Southern Copper Corporation

Good morning and welcome to Southern Copper Corporation's second quarter in six months 2024 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 second quarter in six months 2024, 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 risk and uncertainties. Actual results may differ materially, and the company cautions not to place undue reliance on these forward-looking statements. Southern Copper Corporation undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. All results are expressed in full U.S. GAAP. Now I will pass the call on to Mr. Raul Jacob.

Thank you very much, Carmen. Good morning, everyone, and welcome to Southern Copper's second quarter 2024 results conference call. At today's conference, I'm joined by Mr. Oscar Gonzalez Rocha, CEO of Southern Copper and board member, as well as Mr. Leonardo Contreras, who is also board member. In today's call, we will begin with an update on our view of the copper market and then review Southern Copper's key results related to production, sales, operating costs, financial results, expansion projects, and ESE. After this, we will open the session for questions. Now let us focus on the copper market. The London Metal Exchange Copper Prize increased 15% from an average of $3.85 per pound in the second quarter of 2023, up to $4.42 this quarter. Based on the production cuts announced by several producers and other information to date, we're expecting a market deficit of about 217,000 tons of copper for 2024. At this point in time, we estimate that the copper supply will increase slightly by 0.6%. That's about half of a percentage point. Looking at the demand, even though we see weak China's demand mainly from its real estate market, a resilient U.S. economy, and new demand from decarbonization technologies as well as artificial intelligence, are supporting copper demand and prices. Now let's look at Southern Copper's production for the past quarter. Copper represented 76% of our sales in the second quarter of this year. Copper production reached 76% in the second quarter in quarter-on-quarter terms to stand at 242,474 tons. Our quarterly results reflect a 15% increase in production in Peru, and this improvement was driven by growth at the Toquepala mine, which increased its production by 21%, which was boosted by higher oil grades. Production at our Mexican operations increased by 0.7% in quarter-to-quarter terms, mainly due to higher production at our La Caridad mine, partially offset by a decrease in the production at Buena Vista and INSA. For 2024, we expect to produce 963,223 final prints. This growth will be fueled by recovery at our SXEW facilities at Buena Vista and by the copper production of our new Buena Vista sink concentrator which is operating at full capacity. Molybdenum production represented 12% of the company's sales value in the second quarter of this year and is currently our first pet product. Molybdenum prices average $21.69 per pound to $20.87 per pound in the second quarter of last year. This represents an increase of 4%. Molybdenum production increased by 21% in the second quarter compared to the same period of last year. This was mainly driven by higher production at the Plurian operations and the Buena Vista mine due to higher ore grade. These results were partially offset by lower production at La Caridad mine. In 2024, we expect to produce 27,400 tons of molybdenum, which represents an increase of 2% over our 2023 production level. Silver represented 5% of our sales value in the second quarter of this year, with an average price of $28.84 per ounce in the quarter, which reflected an increase of 19% versus the 2023 second quarter price. Silver is currently our second by-product. Mine silver production increased 8% in the second quarter of 2024 versus the same period of 2023. With the sole exemption of INFA, production rose at all our operations. Refined silver production increased by 28% quarter over quarter which was mainly driven by growth in our La Caridad and Hilo refineries. In 2024, we expect to produce 20.6 million ounces of silver, an increase of 12% compared to 2023. Zinc represented 4% of our sales value in the second quarter of this year, with an average price of $1.29 per pound in the quarter, which represents a 12% increase in price compared to the second quarter of last year. Zinc mine production increased 71% quarter and quarter and total 29,419 tons. Growth was driven primarily by the 13,653 tons produced at the new Buena Vista Zinc Concentrator and by an increase in production at the Charcas mine. We find zinc production increased 6% in the second quarter of 2024, vis-a-vis the second quarter of last year. For this year, we expect to produce 121,800 tons of zinc, which represents an increase of 86% over our 2023 production level. We are increasing our expected production for zinc in 86% this year. This growth will be driven by production at our Buena Vista zinc concentrator that will have 55,400 tons, which has ramped up to better than planned. For 2025 and on, we expect to produce 178,000 tons of zinc per year. financial resource. This year, net sales were 3,818 million, which represented growth of 36% with regard to the second quarter of the past year. Expansion was primarily fueled by an increase in sales volumes of copper, which grew 5.5%, by 21% increase, Silver, 32% increase, and zinc, 78% increase in sales volumes. Also, we had an increase in metal prices for all of our products. Our total operating costs and expenses increased 111 million, or 8%, when compared to the second quarter of last year. The main cost increment has been in workers' participation, repair materials, contractors and operating materials, sales expenses, copper, and other factors. These cost increments were partially offset by a decrease in the energy cost and in exchange rate variance. In the first half of the year, we saw unitary cost reductions for several materials and services, such as branding media, steel, explosives, tires, and power costs. These savings, however, have been somewhat offset by higher costs associated with growth in production and sales volume, and by an increase in maintenance and contractors' expenditures, which we are closely monitoring and controlling. Looking at our EBITDA, the second quarter of this year adjusted EBITDA was $1,797 million, which represented an increase of 61% with regard to the $1,116 million registered in the same period of 2023, the second quarter. The adjusted EBITDA margin in the second quarter of this year stood at 58% versus 49% in the same period of 2023. Adjusted EBITDA in the six months of 2024 was $3,215 million. This is 20% higher than what we had in the six months of last year. Adjusted EBITDA margin for the first half of the year stood at 56% versus 53% in the same period of 2023. Cash costs. Southern Copper's operating cash cost, including the benefit of by-product credits, was 76 cents per pound in the second quarter of 2024. This cash cost was 31 cents lower than the cash cost of $1.07 that we had for the first quarter of 2024. This is a 29% reduction in cash cost. Before by-product credits, the operating cash cost was $2.15 per pound this past quarter. This is 4 cents higher than the value that we had for the first quarter of 2024. This 2% increase in the operating cash cost before virtual credit reflects an increase in cost per pound from production costs, administrative expenses, lower premiums, And these higher costs were partially offset by lower treatment and refining charges. Regarding byproducts, we had a total credit of $716 million, or $1.40 per pound, in the second quarter of this year. These figures represent a 34% increase in byproducts. when compared with the credit of $532 million, or $1.04, that we had in the first quarter of this year. Total credits have increased for molybdenum, zinc, and silver, and decreased somehow for sulfuric acid. The second quarter of 2024 net income was $950 million, which represents a 74% increase with regard to the $548 million registered in the second quarter of last year. The net income margin in the second quarter stood at 31% versus 24% in the second quarter of 2023. This increase was mainly driven by a 36% increase in sales, which was partially upset by higher operating costs related to sales volume, GMA, and exploration expenses. On a year-on-year basis, net income was 24% higher than in 2023 for similar reasons. Cash flow from operating activities in the six months of this year was $1,622 million, which represents a decrease of 18% compared to the $1,982 million posted in the six months of 2023. Cash flow in the first half of this year was affected by a significant increase in working capital of $511 million, which was mainly driven by an increase in accounts receivable at our Mexican operations. For capital investments, our current capital investment program exceeds $15 billion, and it's included And it includes investments in the Tia Maria, Los Chancas, and Michiquillay projects in Peru, and in the Buenavista Sink, El Pilar, and El Arco projects in Mexico. This capital forecast includes several infrastructure investments, including key investments to both of the El Arco projects. In the second quarter of this year, we spent $332 million on capital investments, which reflected a 31% increase over the figure reported in the second quarter of 2023 and represents 36% of net income this quarter. In the first half of the year, we spent $546 million on capital investments, which represents 33% of net income and reflects the impact of an 11% increase in capital expenses year on year. Since there is a description of our main capital projects in southern coppers personally, I'm going to focus on updating new developments for each. This past quarter, we completed ramp up at the Buena Vista Think Concentrator, which graduated from project to operating unit status. The Think Concentrator is operating according to our expectations. producing 23,300 tons of zinc and 5,500 tons of copper today. Our projections indicate that we will comply with the 2024 plan of producing 55,400 tons this year. And we expect this facility to generate an average of 90,200 tons of zinc and 20,000 tons of copper per year in the next five years. For the Peruvian projects, we have the Tia Maria project, which is a greenfield project. This project will use state-of-the-art SXEW technology with the highest international environmental standards to produce 120,000 tons of SXEW copper cathodes per year. Southern Copper has consistently promoted the welfare of the population of Islay province and Arequipa region. As part of these efforts, we have implemented successful social programs in education, healthcare, and productive development to improve the quality of life in the region. As of July 1st of this year, the company has restarted activities at the Tia Maria in the province of Islay. the Arequipa region, and at the national level. We reiterate our view that Tia Maria will generate significant economic and social opportunities for this live province and the Arequipa region. In 2024, the company will, among other scheduled activities, install a live fence as well as 1,000 fox catchers. Southern Copper will also roll out air moving work this year. All these activities will generate 270 direct jobs in 2024 for the local population. In 2025, we expect to begin mine construction, which will generate 1,100 direct jobs. with workers from the East Light Province. When we start operations in 2027, the project will generate 600 direct jobs and an estimate of 4,800 indirect jobs. Our social programs in East Light total 6.3 million in the last two years. Our current programs promote a reduction in the cost of agricultural production by improving productivity with cutting-edge technology. Additionally, we're working to provide internet access to 4,600 school students. On top of this, we're committed to developing health facilities, high-performance schools, research centers, and roads in the Arequipa region via the War for Taxes mechanism. Tiamaria will generate significant revenues for the Arequipa region from day one of its operation. At current corporate prices, we expect to export $17,500 million and continue with $3,400 million in taxes and royalties during the first 20 years of operation. The company is currently reviewing its historical capital budget for Tia Maria of $1.4 billion. We will update this budget by year end. For Los Chancas project located in the Apurímac region in Peru, the company continues to coordinate efforts with the Peruvian authorities to eradicate illegal mining activities. 40,000 meters gather additional information on the characteristics of the Los Chancas deposit. For the Michiquillai project in the Cajamarca region of Peru, as of June 30th of this year, total advancement on the exploration project stood at 30%. We drilled 104,000 meters on a total program of 148,000 meters and obtained 33,991 core samples for chemical analysis. Diamond drilling is underway, which will provide data for cross-section interpretation, geological modeling, and resource evaluation. This month, we will begin hydrogeological studies, and in August, geotechnical studies will commence. We will also assess the results of metallurgical testing at the deposit in August. For environmental, social, and corporate governments, or ESG practices, We are glad to report that on August 1st of this year, the company will begin receiving eolic energy from the Phoenicia Wind Park, which is operated by Grupo Mexico Infraestructura. This will reduce our CO2 emission by approximately 250,000 tons per year, which is equivalent to 7% of Southern Copper's carbon footprint. Southern Copper recently published its Sustainability Development Report, significantly improving the granularity and specificity of information regarding our performance, commitment, and efforts in environmental, social, and governance areas. Our Buena Vista mine in Sonora, Mexico, has received the copper mark, the zinc mark, and the molybdenum mark certifications for responsible production, following a third-party independent evaluation of our performance in environmental, social, and government matters, including on this human rights. Consequently, all open-pit copper, zinc, and molybdenum production from our Mexican operation is currently certified by mark standards. For education, our IMPULSA program seeks to provide our workers in Mexico with opportunity to qualify for certification of obtaining of primary and secondary education and bachelor's degrees. From 2022 to date, more than 970,000 people, I'm sorry, 970 people have participated in this program and 430 have graduated. At present, there are 540 workers actively participating in IMPULSA. For human development, the sports advisor and coach of the Sonora Operations Swimming Team, Jorge Higa, qualified for the Paris 2024 Olympic Games after breaking the Mexican record for the 100 meter freestyle. Thanks to Mr. Higa's support, In 2024, 17 students from our academies participated in six top-level competitions. Dividend announcement. Regarding 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. Accordingly, on July 18th of this year, Southern Corporation announced a quarterly cash dividend of $0.60 per share of common stock and a stock dividend of 0.0056 shares of common stock per share. This is payable on August 26th of this year, 2024, to shareholders of record at the close of business on August 9th, 2024. Ladies and gentlemen, with these comments, we end our presentation today. Thank you very much for joining us. Now we would like to open the forum for questions.

Thank you. And as a reminder, you need to press star then 11 to get in the queue and wait for your name to be announced. To remove yourself from the queue, press star 11 again. One moment for our first question, please. And it comes from the line of Carlos de Alba with Morgan Stanley. Please proceed.

Thank you very much, Raul, and everyone. Good talking to you. Raul, just on Tia Maria, I would like to understand the rationale behind the new environmental approval or study the company is doing or trying to get from the government that would be in relation to a dam that will supply water. and not pursue the original desalination planned post pumping station and pipeline. Given the less than positive history of the project, why would the company introduce this new uncertainty, which honestly, in my opinion, is just going to complicate matters for the company? Potentially, but I want to clarify with you, this is because the CAPEX will be lower and or the OPEX will be lower. Can you talk about the magnitude, if I'm correct, the magnitude of the return on investment that the company would get with a dam as opposed to a desalination plant? Or how much is the CAPEX for the desalination, the pumping station and the pipeline? relative to the construction of IDAMP, and what is the difference in the OPEX going forward within the two projects? Thank you.

Okay, thank you very much for your question, Carlos. At this point, we're maintaining our approved project, which considers the diesel plant. This is what we're developing right now. If there is a possibility later on in time of... including a dam to get the water that the project requires, we will consider that. But at this point, we're following our current detailed plan for the project. Regarding the costs, we're currently... As you know, we have been reporting a capital expense of about $1.4 billion for the project. but we are currently revising it because we want to add some facilities that were not considered in the first project, and we have, obviously, we need to accommodate some inflation costs in the project total cap. For new facilities, I mean a new road that will connect the project to the coast of Islay, not passing through the Tambo Valley. That will remove one of the concerns that the farmers of Islay or the valley have about the trucks and all the materials that will move on for the project construction that will disturb the valley's environment. So for avoiding that, we're considering building a new road that it's a 20-kilometer road, roughly speaking. And some other changes, since the project was approved in 2014, we have seen some technological advances that we want to include in the capital budget as well. So as we indicated in the press release, we are expecting to announce this by year end at the most. So that's the current status.

Thanks. Just one clarification. So you will build a road, not a railway, right?

No, both things. The railroad will be for moving up the sulfuric acid and materials that we need to operate and down basically the production on a daily basis. However, for the construction phase and to communicate directly to the coast, we will will be a road that will connect the plant and the facilities for the project with the coast of Moyendo.

All right, got it. Okay. And then my second question is related to the outlook for cost before byproducts. If I missed it, I'm sorry, but if you didn't mention, could you please let us know how you see the evolution of your cash costs before byproducts, the benefit of byproducts?

Well, it's hard to know because you always have price variances either way, but I believe that we will be at about $2 per pound before subtracting credits. Please keep in mind that those $2 now include the additional cost of our new concentrator for Zinc. So it's all the cost of the company, which includes the cost of the byproduct plants that are related to our production complex, divided by the pounds of copper that we're producing. So for this year, we expect it to be at about $2. And then it depends on the production level that we have. If we, for instance, in 2027, when we add Tia Maria to our current production profile, we certainly will reduce our cost before by product credits because the Tia Maria expected cash cost is in the range, the lower range of a dollar plus. Okay. Thank you very much. You're welcome, Carlos.

Thank you. One moment for our next question, and it's called

coming from marcio farid with goldman sachs please proceed thank you morning everyone and thanks for the opportunity um a couple of follow-ups on my side here uh firstly how um i think up execution was a bit stronger than we're expecting for the quarter uh it's still relatively you know half of uh yearly guidance right but just trying to understand if investments for Tia Maria are expected to be really high for this year. I think you had pretty much close to zero for Tia Maria in the guidance for this year. Are you anticipating some more investments related to that as investments seem to be quite remarkable at this point? And how should we think about final year CapEx and for Tia Maria specifically as well? And similarly for production as well, I think pretty good numbers, but roughly in line with our estimates. You know, we had, I think, guidance for the year is around 950,000 tons. How are you thinking about, you know, final year guidance and your ability to reach the production guidance for the year, please? That will be my question. Thank you.

The second one is how sure do we feel about the production guidance, right? Yes, yes. Okay, let me start by this one. Okay, we feel very confident that we will either maintain or improve our production guidance in the second half of this year. We're seeing our zinc new concentrator. It's certainly operating at a very good pace. We were very satisfied on that. On the first half of the year, our SXEW production at Buena Vista, was affected by some water scarcity that has been fixed. We're already getting even more water than what we expect to have due to the higher rainy season that we're seeing at the Sonora State. So that is going to help our production of SXEW copper for the second half of this year. We have not included that as part of our current guidance, and I believe that that will be an upside factor for us. Coming to your first question on the CAPEX for Pia Maria. This year, we are spending, as I said, we're doing a life defense that we will continue be around the expected place for the new facilities for the project. And we will basically spend much less than a project of this magnitude would require. However, we believe that we will be accelerating the capital expenditures for the project through the second half of the year. And for 2025, we spend in Tia Maria about $316 million. That will be for earth moving activities and some other items that are related to the project. I mentioned the road that we want to build. That will be obviously a very important source of new labor requirement, which is one of our priorities to use people from the East Light Province and the Tambo Valley specifically. And then for the rest of the campus, we will advise before year-end on this.

Okay. Can I just quick follow up as well? It sounds like cost was a lot better on after byproducts base. Volumes are strong, obviously. We did not have the breakdown by each product until the full financial statements are out. But what do you think was the beat in terms of positive surprise for after byproducts cost and obviously byproducts production and revenues as well, please?

Well, as I commented when we covered the cash cost portion of the presentation, we have had the benefit of both better prices and higher volumes. The new zinc concentrator obviously was important for getting higher volumes. We have also had molybdenum production coming from our mines. Zinc, well, I mentioned already the impact of having a much higher zinc production coming from the new zinc concentrator. And silver comes in higher quantities, not only from our mines, but also as a byproduct of the zinc So, higher volumes and better prices, that's what the, in my view, explain the positive surprise that you were mentioning, Martin.

That's great, Paulo. Thank you very much.

You're welcome.

Thank you. One moment for our next question. And it's from the line of Alejandro Demichelis with Jefferies. Please proceed.

Yes, good morning, gentlemen. Thank you very much for taking my questions. A couple of things. First is a follow-up on your net cash cost. Raúl, if I'm understanding correctly what you were saying, which is higher volumes of zinc, higher volumes of silver, then we should assume that that extra by-product revenues should be stable, obviously with all the variations of prices, but then your net cash cost should it kind of remain below the $1 per pound?

Hopefully, yes. But we have to see where the prices are going through the rest of the year. We don't know where prices are going to be in the second half of this year. But regarding volumes, I believe that we will maintain the volumes that we have been achieving year to date for our As well as copper, I already mentioned on copper that we would like to improve on the forecast that we mentioned, but for byproducts also, we should maintain the production level. Hopefully prices will be well the same or even better if we see a better forecast, but that's where we are now.

Okay. And then... It is a follow-up, obviously, from the last quarter. Maybe you can give us some kind of indications how we should think about or how you're thinking about dividends for the rest of the year. Should we assume it's like a 50-50 between cash and stock?

I can only say that it's up to the board to make that decision. I think that the dividend, as was mentioned, having 50% in cash and 50% in shares. It's reflecting the new investment that we are undertaking, the Tia Maria investment, as well as some payments that we have to do for next year. If you see in our balance sheet, we have almost $500 million in payments in debt repayment that we'll have to do in April next year. So I believe that has made our board a little bit more conservative in the cash dividend and a way to reflect the good time that we're seeing in our market and the production levels of the company that has been joined by by dividend in shares as well.

Okay, that's good. And just to confirm, you said that for Tia Maria, for 2025, the CapEx expectation is about $300 million, something like that?

$316 million, that's the current budget. However, it's under review, and we would like to accelerate our CapEx expenses in Tia Maria. But obviously, with the the proper activities to move on.

Okay, that's fantastic. Thank you very much.

You're welcome. Thank you. One moment for our next question that comes from Sophia Martin with GBM. Please proceed.

Hi, thank you for taking my call. I was just wondering if you could share with us your copper production guidance for the next couple of years. Thank you.

Certainly, Sophia. Okay, for 2024, I already mentioned 963,200 tons. For 2025, we will have a slight reduction in production coming from the from the Buena Vista mine and the open pit operations of Peru. That will put us now at 921,000 tons. And then we will have an adjustment. All of these adjustments are basically coming from lower oil grades. For 2026, we're expecting a little bit less than 900,000 tons. 2027, 960. and 70,000 tons. And then when we get in 2000, well, in 2027 and 2028, we'll be getting the benefit of the Tia Maria for production. And that will increase our production forecast to over a million tons by 2028. Perfect. Thank you very much. Yes. And for the next year, even though we haven't received the board approval yet, we're considering an expansion of the Quahogne mine that will increase its capacity by about one-third of what it is right now. However, that is not included in our current capital forecast. That is something that the company is working on.

Perfect. Thank you very much. You're welcome.

Thank you. Our next question comes from the line of Hernan Kisluk with MetLife. Please proceed.

Good morning. Thank you for taking my questions. Following up on the previous questions about dividends and also talking about Tia Maria and the capital that we need going forward, can you maybe remind us what are your capital allocation priorities? So we think that... but then thinking about the cash position, the net debt level, and the changes that you have been doing on the dividend front, how should we think about going forward?

Well, going forward, the company's focus has been mentioned in several forums as well as these conference calls. We are focusing on organic growth, We're currently developing the, we already finished the Think, the new Think Concentrator in Buena Vista. And we're focusing on the project that the company has, which are pretty much 100% owned by the company. And, well, currently we are moving forward with Tia Maria. We already finished the zinc concentrator in Mexico. We do have two other projects in Peru and one big project in Mexico, which is in Peru, the Los Chancas and Michiquillay projects, and in Mexico, El Arco and El Pilar. That are two projects. And that's a part of our pipeline in mining, specific copper mining projects. And besides that... For the future, we're also considering the construction of metallurgical complexes, one in Peru and one in Mexico. That will certainly be a way to process the long concentrate production that we have now.

And even the growth projects that you have are going to grow the outer space? Should we expect a stable net debt level for the next few years, or will it go along with ? I'm so sorry.

I'm so sorry. I couldn't get what you said. Net debt level.

Net debt level. Yeah. Should we consider that it will grow together with the asset base in the next few years?

For now, we have been paying our total debt. We pay about $700 million in the last five years. Next year, we have the maturity of one of our 10-year loans or bonds that will mature in April, and it has a capex or a principal of $500 million. If we move on with projects, I believe that we will certainly touch the debt markets in the future, but at this point we have no concrete plans to do that.

Okay. Thank you.

You're welcome. Thank you. One moment for our next question. And it's from the line of Alfonso Salazar with Scotiabank. Please proceed.

Hi, Raúl, and good day. Two questions on my side. The first one is regarding production and sales levels. For several quarters now, we have seen that production is above shipment. So I'm just wondering what is behind this, and if there is any reason in the long term to assume that these numbers shouldn't be the same. The second question is regarding permits for tailings dams in Mexico, which We hear that some companies are having problems to secure these permits, and they have to slow down production, or they are considering having to do that in the future unless they get these permits. If there is any situation like that in your case, and also if there's any update on the water pipeline that you need for Buena Vista.

Okay. Well, We have the difference that you mentioned, Alfonso, refers to the difference between the copper contained in our mine production vis-à-vis the refined copper that we sell. As you know, we sell about 75% of all the copper production that we do is sold as refined copper or further processed copper. such as rot. If you see our production of copper and the sales, usually they are slightly lower, the sales in volume, compared to the production volumes that we report. That's one of the reasons why you see this over time. And your second question, I'm so sorry, could you repeat it, please?

Yeah, sure. Regarding tailings dam permits in Mexico, because we hear that some companies are having some problems. Yes.

No, we haven't had any problems with that. We're currently working to have all of our tailings dams not only operating with the safety that we need them to have in order to maintain our operations at a sound pace. But nothing to report on that regard. We are basically looking to growing the capacity of these paving dams and we are so far with no issues about this.

Excellent. Any update on the water pipeline for Buena Vista?

No. For now, it's basically as has been reported before.

Okay. Perfect. Thank you, Rob.

You're welcome. Thank you. One moment for our next question. And it's from the line of Miles Alsop with UBS. Please proceed.

Great. Thank you very much for taking the question. Maybe a few quick questions, follow-up. So with Tia Maria, since your activity has been picking up over the last few months, have you seen any social unrest? Clearly that's been an issue for many years with Tia Maria, but do you feel you have more acceptance by the local community at this juncture?

Much better local acceptance to the project Obviously, there are some people that will never change their mind. They don't like mining, and they are protesting. But so far, we are seeing that the majority of the island population, which is, roughly speaking, a little bit more than 50,000 people live in this province of Arequipa. Of those 50,000, we see interest in the project to move on. People are registering themselves into a website that we have opened for job offers. So we're seeing a very positive development in that regard. Obviously, we are making efforts to explain that the project will be environmentally safe for the people of Israel. I think it's the case with our operations in the southern part of Peru, where We have no issues regarding environmental matters with the local population of Moquegua, Tacna and Illo.

Okay, and then maybe going back to that capital allocation question earlier, where does M&A fit within, obviously organic growth is clearly the priority, but there are a few opportunities in Europe and so on. At the moment, where does that M&A fit? kind of optionality set within the priority of management?

Well, the company is always open to review any opportunities that we have on the M&A issues. At this point, we're not looking into anything specific. We're working on organic growth. But if there is a good opportunity out there, our responsibility as management will be to analyze it and to report to our board of directors and ask them for a decision on that.

Is it only really like tier one assets that you're interested in, like proper big 120 plus thousand tons, or would you look at smaller opportunities as well?

We have made both things in the past, so... The answer is yes and yes. We have to look into assets that have over 100,000 tons of copper production, as long as they are, you know, a good fit with our current operations, meaning by these mainly copper and low cash costs. And that can be assets of... 100,000 plus size, or smaller assets that are close to our operations, as has been the case with Pilaris, for instance. We have developed that deposit, and it's feeding our Caridad operations right now. So it depends on certain conditions, but for smaller assets, it should most likely be relatively close to where we have our major operations. For bigger ones, that's a different story.

Okay, that makes sense. Maybe the last question just on Mexico. Obviously, we've had the elections, and do you think that the new government and the policy will impact your operations potentially in Mexico? Obviously, there has been kind of incremental challenges, shall we say, over the last six years. And just on that El Pilar project as well, it's never really talked about because it's so small, but is that still got all the permitting? Is it actually moving forward or is that still on hold? Is El Arco viable under the current administration?

For El Pilar, we are looking into some issues regarding the recovery of the SXEW solution. We are working on that. For the other concern that you indicated on the questions for the new policies of the coming government, we have to see when they present them. At this point, we have no specific issues to comment on this.

Okay.

Thank you very much.

You're welcome.

Thank you. One moment for our next question. And it's from the line of John Brandt with HSBC. Please proceed.

Hi. Good morning, Raul. Thanks for taking my questions. Just two really quick ones from me. Just on Tia Maria, I know you're reviewing the CapEx that you have, but I'm more curious about the timing. I believe you're looking at a potential startup in the second half of 2027. Do you see any risk that that maybe slips into 2028? If you could just talk a little bit about the timing as you see things. And then second question is, you mentioned the possibility of expanding the Quahone mine. I'm hoping you can give us a few more details around that and if there are any other similar type, you know, sort of smaller brownfield projects that you might have at your other mines that could help boost production in the coming years. Thank you.

Yeah, thank you for your question, John. In the case of the Tia Maria current timeline, that's The best that we have at this point is finishing the project by the first half of 2027, initiating the ramping up and having the project stabilized and operating at full capacity by sometime between the second and the third

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Okay, perfect.

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Thank you for your patience, ladies and gentlemen. Just one moment while he connects. And thank you for your patience, ladies and gentlemen. Please stand by. Ladies and gentlemen, thank you for your patience. Please continue to stand by. Carmen, can you? Yes. We can hear you now. You can continue your presentation from this line.

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I can hear you. Yes. Yes. Will the audience listen to us? The audience is listening to you. And we still have Mr. John Brand from HSBC with his question.

Okay, okay, thank you very much. First, let me excuse ourselves for what just happened, so sorry about that. We'll move on with John Brand's second question. On the Guajon expansion, the idea is to increase the capacity of the Guajon operation by about one-third of its current capacity. Nowadays, Guajon can milk about 90,000 tons of of mineral per day on the Guajone Concentrator. The idea is to build new facilities that will allow Guajone to increase its mining capacity to 120,000 tons of material. That's basically it. As I said in the stress, we're still working on that. We have not the board approval, which And I think that you already covered the other, the question about on the kind of project that we have been looking at.

All right, great. Thanks, Raul. You're welcome.

Thank you. And ladies and gentlemen, that is star 11 if you do have a question. Our next question comes from the line of David Feng with CICC. Please proceed.

Oh, good morning, Rowan Ting. This is David from CICC. Thanks for taking my question. Just one quick question on your pricing for copper. We know that the Comax copper price tends to have some premium over LME copper price in some time this year. And given that our customers are mainly based in America, so I just wonder, shall we assume that the ComEx copper price would be a better referencing index for your copper sales instead of the AME copper pricing most of your contracts?

Okay, David, we do have most of our sales from the Mexican operations are priced using the ComEx price. For the Peruvian operations and some of the concentrated sales of the Mexican operations, we have to reference the LME price. And, well, for now, it looks more attractive selling on the COMEX market, but that could change very quickly. This year, it is, as you say, there is this arbitrage has been favoring the COMEX market due to the relatively scarcity that we're seeing in the market that prices in commerce vis-a-vis the LME market. But that's something that may vary over time, so we are, for that reason, having a portion of our sales in COMEX terms as well as LME.

That is true. That's really helpful. Thank you so much, Raul. You're welcome.

Thank you. And Raul, I'm not showing any further questions in the queue. I will pass it back to you for final comments.

Thank you very much, Carmen. With this, we conclude our conference call for .

Ladies and gentlemen, thank you for participating in today's conference. You may now disconnect.