Southern Copper Corporation (SCCO) Earnings Call Transcript & Summary

Good morning, and welcome to Southern Copper Corporation's Third Quarter and 9 Months 2026 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 third quarter and 9 months 2026 as well as answer any questions that you might have. 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 to not place undue reliance on these forward-looking statements. Southern Copper Corporation undertakes no obligation to publicly update or revise any forward-looking statement, 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. Raul Jacob.

Thank you very much, Victor. Good morning, everyone, and welcome to Southern Copper's Third Quarter of 2026 Results Conference Call. At today's conference, I'm accompanied by Mr. Leonardo Contreras, CEO of Southern Copper and Board member. Let me say first that we're very pleased to report strong third quarter performance as we hit record highs for net sales, adjusted EBITDA and net income for the second consecutive quarter. Concurrently, our report will show that Tia Maria and El Pilar, which are under construction, are expected to add 156,000 tons of refined copper to our total production figure. At this print, we will widely surpass the annual production mark of 1 million tons. These outstanding achievements are driven by operating excellence and reflect our commitment to creating long-term value for our stakeholders in a context marked by sustained demand for copper and the other minerals we produce. Today, 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. For the copper market, the LME copper price increased 44% from an average of $4.24 per pound in the third quarter of 2025, up to $6.41 this past quarter. In the COMEX market, we saw a 34% increase with an average of $6.48 per pound this past quarter. Based on current supply and demand dynamics, we estimate now a slight copper market surplus for 2026. Copper inventories worldwide, the total combining stock in LME, COMEX, Shanghai and bonded warehouses, stood at 1,105,000 tons as of October 9 of this year. We estimate that this inventory can currently cover approximately 14 days of global demand. Now let's look at Southern Copper's production for the past quarter. Copper represented 74% of our sales in the third quarter of this year. Copper production registered a decrease of 1% compared to the third quarter of 2025 and stood at 232,396 tons in this past quarter. Our quarterly results reflects a 6% drop in production in Peru, which was driven by a decrease in production at both our Toquepala and Cuajone mines due to lower ore grades and recoveries. These were partially offset by an increase of 2.5% in production at our Mexican operations, which was mainly fueled by higher production at our Buenavista and IMMSA mines. Our copper smelters and refineries increased their production by 18% and 16%, respectively, in the third quarter. On a year-to-date basis, copper production fell 2.9% in 2026 to stand at 693,602 tons. This evolution was mainly driven by a decrease in production at our Peruvian mines due to lower ore grades. Year-on-year, the company's smelting and refining facilities increased their production by 16% and 10%, respectively. For 2026, we expect to produce 918,000 tons of copper, an increase of 0.7% over our initial plan. Molybdenum represented 12% of our sales in the third quarter of 2026 and is our primary by-product. Molybdenum prices averaged $32.93 per pound in the quarter compared to $24.30 in the third quarter of last year. This represents an increase of 36% in price. Molybdenum production dropped 2% in the third quarter of this year compared to the same period of 2025. This was mainly driven by lower production at our La Caridad and Buenavista mines, which was largely offset by higher production prints at our Toquepala and Cuajone mines. In 2026, we expect to produce 29,000 tons of molybdenum, which is 12% above our initial plan. Silver represented 7% of the company sales in the third quarter of this year. Silver prices averaged $62.80 per ounce in the quarter compared to $39.56 per ounce in the third quarter of 2025. This represents an increase of 59%. Silver is currently our second most important by-product. Mined silver production decreased 2% in the third quarter of this year versus the same period in 2025, driven primarily by a drop in production at our open pit operations. These results were partially offset by an increase in production at our IMMSA mine. Refined silver production decreased 6% quarter-over-quarter, fueled mainly by a drop in production at the La Caridad and Ilo refineries. For 2026, we expect to comply with our plan to produce 24 million ounces of silver. For zinc, it represented 4% of our sales value in the third quarter of 2026 with an average price of $1.74 per pound in the quarter, which represents a 36% increase compared to the third quarter of last year. Zinc is currently our third by-product. Zinc mine production decreased 8% quarter-on-quarter and totaled 41,880 tons. This was mainly due to a drop in production at Buenavista, Charcas and San Martin operations. These results were partially offset by higher production at our Santa Barbara operation. Refined zinc production decreased 6% in the third quarter vis-a-vis the third quarter of 2025. For this year, we expect to produce 163,400 tons of zinc, 1% below our initial plan. Looking into our financial results for the third quarter of 2026, sales were $4.7 billion, which is $1.3 billion above the sales print in the third quarter of 2025 or a 39% increase. Copper sales increased 41% while volume decreased 0.4% in a scenario of better prices. As we mentioned, the London Metal Exchange price increased 44% and the COMEX 34%. Regarding our main by-products, sales of molybdenum were up 31% due to better prices, which were partially offset by a decrease in volume. For zinc sales, they also increased by 36%, fueled by better prices and better volume. Lastly, silver sales also rose this quarter riding the wave of better prices, whose impact was partially offset by a decrease in volume. Our total operating costs and expenses increased by $223 million or 17% when compared to the figure in the third quarter of last year. The main cost increments were in diesel and fuel, workers' participation, inventory consumption, depreciation, power and labor costs. These cost increments were partially offset by translation difference of $22 million plus an exchange rate variance that favor our cost in local currencies. Our third quarter adjusted EBITDA hit a record high of $3 billion, which represented an increase of 54% with regard to the $2 million (sic) [ $2 billion ] registered in the third quarter of 2025. The adjusted EBITDA margin in the third quarter of this year stood at 65% versus 59% in the same period of 2025. Adjusted EBITDA for the 9 months of this year was $1.8 billion (sic) [ $8.6 billion ], which is 56% higher than the print for last year. The adjusted EBITDA margin in the 9 months of 2026 stood at 65% versus 58% in the same period of last year. Cash cost. Operating cash cost per pound of copper net of by-product revenue credits was $0.09 in the third quarter of 2026, which represented a decrease of 77% compared to $0.52 (sic) [ $0.42 ] reported in the third quarter of 2025. This result was mainly driven by an increase in by-product revenue credits of 31%, which rose on the back of better price. Operating cash cost per pound of copper before by-product credits was $2.46 per pound this past quarter. This is $0.23 higher than the value for the third quarter of 2023 (sic) [ 2025 ]. This 10% increase in operating cash cost before credits was the result of an increase in cost per pound from production costs and for administrative expenses, which was partially offset by an increase in the premium and treatment and refining benefits that the company has been collecting. Regarding by-products, we had a total credit of $1.2 billion or $2.36 per pound in the third quarter of 2026. These figures represent a 31% increase compared to a credit of $900 million or $1.81 per pound in the third quarter of 2025. Total credits increased for molybdenum, zinc, silver and sulfuric acid. For the 9 months of 2026, the operating cash cost per pound net of by-product credits was $0.01. This represents a decrease of 98% compared to the $0.61 reported for the 9 months of 2025. For the year, cash cost decrease was driven by an increase in by-product credits of 54%. This is for the year-to-date figure of -- for cash costs. The third quarter of 2026 net income hit a record high of $1.8 billion, which is up 63% versus the $1.1 billion registered for the third quarter of 2025. This was mainly due to higher net sales. Net income margin in the third quarter of this year stood at 38% versus 33% for the same quarter of 2025. On a year-to-date basis, net income was 67% higher than in 2025 due to growth in net sales. Net income margin for the 9 months stood at 38% versus 32% in 2025. Cash flow from operating activities in the third quarter of this year was $2.2 billion, 43% above the figure in the third quarter of 2025. This improvement was mainly attributable to strong cash generation at our operations, which was driven by higher sales. For the 9 months of this year, cash flow from operating activities stood at $5.9 billion, which represented an increase of 81% over the $3.3 billion posted in the 9 months of 2025. Capital investments. Our current capital investment program for this decade exceeds $21 billion and includes investments in projects in Peru and Mexico. Given that 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. For the Peruvian projects, I'll begin with Tia Maria. Tia Maria is expected to produce 120,000 tons of SX-EW copper cathodes per annum in the early years of operations. Operations are scheduled to begin in the first half of 2028. As of September 30 of this year, the company has invested $884 million in project execution and committed $1.1 billion to cover diverse activities, acquisitions and related contracts. Large-scale earthworks have concluded and 18.9 million metric tons of material has been transferred to the La Tapada stripping deposit. Most work orders for the project's primary equipment have been issued. Purchase orders for the leaching process have been placed to secure the main equipment, which will be outfitted with cutting-edge technology as well as secondary equipment and materials. On the energy supply front, work is advancing at the main electrical substations and the 220-kilovolt transmission line in its final stage of construction. In parallel, large-scale earthworks to develop dry and wet areas have been completed. At the project's main installations, civil work is advancing alongside efforts to assemble metal structures and the main components of the crushing equipment for the primary, secondary and tertiary crushing circuits in the dry area. In the wet area, work to build the solvent extraction and electrodeposition facilities, among others, is progressing. As of September of this year, the Tia Maria project was 50% complete. Additionally, 6,817 new jobs have been created, 1,181 of them were filled by local applicants. To the extent possible, the company intends to cover the estimated 7,000 jobs that will be created during Tia Maria's construction phase with workers from the Islay province. For Los Chancas, this is a project also in Peru at the Apurimac region that is expected to produce 130,000 tons of copper and 7,500 tons of molybdenum annually. The capital investment is estimated at $2.6 billion, and we expect to begin operations by 2031. For the project update, social and environmental management programs are currently being implemented in the communities within the project's direct area of influence in accordance with the Framework Agreement signed for the Development of the Tiaparo Peasant Community and the Los Chancas Mining Project. In addition, measures are being taken to regain control of the project area, which has been threatened by illegal miners. Regaining control is essential if we are to continue developing our Los Chancas project. For the Michiquillay project in Cajamarca, Peru, this is a project that we expect to -- in which we expect to produce 225,000 tons of copper per year with by-products of molybdenum, gold and silver. The mine life is estimated at 25 years, and we estimate to invest approximately $2.5 billion to begin production expected by 2032. The deposit's Mineral Resource Estimation and Classification report has been developed with geological information obtained from drilling programs and geological models. These reports and studies are complying with SEC's S-K 1,300 mining disclosure standards. A conceptual study is underway to determine where a conventional and/or filtered tailings storage facility should be located. Hydrological, hydrogeological, and geotechnical studies are also being conducted. We're adding an expansion of the Cuajone operation to our pipeline of projects in Peru. This is to maintain or potentially increase production levels for the Cuajone operation. And for this, the company is evaluating an expansion from the current milling capacity of 90,000 tons per day to 120,000 tons per day. This is a 33% increase in milling capacity. The expansion will require additional mining equipment and a new production line at the Cuajone concentrator. Current estimates point to a capital cost of $680 million to produce an average of 55,000 tons of copper and 1,400 tons of molybdenum per year. As part of a thoughtful review on the matter, studies are underway to determine the viability of expanding the Cuajone operation to 150,000 tons of milling capacity per day. Focusing on our Mexican projects, Southern Copper has several projects in its Mexican pipeline that may boost organic growth if they are found to be of value for both stakeholders and the communities in which we operate. These projects are Angangueo, Chalchihuites and Empalme Smelter. They are expected to bolster our position as a fully integrated copper producer. We're engaged in talks with the current administration to continue rolling out SCC's Mexican investments for about $10.2 billion. El Pilar, which is located in the Sonora state of Mexico, is a project that -- it's about 45 kilometers from Cananea and Buenavista mine -- from the Cananea town and the Buenavista mine. Its copper oxide mineralization contains estimated proven and probable reserves of 317 million tons of ore with an average copper grade of 0.25% and a life of mine of 18 years. El Pilar will operate as an open pit mine with annual production of 36,000 tons of copper cathodes, utilizing cost-efficient and environmentally friendly SX-EW or Solvent Extraction and Electrowinning technology. With an investment of $551 million, this project will employ a direct workforce of 450 people during the construction phase and 300 during the operational phase. El Pilar, it's a new copper project that has obtained the necessary environmental permits. Early site preparation began in September of this year to develop energy lines and build on-site construction offices. Contracts and studies related to the substation and transmission line are in the works. Basic engineering contracts for the access road, railway spur, substations and power lines have been signed. The EPCM bidding process for the SX-EW plant is underway and expected to culminate before year-end. Project construction will commence in the first quarter of 2027 and production is expected to begin in the second half of 2029. Focusing on environmental, social and corporate governance, or ESG practices. We are glad to report that our sustainability ratings continue to improve. In its Corporate Sustainability Assessment 2026, S&P Global increased Southern Copper's rating by 2 points over last year's print. The company ranks among the top 3 performers in the mining sector with a rating double -- a rating that doubles that of the industry standard. Some of SCC's individual ratings were top of class for the sector. That is the case for transparency of reporting, materiality, risk management, business ethics, energy, biodiversity and community relations. On top of what I just mentioned, 4 operations in Sonora, these are the lime plant, the La Caridad mine, the Minera Mexico's copper smelter and refinery. These 4 operations were awarded with the Silver Helmet by the Mexican Mining Chamber or CAMIMEX for their safety and accident prevention metrics. This is the first time that 4 operations in Sonora is awarded simultaneously, which attests to our teams' commitment to strengthen preventive practices, safety controls and worker protection. In the Michiquillay operation in Peru, as part of our commitment to promote the stakeholders' active participation in new project development, the Participative Environmental Committee for the Michiquillay project in Peru completed its third verification of environmental performance in 2026. Community leaders and representatives of public and private entities sit on this committee, which has the technical capabilities to collect soil, water and air samples and interpret results. Their participation in project development strengthens actions and measures to prevent or manage impacts on the environment and communities. For the past 14 years, our program Forjando Futuro, Forging Futures, has been developing capacities and providing access to local job opportunities in the areas of influence of our operations in Peru and Mexico. Currently, 17% of the jobs on the Tia Maria project are held by locals who access these opportunities through our on-site offices or in coordination with local contractors. Under this program, Forging Futures, we have awarded 700 scholarships to young people to obtain certifications to operate heavy equipment or engage in welding and topography. These efforts strengthen participants' technical competencies and broaden capacities to successfully insert in the job market. Changing subject, we're going into dividends. And as you know, it is the company 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 15, Southern Copper Corporation announced a quarterly cash dividend of $1.30 per share of common stock and a stock dividend of 0.0106 shares of common stock per share. This is payable on November 19 of this year to shareholders of record at the close of business on November 3, 2026. Ladies and gentlemen, with these comments, we end our presentation today. Thank you very much for joining us. And now we would like to open the forum for questions.

[Operator Instructions] First question from the line of Carlos De Alba from Morgan Stanley.

My first question is just on Tia Maria, maybe a little bit more color with what seems to be a little bit of a delay from the fourth quarter of 2027 to the first quarter or the first half of 2028. If you can provide a little bit more color as to what prompted that decision? And if you could expect maybe a potential increase in CapEx. I noticed that it's still $1.8 billion, but typically, when there are delays, more often than not, it comes with a higher CapEx associated with that. So I wanted to get your color. That was my first question. I'll ask the one next.

Okay. On the expected start-up of Tia Maria, we have found that it will take a little bit longer for us to assemble doing the mechanical assembly of all the equipment as well as some works related to engineering on the project. I think that's why we -- when we review the expected time line, we pass it from the fourth quarter of this year to the first half of 2027. On potential CapEx increase, we are not reporting on any changes on that. We will mention this issue and address it in the call that we have in January, not only for Tia Maria, but in general, for our production forecast as well as our CapEx for this next year and on.

And if I may ask, what is your production -- maybe not guidance, but the range of where you see production for copper, moly, maybe silver in next year as well as cash cost before by-products maybe in the fourth quarter or 2026 or the full 2026 and also the early indication for next year?

Okay. On production for next year, it should be expected to be now for this year, about a little bit less than 920,000 tons. And for next year, we'll provide an update when we finish our -- we're doing currently a thoughtful review on all our mining plans. And on the base of that, we will issue a much more firmer forecast at the beginning of 2027 in our January call. For cash cost, well, as you know, this is one of the hardest things to forecast because you not only have whatever happens with cost of production of copper and copper production and also what goes on regarding by-products. But let's say that we should be about to where we are now or a little bit better cash cost-wise for next year.

So okay. So slightly flat to or a slightly stable plus maybe slightly better next year. And the fourth quarter, do you think will remain also relatively stable versus what you reported in the third quarter of 2026?

I'm so sorry, I couldn't get what you said, Carlos.

Yes. On the fourth quarter -- sorry, on the fourth quarter 2026 cost before by-products, would you expect them to remain also stable versus the third quarter?

We don't see any that may distort the cost or treatment. We see some possibilities of a cash cost reduction before any credits, but that's contingent of getting our production goals, which we're focusing on that as well as our -- well, by-products credits that, as you well know, are strongly influenced by prices in before by-products.

Our next question comes from the line of Matheus Moreira from Bradesco BBI.

Two quick questions on my side. First, on capital allocation. I mean, cash obviously continues to build at a very fast pace. And even with CapEx expected to reach $2.5 billion in 2027, we would expect cash accumulation to continue at this strong pace, right? So I'm just wondering how is management thinking about the potential for increased shareholder distributions for you? That's my first question. And then my second question is a broader question on CapEx. We've seen several major projects revise their CapEx estimates higher in the recent months amid broader inflationary pressures. I know half -- roughly half of Tia Maria's CapEx has already been deployed. But how do you see risks of revising the remaining CapEx higher? And how should we think about potential inflationary pressures across your other growth projects? Those are my 2 questions.

Well, on the -- well, on potential inflationary impact, we are looking. On potential inflationary pressures, we'll make -- we're currently reviewing our CapEx. We will be giving some color on this when we report the end of the year as well as the look forward for 2027. I'm so sorry, there is one microphone that is open. So regarding inflation, we're looking into our projects, current budgets, see if they have to accommodate any variances for next year. So far, we have not reported anything specific on this. Well, and regarding dividends, as you know, it is always contingent of a Board decision. The company has been giving dividends in cash as well as in stock that was acquired at $26 per share that are being handed back to our shareholders, considering the current position of the company, which I think is very favorable in that regard.

Our next question comes from the line of Emerson Sosa Vieira from Goldman Sachs.

So 2 quick questions here. The first one is on Cuajone. Just trying to understand when you guys expect to submit the project to Board approval and when we could see effectively the incremental copper production coming online? And also, I mean, what needs to happen for you guys to take a decision on the expansion to further 100,000 to 200,000 tons per day capacity? So that's the first one. And just on cash costs, specifically before by-products, right? It seems like energy costs in Mexico have been rising, right, due to natural gas. So I just want to understand if the cost pressure that we saw this quarter is structural indeed. And if you guys see, I don't know, any levers to potentially offset those impacts, right?

Okay. On the Cuajone expansion, we have to finish the technical studies that are very well advanced. That's why the Board has authorized us to mention it in our press release as something that it's very likely to go on, even though we don't have the final go for the project, we are very close to getting it. So I would say that it's going to be a very, very interesting investment for us. In the case of cash cost, we're seeing different impacts on materials. In the case of gas, we're importing it for the Mexican operations from the Texas basin, the Permian Basin. And that is, being a product of oil, gas has had some very competitive cost that has helped us in our cost for gas consumption at the Mexican operations. We don't see a problem with that. We think that the market will have a reasonable supply at a good cost for the company for the Mexican operations. Besides this, on the by-products, being as sulfuric acid producers, we have been consuming our own sulfuric acid at very competitive cost, which is the one that we have for production. And a portion of our production, particularly at the Peruvian operations, it's been sold at the South American market, which has a very competitive price for the spot price as well as for contracts on this. So I've already covered a little bit our view on the cash cost. And hopefully, we will have it maintaining its current level or improving slightly, I would say, regarding to where we are.

Right. Just one more on Tia Maria, please. So just confirming the company does not expect CapEx to increase, I mean, to above the $1 billion that is remaining, right? Despite of this, let's say, 1, 2 quarter delay. And just on Tia Maria, again, I mean, the deceleration in physical progress that you saw this quarter, you mentioned it was driven by longer times in assembly of the mechanical equipment. So that was a one-off and then physical progress should then accelerate in the next quarters. Does this make sense?

On CapEx, we're going -- we're currently reviewing all of them. So I'm not making a specific comment on that. I couldn't get the second point of your concern, Emerson.

Next question will come from the line of Myles Allsop from UBS.

Just a couple of questions. On the Cuajone expansion, if you go large to 150,000 tons per day, should we assume the CapEx is broadly the $1.4 billion, twice the $680 million if you put one mine in? That's the first question.

On this, we're not making any comments. When we have -- when we finish the studies that are being conducted for 150,000 tons of daily milling capacity, we'll report to the market on the estimated CapEx that it has.

Okay. But it would be a decision early next year is what you're suggesting, either to 120,000 or 150,000?

Yes. The company -- currently, we see a much more firmer possibility for going into 120,000 tons. However, we are looking into 150,000 tons of milling capacity since we had some of the estimated restrictions that it had has been removed, and that is something that allow us to consider this as a possibility. So once we realize that this is feasible, we decided to go ahead with the technical studies for 150,000 to see if we can confirm this as an option. And if so, we will present it to the Board for an approval. But for now, the most likely scenario is 120,000.

Okay. No, that's very helpful. With Los Chancas, how -- I mean, when do you hope to get the illegal miners off? And if we -- if you are successful getting them off, what's the pathway to FID there?

Well, we have a little bit north of 200 illegal miners. We have been in talks with the Peruvian authorities to solve this. They shouldn't be in our concession. Once they are removed from the concession, we believe that we can move on with the environmental impact assessment and some other works that we have to do on a quick pace. And if so, that's why we are expecting Los Chancas to go ahead with production by 2032. Sorry, let me correct what I just said, it's 2031.