Southern Copper : SCC conference call 4Q20 transcript

JANUARY 26, 2021 / 6:00PM GMT, Q4 2020 Southern Copper Corp Earnings Call

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Q4 2020 Southern Copper Corp Earnings Call

EVENT DATE/TIME: JANUARY 26, 2021 / 6:00PM GMT

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JANUARY 26, 2021 / 6:00PM GMT, Q4 2020 Southern Copper Corp Earnings Call

CORPORATE PARTICIPANTS

Raul Jacob Ruisanchez Southern Copper Corporation ‐ VP of Finance, Treasurer & CFO

CONFERENCE CALL PARTICIPANTS

Andreas Bokkenheuser UBS Investment Bank, Research Division ‐ Executive Director, Head of LatAm Mining & Basic Materials and Research Analyst

Declan Hanlon ‐

Grant Sporre Bloomberg Intelligence ‐ Senior Analyst of Metals & Mining

Isabella Batalha Vasconcelos Banco Bradesco BBI S.A., Research Division ‐ Research Analyst Jean Baptiste Bruny BBVA Corporate and Investment Bank, Research Division ‐ Chief Analyst Jens Spiess Morgan Stanley, Research Division ‐ Research Associate

John Charles Tumazos John Tumazos Very Independent Research, LLC ‐ President and CEO Leopoldo Silva LarrainVial S.A., Research Division ‐ Analyst

PRESENTATION

Operator

Good morning, and welcome to Southern Copper Corporation's Fourth Quarter 2020 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 fourth quarter 2020 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 U.S. GAAP.

Now I will pass the call on to Mr. Raul Jacob.

───────────────────────────────────────────────────────────────────────────────────── Raul Jacob Ruisanchez Southern Copper Corporation ‐ VP of Finance, Treasurer & CFO

Thank you very much, Gigi. And good afternoon to everyone and welcome to Southern Copper's Fourth Quarter and Full 2020 Results Conference Call. At today's conference, I'm accompanied by Mr. Oscar González Rocha, Southern Copper's CEO and Board member.

Before we go into the details of the past quarter, let me first express my best wishes for you and your loved ones during these trying times. In today's call, we will begin with an update on the measures we have taken to keep COVID‐19 at bay. We will then review the copper market and Southern Copper's key results for production, sales, operating costs, financial results and expansion projects. Subsequently, we will open the session for questions.

In 2020, Southern Copper faced the challenges of the pandemic with resilience, innovation and

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JANUARY 26, 2021 / 6:00PM GMT, Q4 2020 Southern Copper Corp Earnings Call

solidarity. The new normal that the virus has imposed in the world requires governments, companies and society to assume joint responsibility to protect citizens as we resume growth, generate value and fuel economic recovery.

When COVID‐19 reared its head in early 2020, Southern Copper moved quickly to preserve the health of its workers, their families and the communities in the countries where we operate. The company is committed to guaranteeing safe work environments and has developed lines of action to prevent transmission, strengthen community outreach and bolster capacities for medical response.

In Mexico, a special budget was allotted to properly equip health personnel and support care functions in COVID hospitals. The company used these funds to donate almost 0.5 million protection equipment kits, 139 artificial support ventilators and 500 noninvasive ventilators to hospitals in different states around Mexico, as well as an important number of medical supplies such as monitors, beds and resuscitation carts. Hundreds of portable sinks for handwashing were installed and a company facility in Sonora was conditioned with dozens of beds for COVID patients with mild to moderate symptoms.

In Peru, the company set up 18 temporary hospitals with a total of 250 COVID beds and provided each facility with oxygen supplies. In addition, the company donated 318,000 liters of liquid oxygen to public hospitals in the regions of Moquegua and Arequipa and set up 2 oxygen plants in the Tacna and Puno regions with capacities of 720 cubic meters and 222 cubic meters per day, respectively.

To ensure the timely detection of COVID‐19 cases and stop chains of contagion, a PCR lab test was donated in Moquegua. Additionally, medical equipment was donated to health care professionals. A, application of serology or PCR tests is now a standard procedure, which is key to stopping contagion at its tracks.

Southern Copper has supported the most vulnerable populations in both Mexico and Peru by distributing thousands of food bags and continues to funnel outreach through its permanent community programs. Our top priority is to roll out solidarity‐based efforts with the communities in our areas of influence to work together to stem the pandemic and its impact. In this regard, the company has mounted intense communication campaigns to educate the population about the prevention and hygiene measures recommended by health authorities and to provide psychological support for families throughout the online counseling and workshops.

Now let us focus on the copper market, the core of our business. In the fourth quarter of 2020, the London Metal Exchange Copper price averaged $3.25 per pound, that is 21.7% higher than the price that we had in the fourth quarter of 2019. As of today, we are seeing prices a little bit over $3.60 per pound, which boasts a positive outlook for the 2021 copper market. We believe the following factors are influencing the copper market:.

•  A worldwide recovery in copper demand for industrial uses, driven mainly by a sustained recovery in economic activity in China and other Asian economies as well as the European auto

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JANUARY 26, 2021 / 6:00PM GMT, Q4 2020 Southern Copper Corp Earnings Call

industry.

•  Regarding China, it should be also noted that copper scrap imports dropped 48% in the last 10 months of 2020, which led to a subsequent increase in Chinese consumption of refined copper.

•  The combined inventories of the London Metal Exchange, COMEX, and Shanghai and bonded warehouses closed 2020 at their lowest levels since December 2014.

•  Given the current market outlook for supply and demand, we have a positive view for this year and for the long‐term evolution of the copper market.

Now let's look at Southern Copper's production for the past quarter and 2020. Copper represented 82% of our sales in the fourth quarter of 2020. Copper production registered an increase of 1.3% compared to the fourth quarter of 2019 and situated at 259,744 tons in the fourth quarter or in the past quarter. This was primarily due to an increase in production at our Cuajone mine, attributable to higher ore grades and recoveries as well as higher production at the Buenavista mine due to an increase in the tonnage processed by the concentratorse. This effect was partially offset by lower production at our Toquepala mine due to lower ore grades.

For the year 2020, copper production topped 1 million tons and represented a new milestone in the company's history. This represented a 0.8% increase with regard to 2019 production and was primarily due to higher production at our Cuajone mine, which was attributable to higher ore grades and recoveries. And to growth in production at both the La Caridad and the IMMSA mines in Mexico. These increases were partially offset by a decrease in production at the Toquepala and Buenavista mines, mainly due to lower ore grades.

For 2021 and 2022 for the next ‐‐ this year and the next one, we expect to produce a little bit north of 943,000 tons of copper. This year's production will be affected by a temporary reduction in ore grade and recoveries, at the Peruvian operations. We expect our copper production to recover by 2023, reaching 1,031,000 tons of production as we get the Peruvian production back on track and generate new production on from our projects of Pilares, El Pilar and Buenavista Zinc Cconcentratore. We believe 2023 will mark a new inflection point for new production as we aim to produce 1.9 million tons by 2028 by developing the following organic growth projects, all of them fully owned by us:.

For Mexico, we have Pilares that is expected to initiate production in ‐‐ early in 2022 with a capacity of 35,000 tons. El Pilar will increase our production by 2023, with a capacity of 35,500 tons of copper. El Arco, a major greenfield project in the Baja California, Peninsula, is expected to get into operation in 2028 with a contribution of 245,000 tons of copper. And the Buenavista Zinc concentrator is expected to produce 12049,000 tons of zinc by 2023 and 20,000 ‐‐ I'm sorry, 28,000 tons of copper. These add 343,000 tons of new production from our Mexican operations.

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