Good morning, and welcome to Southern Copper Corporation's Third Quarter 2023 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 2023. As well as answer any questions 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 2023 Results Conference Call. Before we go into today's agenda, let me mention that on October 5 of this year, Southern Copper lost one of the pillars of our organization. Mr. Xavier Garcia de Quevedo, Board member and Executive Vice President of Grupo Mexico, passed away. Over a period of spanning 50 years, Xavier had steward the company with intelligence, sound judgment, and hard work. He took great pleasure in sharing knowledge, mentoring and developing talent, as well as supporting multiple generations of employees at our organization. We will miss him. 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. In today's call, we will begin with an update on our view of the copper market and then review Southern Copper's key results related to production, sales, operating costs, financial results, expansion projects, and ESG. After this, we will open the session for questions. Now let us focus on the copper market. In the first quarter of this year, the London Metal Exchange copper price increased 8% from an average of $3.51 per pound in the third quarter of last year, up to $2.79 this year. Even though this is a better price than what we had a year ago, we still see the market reflecting the uncertainty that involves basic metals due to a slow recovery of the Chinese economy, a recession in Europe, and a soft landing or minor recession in the U.S. At this point, we see the following factors affecting the copper market. The most relevant market intelligence houses for the copper market are now expecting a market in surplus of about 170,000 tons for this year. Even though copper inventories are still at a very low level, they have increased from 235,000 tons in June up to 292,000 tons in September. This is a 24% increase. And what we're looking at is some of the London Metal Exchange, the COMEX Exchange, Shanghai Exchange, and the bonded warehouses in China. On top of this, we are seeing a stronger-than-expected U.S. dollar, which is reducing copper and other metal prices expressed in the market. It is important to emphasize that Copper plays a leading role in the global shift to clean energy, which correlates positively with our assertion that the underlying demand for copper will be strong in the long term. In this scenario, we believe the current cycle of relatively low prices will be short-lived. Now let's look at Southern Copper's production for the past quarter. Copper represented 75% of our sales in the third quarter of 2023. Copper production registered a decrease of 1.9% in the third quarter of this year in quarter-on-quarter terms to stand at 226,120 tons. Our quarterly result reflects a 2.1% decrease in production in Peru, driven by our Cuajone mine, which reported lower ore grades. This was partially offset by higher production at Toquepala due to better ore grades. Production at our Mexican operations decreased 1.8% in quarter-to-quarter terms, mainly due to lower production at our Buenavista mine. Compared to the second quarter of this year, copper production slightly decreased 0.6%, which was mainly attributable to a reduction in production at the Cuajone and Buenavista mines. For this year 2023, we expect to produce 917,700 tons of copper, an increase of 2.6% over 2022's final production. For molybdenum, it represented 40% of the company's sales value in the third quarter of this year and is currently our first by-product. Molybdenum prices averaged $23.59 per pound in the quarter compared to $16 in the third quarter of 2022. This represents an increase of 47.4% in the molybdenum price. Molybdenum production also increased by 12.6% in the third quarter of 2023. This was mainly driven by an increase in production at La Caridad, Toquepala, and Buenavista mines due to higher ore grades, and these results were partially offset by lower production at the Cuajone mine. For 2023, we expect to produce 25,900 tons of molybdenum. For the short term, we believe molybdenum prices will have good support due to a market deficit and higher demand coming from the aerospace and defense industries. Silver represented 4% of our sales value in the third quarter of 2023, with an average price of $23.60 per ounce in the quarter. This reflected an increase of 23.5% compared to the third quarter of 2022. Silver is currently our second by-product. Mined silver production decreased 10% in the third quarter versus the same period of 2022, after production decreased at our operations with the sole exception of the Toquepala mine. Refined silver production fell by 11.4% quarter-over-quarter, which was mainly driven by a drop in production at our IMMSA refinery. For commercial and operational reasons, the lead concentrate is now being sold to the market as concentrate instead of being processed in the refinery. In 2023, we expect to produce 19.3 million ounces of silver, an increase of 4% compared to 2022. Zinc represented 3% of our sales value in the third quarter of 2023, with an average price of $1.10 per pound in the quarter. This represents a 26% decrease with regard to the third quarter of 2022 figure. Zinc mine production increased 9.4% quarter-on-quarter and totaled 16,281 tons. This was driven primarily by an increase in production at the Santa Barbara and Charcas mines, which was partially offset by lower production at the San Martin mine. Refined zinc production decreased by 12% in the third quarter compared to the same period of 2022. For the year 2023, we expect to produce 64,200 tons of zinc, which represents an increase of 7% over our 2022 production levels. For our financial results, in the third quarter of 2023, sales were $2.5 billion. This is $348 million higher than sales for the third quarter of 2022, which is a 16% increase in sales. Copper sales volume decreased by 4.5%, while value increased 16% in a scenario of better prices for this metal. Regarding our main by-products, we had higher sales of molybdenum, which increased by 61% in sales, and this was due to a combination of better prices and higher volume. Silver sales increased 19% due mainly to better prices. For zinc, we had lower sales by 31%, mainly due to lower prices and volumes. Our total operating costs and expenses increased by $67 million or 5% when compared to the third quarter of 2022. The main cost increases have been in repair materials, workers' participation, depreciation, sales expenses, operations contractors, and other factors. These cost increases were partially compensated by lower energy costs and lower inventory consumption. The third quarter of 2023 adjusted EBITDA was $1,291 million, which represented an increase of 27% regarding the $1,018 million registered in the third quarter of last year. The adjusted EBITDA margin in the third quarter stood at 52% versus 47% in the same period of 2022. Adjusted EBITDA for the 9 months was $3,974 million. This is 7% higher than what we had in 2022 for the 9 months. The adjusted EBITDA margin in the 9 months of 2023 stood at 52%, which compares with 51% in the same period of 2022. Southern Copper's operating cash cost, including the benefit of by-product credits, was $0.98 per pound in the third quarter of 2023. This cash cost was $0.14 lower than the cash cost of $1.12 that we had in the second quarter of this year. Operating cash cost per pound of copper before by-product credits was $2.24 per pound in the third quarter of this year. That is $0.05 higher than the value for the second quarter of 2023, which was $2.19. This 3% increase in operating cash cost before credits is a result of higher cost per pound from production and administrative expenses; these two increases in costs were partially compensated by lower treatment and refining charges and higher premiums. Regarding by-products, we had a total credit of $604 million or $1.26 per pound in the third quarter of this year. These figures represent an 18% per pound increase in by-product credits compared to the credit that we had in 2022, which was $517 million in total credit or $1.07 per pound. That's for the second quarter of 2023. Total credits have increased for molybdenum, zinc, and sulfuric acid and decreased for silver. For net income, net income in the third quarter of this year was $619.5 million, which represented a 19.4% increase compared to the $519 million registered in the third quarter of 2022. The net income margin was 24.7% in the third quarter of this year, versus 24.1% in the same period of 2022. These improvements were mainly driven by an increase in sales. Cash flow from operating activities in the 9 months of this year was $3,032 million, which represented an increase of 76% over the $1,720 million posted in the 9 months of 2022. For capital expenditures, our current capital investment program for this decade exceeds $15 billion and includes investments in the Buenavista Zinc, Pilares, El Pilar, and El Arco projects in Mexico, as well as the Tia Maria, Los Chancas, and Michiquillay projects in Peru. This capital forecast includes several infrastructure investments, including key investments to bolster the competitiveness of the El Arco Project. In the 9 months of the year, we spent $753 million on capital investments, which represent 38% of net income and reflect a 14.5% uptick in capital expenses year-on-year. Since there is a short description of our main capital projects in SEC's press release, I'm going to update you on new developments for each. For the Buenavista Zinc concentrator in Sonora, the capital budget for this project is $413 million, most of which has already been invested. Progress is at 99%, and we have initiated the commissioning process. Ramping up of the plant, initially scheduled to conclude in this quarter, has been pushed back to the first quarter of 2024 due to some technical adjustments needed. For the Pilares project in Sonora, this project has a value of $176 million, of which $144 million has been invested. Pilares is currently operating and delivering copper ore to the Caridad concentrator. We will report on Pilares one more time at the closing of 2023. And after that, we will remove it from the list of ongoing projects of the company. For the El Pilar project in Sonora, we have already obtained the results from experimental paths in the leaching process, confirming adequate levels of copper recovery, and we're evaluating different options to improve the same. A basic engineering study has been completed, and the company is engaging in project development and on-site environmental activities. Project engineering is being developed by an external engineering and technology company. The mine life of Buenavista is estimated at 13 years. For El Arco, the company has completed the environmental baseline study for the mine concentrator and other facilities and will proceed to submit the environmental impact statement to the Secretary of Environment and Natural Resources, SEMARNAT. This environmental impact permit is required. The company is currently preparing studies for the port, power line, town site, and auxiliary services. For the Peruvian projects, we have the Tia Maria project in the Arequipa region of Peru. This is a greenfield project that will use state-of-the-art SX-EW technology with the highest international environmental standards to produce 120,000 tons of SX-EW copper cathodes per year. The estimated capital budget for this project is $1.4 billion. It's important to mention that the company is ready to undertake this project; we have the resources as well as all the engineering ready to go for Tia Maria. 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, healthcare, 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. For Los Chancas in the Apurimac region of Peru, as of September 30 of this year, the company has held talks with representatives of the local community about the land required for the project. Simultaneously, we continue to work with the Peruvian authorities to eliminate illegal mining activities at our concession. The company will initiate hydrogeological and geotechnical studies soon to gather additional information on the characteristics of the Los Chancas deposit. The Michiquillay project in the Cajamarca region of Peru is progressing in accordance with our social agreements with the local community. The company has hired unskilled labor and is paying for the use of surface land. We're also supporting social programs in both communities. Simultaneously, exploration activities are underway. As of September of this year, we have drilled 46,500 meters and obtained 14,282 core samples, which are currently under evaluation. Regarding environmental, social, and corporate governance practices, also known as ESG, we are building drinking water infrastructure to remedy shortages in Cananea and Nacozari communities in Sonora, Mexico. Approximately 75,000 residents will benefit from these initiatives. This effort is aligned with our policies and commitments for sustainable development and is part of the $77 million that we have invested in Mexico and Peru over the last five years. We're doing some innovations in the use and efficiency of water. We are currently recovering about 6,000 cubic meters of water per day through the new tailings filtering plant in Quebrada Honda in Peru. This is equivalent to 0.6 cubic meters of water per tonne of tailings, with a design capacity of 10,000 tonnes per day and an investment to date of $27 million. This dam filter is the largest tailings processing unit of its kind in the market. We're continuing to focus on prevention and risk management. In September of this year, our Buenavista Recovery Unit in Sonora received recognition for a safe and healthy work environment from the Mexican government after successfully passing an audit conducted by the Mexican Social Security Institute. However, all our other Mexican units also hold this recognition, which is awarded to companies that implement effective strategies and preventive actions for operational health and safety. We continue to make progress with our critical risk registry, and the performance levels of the controls in place to prevent or mitigate undesirable events have improved. To receive this, we have involved the head of each operating unit in the process to establish and continuously monitor controls. All results are reported to managing executives on a monthly basis to facilitate supervision and subsequent monitoring by the Board of Directors. In terms of innovation in climate change mitigation, in September of this year, Southern Peru received the 2023 National Mining Award in the mining economy category, within the framework of PERUMIN 36 Mining Convention held in the Arequipa region in Peru. The winning study, titled 'Integration Scenarios of Renewable Electricity Generation Systems in the Mining Sector of Peru by 2050', proposes the use of clean and renewable energy sources as part of the global energy transition process. Southern Copper aims to achieve net zero emissions by 2050. For disclosure, transparency, and accountability, to provide more clarity regarding Southern Copper's performance on ESG issues, we have published a supplement to the 2022 Sustainable Development Report and have also incorporated new topics on our Sustainable Development page to address biodiversity, our people, human rights, and the supply chain. At the behest of our investors, we have expanded our responses to the CVP questionnaires to include the forest questionnaire. This information complements our responses to our climate change and water security questionnaires that have been available since 2016 and 2022 respectively. Year-to-date, we have restored three times the area impacted in the same period. We have restored 1,388 hectares compared to 424 hectares impacted. Additionally, we have implemented works to retain 10,722 tons of soil that would have otherwise been lost to erosion in the state of Sonora in Mexico. These actions are in the framework of our strategy to achieve zero net deforestation and generate a net positive impact on biodiversity, particularly in areas close to our operations. In terms of the communities near our operations, we are highly active in future programs we offer. Thus far this year, we have recorded 170,000 participations in these programs, which is a 7% increase from the previous year. One of our most noteworthy efforts, the Youth Orchestra and Choirs program, recently celebrated its fifth year and is now present in 11 communities with 1,596 students in Mexico and Peru. To date, 8 out of 10 of our alumni pursue a bachelor's degree, with 2% choosing music as their lifestyle. Changing subjects, regarding dividends, 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 in each board meeting to determine the appropriate quarterly dividend. Accordingly, as announced to the market on October 19, the Board of Directors authorized a cash dividend of $1 per share of common stock, which will be payable on November 22 to shareholders of record at the close of business on November 8 of this year. Ladies and gentlemen, with these comments, we would like to end our presentation today. Thank you very much for joining us. And we would like now to open up the forum for questions.

And it's coming from the line of Gabriel Simoes with Goldman Sachs.

I have 2 questions here. The first one is about capital allocation, right? So El Pilar was postponed a bit basically because of the new regulatory process that you have to go through to get approved in Mexico. And some issues, we've seen some issues with the other projects advancing in the near term. So we're at the point that El Pilar is the last Board approved project. So I just wanted to have an idea of what we should expect in terms in CapEx, and the capital allocation for the coming years. When we should see new projects being taken to the Board given the advancements that you guys are making on the other projects that you have on the pipeline? And in the meantime, if you have any thoughts that you could share on dividend distribution, thinking about the future distributions. So that's the first question. And then the second question here is about the costs in the mining division here for the company. So in the beginning of the year, if I'm not mistaken, we were in at $1.9 per pound, before by-product for the cost, and we're running at a much higher level. So we just wanted to understand what was the main change this year versus the beginning of the year that would explain this difference and the fact that we're running at higher levels. I mean, how should we think about the cost for the fourth quarter and for 2024 and the main drivers for this in your opinion?

Yes. Thank you for your question, Gabriel. Actually, you said 2 questions, but they are about 4, but I'm glad that you made them.

Sorry about that.

No problem at all. Regarding capital allocation, we are still working on the El Pilar project and want to ensure we improve recovery rates to enhance future profitability. Now is the right time for testing, not after the facility is fully designed and built. As for our other projects, we will continue to update the market as we progress with those in our pipeline. We expect our capital expenditures to be about $1 billion for this year, rising to $1.3 billion in 2024, $1.7 billion in 2025, $2.1 billion in 2026, and $2.6 billion in 2027. Dividends are decided by the Board, which has approved a $1 per share dividend for the last quarter. Historically, the company does not retain cash, and we anticipate maintaining that trend. In terms of cash costs, some expenses were not considered in our operating costs. The appreciation of the Mexican exchange rate has affected our peso-denominated costs, while there was no significant variance in the Peruvian case. We are now seeing costs reflect our inventory consumption. For instance, tariffs on mining trucks rose due to the outbreak of the war in Ukraine, which led to increased prices for materials like fuel and ammonia used in explosives. However, certain costs, such as tires, remained stable as we were using existing stock. We are now replenishing those stocks, which is affecting our cash cost per pound, even though our copper production is slightly higher than last year. Nonetheless, we are seeing some reductions in costs for fuel, explosives, and are catching up on maintenance expenditures we deferred during the COVID period and late last year. We anticipate that cash costs will remain around the current level, or slightly improve due to increased production in the fourth quarter. For 2024, we expect costs to be about $1, similar to current levels, depending on how the new projects influence our production profile in the coming years.

I just wanted to follow up on the cash cost. I would like to know if you have guidance for the byproduct costs as well. That would be helpful.

At above we are now in the last quarter. In the last quarter, it was $2.24 per pound. We believe it could be lower than that for the next few quarters. But for now, it will be a little bit more than $2.20.

All right. It comes from the line of Sofia Martin with an undisclosed firm.

Congratulations on your results. I have 2 main questions. My first one is, could you give us any color on production for the rest of the year and 2024? And if you have any further guidance going forward? And my second question is related to copper prices and market dynamics. Do you have any color heading into 2024?

Thank you for your questions, Sofia. For this year, as I mentioned, we're expecting 918,000 tons, that's for 2023. For next year, we expect to increase it for a few reasons. Let me comment on that. Our goal is 946,700 for next year. We will have the contribution at full speed of Pilares. Pilares this year, we're getting about 23,000 tons of copper from Pilares. The reason for that is that at the beginning of the project, we had oxides that were sent to our SX-EW plant, and they take a little bit longer to process than the usual sulfuric mineral. For next year, we're expecting Pilares to increase from 23,000 tons of copper to 30,000 tons of copper. We will get the positive contribution of Buenavista Zinc for about 30,000 tons. We will have improvements in the Toquepala and Cuajone ore grades that will increase a little bit their production. In the case of Toquepala by 7,000 tons, and in the case of Cuajone by 9,000 tons. So you have some additions on that. Later on, we will have for 2025, our expectation is 956,500, in that case, we are expecting the contribution of El Pilar, as well as Buenavista Zinc and Pilares copper production at full speed. For 2026, 985,400, and for 2027, 1 million tons of copper production. For 2024, well, it's hard to say. We're looking at the market, as I mentioned, even though we had an 8% increase in prices, we're still seeing a market that stopped defining its direction. For now, we are expecting prices in the range of where we are now, maybe a little bit better if China comes back consuming more basic materials than it has in the past through this year. That is hard to predict at this point. Long term, we do see a very strong demand coming from the energy revolution that includes electric vehicles and other important copper consumption such as transmission lines, wind energy, and so on.

And it comes from the line of John Tumazos with Very Independent Research.

Thank you very much. The $1 quarterly dividends thank you have been bigger than reported earnings in 2022 and 2023. And the four very big capital projects are delayed and distant. There is $7 billion of debt and lease before cash balances and investments. The Board places a priority on perhaps reducing the debt, just in case when feasibility studies are updated, the capital costs rise. There's other companies or projects where capital costs doubled. I know that won't happen in Southern Copper, but you never know. Thank you.

Let me address our debt position. You mentioned that you're considering the lease as part of our debt. However, it's actually a long-term contract, specifically a Power Purchase Agreement we have for our operations in Peru and Mexico. Although we need to register it as a lease for accounting purposes, it is indeed a PPA. Our current debt stands at approximately $6.2 billion with an average rate of 6%. Over the past few years, we've conducted several bond issuances that helped us secure lower rates, improving our debt profile. We do not have any principal payments due until 2025, when $500 million will be payable. Last year, we paid $300 million. For now, unless we initiate construction on one of our major projects, we anticipate maintaining our current cash and debt positions. Regarding dividends, as I mentioned, that decision is made by our Board. From what we observe, the company is not retaining cash, and we think this approach will continue in the upcoming quarters.

And it comes from the line of Timna Tanners with Wolfe Research.

I know one of the other large copper producer CEOs has mentioned that at current copper prices, projects were no longer so attractive, especially given higher costs for startups. But I'd like your thoughts on that. I know you still have quite a few projects in your pipeline, but they have been delayed a bit. And I'm just wondering if you still find building attractive or if there's a different approach to building versus buying, if M&A is interesting. Great to get your thoughts.

Thank you very much for your question, Timna. Okay. On our projects, at current prices, even though costs have increased for both CapEx and OpEx, we see that they are attractive in terms of the returns that they are providing to the company. I think that as costs increase for operating purposes, we are seeing also an increase in the long-term price for the market. Let me explain. A reasonable way to look at the long-term price will be the average industry cost plus maintenance capital for the current operations worldwide. As the long-term price used to be at about $330 million to promote the growth of our industry, now you have to add whatever inflation is affecting both CapEx and OpEx. Considering that, I believe that we will be at about $360 million or even higher than that for the long run as a new price reference. So I believe that if copper prices decrease further down from where they are, which is not our base case, but that may happen, we should see again what we have seen in some other copper price cycles where supply is somehow affected by demand restriction. Now, having said that, it seems important to me to consider that production coming from Chile and Peru has been affected by different circumstances in these two countries. That has somehow slowed the development of new projects that should supply copper for the future. So my view is that it's positive in the midterm to long term, but we still have to pass through this strange phase that we're seeing nowadays.

That's helpful. I know there's also been some headlines around your Buenavista operations and blockages that have been reported in the local press that have caused some concern. I think that wasn't a cause of any disruption, but it would be great to get your perspective on that or how you see that getting resolved.

Well, as you mentioned, it has not affected our operations. We are seeing some issues mainly related to the political campaign that is about to begin or is already underway in Mexico. As you know, we have seen a significant change in unions regarding the Buenavista operation in the past decade. I think that there are certain political forces that would like to affect our operations; however, they have not had any success so far in these many years, and I believe that will be the case for the future as well.

And it comes from the line of Alex Hacking with Citi.

Raul, I just wanted to clarify on the guidance. You said 946,000 tons next year. In my notes, I had that last quarter that this guidance was 1,026,000 tons, which is an 80,000-ton cut to that guidance. Am I correct? And if so, I guess, what's driven that downgrade and expectation for next year?

Hold on a second, please. The reference that you gave us, Alex, is correct. We have made an adjustment in our production for the current operations, particularly Buenavista and Buenavista Zinc. Those two have reduced their forecast for next year. This number is still under review. We will do a new set of forecasts at the beginning of next year in our January conference. Currently, what we're considering is how we are going to improve the 946,000 tons that I mentioned before.

And then to follow up on the issue, there is some timing slippage with Buenavista Zinc. Is the main concern the grade? Is that why the grade is expected to be lower than previously forecasted?

It's basically ore grade because the operations are at full speed, all the time, 24/7. So it's mainly ore grades or recoveries, depending on the different phases you are in the mines. That changes a little bit. And that plus the start-up of projects are the drivers of changes in production on a yearly basis.

And it comes from the line of Carlos De Alba with Morgan Stanley.

So Raul, any comments on how Southern Copper has taken the plan proposed by the Mexican government to remediate what they claim is still a contamination in the Sonora River from this period in 2014?

Very straightforward answer is no, Carlos. We are looking at the information, and we're studying it, and we'll respond when it corresponds. But at this point, we have no comments on this.

Okay. That's clear. Now just the company, if I understand correctly, has done several analyses throughout the years. And they don't show any contamination left. Is that fair?

That's our view on the matter, yes.

And I'm not showing any further questions in the queue.

Okay. Thank you very much, Carmen. This will conclude our Conference Call for the Third Quarter of 2023. We certainly appreciate your participation and hope to have you back with us when we report the fourth quarter of this year and the end of year results in January. Thank you very much, and have a nice day.

Thank you all for participating, and you may now disconnect.