Grupo Mexico SAB de CV

BMV:GMEXICOB

Earnings Call Transcript 2020-Q3

[Operator]

Good afternoon. Thank you for holding, and welcome to Grupo México's Third Quarter Earnings Conference Call. With us this afternoon is our Vice President, Mr. Xavier Garcia de Quevedo; Mr. Fernando Lopez; Mr. Oscar Gonzalez; Ms. Marlene Finny; Mr. Isaac Franklin; Mr. Francisco Zinser and other executives who will discuss the financial performance of the company during the quarter, 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 in 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. [Operator Instructions] A copy of the slides that the company will be reviewing today is available on the website at gmexico.com.

[Operator Instructions] Now we will begin with Ms. Marlene Finny. Please go ahead.

[Marlene de la Torre, executive]

Hi, good afternoon, everyone, and thank you for joining us today for Grupo México's Third Quarter Earnings Call. Joining me today are all the top executives from our 3 divisions, the Mining Division, the Transportation Division and our Infrastructure Division. For today's conference call, as it was already mentioned, we will be following a presentation that can be downloaded from our website or by accessing the webcast.

So I would like to start today's call by sending my best wishes to you and your love ones, hoping that everybody is staying positive and healthy. After that, in our call today, we will be following the program detail on Slide #3, that we have on our presentation.

In this occasion, we will go straight to our third quarter's main highlight, mentioning Grupo México's achievements for this quarter. Then Mr. Xavier Garcia de Quevedo and Mr. Oscar Gonzalez, will provide detailed information regarding the Mining Division and commenting on the industry's economic environment and the Mining Division's financial highlights. After that, Mr. Fernando López Guerra, he will expand on the financial results and main events of the Transportation Division. And finally, Mr. Francisco Zinser will comment on the relevant events that occurred during the quarter in our Infrastructure Division. At the end, we will open the line for questions and answers.

As we move forward to Slide #5, I will begin by highlighting Grupo México's resilience through these challenging times. We have been seeing very complicated and a lot of volatility over the past year, this quarter and also during the second and the first quarter because of the pandemic, and we would like to highlight the resilience we have had as we continue to strengthen our financial position and cash generation.

This is also a way to see that during the quarter, we were able to achieve significant recovery in all of our business units compared to the previous quarter. So this is also very important for us. This was made possible, thanks to our committed workforce and experienced management team as we continue to focus on maintaining our cost competitiveness and operational efficiency.

Before going into the numbers for the third quarter, I would like to remind everybody that Grupo México has ESG at the core of our strategy. This is on Page #5 -- or on Slide #5. So our sustainability report is now available on our website, where you can find more detailed information about our efforts and to have a more sustainable processes and businesses toward our value chain.

It is important to mention that we have also taken a more proactive approach in communicating ESG matters as we also recognize the importance of this nowadays. This is something that we have always had. We have had a very strong ESG team, but we know and we have been seeing a lot of concerns and maybe questions from our different investors regarding ESG matters so we are trying to be very proactive and being very transparent and clear so we can assess every concern that everybody might have regarding this.

We have a very strong team, and we are strengthening our team even more, creating everything that's necessary and approaching the different rating agencies in terms of ESG so we can have the information the way they need to see it and when they need to see it. So this is something that is really important to us, and we'd like to highlight this.

After highlighting the ESG part and moving on to Slide #6, this is where we show our score card for the third quarter. You can see our main financial and production highlights, which will be discussed in more detail as we move forward in the presentation.

I would like to emphasize that committed to transferring value to our shareholders, our Board approved a cash dividend per outstanding share of MXN 1. This is increasing from the MXN 0.80 we gave last quarter. So we are improving our overall strong dividend program, and this translates into a 6.4% dividend yield. This is one of the highest in the Mexican Stock Exchange.

During the third quarter, our revenues increased 18% to $2.82 billion when compared to the previous quarter. This is the second quarter of this year. This means also a 1 point -- almost 1.5% increase versus the same quarter last year. So we are not only increasing versus the third quarter of 2019, but also increasing strongly versus the second quarter 2020. This was mainly driven by higher copper prices, which increased 21% quarter-over-quarter and 4.5% year-over-year during the quarter.

We also saw strong silver, gold and tin prices. Along with the movement of metal prices, we saw a strong recovery in our Transportation Division's revenue of 13.3% quarter-over-quarter.

The next slide is #7, you can see there all of our numbers. So you can have them anytime you need them at any time during the presentation. I think there a mistake because year-to-date, during 2020, with the dividend we gave this quarter, we are talking about 2.2 -- MXN 2.20 dividends given during these 3 quarters.

Moving on to Slide #8 -- I think we were not including in those dollars the MXN 1 that we -- the Board approved during this quarter that we should. So it's MXN 2.20.

Moving on to Slide #8, you can see the company highlights for the quarter ending on September 13. In the Mining Division, we were able to improve our cash cost net of byproducts by over 25%, while maintaining production roughly in line with our guidance.

Our copper production for the year was almost 839,000 tons compared to the 836,000 tons that we had last year. And our EBITDA as well increased with a lower cash cost and a higher production. Our EBITDA increased by 48% quarter-over-quarter when compared to the second quarter of 2020, and 37% year-over-year. This meant third quarter of 2020 versus third quarter of 2019.

Continuing with our Transportation Division, and as I previously mentioned, in GMXT, we were able to improve the volume level compared to the previous quarter. Alongside the volume recovery, we were able to improve our EBITDA margin as well by 100 basis points when compared to the same period last year.

It is very positive that the PSR implementation continues to improve our operating metrics as it becomes the core of GMXT's operating model.

In our Infrastructure Division, despite the current challenge in time, we saw a 380 basis point increase in EBITDA margin, mostly driven by our oil rig nonstop operations during the year, I'm talking about cumulative numbers.

We also saw an all-time high in revenue and EBITDA generation in the Engineering business, which increased 54% and 162%, respectively, revenues and EBITDA. And this was supported by a higher number of projects in several different industries.

We continue to work in our Fenicias wind farm, which has a 59% completion rate and is planned to start operations by the beginning of next year. As for our fuel storage terminals, we continue to make progress to start operations by the second quarter of 2022 in Monterrey and by the end of the same year in Guadalajara. We will go into further details of these projects and the other projects in mining and transportation once we go into each division.

Just to finish and moving to Slide #9 and 10, we can note that Grupo México maintains a very solid balance sheet with a low leverage. Our net debt-to-EBITDA ratio is of 1.2x, and we feel very comfortable -- we have a very comfortable payment schedule with no significant payments until 2035. And as you might already know, Grupo México has 84% of its debt in U.S. dollars and the rest in Mexican pesos, of which 96% has a fixed rate. I think this is important because it's matched to our revenues, depending on the division and the project, that's how we define the way we are able to finance the different projects or division.

Now I will pass the call to Mr. Xavier Garcia de Quevedo, who is going to comment on our Mining Division highlights.

[Xavier García de Quevedo Topete, executive]

Thank you, Marlene. First of all, I hope you and your families are all well and safe. As we move forward with the Mining Division operating and financial highlights on Slide #12, we can see that our copper production was 280,584 tons in the third quarter and totaled 839,000 tons year-to-date. Despite a very challenging environment this year due to the COVID pandemic, our team has made a significant operating and management effort, and our accumulated production is slightly higher compared to last year. We would probably expect 2020 to be another record year for AMC in terms of production.

Our sales totaled $2.25 billion in the third quarter, 8.1% higher than in the third quarter of '19, and 19.3% above last quarter as well. This was primarily due to higher copper prices, which decreased 12.5% during this quarter.

Let me share with you a couple of quick remarks on the current copper market. As you are probably aware, as of today and for the last couple of weeks already, we are consistently seeing prices above $3 per ton. This reflects the impact of both supply and demand disruptions due to COVID-19 as well as the effects of the combined liquidity provided by the central banks in developed economies.

At this point, copper prices seem to be driven by 2 key factors: the expectation of lower supply coming from Chile due to labor negotiations, and an increasing demand from China and other Asian economies in a scenario of economy recovery. While copper prices might still experience some sentiment-driven volatility over the next few months, U.S. elections, COVID-19 evolution, machines dying, we continue to have a constructive view of the long-term evolution of the copper market given the strong fundamental market outlook for supply and demand.

A very relevant accomplishment that I would like to highlight is our consolidated net cash cost of $0.81 per pound in the third quarter, a significant 25% decrease when compared to the previous year, which has strongly reinforced our sustained leadership as a company with the lowest cash cost in the industry worldwide.

Southern Copper Corporation performance was already discussed in detail in the call earlier this morning, but let me provide you with some additional details regarding ASARCO where we have achieved significant cost efficiency following an optimization plan executed in the last 18 months. As anticipated, the net cash cost currently stands below $2 in the third quarter, it was a cost $1.83 and $1.97 year-to-date. This compares very favorably to last year levels of approximately $2.50.

Moving on with our financial highlights for the quarter. Our EBITDA totaled $1.2 billion, a 36.5% increase compared to the same quarter a year ago, and 48.4% higher when compared to the last quarter. Our EBITDA margin for the quarter is 53.7%, an enhancement of 11.2 points. The investment in the Mining Division during the third quarter totaled USD 140 million and USD 378 million year-to-date.

On Slide 13 and 14, we include the details on our short- and long-term production profile. We believe we continue to have one of the most attractive organic growth pipelines in the copper industry. As you know Pilares, Buenavista Zinc and El Pilar are 3 low capital-intensive fully permitted highly synergetic projects in the Sonora area that will add 90,000 tons of copper per year. We expect 40 projects to be on stream and fully operational in 2023.

Tia Maria in Peru should follow and contribute 120,000 incremental tons of copper with a highly efficient environment-friendly SX/EW facility. As for the next-generation of growth projects, we have 3 fully Tier-1 world-class assets, Los Chancas and Michiquillay in Peru and El Arco in Mexico, with a potential to add an aggregate of more than 0.5 million tons of copper by the end of the decade, which would bring our total production close to 1.9 million tons milestone.

If you happen to have any follow-up questions, we will be delighted to address them during the Q&A session. I would like to close by reinforcing our full support to the communities where we operate and all our collaborators. I hope all of you and your family stay safe during these unusual times. And now I will let Fernando López Guerra comment on our Transportation Division. Thank you.

[Fernando Guerra, executive]

Thank you, Inhinyero. I hope that everybody is staying safe as we continue to navigate through these unprecedented times. I'd like to start by emphasizing that GMXT continues to do extraordinary efforts to safeguard operations for taking care of our employees' health.

Starting on Slide 16, I would like to talk about our financial highlights for the third quarter of 2020. We saw a steep recovery for last quarter's results with our main financial indicators improving significantly.

Our sales increased 13.3%, while our EBITDA and net income increased 23% and 38.6%, respectively. As for our volume, the improvement was 4% in net ton kilometers quarter-to-quarter and on carloads, it increased 13%. Even though we still haven't reached last year's numbers, this quarter's improvement give us a sign of steady recovery.

Total revenues reached $537 million, mainly driven by a recovery in the Chemical and Energy segment. These improvements were partially offset by Automotive and Metals segment.

As we continue into Slide 17, you can see some additional third quarter highlights such as the increase of 120 basis points improvement in our margin and the decrease in the operating cost of 7.3% in Mexican pesos.

And another topic, our Board has approved again a MXN 0.30 dividend per share and up to date, we have bought back 64.7 million shares at a price of MXN 25.15.

I will quickly comment on the variations on Slide 18, variations of revenue. 2 of our segments presented a high revenue growth, including the Chemicals segment. For this is COVID-19 has had a positive impact on some of the chemical products demand that we haul, along with significant growth in resins and basic chemicals. This resulted in a 10% increase for the revenue in the segment. In Energy, our volume increases are for new routes of imported and domestic refined products that more than offset the COVID-19 impact on fuel markets and the coal volume decline.

The segment that negatively impacted our revenue were automotive, where we had a 16% decrease, which is now -- in Automotive, we're now at 90% of last year's volume production. But bear in mind that we had a shutdown due to COVID, also for retooling of some of the plants that are -- the plants in Mexico are retooling into SUVs instead of compact cars, and also we had an impact on -- and it's practically a delay because of the blockages that we had in the state of Sonora, then the state of Chihuahua. This made us reroute some of those traffics into longer routes sometimes and more less-efficient routes.

In metals, the segment decreased 12% due to a slow recovery of the industry. This goes -- tags along with cement. This is mainly construction in Mexico metals and cement. And also the Ferrocarril del Istmo has been closed with some of -- closed some of its routes for reconstruction and maintenance for the Train Mayan.

In GMXT, we continue to improve our operating metrics, thanks to our constant efforts and actions to optimize our master service plan. As you can see on Slide 19, our average -- could you turn to Slide 19. Thank you. Our average train speed for the third quarter year increased 1.4%, while our dwell time decreased 30%. This translates into an increase of car velocity of 7.1% compared to the prior year.

If you have any follow-up questions on these operating metrics, we can address them during the Q&A since we have already given out detailed information in our prior call of GMXT earlier.

Our investment plan for 2020 is shown on Slide 20. Our executed capital expenditures for the third quarter comes to a total of $267 million, $160 million were spent in maintenance, $62 million in growth projects and $45 million on efficiency programs.

As for 2021, we are forecasting a CapEx budget for -- of around $258 million, enabling us to continue growing and improving our service as well as us to keep raising our productivity indicators. Out of what we are investing, 73% corresponds to maintenance, 8% to efficiency programs and 19% to growth.

This concludes the general overview of transportation -- the Transportation Division. Thank you, everyone. I will now let Francisco Zinser comment on the Infrastructure Division.

[Francisco Gonzalez, executive]

Thank you very much, Fernando, and good afternoon, everyone. Sending out my thoughts to every one of you and your families to remain safe during this pandemic.

Starting with the financial highlights of the Infrastructure Division on Slide #22, net revenues totaled $129 million during the third quarter of this year, which represents a 12.9% decline compared to the same quarter of last year, but showing a 3% improvement quarter-over-quarter.

Our EBITDA for this quarter, which totaled $60 million, showed a 19% decrease versus the third quarter of 2019. This was mostly due to impacts on the Highways and Construction segment because of the pandemic. However, during the first 3 quarters of the year, we have been able to improve our EBITDA margin by over 380 basis points.

Even though we had a $1 million net loss during this quarter, we continue to show a 24% improvement in net income on a cumulative basis year-over-year.

Moving on to Slide #23. In our Energy Generation Division, the year-to-date EBITDA reached $89 million, with a 53% EBITDA margin. There was an increase of 1% in energy generation, totaling 2,727 gigawatt hours versus 2,685 gigawatt hours during the same period of last year. Our power plant availability was over 99%, and our gas consumption efficiency improved by 2%.

Our PEMSA division ended the quarter with 6 oil rigs in operation and an efficiency of 99.4%, which represents an all-time high, proving once again that we are a reliable partner for PEMEX.

Sales were up 10% versus last year, reaching $136 million, and EBITDA totaled $68 million, an 8% increase versus the previous year. These results were due to the inclusion of the Zacatecas rig since April 2019, lower operating costs, new geothermal projects and better efficiencies in all of our rigs.

The Salamanca-Leon highway operations has had a 24% drop in daily users throughout the year compared to the same period of last year. This translates into a 17% drop if we adjust it by the type of vehicle. However, we have seen a very rapid recovery during this last quarter, with traffic growing 28% compared to the second quarter of this year.

As Marlene mentioned, it is important to highlight that our engineering company has increased in revenue significantly by 53% and EBITDA by 162% during the first 3 quarters of this year's compared to the last year. This is due to a larger number of projects contracted with different clients in different industries, mainly in Mexico.

Finally, regarding our project, our 168-megawatt Fenicias wind farm located in Nuevo Leon is under construction with progress of 60%. Foundations of wind turbines have been poured. The internal roads have shown significant progress, and all the main equipment, including the nacelles, the hubs and the blades, are in Mexico in different ports. We have already started the erection of the wind generators, and the 60-kilometer transmission line that will interconnect us to the grid will be finished this year, allowing us to achieve backfeed to start energizing the wind farm. We expect the wind farm to come online in the first quarter of 2021.

In addition, our new fuel storage terminals projects continue in Monterrey and Guadalajara with estimated operation date set for the second and fourth quarter of 2022, respectively.

Before closing, I'd like to thank everyone for your time and attention. And now I'll pass the word to Marlene for her closing remarks.

[Marlene de la Torre, executive]

Thank you so much, Francisco, and thank you for Fernando and Xavier for all of your remarks. I would like to close by thanking everybody for joining and giving us your time and by reiterating our commitment with our collaborators and communities as we navigate through these troubled times. Again, our thoughts go out to everybody around the world who is helping to fight this pandemic and wishing you and your family to stay safe.

I will now open the question -- the line for question and answers. And hopefully, we can give an answer for any concern you might have. Thank you so much.

[Operator]

[Operator Instructions] I'm not showing any questions at this time.

[Marlene de la Torre, executive]

Okay, if we don't -- this is the first time we don't have questions so I think we did a good job releasing the information.

[Operator]

We just have 1 on our queue.

[Marlene de la Torre, executive]

Okay.

[Operator]

Jean Bruny from BBVA.

[Jean Baptiste Bruny, analyst]

Just had one quick question on the infrastructure of the business. And if you can comment a little bit what is happening in Mexico regarding the tariffs towards renewables? Does it impact, at the end of the day, the project? Or can we expect some impact in the medium term? Just would like your view on that.

[Francisco Gonzalez, executive]

Thank you very much, Jean. This is Francisco Zinser speaking. So yes, as you are well aware of, there have been recent changes in the energy power market in Mexico, one of them being the increase in wheeling charges or transmission charges that the national utility, CFE, charges to the different private companies in the self-supply scheme, which applies to us. These increases are important. However, what we have done and is in line with what other players in the industry have been doing is that we have filed different injunctions to protect our wind farm against these increases in prices. And we have been able to receive a definitive suspension of these increases, while the process, the legal process is underway. So we are not being affected by these increases, not in our project and not in our actual wind farm because, as you know, we have a 74-megawatt wind farm in the state of Oaxaca. We believe that we are in solid ground to continue during the legal process. But again, we are not being impacted at the time. I'm not sure if that answers your question or if you had any follow-up questions?

[Jean Baptiste Bruny, analyst]

No, it does. It was very clear.

[Operator]

[Operator Instructions] Your next question is from Rodrigo Garcilazo with GBM.

[Rodrigo Garcilazo, analyst]

Just 2 quick questions. Regarding the positive surprise in ASARCO this quarter, could you update us on new expected cash costs for next year and also CapEx for this year? That will be the first one.

[Marlene de la Torre, executive]

Rodrigo, regarding CapEx, you referred to ASARCO only or CapEx in general?

[Rodrigo Garcilazo, analyst]

Yes. Yes, cash cost and CapEx only for ASARCO. Yes.

[Marlene de la Torre, executive]

I don't know Leonardo, if you want to answer. Or I can answer, if not.

[Leonardo Contreras Lerdo De Tejada;Marketing Director, General Director ASARCO, executive]

Yes. In regards to your first question on the cash cost, we would expect it to be around the $2 range as it has been during this year. And for CapEx, we would be expecting around $80 million CapEx for 2021.

[Rodrigo Garcilazo, analyst]

Okay. And of those $80 million, how much is for maintenance? And how much is for growth?

[Leonardo Contreras Lerdo De Tejada;Marketing Director, General Director ASARCO, executive]

Around $60 million for maintenance and $20 million for other projects.

[Rodrigo Garcilazo, analyst]

Okay. And the second question I have is for Francisco. If you could gave us some guidance and breakdown for CapEx for the next 2 years in infrastructure?

[Francisco Gonzalez, executive]

Yes, of course. So as you know, the main projects that we have right now are the Fenicias wind farm and the fuel storage terminals in Monterrey and Guadalajara. So we will continue to deploy that CapEx throughout this year. And then for next year, we are expecting $230 million Capex, which would be mostly to the terminals business and a little bit to finish the wind farm. And for 2022, $108 million, which is when we finish the 2 terminals and they come online. So that's the expectation for the following 2 years.

[Rodrigo Garcilazo, analyst]

$108 million or $180 million?

[Francisco Gonzalez, executive]

Correct -- no, 1-0-8, $108 million.

[Operator]

Our next question comes from Rodrigo Salazar with AM Advisors.

[Rodrigo Salazar Couttolenc;AM Advisors;Analyst, analyst]

Could you repeat the cash cost you have on ASARCO? And if you can give us an update on CapEx for Grupo México as well?

[Marlene de la Torre, executive]

Sure, Rodrigo. The cash costs we have in ASARCO right now for this quarter -- give me just 1 second, I have it here. So going this quarter, cash costs as revised for ASARCO was $182 million. This compares to $258 million last year. So it's been a really impressive quarter. And as for the accumulated numbers for ASARCO, as the total cash cost, we are talking about $197 million. And as Leonardo mentioned previously, we are expecting to be around $2 for next year as well. This is going significantly down when compared to last year, 2019, when we had $255 million roughly. So we are seeing improvement.

And for the CapEx of Grupo México, for this year, we have -- we are expecting a budget of around $1.3 billion to be spent; and for next year, roughly $2.1 billion; 2022, roughly $2.5 billion; and 2023, $2.8 billion. This obviously depends on the timing of some of our mining projects. But as of now, this is how we have it.

To give you just a breakdown for 2021, we are expecting $1.5 billion for our Mining Division; roughly $360 million for our Transportation Division; and as Francisco mentioned before, $230 million for the Infrastructure Division for 2021.

[Operator]

Our next question comes from Isabella Vasconcelos with Bradesco BBI.

[Isabella Vasconcelos, analyst]

I have 2 questions on my side. So first, just to confirm on the Infrastructure Division. Francisco, you mentioned that the start-up of Monterrey is going to be in the second quarter of '22 and Guadalajara, fourth quarter of '22. I just wanted to confirm that.

And then the second question on recent news that there is a potential new regulatory framework expected for Mexican rail. If you could comment on how that could potentially impact your operations, it would be helpful?

[Francisco Gonzalez, executive]

Thank you, Isabella. So regarding your first question, yes, you are correct. Monterrey is expected to come online during the second quarter of 2022 and Guadalajara during the last quarter, fourth quarter of 2022.

[Marlene de la Torre, executive]

And regarding the second question, Isabella, regarding the rail -- the rail -- the Transportation Division. I don't know if Fernando do you want to comment?

[Fernando Guerra, executive]

I did not follow. Could you repeat the question, please?

[Isabella Vasconcelos, analyst]

Sure. It's just if you could comment on recent news that came out in the REFORMA newspaper of a potential new regulatory law for the railway service to modernize the system and reduce the terms of concessions in Mexican rail?

[Fernando Guerra, executive]

Yes. Up to this moment, we do not see this as a material reform or something that's actually getting any traction. It's an initiative from one Senator. We've spoken to the staff of the Senator. They're getting to understand how the actual rail network works, how the concession works -- the concession system works. Again, the current concession, they've been very vocal saying they won't touch it. But they're saying about the renewal, should it be a bit short and so on, that's something that we already have the right and it's written on our behalf. So we're talking to the staff of the Senator.

On the federal government, they are telling us this initiative has on support from the federal government. But yes, we will continue to address these issues. They are in their own right to evaluate, and they're being very open with us and listening to our positions and that of the market. The rail networks have been very -- concessions in Mexico have been very, very successful. We are very, very competitive amongst the most competitive in all of America -- North America at the same level of the U.S. and Canadian carriers. So we're not -- there's nothing -- it's not broken, it should not be fixed. And so we're pretty calm with this. And -- but yes, it's a bit of noise.

[Operator]

Our next question comes from Alfonso Salazar with Scotiabank.

[Alfonso Salazar, analyst]

I have some questions regarding growth in the Mining Division. It seems that you are sounding more optimistic about El Arco, and I would really want to listen why it's the case, why are you more optimistic and you think this can be operate? Now you include in the press release Southern Copper as one of the next one that you can build? And in general, if you can talk about the other greenfield projects that you have, especially about Michiquillay. I think Raul mentioned in the conference call this morning that there is good progress there. So I would like to hear what's the good news.

[Raul Jacob, executive]

Yes, let me -- go ahead.

[Xavier García de Quevedo Topete, executive]

Just talk about the lack of -- please excuse me, Raul. El Arco, right now, we are working on the following. We have -- we're working on the baseline study to have information to start asking for the environmental impact assessment, not only in the mines but as well in the ports. And very importantly, to interconnect Sonora with Baja for supplying power. We have been -- we have had many talks with CFE and the government, and they are very interested in this project because it's not only for El Arco, we will be able also to supply power for Los Cabos and La Paz and to reduce considerably the cost. The cost -- I know that you have an idea of the cost in Baja is 3x the average cost for the rest of the country. So it's a very important project. So we are given high consideration. As you probably know, this is fully explored and still, well, there is copper -- below 350 million liters leaked. And we hope we can be able to have environmental impact assessment and the other necessary permit.

Regarding the project in Peru, I would like to mention that in the case of Michiquillay, we are planning to start this project in the year 2028. We are right now starting with, let's say, exploration and many communities activities. Before, Michiquillay, of course, probably will be the Chancas project. Right now, we are working on the feasibility work. With all these projects, as we mentioned, the growth for this year, for the 2028, we can achieve $1.9 million tons of copper.

[Operator]

Our next question comes from Jon Brandt with HSBC.

[Jonathan Brandt, analyst]

Just a follow-up, I guess, to the previous question. But I guess more in regards to Tia Maria. So Raul, you mentioned earlier this morning that you are hoping and expecting to get a bit more government support for the project. I guess I'm wondering if you don't necessarily get the government support, if TA Maria continues to be delayed, would you go ahead with some of the other projects, Michiquillay or El Arco or some of the other ones in Peru, if the government isn't as supportive as you're hoping?

And I guess the second question relates to GMXT and the buybacks that you're implementing. Could you comment a little bit about how -- what you're doing with those shares? Are they being canceled? I mean I guess my concern is that it does hurt the liquidity of the share. So I'm just wondering if you'll continue with that and if there is any concern on your side about the lack of liquidity on the share side?

[Raul Jacob, executive]

Let me -- this is Raul Jacob. Let me comment on the next steps for Tia Maria. As I mentioned, the project has all the permits that are required to initiate construction. We need the government to show the commitment to move on with it. We believe that this is a crucial project given the economic situation of the Arequipa region, it will provide of 9,000 jobs -- well-paid construction jobs in the construction phase and then about 4,800 jobs, considering direct and indirect jobs when it operates. We are -- we believe that this project is ready to go. The other ones that we have, Los Chancas and Michiquillay, and were commented before by Xavier Garcia de Quevedo are still on the developing -- in some development stages and we believe that we will be able to initiate the construction and the operation of Tia Maria and that won't be a problem for the other 2 projects. I think that the time line that we have will lead us to accommodate the construction of Tia Maria and the development of Los Chancas and Michiquillay in the sequence that the company is planning at this point.

[Fernando Guerra, executive]

Regarding the buyback, this is Fernando Lopez from GMXT. We have no intention on canceling them. It's not the direction that we're moving. We understand that it might take some liquidity off the market. What we were trying to do is actually give it some liquidity on -- by request of some of the market itself. So it's not being written in stone. We still have authorization on -- by some player to buy or our program could be up to $300 million of it. As you've witnessed, we're doing it very slowly, at low levels, if we find an opportunity. And no, it is not our intention to drive the stock nor the liquidity of the stuff.

[Operator]

Our next question is from Rafael Barcellos with Santander.

[Rafael Barcellos, analyst]

Hello, can you hear me?

[Marlene de la Torre, executive]

Yes.

[Rafael Barcellos, analyst]

I just would like to understand this. We still -- you still see opportunity in increasing the dividend level?

[Marlene de la Torre, executive]

Sure. As you know, we don't have a dividend policy agreement still. So as we -- the way we decide dividends is on a parity basis during the Board meeting, and that depends on the CapEx that we will need in our cash generation. So we do an analysis of the cash that we have, the cash that we think we will generate during the quarter and the CapEx that we need. Our #1 priority is always our growth projects and to continue to grow in our maintenance CapEx. And after that, because we feel very comfortable at the current debt levels, we -- the excess cash, to say it that way or the additional cash generation, is normally given away as dividend.

Now with higher copper prices, slightly higher production and our volumes recovering and our numbers recovering from quarter-to-quarter, we decided to increase our dividend because we were generating higher cash flow. This will depend next quarter if the dividend goes up or remains at this level, that will depend on copper prices, our production, our volumes in our given position, the cash generation and also the cash needs that we will have depending on the CapEx that we will spend. But the idea is to maintain roughly these levels of debt because we feel comfortable, and then the additional cash generation, give it away as dividend.

[Operator]

Thank you. And we are not having -- we're not showing any other questions in the queue, sir.

[Marlene de la Torre, executive]

Well, thank you so much.

[Operator]

Ladies and gentlemen, thank you for participating in today's program. This concludes the conference, and you may now disconnect.