Q3 2021 Southern Copper Corp Earnings Call
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Pardon me. This is the operator todays conference will begin in two minutes. Thank you for your patience and please continue to standby.
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Good morning, and welcome to Southern Copper's Corporation third quarter 2021 results conference call with US. This morning, we have southern Copper Corporation, Mr. Raul, Jacob Vice President Finance, Treasurer, and CFO, who will discuss the results of the company for the third quarter.
2021, 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.
Corporate 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'll pass the call on to Mr. Raul Jacob.
Okay.
Thank you very much garmin, good morning, everyone and welcome to Southern Copper's third quarter of 2021 results conference call today's.
Todays conference and the campaign like Mr. Oscar Gonzalez Rocha, Southern Coppers, 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 our view of the copper market.
We will then review southern Copper's key results related to production sales operating cost financial results expansion projects and ESG. After these we will open the session for questions.
Now, let us focus on the copper market the core of our business.
In the third quarter of this year, the London metal exchange corporate price increase from an average of $2.90.
Per pound in the third quarter of 2020 to $4.25 per pound that is a 43, 6% increase in price.
So today, we're seeing prices at about.
Four for $4 from 40 cents, which stops the year to date price a four door from 17 cents per pound and boats a positive outlook for the company.
We believe the following factors are influencing the market.
We are seeing a strong demand.
In the U S and Europe, particularly in terms of capital, which is refined copper consumption.
[laughter], China, although affected by real estate troubled important.
Chart produced it's experiencing a reduction in scrap imports, which favors the consumption of refined copper.
The uncertainty regarding future production growth in Chile, and Peru, It's another factor.
These two countries represent together, 40% to 40% of the awards black.
The combined inventories of the London metal exchange, Comex, Shanghai and bonded warehouses.
Our relatively low levels combined some of these inventories fell from 907000 tons in June of this year.
<unk> 569000 tonnes at the end of September this is a 37% reduction.
Fourth factor it.
It's spectation awful.
Those are agents he said do market intelligence in the corporate market.
They are expecting a market deficit at about 200000 tons. This year due to a recovery in demand.
Which is estimated to grow at about 5% this year driven by the economic recovery.
As he mentioned mainly in the developed economies.
Now, let's look at southern Copper's production for the past quarter and 2021.
Poor Cooper he'd represented.
78, 7% of our sales in the third quarter of this year.
Corporate production Register a slight decrease of four 6% compared to a third quarter of 2022 spend each year.
This past quarter at 245146 homes.
This was mainly attributable to a drop in production at the word like how do you that and took at Pilar mines due to lower ore grades and recoveries.
This effect was offset by higher production at our core.
Only mine due to an improvement in fourth grade.
On a year on year basis, corporate production decreased two 8% in total.
120658 homes.
This result was driven by a drop in ore grades due to stripping and maintenance work that was rescheduled from last year.
2021, due to the COVID-19 pandemic.
Compared to the second quarter of 2021.
Copper production increased by three 4%.
Which was mainly attributable to an increase in production at the Buenavista and ammonia markets.
In both cases due to an improvement of 44 grades in.
In all grades because partially offset by a decrease in production at the La County, that's mine ore grades and concentrator recovery dropped.
For this year, we expect to produce 958000 tons of copper.
As you know production is being affected by slide ore grade and recovery production profitable gold production at the Peruvian operations.
In 2023 respected our corporate production to bounce back over 1 million tons of production.
Get our Peruvian operations back on track and generate new production to our pilates who'd be it either in Buena Vista zinc concentrate are poorly.
Molybdenum production represented 11% of the company faced in value face value in the third quarter of 2021, and it's currently our first byproduct Melissa.
Molybdenum prices averaged $18 from 43 cents per pound in the quarter compared to $7.57 in the third quarter of 2000 and.
These represent a significant increase of 143, 5%.
Molybdenum production increased in the third quarter of the year by five 4%.
This was mainly driven by a growth in production at both the toquepala buenavista mines due to higher ore grades.
So were partially offset by lower production at La Caridad and Paul.
Yeah.
Compare this past quarter with the second quarter of this year molybdenum production increased by 16, 1%, which was mainly attributable to growth in production that our ticket part of that I'm Gonna. These timelines.
Driven by an improvement in ore grades in both cases.
For 2021, we expect to produce 29400 tons of molybdenum, which represents a decrease of three 2% over our 2020 production method.
Silver represented three 9% of our sales value in the third quarter of 2020 with an average price of $24.28 per ounce in the quarter.
This represented a slight decrease of one 3% with regard to the production of the third quarter of 2020.
Silver is currently our second backdrop my.
Zubair production fell eight eight year on year in the third quarter after production scale up whenever Easter took it by any means.
This was partially offset by an increase in production of the <unk> mine reached.
Refined silver production increased 11, 9% in the third quarter of this year.
Mainly due to an increase in production at all of our refineries.
Comparing the third quarter of 2021 with the prior one the second quarter mine Zubair production increased by four 4%, which was primarily attributable to a higher production up in sand and guar Tony.
Refined silver production slightly increased by one 4% in the third quarter versus the second quarter of this year.
In 2021, we expect to produce $19 3 million ounces of silver.
Forcing each represented three 7% of I would say is valued in the third quarter with an average price of $1.36 per pound in the quarter.
The eight 3% increase from the same periods of 2020.
Zinc mine production slightly decreased one 8% quarter on quarter and totaled 16894 times.
This was primarily driven by lower production at our Santa Barbara and Shark I'm on chart <unk> mines, which was partially offset by an increase in production at the San Martin operations.
Refined zinc production increased by 29, 2% in the third quarter of this year compared to the same periods of 2010.
Looking at where we're comparing the third quarter of this year with the second one mine zinc production decreased by one 3% in the third quarter, mainly due to a drop in production at our San Martin Mine, which was partially offset by an increase in production at the Santa Barbara.
Butter operation.
For this year 2021, we expect to produce 67500 tonnes of zinc that's a 2% decrease in production when compared to last year.
Financial results.
For the third quarter of 2021 sales were $2 $7 billion. This is 551 $8 million higher than sales for the third quarter of last year or 25, 9% increase.
The total amount of this increase corporate sales represented $360 million.
<unk> hundred $65 million.
This is an increase of 26% in the value of copper sales driven by an improvement in practice, which increased by 43, 6%, partially offset by a decrease in sales volume of 14, 3%, mainly due to lower third parties copper purchases on higher copper concentrate inventory.
Sure.
As you know our production declined 6%, that's less than 1% and our sales have declined a little bit more due to the.
So the reduction that we have made in the purchases so for third party's copper or copper concentrates.
Regarding our main byproducts, we registered higher sales of molybdenum.
Which increased by 145, 8% due to better prices and higher volumes.
Forcing they increased by 58, 7% due to better prices and volumes and in costs. In contrast, we posted lower the lower sales of Subaru decreased by 21, 6%, which was attributable to lower prices and volumes.
Our total operating cost and expenses decreased by $12 million or 1% when compared to the third quarter of 2020.
The main cost reductions have been in purchase copper.
We reduced our purchases of third party materials by $82 5 million.
Exchange rate variances.
Workers' participation.
And.
Mutual material.
Consumption and cost.
These cost reductions were partially offset by higher cost for diesel and few.
Operating materials energy labor.
Repair and operating contractors.
Well, we're a beat there.
Adjusted EBITDA for the third quarter of this year with $1709 3 million doors, which represented an increase of 51, 8% with regard to the $1125 9 million registered in the third quarter of 2020.
The adjusted EBITDA margin in the third quarter was 63, 8% versus 52, 9% in the third quarter of 2020 <unk>.
Adjusted the beta in the nine months of this year was $5126 $2 million. This is a 96%.
Higher than the one four for the same period of 2020.
For the nine months, the adjusted EBITDA margin year to date was $63 two versus 46, 4% in the nine months of 2010.
Operating cash cost per pound of copper before byproduct credits was a dollar and 62 cents per pound in the third quarter of 2021.
That is one <unk> higher than the value for the second quarter of 2021.
This 6% increase in operating cash cost is a result of higher cost per pound from production costs administrative expenses and lower opinions.
These higher costs were partially compensated by lower treatment and refining charges.
Regarding by products, We register a total credit of $543 $4 million or $1.04 per pound in the third quarter of this year.
These figures represent a one 3% increase when compare with the credit of $521 $2 million or a daughter and 2.6 cents per pound in the second quarter of 2021.
Total credits increase for molybdenum zinc and sulfuric acid and decrease for silver.
Consequently, southern copper operating cash cost, including the benefit of byproduct trades was 58.1 cents per pound in the third quarter of 2021. These cash cost was four cents lower than the cash cost of $58.
I sense that we had in the second quarter of 2021.
Yes.
Net income in the third quarter of 2021 was 867.6 million borders, which represented 71, 5% increase with regard to the 506 million registered in the third quarter.
2000 and print.
The net income margin in the third quarter was 32, 4% versus 23, 8% in the third quarter of 2020.
On a year on year basis, net income was 161, 6% higher than what we had in 2025th significant improvements were attributable to higher sales and our strict cost control measures.
For capital investments as you know southern Copper's investment philosophy.
Just on the outlook for corporate prices, but the quality of the assets that we operate and develop.
Throughout the years, our strong financial discipline has consistently below us.
To make ongoing investments in our considerable asset portfolio.
In the third quarter of this year, we spent $243 $1 million in capital investments, which reflected an 87 increase.
With regard to.
The year 2020, and represented 28% of our net income for this quarter.
As of September 30 of this year, we Havent spent $695 $5 million from capital investments, which represented 27, 1% of net income.
Looking at the projects that we are developing let me start by commenting on the Tia Maria you can there are to.
Keep our reunion.
As you know southern copper has been consistently working to promote the welfare of the population will be slight problems as part of these efforts we have implemented successful social programs in education health care and productive development to improve the quality of life in the region.
We have also promote agricultural and livestock.
Steve If you can the Tambo valley and supported growth in manufacturing fishing and tourism in snacks when.
On January seven 2021, they may Europe, this slide probably insofar it keeps them.
Hey awarded 50.
50 diplomat to southern copper in recognition of the company's efforts to.
Felicia multi slide during the COVID-19 pandemic.
Southern copper provided medical beds, and our system test oxygen personal protection equipment and foodstuffs for the population in the area of influence of the Tia Maria project.
We reiterate our view that the initiation of construction activities.
We will generate significant economic opportunities for the flight proteins and they will keep on.
Given the current food and economic situation. This crucial to move ahead on projects that will stimulate that sustainable growth cycles.
We will make it a priority to hire local labor feel benign person jobs that we expect to generate doing the Tia Maria construction went.
When operating we expect Tia Maria to directly employ 600 workers and in.
Indirectly provide jobs to another 4200.
Yes.
<unk>.
Additionally from day, one of our operations, we will generate significant contributions to revenues in Arequipa region via royalties and taxes.
We expect the Peruvian government to acknowledge the significant progress. The project has made on the social front and the important contributions that Tia Maria will generate for Bruce economy, and consequently take the necessary steps and actions to provide ACC with inadequate support to initiate construction.
We have news on the <unk> project as well.
On September 30 of this year the company signed a social agreement with the <unk> community.
Additionally, on October 1st the Peruvian Ministry of energy and mines and proof of semi detailed environmental impact study for the project.
The social agreement, we've been with GPI community represents an opportunity to improve the quality of life of the resilience of <unk> via our strong social programs and back by a solid framework for technical work at the project level.
For signing a similar agreement are being conducted with the <unk> community.
The older commute either we have related to the <unk> for you.
And we expect to have positive results shortly.
These events are important steps that we are low southern copper to initiate an in depth exploration program in the first quarter of 2022.
For our Mexican projects.
We have to Buenavista zinc.
Concentrate or.
Which is part of the Buenavista operation.
This is a pre release located as I say, we seem to win of Easter facility and includes the development of our new concentrate or zinc concentrator to produce approximately 100000 tons of zinc and 20000 tons of copper per year.
We have completed the engineering studies.
In order to continue with the project is stronger preventive measures to combat COVID-19.
[laughter].
Has been put in place procurement has progress, 93% and all the main equipment Nissan side.
Construction side worked our improvements pretty has all the necessary permits and the capital budget is $413 million as of September of this year, we have invested $196 8 million in this right.
We expect to initiate operations in 2023 when.
When completed this new facility will double the company's zinc production capacity and provide 490 direct jobs and 1417 indirect jobs.
The Polaris broadly also in Sonora is located six kilometers from La Caridad operation. These pretty consist of an open pit mine.
With an annual production capacity of 35000 tonnes of copper in concentrate.
Our new 25 meter wide off road.
Will it be for mining trucks has been built and will be used to transport the ore from the pit towards primary crushers and the like.
How do you that copper concentrate it.
This project will significantly improve the overall mineral ore grade by combining the <unk>, 78% expected.
Ore grades from Pilates with the point of 34% ore grade from like how do you that the budget for Polaris is $159 million of which we have invested 81 4 million.
We expect the project to begin production in the first quarter of 2020.
The portfolio that we have in the Sonora state is it would be less.
This is a greenfield project.
And it's a low capital intensity one.
She is using the <unk>.
He's using Sx EW technology.
The project is approximately 45 kilometers from our older when Arista mine.
Its copper oxide mineralization contains estimated proven and probable reserve of 281 billion tons of ore with an average copper grade of <unk>, 3%.
Which is a very good a remarkable with the ore.
Ore grades for this kind of technology.
We anticipate that it would be that we operate as a conventional open pit mine with an annual production capacity of 36000 tons of corporate concept corporate capex.
This operation will use highly cost efficient and environmentally friendly.
<unk> technology, which is the Sx EW, what's the budget for <unk> is $310 million, we expect production to begin in 2023 and the mine life is estimated at 13 years. The result from experimental paths in the leaching process have confirm adequate levels.
Of corporate recovery.
Basic engineering study is finished.
And the company continues developing projects and site environmental activity.
In the Baja California State, we have a logical which is a world class copper deposit located in the central part of the Wassa, California Peninsula.
With all reserves of over $2 4 billion tons with an ore grade point 42, 2%.
And that's a byproduct half point 11 grams of gold per ton.
The project includes an open pit mine, combining a concentrate or an and.
And <unk> operation.
I don't know if production is expected to total 190000 tons of copper.
105000 ounces of gold with an estimated capital budget of $2.9 billion.
The company has to start at the baseline study and is reviewing the basic engineering analysis.
Request environmental impact impairments several years back we began to acquire the rights to all relevant mining concessions in the area. This process was successfully completed in 2019.
Poor environmental social and government governance investments.
<unk> corporate as you know is committed to improve its ESG record by adopting the best practices and communicated to the investment community and other stakeholders our progress in these matters.
Several programs and initiatives have been launched by the company to help communities through the COVID-19 pandemic in all regions, where we operate in.
In Peru.
Partnership what's established with the government in July of this year.
To help vaccinate net 40% of the population in the five regions, where our operations are located.
The company donated over $2 $5 million to help build modernized the put and operate vaccination centers.
About 92% of the <unk>.
850000 that seems contemplated in this initiative has been administered by government personnel.
To date 91, 4% of southern Copper's corporations workforce in Peru has been vaccinated against Colby I'm sorry.
This is for both Peru, and Mexico 91, 4% of southern copper workforce has been vaccinated against COVID-19.
The mining chamber of Mexico recognized the Ekati mine refinery and metallurgical plants for top safety performance in their respective categories in 2020.
That carried at nine received a silver head myth or tactical platform.
In the category for open pit mining operations with more than 500 employees, whereas the refinery and metallurgical plant received the same distinction in the category for metallurgical plants and smelter with up to 500 employees.
Southern copper corporations reaffirms its commitment to presenting an improving environment by implementing actions to generate a net positive impact on biodiversity throughout our operations to fulfill these commitments, which is outlining the company's environmental policy.
We have developed action plans for biodiversity monitoring that are aligned with the guy for good practice guidance for mining on biodiversity published by the International Council on mining and metals the IC.
These plans further improve the company's capacity.
Effective mitigation measures and contribute to the personalization and improvement of the environment in which we operate.
Southern Copper corporation recognized the importance and urgency of tackling climate change the company's operations operational greenhouse gases emissions have decreased significantly over the past three years and dropped by 4% in 2020 alone.
And this is in spite and increasing production volumes.
In 2020, we also began to align our disclosure.
Efforts to manage climate related risks and opportunities with the recommendations of the task force on climate related financial disclosures Grupo Mexico Sustainable Development report for 2020 included a section with the specific details on our progress in this regard.
We're in the process of setting new absolute emission reduction targets to further mitigate our cardboard carnival footprint.
The government of Sonora recognize southern copper corporation for being a culturally responsible company.
For the voluntary initiatives implemented implemented remote and safeguard the state history culture and traditions.
Three of the community programs launched by the company were pinpointed as particularly relevant.
Carey documentaries cinema workshop, which led to the creation of over 200 deals.
The support provided for organizing the 51 alone.
So in Mechel, Saudi and tenant in.
And the accretion of youth Orchestra us.
These education on music programs, which are offered by over 2100 children in the communities surrounding our mining operations in Mexico and Peru.
Has led to the creation of six Parkers test in four quarters.
Switching gears to dividend.
Regarding dividends as you know it is the company policy to review, our cash position steady cash flow generation from variations capital investment plans and other financial needs in each for meeting to determine the appropriate quarterly dividend.
Accordingly, as announced to the market on October 21, the company Board of directors authorized.
A cash dividend of $1 per share of common stock payable on November 23 to shareholders of record at the close of business.
<unk> 10 of this year.
Well with decent mind, ladies and gentlemen.
Thank you very much for joining us and we will like now to open up the forum for questions.
Thank you and as a reminder to ask a question simply press star one on your telephone to withdraw that question press the pound or hash key.
Again that is star one to ask a question one moment please.
Okay.
I have a question from James <unk> with Morgan Stanley. Your line is open.
Yes, Thank you rose.
I hope you well I just want to add.
If you could repeat the guidance for molybdenum in 2021, and silver and also if you could give us a bit more color.
The cash cost that youre expecting.
Before byproducts, especially for next year and beyond.
And also if you could just remember us which projects are already fully board approved.
Thank you.
Okay. Thank you very much for your question James.
Okay for cash.
Cash cost.
Next year, we will have we're expecting a slightly lower production than this year.
The reason for that is that we're seeing we're getting to some patch itself the Peruvian operations.
Where or greater are little where this is a consequence also the of the work that we have been doing.
Two two.
Catch up with the certain activities that we postpone in 2020 due to the COVID-19.
So we.
We will reduce slightly our our production for next year, we're still looking into that figure to see and we will like to report on this for the next for the next quarter. When we review the full year 2021, Gigawatts hour beyond 2022.
Considering that.
We're expecting to have a cash cost before byproduct trades.
In the range.
For a dollar and 70 cents per pound.
Byproducts will be well, it's you know.
You have to you have to consider by Coke prices and that's sometimes a difficult path because they may vary significantly.
But using relatively conservative prices and what I mean by this is for instance.
Instead of $19 per pound $16 per pound.
Think instead of 150 120 and so on.
We have expecting clearly it's in the range of slightly under 180 cents per pound for next year.
And the guidance you gave guidance for molybdenum for 2021.
Okay.
Yes, yes, yes for this year is 29 four.
<unk> thousand metric tons.
For next year, it goes a little bit lower can be four nine.
And for silver this year is $19 3 million ounces.
Next year, it increases a little bit 19 eight.
And then in 2023, when we expect to have our production back on track, we will have the benefit of a pilates.
When at least the sink.
Reduction and corporate production or point of Easter in April that we that we will bounce back two 1 million tons per year.
Oh.
Production.
And we will increase quite significantly our production for the think we will pass from a mark which is about 70000 tons nowadays up to 149000 tonnes. That's for 2023 14. So.
We're more than doubling our production.
Zinc in 2023, that's how it occurred forecast and with that obviously, our cash cost will decrease.
Decreased due to the much higher contribution of light products.
I think I said byproducts.
And more approve projects that are fully approved well for working we're working on the three projects that I mentioned for Mexico that are.
<unk> underway right now which are there.
And Polaris <unk> build out.
And then whenever you start to sink.
In Peru, we have Tia Maria fully approve.
There are just not a it's not a.
We're we're we're keep doing some airports in order to move on with the construction, but that's a that's fully approved and we have collateral where we're working we're working to have a full view on the project and once we have that we will send that.
To the board. The same is the case for <unk>. Once we finished it in the case of <unk>, which is a relatively.
It will come back.
Coming here.
Eight you're owning time, we will have with them.
About to initiate a drilling campaign in 2022 and 'twenty three.
And with the results of these campaigns.
Proposed to the board of the company.
The approval of an investment.
Four we're expecting for foreign operations that may produce 225000 tons of copper per year.
Okay. Thank you and what when do you expect to bring that to the board.
Yes.
Well it will be at least three three more years because seats do you have to do the drilling campaign. Then you have to do the environmental impact excuse me the feasibility study.
And then.
Then they will present the results of that to the board asking for for permission on that it should be at least <unk> by 2024, where we will know.
The size of the project, we want to do and have older older work related to Norwegian exactly what we want to build the very important thing that I like to mention that <unk>. He said this is a.
Very good.
Prospect in terms of ore grade the quality of the mineral for instance is something you know the task.
No traces so for arsenic in its.
In or not significant trade consultancy and so it's a very interesting project for us.
Produce that correspond to prior generation. It was not developed by the company that has been kind of before we.
One the action the auction that the Peruvian government.
In 2018 and Thats, how we are.
Have these pretty against part of our pipeline Ofer.
For future developments.
Okay. Thank you if I worked for the additional detail I appreciate it.
Oakland gains.
Thank you. Our next question comes from Andrew as Buck in House here with UBS. Your line is open.
Thank you very much just two quick questions from me one is on costs.
We saw some cost deflation there in Q3 for you guys. Congratulations I think higher byproduct revenues can you just kind of talk about what what do you think costs are going to look like.
Disregarding the byproduct revenues over the next 12 months, obviously don't know for sure where the byproduct revenues are going to go so just kind of operationally weight, where do you see.
Cost or unit cost going over the next 12 months.
Why and maybe as a second question are you seeing anything in China, just given all the energy issues and Theres been some talk about the shutdown of smelters in this kind of thing I mean, any any latest read throughs from China as to what's happening there given the concentrated ascending to those are my two questions. Thank you very much.
Thank you very much for your questions and draft.
Let me start by China.
We don't see for US we haven't seen any any changes in our sales of concentrates to Chinese smelters, we have no no concerns. So far we know about what has happened and did well on the power.
<unk> just seen in China, but so.
So far we haven't had any impact in our in our concentrate sales to that market.
Hum.
Looking at the.
Costs.
Cost for the next 12 months well the obvious cost increases who already I already mentioned them do.
A presentation of the coal.
We're seeing higher fuel cost power cost in Mexico, a little bit due to the gas prices that we had.
At the beginning of this year.
But nothing nothing relevant for them.
We're looking other than other than.
Then.
Having some some concerns on fuel basically.
The other thing you see in for the Mexican operations.
Change rate of <unk>.
The Mexican peso vis vis where it was a year ago is now stronger.
About 20 pesos per dollar than we used to get the 23 year or so so that has created some dollar inflation in our cost per mix.
In Peru, we have.
Depreciation of the Peruvian currency vis vis the dollar of about 15% that has helped us our our dollar cost.
And in both Mexico and Peru.
We have seen.
We have to we have to do a catch up work for certain maintenance excuse me. Please.
We have to do a catch up work for certain maintenance.
And then stripping works that.
We couldn't tackle in 2020, and we passed them through 2021 so.
The fact that we are finishing visa visa works.
It will make us to be in better shape. When in 2022, where we will only have to work with our program for that year specifically.
That will be that plus.
Exchange or appreciation in Peru will be some of the cost control.
<unk>.
Points issues, while the while we have a higher fuel cost.
And some cost inflation, obviously in steel and some other materials, but so far if you see our our cost generally speaking we have managed to control them by replacing in this year.
Third parties concentrates by our wound as you may imagine when we buy third party material, we pay a market price less discounts, while when we produce.
Process our own copper.
Only the cost that we have to.
We have to incur in order to produce that Michael so.
That has helped us this year and we're expecting next year to have a slightly higher cost before byproduct credits.
But somehow it will it will be tempered by a reduction in stripping and some older maintenance work that were that had to we have to catch up on them in 2021.
Got it that's very clear.
With each of them. So thank you very much stay safe.
Thank you very much thanks.
Pipeline team.
Thank you. Our next question comes from Alfonso Salazar with Scotiabank. Your line is open.
Yes, Thank you handle road a cup.
Questions from me. The first one is regarding production and you mentioned that for the gigawatt projecting copper production of 958000 tons and I think this is an owned production on mine production.
But correct me if I'm wrong and then for next year you didn't provide that guidance at this point on on the level of production, but you you mentioned that he is going to be lower than that in 'twenty one.
And then going back to <unk>.
1 million tons in 2023, just want to clarify is that he sees is correct.
That's correct telephone so.
Our guidance at.
As you will mentioned 958000 tons.
For next year.
We're expecting a reduction.
Now we're looking at the numbers the range of 950000 tons, but still to be confirmed so I think that we need to we need to wait for a final forecast from this which we will provide on the next quarter's call.
Okay. Thank you thank you for that.
The second question I had.
Sure.
The video talked before 2023 is correct, that's what I said.
Okay excellent. Thank you.
Question, I havent needs about labor and the labor reform.
And if you anticipate other mind you have a you know that beta for us at least for costs.
But I don't know if that is your case of north on the second piece that you mentioned that you have in seating.
Inflationary pressures in the case of fuel and a little bit in the power cost because of the price of gas, but nothing Florida was looking at.
This is provided that there is no change in the in the electric.
And that applies to Mexico, if I'm not mistaken.
The base case, because you'll have a right now conceptually empty MGE neither into the fetal and they need just in Mexico, but that.
So on that debt.
Yeah.
This could change then you might change that that team is this correct.
Okay, Let me.
Coming on on the power power reform first we need to see what finally approved the firepower reform in Mexico, we need to see what is finally proof on that base, we will evaluate the consequence for southern copper.
Obviously, we have some concerns as has been the spreads in different forums by older economic agents as well.
Regarding.
Cost inflation, well, we talk about a little bit on few let me give you. Some some news from these we have.
We are we are.
We have acquire.
Yes.
Our price protection for for gas for these next few months will go into their hardest part of do winter, where we we are we are.
We have acquire some price protection for that part of the.
Of the.
Season.
And we.
We believe we will currently the gas prices higher than our our facility so where we are okay with that.
Empower in labor, we are also addressing the impact of <unk>.
They were cost both of new labour costs or newly we're really installation in Mexico.
At the same time, we are.
<unk> pretty much finishing negotiations with our labor force in Peru.
And we have signed contracts that range for from four years to six years.
With the different unions at six unions that we have down there. So we have we would believe that our labor costs will be.
Under control in the next few years.
For the Peruvian operations in Mexico, we have to fully review, what's the impact of the labor reform that lead to.
And the impact that it may have one hour or cost.
<unk>.
Okay.
Sure.
Sure go ahead.
Please go ahead.
And then just a quick comment on.
Any concerns on the energy funds.
Medical.
Brian.
Hello.
And those time.
Okay.
Great.
Hello.
Youll be forward, because we primarily look for when we can listen to you will.
Understood.
And Nike golf.
Hi, Chris.
Hello, Michael <unk>, nearly equal part of Grupo Mexico.
Thank you Scott.
No.
Michael It continues to be on mobile social.
<unk> exclusively.
Okay.
Somebody will begin until.
Incremental <unk>.
<unk>.
Well, it's too early to be planning on it.
Okay.
We will concentrate on that.
Sure.
In Gainesville.
And just to comment on that.
Right.
Thank you Evan and thank you for the comments.
Okay.
Our next question comes from Alex Hacking with Citi. Your line is helping.
Yeah, Thanks, Roland and good morning, just following up on <unk>.
You mentioned do you have an agreement with the <unk> community in discussions with a lot and can you add a community are those the two of those the only two communities that you're dealing with or are there others.
And then.
Those are great.
Okay go ahead sorry.
No you go ahead please.
Oh, well just the two.
Area of influence of the project cost. These two communities, which we already mentioned that the agreement that we have signed with them very successfully and we're all very happy on that and they were one easily in Kenya.
We're working with them and we expect to have an agreement shortly.
Okay. Thanks, and then are there specific critical issues, such as water rights or relocating families or is it more of a general concern about disrupting disrupting their way of life I guess what are the what are the critical concerns.
These communities have and how do you plan to address them. Thank you.
I think that the critical issue for them, it's too to have.
Benefit.
Clearly benefit from the project that's why we're working we're working with them.
In cereal.
Our initiatives to improve their development communities.
And well there should be some relocation of certain a number of families.
But most of the community leaps in the surrounding areas of the project.
Footprint, so we don't need to relocate many many many families. But there are some that will need to move to a different different place, but if I can summarize there may your concern is how can be a.
Benefit too.
Sure.
From the from the economic impulse that this probably will bringing to this area.
Okay. Thanks, Thanks, Raul in just a very quick follow up on something else.
Shipments a little lagging production a little bit this year.
Is that something is that just inventory build you sort of rebuild from last year normal or should we expect you know a little bit of catch up in the fourth quarter.
Yes.
Well, we are expecting to have some catch up and the reason for this inventory build up this debt we replace third parties concentrates about our own concentrate and that has to pass through the hole.
Production process. So that's.
That's mainly the reason no.
We're working in order to catch up on sales for the fourth quarter.
Thanks, Charles and good luck with everything.
So welcome thank you very much Alex.
Thank you. Our next question comes from John Tumazos with John to Masses Veined opinion research. Your line is open.
Thank you.
My question is in terms of capital management priorities.
It does many projects come first.
Yes.
And the projects of course are of a high quality.
Joining in sequence issues, where you would borrow if you need to.
Depending on the copper price et cetera.
Reason I'm asking the question.
Yesterday the World Steel Association described September output Chinese steel output fell another 10% in December.
Fallen by 25% since April 15% of World steel output magnitude, it's 90 times bigger than the largest blast furnace in North America the cut.
So epic size.
Here's the property sector or whatever they're doing to fight inflation, we're winning that war, there really killing their economy.
So given you know the variations that might occur in copper demand or prices should we assume the projects come first.
Well we are.
What we're seeing is it's.
My personal belief is that the Chinese authorities.
Alturas is half of the writing instruments to deal with.
The circumstances they are facing now.
Generally speaking.
But looking into into your concern Joan and thank you very much for your question I think that.
What we are doing is focusing in developing these.
Very good projects that we have they are generally speaking.
Much lowering capital intensity per tonne of.
Corporate capacity installed.
The average worldwide.
Also.
When D V. In operation there are cash costs will be well aligned with our current cash cost. So we think that this is these are projects that will be that will be.
Require.
To go on in the next few years.
You mentioned some of the struggles that the Chinese economy.
Facing.
We also see on the flip side toward this.
What were the green energies revolution and their impact on corporate demand long term corporate demand that he basically increasing or or or moving upward. The estimates for copper consumption for the next decade.
So I think that hopefully the Chinese will be able to to deal with their current matters.
Problems and and these new Green energy.
Resolution that would require significant amounts of copper and some other basic metals.
We will give support to our.
Our operations into the corporate market price, particularly.
So to summarize your reply not concerning copper demand, but your capital management. Your projects are high quality. They come first yes, and if necessary you would borrow to completion.
Usually we are we are.
Taking some debt when we are.
Tackling a new projects you have seen that we issue in 2019 1 billion $1 billion bomb murder to fund our three projects that we're currently developing in Mexico.
And we did that as well with the Beast expansion. So once we have.
Some certainty of our future increasing say you beat that we usually consider going to the debt markets to assure.
Healthy share of depth in our balance sheet for these new new.
<unk> undertaken so in this case Oh for instance, if we move on with the with some some new project.
Some of the ones that we have been talking about we will probably consider and that total is up to the board, but will propose as management to looking to dip market 90. If conditions are fine we may consider going on for four new there.
May I ask a different question.
Go ahead please.
Meticulously read the Worldview of metal statistics copper data.
I ignore all of the public and all the popular consultants.
In 2019, 2020, one rest of world copper demand ex China is lower than 2009 recession.
Yeah.
So that confuses me about copper demand growth because it appears to be today.
Chinese demand since 2014.
Only had one good year last year, which may have been stockpiled building.
Maybe as a compound growth rate is 2% except for last year's gain in this year's decline.
So.
I'll leave that all of these new applications exist I don't believe their fantasies, they're real.
I interpret that Theres, a 4% decay rate.
The base level.
<unk> demand due to wireless controls.
Smartphones complying.
<unk>.
Binding 10 or 20 appliances.
Sizing my new Air Conditioner for the outside of my House is one third as big as the one that.
It replaced.
Could you talk to why.
Copper demand is not bigger when we have all of these applications and excuse me I'm cynical.
Think that the leading consultants.
They tell us.
What they want to hear.
But just looking at the W. BMS data, which I respect.
Okay.
What we're seeing is that new.
New technologies are using much more copper and we're seeing a clear path towards developmental stack.
And this will.
I mean, well first let me let me mention that we are currently.
Currently in.
<unk> different.
Market than what we say expect.
Before the pandemic, so so everything needs to take till tainted by these visa may your breakdown that we have had due to this commitment.
Yeah.
We have to see we believe that our new uses of copper woop woop.
We will replace in.
Surpass.
Lower demand due to substitution or some or some of the recession in certain parts of the war.
We're seeing now.
The word economy growing.
For this year and expecting to grow for next year and that will certainly be propel new corporate demand.
On China I had mentioned on our rating my personal views that they will we will be able to deal with these that they have done with some older even more problematic matters from the past.
But that's my my view.
As a as an officer of copper producing company that's it.
Yeah.
Thank you.
Youre welcome.
Thank you and we have a question from the line of iphones to satisfy with Scotia Bank. Your line is open.
Yes, Thank you, though and just a quick follow up and a.
The easy one just just wondering why a southern copper east, though in third party purchases and is this because there are less concentrates available easy stuff that basic mobile for company. So what do you see kind of that decision.
A simple answer to that our phone so is that.
Market conditions changed a little bit and we decided to move on with our own material. As you know we're long on corporate concentrates we have been selling our own concentrate on buying some other different quantity sun.
Copper concentrates.
We made a review vis vis the new market conditions that we have had.
Through 2021, and decided to stop buying third partys copper concentrates.
They can you know market chart that just too Beavers trading answer answered.
<unk> Express as a concern.
Okay excellent. Thank you for that.
You're welcome.
Thank you and I'm not showing any further questions in the queue. Sir you may continue with any final remarks.
Thank you very much and well with this we conclude our conference call for Southern Copper's third quarter 2021 results. We certainly appreciate your participation and hope to have you back with us when we report.
The fourth quarter and the full year 2021 results. Thank you very much and have a nice day.
Thank you and this concludes today's conference call. Thank you for participating and you may now disconnect.
[music].