Southern Copper Corporation 2026 Q3 Earnings Call

Good morning, and welcome to Southern Copper Corporation's third quarter 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 third quarter 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.

Thank you very much, Victor. Good morning, everyone, and welcome to Southern Copper's third quarter 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 third quarter 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. At this point, 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.

Today, we will begin with an update on our review 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 third quarter 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 deficit or a slight copper market surplus for 2026. Copper inventories worldwide, the total combining stocks in LME, COMEX, Shanghai, and London warehouses, it sits at 1,105,000 tons as of October 9 of this year.

We estimate that these inventories can currently cover approximately 14 days of global demand. Now let's look at Southern Copper's production for the past quarter. Copper represented 74% of our sales in the third quarter of this year. Copper production registered a decrease of 1% compared to the third quarter of 2025 and stood at 232,396 tons this past quarter. Our quarterly results reflect 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 recovery. 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 Encina mines.

Our copper smelters and refineries increased their production by 18% and 16% respectively in the third quarter. On a year-to-date basis, copper production fell 2.9% in 2026 to stand at 693,602 tons. 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 plans. Molybdenum represented 12% of our sales in the third quarter of 2026 and is our primary by-product. Molybdenum prices averaged $32.93 per pound in the quarter, compared to $24.30 in the third quarter of last year.

This represents an increase of 36% in price. Molybdenum production dropped 2% in the third quarter 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. 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 the third quarter of this year. Silver prices averaged $62.80 per ounce in the quarter, compared to $39.56 per ounce in the third quarter of 2025. This represents an increase of 59%. Silver is currently our second most important by-product.

Mine silver production increased 2% in the third quarter 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 increased 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. For zinc, it represented 4% of our sales value in the third quarter of 2026, with an average price of $1.74 per ton in the quarter, which represents a 36% increase compared to the third quarter of last year. Zinc is currently our third by-product. 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 the third quarter vis-à-vis the third quarter of 2025. For this year, we expect to produce 163,400 tons of zinc, 1% below our initial plan. Looking into our financial results for the third quarter of 2026, sales were $4.7 billion, which is $1.3 billion above the sales print in the third quarter of 2025 or a 39% increase. Copper sales increased 41%, while volume decreased 0.4% in a scenario of better price. As we mentioned, the London Metal Exchange price increased 44% and the COMEX 34%. Regarding our main by-product, 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 ride in the wake of better prices, whose impact was partially offset by a decrease in volume. Our total operating costs and expenses increased by $223 million or 17% when compared to the figure in the third quarter of last year. The main cost increments were in diesel and fuel, workers' participation, inventory consumption, depreciation, power, and labor cost. These cost increments were partially offset by translation difference of $22 million, plus an exchange rate variance that favor our cost in local currency. Our third quarter adjusted EBITDA hit a record high of $3 billion, which represented an increase of 54% with regard to the $2 million registered in the third quarter of 2025.

Adjusted EBITDA margin in the third quarter of this year stood at 65% versus 59% in the same period of 2025. Adjusted EBITDA for the 9 months of this year was $1.8 billion, which is 56% higher than the print for last year. The adjusted EBITDA margin in the 9 months of 2026 stood at 65% versus 58% in the same period of last year. Cash cost. Operating cash cost per ton of copper net of by-product revenue credits was $0.09 in the third quarter of 2026, which represented a decrease of 77% compared to the $0.52 reported in the third quarter of 2025. This result was mainly driven by an increase in by-product revenue credits of 31%, which rose on the back of better price. Operating cash cost per ton of copper before by-product credits was $2.46 per pound this past quarter.

This is $0.23 higher than the value for the third quarter of 2023. This 10% increase in operating cash cost before credits was the result of an increasing 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. Regarding by-products, we had a total credit of $1.2 billion or $2.36 per pound in the third quarter of 2026. These figures represent a 31% increase compared to a credit of $900 million, or $1.81 per pound, in the first quarter of 2025. Total credits increased for molybdenum, zinc, silver, and sulfuric acid. For the 9 months of 2026, the operating cash cost per pound, net of by-product credits, was $0.01.

This represents a decrease of 98% compared to the $0.61 reported for the 9 months of 2025. For the year, cash cost decrease was driven by an increase in by-product credits of 54%. This is for the year-to-date figure of total cash costs. The third quarter of 2026 net income hit a record high of $1.8 billion, which is up 63% versus the $1.1 billion produced for the third quarter of 2025. This was mainly due to higher net sales. Net income margin in the third quarter 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 the third quarter of the year was $2.2 billion, 43% above the figure in the third quarter of 2025. This improvement was mainly attributable to strong cash generation at our operations, which was driven by higher sales. For the nine 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 nine months of 2025. Capital investment. 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'm going to focus on updating new developments for each. For the Peruvian projects, I'll begin with Tía María.

Tía María is expected to produce 120,000 tons of SX-EW copper cathodes per annum in the early years of operations. Operations are scheduled to begin in the first half of 2028. As of September 30th 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 have been transferred to the La Tapada stripping deposit. Most work orders for the project's primary equipment have been issued. 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 substation and the 220-kilovolt transmission line is in final stage of construction.