Operator: Good morning, and welcome to Southern Copper Corporation's Q3 and nine months 2026 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 Q3 and nine months 2026, as well as answer any questions that you might have. The information discussed on today's call may include forward-looking statements regarding the company's results and prospects, which are subject to risks and uncertainties. Actual results may differ materially, and the company cautions to not place undue reliance on these forward-looking statements. Southern Copper Corporation undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. All results are expressed in full US GAAP. Now, I'll pass the call on to Mr. Raul Jacob.
Raul Jacob: Thank you very much, Victor. Good morning, everyone, and welcome to Southern Copper's Q3 of 2026 results conference call. At today's conference, I'm accompanied by Mr. Leonardo Contreras, CEO of Southern Copper and board member. Let me say first that we are very pleased to report strong Q3 performance as we hit record highs for net sales, adjusted EBITDA, and net income for the second consecutive quarter. Concurrently, our report will show that Tía María and El Pilar, which are under construction, are expected to add 156,000 tons of refined copper to our total production figure. With this print, we will widely surpass the annual production mark of 1 million tons. These outstanding achievements are driven by operating excellence and reflect our commitment to creating long-term value for our stakeholders in a context marked by sustained demand for copper and the other minerals we produce.
Raul Jacob: Today, we will begin with an update on our view of the copper market, and then review Southern Copper's key results related to production, sales, operating costs, financial results, expansion projects, and ESG. After this, we will open the session for questions. For the copper market, the LME copper price increased 44% from an average of $4.24 per pound in the Q3 of 2025, up to $6.41 this past quarter. In the COMEX market, we saw a 34% increase with an average of $6.48 per pound this past quarter. Based on current supply and demand dynamics, we estimate now a slight copper market surplus for 2026. Copper inventories worldwide, the total combining stock in LME, COMEX, Shanghai, and bonded warehouses, stood at 1,105,000 tons as of 9 October of this year. We estimate that this inventory can currently cover approximately 14 days of global demand.
Raul Jacob: Now let's look at Southern Copper's production for the past quarter. Copper represented 74% of our sales in Q3 of this year. Copper production registered a decrease of 1% compared to Q3 2025, and stood at 232,396 tons this past quarter. Our quarterly results reflects a 6% drop in production in Peru, which was driven by a decrease in production at both our Toquepala and Cuajone mines due to lower ore grades and recoveries. These were partially offset by an increase of 2.5% in production at our Mexican operations, which was mainly fueled by higher production at our Buenavista and IMMSA mines. Our copper smelters and refineries increased their production by 18% and 16% respectively in Q3. On a year-to-date basis, copper production fell 2.9% in 2026 to stand at 693,602 tons.
Raul Jacob: This evolution was mainly driven by a decrease in production at our Peruvian mines due to lower ore grades. Year on year, the company's smelting and refining facilities increased their production by 16% and 10% respectively. For 2026, we expect to produce 918,000 tons of copper, an increase of 0.7% over our initial plan. Molybdenum represented 12% of our sales in Q3 2026, and is our primary byproduct. Molybdenum prices averaged $32.93 per pound in the quarter, compared to $24.30 in Q3 of last year. This represents an increase of 36% in price. Molybdenum production dropped 2% in Q3 of this year compared to the same period of 2025. This was mainly driven by lower production at our La Caridad and Buenavista mines, which was largely offset by higher production prints at our Toquepala and Cuajone mines.
Raul Jacob: In 2026, we expect to produce 29,000 tons of molybdenum, which is 12% above our initial plan. Silver represented 7% of the company sales in Q3 of this year. Silver prices averaged $62.80 per ounce in the quarter, compared to $39.56 per ounce in Q3 2025. This represents an increase of 59%. Silver is currently our second most important byproduct. Mine silver production decreased 2% in Q3 of this year versus the same period in 2025, driven primarily by a drop in production at our open-pit operations. These results were partially offset by an increase in production at our IMMSA mine. Refined silver production decreased 6% quarter over quarter, fueled mainly by a drop in production at the La Caridad and Nilo refineries. For 2026, we expect to comply with our plan to produce 24 million ounces of silver.
Raul Jacob: For zinc, it represented 4% of our sales value in Q3 2026. With an average price of $1.74 per pound in the quarter, which represents a 36% increase compared to Q3 of last year. Zinc is currently our third byproduct. Zinc mine production decreased 8% quarter on quarter and totaled 41,880 tons. This was mainly due to a drop in production at Buenavista, Charcas, and San Martín operations. These results were partially offset by higher production at our Santa Barbara operation. Refined zinc production decreased 6% in Q3 vis-à-vis Q3 2025. For this year, we expect to produce 163,400 tons of zinc, 1% below our initial plan.
Raul Jacob: Looking into our financial results for Q3 2026, sales were $4.7 billion, which is $1.3 billion above the sales print in Q3 2025, or a 39% increase. Copper sales increased 41%, while volume decreased 0.4% in a scenario of better prices. As we mentioned, the London Metal Exchange price increased 44% and the COMEX 34%. Regarding our main byproduct, sales of molybdenum were up 31% due to better prices, which were partially offset by a decrease in volume. For zinc sales, they also increased by 36%, fueled by better prices and better volume. Lastly, silver sales overall this quarter right in the wake of better prices, whose impact was partially offset by a decrease in volume. Our total operating costs and expenses increased by $273 million or 17% when compared to the figure in Q3 of last year.
Raul Jacob: The main cost increments were in diesel and fuel, workers' participation, inventory consumption, depreciation, power, and labor costs. These cost increments were partially offset by translation difference of $22 million. That is an exchange rate variance that favor our cost in local currencies. Our Q3 adjusted EBITDA hit a record high of $3 billion, which represented an increase of 54% with regard to the $2 million registered in Q3 2025. Adjusted EBITDA margin in Q3 of this year stood at 65% versus 59% in the same period of 2025. Adjusted EBITDA for the nine months of this year was $1.8 billion, which is 56% higher than the print for last year. The adjusted EBITDA margin in the nine months of 2026 stood at 65% versus 68% in the same period of last year. Cash cost.
Raul Jacob: Operating cash cost per pound of copper, net of byproduct revenue credits, was $0.09 in Q3 2026, which represented a decrease of 77% compared to the $0.52 reported in Q3 2025. This result was mainly driven by an increase in byproduct revenue credits of 31%, which rose on the back of better prices. Operating cash cost per pound of copper before byproduct credits was $2.46 per pound this past quarter. This is $0.23 higher than the value for Q3 2023. This 10% increase in operating cash cost before credits was the result of an increase in cost per pound from production costs and for administrative expenses, which was partially offset by an increase in the premium and treatment and refining benefits that the company has been collecting.
Raul Jacob: Regarding byproducts, we had a total credit of $1.2 billion or $2.36 per pound in Q3 2026. These figures represent a 31% increase compared to a credit of $900 million or $1.81 per pound in Q3 2025. Total credits increased for molybdenum, zinc, silver, and sulfuric acid. For the nine months of 2026, the operating cash cost per pound, net of byproduct credits, was $0.01. This represents a decrease of 98% compared to the $0.61 reported for the nine months of 2025. For the year, cash cost decrease was driven by an increase in byproduct credits of 54%. This is for the year-to-date figure for cash cost. Q3 2026 net income hit a record high of $1.8 billion, which is up 63% versus the $1.1 billion registered for Q3 2025.
Raul Jacob: This was mainly due to higher net sales. Net income margin in Q3 this year stood at 38% versus 33% for the same quarter of 2025. On a year-to-date basis, net income was 67% higher than in 2025 due to growth in net sales. Net income margin for the 9 months stood at 38% versus 32% in 2025. Cash flow from operating activities in Q3 of this year was $2.2 billion, 43% above the figure in Q3 of 2025. This improvement was mainly attributable to strong cash generation at our operations, which was driven by higher sales. For the 9 months of this year, cash flow from operating activities stood at $5.9 billion, which represented an increase of 81% over the $3.3 billion posted in the 9 months of 2025. Capital investments.
Raul Jacob: Our current capital investment program for this decade exceeds $21 billion and includes investments in projects in Peru and Mexico. Given that there is a description of our main capital projects in Southern Copper's press release, I am going to focus on updating new developments for each. For the Peruvian projects, I will begin with Tía María. Tía María is expected to produce 120,000 tons of SXEW copper cathodes per annum in the early years of operations. Operations are scheduled to begin in H1 of 2028. As of 30 September of this year, the company has invested $884 million in project execution and committed $1.1 billion to cover diverse activities, acquisitions, and related contracts. Large-scale earthworks have concluded, and 18.9 million metric tons of material has been transferred to the La Tapada stripping deposit. Most work orders for the project's primary equipment have been issued.
Raul Jacob: Purchase orders for the leaching process have been placed to secure the main equipment, which will be outfitted with cutting-edge technology, as well as secondary equipment and materials. On the energy supply front, work is advancing at the main electrical substations and the 220-kilovolt transmission line in its final stage of construction. In parallel, large-scale earthworks to develop dry and wet areas have been completed. At the project's main installations, civil work is advancing alongside efforts to assemble metal structures and the main components of the crushing equipment for the primary, secondary, and tertiary crushing circuits in the dry area. In the wet area, work to build the solvent extraction and electrowinning facility, among others, is progressing. As of September of this year, the Tía María project was 50% complete. Additionally, 6,817 new jobs have been created. 1,181 of them were filled by local applicants.
Raul Jacob: To the extent possible, the company intends to cover the estimated 7,000 jobs that will be created during Tía María's construction phase with workers from these 9 provinces. For Los Chancas, this is a project also in Peru at the Apurímac region that is expected to produce 130,000 tons of copper and 7,500 tons of molybdenum annually. The capital investment is estimated at $2.6 billion, and we expect to begin operations by 2031. For the project update, social and environmental management programs are currently being implemented in the communities within the project's direct area of influence. In accordance with the framework agreement signed for the development of the Tiaparo peasant community and the Los Chancas mining project. In addition, measures are being taken to regain control of the project area, which has been threatened by illegal miners.
Raul Jacob: Regaining control is essential if we are to continue developing our Los Chancas project. For the Michiquillay project in Cajamarca, Peru, this is a project in which we expect to produce 225,000 tons of copper per year with byproducts of molybdenum, gold, and silver. The mine life is estimated at 25 years, and we estimate to invest approximately $2.5 billion to begin production expected by 2032. The deposit mineral resource estimation and classification report has been developed with geological information obtained from drilling programs and geological models. These reports and studies are complying with SEC's S-K 1300 mining disclosure standards. A conceptual study is underway to determine where a conventional and/or filtered tailings storage facility should be located. Hydrogeological and geotechnical studies are also being conducted. We are adding an expansion of the Cuajone operation to our pipeline of projects in Peru.
Raul Jacob: This is to maintain or potentially increase production levels for the Cuajone operation. For this, the company is evaluating an expansion from the current milling capacity of 90,000 tons per day to 120,000 tons per day. This is a 33% increase in milling capacity. The expansion will require additional mining equipment and a new production line at the Cuajone concentrator. Current estimates point to a capital cost of $680 million to produce an average of 55,000 tons of copper and 1,400 tons of molybdenum per year. As part of a thoughtful review on the matter, studies are underway to determine the viability of expanding the Cuajone operation to 150,000 tons of milling capacity per day.
Raul Jacob: Focusing on our Mexican projects, Southern Copper has several projects in its Mexican pipeline that may boost organic growth if they are found to be of value for both stakeholders and the communities in which we operate. These projects are Angangueo, Chalchihuites, and the Empalme smelter. They are expected to bolster our position as a fully integrated copper producer. We are engaged in talks with the current administration to continue rolling out SCC's Mexican investments for about $10.2 billion. El Pilar, which is located in the Sonora state of Mexico, is a project. It is about 45 kilometers from Cananea and Buenavista mine, from the Cananea town and the Buenavista mine. Its copper oxide mineralization contains estimated proven and probable reserves of 317 million tons of ore, with an average copper grade of 0.25% and a life of mine of 18 years.
Raul Jacob: El Pilar will operate as an open pit mine with annual production of 36,000 tons of copper cathodes, utilizing cost-efficient and environmentally friendly SXEW, or solvent extraction and electrowinning technology. With an investment of $551 million, this project will employ a direct workforce 450 people during the construction phase and 300 during the operational phase. El Pilar is a new copper project that has obtained the necessary environmental permits. Early site preparation began in September of this year to develop energy lines and build on-site construction offices. Contracts and studies related to the substation and transmission line are in the works. Basic engineering contracts for the access road, rail works spur, substations, and power lines have been signed. The EPCM bidding process for the SXEW plant is underway and is expected to culminate before year-end.
Raul Jacob: Project construction will commence in Q1 2027, and production is expected to begin in H2 2029. Focusing on environmental, social, and corporate governance, or ESG practices, we are glad to report that our sustainability ratings continue to improve. In its corporate sustainability assessment 2026, S&P Global increased Southern Copper's rating by 2 points over last year's point. The company ranks among the top 3 performers in the mining sector with a rating that doubles that of the industry standard. Some of SCC's individual ratings were top of class for the sector. That is the case for transparency of reporting, materiality, risk management, business ethics, energy, biodiversity, and community relations. On top of what I just mentioned, 4 operations in Sonora, these are the lime plant, the La Caridad mine, the Minera México's copper smelter, and refinery.
Raul Jacob: These 4 operations were awarded with the Silver Helmet by the Mexican Mining Chamber for CAMIMEX for their safety and accident prevention metrics. This is the first time that 4 operations in Sonora received award simultaneously, which attests to our team's commitment to strengthen preventive practices, safety controls, and worker protection. In the Michiquillay operation in Peru, as part of our commitment to promote the stakeholders' active participation in new project development, the Participative Environmental Committee for the Michiquillay project in Peru completed its third verification of environmental performance in 2026. Community leaders and representatives of public and private entities sit on this committee, which has the technical capabilities to collect soil, water, and air samples and interpret results. Their participation in project development strengthens actions and measures to prevent or manage impacts on the environment and communities.
Raul Jacob: For the past 14 years, our program, Forjando Futuro, or Forging Futures, has been developing capacities and providing access to local job opportunities in the areas of influence of our operations in Peru and Mexico. Currently, 17% of the jobs on the Tía María project are held by locals who access these opportunities through our on-site offices or in coordination with local contractors. Under this program, Forging Futures, we have awarded 700 scholarships to young people to obtain certifications to operate heavy equipment or engage in welding and topography. These efforts strengthen participants' technical competencies and broaden capacities to successfully insert in the job market. Changing subject, we are going into dividends. As you know, it is the company policy to review our cash position, expected cash flow generation from operations, capital investment plans, and other financial needs at each board meeting to determine the appropriate quarterly dividend.
Raul Jacob: Accordingly, on 15 October, Southern Copper Corporation announced a quarterly cash dividend of $1.30 per share of common stock and a stock dividend of 0.0106 shares of common stock per share. This is payable on 19 November of this year to shareholders of record at the close of business on 3 November 2026. Ladies and gentlemen, with these comments, we end our presentation today. Thank you very much for joining us, and now we would like to open the forum for questions.
Operator: At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. One moment for our first question. First question comes from the line of Carlos de Alba from Morgan Stanley. Your line is open.
Carlos de Alba: Yeah. Good morning, everyone. Thank you, Raul. My first question is just on Tía María, maybe a little bit more color with what seems to be a little bit of a delay from Q4 2027 to the H1 2028. If you can provide a little bit more color as to what prompted that decision and if you could expect maybe a potential increase in CapEx. I noticed that it is still $1.8, but typically when there are delays, more often than not, it comes with a higher CapEx associated with that. So wanted to get your color. That was my first question. I will ask the one next.
Raul Jacob: Okay. On the expected start-up of Tía María, we have found that it will take a little bit longer for us to doing the mechanical assembly of all the equipment as well as some works related to engineering on the project. I think that is why when we review the expected timeline, we pass it from the fourth quarter of this year to the H1 2027. On potential CapEx increase, we are not reporting on any changes on that. We will mention this issue and address it in the call that we have in January, not only for Tía María, but in general for our production forecast as well as our CapEx for this next year and on.
Carlos de Alba: Thank you. If I may ask, what is your production, maybe not guidance, but the range of where you see production for copper, moly, maybe silver in next year, as well as cash cost before byproducts, maybe in Q4 or 2026 or the full 2026, and also the early indication for next year. Thank you, Raul.
Raul Jacob: Okay. On production for next year, it should be expected to be now for this year about a little bit less than 920,000 tons. For next year, we will provide an update when we finish our. We are doing currently a full review on all our mining plans, and on the base of that, we will issue a much more firmer forecast at the beginning of 2027 in our January call. For cash costs, well, as you know, this is one of the hardest things to forecast because you not only have whatever happens with cost of production of copper and copper production and also what goes on regarding byproducts. Well, let us say that we should be about to where we are now or a little bit better cash cost-wise for next year.
Carlos de Alba: Okay, slightly flat or slightly stable plus maybe slightly better next year. The Q4, do you think will remain also relatively stable versus what you reported in the Q3 2026?
Raul Jacob: I am so sorry, couldn't get what you said, Carlos.
Carlos de Alba: Yeah. On the Q4 2026 costs before byproducts, would you expect them to remain also stable versus the Q3?
Raul Jacob: We don't see any that may distort the cost or increase them. We see some possibilities of a cash cost reduction before any credits, but that's a continuing of getting our production goals, which we're focusing on that as well as our byproducts credits that, as you well know, are strongly influenced by prices in the forward byproducts.
Carlos de Alba: Okay. Thank you, Raul.
Raul Jacob: You're welcome.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Mathias Moreira from Bradesco BBI. Your line is open.
Mathias Moreira: Hi. Good morning. Thank you for taking my questions. Two quick questions on my side. First, on capital allocation. Cash obviously continues to build at a very fast pace. Even with CapEx expected to reach $2.5 billion in 2027, we would expect cash accumulation to continue at this strong pace, right? I am just wondering how is management thinking about the potential for increased shareholder distributions for you? That is my first question. My second question, a broader question on CapEx. We have seen several major projects revise their CapEx estimates higher in the recent months, amid broader inflationary pressures. I know roughly half of Tía María's CapEx has already been deployed. How do you see risks of revising the remaining CapEx higher? How should we think about potential inflationary pressures across your other growth projects? Those are my two questions. Thank you.
Raul Jacob: On potential inflation impact, we are looking on potential inflationary pressures. We are currently reviewing our CapEx. We will be giving some color on this when we report at the end of the year, as well as the look forward for 2027. I am so sorry. There is one microphone that is open. Regarding inflation, we are looking into our projects' current budgets to see if they have to accommodate any variances for next year. So far, we have not reported anything specific on this. Regarding dividends, as you know, it is always a continuing of a board decision. The company has been giving dividends in cash as well as in stock that was acquired at $26 per share that are being handed back to our shareholders, considering the current position of the company, which I think it is very favorable in that regard.
Mathias Moreira: Okay. That is very clear. Thank you.
Raul Jacob: You are welcome.
Operator: Thank you. Our next question comes from the line of Emerson Sosa Vieira from Goldman Sachs. Your line is open.
Emerson Sosa Vieira: Hi, everyone. Good morning. Two quick questions here. The first one is on Cuajone. Just trying to understand when you guys expect to submit the product to board approval and when we could see effectively the incremental copper production coming online. Also, what needs to happen for you guys to take a decision on the expansion to further 152,000 tonnes per day capacity? That is the first one. Just on cash costs, specifically before byproducts, it seems like energy costs in Mexico have been rising due to natural gas. I just want to understand if the cost pressure that we saw this quarter is structural indeed. If you guys see any leverage to potentially offset those impacts. Thank you.
Raul Jacob: Okay. On the Cuajone expansion, we have to finish the technical studies. They are very well advanced. That is why the board has authorized us to mention it in our press release as something that it is very likely to go on. Even though we do not have the final go for the project, we are very close to getting it. I would say that it is going to be a very interesting investment for us. In the case of cash costs, we are seeing different impacts on materials. In the case of gas, we are importing it for the Mexican operations from the Texas Basin, the Permian Basin. That is, being a byproduct of oil, gas has had some very competitive costs that has helped us in our cost for gas consumption at the Mexican operations. We do not see a problem with that.
Raul Jacob: We think that the market will have a reasonable supply at a good cost for the company, for the Mexican operations. Besides this, on the byproducts, being as sulfuric acid producers, we have been consuming our own sulfuric acid at very competitive cost, which is the one that we have for production. A portion of our production, particularly at the Peruvian operations, it is being sold at the South American market, which has a very competitive price for the spot price as well as for our contracts on this. I already cover a little bit our view on the cash costs, and hopefully we will have it maintaining its current level or improving slightly, I would say, regarding to where we are.
Emerson Sosa Vieira: All right. Thank you. Just one more on Quimare, please. Just confirming, the company does not expect CapEx to increase above the $1 billion that is remaining, right? Despite this, let's say, one, two-quarter delay. Just on Quimare, again, the deceleration in physical progress that is of this quarter, you mentioned it was driven by longer times in assembling the mechanical equipment. That was a one-off, and then physical progress should then accelerate in the next quarters. Does this make sense? Thank you.
Raul Jacob: On CapEx, we are currently reviewing all of them, so I am not making a specific comment on that. I could not get the second point of your concern, Emerson.
Emerson Sosa Vieira: All right. Thank you.
Operator: Thank you. One moment for our next question. Next question will come from the line of Myles Allsop from UBS. Your line is open.
Myles Allsop: Great, thank you. Yeah, just a couple of questions. On the Cuajone expansion, if you go large to 150,000 tons per day, should we assume the CapEx is broadly at $1.4 billion, twice the 680 if you put one line in? That is the first question.
Raul Jacob: On this, we are not making any comments. When we finish the studies that are being conducted for 150,000 tons of daily milling capacity, we will report to the market on the estimated CapEx that it has.
Myles Allsop: Okay. But it would be a decision early next year, is what you are suggesting. Either to 120 or 150.
Raul Jacob: Yes. The company, currently we see a much more firmer possibility for going into 120,000 tons. However, we are looking into 150,000 tons of milling capacity since we had some of the estimated restrictions that it had, has been removed, and that is something that allow us to consider this as a possibility. So once we realized that this is feasible, we decided to go ahead with the technical studies for 150,000 to see if we can confirm this as an option, and if so, we would present it to the board for an approval. But for now, the most likely scenario is 120,000.
Myles Allsop: Okay. No, that's very helpful. With Los Chancas, when do you hope to get the illegal miners off? If you are successful getting them off, what's the pathway to FID there?
Raul Jacob: Well, we have a little bit north of 200 illegal miners. We have been in talks with the Peruvian authorities to solve this. They shouldn't be in our concession. Once they are removed from the concession, we believe that we can move on with the environmental impact assessment and some other works that we have to do on a quick pace. If so, that's why we are expecting Los Chancas to go ahead with production by 2032.
Myles Allsop: Okay. Thank you.
Raul Jacob: Sorry. Let me correct what I just said. It's 2031.
Myles Allsop: Okay.
Operator: Thank you. One moment for our next question. Next question comes from the line of David Fang from CICC. Your line is open.
David Fang: Oh, hi. Good morning, Raul and team. Just a quick follow-up question on Los Chancas and illegal mining. We have noticed that the Peruvian government has recently submitted a new proposal to the Congress on a new scheme to replace the original reinforced system. How do you see the potential implications for this move to address the illegal mining problem around the Los Chancas? Are you seeing any positive signs on the ground that could help the project forward?
Raul Jacob: In this case, we have a group of people doing mining activities in a concession and a land that is company property. For this specific case, they have to go out of our concession and our property. In the case of what you just mentioned, this new proposal given by the government is one initiative of the Ministry of Energy and Mines, which we certainly think is a step in the right direction for the country because we cannot maintain the current situation where you have an operating certificate that is not complying with the proper production, labor, and environmental practices for artisan mining. That has to be fixed, and we hope that the law is discussed at Congress and we get a good tool for the development of artisan mining in Peru.
Raul Jacob: But in the specific case of Los Chancas, they have to leave the premises that they are currently using, and with that, the company will go on with the project.
David Fang: Understood. Thank you very much. Also, I think we have also seen some encouraging comments from the new administration about streamlining the application for mining permits. I am just wondering from your discussions with the authorities, what kind of or which parts of the approval process could see the most meaningful improvements, and could this potentially help accelerate projects such as Michiquillay?
Raul Jacob: We think that the government has been appointed in key positions, a very well-rounded and technical capable personnel that should improve the process of moving forward projects. Besides this, I think that we are seeing this effort by the Ministry of Energy and Mines of eliminating or replacing by a statement some procedures. We think that this is going to be very helpful for the industry, but we need to see the specific procedures that will be changed by this effort of the authorities. However, we believe that it is a step in the right direction for the government and the industry and the country.
David Fang: Understood. Thank you very much.
Raul Jacob: You are welcome.
Operator: Thank you. Our next question will come from the line of Bogdan Goya from Far Hills Fitness. Your line is open.
Bogdan Goya: Hey, good morning. Thank you for the call and all the information. On Quellolache in Peru, could you give us an update on where things stand and potential integration and expansion on that deposit and that location in Peru?
Raul Jacob: This is an operation where we are in a joint venture with Buenaventura and some other partners. We are currently working on a sulfide deposit development for copper. There are different options that are being reviewed, and I think that is pretty much what I can say on that. It is something that is moving forward. We see this as a good opportunity for the future, but there is nothing to report at this point.
Bogdan Goya: Okay. Thank you.
Raul Jacob: You're welcome.
Operator: Thank you. Our next question comes the line of Alfonso Salazar from Scotiabank. Your line is open.
Alfonso Salazar: Thank you, and good day, Raul. A couple questions. The first one is regarding El Pilar. I understand that the increase in CapEx is related to additional infrastructure that you need to include in the project. I think that you will have to build the transmission lines. Just want to confirm if that is the case. The second is regarding the Cuajone expansion. This is a project that has been in your portfolio pipeline for many, many years. Just wondering what drove the delay, or is this simply not the best timing for doing it? Just try to understand that. Also, what is the water situation? If you have enough water and anything you need for an expansion of this size, especially for the one that you are considering as well of 150,000 tons per day capacity.
Alfonso Salazar: So, if you can give us some color on that, please.
Raul Jacob: Sure, Alfonso. In the case of El Pilar, we have an increase in CapEx. Well, we have been looking into this project for quite a while. We had the challenge that we want to increase the recovery that we were getting from the mineral that was treated at the El Pilar investment. Besides this, the CapEx increase is also related to the inflation that we have seen in some equipment. Keep in mind that the cost of El Pilar, the prior one, was kind of a historic budget that was prepared a few years back, a little bit more than 5 years away. In the case of the Cuajone expansion, well, we have been looking into different possibilities for getting the water for the project, and that has taken a little bit longer than what we believed a while ago.
Raul Jacob: But in general, we think that we have identified good sources of water for the Cuajone expansion. For 120,000 tons, we believe that we have all the water requirements that we have. We need to do some other works on the technical side and some other challenges that the project has, and that's why we have taken a while to look into this matter and making a proper decision. But now we're reporting that this is a good possibility for us, and we will be showing the advancement that we have on this matter as we move on into, well, the end of the year and 2027.
Alfonso Salazar: Just to confirm, so you have to build the transmission lines for El Pilar, or it's the Comisión Federal that's going to deal with it?
Raul Jacob: Sorry, I couldn't get what you just said, Alfonso.
Alfonso Salazar: Yeah, sure. For El Pilar, are you including the transmission lines in your budget for the project or not?
Raul Jacob: No, I don't have a specific answer for that question, Alfonso.
Alfonso Salazar: Okay. Thank you.
Operator: Thank you. Our next question will come from the line of Matt Dushkin from Wells Fargo. Your line is open.
Matt Dushkin: Yeah. Hey, guys. How y'all doing? I just wanted to clarify the questions on the cost. I know we went over it a bit. It sounds like you're guiding or pointing to flat sequential costs before byproducts for Q4. For 2027, when you said flat to lower, is that from the Q3 level, like the Q3 run rate? Are you talking about full year 2026?
Raul Jacob: No, it's sequential for where we are. Please keep in mind that cash cost is very difficult to predict. We're at a very competitive cash cost of $0.09 per pound this past quarter. If prices of our byproducts hold, and copper, I think copper production will improve a little bit on the Q4 vis-à-vis last year. We should be reporting a cash cost before byproduct credits in line or slightly better than what we did last quarter. That's our expectation at this point. For 2027, we will report in detail when we address the January call with our 2026 results, as well as the outlook for 2027 and the next years.
Matt Dushkin: Okay. That's helpful. I know this is also really tough to predict like costs, but, just with everybody talking about a super El Niño, and potential big impacts to mining maybe in Peru, how are you all preparing for it, if you are at all? What kind of things can you do in advance, to get ready for, I think it's supposed to hit in early 2027.
Raul Jacob: Well, depending on where you are in the country, the El Niño has a different impact. In the case of where we are, we are at the southern part of Peru. The usual trend of El Niño, it's that you have excess rain at the northern center to a northern part of the country and a draw on the southern part. So we have been evaluating our water sources. We have been taking some actions to be sure that we have all the water that we need for next year. The balance has shown us that we have a reasonable supply, even to address this draw. We're expecting at the southern part of Peru.
Matt Dushkin: That's helpful. I appreciate the color.
Raul Jacob: You're welcome.
Operator: Thank you. Our next question will come from John Brent from HSBC. Your line is open.
John Brent: Hey, Raul. Thanks for taking my questions. First, I just wanted to ask on project timelines. You mentioned 2031 for Los Chancas, but obviously that's dependent on getting the illegal miners out. Is there a timeline? When do you need to remove the illegal workers to hit that 2031 startup? Along with that, I think you said Michiquillay was coming in 2032, and these are two relatively big projects. I am just trying to understand your level of comfort around hitting these timelines of 2031 and 2032 startup for both of these projects. My second question relates to, I guess, the TC/RCs, the negative TC/RCs that we are seeing in China. I know historically you have said there might be some investment in your own smelting and refining capacity.
John Brent: I guess I just want to understand how the negative TC/RCs in China are impacting you, your potential capital investment going forward, and even on, are you sending more concentrate to China to take advantage of these TC/RCs? Any sort of color you could mention there would be great.
Raul Jacob: Okay. On the timeline for Los Chancas and removing the illegal miners, I do not want to put a specific deadline for removing them, but obviously it has to be in a relatively short term. Otherwise we cannot move on with all the other parts of the project that we need to comply with in order to get the environmental impact assessment finished, get the permit for construction, and so on. We consider that we could begin the construction in 2028, in the second half of 2028. With that, we should be finishing the project by 2031. In the case of Michiquillay, we do not have illegal mining activities, and we do have a social contract signed with social agreement signed with the two communities that are in the Michiquillay that are directly related to the Michiquillay project.
Raul Jacob: On that, I do not think that we have a matter. The work with these two communities is moving forward on the right path, and we are certainly very positive and optimistic on Michiquillay. The timeline goes to 2032 because we are at the more far beginning of all the process for getting the project complete and all the permitting ready, et cetera. Focusing on negative TC/RCs, well, obviously, it is hard to consider building a new smelter with this environment where you get a premium on top of your concentrate copper price. That is what it is happening here with the negative TC/RCs. The upside is that sulfuric acid prices are at a good level, and that is something that help us in our revenues because we are long in sulfuric acid, particularly at the Peruvian operations.
Raul Jacob: Obviously, the possible new smelter for both Peru or Mexico is something that is contingent of having the proper market conditions. We are considering the current circumstances as one of the points that have to be addressed and probably change in direction before we go ahead with the construction of a new smelter in any of these two countries. However, this is something that goes to our DNA of being an integrated copper producer. We think that the fact that we produce refined copper, and this is something that will increase when we put Tía María and El Pilar. Both projects will produce refined copper with very high quality, which is certainly appreciated by the market that provides us not only with the copper price, but also with a premium on top of the market price for our refined copper.
Raul Jacob: This is for us being fully integrated and producing more refined material is one of the goals that we are looking into for the long run of the corporation.
John Brent: Great. Thanks, Raul.
Raul Jacob: You are welcome.
Operator: Thank you. I am not showing any further questions in the queue. I would like to turn the call back over to Raul Jacob for closing remarks.
Raul Jacob: Thank you very much, Victor. Well, with this, we conclude our conference call for Southern Copper's Q3 results. We certainly appreciate your participation and hope to have you back with us when we report the Q4 of this year and the full 2026 results. Thank you very much for being with us today, and have a nice day.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.
