Earnings Call Transcript - SCCO Q2 2020

Operator, Operator

Good morning, and welcome to Southern Copper Corporation's Second Quarter 2020 Results Conference Call. With us this morning, we have Southern Copper Corporation's Mr. Raul Jacob, Vice President of Finance, Treasurer and CFO, who will discuss the results of the company for the second quarter of 2020 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 not to 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.

Raul Jacob, CFO

Thank you very much, Victor. Good morning, everyone, and welcome to Southern Copper's Second Quarter 2020 Results Conference Call. Participating with me in today's conference are Mr. Oscar Gonzalez Rocha, Southern Copper's CEO and Board member. Before we go into the details of the past quarter, let me first express my best wishes for you and your loved ones during these trying times. In today's call, we will begin with an update on the fight against the COVID-19 pandemic and its impact on our operations. We will then review the copper market and Southern Copper's key results related to production, sales, operating costs, financial results, and expansion projects. After that, we will open the session for questions. We continue to fight the COVID-19 pandemic by prioritizing efforts to safeguard the health and well-being of our workforce, their families, and nearby communities. Our company is operating in total compliance with the emergency levels required by local, regional, and national governments, and we have implemented rigorous hygiene, sanitation, and safety protocols at all our facilities. As of June 30, about 83% of our workforce in Mexico and 64% of the workforce in Peru are working at the operations while at home. Recently, we have opened limited access to company premises to our most essential contractors, as part of the protocol followed by our contractors must comply with proper COVID-19 testing, clinical monitoring, and mandatory quarantine. We're enforcing multiple actions to limit workforce exposure to the disease by imposing travel restrictions, prohibiting face-to-face meetings, urging frequent hand washing, and requiring adherence to all other health, safety, and social distancing measures created by government authorities. From the beginning of the COVID-19 pandemic, Southern Copper has been implementing strong prevention measures to protect the health of its workers, their families, and their communities. For this purpose, the company has approved a budget of $11.2 million for donation and general support for the populations of Peru and Mexico. To date, the majority of this budget has been executed, and we are considering a second budget for this purpose. To bolster response to the pandemic, we have donated medical supplies and dozens of medical ventilators for breathing support at hospitals in the communities where we operate. In Mexico, we have set up 135 confined beds in company-owned housing in Sonora, Guanajuato, and Campeche to serve as temporary sanitary facilities for people presenting symptoms of respiratory disease who require isolation or primary hospital care. In Peru, the company is donating 25,000 liters per week of liquid oxygen to national hospitals to treat the population infected with COVID-19 in the regions of Arequipa and Moquegua in Southern Peru. On top of this initiative, we are donating a COVID-19 molecular testing laboratory to the Moquegua region. While for the Tacna region, we are about to donate an oxygen plant with a capacity of 720 cubic meters per day of medicinal oxygen. We have also donated over 63,000 items for personal protection equipment to medical staff and 25,000 personal hygiene kits to our workers and to the population in our areas of influence. These donations include information for the population about COVID-19 disease spread and symptoms. We have also donated cleaning and personal protection equipment to members of the National Guard of Mexico and the Peruvian Police and Army. Additionally, we're helping vulnerable individuals such as the elderly, disabled persons, and pregnant women by donating more than 43,000 kits containing food and personal hygiene items. In addition to the aforementioned efforts, we have installed more than 200 portable sinks in strategic areas of the communities to ensure access to preventive hand washing. Moreover, to bolster compliance with stay-at-home measures, the company is offering over 2,000 sports, cultural, and educational workshops online. Additionally, throughout our community care service, we offer free medical, psychological counseling 24 hours a day. Southern Copper is making every effort to keep the pace of production at satisfactory levels while achieving a competitive cash cost. This is reflected in our second quarter 2020 cash cost per pound of $0.67, net of by-product credits. In this past quarter, we managed to maintain our production level by focusing on mineral production and prioritizing high mineral ore grade mining. Operational stripping, particularly at the Peruvian operations, and major maintenance activities were temporarily postponed and will be addressed in the next 9 months. We believe that our strong financial position, cost competitiveness, and copper reserves will allow us to overcome these difficult times. Considering the current environment and the impact of the COVID-19 pandemic, we believe that mining production and investment will play an important role in the recovery of both the Mexican and Peruvian economies. As such, we will continue to develop our projects, consistent with our belief that Southern Copper's operations constitute risk control generators of economic resources that provide well-remunerated employment and tax revenues to the countries in which we operate. Let me now focus on the copper market, the core of our business. In the second quarter of 2020, the London Metal Exchange copper price decreased from an average of $2.77 per pound in the second quarter of 2019 to $2.42 per pound. This is a 12.6% reduction in its price. As of today, we are seeing prices slightly higher than $2.90 per pound, which reflects the impact of the COVID-19 crisis on both the supply and demand for copper. At this point, the copper price seems to be driven basically by two factors: expectations of lack of supply in major producing countries such as Chile and Peru due to COVID-19 outbreaks and an increase in China's demand in this scenario of an economic recovery for this country. Since the pandemic is affecting both supply and demand, it is difficult to assess the long-term effects of this crisis on the copper market balance and consequently on copper prices. Now let's focus on Southern Copper's production for the past quarter and 2020. Copper represented 82.3% of our sales in the second quarter of this year. Copper production registered a slight decrease of 1.3% compared to the second quarter of 2019 and stood at 243,097 tons in the second quarter of 2020. This was primarily due to lower production at our Buenavista and Toquepala mines because of lower ore grades. This effect was partially offset by higher production at the Cuajone mine due to higher ore grades and recoveries, as well as to higher production at the IMMSA after operations resumed at the San Martin mine. In 2020, we expect to produce 997,100 tons of copper, in line with last year's production and slightly lower than our production plan. For molybdenum, it represented 6% of the company's sales value in the second quarter of 2020 and is currently our first by-product. Molybdenum prices averaged $8.24 per pound in the quarter compared to $12.13 in the second quarter of last year, which is a 32.1% decrease. Molybdenum production increased by 16.3% in the past quarter compared to the same period of 2019 due to significantly higher production at our Toquepala mine. We produced 1,237 tons of molybdenum from our new molybdenum plant at Toquepala. This represents a 44.8% increase in output from this facility. Production also rose at Cuajone with a 25.2% increase due to higher grades and recoveries. In 2020, we expect to produce 28,500 tons of molybdenum, representing an increase of 5.9% over last year's production level of 26,900 tons and an increase through our plan for this year. Silver represented 5.6% of our sales value in the second quarter of 2020, with an average price of $16.54 per ounce in the quarter, up 11.4% from the second quarter of 2019. Silver is currently our second by-product. Mined silver production increased by 13.5% in the second quarter due to higher production at IMMSA after production resumed at the San Martin mine. Additionally, there was higher production at the La Caridad mine due to higher grades as well as higher production at the Cuajone mine in Peru due to higher grades and recoveries. Silver production increased by 27.5% in the second quarter compared to the same quarter of 2019 due to growth in all of our facilities. In 2020, we expect to produce 22.7 million ounces of silver, an increase of 11.7% when compared to 2019, mainly attributable to the significant contribution of the San Martin mine and the Santa Barbara mine, both operations at the IMMSA company, our IMMSA subsidiary. Regarding silver, we believe that prices will be supported by the intensive industrial use of this metal and the fact that silver, like gold, is considered a value shelter in times of economic uncertainty. Zinc represented 2.7% of our sales value in the second quarter of 2020, with an average price of $0.89 per pound in the quarter, a price decrease of 28.8% from the second quarter of 2019. Zinc mine production decreased by 11.5% quarter-on-quarter to reach 15,706 tons. This was primarily due to lower production in the Charcas mine and the shutdown of our Santa Eulalia operation due to severe flooding. We're currently evaluating different options to supply the concentrator of Santa Eulalia. These negative variances in zinc production were partially offset by a production increase of 2,821 tons, a 249% increase at the San Martin mine. Refined zinc production decreased by 13% in the second quarter of 2020. For our financial results in the second quarter of this year, sales were $1.8 billion, which represented a decrease of $32.6 million compared to the sales reported in the second quarter of 2019. This is a 1.8% reduction in revenues or sales. The sales volume for copper increased by 11%. The sales value was up 1.4% in a scenario of lower copper prices. In the case of copper, we noted a reduction in sales value of 12.6%. Regarding our main by-products, we registered higher sales of silver, which increased by 44.2% due to higher volume and prices. Also, higher sales for gold that increased by 69.4% due to higher volumes and prices. In contrast, we reported lower sales for molybdenum by 30.7% due to lower prices, partially offset by a higher volume of 15.4%. We also had a decrease in sales of zinc by 36% due to both lower volumes and prices. Our total operating cost and expenses increased by $103.8 million, or 9.4%, compared to the second quarter of 2019. The main cost increments are associated with purchased copper, lower capitalized leachable material, higher inventory consumption, and other factors. These cost increments were partially compensated by lower diesel and fuel costs, repair materials, operations contractors, and operating materials and supply. Adjusted EBITDA for the second quarter of 2020 was $770 million, representing a decrease of 18.3% compared to the $942.8 million registered in the second quarter of 2019. The adjusted EBITDA margin of the second quarter was situated at 43.1% compared to 51.9% in the second quarter of 2019. On a quarter-on-quarter basis, EBITDA was 7.1% higher than in the first quarter of 2020. Operating cash cost per pound of copper before by-product credits was $1.26 per pound in the second quarter of 2020, which is $0.166 lower than the value for the first quarter of 2020. The 11% decrease in the operating cash cost is a result of lower cost per pound from production, which decreased by 13.1%, that was partially offset by higher treatment and refining charges, administrative expenses, and lower premiums. Southern Copper's operating cash cost, including the benefit of by-product credits, was $0.67 per pound in the second quarter of 2020. This cash cost was $0.094 lower than the cash cost of $0.764 we had in the first quarter of 2020, representing a 12.3% reduction in cash costs quarter-on-quarter. Regarding our by-products, we had a total credit of $321.5 million, or $0.593 per pound, in the second quarter of 2020. These figures represent a 9.7% decrease compared with the credit of $340.2 million, or $0.657 per pound, in the first quarter of 2020. Total credits have increased for silver by 27.2%, gold by 60.4% but have decreased for molybdenum, zinc, and sulfuric acid. Net earnings or net income attributable to SCC shareholders in the second quarter of 2020 was $259.5 million. This is 14.5% of sales or diluted earnings per share of $0.34. This figure compares with net income attributable to SCC shareholders for the second quarter of 2019 of $402.4 million, which was 22.1% of sales or diluted earnings per share of $0.52. On a quarter-on-quarter basis, net income was 20.8% higher than in the first quarter of 2020. Capital expenditures. Southern Copper's investment philosophy is not based on the outlook for copper prices but on the quality of the assets that we operate and develop. Throughout the years, our strong financial discipline has consistently allowed us to make ongoing investments in our considerable asset portfolio. In the second quarter of this year, we spent $113.3 million on capital investments, reflecting a 37.2% decrease compared to the same period in 2019 and represented 43.7% of net income this quarter. In the first half of the year, we spent $214.3 million on capital investments, representing 45.2% of net income. As a consequence of global COVID-19 conditions, new measures to reduce vulnerability have been introduced in our project execution practices. Sanitary measures include rapid tests, daily temperature checks, mask provision and mandatory use, social distancing on work sites, and in the camps, and a quarantine period for our own and contractors' personnel. Locations where infections are on the rise, some activities have been pushed back or scaled down, particularly on construction sites where personnel are required to work closely. All other engineering, procurement, and construction activities that are not personnel-intensive, where social distancing can be applied, are being executed at a normal pace. At this point, we don't expect significant delays in project execution. Our current portfolio for Peruvian projects totals $2.8 billion of approved projects, of which $1.6 billion has already been invested. Considering the up-and-coming Michiquillay $2.5 billion investment and Los Chancas $2.8 billion investment projects, our total investment program in Peru will increase to $8.1 billion. For Tia Maria, as you know, on July 8, 2019, we were granted the construction permit for an SX-EW copper greenfield project to produce 120,000 tons a year with a capital budget of $1.4 billion. The government awarded the permit after the company completed an exhaustive review process of environmental and social matters and determined that the company had complied with all regulatory requirements after addressing all observations made. The challenges surrounding the construction permit were overcome when on October 30, 2019, the Mining Council of the Peruvian Ministry of Energy and Mines ratified the construction permit for the Tia Maria project. For the Mexican projects, the Buenavista zinc concentrator in Sonora, as I say, is a facility located within the Buenavista facility and includes the development of a new concentrator to produce approximately 80,000 tons of zinc and 20,000 tons of copper per year. We have completed the basic engineering study and the detailed engineering analysis is underway. Site preparation has begun and stronger preventive measures to combat COVID-19 have been put in place. Purchase orders have been placed for major equipment, and some is already being manufactured. The project has all the necessary permits. The capital budget is $413 million, and we expect to initiate operations in the third quarter of 2022. When completed, this new facility will double the company's zinc production capacity and will provide 490 direct jobs and 1,470 indirect jobs. The Pilares project in Sonora is located 6 kilometers from the La Caridad mine. This project consists of an open-pit mine operation with an annual production capacity of 35,000 tons of copper concentrate; a new 25-meter wide off-road facility for mining trucks is under construction and will be used to transport the ore from the pit to the primary crushers at the La Caridad copper concentrator. This project will significantly improve the overall mineral ore grade by combining the 0.78% expected ore grade from Pilares with the 0.34% average ore grade from La Caridad. The budget for Pilares is $159 million, and we expect the project to begin production in the first half of 2022. El Pilar project in Sonora is a low capital intensity copper greenfield project, which is located about 45 kilometers from our Buenavista mine. Its copper oxide mineralization contains estimated proven and probable reserves of 325 million tons of ore with an average copper grade of 0.287%. El Pilar will operate as a conventional open-pit mine, and copper cathodes will be produced using highly cost-efficient and environmentally friendly SX-EW technology. The budget for El Pilar is $310 million, and we expect the project to start production in 2023. Construction at the pilot plant and experimental pads has ended, and tests are being performed. We're glad to report that the first results from experimental tests on leaching process have confirmed adequate levels of copper recovery. Regarding dividends, as you know, it is the company policy to review at each Board meeting the company's cash position, expected cash flow generation from operations, capital investment plan, and all financial needs in order to determine the appropriate quarterly dividend. Accordingly, as announced to the market on July 23, the Board of Directors authorized a cash dividend of $0.40 per share of common stock payable on August 25 to shareholders of record at the close of business on August 12 of this year. Well with this in mind, ladies and gentlemen, thank you very much for joining us, and we would like now to open up the forum for questions.

Operator, Operator

And our first question will come from Jonathan Brandt from HSBC.

Jonathan Brandt, Analyst

Congratulations on the results. I wanted to ask about the projects. You mentioned that you don't expect significant delays. Can you explain why that is? Are things returning to normal with the project work? Are you expecting to catch up? It would be helpful to understand why there isn't more of a delay in the projects. Also, could you discuss what you are seeing from your clients regarding demand for copper? Are you continuing to sell to your traditional clients, or are you experiencing interest from nontraditional clients due to potential supply disruptions in other parts of the supply chain?

Raul Jacob, CFO

We have implemented several COVID-19 safety measures at our projects. As I mentioned earlier, there are two key situations concerning these projects. Some activities need to be conducted with a certain level of isolation. For example, when travel or land work is involved, the individuals participating typically are not under contract. It is especially important that they maintain social distance and use the appropriate equipment. Although some activities have been delayed, we continue to work on all feasible engineering tasks safely, adhering to social distancing and other COVID-19 precautions. We anticipate catching up soon, as we are currently experiencing a slight delay of about a couple of months. As for our clients, I want to emphasize that we produce very high-quality copper, guaranteeing 99.99% purity in our refined copper. Our concentrate sales are characterized by what is known today as a clean concentrate, which is of high quality. We've had minimal issues with our clients, with maybe one or two requesting delays in shipments, but nothing significant overall. Our clients are maintaining their contracts with us, and this situation mirrors the pattern we observed during the previous crisis in 2008-2009, where our copper quality made us the preferred choice over other producers.

Jonathan Brandt, Analyst

Okay. Just to follow up on the project question. If COVID lingers for longer and some of these restrictions that are currently in place remain in place, could we potentially see longer delays to some of the projects if things don’t improve? And at what point would you start the construction progress where you would have to delay it? I understand how, with the engineering and things like that, you're not sort of in close proximity to other people. But at what point does the construction have to start in order to meet these timelines that you've laid out?

Raul Jacob, CFO

Well, we don't like to speculate on different possibilities of a worsened scenario. What we are reporting is what we see now. If there is a more difficult environment to operate, then we'll certainly have to maintain, as a top priority, the safety of our workforce and the health of our workforce and our contractors as well. That includes, obviously, the capital projects. So I don't want to speculate on that. What we are seeing now, if conditions remain as they are now, we will need to catch up later on in the future with these projects. I believe that a delay of two months or so that we may have now for some of the projects and some others that have been moving forward, as I explained, should or could be recuperated over time.

Operator, Operator

And our next question will come from the line of Thiago Ojea from Goldman Sachs.

Thiago Ojea, Analyst

I wanted to explore your comments on costs further. It's clearly an impressive result, as you noted. How should we think about how much of that is sustainable and how much was influenced by the delays or suspension of stripping and maintenance? You mentioned that it could take nine months to catch up. Will that be evenly spread out over those nine months? Should we anticipate that this quarter's lower costs could lead to higher costs in the next three quarters? It would be helpful to understand what to expect regarding costs.

Raul Jacob, CFO

Certainly, Timna. We need to focus on maintaining our plant levels to effectively produce the minerals required for our concentrators and existing plants. To achieve this, we had to delay some maintenance and stripping, especially at our operations in Peru. We anticipate that the catch-up on stripping will take about nine months. For the year, we expect our cash cost before by-product rates to be $1.37 per pound. Currently, for the first six months, the cost is $1.34, so we will incur an additional cost of approximately $0.03, totaling around $170 million spread over the next few months. As mentioned, the nine-month timeframe accounts for certain maintenance that was scheduled over the past two or three months, which we have reprogrammed based on the condition of our equipment this quarter and moving forward.

Timna Tanners, Analyst

Okay. Just to clarify then, the $1.37 is the forecast for the year from $1.34 year-to-date. That's across all operations, not just Peru so the Peru impact...

Raul Jacob, CFO

For the whole corporation, yes.

Timna Tanners, Analyst

I wanted to ask a straightforward question. It's impressive how little your operations have been impacted by COVID-19, even with the significant measures taken in Peru and Mexico. Do you believe this will continue? Is it feasible to avoid further lockdowns and maintain production in those regions? Additionally, could you provide an update on Tia Maria? It's been a year since the license was granted.

Raul Jacob, CFO

Certainly. In our mining operations, particularly in the Peruvian and some Mexican sites, we've managed to isolate our operations due to their locations. For example, the Toquepala mine in Peru is 150 kilometers from the nearest city. We have worked closely with our unions to implement a strict lockdown, meaning that once individuals leave, they cannot return until the quarantine ends. We adopted various measures to ensure our supply chain continued to support the operation, providing necessary services and food for our workforce. Throughout this lockdown period, we have maintained a safe production environment without any cases reported. Additionally, in our Peruvian operations, many workers have their families living near the mines and processing facilities. Regarding Tia Maria, we have reiterated that the company possesses all necessary permits to begin construction on the project. We believe the pandemic has highlighted the project’s significance to the local community, and we hope the national government will collaborate with us to advance it, given that it will generate around 9,000 jobs during construction and enhance the economic landscape in Islay province and the Arequipa region. We are prepared to move forward with the project whenever possible and wish for the Peruvian government to share this perspective.

Operator, Operator

Our next question will come from the line of Andreas Bok from UBS.

Andreas Bokkenheuser, Analyst

Just one question from me. So just one clarification on your sales strategy versus your production strategy in the second quarter and first half as a whole. I mean we obviously saw sales volumes up more than production, which was obviously down a bit. Was that purely just buying more concentrate from third-party operators and selling that onwards? Or did you do any destocking as well of any of your inventories on site? And maybe related to that, if there was any destocking, would you expect any restocking on your behalf in the second half of the year and for sales volumes to slow down a bit? So that's basically a second-half sales volume outlook question.

Raul Jacob, CFO

At the end of the first quarter, we experienced some inventory buildup from production in process that was completed throughout the quarter. At the onset of the pandemic, we faced challenges in shipping some of our products, but those issues were resolved quickly, and we were able to fulfill our shipments on schedule. This enabled us to sell the excess inventory during the second quarter, explaining the disparity between sales and production. Regarding the concentrate purchases, for technical reasons, we are acquiring certain concentrates with distinct characteristics that blend well with our own. This allows us to utilize our smelting and refining facilities at nearly full capacity due to the quality of the concentrates we source. The synergy created from this blending helps reduce our smelting and refining costs, and our smelters have reached record low cash costs in our Peruvian operations.

Operator, Operator

Our next question comes from the line of Jens Spiess from Morgan Stanley.

Jens Spiess, Analyst

Congratulations on the results. I would like to know if your $1.37 cash cost guidance accounts for the impact of improved sanitary standards and workforce testing. Additionally, could you provide updated guidance for production, cash costs, and CapEx for the upcoming years?

Raul Jacob, CFO

Certainly. The $1.37 includes all the expenditures related to the operations at our facilities in Mexico and Peru. In total, we spent just under $12 million in the past quarter for sanitary standards. This amount is solely for maintaining proper working conditions for our workforce and does not cover donations or administrative expenses for the company. Regarding production guidance, we expect to produce 997,100 tons of copper in 2020, with production remaining relatively flat through 2023. For 2021, we anticipate producing 986,300 tons; in 2022, 950,000 tons; and by 2023, with the initial impact of Pilares, Buenavista zinc, and El Pilar, we expect to increase production to 1,066,000 tons. For 2024, our production estimate is 1,104,000 tons, thanks to the contributions from Pilares, Buenavista zinc, El Pilar, and partial production from Tia Maria. Concerning cash costs for this year, we're projecting an overall cash cost before by-product credits of $1.37. After accounting for credits, we expect $0.60 per pound of copper, leading to $0.77 per pound for the year, slightly higher than present estimates. Cash cost predictions are challenging due to varying impacts from multiple supply costs, such as fuel and labor, as well as fluctuations in by-product prices. I previously mentioned an average silver price for the quarter of about $16.54 per ounce, which has risen above $20 recently. As we estimate our cash costs for the next few years, we foresee an increase due to expected price changes and ore grade variations across different operations. Overall, we anticipate cash costs of approximately $0.93 for 2021, $0.96 for 2022, $0.88 for 2023, and $0.87 for 2024.

Jens Spiess, Analyst

Okay. And just to be clear, you said $12 million per quarter spent on increased sanitary standards and testing?

Raul Jacob, CFO

No, we do. We do. And we are including the testing in what I just said.

Operator, Operator

Our next question will come from the line of Grant Sporre from Bloomberg Intelligence.

Grant Sporre, Analyst

I have a follow-up question. You've provided guidance for production this year, but with the delays in maintenance and stripping, at what point do you anticipate those issues will affect your production moving forward? If for some reason you're unable to meet the desired schedule, I’d like to know that as well. Additionally, could you provide guidance on CapEx to complement the production and cash cost details you mentioned earlier?

Raul Jacob, CFO

Certainly, Grant. Well, we have been operating our facilities not at full capacity in the past quarter for a while. Then we're able to increase the capacity as we move on into having fewer restrictions, generally speaking, in both Mexico and Peru. We don't want to find out when this is going to impact our production delay and maintenance and such. We're focusing on scheduling them as we come with the proper workforce in our facilities and the contractors that, in some cases, perform this maintenance of major equipment. We are in that process. We expect to have, by the end of this quarter, most of our workforce at the operations already. So we are focusing on ensuring that our operations won't be affected by any major maintenance. We were relatively lucky in the sense that we did significant maintenance of our smelter facilities in Peru last year. We have to do each two years a major maintenance to the smelter. Well, it was scheduled for 2019, and we performed it. This facility and the refineries are in good shape. The same happened in some of our operations on the mining side in Mexico. We focus quite a bit on having all of our production line with proper maintenance, which is preventive maintenance in most cases. That has been useful in situations like this. On CapEx, our current guidance is as follows: for this year, we're reducing our CapEx guidance from $1.10 billion to $800 million. We're expecting a reduction of about a little bit more than $300 million in capital expenditures in 2020. That money will be reallocated to 2021, most of it. For next year, we're expecting $1.7 billion of capital expenditures; for 2022, $2 billion; for 2023, $2.9 billion; and for 2024, $2.7 billion. This is to have the three projects that we have in Mexico, the Buenavista zinc, the Pilares project, and the El Pilar project, up and running by the end of 2023 and at full capacity in 2024 and also to accommodate the Tia Maria investment that we should initiate, if not this year, next year, and the Michiquillay project and the Chancas projects. In this case, for Michiquillay and Los Chancas, they will not be in operation by 2024. We will be in the investing part of the projects at that time.

Operator, Operator

Our next question will come from the line of John Tumazos from John Tumazos.

John Tumazos, Analyst

There were earlier questions about your costs I don't want to duplicate, but the questioners might have stressed deferring maintenance or deferring stripping or COVID costs. But how much of the $0.67 cash cost simply was the decline in crude oil prices or weaker currencies? And now crude is back over $40, that's an upward pressure?

Raul Jacob, CFO

Thank you for your question, John. Regarding diesel and fuel, we achieved savings of $38.5 million based on the average price in the second quarter. We also saw a reduction in labor costs of about $10 million, primarily due to exchange rate effects during that same period. We anticipate that exchange rates will remain stable for some time, which should continue to provide us with savings. While fuel prices are recovering, we are still not at the levels we experienced before the COVID-19 crisis began, so we will be able to take advantage of some of these savings throughout the year.

Operator, Operator

Our next question will come from the line of Thiago Ojea from Goldman Sachs.

Thiago Ojea, Analyst

Sorry, I think I had an issue with the telephone. What I would like to understand better is that your volumes compared to peers were better. Do you expect that even with your volume increase, you will outpace your peers in terms of volume output in the entire industry, particularly in Peru and Mexico? Also, do you see global supply being weaker, which could positively affect demand? It seems that now COVID-19 is starting to ease. Looking ahead six to twelve months, do you anticipate a significant change in the stabilization of supply and demand?

Raul Jacob, CFO

Sure. I believe we have specific conditions in our operations that enable us to develop a detailed and strategic plan to maintain or improve our production levels once the opportunity arises. As I mentioned earlier, some of our facilities are quite remote, which has helped us uphold our performance. For instance, the Toquepala mine is located 150 kilometers from the nearest city, allowing us to implement strict lockdown measures with minimal cases reported. We have effectively allocated labor to continue our operations. In terms of supply and demand, the current market situation is unique. Typically, during a global economic downturn, metal demand decreases; however, the pandemic has affected both demand and supply. Key producers like Peru and Chile have experienced production disruptions. We expect supply to eventually recover, but this will largely depend on controlling COVID-19 outbreaks.

Thiago Ojea, Analyst

Just a final question. The Latin American countries are suffering a lot with the pandemic. Mexico is one of the most affected, and the economies are being affected, and therefore, your tax collection is also being affected. Late last year, there were a few congressmen in Mexico proposing different mining deals and an increase in royalties and taxes. Do you see this as a potential source of concern for the mining industry in Mexico? Do you think that this could be proposed again?

Raul Jacob, CFO

No. At this point, we don't see anything related to that. Nobody is talking about specific new taxation for mining companies or operations in Mexico or Peru.

Operator, Operator

Our next question will come from the line of Alfonso Salazar from Scotiabank.

Alfonso Salazar, Analyst

I have a clarification to ask. You mentioned that production was not at full capacity, is that accurate? Because I see that in the quarter, it was above 250,000 tons, which amounts to more than a million tons a year. Can you confirm whether that is correct? Also, regarding the situation in Cananea, some of the Peruvian mines are farther from the city’s port stacks, but Cananea is very close to town. What’s the current situation there? Can you update us on the COVID situation in Cananea? Are there any cases at that mine? Additionally, last year there were some costs related to the anniversary of the strike that began in 2007. I haven’t heard of any such issues this year. It seems there are no protests occurring this time. Could you provide any information on that?

Raul Jacob, CFO

At the start of the pandemic, we couldn't operate at full capacity, with around 40% of our workforce in Mexico and a similar situation in Peru. Therefore, we weren't operating at full capacity then. Our concentrators have been processing what we consider high-grade minerals, enabling us to catch up on production despite the constraints. Regarding Cananea, it is very close to our Buenavista mine. We had about 18 COVID cases at Cananea, which is a relatively small number compared to our total workforce. So far, we haven't experienced any significant issues or losses related to this. Concerning the strike, I believe our workforce is acting very maturely in our operations, as I've highlighted in various parts of this presentation.

Alfonso Salazar, Analyst

Very good, Raul. Just one follow-up. If you were using high-grade ore at the beginning of the pandemic, should we expect lower grades going forward or at some point?

Raul Jacob, CFO

We have to mine certain parts of the operations where you have not as good ore grades as we have mined before. That will have an impact on cost, but we're still expecting to fulfill our forecast for the year, as I indicated before.

Operator, Operator

And our next question will come from the line of Alex Hacking from Citi.

Alexander Hacking, Analyst

I just have two quick clarifications, if that's okay. Did you say that the target for copper production next year is 949,000 tons? Did I hear that correctly?

Raul Jacob, CFO

Hold on a second, please, Alex. For this year, we're expecting 997,100. And for next year, it's 986,300. Yes.

Alexander Hacking, Analyst

Oh, 996,000? Okay.

Raul Jacob, CFO

9-8-6. 9-8-6.

Alexander Hacking, Analyst

Okay, 9-8-6. Could you clarify the CapEx? Did you mention $800 million for this year? Is that right?

Raul Jacob, CFO

Yes, that's correct.

Alexander Hacking, Analyst

But you only spent $200 million and less than $250 million in the first half. I guess why are we going to see such a huge ramp-up in the second half of the year?

Raul Jacob, CFO

One of the reasons for that is that we will be paying the bills for the purchase orders we placed in the first half of this year for projects like the Buenavista concentrator and Pilares, as well as some expenditures necessary to initiate the mine operation at Pilares next year. Essentially, it's about paying bills on the purchase orders we made earlier this year.

Operator, Operator

And our next question comes from the line of Yuri Maxwell from Craig Asset Management.

Unknown Analyst, Analyst

Yes. Just a quick clarification. You've given the guidance for cash costs, but you gave it for cash cost after by-products. Do you mind giving the cash cost guidance before the by-products throughout the year as well? So it's $1.37 for this year. What about the other years, please?

Raul Jacob, CFO

Certainly, Yuri. For next year, we are expecting $1.53; for 2022, $1.66; for 2023, $1.54; and for 2024, $1.61. I want to note that we expect certain prices that we are currently seeing more positively will change over time and return to previous levels. This results in a very conservative outlook in some cases, but we base our assumptions on that foundation.

Operator, Operator

Thank you. Now I'm not showing any further questions at this time.

Raul Jacob, CFO

Thank you very much, Victor. Well, with this, we conclude our conference call for Southern Copper's Second Quarter of 2020 Results. We certainly appreciate your participation. I hope to have you back with us when we report the third quarter of this year. Thank you very much, and have a nice day.

Operator, Operator

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