Southern Copper Corp/ Q2 FY2024 Earnings Call

Good morning, and welcome to Southern Copper Corporation's Second Quarter and Six Months 2024 Results Conference Call. With us this morning, we have Southern Copper Corporation's Mr. Raul Jacob, Vice President Finance, Treasurer, and CFO, who will discuss the results of the company for the second quarter and six months 2024, 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 second 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 costs, 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 increased 15% from an average of $3.85 per pound in the second quarter of 2023, up to $4.42 this quarter. Based on the production cuts announced by several producers and other information to date, we're expecting a market deficit of about 217,000 tons of copper for 2024. At this point in time, we estimate that the copper supply will increase slightly by 0.6% or about 0.5 percentage points. Looking at the demand, even though we see weak China's demand mainly from its real estate market, a resilient U.S. economy and new demand from decarbonization technologies as well as artificial intelligence are supporting copper demand and prices. Now, let's look at Southern Copper's production for the past quarter. Copper represented 76% of our sales in the second quarter of this year. Copper production increased significantly in the second quarter in quarter-on-quarter terms to stand at 242,474 tons. Our quarterly result reflects a 15% increase in production in Peru and this improvement was driven by growth at the Toquepala mine, which increased its production by 21%, boosted by higher ore grades. Production at our Mexican operations increased by 0.7% in quarter-to-quarter terms, mainly due to higher production at our La Caridad mine, partially offset by a decrease in production at Buenavista and Inca. For 2024, we expect to produce 963,200 tons, which represents an increase over our 2023 final print. This growth will be fueled by recovery at our SX/EW facilities at Buenavista and by the copper production of our new Buenavista zinc concentrator, which is operating at full capacity. Molybdenum production represented 12% of the company's sales value in the second quarter of this year and is currently our first byproduct. Molybdenum prices averaged $21.69 per pound, up from $20.87 per pound in the second quarter of last year. This represents an increase of 4%. Molybdenum production increased by 21% in the second quarter 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 the La Caridad mine. In 2024, we expect to produce 27,400 tons of molybdenum, which represents an increase of 2% over our 2023 production levels. Silver represented 5% of our sales value in the second quarter of this year with an average price of $28.84 per ounce in the quarter, reflecting an increase of 19% versus the 2023 second-quarter price. Silver is currently our second byproduct. Mine silver production increased 8% in the second quarter of 2024 versus the same period of 2023 with the sole exception of Inca, production rose at all our operations. Refined silver production increased by 28% quarter-over-quarter, which was mainly driven by growth in our La Caridad and Ilo refineries. In 2024, we expect to produce 20.6 million ounces of silver, an increase of 12% compared to 2023. Zinc represented 4% of our sales value in the second quarter of this year with an average price of $1.29 per pound in the quarter, which represents a 12% increase in price compared to the second quarter of last year. Zinc mine production increased 71% quarter-on-quarter and totaled 29,419 tons. Growth was driven primarily by the 13,653 tons produced at the new Buenavista zinc concentrator and by increased production at the Charcas mine. Refined zinc production increased 6% in the second quarter of 2024 versus the second quarter of last year. For this year, we expect to produce 121,800 tons of zinc, which represents an increase of 86% over our 2023 production level. So we are increasing our expected production for zinc by 86% this year. This growth will be driven by production at our Buenavista zinc concentrator that will add 55,400 tons, which has ramped up better than planned. For 2025 and on, we expect to produce 178,000 tons of zinc per year. Financial results show that net sales this year were $3,818 million, which represented growth of 36% compared to the second quarter of the previous year. Expansion was primarily fueled by an increase in sales volumes of copper, which grew 5.5%, molybdenum by a 21% increase, silver by a 32% increase, and zinc by a 78% increase in sales volumes. Also, we had an increase in metal prices for all of our products. Our total operating costs and expenses increased by $111 million or 8% compared to the second quarter of last year. The main cost increment has been in workers' participation, repair materials, contractors and operating materials, sales expenses, and other factors. These cost increments were partially offset by a decrease in energy costs and in exchange rate variance. In the first half of the year, we saw unitary cost reductions for several materials and services such as branding media, steel, explosives, tires, and power costs. These savings, however, have been somewhat offset by higher costs associated with growth in production and sales volume and by an increase in maintenance and contractors' expenditures, which we are closely monitoring and controlling. Looking at our EBITDA, the second quarter of this year adjusted EBITDA was $1,797 million, representing an increase of 61% compared to the $1,116 million registered in the same period of 2023. The adjusted EBITDA margin in the second quarter of this year stood at 58% versus 49% in the same period of 2023. Adjusted EBITDA in the first half of 2024 was $3,215 million. This is 20% higher than what we had in the first half of last year. The adjusted EBITDA margin for the first half of the year stood at 56% versus 53% in the same period of 2023. Cash cost for Southern Copper's operating cash cost, including the benefit of byproduct credit was $0.76 per pound in the second quarter of 2024. This cash cost was $0.31 lower than the cash cost of $1.07 in the first quarter of 2024. This is a 29% reduction in cash cost. Before by-product credit, the operating cash cost was $2.15 per pound this past quarter. This is $0.04 higher than the value that we had for the first quarter of 2024. This 2% increase in operating cash cost before byproduct credit reflects an increase in cost per pound from production costs, administrative expenses, lower premiums; and these higher costs were partially offset by lower treatment and refining charges. Regarding by-products, we had a total credit of $716 million or $1.40 per pound in the second quarter of this year. These figures represent a 34% increase in byproducts compared with the credit of $532 million or $1.04 that we had in the first quarter of this year. Total credits have increased for molybdenum, zinc, and silver and decreased slightly for sulfuric acid. The second quarter of 2024 net income was $950 million, which represents a 74% increase compared to a $548 million registered in the second quarter of last year. The net income margin in the second quarter stood at 31% versus 24% in the second quarter of 2023. This increase was mainly driven by a 36% increase in sales, which was partially offset by higher operating costs related to sales volume, G&A, and exploration expenses. On a year-on-year basis, net income was 24% higher than in 2023 for similar reasons. Cash from operations and cash flow from operating activities in the six months of this year was $1,622 million, which represents a decrease of 18% compared to the $1,982 million posted in the six months of 2023. Cash flow in the first half of this year was affected by a significant increase in working capital of $511 million, which was mainly driven by an increase in accounts receivable at our Mexican operations. For capital investments, our current capital investment program exceeds $15 billion and it includes investments in the Tia Maria, Los Chancas, and Michiquillay projects in Peru as well as in the Buenavista Zinc, El Pilar, and El Arco projects in Mexico. This capital forecast includes several infrastructure investments, including key investments to support the El Arco project. In the second quarter of this year, we spent $332 million on capital investments, reflecting a 31% increase over the figure reported in the second quarter of 2023 and representing 36% of net income this quarter. In the first half of the year, we spent $546 million on capital investments, which represents 33% of net income and reflects the impact of an 11% increase in capital expenses year-on-year. Since there is a description of our main capital projects in Southern Copper's press release, I'm going to focus on updating new developments for each. This past quarter, we completed ramp-up at the Buenavista Zinc concentrator, which graduated from project to operating unit status. The zinc concentrator is operating according to our expectations, producing 23,300 tons of zinc and 5,500 tons of copper today. Our projections indicate that we will comply with the 2024 plan of producing 55,400 tons this year, and we expect this facility to generate an average of 90,200 tons of zinc and 20,000 tons of copper per year in the next five years. For the Peruvian projects, we have the Tia Maria project, which is a greenfield project location. This project will use a 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. Southern Copper has consistently promoted the welfare of the population of the Islay province and the Arequipa region. 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. As of July 1st of this year, the company has restarted activities at Tia Maria in the province of Islay, the Arequipa region, and at the national level. We reiterate our view that Tia Maria will generate significant economic and social opportunities for Islay province and the Arequipa region. In 2024, the Company will, among other scheduled activities, install a live fence and 1,000 fog catchers. Southern Copper will also roll out earth-moving work this year. All these activities will generate 270 direct jobs in 2024 for the local population. In 2025, we expect to begin mine construction, which will generate 1,100 direct jobs filled with workers from the Islay province. When we start operations in 2027, the project will generate 600 direct jobs and an estimate of 4,800 indirect jobs. Our social programs in Islay totaled $6.3 million in the last two years. Our current programs promote a reduction in the cost of agricultural production by improving productivity with cutting-edge technology. Additionally, we are working to provide Internet access to 4,600 school students. On top of this, we are committed to developing health facilities, high-performance schools, research centers, and roads in the Arequipa region via the work-for-taxes mechanism. Tia Maria will generate significant revenues for the Arequipa region from day one of its operations. At current copper prices, we expect to export $17.5 billion and contribute with $3.4 billion in taxes and royalties during the first 20 years of operation. The company is currently reviewing its historical capital budget for Tia Maria of $1.4 billion. We will update this budget by year-end. For the Los Chancas project located in the Apurimac region in Peru, the company continues to coordinate efforts with the Peruvian authorities to eradicate illegal mining activity. We are drilling approximately 40,000 meters to gather additional information on the characteristics of the Los Chancas deposit. For the Michiquillay project in the Cajamarca region of Peru, as of June 30th of this year, total advancement on the exploration project stood at 30%. We drilled 104,000 meters on a total program of 148,000 meters and obtained 33,991 core samples for chemical analysis. Diamond drilling is underway, which will provide data for cross-section interpretation, geological modeling, and resource evaluation. This month we will begin hydrogeological studies and in August, geotechnical studies will commence. We will also assess the results of metallurgical testing at the deposit in August. For environmental, social, and corporate governance or ESG practices, we are glad to report that on August 1st of this year, the company will begin receiving eolic energy from the Fenicias wind park, which is operated by Grupo Mexico Infraestructura. This will reduce our CO2 emissions by approximately 250,000 tons per year, which is equivalent to 7% of Southern Copper's carbon footprint. Southern Copper recently published its Sustainability Development Report, significantly improving the granularity and specificity of information regarding our performance, commitment, and efforts in the environmental, social, and governance areas. Our Buenavista mine in Sonora, Mexico, has received The Copper Mark, The Zinc Mark, and The Molybdenum Mark certifications for responsible production following a third-party independent evaluation of our performance in environmental, social, and governance matters, including human rights. Consequently, all open-pit copper, zinc, and molybdenum production from our Mexican operation is currently certified by Mark standards. For Education, our IMPULSA program seeks to provide our workers in Mexico with the opportunity to qualify for certification of attaining primary and secondary education as well as bachelor's degrees. From 2022 to date, more than 970 people have participated in this program and 430 have graduated. At present, there are 540 workers actively participating in IMPULSA. For Human Development, the sports advisor and coach of the Sonora operations' swimming team, Jorge Iga, qualified for the Paris 2024 Olympic Games after breaking the Mexican record for the 100-meter freestyle. Thanks to Mr. Iga's support, in 2024, 17 students from our academies participated in six top-level competitions. Regarding dividends, as you know, it is company policy to review our cash position, expected cash-flow generation from operations, capital investment plans, and other financial needs at each Board meeting to determine the appropriate quarterly dividend. Accordingly, on July 18th of this year, Southern Copper Corporation announced a quarterly cash dividend of $0.60 per share of common stock and a stock dividend of 0.0056 shares of common stock per share. This is payable on August 26th of this year 2024 to shareholders of record at the close of business on August 9th, 2024. Ladies and gentlemen, with these comments, we end our presentation today. Thank you very much for joining us. Now, we would like to open the forum for questions.

And it comes from Carlos de Alba with Morgan Stanley. Please proceed.

Thank you very much, Raul, and everyone. It's great to talk to you. Raul, I'd like to get a better understanding of the reasoning behind the new environmental approval the company is seeking from the government regarding a dam to supply water, instead of going forward with the original desalination plant or the planned pumping station and pipeline. Considering the less favorable history of the project, why would the company choose to introduce this new uncertainty, which I believe could complicate matters for the company? Would this move be due to lower capital expenditures or operating expenses? Can you discuss the expected return on investment with a dam compared to a desalination plant? Also, how does the capital expenditure for the desalination, pumping station, and pipeline compare to that of constructing a dam, and what are the differences in operating expenses moving forward for both projects? Thank you.

Thank you for your question, Carlos. We are currently focused on our approved desalination project. If the opportunity arises in the future to include a dam for additional water supply, we will consider that, but for now, we are sticking with the desalination plan. In terms of costs, we are reviewing the estimated capital expense, which has been reported at approximately $1.4 billion, as we intend to incorporate some new facilities that were not part of the initial plan. We also need to account for inflation in the total capital expenditure. One of the new facilities includes a road that will connect the project to the coast of Islay, bypassing the Tambo Valley to minimize disruptions for the local farmers caused by project-related traffic. This proposed road is estimated to be around 20 kilometers long. Additionally, since the project was approved in 2014, we have identified technological advancements that we would like to integrate into the capital budget. We aim to provide an update on these developments by the end of the year at the latest. That summarizes our current status.

Thanks. Just one clarification. So you will build a road, not a railway, right?

No, both things. The railroad will be for moving the sulfuric acid and materials that we need to operate and down basically the production on a daily basis. However, for the construction phase and to communicate directly to the coast, we will build a road that will connect the plant and the facilities for the project with the coast of Islay.

All right, got it. Okay. And then my second question is relating to the outlook for costs before byproducts. If I missed it, I'm sorry, but if you didn't mention, could you please let us know how you see the evolution of your cash cost before byproducts?

Well, it's hard to know because you always have price variances either way, but I believe that we will be at about $2 per pound before subtracting byproduct credit. Please keep in mind that those $2 now include the additional cost of our new concentrator for zinc. So it's all the cost of the company, which includes the cost of the byproduct plants that are related to our production complex divided by the pounds of copper that we're producing. So for this year, we expect it to be at about $2. And then it depends on the production level that we have. If we, for instance, in 2027, when we add Tia Maria to our current production profile, we certainly will reduce our cost before byproducts because the expected cash cost at Tia Maria is in the lower range of $1 plus.

Okay. Thank you very much.

You're welcome, Carlos.

Thank you. One moment for our next question, and it's coming from Marcio Farid with Goldman Sachs. Please proceed.

Thank you. Good morning, everyone. Thanks for the opportunity. A couple of follow-ups on my side here. Firstly, Raul, I think CapEx execution was a bit stronger than we're expecting for the quarter. It's still relatively half of yearly guidance, right? But just trying to understand if investments for Tia Maria are expected to be materially higher for this year, I think you had pretty much close to zero for Tia Maria in the guidance for this year. Are you anticipating some more disbursements related to that as investments seem to be quite remarkable at this point? And yes, and how should we think about final year CapEx and for Tia Maria specifically as well? And similarly for production as well, I think pretty good numbers, but roughly in-line with our estimates. We had, I think guidance for the year is around 950,000 tons. How are you thinking about final year guidance and your ability to reach the production guidance for the year, please? That would be my questions. Thank you.

We feel very confident that we will either maintain or improve our production guidance in the second half of this year. We are seeing our new zinc concentrator operating at a very good pace. We are very satisfied with that. In the first half of the year, our SX-EW production at Buenavista was affected by some water scarcity that has been addressed. We are already getting even more water than we had anticipated due to the higher rainy season that we're experiencing in the Sonora State. So that is going to help our SX-EW copper production for the second half of this year. We have not included that as part of our current guidance, but I believe it will be an upside factor for us. Regarding your first question on the CapEx for Tia Maria, this year we are spending on a live fence that will be around the expected place for the new facilities for the project, meaning we will be spending much less than a project of this magnitude would typically require. However, we believe that we will be accelerating the capital expenditures for the project through the second half of the year. And for 2025, we expect to spend about $316 million on earth-moving activities and some other items that are related to the project. I mentioned the road that we want to build, which will obviously be a very important source of new labor requirements, which is one of our priorities to use people from the Islay province and the Tambo Valley specifically. For the rest of the CapEx for Tia Maria, we will advise on before year-end.

Can I just ask a quick follow-up? It seems that the costs in the after-byproduct area were significantly better. Volumes are strong, and we don't have the detailed breakdown of each product until the full financial statements are released. Where do you believe the positive surprise was regarding after byproduct costs, as well as in the production and revenues from byproducts?

As I commented when we covered the cash cost portion of the presentation, we have had the benefit of both better prices and higher volumes. The new zinc concentrator has been important for achieving higher volumes. We also have molybdenum production coming from our mines. I think I mentioned already the impact of having much higher zinc production coming from the new zinc concentrator. Silver comes in higher quantities, not only from our mines but also as a byproduct of the zinc concentrator. So higher volumes and better prices, in my view, explain the positive surprise that you were mentioning, Marcio.

That's great, Raul. Thank you very much.

You're welcome.

Thank you. One moment for our next question, and it's from the line of Alejandro Demichelis with Jefferies. Please proceed.

Yes. Good morning, gentlemen. Thank you very much for taking my questions. I have a couple of things. First, is a follow-up on your net cash cost, yes? Raul, if I'm understanding correctly what you were saying, which is higher volumes on zinc, higher volumes of silver, then we should assume that the extra byproduct revenues should be stable, obviously with all the variations of prices, but then your net cash cost should kind of remain below the $1 per pound?

Hopefully, yes, but we have to see where the prices are going through the rest of the year. We don't know where prices are going to be in the second half of this year. But regarding volumes, I believe that we will maintain the volumes that we're achieving year-to-date for our byproducts as well as copper. I already mentioned on copper that we would like to improve on the forecast that we mentioned; that for byproducts also, we should maintain the production level. Hopefully, prices will remain stable or, even better, improve if we see a better forecast, but that's where we are now.

Okay. And then it is a follow-up, obviously from the last quarter. Maybe you can give us some kind of indication of how we should think about or how you're thinking about dividends for the rest of the year? Should we assume it's like a 50-50 between cash and stock?

I can only say that it's up to the Board to make that decision. I think that the dividend as was approved, having 50% in cash and 50% in shares is reflecting the new investments that we are undertaking in the Tia Maria investment as well as some payments that we have to make next year. If you see in our balance sheet, we have almost $500 million in debt repayment that we will have to do in April next year. So I believe that has made our Board a little bit more conservative in the cash dividend and will in a way reflect the good time that we're seeing in the market as well as the production levels of the company that have been joined by dividends in shares as well.

Okay, that's great. And just to confirm, you said that for Tia Maria for 2025, the CapEx expectation is about $300 million, something like that?

That’s $316 million. That's the current budget. However, it's under review, and we would like to accelerate our CapEx expenses in Tia Maria. We will proceed with the proper activities to move forward. You're welcome.

Thank you. One moment for our next question that comes from Sofia Martin with GBM. Please proceed.

Hi, thank you for taking my call. I was just wondering if you could share with us your copper production guidance for the next couple of years. Thank you.

Certainly, Sofia. Okay, for 2024, I already mentioned 963,200 tons. For 2025, we will have a slight reduction in production coming from the Buenavista mine and the open-pit operations of Peru. That will put us now at 921,000 tons. Then we will have an adjustment. All these adjustments are basically coming from lower ore grades. For 2026, we are expecting a little bit less than 900,000 tons; 2027, 960,000, and 970,000 tons. And then when we get in 2027 and 2028, we'll be getting the benefit of Tia Maria's full production, and that will increase our production forecast to over 1 million tons by 2028.

Perfect. Thank you very much.

Yes. And for the next years, even though we haven't received the Board approval yet, we're considering an expansion of the Cuajone mine that will increase its capacity by about one-third of what it is right now. However, that is not included in our current capital forecast. That is something that the company is working on.

Thank you. Our next question comes from the line of Hernan Kisluk with MetLife. Please proceed.

Good morning and thank you for taking my questions. Following up on the previous questions about the dividend and also talking about Tia Maria and the CapEx that you need going forward. Can you maybe remind us what are your capital allocation priorities? So we think that CapEx will be higher, but then thinking about the cash position, the net-debt level and the changes that you have been doing on the dividend front, how should we think about going forward?

Going forward, the company is focused on organic growth. We have completed the new zinc concentrator in Buenavista and are concentrating on our projects, which are nearly all fully owned. We are progressing with Tia Maria, and have finished the zinc concentrator in Mexico. We also have two additional projects in Peru and a major project in Mexico, which are El Arco and El Pilar. These are part of our pipeline for copper mining projects. Looking ahead, we are also considering building metallurgical complexes, one in Peru and one in Mexico, which will enhance our ability to process the current long concentrate production.

And given the growth projects that you have obviously going to grow the asset base, should we expect a stable net-debt level for the next few years or will it go along with that?

I am so sorry. Hernan, I'm so sorry, I couldn't get what you said. Our net debt level?

On net debt. Yes. Should we consider that it will grow?

For now, we have been paying our total debt, and we paid about $700 million in the last five years. Next year, we have the maturity of one of our 10-year loans, the bonds that will mature in April and have a principal of $500 million. And if we move on with projects, I believe that we will touch the debt markets in the future. But at this point, we have no concrete plans to do that.

Okay. Thank you.

You're welcome.

Thank you. One moment for our next question. And it's from the line of Alfonso Salazar with Scotiabank. Please proceed.

Hi, Raul, and good day. Two questions from my side. The first one is regarding production and sales levels. For several quarters now, we have seen that production is above shipments. So just wondering what is behind this and if there is any reason in the long-term to assume that these numbers shouldn't be the same? And the second question is regarding permits for tailing plants in Mexico, which we heard that some companies are having problems securing these permits and they have to slow down production or they are considering having to do that in the future unless they get these permits. If there is any situation like that in your case? And also if there is any update on the water pipeline that you need for one of these?

The difference that you mentioned refers to the difference between the copper contained in our mine production versus the refined copper that we sell. As you know, we sell about 75% of all the copper production that we do as refined or further processed copper such as rocks. If you see our copper production and sales, they are usually slightly lower in sales volume compared to the production volumes that we report. That's one of the reasons why you see this over time. Regarding tailings dam permits in Mexico, we haven't had any problems with that. We're currently working to ensure all of our tailings dams not only operate with the safety needed to maintain our operations at a sound pace but we have no issues to report on that regard. We are basically looking into growing the capacity of these tailings dams and so far with no issues about this.

Excellent. Any update on the water pipeline for Buenavista?

No, for now, it's basically as has been reported before.

Okay. Perfect. Thank you, Raul.

You're welcome.

Thank you. One moment for our next question and it's from the line of Myles Allsop with UBS. Please proceed.

Great. Thank you very much for taking the question. Maybe just a few quick questions, follow-up. So with Tia Maria, since your activity has been picking up over the last few months, have you seen any social unrest? Clearly, that's been an issue for many years with Tia Maria, but do you feel you have more acceptance by the local community at this juncture?

There has been much better local acceptance of the project. While some individuals remain opposed to mining and are protesting, the majority of the local population, which is a bit over 50,000 people in Arequipa province, seems to support moving the project forward. People are signing up on our job offers website, indicating a positive trend. We are actively working to communicate that the project will be environmentally safe for the residents of Islay. This is similar to our operations in southern Peru, where we have not encountered any environmental concerns with the local populations in Moquegua, Pacocha, and Ilo.

Yes. Okay. And then maybe coming back to that capital allocation question earlier. Where does M&A fit in? Obviously, organic growth is clearly the priority, but there are a few opportunities in Europe and so on. At the moment, where does the M&A optionality set within the priority of management?

The company is always open to review any opportunities in the M&A landscape. At this point, we're not looking into anything specific. We are focused on organic growth. However, if there is a good opportunity out there, our responsibility as management will be to analyze it and to report to our Board of Directors and ask them for a decision on that.

There is only really Tier-1 assets that you're interested in; like proper big 120,000 plus tons or would you look at smaller opportunities as well?

We have pursued both large and smaller acquisitions in the past. The answer is yes to both. We are interested in assets with over 100,000 tons of copper production, as long as they align with our current operations, primarily focusing on copper at low cash costs. This could lead us to consider assets of 100,000 tons or larger, or smaller assets that are near our operations, similar to what we did with El Pilar. We have developed that deposit, which currently supports our Caridad operations. The decision depends on specific conditions; for smaller assets, they generally need to be close to our major operations, whereas larger acquisitions are a different matter.

Okay. That makes sense. I have one last question regarding Mexico. With the recent elections, do you believe the new government and its policies will affect your operations in Mexico? There have certainly been some incremental challenges over the last six years. Additionally, about the El Pilar project, it's not often discussed since it's relatively small. Is it still progressing with all the necessary permits, or is it on hold? Also, is El Arco considered viable under the current administration?

For El Pilar, we are looking into some issues regarding the recovery of the SX-EW solution. We are working on that. For the other concern that you indicated about the new policies of the coming government, we have to see when they present them. At this point, we have no specific issues to comment on this.

Okay. Thank you very much.

You're welcome.

Thank you. One moment for our next question. And it's from the line of Jonathan Brandt with HSBC. Please proceed.

Hi, good morning, Raul. Thanks for taking my questions. Just two really quick ones from me. Just on Tia Maria, I know you're reviewing the CapEx that you have, but I'm more curious about the timing. I believe you're looking at a potential start-up in the second half of 2027. Do you see any risk that, that maybe slips into 2028? If you could just talk a little bit about the timing as you see things? And then second question is, you mentioned the possibility of expanding the Cuajone mine. I'm hoping you can give us a few more details around that. And if there are any other similar type of smaller brownfield projects that you might have at your other mines that could help boost production in the coming years? Thank you.

In the case of the Tia Maria current timeline, that's the best that we have at this point: finishing the project by the first half of 2027, initiating the ramp-up, and having the project stabilized at full capacity by sometime between the second and the third quarters of that year.

We lost your audio, sir. Ladies and gentlemen, please standby.

I'm going to connect again. Okay?

Okay, perfect. Please standby. Thank you for your patience, ladies and gentlemen. Just one moment while he connects.

Can you hear me now?

Yes, we can hear you now. You can continue your presentation from this line.

Thank you very much. First, I apologize for what just happened. I’m sorry about that. Regarding John's second question on the copper expansion, the plan is to increase the capacity of the copper operation by about one-third of its current level. Currently, the Cuajone mill processes approximately 90,000 tons of minerals per day at the Cuajone concentrator. They need to construct new facilities to enable Cuajone to boost its capacity to 120,000 tons of material. I want to emphasize that we are still working on this, and we have not yet received Board approval, which is crucial to keep in mind. I believe you also touched on another question related to the types of projects we are exploring.

All right. Great. Thanks, Raul.

You're welcome.

Our next question comes from David Feng with CICC. Please proceed.

Oh, good morning, Raul and team. This is David from CICC. Thanks for taking my question. Just one quick question on your pricing for copper. We know that the COMEX copper price tends to have some premium over LME copper price at some times this year. And given that our customers are mainly based in the Americas, so I just wonder, shall we assume that the COMEX copper price would be a better referencing index for your copper sales instead of the LME copper price in most of your contracts?

David, we do have most of our sales from the Mexican operations priced based on the COMEX price. For the Peruvian operations and some of the concentrate sales of the Mexican operation, we reference the LME price. For now, it looks more attractive selling on the COMEX market, but that could change very quickly. This year, there has been this arbitrage favoring the COMEX market due to the relative scarcity that we're seeing in this market with prices being high compared to the LME market. But that's something that may vary over time. For that reason, we sell a portion of our sales in COMEX terms as well as LME terms for some other sales.

Understood. That's really helpful. Thank you so much, Raul.

You're welcome.

Thank you. And Raul, I'm not showing any further questions in the queue. I will pass it back to you for final comments.

Thank you very much, Carmen. With this, we conclude our conference call for Southern Copper.

Ladies and gentlemen, thank you for participating in today's conference. You may now disconnect.