SOUTHERN COPPER CORP/ Q2 FY2024 earnings call

Management Statement and Operational Highlights

• Copper Market: LME copper price up 15% from Q2 2023 to $4.42/lb. Expected 2024 market deficit ~217,000 tons, with demand supported by U.S. economy and decarbonization tech.
• Production: Copper production Q2 2024 at 242,474 tons (+15% q-o-q). Molybdenum, silver, zinc production also increased.
• Financial Results: Q2 2024 net sales $3,818M (+36% y-o-y). Adjusted EBITDA Q2 2024 $1,797M (+61% y-o-y). Net income Q2 2024 $950M (+74% y-o-y).
• Expansion Projects: Tia Maria (Peru) to start ops in 2027, Los Chancas, Michiquillay (Peru), and Buenavista Zinc, El Pilar, El Arco (Mexico) projects ongoing.
• ESG: Began receiving eolic energy from Fenicias wind park, reducing CO2 emissions. Buenavista mine certified for responsible production; social programs in Islay region.

Segment Performance

• Copper: Represented 76% of sales in Q2 2024. Production in Q2 was 242,474 tons, up 15% q-o-q, driven by Toquepala mine's 21% increase. 2024 expected production: 963,200 tons.
• Molybdenum: Represented 12% of sales value. Q2 2024 avg price $21.69/lb (+4% y-o-y). Production up 21% q-o-q. 2024 expected production: 27,400 tons (+2% y-o-y).
• Silver: Represented 5% of sales value. Q2 2024 avg price $28.84/oz (+19% y-o-y). Mine production up 8% q-o-q. 2024 expected production: 20.6 million oz (+12% y-o-y).
• Zinc: Represented 4% of sales value. Q2 2024 avg price $1.29/lb (+12% y-o-y). Mine production up 71% q-o-q. 2024 expected production: 121,800 tons (+86% y-o-y), with 2025+ expected at 178,000 tons/year.

Guidance

• Production: 2024 copper production expected 963,200 tons. 2025 copper prod. ~921,000 tons; Tia Maria to boost prod. to >1M tons by 2028.
• CapEx: Current capital investment >$15B. Tia Maria CapEx under review, $316M budgeted for 2025.
• Dividends: Quarterly cash dividend $0.60/share and stock dividend 0.0056/share declared, payable 8/26/2024.

Risks

• Project Uncertainties: Tia Maria project review for water supply infrastructure changes, impacting CapEx/OpEx.
• Regulatory/Permitting: Concerns about tailings dam permits in Mexico and potential new Mexican government policy impacts.
• Market Volatility: Fluctuations in metal prices and market conditions affecting sales/revenues.

Question and Answer

• Q: Carlos de Alba on Tia Maria's environmental approval change, comparing dam vs desalination plant CapEx and OpEx. A: Raul Jacob stated they maintain the approved desal plant project but consider water supply changes. Current CapEx for Tia Maria under review, with plans to add new facilities.
• Q: Marcio Farid on CapEx execution, Tia Maria CapEx, and production guidance. A: Raul Jacob confident in maintaining/improving production guidance, with zinc concentrator and water availability aiding production. Tia Maria CapEx to be accelerated in 2025 with $316M budgeted.
• Q: Alejandro Demichelis on net cash cost, dividends, and Tia Maria CapEx. A: Raul Jacob discussed net cash cost influenced by volumes/prices, dividend decision based on cash position/debt repayment, and Tia Maria CapEx at $316M with potential acceleration.
• Q: Sofia Martin on copper production guidance for next years. A: Raul Jacob provided copper production guidance for 2024-2028, noting Tia Maria's impact on increasing production to over 1 million tons by 2028.
• Q: Hernan Kisluk on capital allocation priorities and net debt. A: Raul Jacob emphasized organic growth, focusing on projects like Tia Maria and El Pilar, with no concrete plans for debt increase but potential debt market access for projects.
• Q: Alfonso Salazar on production vs sales difference and tailings dam permits in Mexico. A: Raul Jacob explained production vs sales difference due to refined copper sales, and no issues with tailings dam permits in Mexico.
• Q: Myles Allsop on Tia Maria social unrest, M&A, and Mexico operations. A: Raul Jacob noted improved local acceptance for Tia Maria, openness to M&A opportunities, and no specific issues with new Mexican government policies.
• Q: Jonathan Brandt on Tia Maria timing and Cuajone mine expansion. A: Raul Jacob discussed Tia Maria start-up timing in 2027 and Cuajone mine expansion plans to increase capacity by one-third.
• Q: David Feng on copper pricing referencing COMEX vs LME. A: Raul Jacob stated most Mexican sales are priced on COMEX, while some Peruian and concentrate sales use LME, with market conditions influencing pricing.