Earnings Call Transcript - SCCO Q1 2023

Operator, Operator

Good morning, and welcome to Southern Copper Corporation's First Quarter 2023 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 first quarter 2023, 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.

Raul Jacob, CFO

Thank you very much, Carmen. Good morning, everyone, and welcome to Southern Copper's First Quarter 2023 Results Conference Call. 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 environmental, social, and governance initiatives. After this, we will open the session for questions. 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, Board Member. Let's focus now on the copper market. In the first quarter of this year, the London Metal Exchange copper price decreased by 11% from the average of $4.53 per pound that we had in the first quarter of 2022. The average price has been $4.05 this past quarter. The price reduction, which is slightly lower as we speak now, reflects concerns about a possible recession in the U.S. and Europe, and this has been partially offset by the good news on China's economy. Our current copper prices are, as I say, at around $3.90 per pound. And we believe the prices are being affected by the following factors: one is the reduction in global inflation, which may slow down or even stop the interest rate hike cycle led by the Fed and the ECB. The bounce back of the Chinese economy after its reopening from strict COVID measures has seen China's GDP growing at 4.5%, slightly higher than the expected 4% from major analytics firms tracking the Chinese economy. We do have some uncertainty regarding future production growth in Chile and Peru; these two countries together represent about 40% of the global supply, and Chile recently reported a copper production decline in the first quarter of this year of about 4%. Considering how demand and supply are evolving, the most relevant market intelligence houses for the copper market are currently expecting a market imbalance or small deficit of about 100,000 tons for this year. This assumes demand growth between 2% and 2.5%, and lower-than-expected supply growth estimated now between 1.5% and 2%. This is mainly due to the first quarter stoppages we had in South America. Inventories are still very low at about 411,000 tons as of March 31. These are one of the lowest marks since 2001. It is important to emphasize that copper plays a leading role in the global shift to clean energy, which correlates positively with our assertion that underlying demand for copper will be strong in the long term. In this scenario, we believe the current cycle of low prices will be short-lived. Now let's look at Southern Copper's production for the past quarter. Copper represented 77% of our sales in the first quarter of 2023. Southern Copper's copper production registered an increase of 4% in the first quarter quarter-on-quarter to stand at 223,272 tons. Our quarterly results reflect a 16% increase in production in Peru, mainly from the Cuajone operation that grew 48.5%. This was mainly due to much more mineral production in Cuajone. As you may recall, this operation was affected by an illegal stoppage in the first and second quarters of 2022. So coming back to operations and operating at full capacity now, Cuajone has much more mineral production and better ore grades and recoveries, which certainly helped this quarter's production. In the case of our Mexican operations, we had a drop in production of 2.4%, mainly coming from La Caridad, where production decreased by 11% due to a temporary lower ore grade. For 2023, we expect to produce 940,000 tons of copper, an increase of 5% over the 2022 final trend. This growth will unfold as we have the Peruvian production at full speed, coupled with new production in our Mexican operations through our Pilares and Buenavista zinc concentrator project. For molybdenum, it represented 11% of the company's sales value in the first quarter of this year and is currently our first by-product. Molybdenum prices averaged $32 per pound in the quarter compared to the $19 that they averaged in the first quarter of 2022. This represents an increase in price of 69%. Molybdenum production decreased by 9% in the first quarter of this year, mainly driven by a drop in production at the Toquepala mine due to lower ore grades. These results were partially offset by higher production at Cuajone, which increased its molybdenum production by 67%, and La Caridad, which increased its molybdenum production by 5%. These mines had a higher ore grade, and in the case of Cuajone, obviously, more volume as well with better recoveries. As you know, molybdenum is primarily used to produce special alloys for stainless steel that require significant levels of hardness and resistance to corrosion and heat. New uses for these metals are associated with lubricants, sulfur filtering of heavy oil, and shale gas production. Silver represented 4% of our sales value in the first quarter of 2023, with an average price of $20.53 per ounce in the quarter, reflecting a decrease of 6% in silver price. Silver is currently our second by-product. Mined silver production increased by 3% in the first quarter of this year, as production rose at Cuajone and Toquepala. This was partially offset by a decreased introduction of the Mexican operations. Refined silver production fell by 12% quarter-over-quarter, mainly driven by a drop in production at our IMMSA refinery due to a temporary slowdown in purchases of third-party subs. For zinc, it represented 3% of our sales value in the first quarter of 2023, with an average price of $1.42 per pound in the quarter. This represents a decrease with regard to the first quarter of 2022 figure. Zinc mined production increased by 2% quarter-on-quarter, totaling 15,075 tons, driven primarily by an increase in production at the Santa Barbara and San Martin mines. Refined zinc production increased by 11% in the first quarter of this year. For 2023, we expect to produce 116,000 tons of zinc, which represents an increase of 94% over the 2022 production level. This growth will be driven by the production start-up of the Buenavista Zinc operation, which should contribute this year with 52,000 tons of more zinc production, alongside a recovery in the IMMSA mines production, where better ore grade areas have been identified. For next year and beyond, we expect to produce over 200,000 tons of zinc per year. Financial results: For the first quarter of 2023, sales were $2.8 billion. This is $30 million higher than sales for the first quarter of 2022. Expansion was primarily fueled by an increase in the sales volume of copper that grew by 10%. Silver grew 15% and zinc 6%. This was partially offset by a decrease in the sales volume of molybdenum that decreased by 8% in sales. Metal prices fell for most of our products, except for molybdenum, which increased by 69%. Our total operating cost and expenses increased by $146 million or 11% compared to the first quarter of 2022. Main cost increments have been in inventory consumption, repair materials, explosives, reagents, sales expenses, diesel and fuel, and operations contractors. These cost increases were partially compensated by exchange rate differences, purchased copper, and other factors. When looking at our costs this past quarter, please keep in mind the following events. The Cuajone mine illegal stoppage affected our first quarter production and cost. The Russian invasion of Ukraine, which began in February of last year, has had inflationary impacts on costs, mainly reflected after the first quarter of last year in the company's results. The first quarter adjusted EBITDA was $1.568 billion, representing a decrease of 7% compared to the $1.678 billion registered in the first quarter of 2022. The adjusted EBITDA margin was 56% in the first quarter of this year versus 61% in the first quarter of 2022. Operating cash cost per pound of copper before byproduct credits was $2.09 in the first quarter of this year. This is $0.051 higher than the value for the fourth quarter of 2022. This 2% increase in operating cash cost, before credits, is a result of higher cost per pound from production, partially compensated by lower treatment and refining charges, lower administrative expenses, and higher premiums on refined copper sales. Regarding byproducts, we had a total credit of $631 million, or $1.33 per pound, in the first quarter of this year. These figures represent a 16.3% decrease when compared with the credit of $806 million or $1.59 per pound from the fourth quarter of last year. Total credits have increased for zinc and silver and decreased for molybdenum significantly and for sulfuric acid. Let me point out that we have a negative adjustment on open sales of molybdenum this past quarter of $265 million, compared to a positive adjustment on open sales at the closing of the fourth quarter of last year of $141 million. So that is a main event that affected our byproduct revenues in this past quarter versus the fourth quarter of last year. Southern Copper's operating cash cost, including the benefit of by-product credits, was $0.75 per pound in the first quarter of this year. This cash cost was $0.31 higher than the cash cost of $0.44 from the fourth quarter of 2022. Of this increase, as I mentioned, $0.05 came from higher cost per pound, mainly due to lower volume; and $0.26 came from lower byproduct credits resulting from lower prices of silver and zinc and the significant negative adjustment we had on molybdenum sales in this first quarter. Our net income in the first quarter of this year was $813 million, representing a 4% increase compared to $784 million registered in the first quarter of 2022. The net income margin in the first quarter of this year was 29% versus 28% in the first quarter of 2022. Cash flow from operating activities in the first quarter was $1.185 billion, representing an increase of 44% over the $821 million posted in the first quarter of 2022, and an increase of 10% over the $1.082 billion posted in the fourth quarter of last year. For capital investments, our current capital investment program for this decade exceeds $15 billion and includes investment in Buenavista zinc, Pilares, El Pilar and El Arco projects in Mexico and in the Tia Maria, Los Chancas, and Michiquillay projects in Peru. This capital forecast includes several infrastructure investments, including essential investments to bolster the competitiveness of our El Arco projects. For the Mexican projects, let me start with the Buenavista zinc concentrator in Sonora. As I said, this project is located in the Buenavista deposit. We're building a new concentrator for zinc, and we expect this production facility to produce or to add 100,000 tons of zinc and 20,000 tons of copper capacities per year. When operating, this facility will double the company's zinc production capacity and provide more than 2,000 operational jobs. Currently, the capital budget for the project is $416 million, most of which has already been invested, and we are about to initiate operations this quarter, the second quarter. For Pilares, also located in Sonora, this is a former brownfield mine that we acquired a few years back. It's located 6 kilometers away from La Caridad. The project consists of an open-pit mine operation with an annual production capacity of 35,000 tons of copper in concentrate. The Pilares budget is $176 million, of which $114 million has been invested. The project is currently operating and delivering copper mineral oxides to the SX-EW facilities of La Caridad operation, and we expect to produce mineral for the Caridad concentrator at full capacity through the second quarter of this year. El Pilar, also in Sonora, is a copper greenfield project, which is strategically located 45 kilometers away from the Buenavista mine. We anticipate that El Pilar will operate as a conventional open-pit mine with an annual production capacity of 36,000 tons of copper cathodes. This operation will use highly cost-efficient and environmentally friendly SX-EW technology. The budget for El Pilar is $310 million. The results from the experimental pads in the leaching process for El Pilar have confirmed adequate levels of copper recovery. Basic engineering study is finished, and the company continues to develop the project and engage in on-site environmental activities. The SX-EW plant's detailed engineering is being developed on an ongoing basis, and we expect production to begin in 2025 with an estimated mine life of 13 years. For El Arco, located in the Baja California Peninsula, this is our significant copper deposit located in the central part of the Baja California Peninsula. The project includes an open pit mine combining concentrator and SX-EW operations. Annual production is expected to total 190,000 tons of copper and 105,000 ounces of gold. As of March 31, the company has completed the environmental baseline study for the mine and industrial facilities and is reviewing the basic engineering analysis to request environmental impact permits. For the Peruvian projects, we have the Tia Maria project located in the Arequipa region in Peru. This project will use state-of-the-art SX-EW technology, adhering to the highest international environmental standards to produce 120,000 tons of refined copper cathodes per year. The estimated capital budget for the project is $1.4 billion. In the case of Los Chancas, also in Peru, this greenfield project located in the Apurimac region is a copper and molybdenum porphyry deposit. The Los Chancas project envisions an open-pit mine with a combined operation of concentrator and SX-EW processes to produce 130,000 tons of copper and 7,500 tons of molybdenum annually. The estimated capital investment is $2.6 billion, and we expect the project to begin operating in 2030. As of March of this year, part of the project's land continues to be occupied by illegal miners, 70 of whom have regularly registered their stakes in the Integral Registers of Mining Formalization, or REINFO, as it is known in Spanish. The company has requested, and the authority has ordered, the exclusion of these 70 informal miners from the REINFO register, thus categorizing them all as illegal miners. The company has also filed criminal complaints and other legal remedies to physically expel the illegal miners from the project. Regarding the Michiquillay project, in June of 2018, Southern Copper signed a contract for the acquisition of the Michiquillay project in Cajamarca in Peru. Michiquillay is a world-class mining project with inferred mineral resources of 2.3 billion tons, with an estimated copper grade of 0.43%. When developed, we expect Michiquillay to produce 225,000 tons of copper per year alongside byproducts of molybdenum, gold, and silver. It will have an initial mine life of more than 25 years and a competitive cash cost. We estimate an investment of approximately $2.5 billion will be required and expect to initiate production by 2032. In the fourth quarter of 2022, the company informed the Ministry of Energy and Mines that it has begun exploration activities and initiated an assessment of the existing mineral resource at depth. In 2023, in accordance with our social agreements with the Michiquillay and La Encanada communities, the company has hired unskilled labor and is paying for the use of surface land. We're supporting social programs in both communities as we roll out exploration activities. Environmental, social, and governance investment: SCC is committed to improving its ESG record by adopting best practices and informing the investment committee and other stakeholders about our progress in this manner. This year, Grupo Mexico will present the 15th edition of the Sustainable Development Report, which contains disaggregated information from Southern Copper Corporation and reaffirms our commitment to transparency and ongoing improvement. In 2022, we placed particular importance on updating our strategy for climate change, which includes targets to reduce greenhouse gas emissions. This year's report also provides information on our program and objectives regarding promoting diversity and inclusion, both inside the company and within the communities close to our operations. The Sustainable Development Committee: In 2022, Southern Copper Corporation set up a Sustainable Development Committee, which is presided over by an independent director. This committee's main objective is to support SCC's Board of Directors in its endeavors to supervise management of risks and opportunities in the realms of environmental, safety and health, community development, human rights and corporate governance. The committee meets every quarter and has assessed diverse aspects of the company's ESG trajectory, including adherence to international agreements and management of water and mineral waste. The Sustainable Development Committee, in its third session, addressed climate change as well as diversity and inclusion while identifying opportunities in the corporate governance front. Third-party certification: In recognition of our commitment to implementing best environmental, social, and corporate governance practices, our Buenavista del Cobre mine, located in Mexico in Sonora, has obtained certification for three important ISO standards: ISO 9001 for quality management; ISO 14001 for environmental management; and ISO 45001 for occupational safety and health management. These certificates are further proof of our commitment to quality, the environment, and the occupational safety and health of our employees. Occupational safety and health: At Southern Copper Corporation, our employees' safety is our priority. Our unit in Ilo, located in the Moquegua region in Peru, has earned first place in the smelter and refinery category of the 26th National Competition for Mining Safety, organized by the Peruvian Institute of Mining Safety. This distinction recognizes SCC's performance regarding indicators of our employees' occupational safety and health and reflects our ongoing commitment to ensuring the sustainability of our operations. Biodiversity: In March 2023, the environmental management unit at Buenavista del Cobre obtained certification from the Wildlife Habitat Council in recognition of our contributions to efforts to prevent the extinction of the Mexican gray wolf. Thanks to these actions, populations of this species, which was on the brink of extinction in the wild, have multiplied in their natural habitat in Mexico. Going forward, we will continue to work alongside society and authorities to serve the common good in the regions in which we operate. Community development: At SCC, we continue to strengthen our community development model and currently operate 29 community centers that provide services to 350,000 people a year in Mexico and Peru. These efforts positively impact the quality of life of the residents in the communities where we work. Recently, we renovated two community centers called Casa Grande in Santa Barbara, Chihuahua and Charcas, in San Luis Potosi. These facilities will serve an additional 21,000 people. Diversity and inclusion: At SCC, we're convinced that valuing diversity, preventing discrimination, and promoting openness to different ways of thinking are fundamental in all efforts to develop inclusive workplace environments that promote the integral development of our employees and stakeholders. We are committed to driving the agenda for diversity and inclusion throughout the company and in the communities around our operations. Our results in 2022 reflect the fruit of our efforts, with a 16% increase in the number of women employed by SCC. Dividend announcement: Regarding dividends, as you know, it is company policy to review our cash position, the expected cash flow generation from operations, capital investment plans, and other financial considerations at each Board meeting to determine the appropriate quarterly dividend. Accordingly, as announced to the market on April 20, the Board of Directors authorized a cash dividend of $1 per share of common stock payable on May 23 to shareholders of record at the close of business on May 9, 2023. Ladies and gentlemen, with these comments, we would like to end our presentation today. Thank you very much for joining us, and we would now like to open the line for questions.

Operator, Operator

Our first question comes from Carlos De Alba with Morgan Stanley.

Carlos de Alba, Analyst

Raul, would you please comment on how you see costs trending in the coming quarters? Clearly, the industry is facing a lot of cost pressures, but Southern Copper has always been a low-cost producer. We've seen recent pressures affecting the company, but any guidance would be very interesting to hear. And then my second question is regarding growth, specifically wondering about Los Chancas. How quickly can you solve the situation there? We heard what you said that you got positive court rulings, but how quickly can you restart exploration or the work that you were doing at Los Chancas if you had to stop? And combined with this, given the attractive profile of organic growth that you have, but with some challenges regarding the timing to execute on those, would the company consider M&A opportunities? You've heard, obviously, there are a couple of recent transactions where copper assets have been in focus. So I wonder to what extent the company will have appetite for a relatively large or medium acquisition in copper, given that so far, you have focused on smaller opportunities?

Raul Jacob, CFO

Okay. Thank you for your set of questions, Carlos. I'm going to touch base on each of them. If I skip one of your concerns, please let me know. Let me start by cost production. We already mentioned that we're expecting an increase in production of about 5% for copper compared to last year. We also expect to have much more production from zinc this year, particularly due to the beginning of the zinc concentrator at Buenavista. In the case of our cost, we're expecting better cash costs for the next quarters; the reason is twofold. I mentioned already that we had to include a significant open sales reduction in molybdenum, which was $265 million that decrement we had to charge. That explains why the company, compared to the market, has shown this quarter lower-than-expected results regarding particularly EBITDA and some other metrics. So we're expecting not to have these types of adjustments in the second quarter. Current prices for molybdenum are at about $22 per pound, and we closed the past quarter at $24 per pound. So if there is any adjustment due to negative or open sales of molybdenum, it will be relatively small compared to the one we registered in the first quarter. So that should improve our by-product revenues in the second quarter. We're also seeing some trends in the total cost of production that will reflect better costs, particularly in energy; we're seeing much lower gas prices than before, which is helping our energy costs in the Mexican operations. We're seeing some relatively lower fuel prices as well, and that will be much more noticeable in this second quarter. So for production, our expectation is to produce 940,000 tons of copper. For costs, some reductions should help to lower our cash costs, and there are also some byproduct revenues coming, particularly in molybdenum this quarter, and throughout the year, in zinc, as we will have 52,000 tons coming from the new zinc concentrator that's about to begin production at the Buenavista mine. Considering the growth, in the case of Los Chancas, we believe we're in a better environment regarding the government relations we have. Currently, we're seeing a much stronger commitment from the Peruvian authorities to promote private investments, which is a positive event for us. In the case of Los Chancas, we believe that throughout the year, we will be able to remove the illegal miners from the premises, allowing us to come back to exploration efforts and, more importantly, begin environmental impact assessment, which is the next step in our work for Los Chancas after the feasibility study. Finally, for M&A, at this point, we are not considering anything specific. However, it is responsible to review any opportunities that arise and advise our Board or recommend action in this matter after thoughtful review. But for now, we're not considering anything specific.

Operator, Operator

Our next question comes from the line of Isabella Vasconcelos with Bradesco BBI.

Isabella Vasconcelos, Analyst

Raul, I have a couple of questions. First, in terms of mining regulations, particularly in Mexico, what are the expected impacts on your operations deriving from the new mining law and whether it changes anything for El Arco and its development? My second question is specifically on the outlook for production for the coming years. We noticed a slight delay in the startup of Pilares, if I'm not mistaken. If you could comment a little on the expected production outlook for the coming years for the key commodities, that would be appreciated.

Raul Jacob, CFO

Thank you very much, Isabella. At this point, regarding the new mining law in Mexico, we don't see it as having significant effect; let me first mention that currently, the bill is not law. It still has to pass a process in the Mexican Senate and require approval. The tax approved by the House of Representatives has not significantly affected our current business and organic growth so far. Once we have a definite law, we will review it carefully and see if there are any points where it may impact our operations or long-term growth. Your second question regards the outlook for production in the coming years. I already mentioned that on copper, we expect to be at about 940,000 tons this year. For 2024, we expect to produce 126,000 tons of copper that will mainly come from increased production in the Peruvian operations, mainly from Toquepala, and the full-capacity contribution from Pilares and the Buenavista zinc concentrator, which contributes some copper production. For 2025, we're expecting to produce 1,020,000 tons of copper; in 2026, 1,100,000 tons; and in 2027, 1,071,000 tons. In the case of zinc, this year, we're expecting to produce 116,000 tons and after that, we will be over 205,000 tons for the next four years and onwards. The ore grade and the expected production from the new zinc concentrator will significantly contribute to ore production for zinc in the upcoming years.

Operator, Operator

Our next question comes from the line of Hernán Kisluk with MetLife.

Hernán Kisluk, Analyst

It's actually a follow-up on the question on costs made by Carlos before. I understand that cost inflation has affected not only you but the industry as a whole. However, in mining, it's a game of who is at the lowest percentile of the cash cost curve. I was wondering if during this period of cost turbulence for the industry, has your position in the cash flow curve changed?

Raul Jacob, CFO

To put it simply, Hernan, no, it hasn't changed. We believe that we are still in the first quartile of cash cost. I haven't seen the latest, but at the end of 2022, we were at a very competitive position. I mentioned already that we had some events that affected our cash cost in the first quarter, mainly the negative sales adjustment on molybdenum. For the next quarters, we expect to be lower than the $0.75 per pound we marked in this past quarter due to more production coming from our operations and more credits alongside the same prices for all byproducts, due to higher zinc production and a lowered open sales adjustment for molybdenum. That's our expectation. Generally speaking, we're seeing a reduction in several costs that has affected operations in Mexico and Peru. A practical example is when the Russian invasion of Ukraine started; it caused a tenfold increase in the price of ammonia, a key element in open-pit explosives. That price has since decreased significantly as alternative sources have been developed. This is a practical example of what I mean; some high costs have begun to come back down, and the company is working on producing more copper and our byproducts.

Operator, Operator

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

John Tumazos, Analyst

The dividend of $1 was almost as large as net income. Should we infer from this that management expects net income to rebound to the $1.50 to $2 a share range? Or are the big capital projects, five or more years out, not likely to need much money next year or the year after? Or is the dividend a candidate to be adjusted because the payout is too large?

Raul Jacob, CFO

It's up to the Board. The Board, as I mentioned, looks at the cash position of the company, seeing the requirements for cash, such as debt payments; we have no payments due until 2025, where we will pay $500 million in debt. Last year, we had to pay $300 million. So at this point, we have no significant debt obligations. Prices are better than they are today. So from a forward-looking perspective on dividends, I would say that it will be a discussion at the Board level. For now, the Board decided to approve the $1 dividend this past quarter; however, there are no specific rules. One of the things we emphasize is that our dividend policy is flexible depending on market conditions, cash flow generation, and growth plans. This is something we will review, and the Board will make a decision in each Board meeting regarding this matter.

John Tumazos, Analyst

So there's no simple mechanical formula, like 50% or 70% of earnings or cash flow?

Raul Jacob, CFO

Yes, that's correct. There is no tie to any specific payout ratio or anything. It depends on the company's view of the market, its commitments to capital, and other obligations. So there is no specific rule regarding dividends. However, we do have a good track record of recognizing our shareholders through dividends, and depending on the company's capacity, we have always paid dividends. In certain moments, it has been relatively higher, as you mentioned, regarding the relationship between net earnings and the dividend payout. But it is always an ongoing discussion. Importantly, we don't want to hold cash, which is important for our shareholders.

Operator, Operator

Our next question comes from the line of Marcio Farid with Goldman Sachs.

Marcio Farid Filho, Analyst

A quick two follow-ups for me on my side, please.

Raul Jacob, CFO

Could you move a little closer to the microphone? We can't hear you well.

Marcio Farid Filho, Analyst

Is it better now?

Raul Jacob, CFO

Yes.

Marcio Farid Filho, Analyst

So a couple of follow-ups for me. First on molybdenum prices, could you provide any outlook? It appears the market we have is hard to track, and understanding the sustainability of current high prices is crucial for us to appreciate your cost support from byproducts. Secondly, specifically on Peru, it feels like the worst of the social unrest has been left behind. Can you convey your current operational environment in Peru, and how confident are you that we will see stability when it comes to mining production in Peru?

Raul Jacob, CFO

You're welcome, Marcio, and thank you very much for your questions. Regarding the drivers for molybdenum prices, it's challenging to predict. Let me explain why: this is an extremely shallow market. To give you an idea, in copper on a yearly basis, approximately 25 million tons are produced and consumed. For molybdenum, it's below 300,000 tons, meaning the market is about 15% the size of the copper market. What happened in the fourth quarter, based on our understanding and insights from our commercial team, is that given the uncertainties in Chile and Peru, major molybdenum suppliers and consumers decided to increase their inventories to protect their production flows, which drove prices up. As production in Peru stabilized, prices have adjusted downward. Currently, prices are about $20 per pound for molybdenum, which is a favorable level for us. We would prefer higher prices, but stability would mitigate the fluctuations in open sales that we've faced in the past two quarters. Regarding social unrest in Peru, as you've mentioned, it seems to be improving now. The current operational environment is normal, and all operations and mining facilities are operating without significant stoppages. We believe this will contribute to a peaceful social environment throughout 2023.

Operator, Operator

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

Raul Jacob, CFO

Thank you, Carmen. With this, we conclude our conference call for the first quarter of 2023. We certainly appreciate your participation and hope to have you back with us when we report the second quarter of 2023 results. Thank you very much, and have a very nice day today.

Operator, Operator

Thank you. And with that, we conclude today's conference call. Thank you for participating, and you may now disconnect.