Southern Copper Corporation held its third quarter 2024 results conference call on Tuesday, October 22, 2024. Chief Financial Officer Raul Jacob opened the session, joined by CEO Oscar Gonzalez Rocha and board member Leonardo Contreras.
Jacob began with an overview of the copper market. The London Metal Exchange copper price averaged $4.17 per pound in the third quarter, up 10% from the same period in 2023. He noted a current price of about $4.30. The company expects a slight market surplus of approximately 100,000 tons for 2024. Demand from China remains weak, but recently announced economic measures are anticipated to spur growth. Resilient U.S. economic conditions and new demand from decarbonization and artificial intelligence technologies are expected to support long-term copper demand.
Copper production increased 11% quarter-over-quarter to 252,219 tons in Q3 2024. This result was driven by an 18% production increase in Peru, attributed to higher mineral throughput at Cuajone and improved ore grades and recoveries at Toquepala. Production at Mexican operations rose 7%, mainly due to higher output at the Buenavista and La Caridad mines. For full-year 2024, the company expects to produce 975,000 tons of copper, a 7% increase over 2023.
Molybdenum production increased 6% in Q3 2024 compared to Q3 2023, though prices averaged $21.68 per pound, down 8% year-over-year. The company forecasts 28,200 tons of molybdenum production for 2024. Silver production increased 22% in the quarter, with an average price of $29.43 per ounce, up 25% from the prior year. Southern Copper expects to produce 20.8 million ounces of silver in 2024. Zinc mine production saw a remarkable 91% increase to 31,078 tons, largely due to new production from the Buenavista Zinc concentrator. The company forecasts 120,300 tons of zinc production for 2024.
Third quarter 2024 sales were $2.9 billion, a 17% increase from Q3 2023. Copper sales value rose 21%, with volume up 8%. Zinc sales increased 61%, and silver sales grew 46%. Molybdenum sales declined due to lower prices. Total operating costs and expenses increased by $44 million, or 3%. Adjusted EBITDA for the quarter was $1,685 million, a 31% increase, with a margin of 57%. Net income was $897 million, up 45% year-over-year.
Operating cash cost per pound of copper, including by-product credits, was $0.76 in Q3 2024, similar to the previous quarter. The cost before by-product credits was $1.95 per pound. Cash flow from operating activities was $1,440 million for the quarter, a 37% increase.
The company's capital investment program exceeds $15 billion, covering projects in Peru and Mexico. Capital expenditures for the first nine months of 2024 were $792 million. Jacob provided updates on key projects. For the Tia Maria project in Peru, the company has generated over 422 jobs as of September, with 355 filled locally. Construction is expected to create 9,000 jobs, with operations starting in 2027 to provide 600 direct and 4,800 indirect jobs. A capital expenditure budget of $363 million is approved for 2025.
At the Los Chancas project, efforts with Peruvian authorities continue to address illegal mining activities before resuming environmental studies. For the Michiquillay project, exploration is 30% complete, with 121,000 meters drilled out of a planned 148,000 meters.
Regarding environmental and social governance, the company's Peruvian operations received Copper Mark and Molybdenum Mark certifications. Southern Copper also highlighted community initiatives, including a research center delivered to a Peruvian university and a cultural center in Mexico. The company's health program, Dr. Vagón, has provided over 80,000 medical services in Sonora over the past decade.
Southern Copper announced a quarterly cash dividend of $0.70 per share and a stock dividend of 0.0062 shares per share, payable on November 21, 2024.
During the question-and-answer session, analysts inquired about various topics. Gabriel Simoes of Goldman Sachs asked about the gap between copper production and sales. Jacob responded that the gap is due to material in process at smelters and refineries and should close shortly, potentially in the fourth quarter. Simoes also asked about protests related to the Tia Maria project. Jacob stated that recent protests in Peru were not specifically targeted at the project and that work continues without interruption, with over 400 employees currently on site.
Carlos de Alba of Morgan Stanley asked for cash cost guidance. Jacob indicated that costs should remain around current levels, approximately $0.76 per pound including by-products and about $2.00 per pound before by-products, depending on by-product prices and production. On dividends, Jacob noted the Board's policy of a mix of cash and stock dividends, considering liquidity needs for projects and a $500 million bond maturity in 2025. The company currently holds 99 million treasury shares.
Rafael Barcellos of Bradesco BBI inquired about regulatory environments. Jacob said Peru is proposing changes to shorten permit times, while Mexico's recent regulatory changes have not affected the company's existing concessions. Regarding production forecasts, Jacob provided estimates for 2025: 978,300 tons of copper, 26,200 tons of molybdenum, 154,600 tons of zinc, and 22.9 million ounces of silver.
Ian Snyder of JPMorgan asked about debt issuance plans. Jacob said the company may tap debt markets in the coming quarters, particularly as major projects like Tia Maria begin construction, but no specific plans are finalized.
David Feng of CICC questioned figures in the cash cost reconciliation. Jacob clarified that a negative number for treatment and refining charges was misstated in the press release. Feng also asked about revised capital expenditure estimates for Tia Maria. Jacob mentioned a ballpark figure of $1.8 billion, reflecting technological updates and new infrastructure like a road, with a final budget pending.
Alejandro Demichelis of Jefferies requested capital expenditure guidance for 2025. Jacob cited a current estimate of about $920 million, subject to change. On water availability in Mexico, Jacob stated the company has sufficient water for 2024 and 2025 operations, with stored reserves as a cushion.
Timna Tanners of Wolfe Research asked for reasons behind production forecast changes. Jacob attributed stable copper production to recovery in Mexican operations and higher Peruvian output. Increased zinc production is driven by the new Buenavista concentrator. For 2026, copper production may be slightly lower, but mine plans are still being reviewed.
Jon Brandt of HSBC inquired about Tia Maria's potential capacity and costs. Jacob said production targets remain at 120,000 tons, with cash cost around $1.16 per pound for the first decade. Regarding Los Chancas, Jacob reported ongoing work with national police to remove illegal miners, hoping for resolution by early 2025.
Alfonso Salazar of Scotiabank asked about water pipeline permits in Mexico and cost breakdown. Jacob said the permit process is ongoing, and the company is not currently using water trucks. Approximately 39% of costs at Mexican mines are in Mexican pesos.
Raul Jacob concluded the call, thanking participants and inviting them to the next earnings update.