1

No, both things. The railroad will be for moving up the sulfuric acid and materials that we need to operate and down basically the production on a daily basis. However, for the construction phase and to communicate directly to the coast, we will be a road that will connect the plant and the facilities for the project with the coast of Ollendo.

Speaker 2

All right. Got it. Okay. And then my second question is related to the outlook for costs before Bright Products. If I miss it, I'm sorry, but if you didn't mention, could you please let us know how you see the evolution of your cash costs before byproduct, the benefit of byproducts?

Speaker 4

Well,

Speaker 1

it's hard to know because we always have price variances either way, but I believe that we will be at about $2 per pound before subtracting credit. Please keep in mind that those $2 now include the additional cost of our new concentrator for zinc. So it's all the cost of the company, which includes the cost of the byproduct plants that are related to our production complex divided by the pounds of copper that we're producing. So for this year, we expect it to be at about $2 And then it depends on the production level that we have. If we for instance, in 2027, when we add Tia Maria to our current production profile, we certainly will reduce our cost before byproduct toilets, because the Tia Maria expected cash cost is in the range the lower range of $1 plus.

Speaker 2

Okay.

Speaker 3

Thank you very much.

Speaker 1

You're welcome, Carlos.

Operator

Thank you. One moment for our next question and is coming from Mario Farid with Goldman Sachs. Please proceed.

Speaker 5

Thank you. Good morning, everyone. Thanks for the opportunity. A couple of follow ups on my side here. Firstly, how I think CapEx execution was a bit stronger than we're expecting for the quarter.

Speaker 5

It's still relatively half of yearly guidance, right? But just trying to understand if investments for Tia Maria are expected to be materially higher for this year. I think you had pretty much close to 0 for Tia Maria in the guidance for this year. Are you anticipating some more disbursements related to that as investments seems to be quite remarkable at this point. And yes, how should we think about final year CapEx and 40 AML year specifically as well.

Speaker 5

And similarly for production as well, I think pretty good numbers, but roughly in line with our estimates. We had I think our guidance for the year is around 9,501,000 tons. How are you thinking about final year guidance and your ability to reach the production guidance for the year, please? That will be my questions. Thank you.

Speaker 1

The second one is how sure do we feel about the production guidance?

Speaker 5

Yes, yes.

Speaker 1

Okay. Let me start by this one. Okay. We feel very confident that we will either maintain or improve our production guidance in the second half of this year. We are seeing our zinc new concentrator.

Speaker 1

It's certainly operating at a very good pace. We were very satisfied on that. On the first half of the year, our SX EW production at Buenavista was affected by some water scarcity that has been fixed. It's already we're already getting even more water than what we expect to have due to higher rainy season that we're seeing at the Sonora state. So that is going to help our production of SX EW copper for the second half of this year.

Speaker 1

We have not included that as part of our current guidance. And I believe that, that will be an upside factor for us. Coming to your first question on the CapEx for Tia Maria. This year, we are spending, as I'd say, that we're doing a life defense that will be around the expected place for the new facilities for the project. And we will basically spend much less than a project of this magnitude would require.

Speaker 1

However, we believe that we could we will be accelerating the capital expenditures for the project through the second half of the year. And for 2025, we spend in Tia Maria about $316,000,000 That will be for earthmoving activities and some other items that are related to the project. I mentioned the road that we want to build. That will be obviously a very important source of new labor requirement, which is one of our priorities to use people from the Islay Province and the Tambovale specifically. And then for the rest of the CapEx for Tia Maria, we will advise on before year end on this.

Speaker 5

Okay. Can I just quick follow-up as well? It sounds like cost was a lot better on after byproducts base. Volumes are strong obviously. We have we do not have the breakdown by each product until the full financial statements are out.

Speaker 5

But where do you think was the beat in terms of positive surprise for after byproducts cost and obviously byproducts production and revenues as well, please?

Speaker 1

Well, as I comment when we cover the cash cost portion of the presentation, We have the benefit of both better prices and higher volumes. The new zinc concentrator obviously was important for getting higher volumes. We have also molybdenum production coming from our mines. I think, well, I mentioned already the impact of having a much higher zinc production coming from the new Zinc concentrator. And silver comes in higher quantities, not only from our mines, but also as a byproduct of the zinc concentrator.

Speaker 1

So higher volumes and better prices, that's what in my view explained the positive surprise that you were mentioning, Arthur.

Speaker 5

That's great, Paulo. Thank you very much.

Speaker 4

You're welcome.

Operator

Thank you. One moment for our next question. And it's from the line of Alejandro De Michelis with Jefferies. Please proceed.

Speaker 6

Yes. Good morning, gentlemen. Thank you very much for taking my questions. A couple of things. First is a follow-up on your net cash cost, yes?

Speaker 6

Raul, if I'm understanding correctly what you were saying, which is higher volumes of zinc, higher volumes of silver, then we should assume that that extra byproducts revenues should be stable, obviously, with all the variations of prices. But then your net cash cost, should it kind of remain below the $1 per pound?

Speaker 1

Hopefully, yes, but we have to see where the prices are going through the rest of the year. We don't know where prices are going to be in the second half of this year. But regarding volumes, I believe that we will maintain the volumes that we have been achieving year to date for our byproducts and as well as copper. I already mentioned on copper that we would like to improve on the forecast we mentioned, but for the products also, we should maintain the production level. Hopefully prices will be well the same or even better.

Speaker 1

We see a better forecast, but that's where we are now.

Speaker 6

Okay. And then this is a follow-up obviously from the last quarter. Maybe you can give us some kind of indication how we should think about or how you're thinking about dividends for the rest of the year? Should we assume it's like a fifty-fifty between cash and stock?

Speaker 1

I can only say that it's up to the Board to make that decision. I think that the dividend as was approved having 50% in cash and 50% in shares. It's reflecting the well, the new investment that we are undertaking the Tia Maria investment as well as some payments that we have to do for next year. If you see in our balance sheet, we have almost $500,000,000 in debt repayment that we'll have to do in April next year. So that has I believe that has made our Board a little bit more conservative in the cash dividend and will a way to reflect the good time that we're seeing in our market and the production levels of the company that has been joined by dividend in shares as well.

Speaker 6

Okay. That's good. And just to confirm, you said that for Tia Maria for 2025, the CapEx expectation is about $300,000,000 something like that?

Speaker 1

$316,000,000 that's the current budget. However, it's under review and we would like to accelerate our CapEx expenses in Tia Maria. But obviously, with the proper activities to move on.

Speaker 6

Okay. That's fantastic. Thank you very much.

Speaker 4

You're welcome.

Operator

Thank you. One moment for our next question that comes from Sofia Martin with GBM. Please proceed.

Speaker 4

Hi. Thank you for taking my call. I was just wondering if you could share with us your copper production guidance for the next couple of years. Thank you.

Speaker 1

Certainly, Sofia. Okay. For 2024, I already mentioned 960 3,200 tons. For 2025, we will have a slight reduction in production coming from the Buenavista mine and the open pit operations of Peru. That will put us now at 921,000 tons.

Speaker 1

Then we will have an adjustment all of these adjustments are basically coming from lower ore grades. For 2026, we're expecting a little bit less than 900,000 tons, 2027, 960,000 and 70,000 tons. And then when we get in 2,000 well, in 20272028, will be getting the benefit of the Tia Maria for production and that will increase our production forecast to over 1,000,000 tons by 2028.

Speaker 4

Perfect. Thank you very much.

Speaker 1

Yes. And for the next year, even though we haven't received the Board approval yet, we're considering expansion of the Quahone mine that will increase its capacity by about 1 third of what it is right now. However, that is not included in our current capital forecast, but it's something that the company is working on.

Speaker 4

Perfect. Thank you very much.

Speaker 1

You're welcome.

Operator

Thank you. Our next question comes from the line of Hernan Kisluk with MetLife. Please proceed.

Speaker 7

Good morning. Thank you for taking my questions. Following up on the previous questions about dividends and also talking about Tia Maria and the CapEx that you need going forward, can you maybe remind us what are your capital allocation priorities? So we think that CapEx will be higher, but then thinking about the cash position, the net debt level and the changes that you have been doing on the dividend front, How should we think about going forward?

Speaker 1

Well, going forward, the company is focused as it is it has been mentioned in several forums as well as these conference calls. We are focusing on organic growth. We are currently developing the we already finished the think the new think concentrator in Buenavista. And we're focusing on the projects that the company has, which are pretty much 100% owned by the company. And well, currently, we are moving forward with Tia Maria.

Speaker 1

We already finished the zinc concentrator in Mexico. We do have 2 other projects in Peru and one with big project in Mexico, which is in Peru, the Los Chancas and Ichikiay projects and Mexico, El Arco and EPLAR. That are 2 projects. And that's part of our pipeline in mining, specific copper mining projects. And besides that, for the future, we're also considering the construction of metallurgical complexes, 1 in Peru and 1 in Mexico that will certainly be we go a way to process the long concentrate production that we have now.

Speaker 7

And given the growth projects that we have that are point to grow the asset base, should we expect a stable net debt level for the next few years? Or will it go along with the debt?

Speaker 1

I'm so sorry. I couldn't hear what you said. Net debt level. Net debt.

Speaker 7

Yes. Should we consider that it will grow

Speaker 1

together with asset pricing next year? For now, we are we have been paying our total debt. We pay about $700,000,000 in the last 5 years. Next year, we have the maturity of 1 of our 10 year loans, the bonds that will mature, let's say, in April and it has a CapEx or a principal of $500,000,000 if we move on with projects, I believe that we will certainly touch the debt market in the future. But at this point, we have no complete plans to do that.

Speaker 7

Okay. Thank you.

Operator

Thank you. One moment for our next question. And it's from the line of Alfonso Salazar with Scotiabank. Please proceed.

Speaker 8

Hi, Raul, and good day. Two questions from my side. The first one is regarding production and sales levels. For several quarters now, we have seen that production is above shipments. So I'm just wondering what is behind this.

Speaker 8

And if there is any reason in the long term to assume that these numbers shouldn't be the same? The second question is regarding permits for tailings dams in Mexico, which we hear that some companies are having problems to secure these permits, and they have to slow down production or they are considering having to do that in the future unless they get these permits. If there is any situation like that in your case And also, if there's any update on the water pipeline that you need for Buenavista?

Speaker 1

Okay. Well, we have the difference that you mentioned, Alfonso, the first two difference between the copper contained in our mine production visavis the refined copper that we sell. As you know, we sell about 75% of all the copper production that we do is sold as refined copper or further process copper such as rot. If you see our production of copper and the sales usually they are slightly lower, the sales in volume compared to the production volumes that we report. That's one of the reasons why you see this over time.

Speaker 1

And your second question, I'm so sorry, could you repeat it please?

Speaker 8

Yes, sure. Regarding telling some dam permits in Mexico because you've got some companies that have some problems.

Speaker 1

Yes. No, we haven't had any problems with that. We're currently working to have tailings dams not only operating with the safe that we need them to have in order to maintain our operations at a sound pace. But no, nothing to report on that regard. We are basically looking to growing the capacity of these tailing dams and we are so far with no issues about this.

Speaker 8

Excellent. Any update on the water pipeline for Buenavista?

Speaker 1

No. For now, it's basically as it has been reported before.

Speaker 8

Okay. Perfect. Thank you, Raul. Raul.

Operator

Thank you. One moment for our next question. And it's from the line of Myles Alsop with UBS. Please proceed.

Speaker 3

Great. Thank you very much for taking the question. Maybe a few quick questions follow ups. So with Tia Maria, since your activity has been picking up over the last few months, have you seen any social unrest? Clearly, that's been an issue for many years with Tia Maria, but do you feel you have more acceptance by local community at this juncture?

Speaker 1

Much better local acceptance to the project. Obviously, there are some people that will never change their mind. They don't like mining and they are protesting. But so far, we are seeing that the majority of the slide population, which is roughly speaking a little bit more than 50,000 people live in this province of Arequipa. Of those 50,000, we don't see we see interest in the project to move on.

Speaker 1

People with registering themselves into a website that we have opened for job offers. So we're seeing very positive development in that regard. And we will obviously, we are making efforts to explain that the project will be environmentally safe for the people of Israel. I think it's the case with our operations in the southern part of Peru, where we have no issues regarding environmental matters with the local population of Moquewa, Tagna and Ilo. Okay.

Speaker 3

And then maybe going back to that capital allocation question earlier, where does M and A fits within obviously, organic growth is clearly the priority, but there are a few opportunities in Europe and so on At the moment, where does that M and A kind of optionality sit within the priority of management?

Speaker 1

Well, the company is always open to review any opportunities that we have on the M and A issues. At this point, we're not looking into anything specific. We're working on organic growth. But if there is a good opportunity out there, our responsibility as management will be to analyze it and to report to our Board of Directors and ask them for a decision on that.

Speaker 3

Is there any really like Tier 1 assets that you're interested in like proper big 120,000 plus tons or would you look at smaller opportunities as well?

Speaker 1

We have made both things in the past. So the answer is yes and yes. We have looked into assets that have over 100,000 tons of copper production as long as they are a good fit with our current operations, meaning by these mainly copper and low cash costs. Then that can be assets of 100,000 plus size or smaller assets that are close to our operations as it has been the case with Pilares for instance. We have been we have developed that deposit and it's feeding our Caridad operations right now.

Speaker 1

So we should tell them on certain conditions, but for smaller assets, it should most likely be relatively close to where we have our major operations. For bigger ones, that's a different story.

Speaker 3

Okay. That makes sense. Maybe last question just on Mexico. Obviously, we've had the elections. And do you think that there's the new government and the policy will impact your operations potentially in Mexico?

Speaker 3

Obviously, there has been kind of incremental challenges, shall we say, over the last 6 years. And just on that El Pilar project as well, it's never really talked about, it's so small. But is that still got all the permitting? Is it actually moving forward? Or is that still on hold?

Speaker 3

Is El Arco viable under the current administration?

Speaker 1

For Epilare, we are looking into some issues regarding the recovery of the XCW solution. We are working on that. For the other concern that you indicated on the questions for the new policies of the coming government, we have to see when they present them. At this point, we have no specific issues to comment on this.

Speaker 3

Okay. Thank you very much.

Speaker 1

You're

Operator

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

Speaker 9

Hi, good morning, Raul. Thanks for taking my questions. Just two really quick ones for me. Just on Tia Maria, I know you're reviewing the CapEx that you have, but I'm more curious about the timing. I believe you're looking at a potential start up in the second half of 2027.

Speaker 9

Do you see any risk that that maybe slips into 2028? If you could just talk a little bit about the timing as you see things. And then second question is, you mentioned the possibility of expanding the Quahone mine. I'm hoping you can give us a few more details around that and if there are any other similar type sort of smaller brownfield projects that you might have at your other mines that could help boost production in the coming years? Thank you.

Speaker 1

Yes. Thank you for your question, John. In the case of the Tia Maria current timeline, that's the best that we have at this point is finishing the project by the first half of twenty twenty seven, initiating the ramping up and having the project stabilize and operating at full capacity by sometime between the second and the third. I'm going to connect again. Okay?

Operator

Okay, perfect. Please stand by. Ladies

Speaker 10

Yes,

Speaker 5

yes. Yes.

Operator

We can hear you now. I can hear

Speaker 8

you. Yes.

Operator

The audience is listening to you. And we still have Mr. John Brandt from HSBC with his question.

Speaker 1

Okay. Thank you very much. First, let me introduce ourselves for what just happened. So sorry about that. We will move on with the John Brand question.

Speaker 1

2nd question On the Guajon expansion, the idea is to increase the capacity of the Guajon operation by about 1 third of its current capacity. Nowadays, Guajon can mill about 90,000 tons of mineral per day. On the Guajon concentrator, it is to build new facilities that will allow Guajon to increase its milling capacity to 120,000 tons of material. That's basically, as I say, the next step, we're still working on that. We have not board approval, which is more than that you keep in mind.

Speaker 1

I think that you already covered the other the question about on the kind of projects that we have been looking at.

Operator

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

Speaker 10

Good morning, Roy and team. This is David Just one quick question on your pricing for copper. We know that the COMAX copper price tends to have some premium over LME copper price in some time this year. And given that our customers are mainly based in Americas, so I just wanted to show we assume that the COMEX copper price would be a better referencing index for your copper sales instead of the IME copper pricing most of your contracts?

Speaker 1

Okay. David, we do have most of our sales from the Mexican operations are priced using the cobex price for the Peruvian operations and some of the concentrate sales of the Mexican operations, we have to reference the LME price. And well, for now, it looks more attractive selling on the COMEX market, but that could change very quickly. This year, it is, as you say, there is the arbitrage has been favoring the COMEX market due to the relatively scarcity that we're seeing in this the market that prices will commence with the LME market. That's something that may vary over time.

Speaker 1

So we are for that reason having a portion of R and D in COMEX terms as well as LME terms for some other portion of R and D.

Operator

Forest. And Raul, I'm not showing any further questions in the queue. I will pass it back to you for final comments.

Speaker 1

Thank you very much, Carmen. With this, we conclude our conference call for Savory.

Powered by Quartr