Good morning, and welcome to Southern Copper Corporation Third Quarter 2021 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 2021 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. All results are expressed in full U.S. GAAP. Now I will pass the call on to Mr. Raul Jacob.

Thank you very much, Carmen. Good morning, everyone, and welcome to Southern Copper's Third Quarter of 2021 Results Conference Call. At today's conference, I'm accompanied by Mr. Oscar Gonzalez Rocha, Southern Copper's CEO and Board member. Before we go into the details of the past quarter, let me first express my best wishes for you and your loved ones during these trying times. In today's call, we will begin with an update on our view of the copper market. We will then review Southern Copper's key results related to production, sales, operating cost, financial results, expansion projects, and ESG. After this, we will open the session for questions. Now let us focus on the copper market, the core of our business. In the third quarter of this year, the London Metal Exchange copper price increased from an average of $2.90 per pound in the third quarter of 2020 to $4.25 per pound; that is a 43.6% increase in price. As of today, we're seeing prices at about $4.40, which tops the year-to-date price of $4.17 per pound and bodes a positive outlook for the company. We believe the following factors are influencing the market. We are seeing strong demand in the U.S. and Europe, particularly in terms of refined copper consumption. China, although affected by real estate troubles and power shortages, is experiencing a reduction in scrap imports, which favors the consumption of refined copper. The uncertainty regarding future production growth in Chile and Peru is another factor because these two countries represent together 40% of the world supply. The combined inventories of the London Metal Exchange, COMEX, Shanghai and bond warehouses remain at relatively low levels. Combined, some of these inventories fell from 907,000 tons in June of this year down to 569,000 tons at the end of September. This is a 37% reduction. The fourth factor is the expectation from agencies that do market intelligence in the copper market. They are expecting a market deficit of about 200,000 tons this year due to a recovery in demand, which is estimated to grow at about 5% this year, driven by the economic recovery mainly in the developed economies. Now let's look at Southern Copper's production for the past quarter and 2021. For copper, it represented 78.7% of our sales in the third quarter of this year. Copper production registered a slight decrease of 0.6% compared to the third quarter of 2020, to stand this year at 245,146 tons. This was mainly attributable to a drop in production at our La Caridad and Toquepala mines due to lower ore grades and recoveries. This effect was offset by higher production at our Cuajone mine due to an improvement in ore grades. On a year-on-year basis, copper production decreased 2.8% and totaled 720,658 tons. This result was driven by a drop in ore grades due to stripping and maintenance work that was rescheduled from last year to 2021 due to the COVID-19 pandemic. Compared to the second quarter of 2021, copper production increased by 3.4%, which was mainly attributable to an increase in production at the Buenavista and Cuajone mines due to an improvement in ore grades. It was partially offset by a decrease in production at the La Caridad mine, where grades and concentrator recovery dropped. For this year, we expect to produce 958,000 tons of copper. As you know, production is being affected by a slight ore grade and recovery production of the bulk of production at the Peruvian operations. In 2023, we expect our copper production to bounce back over 1 million tons of production as we get our Peruvian operations back on track and generate new production through our Pilares, El Pilar and Buenavista zinc concentrator projects. Molybdenum production represented 11% of the company's sales value in the first quarter of 2021 and is currently our first by-product. Molybdenum prices averaged $18.43 per pound in the quarter compared to $7.57 in the third quarter of 2020. This represents a significant increase of 143.5%. Molybdenum production increased in the third quarter of this year by 5.4%. This was mainly driven by a growth in production at both the Toquepala and Buenavista mines due to higher ore grades. These results were partially offset by lower production at La Caridad and Cuajone. Compared to the second quarter of this year, molybdenum production increased by 16.1%, which was mainly attributable to growth in production at our Toquepala and Buenavista mines, driven by an improvement in ore grades in both cases. For 2021, we expect to produce 29,400 tons of molybdenum, which represents a decrease of 3.2% over our 2020 production level. Silver represented 3.9% of our sales value in the third quarter of 2020, with an average price of $24.28 per ounce in the quarter. This represented a slight decrease of 1.3% with regard to the production of the third quarter of 2020. Silver is currently our second by-product. Mined silver production fell 8.8% year-on-year in the third quarter after production fell at Buenavista, Toquepala, and IMMSA. This was partially offset by an increase in production at the Cuajone mine. Refined silver production increased 11.9% in the third quarter of this year, mainly due to an increase in production at all of our refineries. Comparing the third quarter of 2021 with the prior one, the second quarter, mined silver production increased by 4.4%, which was primarily attributable to higher production at IMMSA and Cuajone. Refined silver production slightly increased by 1.4% in the third quarter versus the second quarter of this year. In 2021, we expect to produce 19.3 million ounces of silver. For zinc, it represented 3.7% of our sales value in the third quarter with an average price of $1.36 per pound in the quarter, a 28.3% increase from the same period of 2020. Zinc mine production slightly decreased 1.8% quarter-on-quarter and totaled 16,894 tons. This was primarily driven by lower production at our Santa Barbara and Charcas mines, which was partially offset by an increase in production at the San Martin operation. Refined zinc production increased by 29.2% in the third quarter of this year compared to the same period of 2020. Looking at or comparing the third quarter of this year with the second one, mined zinc production decreased by 1.3% in the third quarter, mainly due to a drop in production at our San Martin mine, which was partially offset by an increase in production at the Santa Barbara operation. Refined zinc production increased by 23.9% in the third quarter compared to the second one of this year. For this year, 2021, we expect to produce 67,500 tons of zinc, that's a 2% decrease in production when compared to last year. Financial results. For the third quarter of 2021, sales were $2.7 billion. This is $551.8 million higher than sales for the third quarter of last year, or a 25.9% increase. Of the total amount of this increase, copper sales represented $360.5 million. This is an increase of 20.6% in the value of copper sales driven by an improvement in prices, which increased by 43.6%, partially offset by a decrease in sales volume of 14.3%, mainly due to lower third-party copper purchases and higher copper concentrate inventories. As you know, our production declined 0.6%. That's less than 1%, but our sales have declined a little bit more due to the reduction that we have made in the purchases of third-party copper concentrates. Regarding our main by-products, we registered higher sales of molybdenum, which increased by 145.8% due to better prices and higher volumes. For zinc, they increased by 58.7% due to better prices and volumes. In contrast, we posted lower sales of silver that decreased by 21.6%, which was attributable to lower prices and volume. Our total operating cost and expenses decreased by $12 million, or 1%, when compared to the third quarter of 2020. The main cost reductions have been in purchased copper. We reduced our purchases of third-party materials by $82.5 million, exchange rate variances, workers' participation, and leachable material consumption and cost. These cost reductions were partially offset by higher costs for diesel and fuel operating materials, energy, labor, and repair and operating contractors. Our adjusted EBITDA for the third quarter of this year was $1,709.3 million, which represented an increase of 51.8% compared to the $1,125.9 million registered in the third quarter of 2020. The adjusted EBITDA margin in the third quarter was 63.8% versus 52.9% in the third quarter of 2020. Adjusted EBITDA in the nine months of this year was $5,126.2 million. This is 96% higher than the one for the same period of 2020, for the nine months. The adjusted EBITDA margin year-to-date was 63.2% versus 46.4% in the nine months of 2020. Operating cash cost per pound of copper before by-product credits was $1.62 per pound in the third quarter of 2021. That is $0.01 higher than the value for the second quarter of 2021. This 0.6% increase in operating cash cost is a result of higher costs per pound from production cost, administrative expenses, and lower premiums. These higher costs were partially compensated by lower treatment and refining charges. Regarding by-products, we registered a total credit of $543.4 million, or $1.04 per pound in the third quarter of this year. These figures represent a 1.3% increase when compared with the credit of $521.2 million or $1.26 per pound in the second quarter of 2021. Total credits increased for molybdenum, zinc, and sulfuric acid and decreased for silver. Consequently, Southern Copper operating cash cost, including the benefit of by-product credit, was $0.581 per pound in the third quarter of 2021. This cash cost was $0.04 lower than the cash cost of $0.585 that we had in the second quarter of 2021. Net income in the third quarter of 2021 was $867.6 million, which represented a 71.5% increase compared to the $506 million registered in the third quarter of 2020. The net income margin in the third quarter was 32.4% versus 23.8% in the third quarter of 2020. On a year-on-year basis, net income was 161.6% higher than what we had in 2020. These significant improvements were attributable to higher sales and our strict cost control measures. For capital investments, as you know, Southern Copper's investment philosophy is not based on the outlook for copper prices, but on the quality of the assets that we operate and develop. Throughout the years, our strong financial discipline has consistently allowed us to make ongoing investments in our considerable asset portfolio. In the third quarter of this year, we spent $243.1 million on capital investments, which reflected an 80.7% increase compared to 2020 and represented 28% of our net income for this quarter. As of September 30 of this year, we had spent $695.5 million on capital investments, which represented 27.1% of net income. Looking at the projects that we are developing, let me start by commenting on the Tia Maria project in the Arequipa region in Peru. As you know, Southern Copper has been consistently working to promote the welfare of the population of Islay province. 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. We have also promoted agricultural and livestock activities in the Tambo Valley and supported growth in manufacturing, fishing, and tourism in Islay. On January 7, 2021, the mayor of Islay province of Arequipa awarded a City Diploma to Southern Copper in recognition of the company's efforts to assist the population of Islay during the COVID-19 pandemic. Southern Copper provided medical beds and assistance, tests, oxygen, personal protection equipment, and foodstuffs for the population in the area of influence of the Tia Maria project. We reiterate our view that the initiation of construction activities at Tia Maria will generate significant economic opportunities for the Islay province and the Arequipa region. Given the current Peruvian economic situation, it is crucial to move ahead on projects that will stimulate a sustainable growth cycle. We will make it a priority to hire local labor to fill the 9,000 jobs that we expect to generate during Tia Maria's construction. When operating, we expect Tia Maria to directly employ 600 workers and indirectly provide jobs to another 4,200 persons. Additionally, from day one of our operations, we will generate significant contributions to revenues in the Arequipa region via royalties and taxes. We expect the Peruvian government to acknowledge the significant progress the project has made on the social front and the important contributions that Tia Maria will generate for Peru's economy and consequently, take the necessary steps and actions to provide Southern Copper with adequate support to initiate construction. We have news on the Michiquillay project as well. On September 3 of this year, the company signed a social agreement with the Michiquillay Community. Additionally, on October 1, the Peruvian Ministry of Energy and Mines approved a semi-detailed environmental impact study for the project. The social agreement with the Michiquillay Community represents an opportunity to improve the quality of life of the residents of Michiquillay via our strong social programs backed by a solid framework for technical work at the project level. Talks for signing a similar agreement are being conducted with the La Encañada Community, which is the other community that we have related to the Michiquillay project, and we expect to have positive results shortly. These events are important steps that will allow Southern Copper to initiate an in-depth exploration program in the first quarter of 2022. For our Mexican projects, we have the Buenavista zinc concentrator, which is part of the Buenavista operation. This project is located within the Buenavista facility and includes the development of a new concentrator, zinc concentrator to produce approximately 100,000 tons of zinc and 20,000 tons of copper per year. We have completed the engineering study. In order to continue with the project, stronger preventive measures to COVID-19 have been put in place. Procurement has progressed 93%, and all the main equipment is on site. Construction site works are in progress. The project has all the necessary permits, and the capital budget is $413 million. As of September of this year, we have invested $196.8 million in this project. We expect to initiate operations in 2023. When completed, this new facility will double the company's zinc production capacity and provide 490 direct jobs and 1,470 indirect jobs. The Pilares project, also in Sonora, is located 6 kilometers from La Caridad operations. This project consists of an open-pit mine with an annual production capacity of 35,000 tons of copper in concentrate. A new 25-meter wide off-road facility for mining trucks has been built and will be used to transport the ore from the pit to the primary crushers at the La Caridad copper concentrator. This project will significantly improve the overall mineral ore grade by combining the 0.78% expected ore grade from Pilares with the 0.34% ore grade from La Caridad. The budget for Pilares is $159 million, of which we have invested $81.4 million. We expect the project to begin production in the first quarter of 2022. The third project that we have in the Sonora state is El Pilar. This is a greenfield project, and it's a low capital intensity one, which uses SX-EW technology. The project is approximately 45 kilometers from our Buenavista mine. Its copper oxide mineralization contains estimated proven and probable reserves of 281 million tons of ore with an average copper grade of 0.3%, which is a very remarkable good ore grade for this kind of technology. We anticipate that El Pilar will operate as a conventional open-pit mine with an annual production capacity of 36,000 tons of copper cathodes. This operation will use highly cost-efficient and environmentally friendly technology, which is the SX-EW. The budget for El Pilar is $310 million. We expect production to begin in 2023, and the mine life is estimated at 13 years. The results from experimental pads in the leaching process have confirmed adequate levels of copper recovery. Basic engineering study is finished, and the company continues developing project and site environmental activities. In the Baja California state, we have El Arco, which is a world-class copper deposit located in the central part of the Baja California Peninsula with ore reserves of over 2.4 billion tons with an ore grade of 0.422%. As a by-product, we have 0.11 grams of gold per ton. The project includes an open-pit mine combining a concentrator and an SX-EW operation. Annual production is expected to total 190,000 tons of copper and 105,000 ounces of gold with an estimated capital budget of $2.9 billion. The company has started the baseline study and is reviewing the basic engineering analysis to request the environmental impact permits. Several years back, we began to acquire the rights to all relevant mining concessions in the area. This process was successfully completed in 2010. For environmental, social and governance investments, Southern Copper, as you know, is committed to improving its ESG record by adopting the best practices and communicating to the investment community and other stakeholders our progress in these matters. Several programs and initiatives have been launched by the company to help communities face the COVID-19 pandemic in all regions where we operate. In Peru, a partnership was established with the government in July of this year to help vaccinate 40% of the population in the 5 regions where our operations are located. The company donated over $2.5 million to help build, modernize, equip, and operate vaccination centers. About 92% of the 850,000 vaccines contemplated in this initiative have been administered by government personnel. To date, 91.4% of Southern Copper Corporation workforce in Peru has been vaccinated against COVID-19. The mining chamber of Mexico recognized La Caridad's mine, refinery, and metallurgical plants for top safety performance in their respective categories in 2020. La Caridad mine received a Silver Helmet, or Casco de Plata, in the category for open-pit mining operations with more than 500 employees, whereas the refinery and metallurgical plants received the same distinction in the category for metallurgical plants and smelters with up to 500 employees. Southern Copper Corporation reaffirms its commitment to presenting an improving environment by implementing actions to generate a net positive impact on biodiversity throughout our operations. To fulfill this commitment, which is outlined in the company's Environmental Policy, we have developed action plans for biodiversity management that are aligned with the guide for Good Practice Guidance for Mining and Biodiversity published by the International Council on Mining and Metals, the ICMM. These plans further improve the company's capacity to implement effective mitigation measures and contribute to the preservation and improvement of the environment in which we operate. Southern Copper Corporation recognized the importance and urgency of tackling climate change. The company's operational greenhouse gas emissions have decreased significantly over the past 3 years and dropped by 4% in 2020 alone. This is in spite of an increase in production volumes. In 2020, we also began to align our disclosure of efforts to manage climate-related risks and opportunities with the recommendations of the Task Force on Climate-related Financial Disclosures. The Grupo Mexico Sustainable Development report for 2020 included a section with specific details on our progress in this regard. We're in the process of setting new absolute emission reduction targets to further mitigate our carbon footprint. The government of Sonora recognized Southern Copper Corporation for being a culturally responsible company for the voluntary initiatives implemented to promote and safeguard the state's history, culture, and traditions. Three of the community programs launched by the company were pinpointed as particularly relevant: The itinerary documentary cinema workshop, which led to the creation of over 200 videos; the support provided for organizing the Festival Alfonso Ortiz Tirado in Nacozari and Cananea; and the creation of Youth Orchestras. These educational music programs, which are offered to over 2,100 children in the communities surrounding our mining operations in Mexico and Peru, have led to the creation of 6 orchestras and 4 choirs. Switching gears to dividends. Regarding dividends, as you know, it is the company's policy to review our cash position, expected cash flow generation from variations, capital investment plans, and other financial needs in each core meeting to determine the appropriate quarterly dividend. Accordingly, as announced to the market on October 1, the company Board of Directors authorized a cash dividend of $1 per share of common stock payable on November 23 to shareholders of record at the close of business on November 10 of this year. Well, with this in mind, ladies and gentlemen, thank you very much for joining us, and we would like now to open up the forum for questions.

I have a question from Jens Spiess with Morgan Stanley.

Yes. I just wanted to ask if you could repeat the guidance for molybdenum in 2021 and silver? And also if you could give a bit more color on the cash cost that you're expecting before by-products, especially for next year and beyond? And also, if you could just remind us which projects are already fully Board approved?

Okay. Thank you very much for your question, Jens. For cash cost next year, we are expecting a slightly lower production than this year. The reason for that is that we are seeing we're getting into some patches of the Peruvian operations where ore grades are lower. This is a consequence also of the work that we have been doing to catch up with certain activities that we postponed in 2020 due to COVID-19. So we will reduce slightly our production for next year. We're still looking into the figure to see and we would like to report on this for the next quarter when we review the full year 2021 and give our view on 2022. Considering that, we are expecting a cash cost before by-product credits to be in the range of $1.70 per pound. By-product prices can be challenging to predict as they may fluctuate significantly. However, using conservative estimates, we project molybdenum prices to be around $16 per pound instead of $19 per pound, and zinc prices around $120 instead of $150. We anticipate credits to be slightly under $0.80 per pound for next year. Would you like the guidance for molybdenum for 2021?

Molybdenum and silver.

Yes, yes, yes. For this year, it's 29.4 metric tons. For next year, it goes a little bit lower, 24.9. And for silver, this year is 19.3 million ounces. Next year, it increases a little bit to 19.8. And then in 2023, when we expect to have our production back on track, we will have the benefit of Pilares, the Buenavista zinc production, and copper production of Buenavista and El Pilar. With that, we will bounce back to 1 million tons of production. And we will increase quite significantly our production for zinc. We will pass from a mark, which is about 70,000 tons nowadays, up to 149,000 tons. That's for 2023 for zinc. So we're more than doubling our production of zinc in 2023. That's our current forecast. And with that, obviously, our cash cost will decrease due to the much higher contribution of by-product zinc. The Board has approved projects that are fully sanctioned. Currently, we are working on three projects in Mexico: Pilares, El Pilar, and the Buenavista zinc project. In Peru, Tia Maria has received full approval. We will continue our efforts to advance construction on this project. Additionally, we are focusing on El Arco to gain a comprehensive understanding of the project, and we will present our findings to the Board once ready. The same applies to Michiquillay; we plan to revisit this project in the future. We are preparing to initiate a drilling campaign in 2022 and 2023, and based on the results, we will seek Board approval for an investment aimed at establishing an operation that could yield 225,000 tons of copper annually.

Okay. And when do you expect to bring that to the port Michiquillay position?

It will take at least three more years because we need to conduct the drilling campaign, followed by the feasibility study, and then present the results to the board for approval. We should have a clearer understanding of the project's size by 2024 and will have completed all necessary work to determine what we want to build. I want to highlight that Michiquillay is a strong prospect in terms of ore grade and mineral quality; for example, the mineral has negligible traces of arsenic. This is an interesting project for us, originating from a previous generation that was not developed by the prior company, and we won it during the auction held by the Peruvian government in 2018. This is how it became part of our pipeline for future developments.

Our next question comes from Andreas Bokkenheuser with UBS.

Just two quick questions from me. One is on costs. Obviously, we saw some cost inflation there in Q3 for you guys. Congratulations, I think, higher by-product revenues. Can you just kind of talk about what do you think costs are going to look like disregarding the by-product revenues over the next 12 months? Obviously, you don't know for sure where the by-product revenues are going to go. So just kind of operationally, where do you see cost or unit cost going over the next 12 months? And why? And maybe as a second question, are you seeing anything in China, just given all the energy issues, and there's been some talk about shutdown of smelters and this kind of thing. I mean any latest read-throughs from China as to what's happening there given the concentrate you're sending there? Those are my two questions.

Thank you very much for your questions, Andreas. Let me start with China. We haven't observed any changes in our sales of concentrates to Chinese smelters, and we currently have no concerns. We're aware of the power shortages in China, but so far, they have not impacted our concentrate sales to that market. Regarding costs for the next 12 months, the obvious cost increases I mentioned during the presentation are still relevant. We are experiencing higher fuel costs and power costs in Mexico, partly due to the gas crisis earlier this year, but other than some concerns about fuel, we don't foresee significant issues. The other thing is for the Mexican operations is the exchange rate appreciation, the Mexican peso vis-a-vis where it was a year ago, is now stronger. We're at about MXN 20 per dollar, and we used to be at MXN 23 or so. So that has created some dollar inflation in our cost of Mexico. In Peru, we have a depreciation of the Peruvian currency vis-a-vis the dollar of about 15%. That has helped us our dollar costs. In both Mexico and Peru, we have had to complete maintenance and stripping work that was postponed from 2020 to 2021. Finishing this work will better position us for 2022, allowing us to focus solely on our planned projects for that year. Additionally, the depreciation of the currency in Peru will present some cost control challenges. Despite experiencing higher fuel costs and inflation in materials like steel, we have managed to control our overall costs by replacing third-party concentrate with our own production this year. Purchasing third-party materials incurs a market price, whereas processing our own copper only involves our production costs. This strategy has benefited us, and while we anticipate slightly higher costs next year before by-product credits, it should be balanced out by a decrease in stripping and maintenance work we need to finalize from 2021.

Got it. That's very clear.

Our next question comes from Alfonso Salazar with Scotiabank.

A couple of questions from me. The first one is regarding production. You mentioned that for the year, you are projecting copper production of 958,000 tons. I think this is on production, on mine production, but correct me if I'm wrong. And then for next year, you didn't provide a guidance at this point on the level of production, but you mentioned that it's going to be lower than '21. And then you're going back to 1 million tons in 2023. Just want to clarify if this is correct.

That's correct, Alfonso. Our guidance is, as you have mentioned, 958,000 tons. For next year, we're expecting a reduction. Right now, we're looking at the number in the range of 950,000 tons, but still to be confirmed. We need to wait for a final forecast on this, which we will provide on the next quarter's call.

Okay. And the second question I have...

The 1 million ton for 2023 is correct. That's what I said.

The second question I have is about the labor reform. Other miners have indicated that this could be a risk for costs, but I'm unsure if that's the case for you. Additionally, you mentioned experiencing inflationary pressure related to fuel and some in power costs due to gas prices, but there wasn’t anything forward-looking provided. This assumes there won't be changes to the electric law in Mexico, as you have contracts with MGE and Fenicias there. Given that this situation could change, might your outlook also change? Is this correct?

Okay. Let me comment on the power reform first. We need to see what is finally approved regarding the power reform in Mexico. We will evaluate the consequences for Southern Copper based on that approval. Obviously, we have some concerns that have been expressed by various economic agents as well. Regarding cost inflation, we've discussed a bit about fuel. Let me share some updates on this. We have secured price protection for gas for the upcoming months, especially as we enter the most challenging part of winter where we require this protection. Currently, the gas price exceeds our facility costs, so we are in a good position. In labor, we are addressing the impact of labor costs and new labor legislation in Mexico. At the same time, we are completing negotiations with our labor force in Peru and have signed contracts ranging from 4 to 6 years with the six unions we work with there. We believe our labor costs will remain manageable in the coming years for our operations in Peru. In Mexico, we need to thoroughly assess the effect of the labor reform on our costs.

Raul, if I may... Sure. Go ahead. We will address any concerns you may have regarding the energy reform during the call at 11 a.m. local time. However, I wanted to provide you with some information.

Please come a bit closer because we are having trouble hearing you.

In Mexico, we now have the combined cycle plants that are part of Grupo Mexico. This means that the electric power generated in the combined cycle is considered reliable for supply since it is exclusively provided by a company under the same management. The current government has been significantly affected by the agreement between the two unrelated parties, but this does not extend beyond their initial arrangement. We will provide more details on this later, but I wanted to give you that overview for context. Apologies for the interruption.

Our next question comes from Alex Hacking with Citi.

Just following up on Michiquillay. You mentioned you have an agreement with the Michiquillay Community and discussions with the La Encañada Community. Are those the only two communities that you're dealing with? Or are there others? And then...

No, those are... go ahead, please. Sorry.

No, you go ahead, please.

Yes, the project involves two communities. We've successfully signed an agreement with the Michiquillay community, and we're pleased with the outcome. We're also engaged with the La Encañada community and anticipate finalizing an agreement with them soon.

Okay. And then are there specific critical issues such as water rights or relocating families? Or is it more of a general concern about disrupting their way of life? I guess what are the critical concerns that these communities have? And how do you plan to address them?

I believe the main issue for them is to clearly benefit from the project. That’s why we are collaborating on several initiatives to enhance their development as communities. Some families may need to be relocated, but the majority of the community resides in the areas surrounding the project footprint, so relocation will not affect many families. To summarize, their primary concern is how they can gain from the economic boost that this project will bring to the region.

Okay. I have a quick follow-up on another topic. Shipments have been lagging behind production a bit this year. Is that just due to inventory buildup? Are we rebuilding from last year's levels, or should we anticipate some catch-up in the fourth quarter?

Well, we are expecting to have some catch-up. The reason for the build-up in inventory is that we replaced third-party concentrates by our own concentrate, and that has to pass through the whole production process. So that's mainly the reason. We're working in order to catch up on sales for the fourth quarter.

Our next question comes from John Tumazos with John Tumazos Very Independent Research.

My question is about capital management priorities. Do the various projects take precedence? These projects are of high quality and involve scheduling and sequencing issues where borrowing might be necessary depending on copper prices. The reason I'm inquiring is that yesterday the World Steel Association reported a 10% decline in Chinese steel output in December, marking a 25% decrease since April, which represents 15% of global steel production. This output is significantly larger than the biggest blast furnace in North America. The property sector's actions to combat inflation seem effective, but they are harming the economy. Considering the potential fluctuations in copper demand or prices, should we assume that projects are prioritized?

My personal belief is that the Chinese authorities have the appropriate tools to handle the current circumstances. Addressing your concern, John, thank you for your question. We are concentrating on developing our strong projects, which generally require less capital intensity per ton of installed copper capacity compared to the global average. Additionally, once operational, their cash costs will align well with our current cash costs. Therefore, we believe these projects will be essential in the coming years. You mentioned some of the challenges facing the Chinese economy. However, we also see the positive side with the Green Energy revolution and its impact on copper demand. Long-term copper demand is expected to increase, leading to upward revisions in consumption estimates for the next decade. I hope that the Chinese will manage their current issues. This new green energy revolution, which will need substantial amounts of copper and other basic metals, will support our operations and the copper market price, particularly.

So to summarize your reply, not concerning copper demand, but your capital management. Your projects are high quality, they come first, yes. And if necessary, you would borrow to complete them.

Usually, we are taking some debt when we are tackling new projects. You have seen that we issued a $1 billion bond in 2019 in order to fund the 3 projects that we are currently developing in Mexico. And we did that as well with the Buenavista expansion. So once we have some certainty of future increase in, say, EBITDA, we usually consider going to the debt markets to assure a healthy share of debt in our balance sheet for this new undertaking.

May I ask a different question?

Go ahead, please.

I carefully reviewed the World Bureau of Metal Statistics copper data and disregarded the popular consultants. In 2019, 2020, and 2021, the rest of the world's copper demand, excluding China, was lower than during the 2009 recession. This raises questions for me about copper demand growth, as it seems to be declining. Since 2014, Chinese demand has had only one strong year, which may have been due to stockpiling. The compound growth rate might be around 2%, apart from last year's increase and this year's decline. While I recognize that new applications for copper are real and not merely fantasies, I see a 4% decay rate in the base level of mature demand, influenced by trends such as wireless controls and smartphones that combine multiple appliances. For instance, my new air conditioner is a third the size of the one it replaced. Can you explain why copper demand is not growing more significantly despite these applications? I admit to being skeptical because I feel that leading consultants often tell CEOs what they want to hear, while I am just interpreting the data from WBMS, which I take seriously.

Okay. What we're seeing is that new technologies are using much more copper, and we're seeing a clear path towards the development of that. And we're currently in a much different market than what we say expect before the pandemic. So everything is tainted by these major breakdowns that we have had due to the pandemic. We believe that new uses of copper will replace and surpass lower demand due to substitution or some recession in certain parts of the world. What we're seeing now is a war economy growing for this year and expecting to grow for next year, and that will certainly propel new corporate demand. On China, I mentioned already, my personal view is that they will be able to deal with these as they have done with some other even more problematic matters in the past. But that's my view as an officer of a copper-producing company. That's it.

And we have a question from Alfonso Salazar with Scotiabank.

Just a quick follow-up, a very easy one. Just wondering why Southern Copper is lower in third-party purchases? Is this because there are less concentrates available? Is this a strategic move of the company? So what is behind the decision?

A simple answer to that, Alfonso, is that market conditions change a little bit, and we decided to move on with our own material. As you know, we are long on copper concentrates. We have been selling our own concentrates and buying some other different qualities of copper concentrates. We made a review vis-a-vis the new market conditions that we have had through 2021 and decided to stop buying third-party copper concentrates; no market shortages just to be very straightforward in answer to what you express as a concern.

And I'm not showing any further questions in the queue, sir. You may continue with any final remarks.

Thank you very much, Carmen. Well, with this, we conclude our conference call for Southern Copper's Third Quarter 2021 results. We certainly appreciate your participation and hope to have you back with us when we report the fourth quarter and the full year 2021 results. Thank you very much, and have a nice day.

Thank you. And this concludes today's conference call. Thank you for participating, and you may now disconnect.