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Raul Jacob Ruisanchez; Vice President of Finance, Treasurer and Chief Financial Officer; Southern Copper Company
Alexandre Nicolas Hacking; Director and Head of the Metals and Mining Sector of the Americas; Citigroup Inc. , Research Division
Carlos De Alba; Equity Analyst; Morgan Stanley, Research Division
Gabriel Mosquera Simões; Analyst; Goldman Sachs Group, Inc. , Research Division
Juan Carlos Tumazos; President and Chief Executive Officer; John Tumazos Highly Independent Research, LLC
Timna Beth Tanners; Director General of Stock Research; Wolfe Research, LLC
Unidentified Analyst
Operator
Hello and welcome to Southern Copper Corporation’s third quarter 2023 earnings conference call. Joining us this morning is Southern Copper Corporation, Mr. Raul Jacob, Vice President of Finance, Treasurer and Chief Financial Officer, who will speak about the company’s effects for the third quarter. Aug 2023. In addition to answering all your questions. The data mentioned in today’s call will likely come with forward-looking statements regarding the effects and prospects of the company, which are subject to dangers and uncertainties. Actual effects could differ materially and the Company cautions against undue reliance on such futures. Forward-Looking Statements. Southern Copper Corporation assumes no legal responsibility to publicly update or revise any forward-looking statements, whether as a result of new data, long-term occasions or otherwise. All effects are in accordance with full US GAAP. I will now turn the appeal on to Mr. Raul Jacob.
Raul Jacob Ruisanchez
Operator
(Operator’s Instructions) And it comes from Gabriel Simoes’ lineage with Godman Sachs.
Gabriel Mosquera Simões
I have 2 queries here. The first is capital allocation, right? So El Pilar was postponed a little, basically because of the new regulatory procedure that you have to go through to obtain approval in Mexico. And some issues, we’ve noticed issues with other assignments moving forward in the near term. So we are at the point where El Pilar is the last commission approved through the Council. So, I just wanted to get an idea of what we can expect in terms of CapEx and capital allocation for the next few years. And when do we deserve to see new assignments presented to the Board taking into account the progress you are making on other assignments you have underway? And in the meantime, if you’re planning on making a percentage of the dividend distribution, keep long-term distributions in mind. So that’s the first query. And then, at the time of consultation, the prices from the mining department to the company are considered. So at the beginning of the year, if I’m not mistaken, we were at $1. 9 a pound, before the product charge, and we are trading at a much higher level. So we just wanted to see what the main update was this year compared to the beginning of the year, which would be this difference and the fact that we are competing at higher levels. I mean, how do we deserve to think about the charge for the fourth quarter and for 2024 and, in your opinion, what are the main drivers of this?
Raul Jacob Ruisanchez
Yes. Thank you for your question, Gabriel. Actually, you said 2 questions, but there are at least four, but you asked me.
Gabriel Mosquera Simões
I’m sorry.
Raul Jacob Ruisanchez
No, no, no challenge at all. As for capital allocation, well, we’re working; we are still doing some engineering paintings for (inaudible) some testing. We need to be committed to recovery. And in fact, what we would like to achieve is even an improvement on the existing recovery rates that we have had in history, just to improve their compatibility for the future. This is the time when you deserve to do this test, not when you have already designed and built the entire installation. Regarding other projects, we will basically inform the market as we adopt the various projects that are underway. We can give you a forecast of our CapEx, taking into account the evolution of the projects that I mentioned a few minutes ago, and I will do so now. For this year, we expect to end the year with approximately $1 billion in capital expenditures. By 2024 this figure will be 1. 3 billion dollars, by 2025 it will be 1. 7 billion dollars, by 2026 it will be 2. 1 billion dollars and by 2027 it will be 2. 6 billion dollars. Dividfinishs depfinish on the board of directors. The board approved a consistent $1 per cent dividend for the latest quarter. And if you look at our history, it is clear that the company will not hold back money. This is our history and we hope it will be so in the future as well. I charge cash, we have some expenses that have not been accounted for in terms of our constant prices, and let me comment on that. As you probably know, the Mexican exchange rate appreciated throughout the year, which affected our peso-denominated prices. In the case of Peru, we have not had any significant deviation in exchange rates. So we didn’t have much effect on that. Because in the case of consolidated prices, we now see the reflection of inventory consumption. And a practical example is what happened with the price lists of mining trucks. When the war or Russia’s cleaner invasion of Ukraine begins, we immediately have a buildup of fuel and other materials such as ammonia that was used for explosives. But consolidated prices, such as those of tires, have not been affected because we consume our stocks. We are currently restocking some of those fabrics, which is affecting our cash per pound rate somewhat, even if we produce a little more than next year. But while I say that, we are also seeing discounts on some prices, adding 3 items. Fuel, where we have a slight gap, explosive discounts on charges and also, and what we’re also doing is catching up on some maintenance expenses, which we could do in, during the COVID years and after last year. In terms of the monetary prices that we forecast for this year, we think we can also close around where we are now, we are a little better because we are going to have a little more production in the fourth quarter. By 2024, around $1, which is very close to the current level. And then it depends on how the new projects will be compatible with our production profile over the next few years.
Gabriel Mosquera Simões
It’s very clear. I just wanted to keep up with money prices. I just wanted to know if they also had any indication about the prices of the four by-products. That would be helpful.
Raul Jacob Ruisanchez
Above, we are already in the last quarter. In the last quarter, it was $2. 24 per pound. It may be lower than that figure in the coming quarters, but for now, it will be a little over $2. 20.
Operator
It is ok. It comes from Sofia Martin’s lineage with (inaudible).
Unidentified Analyst
Congratulations on your results. I have 2 s older. The first is: could you give us a concept of the production for the rest of the year and 2024?What if you had more recommendations for the future?And my moment has to do with copper costs and market dynamics. Does it have any color until 2024?
Raul Jacob Ruisanchez
Thanks for your questions, Sofia. For this year, as I have already said, we foresee 918,000 tons, that is, for 2023. For next year we foresee an accumulation for several reasons. Let me comment on this. Our goal is 946,700 for next year. We will have the contribution at full speed from Pilares. Pilares this year we achieved around 23,000 tons of copper from Pilares. And the explanation is that at the beginning of the project, we had oxides that were sent to the minerals as oxides, which were sent to our SX-EW plant, and they took a little longer to be treated. procedure than the same old sulfuric ore. For next year we expect Pilares to increase from 23,000 tons of copper to 30,000 tons of copper. We will download the positive contribution from Buenavista Zinc for approximately 30,000 tons. And we will have an improvement in the grades of the minerals from Toquepala and Cuajone, which will increase their production a little. In the case of Toquepala 7,000, in the case of Caujone 9,000. So you have some additions on this topic. Later we will have by 2025 our production expectation is 956,500, in this case we will be waiting for the contribution from El Pilar, a partial contribution from El Pilar as well as the production of Buenavista Zinc and copper Pilares at full speed. By 2026, 985,400 and by 2027, 1 million tons of copper production. By 2024, well, it’s hard to say. We took a look at the market, as I mentioned, although we had 8% accumulated value, we still see a market that has stopped defining its direction. For now, we expect prices to remain in the diversity they are in now, a little higher if China consumes more raw materials again than in the past until this year. It is difficult to be pregnant at this stage. In the long term, we see a very strong call coming from the energy revolution that includes electric cars and other primary copper construction, intakes in the form of transmission lines, wind energy, etc.
Operator
And it comes from the lineage of John Tumazos with Very Independent Research.
Juan Carlos Tumazos
Thanks a lot. Quarterly dividends of $1, thank you, were higher than reported profits in 2022 and 2023. And the four gigantic investment projects are behind schedule and far behind schedule. There is $7 billion in debt and rents, before money balances and investments. The Commission prioritises debt reduction, in the event that, when the feasibility studies are updated, the capital charge increases. There are other corporations or projects whose investment prices have doubled. I know at Southern Copper it’s not going to happen, yet you never know. Thank you.
Raul Jacob Ruisanchez
Well, I guess. . . let me comment on our debt situation. Currently, well, you have indicated, John, that you are also seeking the lease included and as part of our debt. In fact, it is a long-term contract. This is a PPA that we have for electricity, either for our operations in Peru and Mexico. From an accounting point of view, we have to sign it as a lease, but it is actually a PPA, a pre-acquisition agreement, a compulsory acquisition agreement. But our debt is approximately $6. 2 billion. The average rate is 6%. In recent years we have made several bond issues that have allowed us to take advantage of lower rates, which has advanced our debt profile. We may not have to pay any principal until 2025, when we have $500 million to pay. Last year we paid 300 million dollars. And for now, unless you have a task in progress and you enter the structure phase, one of the main tasks that I already mentioned. We believe that we will maintain the existing monetary position and debt position. For dividends, as I mentioned, it is a resolution that is made through the Board of Directors. But what we see is that, generally, the company does not retain money. And I think that will be our habit in the coming quarters.
Operator
(Operator’s Instructions) And it comes from the lineage of Timna Tanners with Wolfe Research.
Timna Beth Tanners
I know that the CEO of some other primary copper manufacturer commented that, with current copper prices, projects are no longer as attractive, especially considering the higher upfront costs, but I would like to hear his opinion on this. I know you still have quite a few projects in the works, but they have a bit of a timeline. And I’m wondering if you still think structure looks good or if there’s another technique to structuring instead of buying, if M&A is interesting, it’s smart to have your opinion.
Raul Jacob Ruisanchez
Thank you very much for your question, Timna. Alright. In our projects, the value, at the existing values, let’s say, [$260 million], although the charges have increased for CapEx and OpEx, we see that they are excited in terms of returns that they bring to the business. I think as operating expenses increase, we also see long-term value increase in the market. And let me explain to you what I mean. Helpfully, long term: A conservative way to take a look at long-term value would be the industry average charge plus sustaining capital for existing operations around the world. Because the long-term value was approximately [$330 million] to promote the expansion of our industry. Now we will have to add to this that whatever inflation is, it affects both CapEx and OpEx. And given that, I think we’re going to be around [$360 million] or even more than that in the long term as the new price benchmark. So I think copper prices have fallen further from where they are now, which is not our base case, but it could happen. We deserve to see again what we saw in some other copper price cycle, where supply is affected by a call for moderation. That said, it is vital for me to take into consideration that the production of Chile and Peru was affected by other cases in those 2 countries. And that to some extent has slowed down the progress of new projects that deserve to obtain the copper of the future. So my view is that it’s positive in the medium to long term, but we still want to get past those strange fees that we’re seeing today.
Timna Beth Tanners
That’s helpful. I know that there have also been headlines about their operations in Buenavista and blockades that have been reported in the local press, which have caused some concern. I don’t think it caused any disturbance, but it would be wonderful for you to hear about it or how do you think it will be fixed?
Raul Jacob Ruisanchez
Well, as you said, it wasn’t like that with our operations. We see some, most commonly similar to the political crusade that is about to begin or is already underway in Mexico. As you know, we have noticed a significant replacement in the unions. in relation to the operation of Buenavista over the past decade. And I think there are some outside forces or political forces that would need our operations. They haven’t been successful so far in all these years, and I think that will be the case in the long run as well.
Operator
And that comes from Alex Hacking’s lineage with Citi.
Alexandre Nicolas Hacking
Raul, I just tried to explain the advice to you. And you talked about 946,000 tons next year. In my notes, I had a forecast of 1,026,000 tonnes in the last quarter, which is a relief of 80,000 tonnes from that forecast. Am I right? And if so, I guess, what drove this downgrade and expectations for next year?
Raul Jacob Ruisanchez
Please wait a second. The reference you gave us, Alex, is correct. We have made an adjustment to our production for existing operations, adding Buenavista and Buenavista Zinc. These 2 have lowered their forecasts for next year. This factor is still under review. We will make a new set of forecasts early next year at our January convention. And right now, we’re thinking about how we’re going to achieve the 946,000 tons that I mentioned earlier.
Alexandre Nicolas Hacking
And then, back to the challenge, there’s obviously a little bit of a delay at Buenavista Zinc. But the other: would the main challenge be important?Could this be the explanation for why the score will be a bit lower than expected in the past?
Raul Jacob Ruisanchez
It is essentially mineral, as operations are conducted at full speed, all the time, 24/7. Therefore, it is essentially ore grades or recoveries, depending on the other stages it is in the mines. It’s a little different. And this, along with the implementation of projects, are the drivers of adjustments in production each year.
Operator
And that comes from Carlos De Alba’s lineage with Morgan Stanley.
Carlos de Alba
So, Raul, do you have any comment on how Southern Copper has adopted the Mexican government’s proposed plan to deal with what they say is still the pollution of the Sonora River dating back to that time in 2014?
Raul Jacob Ruisanchez
The very undeniable answer is no, Carlos. We take a look at the data and analyze it, and we will respond to it when appropriate. But at this point, we have no comment to make on that.
Carlos de Alba
It is ok. Is that clear. As I understand it, the company has done several analyses over the years and they don’t show any contamination. Is that fair?
Raul Jacob Ruisanchez
That’s our take on it, yes.
Operator
And I don’t show any other questions in the queue.
Raul Jacob Ruisanchez
It is ok. Thank you very much Carmen. With this we will conclude our convention call for the third quarter of 2023. We appreciate your participation and look forward to seeing you with us again as we report the fourth quarter of this year and year-end effects in January. Thank you so much and have a great day.
Operator
Thank you all for your participation and you can now log out.