Good morning, and welcome to Southern Copper Corporation's First Quarter 2024 Results Conference Call. With us this morning, we have Southern Copper Corporation, Mr. Raul Jacob, Vice President of Finance, Treasurer and CFO, who will discuss the results of the company for the first quarter 2024 as well as answer any questions that you might 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 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, Gigi. Good morning, everyone, and welcome to Southern Copper's First Quarter 2024 Results Conference Call. At today's conference, I'm joined by Mr. Oscar Gonzalez Rocha, CEO of Southern Copper and Board member, as well as Mr. Leonardo Contreras, who is also a Board member. 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 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 London Metal Exchange copper price decreased 5.4% from an average of $4.05 per pound in the first quarter of 2023 to $3.83 in the past quarter. At the end of last year, we were expecting a slight market surplus for 2024. However, after several producers announced reductions in copper production, concerns about a potential deficit displaced market optimism. At this time, we estimate that the copper supply will drop by about 1%. Previously, we were expecting a growth of 3.2% in supply, which has been reversed by this new forecast of a drop of 1% as I said. In addition to significant downward revisions to global copper production projections for this year, we're currently seeing strong market demand on the back of a resilient U.S. economy, and new demand from decarbonization technologies and artificial intelligence. Demand is expected to grow by about 2.5% this year. We believe these new factors, as I say, decarbonization technologies, the resilience of the U.S. economy, will play a significant role in supporting long-term copper demand, sustaining attractive copper prices. Now let's look at Southern Copper's production for the past quarter. Copper represented 78.6% of our sales in the first quarter of 2024. Copper production registered an increase of 7.6% in the first quarter in quarter-on-quarter terms to stand at 240,270 tons. Our quarterly production result reflects a 19% increase in production in Peru due to higher ore grade, mineral processing, and recoveries, and a 0.5x increase in production in Mexican mines. This includes 2,158 tons of copper from the new zinc concentrator at Buenavista mine. These positive results were partially offset by a decrease in SX-EW cathode production at Buenavista and Toquepala. In the fourth quarter of 2023, we reported that our Buenavista operations have experienced difficulties with its water supply. After taking action this past quarter to cover order requirements for this facility, we believe we have ensured sufficient water supplies to operate our Buenavista mine as forecasted in our annual plan. For 2024, we're increasing our forecast of copper production to 948,800 tons, an increase of 4.1% over the 2023 final print. Last year, we drove our Pilares project to full capacity and initiated ramp-up of the Buenavista zinc concentrate. For 2024, we expect these two projects to contribute with 43,800 tons of copper. For molybdenum, it represented 10.5% of the company's sales value in the first quarter of this year and is currently our first by-product. Molybdenum prices averaged $19.84 per pound in the quarter compared to $32.04 in the first quarter of last year, which represents a decrease of 38%. Molybdenum production increased by 9.5% in the first quarter of 2024 compared to the same period of last year. This was mainly driven by higher production at the Peruvian operations and the Buenavista mine due to higher ore grades. These results were partially offset by lower production at La Caridad mine. In 2024, we expect to produce 26,100 tons of molybdenum, higher by 2.4% than our plan. For silver, it represented 4.3% of our sales value in the first quarter of 2024, with an average price of $23.35 per ounce in the quarter, which reflected an increase of 3.6%. Silver is currently our second by-product. Mined silver production increased 8.4% in the first quarter of 2024 versus the first quarter of 2023 after production rose at all our mines with the exception of Buenavista. Refined silver production fell by 1.6% quarter-over-quarter, mainly driven by a drop at the IMMSA and La Caridad refinery. In 2024, we expect to produce 20.5 million ounces of silver, an increase of 11.4% compared to 2023. Zinc represented 2.7% of our sales value in the first quarter of 2024, with an average price of $1.11 per pound in the quarter. This is 22% lower than last year's first quarter's price for zinc. Zinc mined production increased 75% quarter-on-quarter and totaled 26,366 tons. This was mainly driven by the new Buenavista zinc concentrator production of 9,695 tons over the period and by an increase in production at the Santa Barbara, Charcas, and San Martin mine of our IMMSA subsidiary. Refined zinc production decreased by 15% in the first quarter of 2024 compared to the first quarter of 2023. For this year, we expect to produce 120,300 tons of zinc, which represents an increase of 84% over the 2023 production levels. This growth will be driven by the Buenavista zinc concentrator. We expect this facility to produce 54,500 tons of zinc in 2024 and an average of 90,200 tons of zinc and 20,000 tons of copper per year over the next five years. Financial results. For the first quarter of 2024, sales were $2.6 billion, which is $194 million lower than sales for the first quarter of 2023 or 7% less. The copper sales volume increased by 2.8%, but the value decreased by 4.8%, driven by lower prices. Regarding our main by-products, despite an increase in our molybdenum sales volume of 8.4%, sales for molybdenum decreased by 9.3% due to lower prices. As I mentioned, prices dropped by 38% quarter-on-quarter. In the case of silver, sales dropped by 3.1% due to a decrease in volume. This drop was partially offset by better prices. Zinc sales dropped by 24% over the period due to lower prices and slightly lower volume. Operating costs. Our total operating cost and expenses decreased by $30 million or 2.1% compared to the first quarter of 2023. The main cost reduction has been in inventory, purchased copper, workers' participation, explosives, and grinding media among other factors. These cost reductions were partially offset by higher repair material, diesel and fuel costs, labor, and other costs. The first quarter of 2024 adjusted EBITDA was $1,417.7 million, which is 9.6% lower compared to the $1,568 million registered in the first quarter of 2023. This was due to lower prices for copper and molybdenum. The adjusted EBITDA margin in the first quarter of this year was 54.5% versus 56.1% in the first quarter of 2023. Operating cash cost per pound of copper before by-product credits was $2.11 in the first quarter of 2024. This is $0.12 below the $2.23 registered for the fourth quarter of 2023. This 5.3% decrease in operating cash cost was attributable to lower costs per pound from production, a decrease in treatment and refining costs, and a drop in administrative expenses, net of an uptick in the premiums. Southern Copper's operating cash cost, including the benefit of by-product credits, was $1.07 per pound in the first quarter of this year. This cash cost was $0.18 lower than the cash cost of $1.25 for the fourth quarter of 2023. Regarding by-products, we had a total credit of $532 million or $1.04 per pound in the first quarter of 2024. These figures represent a 5.9% increase compared with the credit of $491.5 million, which was equivalent to $0.984 per pound in the fourth quarter. So we have better credits that increased in absolute dollars and on a per pound basis, it was $1.04 versus $0.984 in the fourth quarter of last year. Total credits have increased for molybdenum and silver, but decreased for zinc and sulfuric acid. Copper production volumes increased by 2.6% between the first quarter of this year and the fourth quarter of 2023. Regarding by-products, production volumes increased for zinc by 56% and decreased for molybdenum and silver. Net income was $736 million or 9.5% lower compared to the $813.2 million registered in the first quarter of 2023. Net income margin was 28.3% in the first quarter of this year versus 29.1% in the first quarter of 2023. Cash flow from operating activities in the first quarter of 2024 was $659.9 million, representing a 22% increase over the $540.9 million posted in the fourth quarter of 2023. This improvement was attributable to strong cash generation at our operations, driven by higher sales and cost control efficiency. In the first quarter of this year, cash flow from operating activities was 44% lower than the $1,185 million reported in the first quarter of 2022. This decrease was attributable to a $311 million increase in working capital, primarily driven by our Mexican operations. Capital investments. Our current capital investment program for this decade exceeds $15 billion and includes investments in the Tia Maria, Los Chancas, and Michiquillay projects in Peru, and the Buenavista Zinc, Pilares, El Pilar, and El Arco projects in Mexico. This capital forecast includes several infrastructure investments, including key investments to bolster the competitiveness of the El Arco project. In the first quarter of this year, we spent $214 million on capital investments, which is down 10% compared to the first quarter of last year and 16% versus the figure in the fourth quarter of 2023. Capital expenditure represented 29% of net income this quarter. Since our main capital project is described in SCC's press release, I will focus on updating new developments for each of them. For the Buenavista zinc concentrator, the capital budget for the project is $439 million, of which $383 million had been invested as of March 31 of this year. The concentrator operation began in the first quarter of 2024. We expect to produce 54,500 tons of zinc and 11,900 tons of copper this year, and for the next 5 years, we expect to have an average production of 90,200 tons of zinc and 20,000 tons of copper per year from this new Buenavista zinc concentrator. For the Peruvian projects, in the case of Los Chancas in Apurimac, the company continues to engage in coordinated efforts with the Peruvian authorities to eradicate illegal mining activity. Once this process is completed, we will resume the environmental impact assessment and initiate hydrogeological as well as geotechnical studies. We will also conduct a diamond drilling campaign of 40,000 meters to gather additional information on the characteristics of the Los Chancas deposit. For the Michiquillay project located in the Cajamarca region in Peru, as of March 31 of this year, we have drilled 80,000 meters on a total program of 110,000 meters and obtained 27,902 core samples for chemical analysis. Diamond drilling is underway, which will provide data for cross-section interpretation, geological modeling, and resource evaluation. We expect to begin hydrogeological and geotechnical studies soon and will also assess the results of metallurgical testing at the deposit. The company continues to engage with the Michiquillay and La Encañada communities based on the guidelines of corresponding social agreements. For environmental, social, and corporate governance, we are consistently reporting on ESG assessments conducted by rating agencies on our operations. For the third consecutive year, we were included in S&P Global's Sustainability Yearbook. This means that, thanks to our performance in this agency's Corporate Sustainability Assessment and evaluation, we're ranked among the top 15% of the best-rated companies in sustainability in mining and metals. Regarding ESG Risk Ratings Report Evaluation by Sustainalytics, SCC reduced its risk level by improving its score within the medium risk category from 27.5 in 2023 to 23.4 in 2024. For climate action, in the first quarter of 2024, we received clean energy certificates from one of our electricity suppliers in Peru. With this, all the electrical energy we consume in Peru in 2023 came from renewable sources. Measurements indicate that consumption of renewable electricity at SCC increased from 23% to 36% in 2023, which means that we have already met our 2027 target to ensure that 25% of our electrical supply is derived from renewable sources. Over the same period, greenhouse gas emissions dropped by 7.5% in 2023 compared to 2022. For climate governance, a recent briefing from Chapter Zero, home of the Climate Governance Initiative, was held for the directors and management of Southern Copper Corporation to inform them about the risks and opportunities associated with climate change. This initiative, developed in collaboration with the World Economic Forum, aims to support non-executive directors and chairs in integrating climate action into their business strategy. For the second consecutive year, we received the Exceptional Company award in Mexico, presented by the Business Coordinating Council, the Communication Council, and the Institute for the Promotion of Quality. This recognition was awarded due to the success of our Educational Center model after outstanding results were reported for mathematics and language skills that are above the national and regional average for the cohort of 2,000 students from the four basic level schools sponsored by the company in Mexico under a voluntary initiative to benefit our employees. In Peru, we inaugurated the High-Performance School, or COAR, in Tacna, the Peruvian region where our Toquepala mine operates. This campus houses 300 outstanding students from the state educational system, many of whom come from the most vulnerable areas of the region. The COAR facilities will allow them to continue their studies in state-of-the-art classrooms, laboratories, libraries, residences, and sports areas, thanks to an investment of $26 million through the work-for-taxes modality. 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 at each board meeting to determine the appropriate quarterly dividends. Accordingly, Southern Copper Corporation announced last Friday that its Board of Directors has approved a quarterly stock dividend of 0.0104 shares of common stock per share, payable on May 23, 2024, to shareholders of record at the close of business on May 8 of this year. In lieu of fractional shares, cash will be distributed to each shareholder who would otherwise have been entitled to receive a fractional share based on a share price of $115.13, the average of the high and low share price on April 18, 2024. Shareholders will not be required to take any action to receive the stock dividends. After the payment date, shareholders' book entry accounts will be credited with additional shares that represent the stock dividend. When shares are held in a brokerage account in the name of a broker, the additional shares will be distributed to the broker on behalf of the shareholder. The stock dividend is administered by Computershare, the company's transfer agent. Ladies and gentlemen, with these comments, we end our presentation today. Thank you very much for joining us, and we would now like to open the forum for questions.

Our first question comes from Carlos De Alba from MS.

I have three questions. First, what led to the Board's decision to switch the dividend from cash to all shares? In my time covering the stock, I can only recall one instance when the company paid dividends in shares, and that was partial cash and partial shares. I'd appreciate any insights into this departure from the usual approach. My second question concerns Southern Copper's interest in potentially pursuing mergers and acquisitions within the sector instead of developing projects, which, while the portfolio is appealing, may be several years away from realization, except for Tia Maria. Lastly, I want to commend you on the strong cost performance this quarter. How do you anticipate the trend in costs before by-products in the upcoming quarters? Additionally, could you provide new guidance on how average costs for the year are expected to look before considering by-products?

Thank you for your questions, Carlos. I'm going to address them now. The change in the dividend is a result of our resource, specifically the shares the company has been buying back. Considering our cash position and the market price, we decided to pay this dividend. If we take the reference price of $115.34, it amounts to about $1.20 per share. At the time of the Board meeting, the company's cash generation could not support further expenditures without compromise, which is why the Board chose this route and allowed shareholders the option to retain the shares or sell them in the market. Regarding your concern about potential M&A activity, we are closely monitoring worldwide opportunities. While we are significantly focused on organic growth and our ongoing projects, such as the Pilares well-being from last year and the ramp-up of the zinc concentrator, we're open to good opportunities in the market. So far, nothing has caught our specific interest. About costs before by-products, remember that producing by-products incurs a cost. Therefore, the new zinc concentrator's cost divided by the total pounds of copper produced slightly impacts our cash cost before credits. However, the credits are much higher per pound compared to this facility's costs. Currently, our cash costs remain steady, and we haven't seen inflation affecting them significantly. While some increases may arise depending on market prices, I believe we can maintain our cash costs before credits at this level. With the added production from the Buenavista concentrator, we will see higher credits, though the prices have not been as favorable as in other quarters. That's the situation.

Regarding the first question on the dividend, I would like to gain a clearer understanding. The company has a robust balance sheet, finishing 2023 with $1.8 billion in cash and marketable securities. It generated over $100 million in cash during the first quarter. So, what has changed? Are you expecting Tia Maria to be approved soon or any other projects to start in the near future? Or is there a possibility of acquiring an asset that will require cash before you choose to use shares? Additionally, you could have considered canceling shares to increase EBITDA per share, making the stock appear more attractive.

In the first quarter, our cash from operating activities was approximately $660 million. We use this figure to assess our ability to pay cash dividends from our operations. We experienced a change in operating assets and liabilities of about $311 million, which we believe will be a one-time issue. Overall, this reflects our decision to maintain a conservative approach to cash management. If we see positive developments in Tia Maria as we progress, we will need more cash. This is one reason for our conservative stance, as we prefer to act prudently rather than risk future issues by paying a dividend now.

Our next question comes from the line of Alejandro Demichelis from Jefferies.

Actually, just to follow up on the dividend question, Raul. So if I understood correctly, you said that you're using the shares you have in treasury. So should we think that the dividend in stock will only be limited to those shares that you have in treasury? Or can we assume that you could actually expand the share count that you have? That's the first question. And then the second question is you mentioned some progress in Tia Maria. Can you give us a little bit more of a flavor of how you're seeing that process going?

Yes. Let me address the last question first. We have seen that the recent changes in executive authorities related to mining, energy, finance, and environmental affairs have positively impacted the project. The new ministers are collaborating with the company to enhance the conditions for the project to commence, which we view as encouraging. We also recognize that we have been engaged in social efforts in the Tambo Valley and the Islay province, leading to an improved social environment for the project overall. This is primarily a result of many years of consistent efforts. Even when the Tia Maria project faced delays a few years ago, we continued to make social progress, which we now see contributing positively to moving the project forward. Regarding dividends, we are utilizing our treasury shares for this payout, which will involve about 8 million shares. We are not considering the use of all our treasury shares or any share issuance in the future. This situation remains unchanged for now. As previously mentioned, back in the fourth quarter of 2011, we paid a dividend using the shares we had at that time, allowing shareholders the option to monetize those shares or retain them, considering the company's strong outlook ahead.

And just to follow up on Tia Maria. Can you give us some timeline? Do you have any timeline on the process?

No timeline. No timeline. We're doing progress. We'll report to the market, to the investors community, as we move on a quarterly basis, but we don't want to set a timeline at this point.

Our next question comes from the line of Jon Brandt from HSBC.

Just wondering, would you consider possibly partnering with others to boost production?

Could you get a little bit closer? I can't talk to you well.

Is that better?

Much better.

Okay. We've seen Codelco talk about maybe partnering with some other miners to help increase their production. I'm wondering, you have a really great pipeline of greenfield projects. Is that something that you would consider? Would you partner with another miner? I mean, would that help you pull forward some of the production? Or is there something else you can do to increase the speed of your greenfield projects? I guess that's the first question. And then just on Tia Maria, I mean, I think I noticed in your slide, you were talking about a 2027 start-up. When does that assume that you start construction activities? I mean is it a 2-year construction activity before you would see first production? If you could sort of talk about that, that would be great.

Yes. Well, yes, it will be a 2-year construction process at this point. This is our estimated timeline for construction. We don't know when this is going to be the case to report. But whenever it happens, we'll certainly let you all know. And to your first question, considering a partnering or a partnership with another miner. No, for now, we are not considering that. The company is developing these projects as full-on operations as it is the case with our current operations in general.

Okay. And just sorry, one follow-up. So just to clarify your answers on the stock dividend. Should we expect next quarter to go back to a cash dividend? Is that how we should interpret your answers?

As I say when I report on the dividend announcement, each Board meeting, the Board discusses the company cash position, the outlook on the market, any payments that we have to do for projects or debt, et cetera. And on that basis, a dividend is declared. How the Board is going to evaluate this in the next Board meeting, I can't advance anything on that.

Our next question comes from the line of Timna Tanners from Wolfe Research.

Happy Friday. I wanted to inquire further about the Buenavista situation. Last quarter, you mentioned that you had not yet received the permit and were still transporting water by truck. While you indicated that your needs were being met, could you provide an update on the supply situation there and any developments regarding the permit?

Certainly, Timna. It's great to hear from you. Yes, as you mentioned, we are currently using our truck fleet to supply a portion of the water needed by Buenavista. So far this year, we have been successful in meeting our water requirements and have some extra capacity, which makes us comfortable with our current water supply. Regarding the permit status, we do have permission to operate the wells and are using them to source the water. However, we do not have a permit to construct a pipeline that would transport the water from the wells to the facilities, which is why we are still relying on water trucks at this time. Unfortunately, there is no update on when we might receive the necessary permits.

Got it. You anticipated my next question. As we review your new guidance for copper, silver, molybdenum, and zinc, the guidance indicates a slight decrease in the first quarter run rates for copper while suggesting a significant increase for silver. I'm trying to grasp the factors contributing to the minor slowdown in molybdenum and copper, as well as the increase in silver. We have a good understanding of zinc, but I'm looking to clarify the other elements.

We are actually more optimistic about copper than we initially indicated. However, we are being cautious with our production goals for the year, and we hope to perform better than our current estimates. That's our plan for now, and we are aiming to improve our final production for copper. Regarding molybdenum, we have produced more this past quarter compared to the first quarter of last year. The challenge we face is the significantly lower prices for molybdenum, which have dropped by 38% this quarter compared to the same period last year.

Okay. And then on silver, did you have a comment on why that was trending much better than the first quarter run rate?

We are obtaining more silver from our existing operating facilities. The new concentrator is also producing some silver, and along with improved production at our operations, this is driving the increase in silver production.

Our next question comes from the line of Alfonso Salazar from Scotiabank.

Let me please rephrase a couple of questions from my colleagues. The first one is, because this stock dividend is a one-off, for the next quarter, the Board of Directors will not be considering the possibility of paying a stock dividend again. So is this correct?

It's up to them. It's up to them. I can't comment on what they are going to decide on the next Board meeting.

Okay. But in principle, it will be a one-off?

In principle, it will be a what?

A one-off, the payment of a stock dividend.

They approved a stock dividend this quarter. We don't have, at this point, any idea of what they are going to propose on the next one.

Can you remind us how many stocks do you have at the treasury after this payment?

Well, before the payments, we had 111 million shares. 111 million. And the share payout is about 8 million, so after this, we will have 103 million. The exact number will be 103,442,000 shares of treasury shares after this dividend payment.

That's good. Excellent. The other question that I have is can you remind us your copper production profile for the coming years? And let us know what is your projection for Tia Maria or other projects?

Yes. Okay. Hold on a second, please. For this year, as I said, it's going to be 948,800 tons. Next year, 2025, 920,000; 2026, 940,000; 2027, 1,005,100; and '28, 1,020,000.

And from that, I assume that there is some production coming from Tia Maria by 2027?

Yes. Tia Maria is included in the forecast for '27.

Our next question comes from the line of John Tumazos from John Tumazos Very Independent Research LLC.

Raul, is it possible that maybe we're a little spoiled with these long delays in the very big projects moving forward, which permitted large dividends bigger than 50% payout? And now that Tia Maria may advance and the other projects in Peru are advancing, the dividend payout needs to be less than 50% rather than over 50% in cash. It's better not to gain weight, and it's better not to accumulate debt because both of them are hard to reduce once you accumulate.

I agree with your comment on the importance of being cautious. The company has demonstrated a careful approach in managing our cash. We don't aim to incur debt to finance dividends, as that goes against our principles. However, in certain situations where we expect our future EBITDA to improve due to new projects or enhancements in our current operations, it can make sense to take on some additional debt. Over the past five years, we have successfully managed our bond maturities. While we may explore opportunities in the bond or capital markets in the future, we currently do not have any specific plans. We're continuously assessing this, especially given the current interest rates, which are notably different from the past. Our existing debt profile reflects significantly lower average interest rates than what a company like ours might encounter in the near future. Being prudent is a key factor in our decision to consider dividends this quarter, and we believe this cautious approach will continue in coming years. This encapsulates our management's perspective on debt usage and dividend payments.

Our next question comes from the line of Regina Carrillo from GBM.

I saw in the presentation that you mentioned investments in the...

Regina, please get a little bit closer to microphone.

Is this better?

Much better.

Perfect. I saw in the presentation that you mentioned investments in the Ilo and the Empalme, and I just wanted to get an update on what you're seeing there.

Yes. We do have some plans for growing in the refining business as well as the mining business. For that, we have a plan for building a new smelter in Mexico, which at this point is considered to be in the Empalme in Mexico. This on our state. And for the Peruvian facilities, we do have also plans for new smelter and refinery in the Ilo area, nearby our current facilities for smelting and refining. We're seeing that sales, direct sales, to the industrial complexes in both Mexico and Peru will absorb this new material whenever we move on with these projects. At this point, as you know, we are considering them for later on this decade, and we will be updating on any progress on these investments as we move on over time and the projects mature later on in time as well.

At this time, I would now like to turn the conference back over to Mr. Raul Jacob for closing remarks.

Thank you very much, Gigi. And well with this, we conclude our conference call for Southern Copper's first quarter of 2024 results. We certainly appreciate your participation and hope to have you back with us when we report the second quarter results. Thank you very much for being with us today, and have a nice day.

This concludes today's conference call. Thank you for participating. You may now disconnect.