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OFFON

SOUTHERN COPPER CORPORATION

(SCCO)
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SOUTHERN COPPER COR : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

07/27/2021 | 04:49pm EDT
The following discussion provides information that management believes is
relevant to an assessment and understanding of the condensed consolidated
financial condition and results of operations of Southern Copper Corporation and
its subsidiaries (collectively, "SCC", "the Company", "our", and "we"). This
item should be read in conjunction with our interim unaudited Condensed
Consolidated Financial Statements and the notes thereto included in this
quarterly report. Additionally, the following discussion and analysis should be
read in conjunction with the Management Discussion and Analysis of Financial
Condition and Results of Operations and the Consolidated Financial Statements
included in Part II of our annual report on Form 10-K for the year ended
December 31, 2020.



EXECUTIVE OVERVIEW



Business: Our business is primarily the production and sale of copper. In the
process of producing copper, a number of valuable metallurgical by-products are
recovered, which we also produce and sell. Market forces outside of our control
largely determine the sale prices for our products. Our management, therefore,
focuses on value creation through copper production, cost control, production
enhancement and maintaining a prudent capital structure to remain profitable. We
endeavor to achieve these goals through capital spending programs, exploration
efforts and cost reduction programs. Our aim is to remain profitable during
periods of low copper prices and to maximize financial performance in periods of
high copper prices.



We are one of the world's largest copper mining companies in terms of production
and sales and our principal operations are in Peru and Mexico. We also have
exploration programs in Chile, Argentina and Ecuador. In addition to copper, we
produce significant amounts of other metals, either as a by-product of the
copper process or through a number of dedicated mining facilities in Mexico.



Outlook: Various key factors will affect our outcome. These include, but are not limited to, the following:

Sales structure: In the second quarter of 2021, approximately 81.1% of our ? revenue came from the sale of copper; 9.7% from molybdenum; 4.1% from silver;

2.8% from zinc; and 2.3% from various other products, including gold, sulfuric

  acid and other materials.



Copper: In the second quarter of 2021, the LME copper price increased from an ? average of $3.85 per pound in the first quarter of 2021 to $4.40 (+14.3%).

Currently, we are seeing prices at about $4.25 per pound, which bodes a

positive outlook for the Company. We believe the following factors are influencing the market:

? The strong demand that we are seeing in the U.S. and Europe, particularly in

terms of cathode consumption.

The combined inventories of the LME, Comex, Shanghai and Bonded warehouses

? remain at relatively low levels, particularly given the number days of

consumption considered.

? The uncertainty regarding future production from Chile and Peru, which together

represent about 40% of the world supply.

The most important market intelligence houses for the copper market are

? expecting a market deficit of about 250,000 tons this year due to a recovery in

   demand, which should grow between 2.0% and 3.5%.



Molybdenum: Represented 9.7% of our sales in the second quarter of 2021 and is ? currently our most significant by-product. Molybdenum prices averaged $13.89

per pound in the second quarter of 2021, compared to $8.24 in the same period

  of 2020. This represented a 68.6% increase.



Molybdenum is mainly used in the production of special alloys for stainless
steel that require significant hardness and corrosion and heat resistance. A new
use for this metal is in lubricants and sulfur filtering of heavy oils and
shale
gas production.



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Silver: Represented 4.1% of our sales in the second quarter of 2021. We believe ? that the prices for silver will be supported by its level of industrial use and

the fact that, like gold, it represents value shelter in times of economic

  turmoil.



Zinc: Represented 2.8% of our sales in the second quarter of 2021. We consider ? zinc has very good long term fundamentals due to high levels of industrial

  consumption and expected production.



Production: In 2021 and 2022, we expect to produce 958,000 tons of copper, ? given that production during these periods will be affected by a temporary

  reduction in ore grade and recovery at our Peruvian operations.



We expect our copper production to recover by 2023 and reach 1,030,000 tons of production as we get Peruvian

production back on track and generate new production on our Pilares, El Pilar and Buenavista-Zinc Concentrator

projects.




We also expect to produce 20.6 million ounces of silver in 2021, which
represents a decrease of 4.3% with regard to our 2020 production level. In 2021,
we expect to produce 72,800 tons of zinc from our mines, up 5.6% from 2020
production level. Additionally, we expect to produce 28,300 tons of molybdenum,
which represents a decrease of 6.5% compared to 2020 production levels.



Capital Investments: In the first semester of 2021, we spent $452.4 million on ? capital investments; this represented an increase of 111.1% with regard to the

figure registered for the same period in 2020, and represented 26.7% of net

  income.




CYBERSECURITY EVENT



As previously reported, on March 1, 2021, at approximately 02:00 hours Mexico
City time, we experienced a Ransomware cyber-attack, which was operated by
humans. This cyber-attack encrypted a total of 479 servers and 303 pieces of
personal equipment. However, due to the quick response of our IT team, our
Enterprise Resource Planning software was not affected by the aforementioned
attack.



After the attack, we immediately began a remediation and recovery process and
completely restored the affected servers. So far, the forensic investigation has
not identified any concrete evidence of information stolen during the attack.
However, we maintain active lines of work in cyberintelligence and forensic
investigation to continue monitoring the DarkWeb/DeepWeb and social networks to
identify any publication or activity related to the Company; ensure that our
systems infrastructure is safe and validate the technological controls affected
during the attack.



In March 2021, we appointed a new Head of Information Technology, who is
implementing a new information security strategy to ensure business continuity
based on processes (controls and corporate governance framework), technology and
human capital (organizational culture). The areas of compliance, internal
control, information technology and internal audit are working together to
integrate reference frameworks, risk management models and the necessary
controls to implement the information security strategy and corresponding
programs.



As of June 30, 2021, we recorded $0.3 million in costs related to this incident, but may, nonetheless, incur additional costs derived from the strategy and controls being implemented.



COVID-19


In March 2020, the WHO classified the COVID-19 outbreak as a pandemic based on a
rapid increase in global transmission rates. The full impact of the COVID-19
outbreak will continue and the magnitude of the impact on the Company's
financial condition, liquidity and future operating results is uncertain. Senior
Management is actively monitoring the global situation´s effect on the Company´s
financial condition, liquidity, operations, suppliers, industry and workforce
and is focusing principally on the health, safety and well-being of our
employees, their families and the communities where we have operations. As of
June 30, 2021, there were no major delays in the

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supply of the materials and services critical for operations and sales. In
addition, the supply of non-critical materials and services for the operations
is gradually being restored. Additionally, shipments of products and collections
experienced no known major delays in the second quarter of 2021.



As of June 30, 2021, a positive trend was observed in the copper price, which
closed at $4.26 per pound (LME) after having dropped to $2.18 per pound at the
end of the first quarter of 2020. Considering the market outlook previously
described, we have a positive view for the 2021 copper market.



The Company maintains a solid financial position and performance level. We
believe this has allowed and will continue to allow us to deal with the effects
of the pandemic in a way that prevents adverse material effects on our
operations and financial results. The table below compares some of our financial
information as follows:



                                        Jun-21   Dec-20   Jun-20
($ in millions, except ratios)
Cash and cash equivalents              2,394.3  2,183.6  1,808.8
Accounts receivable                    1,506.6  1,136.6    937.7
Total assets                          17,695.4 16,946.5 15,805.0
Long term debt                         6,545.9  6,544.2  6,542.6
Sales                                  5,429.5  7,984.9  3,505.1

RATIOS

Current assets to current liabilities 3.80 3.49 4.33 Accounts receivable turnover (1) 3.60 7.03 3.74 Total debt ratio (2)

                      0.37     0.39     0.41
Net income margin (3)                    31.2%    19.7%    13.5%


(1) Represents net sales divided by accounts receivable.

(2) Represents total debt divided by total assets.

(3) Represents net income divided by net sales, as a percentage.





Governmental authorities in Mexico and Peru have declared that essential
economic activities must continue during the COVID-19 health emergency. These
activities include industrial mining and/or any other activity necessary to
ensure the provision of essential services such as electricity; provide elements
to install medical and hospital infrastructure; and manufacture health-related
supplies and technological equipment. We believe that industrial mining stands
as the most efficient and timely supplier of inputs that are critical to the
productive chain to fight the pandemic.



Given the nature of mining operations, which are highly automated, conducted in
remote locations and with mandatory use of personal safety equipment at all the
mines, it is easier to implement and comply with COVID-19 protective measures,
such as physical isolation and control of access to facilities. Industrial
mining uses advanced and reliable machinery and does not require high physical
concentration of employees. In many cases, workers fulfill their duties
maintaining distances of more than 100 meters from their closest coworkers.



At the present time, our operations are in compliance with all sanitary and
government regulations and maintain proper environmental safeguards. Our
COVID-19 emergency protocol has reinforced preventive measures such as
disinfecting, clinical monitoring before work, cleaning and sanitizing of work
areas and respect for social distancing. We have also restricted the access of
contractors, suppliers and personnel to our facilities if visits are not
indispensable and enforced multiple actions to limit workforce exposure to
COVID-19 by imposing travel restrictions, prohibiting face-to-face meetings and
urging frequent hand washing, as well as adhering to all other health, safety
and social distancing measures required by governmental authorities. As of June
30, 2021, approximately 96% of the workforce in Mexico was working on site or at
home under strict safety measures; the remaining 4% of the workforce was not
working, including all individuals at high risk due to age and/or preexisting
medical conditions. At our Peruvian operations, approximately 67% of the
workforce was working onsite or at home

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under strict safety measures while the remaining 33% was not working, including all individuals at high risk due to age and/or preexisting medical conditions.




KEY MATTERS



Below, we discuss several matters that we believe are important to understand
the results of our operations and financial condition. These matters include,
(i) our earnings, (ii) our production, (iii) our "operating cash costs" as a
measure of our performance, (iv) metal prices, (v) business segments, (vi) the
effect of inflation and other local currency issues, and (vii) our capital
investment and exploration program.



Earnings: The table below highlights key financial and operational data of our
Company for the three and six months ended June 30, 2021 and 2020 (in millions,
except copper price, percentages and per share amounts):




                               Three months ended June 30,                           Six months ended June 30,
                      2021         2020       Variance     % Change        2021         2020       Variance     % Change
Copper price LME         4.40         2.42         1.98        81.8 %         4.13         2.49         1.64        65.9 %
Pounds of copper
sold                    514.9        595.9       (81.0)      (13.6) %      1,044.4      1,150.4      (106.0)       (9.2) %
Net sales           $ 2,897.0    $ 1,785.4    $ 1,111.6        62.3 %    $ 5,429.5    $ 3,505.1    $ 1,924.4        54.9 %
Operating income    $ 1,675.2    $   577.2    $ 1,098.0       190.2 %    $ 3,026.8    $ 1,110.4    $ 1,916.4       172.6 %
Net income
attributable to
SCC                 $   932.7    $   259.5    $   673.2       259.4 %    $ 1,696.6    $   474.3    $ 1,222.3       257.7 %
Earnings per
share               $    1.21    $    0.34    $    0.87       255.9 %    $    2.19    $    0.61    $    1.58       259.0 %
Dividends per
share               $    0.70    $    0.20    $    0.50       250.0 %    $    1.30    $    0.60    $    0.70       116.7 %



Net sales in the second quarter of 2021 were 62.3% higher than in the same
period of 2020, which was primarily attributable to higher metal prices for
copper (+81.8%), molybdenum (+68.6%), zinc (+48.3%) and silver (+61.9%), as well
as an increase in sales volume of zinc (+12.4%). This was slightly offset by
decreases in sales volumes of copper (-13.6%), molybdenum (-11.0%) and silver
(-24.6%).


Net income attributable to SCC in the second quarter of 2021 was 259.4% higher than in the same period of 2020. This growth was mainly attributable to the increase in metal prices mentioned above.




Net sales in the first six months of 2021 were 54.9% higher than in the same
period of 2020, which was primarily attributable to higher metal prices for
copper (+65.9%), molybdenum (+40.9%), silver (+58.8%) and zinc (+37.6%). This
was slightly offset by decreases in sales volumes of copper (-9.2%), molybdenum
(-5.9%), silver (-14.5%) and zinc (-5.9%).



Net income attributable to SCC in the first six months of 2021 was 257.7% higher than in the same period of 2020. This growth was mainly attributable to the increase in metal prices mentioned above and to stable operating costs (+0.3%).

Production: The table below highlights our mine production data for the three and six months ended June 30, 2021 and 2020:





                            Three months ended June 30,                     

Six months ended June 30,

                      2021       2020      Variance    % Change       2021       2020      Variance    % Change
Copper (in
million pounds)        522.7      558.1      (35.4)       (6.3) %    1,048.3    1,091.4      (43.1)       (3.9) %
Molybdenum (in
million pounds)         15.4       17.2       (1.8)      (10.8) %       31.3       33.1       (1.8)       (5.5) %
Silver (in
million ounces)          4.6        5.5       (0.9)      (16.2) %        9.6       10.8       (1.2)      (11.3) %
Zinc (in million
pounds)                 37.7       34.6         3.1         8.9 %       74.0       77.1       (3.1)       (4.0) %




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The table below highlights our copper production data for the three and six months ended June 30, 2021 and 2020:





                           Three Months Ended June 30,                    Six Months Ended June 30,
Copper (in million
pounds):              2021     2020     Variance    % Change       2021       2020      Variance    % Change
Toquepala             130.2    149.3      (19.1)      (12.8) %      258.6      282.8      (24.2)       (8.6) %
Cuajone                93.2     94.8       (1.6)       (1.7) %      180.7      184.0       (3.3)       (1.8) %
La Caridad             72.9     74.7       (1.8)       (2.3) %      145.2      148.3       (3.1)       (2.0) %
Buenavista            221.9    233.3      (11.4)       (4.9) %      453.8      465.4      (11.6)       (2.5) %
IMMSA                   4.5      6.0       (1.5)      (24.0) %       10.0       10.9       (0.9)       (8.8) %
Total mined copper    522.7    558.1      (35.4)       (6.3) %    1,048.3  
 1,091.4      (43.1)       (3.9) %



Second quarter: Mined copper production in the second quarter of 2021 fell by
6.3% to 522.7 million pounds compared to 558.1 million pounds in the second
quarter of 2020. This was mainly attributable to a drop in production at all our
mines, most importantly Toquepala (-12.8%) and Buenavista (-4.9%) due to lower
grades.



Molybdenum production decreased 10.8% in the second quarter of 2021 with regard
to the levels registered in the second quarter of 2020. This was attributable to
a decrease in production at our Toquepala (-18.8%) and Buenavista (-29.4%) mines
due to lower ore grades and recoveries. This effect was partially offset by a
increase in production at the La Caridad (+4.7%) and Cuajone (+2.7%) mines
due
to higher ore grades.


Silver mine production decreased 16.2% in the second quarter of 2021 due to a
drop in production at the Toquepala (-24.2%), Buenavista (-15.7%) and IMMSA
(-25.2%) operations. This was offset by higher production at the Cuajone (+8.5%)
and La Caridad (+1.6%) mines.



Zinc production increased 8.9% in the second quarter of 2021 compared with the
same period of 2020. This increase was mainly attributable to higher production
at the Charcas (+31.8%) and San Martin (+37.3%) mines, which was partially
offset by lower production at the Santa Barbara mine (-24.9%).



Six months: Mined copper production in the first six months of 2021 decreased
3.9% to 1,048.3 million pounds compared to 1,091.4 million pounds in the same
period of 2020. This decrease was mainly attributable to a drop in production at
all our mines and at Toquepala (-8.6%) and Buenavista (-2.5%) in particular
due
to lower grades.



Molybdenum production decreased 5.5% in the first six months of 2021 compared to
the same period in 2020; this was mainly due to lower production at our
Buenavista (-25.8%) and Toquepala (-6.6%) mines, which was partially offset by
higher production at the Cuajone (+8.0%) and La Caridad (+2.9%) mines.



Silver mine production decreased 11.3% in the first six months of 2021; this was
principally due to lower production at our Toquepala (-17.1%), Buenavista
(-14.5%) and IMMSA (-17.5%) operations, which was partially offset by higher
production at Cuajone (+10.9%) and La Caridad (+5.0%) mines.



Zinc production decreased 4.0% in the first six months of 2021, which was mainly
due to the shut down at the Santa Eulalia mine due to severe flooding. This was
partially offset by higher production at our Charcas and San Martin mines. We
are currently evaluating different options to supply the concentrator at Santa
Eulalia.



Operating Cash Costs: An overall benchmark that we use, which is a common
industry metric to measure performance is operating cash costs per pound of
copper produced. Operating cash cost is a non-GAAP measure that does not have a
standardized meaning and may not be comparable to similarly titled measures
provided by other companies. This non-GAAP information should not be considered
in isolation or as substitute for measures of performance determined in
accordance with GAAP. A reconciliation of our operating cash cost per pound of
copper produced to the cost of sales (exclusive of depreciation, amortization
and depletion) as presented in the consolidated statement of earnings is
presented under the subheading, "Non-GAAP Information Reconciliation" on page
60. We disclose operating cash cost per pound of copper produced, both before
and net of by-product revenues.



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  Table of Contents

We define operating cash cost per pound of copper produced before by-product
revenues as cost of sales (exclusive of depreciation, amortization and
depletion), plus selling, general and administrative charges, treatment and
refining charges net of sales premiums; less the cost of purchased concentrates,
workers' participation and other miscellaneous charges, including royalty
charges, and the change in inventory levels; divided by total pounds of copper
produced by our own mines.


In our calculation of operating cash cost per pound of copper produced, we
exclude depreciation, amortization and depletion, which are considered non-cash
expenses. Exploration is considered a discretionary expenditure and is also
excluded. Workers' participation provisions are determined on the basis of
pre-tax earnings and are also excluded. Additional exclusions from operating
cash costs are items of a non-recurring nature and the mining royalty charge as
it is based on various calculations of taxable income, depending on which
jurisdiction, Peru or Mexico, is imposing the charge. We believe these
adjustments allow our management and stakeholders to more fully visualize our
controllable cash cost, which we believe is one of the lowest of all
copper-producing companies of similar size.



We define operating cash cost per pound of copper produced net of by-product
revenues as operating cash cost per pound of copper produced, as defined in the
previous paragraph, less by-product revenues and net revenue (loss) on sale of
metal purchased from third parties.



In our calculation of operating cash cost per pound of copper produced, net of
by-product revenues, we credit against our costs the revenues from the sale of
all our by-products, including, molybdenum, zinc, silver, gold, etc. and the net
revenue (loss) on sale of metals purchased from third parties. We disclose this
measure including the by-product revenues in this way because we consider our
principal business to be the production and sale of copper. As part of our
copper production process, much of our by-products are recovered. These
by-products, as well as the processing of copper purchased from third parties,
are a supplemental part of our production process and their sales value
contribute to covering part of our incurred fixed costs. We believe that our
Company is viewed by the investment community as a copper company, and is
valued, in large part, by the investment community's view of the copper market
and our ability to produce copper at a reasonable cost.



We believe that both of these measures are useful tools for our management and
our stakeholders. Our cash costs before by-product revenues allow us to monitor
our cost structure and address areas of concern within operating management. The
measure operating cash cost per pound of copper produced net of by-product
revenues is a common measure used in the copper industry and is a useful
management tool that allows us to track our performance and better allocate our
resources. This measure is also used in our investment project evaluation
process to determine a project's potential contribution to our operations, its
competitiveness and its relative strength in different price scenarios. The
expected contribution of by-products is generally a significant factor used by
the copper industry to determine whether to move forward or not in the
development of a new mining project. As the price of our by-product commodities
can have significant fluctuations from period to period, the value of its
contribution to our costs can be volatile.



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Our operating cash cost per pound of copper produced, before and net of by-product revenues, is presented in the table below for the three and six months ended June 30, 2021 and 2020:



              Operating cash cost per pound of copper produced (1)

              (In millions, except cost per pound and percentages)


                                 Three Months Ended June 30,                           Six Months Ended June 30,
                         2021         2020       Variance     % Change        2021         2020       Variance     % Change
Total operating
cash cost before
by­product revenues    $   817.9    $   684.6    $   133.3        19.5 %  

$ 1,589.3 $ 1,420.3 $ 169.0 11.9 % Total by­product revenues

               $ (521.1)    $ (321.5)    $ (199.6)        62.1 %    $ (914.8)    $ (661.7)    $ (253.1)        38.2 %
Total operating
cash cost net of
by­product revenues    $   296.8    $   363.1    $  (66.3)      (18.3) %  

$ 674.5 $ 758.6 $ (84.1) (11.1) % Total pounds of copper produced(2) 507.7 541.7 (34.0) (6.3) %

      1,018.5      1,059.6       (41.1)       (3.9) %
Operating cash cost
per pound before
by­product revenues    $    1.61    $    1.26    $    0.35        27.8 %    $    1.56    $    1.34    $    0.22        16.4 %
By­products per
pound revenues         $  (1.02)    $  (0.59)    $  (0.43)        72.9 %    $  (0.90)    $  (0.62)    $  (0.28)        45.2 %
Operating cash cost
per pound net of
by­product revenues    $    0.59    $    0.67    $  (0.08)      (11.9) %  

$ 0.66 $ 0.72 $ (0.06) (8.3) %

(1) These are non-GAAP measures. Please see page 60 for reconciliation to GAAP

measure.

(2) Net of metallurgical losses.





As seen in the table above, our per pound cash cost before by-product revenues
in the second quarter of 2021 was 27.4% higher than in the same period of 2020.
This increase is mainly attributable to an increase in production costs and to
the unit cost effect of lower production. Our cash cost per pound net of
by-product revenue for the second quarter of 2021 decreased 12.1% when compared
with the same period of 2020. This was mainly attributable to a significant
increase in by-product revenues.



For the six months ended June 30, 2021, our per pound cash cost before
by-product revenues was 16.4% higher than in the same period of 2020. This
increase was mainly driven by an increase in production costs. The operating
cash cost per pound of copper net of by-product revenue was $0.66 in the six
months ended June 30, 2021. This represented an improvement of 7.8% compared to
the $0.72 reported in the same period of 2020 and was mainly due to a
significant increase in by-product revenues.



Metal Prices: The profitability of our operations is dependent on, and our
financial performance is significantly affected by, the international market
prices for the products we produce, and for copper, molybdenum, zinc and silver
in particular.



We are subject to market risks arising from the volatility of copper and other
metal prices. For the remaining six months of 2021, assuming that expected metal
production and sales are achieved, tax rates remain unchanged and no effects are
generated by potential hedging programs, metal price sensitivity factors would
indicate the following change in estimated net income attributable to SCC
resulting from metal price changes:




                                             Copper      Molybdenum       Zinc         Silver
Change in metal prices (per pound
except silver-per ounce)                   $     0.10    $      1.00    $    0.10    $     1.00
Change in net earnings (in millions)       $     58.7    $      18.9    $  
  6.9    $      7.0




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Business Segments: We view our Company as having three reportable segments and
manage it on the basis of these segments. These segments are (1) our Peruvian
operations, (2) our Mexican open-pit operations and (3) our Mexican underground
operations, known as our IMMSA unit. Our Peruvian operations include the
Toquepala and Cuajone mine complexes and the smelting and refining plants,
industrial railroad and port facilities that service both mines. The Peruvian
operations produce copper, with significant by-product production of molybdenum,
silver and other material. Our Mexican open-pit operations include La Caridad
and Buenavista mine complexes, the smelting and refining plants and support
facilities, which service both mines. The Mexican open pit operations produce
copper, with significant by-product production of molybdenum, silver and other
material. Our IMMSA unit includes five underground mines that produce zinc,
lead, copper, silver and gold, and several industrial processing facilities
for
zinc, copper and silver.


Segment information is included in our review of "Results of Operations" in this item and also in Note 13 "Segment and Related Information" of our condensed consolidated financial statements.




Inflation and Exchange Rate Effect of the Peruvian Sol and the Mexican Peso: Our
functional currency is the U.S. dollar and our revenues are primarily
denominated in U.S. dollars. Significant portions of our operating costs are
denominated in Peruvian sol and Mexican pesos. Accordingly, when inflation and
currency devaluation/appreciation of the Peruvian currency and Mexican currency
occur, our operating results can be affected. In recent years, we believe such
changes have not had a material effect on our results and financial position.
Please see Item 3. "Quantitative and Qualitative Disclosures about Market Risk"
for more detailed information.



Capital Investment Programs: We made capital investments of $452.4 million in
the six months ended June 30, 2021, compared to $214.3 million in the same
period of 2020. In general, the capital investments and investment projects
described below are intended to increase production, decrease costs or address
social and environmental commitments.



Set forth below are descriptions of some of our current expected capital
investment programs. We expect to meet the cash requirements for these projects
by utilizing cash on hand; internally generated funds and additional external
financing, including funding received in September 2019. All capital spending
plans will continue to be reviewed and adjusted to respond to changes in the
economy, market conditions or the COVID-19 pandemic.



Projects in Mexico:



Buenavista Zinc - Sonora: This project is located within the Buenavista facility
and includes the development of a new concentrator to produce approximately
100,000 tons of zinc and 20,000 tons of copper per year. We have completed the
basic engineering study and the detailed engineering study has reached 94%
completion. In order to continue with the project, stronger preventive measures
to combat COVID-19 have been put in place. Procurement has progressed 84%.
Additionally, construction site works are in progress. The project has all the
necessary permits. The project´s budget is $413 million, and we expect to
initiate operations in 2023. As of June 30, 2021, we had invested $178.2 million
in this project. When completed, we anticipate that this new facility will
double the Company's zinc production capacity and will provide 490 direct jobs
and 1,470 indirect jobs.



Pilares - Sonora: This project, located six kilometers from La Caridad, will be
developed as an open-pit mine operation with an annual production capacity of
35,000 tons of copper in concentrate. A new 25-meter wide off-road facility for
mining trucks has been built and will be used to transport the ore from the pit
to the primary crushers at the La Caridad copper concentrator. This will
significantly improve the overall mineral ore grade (combining the 0.78%
expected from Pilares with 0.34% from La Caridad). The budget for Pilares is
$159 million and we expect the project to begin production in the first quarter
of 2022. As of June 30, 2021, we had invested $75.3 million in this project.



El Pilar - Sonora: This is a low-capital intensity copper development project
strategically located in Sonora, Mexico, approximately 45 kilometers from our
Buenavista mine. Its copper oxide mineralization contains estimated proven and
probable reserves of 281 million tons of ore with an average copper grade of
0.301%. El Pilar will operate as a conventional open-pit mine with an annual
production capacity of 36,000 tons of copper cathodes. This operation will use
highly cost efficient and environmentally friendly SX-EW technology. We estimate
a development investment of approximately $310 million. As of June 30, 2021, we
had invested $2.0 million in this project. The results from experimental pads in
leaching process have confirmed adequate levels of copper recovery. We expect
this project to start

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production in 2023 with an expected mine life of 13 years. The Company continues developing the project basic engineering and site environmental activities.




The San Martin mine recovery program. After eleven years of illegal stoppage, we
resumed control of the San Martin mine in August 2018. The San Martin facilities
deteriorated during this period but we made a major renovation and restarted
operations during the second quarter of 2019. Currently, the mine has 200,000
tons of ore and the concentrator has initiated production. In 2020, we produced
14,361 tons of zinc, 2.8 million ounces of silver, 3,601 tons of copper, and
1,425 tons of lead. As of June 2021, the Company had virtually completed the
rehabilitation plan to restore operations at the San Martin mine with a total
expense of approximately $89.1 million and has reached full operating capacity.



Projects in Peru:


Quebrada Honda dam expansion - Tacna: This project aims to enlarge the main and
lateral dams in Quebrada Honda and includes the relocation of some facilities
due to dam growth and implementation of other facilities for water recovery,
among other factors. As of June 30, 2021, the engineering study was complete.
The majority of the main equipment and materials have been procured and are
arriving according to schedule. Construction is in progress with work on three
fronts. This project has a total budget of $140.0 million, of which we had
committed $52.0 million and invested $62.8 million as of June 30, 2021.



Tia Maria - Arequipa: On July 8, 2019, we were granted the construction permit
for this 120,000 ton annual SX-EW copper greenfield project with a total capital
budget of $1,400 million. The Government awarded the permit after completing an
exhaustive review process, complying with all established regulatory
requirements and addressing all observations raised. The challenges surrounding
the construction permit were overcome when on October 30, 2019, the Mining
Council of the Peruvian Ministry of Energy and Mines ratified the construction
permit for the Tia Maria project.



The Company has been consistently working to promote the welfare of the Islay
province population. 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. We also have promoted agricultural and
livestock activities in the Tambo Valley and supported growth in manufacturing,
fishing and tourism in Islay.



On January 7, 2021, the mayor of the Islay province (Arequipa, Peru) awarded a
City Diploma to SPCC in recognition of the Company's efforts to assist the
population of Islay during the COVID-19 pandemic. SPCC provided medical
assistance, tests, oxygen, personal protection equipment and food stuffs to the
population in the area of influence of the Tia Maria project.



We consider that the initiation of construction activities at Tia Maria will
generate significant economic opportunities for the Islay province and the
Arequipa region. During the construction and operation phase, we will make it a
priority to hire local labor to fill the 9,000 jobs (3,600 direct and 5,400
indirect) that we expect to generate during Tia Maria's construction phase. When
operating, we expect Tia Maria to directly employ 600 workers and indirectly
provide jobs for another 4,200. Additionally, from day one of our operations, we
will generate significant contributions to revenues in the Arequipa region
via
royalties and taxes.



This greenfield project, located in Arequipa, Peru, will use state of the art
SX-EW technology with the highest international environmental standards. SX-EW
facilities are the most environmentally friendly in the industry due to their
technical process with no emissions released into the atmosphere.



Potential projects



We have a number of other projects that we may develop in the future. We
continuously evaluate new projects on the basis of our long-term corporate
objectives, expected return on investment, environmental concerns, required
investment and estimated production, among other considerations. All capital
spending plans will continue to be reviewed and adjusted to respond to changes
in the economy, market conditions or the COVID-19 pandemic.



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El Arco - Baja California: This is a world-class copper deposit located in the
central part of the Baja California peninsula, with ore reserves of over 2.4
billion tons with an ore grade of 0.422%, 0.3 billion tons of leach material
with an ore grade of 0.288% and 0.11 grams of gold per ton. This project
envisions an open-pit mine with a combined concentrator and SX-EW operations,
with an estimated production capacity of 190,000 tons of copper and 105,000
ounces of gold annually. The project has an estimated capital budget of $2.9
billion. As of June 30, 2021, we have invested $63.6 million in this project.
The Company has started the baseline study and it is reviewing the basic
engineering analysis to request the environmental impact permit. Several years
back, we began to acquire the rights to all relevant mining concessions in the
area; this process was completed in 2020.



Los Chancas - Apurimac: This greenfield project, located in Apurimac, Peru, is a
copper and molybdenum porphyry deposit. Current estimates indicate the presence
of 545 million tons of mineralized material with a copper content of 0.59%,
molybdenum content of 0.04% and 0.039 grams of gold per ton, as well as 181
million tons of mineralized leachable material with a total copper content of
0.357%. Los Chancas project envisions an open-pit mine with a combined operation
of concentrator and SX-EW processes to produce 130,000 tons of copper and 7,500
tons of molybdenum anually. The estimated capital investment is $2,600 million
and the project is expected to be in operation in 2027. In 2019, we continued to
engage in social and environmental improvements for the local communities. In
2020,

we continued to work on these activities and plan to conclude the environmental impact assessment for the project in

2021.

Michiquillay Project - Cajamarca: On June 12, 2018, Southern Copper signed a
contract and made an initial payment of $12.5 million for the acquisition of the
Michiquillay project in Cajamarca, Peru. The Company has created a
multidisciplinary management team to plan the development of this project. As
part of this plan, the Company has established contact with the local and
regional authorities and communities in order to promote programs for the
sustainable development of the area. In 2020, we continued to develop social and
environmental programs for the local communities. In February 2021, we completed
a semi-detailed environmental impact assessment and submitted it to the Peruvian
authorities for approval. This will allow us to begin a 50,000 meter diamond
drilling program to verify and update the project´s estimated mineralized
materials. In June 2021, the Company paid an additional $12.5 million to acquire
the project.



Michiquillay is a world class mining project with estimated mineralized material
of 1,150 million tons with an estimated copper grade of 0.63%. When developed,
we expect Michiquillay to produce 225,000 tons of copper per year (along with
by-products of molybdenum, gold and silver) for an initial mine life of more
than 25 years, at a competitive cash-cost. We estimate an investment of
approximately $2.5 billion will be required and expect production start-up by
2028 and that Michiquillay will become one of Peru´s largest copper mines. The
project will create significant business opportunities in the Cajamarca region;
generate new jobs for the local communities and contribute with taxes and
royalties to the local, regional and national governments.



The information above is based on estimates only. We cannot make any assurances
that we will undertake any of these projects or that the information noted
is
accurate.


ENVIRONMENTAL, SOCIAL AND GOVERNANCE ("ESG")

We are committed to improving our ESG record by adopting best practices. In this
regard, our sustainable development policies were recently updated. These
policies, applicable to SCC and its subsidiaries, formalize our vision,
commitments and objectives to promote sustainable development and generate
shared value for our stakeholders. For further information on our disclosure on
Human Capital Resources, see the section included in Part I, Item 1 of our
Annual report on Form 10-K for the year ended December 31, 2020. Also, see our
disclosure on our COVID-19 response, environmental disclosure and support of our
local communities elsewhere in this report.



Southern Peru signed an inter-institutional cooperation agreement with the
Ministry of Health of Peru that allows the Company to support the government in
efforts to organize and implement 26 vaccination sites in the regions of
Arequipa, Moquegua, Tacna, Cajamarca and Apurimac. The Company will donate more
than USD $2.45 million to vaccinate 424 thousand-plus people over the next 2
months, which is equivalent to 40% of the population of these regions. The
aforementioned agreement was the third of three agreements signed with the
Peruvian government to

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aggressively fight the pandemic. The first entailed a donation of 2,181.4 tons
of medical oxygen, which was produced by the oxygen plants at our Ilo smelter to
provide liquid oxygen to to the southern regions of Peru. The second donated
four oxygen plants (two of them mobile), which are currently operating in the
regions of Tacna, Puno, Arequipa, Piura and Cajamarca.



Our company is committed with sourcing our operations with renewable energy. In
2020, 22% of Southern Copper Corporation's electricity came from renewable
sources. We are currently evaluating options to contract an additional portion
of our power demand from renewable electricity. In 2022, we expect at least 25%
of our energy supply will come from renewable electricity.



The percentage of recycled water from mining operations has increased 5% over
the last three years and reached 74% in 2020. This represented savings of
approximately 3.5 million cubic meters of fresh water a year. The Company has
made major efforts to increase the amount of water available to the nearby
communities in Mexico and Peru and has rehabilitated more than 200 kilometers of
irrigation canals and 400 water reservoirs. These initiatives have benefitted 20
thousand farmers and in just 5 years, the Company has invested $79 million in
water projects for communities.



Grupo Mexico published its Sustainable Development Report 2020, which contains
information on Southern Copper Corporation's progress in areas relative to
sustainability and is aligned with the reporting standards of the Global
Reporting Initiative (GRI) and, for the first time, also adheres to the
frameworks of the Sustainability Accounting Standards Board (SASB) and the Task
Force on Climate-Related Financial Disclosure. The 2020 version includes a
section on the SCC's response to the COVID-19 pandemic and provides greater
detail on issues relative to economic, governance and climate change
performance.



CLIMATE CHANGE


Peruvian operations: On April 17, 2018, the Peruvian government enacted Law N.
30754, establishing a Climate Change Framework. Through this law, promoting
public and private investments in climate change management is declared to be of
national interest. The law proposes to create an institutional framework to
address climate change in Peru, outlining new measures, particularly with
respect to climate change mitigation. It includes, for example, provisions
regarding: increasing carbon capture and use of carbon sinks; afforestation and
reforestation practices; land use changes; and sustainable systems of
transportation, solid waste management, and energy systems. This is the first
climate change framework law in Latin America to incorporate obligations from
the Paris Agreement. Regulations to this law were enacted by Supreme Decree
013-2019, which was published on December 31, 2019 and are applicable to all
Peruvian institutions and agencies. It is expected that further Peruvian
regulations will be applicable to non-governmental entities. The Company
anticipates initiating a multi-year process to adopt applicable reporting
recommendations of the Task-Force on Climate-Related Financial Disclosures
(TCFD) once new Peruvian climate change regulations applicable to
non-governmental entities are implemented. The Company is committed to the
environment and to managing climate-related impacts. The Company's focus is to
seek continuous improvement in the responsible use of natural resources while
complying with strict applicable legal standards for prevention, mitigation,
control and remediation of environmental impacts. Implementing continuous
improvement in the Company's processes improves efficiency in the use and
consumption of energy, water, and other natural resources.



Mexican operations: Grupo Mexico, the indirect parent of SCC has issued
sustainability reports under the Global Reporting Initiative (GRI) for more than
10 years. Grupo Mexico also participates in different Mexican and international
reporting programs such as the Greenhouse Gases (GHG) Mexico Program and CDP
(formerly the Carbon Disclosure Project). In 2013, GHG and CDP signed a
memorandum of understanding to work on aligning their reporting frameworks.
Grupo Mexico's 2018 CDP questionnaire included responses to the Task Force on
Climate-Related Disclosure or TCFD concerns. In compliance with the 2012 Mexican
Climate Change Law, Grupo Mexico's GHG emissions are reported and verified
independently. Grupo Mexico's Sustainability Reports, which disclose inventories
of GHG emissions, can be found at
"https://www.gmexico.com/en/Pages/development.aspx". As indicated above, the
Grupo Mexico 2020 report is aligned with the reporting standards of the Global
Reporting Initiative (GRI) and, for the first time, also adheres to the
frameworks of the Sustainability Accounting Standards Board (SASB) and the Task
Force on Climate-Related Financial Disclosures.



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ACCOUNTING ESTIMATES



Our discussion and analysis of financial condition and results of operations, as
well as quantitative and qualitative disclosures about market risks, are based
upon our consolidated financial statements, which have been prepared in
accordance with U.S. GAAP. Preparation of these consolidated financial
statements requires our management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. We make our best
estimate of the ultimate outcome for these items based on historical trends and
other information available when the financial statements are prepared. Changes
in estimates are recognized in accordance with the accounting rules for the
estimate, which is typically in the period when new information becomes
available to management. Areas where the nature of the estimate makes it
reasonably possible that actual results could materially differ from amounts
estimated include: ore reserves, revenue recognition, ore stockpiles on leach
pads and related amortization, estimated impairment of assets, asset retirement
obligations, determination of discount rates related to the financial lease
liabilities, classification of operating leases versus financial leases,
valuation allowances for deferred tax assets, unrecognized tax benefits and fair
value of financial instruments. We base our estimates on historical experience
and on various other assumptions that we believe reasonable under the
circumstances. Actual results may differ from these estimates under different
assumptions or conditions.

© Edgar Online, source Glimpses

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Sales 2021 10 882 M - -
Net income 2021 3 402 M - -
Net Debt 2021 3 890 M - -
P/E ratio 2021 15,0x
Yield 2021 4,67%
Capitalization 49 585 M 49 585 M -
EV / Sales 2021 4,91x
EV / Sales 2022 5,24x
Nbr of Employees 13 777
Free-Float 9,59%
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