Grupo Mexico SAB de CV

BMV:GMEXICOB

Earnings Call Transcript 2021-Q1

[Operator]

Good afternoon, and thank you for holding, and welcome to Grupo México's First Quarter 2021 Earnings Conference Call. With us this afternoon are all of Grupo México's top executives, who will discuss the first quarter 2021 financial performance of the company, giving you a summary of the latest news and address any questions you may have at the end of the call.

Before we begin, I would like to remind you that 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 not to place undue reliance on these forward-looking statements. Grupo México 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. The presentation may be followed through our webcast. [Operator Instructions] A copy of the slides that the company will be reviewing today is available on the website at grupomexico.com. [Operator Instructions] Now we will begin with Ms. Marlene Finny.

[Marlene de la Torre, executive]

Good evening, everybody, and thank you for joining us today in -- for Grupo México's first quarter earnings conference call. Joining me today are the top executives from all of our divisions, Mining, Transportation and Infrastructure Division. And as Karen was mentioning, for today's call, we will be following a presentation that can be downloaded from our website or by accessing the webcast, whichever you prefer.

I would like to start today's call by reinforcing our commitment with our employees and communities and hoping you and your love ones continue to be healthy. On today's call, we will be following the program details on Slide #3 -- on Slide #3 of our presentation. I will start with Grupo México's main highlights, ESG achievements, scorecard and financial highlights for the quarter. Then, unfortunately, today, Mr. Xavier Garcia de Quevedo couldn't be with us. But Leonardo Contreras, AMC Director; will be and will provide detailed information regarding our mining division, commenting on the industry's economic environment, the division's financials and its highlights. Then followed by Fernando Lopez Guerra, who will dive deep into the financial results and main events of our transportation division. And finally, Francisco Zinser will comment on the relevant events that occurred during the quarter in our infrastructure division. At the end, the line will be open for the questions and answers you might have or any issue we want to address.

Today, I'm very pleased to announce that as we maintain the strictest protocols against COVID-19 throughout the pandemic, during the first quarter of the year, all of our divisions have excelled in different ways. From improving our cash costs in the mining division, to returning to pre-COVID volumes in our Transportation division, to winning the designation to build a railway for the Section 5 south of the Tren Maya by our infrastructure division. So we have significant achievements by each division.

But let's start by analyzing our main ESG achievements in Slide #5. And also have been included, and I think this is very important, as you know, ESG is now at the core of our strategy. It has been for many years, but now we're trying to be more proactive in focusing on -- much more on giving the information and trying to communicate everything that we do because we think this is very important. And even though we do a lot of things, we are trying to communicate it better now so you can all have the information you might need to make any decisions. So this year, we have been included in a Dow Jones Sustainability Indices for the fourth time in a row. And as we move towards the adoption of best practices, the company's sustainability and corporate governance development policies have been updated, formalizing our commitments and objectives to encourage sustainability and best practices all over the company.

On a more local note, Minera Mexico received 3 Casco de Plata, which is an award, and a significant award here in Mexico for its performance in safety and occupational health, awarded by the Mexican Mining Chamber. So a significant award. And before we continue, it is important to highlight that we have not put the guards down against the COVID-19 pandemic. We continue to follow the strictest protocols in all of our facilities, in Mexico, Peru, the United States, working alongside the authorities in each location and mounting intense communication campaign to educate our communities about the prevention and heightened measures recommended by health authorities.

Here, I will mention that during our call earlier today, our [indiscernible] conference call, but I think it's important to highlight as well that through the vaccination plan, 100% of the mix of staff in our operation have already been vaccinated. In addition to that, 98% of our staff [indiscernible]. And 100% in [indiscernible] have been vaccinated. This significant progress protects our staff from becoming infected with COVID-19 and allows them to have peace of mind for themselves and their families. We continue to contribute as we can to the vaccination plan by providing logistics reports. And we have continued as well with medical -- the nation of medical supplies in Mexico and Peru, amounting more than [ 2.2 million ] emphasizing the regions where COVID-19 infections have been increasing, including areas where the company does not have an operational presence, but where the health situation has -- it is warranted.

In the case of Peru, given the increased demand for medical apparatus oxygen, [indiscernible] Mexico and the [indiscernible] sign a contract [indiscernible] of 2,500 tons of liquid oxygen. As that, we have been doing a lot of other things, you can read everything in our press release. I wanted to give a brief comment on what we have been doing.

So moving next to Slide #6. Our scorecard for the quarter shows record-breaking results, and we achieved quarterly sales record, netting $3.43 billion for the quarter, an increase of over 40% versus the first quarter of 2020, driven mainly by higher copper, molybdenum, gold, zinc and silver prices. To give you an idea, copper prices were 50% higher than during the first quarter of 2020. But this is not only because of higher copper prices. We have invested over the past 10 years, more than $18 billion, so we have increased our production significantly. So now we are seeing with this good cycle in terms of prices, we have seen the results coming back as well in the other divisions with more growth and new projects. So it's very interesting right now.

We have also achieved a quarterly EBITDA record of $2.14 billion, an increase of almost 100% versus the same quarter of last year. Our operating income also achieved an outstanding new result, reaching $1.7 billion, an increase of over 140% versus the first quarter of 2020, and an EBITDA margin of 62.3%. And this compared to last year is a significant increase as we had during the first quarter of 2020, 43.7% EBITDA margin versus right now 62.3%. So it is a significant increase.

Our Board committed to transfer and create and generate value to our shareholders, approved a cash dividend per outstanding share of 1.5 pesos per share a 20% increase versus last quarter, reinforcing our strong dividend program, which translates into a 5.9% dividend yield. That's very significant. And during the fourth quarter, we had a 5.5%. And even with a higher share prices, we continue and we maintain similar dividend yields. So that's our intention. And I think it's very generous.

So we were able to reach a copper production of more than 271,000 tons. This is a slight decrease versus the first quarter of 2020, but practically in line with production. So that was a good result as well. To end our record quarterly scorecard, I would like to highlight our 5.5% cash cost improvement versus the same quarter of last year, ending in $0.88 per pound.

Moving forward to Slide #7. You can find a summary of our financial highlights, which is, therefore, good to have in hand in case you need to -- in case you need it at any point during the presentation. But you can see the growth that we were mentioning before, the 40%, 140% and 99% -- almost 100% growth, in revenues, operating income and EBITDA as well as our net income, I think, we don't have it there. But we have an improvement as well from a net loss during the first quarter of 2020 to a total net income of roughly $1 billion during this quarter, a little -- above $1 billion.

Moving on to Slide #8. We can see that Grupo México maintains a solid balance sheet with low leverage and a net debt-to-EBITDA ratio of 0.7x. Our debt is mainly issued in U.S. dollars, representing 82% of the total debt, while the remainder is in Mexican pesos. Normally, and we have mentioned this before, what we try to do is to match the type of asset that we have with our financing strategy. So for example, in the mines, which are long-term assets with 100% revenue in dollars, we normally issue debt -- long-term debt in dollars. But in other cases, for projects, it depends and that's how we try to do it, we match the time and the currency, depending on what makes more sense to improve or to have a good capital structure.

On this slide, you can also see the dividends paid and the implied dividend yield from 2019 and 2020. And we make now the MXN 1.5 cash dividend for the quarter, approved by our Board, that has a 5.9% dividend yield I was mentioning before. As for our debt maturity profile, we turn on Slide #11 -- #9, sorry. We continue to have a comfortable maturity schedule with no significant payments until 2035 and a cash flow generation of over $750 million during the quarter to total $4.8 billion for the end of the quarter. We also saw a 16% reduction of net debt versus last quarter as we continue to pay some of our debt, depending if it makes sense or not in -- or in time and order.

Now I will pass the call to Leonardo Contreras, who will comment on our Mining Division's performance.

[Leonardo Contreras Lerdo De Tejada, executive]

Thank you, Marlene. First of all, I hope you and your loved ones continue to be healthy and strong. Let me start with the Mining Division's operating and financial highlights on Slide 11. As Marlene previously mentioned, production was practically flat for the quarter, totaling 271,312 tons, representing a decrease of only 0.5% versus the quarter in 2020. The slight drop in production was due to lower ore grades in our Peruvian operations, while our IMMSA and Asarco operations helped mitigating this effect. Along with our high production level, higher copper and byproduct prices propelled our sales during the quarter, which ended the period in a record $2.8 billion, a 56.1% increase when compared to the same period of last year and 6.5% versus the fourth quarter of 2020.

We continue to be the cost leader in the industry worldwide as our net cash cost ended the quarter at $0.88, continuing the downward trend of our net cash costs. These times supported by higher byproduct credits. Our cost efficiency focus and higher metal prices led us to an outstanding 158% increase in EBITDA when compared to the same period of last year. Our EBITDA margin set at 64.6% is also a quarterly record and an improvement of over 2,500 basis points. The Mining Division's CapEx ended the quarter at USD 239 million, as we continue to invest in our projects.

I would like to continue talking about our projects under progress in Slide 12. In Pilares, the construction of the road for mining trucks between the Pilares pit and the primary crushing plants in n La Caridad started a couple of months ago, and it is already materially completed. In regard to our Buenavista Zinc project, which is expected to be operational by 2023, ended the quarter with the basic engineering completed and an 89% completion rate in the detailed engineering plan. It is important to mention that additional preventive COVID-19 protocols have been implemented to further advance this project.

Finally, we confirm that there are suitable copper recovery levels in El Pilar also expected to be operational in 2023, and the basic engineering has already begun. As you might already know, these projects are not the only ones in our robust pipeline. On Slide 13, you can see our upcoming projects and their impact of our production. As we set sails to reach 2 million tons of copper produced by 2028.

Before concluding the mining division's highlights, I would like to share with you a couple of quick remarks on the current copper market. In the first quarter of the year, the LME copper price increased over 50% from an average of $2.56 during the same quarter last year to 3.85%. Today, we're seeing prices over $4.40 per pound suggesting a positive outlook for the 2021 copper market. We believe the following factors are influencing the market. The [ automobile ] industry's global recovery, which has increased its production 89% in the first quarter of 2021. President Biden's $2 trillion infrastructure package, which will significantly increase the demand for copper as it is a fundamental element of green energy facilities.

In addition to that, the low inventory levels of the LME, ComEx, Shanghai at bonded warehouses and an expected market deficit this year due to a significant recovery in demand, which should be between 3.5% and 5.5%. If you happen to have any follow-up questions, we will be pleased to address them during the Q&A session. I would like to close by reinforcing our full support for communities where we operate and to all our collaborators.

Now I will let Fernando comment on the Transportation Division.

[Fernando Guerra, executive]

Thank you, Leo. And thank you, everyone, for joining us today. Continuing with the Transportation division on Slide 15, I would like to talk about our financial highlights for the first quarter of the year. Our sales continued to increase quarter-over-quarter, totaling $593 million, a 9.6% increase versus the last quarter of 2020 as we pull out of COVID pandemic. When compared to the same quarter last year, we saw a decrease of 2.1%, mainly driven by a decline in industrial, automotive and cement segments. It is important to consider that during the first, almost 2.5 months of 2020, we have not suffered any impact of COVID-19 in our operations, making this operation and somehow -- this comparison somehow skewed. Along these lines, our EBITDA totaled $264 million, a 12.8% increase quarter-over-quarter, while our net income increased 21.7%, but showing a 6% decrease and a 15.2% decrease, respectively, when compared to the same quarter of 2020.

Our transportation volume increased 3.3% in net ton kilometers quarter-over-quarter and 2.3% year-over-year. This increase was mainly driven by our Energy segment in which we have seen a recovery in fuel exports -- in fuel oil exports, LPG and some new refined product traffics as liquid terminals have come online. As we move forward to Slide 16, you can see our main highlights for the quarter. Volume has returned, practically even to pre-COVID levels in most of our segments. Revenue has seen -- saw a slight decrease of 0.3% in Mexican pesos versus the same quarter last year, and our EBITDA only decreased 3.5% in Mexican pesos.

Also, it is important to highlight that our Board approved a MXN 0.30 dividend per share and we continued with our share repurchase program, buying back 2.4 million shares over the quarter at an average price MXN 29.73. Continuing with our main variations of our revenue on Slide 17, we can see that, as I mentioned before, the energy segment showed the highest growth during in the quarter followed by metals, in which we saw an increase in volume in raw materials and finished products for Mexican consumption. The other 3 segments that showed medium growth were Minerals, Ag and Intermodal. The Minerals segment growth was due to U.S. market were weaker -- the Mineral segment growth was due to U.S. market share, where we gained and propelled by a solid Florida construction market, which has come back really, really strong. We have 4 segments with negative impact in revenue growth, including the chemical, automotive -- Chemical, Automotive and Cement segment and Industrial as well. This one showed a decline of 11%, mainly due to decrease of railcar exports. And we've mentioned this before, as railroads have become -- or are becoming more efficient in everything we are needing less railcars to move the same volume, that is mainly the reason.

On Slide 18 -- and in automotive, the main reason was the shortage that has been talked in many industries worldwide, the shortage of chips for the automotive industry and basically, that's our main impact. On Slide 18, we show our operating metrics for the first quarter since 2019. Here, we can see that our average train speed is practically flat at 38 kilometers per hour. Our dwell time did decrease at 9%, moving up from 24 hours to 26 hours. And the addition of these 2 variables equate to the car velocity in kilometers per day, which dropped by 6%. Our dwell time was impacted mainly due to the weather challenges that we had in Texas, that the U.S. carriers had in Texas with weather conditions. This is completely -- this has been completely corrected by now, and we see the dwell time and car velocity improve. On train length, it has improved by 6%, almost reaching 2,000 meters per train and gross tons per train -- gross tons per train improving by 10% over 6,400 tons per train. This equates to less crew starts and by -- in that order of ideas, less crews to do the exact same thing and move the exact same cargo.

Now moving into Slide 19, which is our CapEx plan. I will address our main growth and efficiency projects. Our intermodal terminal that we're building outside the port of Manzanillo will be operational by fourth quarter of 2021. This will allow us to receive all the units that lack capacity, inside rail capacity inside the port of Manzanillo, so that we can haul them into mainland. The refined products terminals from one of our main customers are coming online. This -- the Veracruz port terminal is already operational, and it's being unloaded in Puebla on a transload basis within the next month or 1.5 months. It will have tanks and be ready to unload unit trains, full unit trains and the same for Mexico City within 1.5 months or 2 months. The Celaya bypass will now have full access into Honda and the entire bypass should be done by fourth quarter of 2022.

The Monterrey bypass, we should be done between October and November of this year. This will give us great access and faster access into, and out of Monterrey and become very, very competitive versus over-the-road in trucks from the port and out of the port into the Port of Altamira. The Chihuahua-Ojinaga corridor, this is us connecting our Texas Pacific line into our Mexican rail network, which is a very good project for us with a lot of potential for refined products, grain and some consumer products. As you all know, Texas is Mexico's largest trading partner. This should be done by third quarter 2021. In efficiency projects, our transportation management project, which is one of our most important projects right now, we are to be done third quarter of 2021. This project gives us complete visibility into what we currently operate. It's a great upgrade into our operational system. The LNG conversion is to be done the first phase by third quarter of 2021 and we're already receiving some of the locomotives and some of the tenders. But this is a sequential process and needs to be done by the third quarter of 2021. On the trip optimizer, we're fully operational in all of our road locomotives, and the union has also agreed to utilize this project -- these systems, which allows our crews to practically run on autopilot, and this allows us to have the best run possible out there for fuel consumption, and we're witnessing those improvements as well.

As for our outlook on 2021, depicted on Slide 20, we expect volume growth between 5% and 7%. We reaffirm our expectation of a double-digit revenue growth over the year, boosted by a recovery from COVID-19 and new traffic. This concludes a general overview of our Transportation division. I will now let Francisco Zinser to comment on the Infra division.

[Francisco Gonzalez, executive]

Thank you very much, Fernando, and good afternoon, everyone. Starting with the financial highlights of the Infrastructure Division, in Slide #22, revenues totaled $148 million for this quarter, which represents an 8.3% increase compared to the same quarter of last year, continuing with a positive trend of 8.4% increase quarter-over-quarter. Our EBITDA totaled $60 million for the quarter, which translates into a 25% decrease versus the first quarter of 2020. This was mostly due by a lower exchange gain in our peso-denominated debt due to the appreciation of the Mexican peso.

We also had the reduction of our oil rig tariffs, which were implemented in the third quarter of 2020 and lower traffic levels in our toll roads division. It is relevant to say that in the last few weeks, we have achieved pre pandemic levels in our toll roads, which we consider a significant milestone, and they continue to recover. Our net income totaled $17 million during the quarter, showing a net positive result after a couple of quarters. As we continue into Slide #23, I'll go over the most relevant events of the division and a brief update on the different projects that we have. Starting with our Energy Generation Division, sales totaled $81 million, which is an increase of 47% when compared to the same quarter of last year. This was driven by an upsurge in the price of the molecule of the gas, and this was caused by the Polar vortex that affected the state of Texas in the U.S. in February of this year, which created havoc about different industries.

Our Pemsa Division, where the oil and rigs are, ended the quarter with 6 oil rigs in operation and an average efficiency of 99.8%, which is an all-time high. Despite this record, unfortunately, as I mentioned before, our sales and EBITDA showed a decrease of 22% and 26%, respectively, versus the same quarter of last year, totaling $38 million and $18 million. This was due, as I mentioned, to an adjustment in the Pemex tariffs as we were looking to assure operation and avoid suspension of any of our platforms, which we have achieved successfully, becoming one of the only companies, if not the only one to have avoided an extensive suspension. It is also important to mention that we have been able to mitigate the impact of the tariff reduction which flows all the way down to the income statement bottom line, thanks to a strict cost control plan that we have achieved in the past few quarters. As for the projects, here is the most recent update. In our Fenicias Wind farm, which is located in Nuevo Leon, we reached a 94% completion rate. We have finished engineering and construction. We have finalized the erection of all 42 wind turbines, which are 4.2 megawatts each, and 18 out of the 42 wind turbines are already operational. We were able to energize our 60-kilometer transmission line, which interconnects us into the grid, and we have already started our testing period, initiating our test energy delivery into the grid.

In our fuel storage terminals, we continue with progress in order to achieve commercial operations by the fourth quarter of '22 and the second quarter of 2023. And finally, as Marlene mentioned previously, during this quarter, Grupo México Infraestructura and Acciona, an Infrastructure Spanish company were awarded by Fonatur, which is an agency of the federal government, a contract to complete the executive project, meaning detailed engineering, to build a railway, adapt a highway and install the electric infrastructure for the Section 5 South of the Maya train, which is a 60-kilometer project that runs from Playa del Carmen in Quintana Roo to Tulum.

I will now let Marlene to proceed with her closing remarks.

[Marlene de la Torre, executive]

Thank you, Francisco, and thank you Fernando and Leonardo as well. As the closing remarks, well, I would like to thank everybody for your time and attention and reiterate our commitment with everybody that worked with us and the communities as we continue to navigate the pandemic.

Now we will open the line to address any questions you might have or anything -- or any issue you might want to address.

[Operator]

[Operator Instructions] Our first question comes from Carlos De Alba with Morgan Stanley.

[Carlos de Alba, analyst]

A few questions, if I may. First, Marlene, thank you for now publishing more details on Asarco production and cost. I will just bother you with the cash cost before byproducts for Asarco. Also, if you could provide an update on Aznalcóllar. I didn't see it in the press release. Maybe I missed it but if you can give us an update, that would be great. Then in the railway, is it possible for you to elaborate what is your read on the proposal by certain senators in Mexico to change the timing of the railway concession, I think, from 50 years to 20 to 30, or 30 years, if I recall correctly? And then finally, on the Infrastructure Division, I think I heard that the impact of the lower tariffs negotiated with Pemex will be mitigated by cost reduction. Is this fully mitigated? So no impact on the bottom line or EBITDA as a result of the lower tariffs because the company reduced cost?

[Marlene de la Torre, executive]

I think I will let Leonardo answer the Asarco and Aznalcóllar question, cash cost and the update. And then Fernando and Francisco answer the Transportation and then the Infrastructure questions. If that's okay, Leo do you want to comment anything on a Asarco and Aznalcóllar?

[Leonardo Contreras Lerdo De Tejada, executive]

For sure. Thank you for the question, Carlos. First, let me address Asarco's cash cost before byproducts, [ 194 ] And in regards to Aznalcóllar, earlier this month, we submitted an addendum for our environmental impact license. We expect to have a final approval during the second semester, during this year to have it fully permitted.

[Fernando Guerra, executive]

Okay. Regarding the railway the Senate proposal that you mentioned, Carlos, we're highly confident that the law will not be voted as it currently is or even voted at all. The proposed changes do not reflect what the federal government, the transportation sector, not what its users want. It is merely a proposal of a fraction of the senate. However, to the point that you arise of concessions moving lower from 50 to 30 years, this would be for new concessions. We have already been granted a 50-plus 50 years concession, as you know, and it’s in the Mexican Constitution in Article 14 that this cannot be retroactive. So we're very confident that; one, there will not be substantial changes; and two, even if there were, this is not meant for us.

[Francisco Gonzalez, executive]

And finally, Carlos, regarding your question about the Pemex tariffs and the impact on our income statement. Unfortunately, it is not possible to mitigate the full impact of the infra -- of the tariff reductions because, as you know, you need to keep the same service levels, the same staff, the same -- basically, you need to keep the platforms in exactly the same way as if there were no tariff reductions. However, just to give you a flavor, the impact on our quarter on sales was $10 million less in sales. But in our EBITDA, it only hitting $6 million. So we were able to mitigate about 40% of that impact, which, again, taking into account that you need to keep the same service level, we consider it a significant reduction.

[Carlos de Alba, analyst]

Yes. That makes sense, and it was my misunderstanding on what you said before. Hopefully, you guys are doing well and your families too.

[Marlene de la Torre, executive]

Thank you, Carlos.

[Operator]

Our next question comes from [ Luis Ansel with Compact ].

[Unknown Analyst]

Two questions on my side. The first one, it's on the Transportation Division. But I guess, more to the holding level, I mean, given the -- what we've seen in terms of M&A activity, or potential M&A activity in the sector. Just wondering, what actions are you planning to take to close the valuation gap that you guys have at Grupo Mexico versus your peers. We see your closest peer at 17x, 18x. And I guess you've been re-rated a little bit, but you're still far away from that. So I'm just wondering if you could give us some thoughts on what's on the table? Is it on the table to potentially sell the entire company to realize the value or at least a stake. So that's my first question. And then the second question is on ESG. You mentioned some of the improvements you've been showing on that area. But still, on the corporate governance side, we don't see any women on the Board. And a lot of companies are going through that same situation. Most of them talk about doing something about it, but it's basically words. Just wondering if we could expect to see a woman being proposed in the next general assembly meeting? Or what are your thoughts about how do you get to a more balanced approach in that regard?

[Marlene de la Torre, executive]

I will start with the ESG question, and then I will let Fernando and talk about GMXT and how we plan to close the valuation gap between what we see in GMXT and the other companies. Regarding the corporate governance and our Board and including -- and changing our Board, as of this year, we will not change it. This is all very public. We will approve -- and if everybody is agreed that will be approved or not during the shareholders meeting that will take place this Friday, April 30. So we will continue with our Board, which has been a very good -- everybody is an expert in different things that we have to be expert in taxes. And we have very good board members with an incredible trajectories -- trajectories and everything they have done. You can see a little bit of what we have done in our annual report and we will put that in our website as well. So you can see why we have that board, which is very good.

Including and having a diversity, I think it is very important. We are working towards that. We're moving towards our best practices and trying to improve our corporate governance. It's definitely something that we have in mind, something that we're working on. And hopefully, we could see something by next year or including somebody else by next year.

But the good thing is that now you can see there are more female -- women in important positions in Grupo México, including all the divisions. So I think that has the diversity and everything that we are trying to reach, and it will only take a little bit of time to reach it up to the Board.

[Fernando Guerra, executive]

Thank you. If you want, I'll take it from here Marlene. About your question about us and the GMXT and the difference versus its peers. Yes, it's quite clear that -- but it's noncomparable. The fact that they're trading at those levels, 15x the average of the industry and almost 20x, and now an offer for 23x, 24x from CN. And we were -- so we will continue with our buyback program that this -- the discount is evident. And I don't know how -- we were reading an article on the Financial Times, and we were pretty surprised when they were talking about the transaction between [ KC and CP or CN ]. And they mentioned one railroad in Mexico. So the fact that, probably we are known in the Mexican market, and we're not that known abroad. So our Investor Relations team will also have the task to continue knocking on doors and getting our company known. The gap is enormous, and it's completely nonsense. So that's basically where we continue to focus.

[Operator]

Our next question comes from Thiago Lofiego with Bradesco.

[Thiago Lofiego, analyst]

Guys, if you could discuss a little bit about capital allocation from a general perspective. So free cash flow generation is likely going to be very strong, given the high copper prices. Are you considering eventually increasing dividends further or considering a share buyback? Or should we expect M&A activity intensifying maybe in the Transportation Division, Infrastructure Division. So if you could give us a little bit more color on that general perspective about capital allocation, that would be great. And the second question about the Monterrey and Guadalajara fuel storage projects. Just to understand why they are delayed. And if you also could remind us the contribution of each one of those projects to EBITDA going forward?

[Marlene de la Torre, executive]

Sure. Thiago, thank you for your questions. Regarding capital allocation, as you know, would treat each of our divisions separately as an independent company. So they are accountable for their growth and financing needs. And that's why we have been able to grow within the 3 divisions at the same time. So that's very interesting for Grupo México as a company because we are able to grow and to build our projects and to develop our projects in the mining company. At the same time, we are doing projects and everything in the transportation, and having new businesses and new projects, as well, in infrastructure. So we have been -- we are very cautious and -- not cautious, conservative, sorry. We are very conservative in that kind of decisions in terms of capital allocation. But with all the cash flow, yes, as you mentioned, we have increased our dividend. So this quarter, we increased our dividend from the past quarter by 20%. In the past quarter, we increased our dividend as well.

So we have been constantly increasing our dividend. You can see this at the Southern Copper level as well, because with these higher metal prices, they increased their dividend as well. So it is expected that in Grupo México and Southern Copper. And going forward, we will try to continue with this way of deciding and this capital allocation in which each division is accountable for their growth. And we will continue with our projects in Mexico. We've got, as we already mentioned, 3 right now in Mexico in the short term. And then we have medium to long-term projects in Mexico also. So we need to develop that. We'll continue to grow in our -- to invest in our project growth and strategic in transportation. And in the infrastructure division, we are doing new things, such as the storaging facility that we're mentioning is a new business line. The Monterrey and Guadalajara facilities where -- I will let Francisco give you further details. But you have to remember that last year, during the COVID-19, at the beginning of the pandemic, during 3 or 2.5 months or something like that or even more, construction was considered nonessential activities. And we had to postpone some of the construction we were doing and things like that. So that affected, but Francisco will give you further detail.

[Francisco Gonzalez, executive]

Yes. Thank you, Marlene. So yes, Marlene, as you were saying, there's a couple of things that impacted the timelines for our fuel storage terminals. First, as you were saying, construction was not declared an essential activity under the pandemic, which was delayed for a couple of months. But the reason, or the biggest reason behind the delay is that, as you probably know, several agencies of the federal government closed for very long periods of time because of the pandemic. I mean just the energy ministry was closed for over 14 months. And by closed, I mean that they were not allowing any permit to be submitted, any follow-up. So that definitely delayed projects across the sector. And that's the main reason why we have been pushing our commercial operation dates in the past few months. Now we remain fully committed with these projects and a couple of other ones that we are currently analyzing. Our [ Calientes ] was already announced as well, and we're looking into Chihuahua and a few other places where we will continue to increase our presence. We -- as you know, there's also been some noise about the new law that is about to be passed that affects the hydrocarbons industry. And we have taken a look at it, and we believe that by the partnership that we have on everything with Valero, which is a strong up taker. And the way we are structuring this, they have over 3 million barrels already in capacity in Mexico, and that's one of the requirements that they're asking for in the new law.

So we continue fully committed. It's just that, unfortunately, it was out of our control to continue with some of the key permits. Now your second question regarding the contribution to the income statement in our division. By the time they are fully operational, these 2 terminals were expecting sales of about $35 million with an EBITDA contribution of between $21 million and $22 million once they become operational.

[Marlene de la Torre, executive]

And Thiago...

[Thiago Lofiego, analyst]

That's each one of them or that's combined data?.

[Francisco Gonzalez, executive]

That's the 2 of them combined. They are roughly about the same size. So it's -- 2 of them, that's the contribution that -- combined, that's the contribution.

[Marlene de la Torre, executive]

Yes, that goes back to your -- to answer your question regarding M&A, we keep a close look at all the opportunities in all of our divisions to see if there's something interesting at a reasonable valuation. So that's something that we always have in mind. As of now, we don't have something in particular, but we always keep a close look.

[Operator]

And our last question is coming from Amin Vera from Black Wallstreet Capital.

[Amin Vera, analyst]

I wanted to ask about 2 things. What are the expected revenue contribution coming from the Mayan Train contract? And also, I understand there is a proposal in Peru to increase the taxation or the participation of the government in profits, I believe, from 30% to 80%. So if this proposal were to be passed, would you have any recourse, do you try to challenge it?

[Marlene de la Torre, executive]

Okay. It's a final answer, the first one and then...

[Francisco Gonzalez, executive]

Amin, I mean, regarding your first question of the contribution of -- I'm sorry, there's some echo on the line if you could mute the...

[Marlene de la Torre, executive]

Amin, can you mute your line while you're getting the answer please.

[Francisco Gonzalez, executive]

Thank you. So regarding your question about the Mayan Train contribution to the income statement in the Infrastructure Division. This is a contract that was awarded for $880 million taking the current exchange rate between Acciona and us. The partnership that we have with them, it's a 50-50 partnership. So you would have to take that by half. And then the scope that we have for the project is the 31 month project starting this March for the construction and engineering. So we could be finishing it by the third quarter of 2023. And it's roughly -- I mean, it really depends on -- the way that flows into this period of time really depends on how the federal government allows us to make progress because they are responsible for a few of the things, such as the right-of-way and environmental permits. But I think that a good approximation would be a linear approach starting in September for about 80% of that amount, and the rest is engineering, which we will be executing in the next couple of months.

And with average on EBITDA margins for the construction industry, which go from between 15% to 20%, it's important to mention that unlike -- our scope is only construction and the engineering. So we will be executing the full amount during this period of time. So it's very different from our other projects where we would be operating them for the long term. So we expect that the cash flow will be pretty much neutral between what we received from the federal government and what we spend as we execute the project. I think that answers the question.

[Marlene de la Torre, executive]

And I think -- the second part regarding the increase in participation in profits, I think Fernando Guerra will probably answer you more easily.

[Fernando Guerra, executive]

Yes. Thank you very much, Marlene, and everyone, so -- well, that's -- what you mentioned, it's a proposal that was indicated at certain points during the beginning of the second round, the runoff campaign that it's going on nowadays in Peru. However, we have seen in the past that once the President is selected, some of these initial ideas are reviewed, or revised, and as a consequence, adjusted or dropped. So we don't want to speculate on what will be the company position or the industry position in something like this. It's proposed until we have a clear definition of who the next president is going to be and what are the proposals. What we have seen in some other elections is that once you have a president elect and this person takes -- begins to review information and policies of the mining companies, they -- well, what we have seen is that they change their minds and see that we are a very strong partner for developing Peru. And as a consequence, these ideas are leaving on the side.

[Operator]

Our next question comes from Alfonso Salazar with Scotiabank.

[Alfonso Salazar, analyst]

I have 2 follow-up questions. The first one is regarding the railway reforms. And I just want to know if Grupo Ferroviario or [indiscernible] were invited to discuss the deal? Or did you have any conversations either with the Ministry of the Economy? I understand that they have several concerns about the deal or with the same as before the commission of the Senate approved the deal. That's the first question. The second one is if you can confirm that you do not expect for the fuel terminals any impact from the hydrocarbons reforms, if that is correct.

[Marlene de la Torre, executive]

Thank you, Alfonso.

[Fernando Guerra, executive]

Thank you. [indiscernible], need to take it. Regarding the rail reform, for GMXT, we have been talking to many senators and to the federal government at different levels and different entities. And that is why I am again, we're highly confident that the law will not be voted as it is right now or even voted at all. But again, it is something that, as I mentioned before, it should not impact us as we are protected. Our concession was 50 plus 50, and the retroactive is protected by the Mexican Constitution in Article 14. So we are -- this might have generated noise, and we're trying to be more clear with them and to make the law more clear. But again, no, it's still on their court. And totally, it's a fraction of the Senate. We're trying to explain. It's been back and forth for months, I believe now. But we would like it to be even more clear. However, we're not -- it's not something that's taking sleep away from us right now.

[Marlene de la Torre, executive]

[indiscernible]

[Francisco Gonzalez, executive]

And Alfonso, regarding your second question, let me dig a little bit deeper. So basically, the reform has the following impact: one, they ask for a minimum storage inventory. We, again, do not think this will impact our terminals. As I said before, Valero, which is our partner and our off-taker has over 3 million barrels, which represents over 3 days of capacity already in the country. This is new capacity that has been added in the last couple of months and years. And this will continue to increase as we build our Monterrey and Guadalajara terminals to over 4 million barrels, which is very, very significant. We actually consider this to be a competitive advantage against other players in the industry that do not have this storage capacity. So that's one. Then the second one is that they do add some language in that they might revoke certain permits if they think it's against the national interest or -- which is not very objective. And of course, it's something we've taken a look at. But they have since reworded this clause to be a bit more sensitive to the serious players such as us that we're here to actually increase the national security by having additional inventory. And this goes more against other practices that have been happening lately that are outside the law and that they are trying to prevent and this is the focus. And we've been having conversations with them and confirmed this as well, and that's why they reworded this clause. And finally, another impact is that they have a negative [indiscernible] which basically means that if you submit a permit and they do not reply in the 90-day period that they have, then you have to do it again, whereas today, it's an affirmative fit that if they do not reply, you have it. So that will, of course, potentially delay certain processes, but it's not, in our opinion, a material change. So basically, we've taken a look at it, we are continuing to do it. We expect, of course, as we have seen with the energy and the power and new law that there might be some pushback from companies, but again, we -- at the time and with the information that we have, we continue with our plans, and we are very coordinated with our partners.

[Operator]

Our next question comes from Regina Carrillo with GBM.

[Regina Carrillo, analyst]

Congratulations on the results. I just have one question for Leonardo. I didn't catch the copper price range that you shared earlier for 2021? And also, do you have any other price expectations that you could share with us going forward, that would be great.

[Leonardo Contreras Lerdo De Tejada, executive]

Sure Regina. Give me one moment. For the first quarter of 2021, the price of copper was $3.86 on average. I'm sorry, could you repeat your second question?

[Regina Carrillo, analyst]

Yes. If you have any copper price expectations going forward that you could share with us?

[Leonardo Contreras Lerdo De Tejada, executive]

I mean what we've seen is the consensus in the different -- the Bloomberg consensus and the different -- the Wood Mackenzies, the [indiscernible], and we see an average of $3.80, that's what we've seen from them. So that's all I can say.

[Operator]

[Operator Instructions] The next question is from [ Frederico Valarsi ].

[Unknown Analyst]

Just to the last question is with the change of law of outsourcing in Mexico, do you see any risk in one of the companies of the group?

[Marlene de la Torre, executive]

The outsourcing law, [ Frederico ], that was your question?

[Unknown Analyst]

Yes. That's the question.

[Marlene de la Torre, executive]

Yes. Sure. We are not expecting -- almost all, or practically all of our employees and the people that work with us are part in our operating companies. So the outsourcing changes or the new outsourcing law will not have a significant impact or no impact at all. We are going to analyze more into it. But the important thing that we have is that everybody is in our operating company. So that's the main thing.

[Operator]

And I'm not showing any further questions in the queue, ma'am.

[Marlene de la Torre, executive]

Well, thank you, everybody, for joining us. Thank you, Leonardo, Fernando, Francisco, and all the team, Raul and everybody. And if you have any further questions, please let us know, we'll try to keep in touch. And thank you for joining us today. Hope you have a good day. Bye.

[Fernando Guerra, executive]

Thank you. Bye.

[Operator]

Thank you, everyone. This concludes today's program, and you may now disconnect.