Southern Copper Corp
NYSE:SCCO
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Southern Copper Corp
Earnings Call Analysis
Q3-2024 Analysis
Southern Copper Corp
Southern Copper Corporation reported a strong performance in copper production, achieving a total of 252,219 tons in the third quarter of 2024, which reflects an 11% sequential increase. This growth was driven by an 18% increase from operations in Peru and a 7% uptick from their Mexican mines, particularly influenced by enhanced mineral throughput and higher ore grades at key sites.
The company experienced a 17% year-over-year increase in sales, totaling $2.9 billion in the third quarter. This was propelled by a 21% increase in copper sales value and an 8% increase in volume. Notably, molybdenum and zinc sales also saw substantial growth, with zinc sales rising by a remarkable 61%, benefiting from enhanced production capacities.
Operating cash cost, including by-product credits, stabilized at $0.76 per pound in the third quarter of 2024. Excluding these credits, the operating cash cost stood at $1.95 per pound, down 9% compared to the previous quarter. This effective cost control contributed to a net income of $897 million, marking a 45% increase over the same period last year.
Adjusted EBITDA for the third quarter reached $1,685 million, up 31% from the prior year's quarter, with a corresponding margin increase to 57%. For the first nine months of 2024, adjusted EBITDA accumulated to $24,899 million, reflecting a 23% improvement year-over-year. This demonstrates not only higher sales but also improved operational efficiency.
Looking ahead, Southern Copper has set a production target of 975,000 tons of copper for 2024, representing a 7% year-over-year increase. Additionally, they anticipate producing 120,300 tons of zinc in 2024, with a significant forecast of 154,600 tons for 2025, reflecting ongoing capacity expansions. Their guidance for cash costs before by-product credits is expected to remain around $2 per pound.
Southern Copper's capital investment program exceeds $15 billion, focused on several expansion projects in both Peru and Mexico, including Tia Maria and Buenavista Zinc. They plan to invest $363 million in Tia Maria in 2025, having made considerable progress in hiring local workers and generating employment opportunities in the area.
The company continues to prioritize corporate social responsibility, with notable efforts like the Dr. Vagón program that has provided over 80,000 medical services in Sonora. Their operations have also received certifications for responsible production, reflecting their commitment to environmental, social, and governance (ESG) standards.
Southern Copper remains vigilant regarding the regulatory landscape in Mexico and Peru, welcoming proposed changes in permitting processes to facilitate operations. This proactive approach is vital for maintaining growth trajectories amid evolving regulatory dynamics.
On October 17, 2024, Southern Copper announced a quarterly cash dividend of $0.70 per share, complemented by a stock dividend. This decision underlines their commitment to shareholder value while balancing liquidity needs for ongoing projects.
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Hello, and welcome to Southern Copper Corporation's Third Quarter and 9 Months 2024 Results Conference Call. With us this morning, we have Southern Copper Corporation, Mr. Raul Jacob, Vice President, Finance, Treasurer and CFO, who will discuss the results of the company for the third quarter and 9 months 2024, as well as answer any questions that you may have.
The information discussed on today's call may include forward-looking statements regarding the company's results and prospects, which are subject to risks and uncertainties. Actual results may differ materially, and the company cautions not to place undue reliance on these forward-looking statements. Southern Copper Corporation 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.
Now I will pass the call on to Mr. Raul Jacob.
Thank you very much, Carmen, and good morning to everyone, and welcome to Southern Copper's Third Quarter 2024 Results Conference Call. At today's conference, I'm joined by Mr. Oscar Gonzalez Rocha, CEO of Southern Copper and Board member as well as Mr. Leonardo Contreras, who is also Board member.
In today's call, we will begin with an update on our view of the copper market, and then review Southern Copper's key results related to production, sales, operating cost, financial results, expansion projects and ESG. After this, we will open the session for questions.
Now let us focus on the copper market. The London Metal Exchange copper price increased 10% from an average of $3.79 per pound in the third quarter of 2023, up to $4.17 this past quarter. Just as a reference, today, the copper market -- the copper price is about $4.30. Based on supply and demand dynamics, we're expecting a slight market surplus of about 100,000 tons of copper for 2024.
Looking at copper demand. Although we see a weak one from China, we believe the recently announced economic measures will promote economic growth and fuel demand from the world's largest copper consumer. Furthermore, a resilient U.S. economy, and new demand from decarbonization technologies coupled with needs driven by artificial intelligence are expected to bolster support for long-term copper demand.
Now let's look at Southern Copper's production for the past quarter. Copper represented 77% of our sales in the past quarter. Copper production registered an increase of 11% in the third quarter of 2024 in a quarter-on-quarter terms to stand at 252,219 tons. Our quarterly result reflects an 18% increase in production in Peru, which was driven by higher mineral throughput at Cuajone and higher ore grades and recoveries in Toquepala -- at Toquepala. Production at our Mexican operations increased 7% in a quarter-to-quarter terms, mainly due to higher production at our Buenavista and La Caridad mine.
For 2024, we expect to produce 975,000 tons of copper, an increase of 7% over the 2023 final print. This growth will be fueled by recovery at our SX-EW facilities at Buenavista, higher production in Peru and copper production at our new Buenavista Zinc concentrator, which is operating at full capacity.
For molybdenum, it represented 10% of the company's sales value in the third quarter of this year and is currently our first by-product. Molybdenum prices averaged $21.68 per pound in the quarter. This compares to $23.59 per pound in the third quarter of 2023, a decrease of 8% in price. Molybdenum production increased by 6% in the third quarter of this year compared to the third quarter of 2023. This was mainly driven by higher production at the Peruvian operations and the Buenavista mine due to higher ore grades and recoveries. These results were partially offset by lower production at La Caridad mine and also due to lower ore grades and recoveries. For 2024, we expect to produce 28,200 tons of molybdenum, which represents an increase of 5% over our 2023 production level.
Silver represented 5% of our sales value in the third quarter of this year with an average price of $29.43 per ounce this quarter. This represents a growth of 25% versus the 2023 third quarter price. Silver is currently our second by-product. Mined silver production increased 22% in the third quarter of 2024 versus the same period of 2023. This was after production rose at all our operations, with the exception of La Caridad.
Refined silver production increased by -- decreased by 3% quarter-over-quarter which was mainly driven by a reduction at our La Caridad refinery. This result was partially offset by higher production at the Ilo refinery. In 2024, we expect to produce 20.8 million ounces of silver, an increase of 13% compared to 2023.
Zinc represented 4% of our sales value in the third quarter of 2024, with an average price of $1.26 per pound in the quarter. This represents a 15% increase compared to the third quarter of 2023's figure. Mine production for zinc increased a remarkable 91%. I repeat, 91% increase in zinc mine production. This was a total 31,078 tons. This was mainly driven by new production at the Buenavista Zinc concentrator that contributed with 14,453 tons over the period. And by an increase in production at the Santa Barbara mine, refined zinc production increased by 9% and in the third quarter of this year vis-a-vis the third quarter of 2023.
For 2024, we expect to produce 120,300 tons of zinc, which represents an increase of 84% over our 2023 production level. This growth will be driven by the production of our Buenavista Zinc concentrator that will we're expecting it to produce 54,800 tons of zinc. The ramp-up has been faster than expected. For next year and on, we expect to produce over 154,000 tons of zinc per year.
Looking at our financial results. For the third quarter of 2024, sales were $2.9 billion. This is $425 million higher than sales for the third quarter of 2023. This is a 17% increase in sales. Copper sales value increased by 21% and the volume by 8%. Obviously, the difference came from better price.
Regarding our main by-products, we registered a drop in sales of molybdenum due to lower prices and open sales adjustments. These negative variances were partially offset by an increase in volume of molybdenum sold of 6%. Zinc sales rose 61% due to much higher volumes thanks to the contribution of the Buenavista Zinc plant and better prices. Finally, silver sales grew 46% due to higher prices and volumes.
Our total operating cost and expenses increased $44 million or 3% compared to the third quarter of 2023. The main cost increment has been in repair materials, translation difference, workers' participation, inventory consumption, leachable material and other factors. These cost increments were partially offset by reductions in the cost of energy, operating and services contractors, purchased copper, water consumption and diesel and fuel.
The third quarter of 2024 adjusted EBITDA was $1,685 million, which represented an increase of 31% with regards to the $1,291 million registered in the third quarter of 2023. The adjusted EBITDA margin in this past quarter stood at 57% versus 52% in the third quarter of 2023. Adjusted EBITDA for the 9 months of 2024, was $24,899 million. This is 23% than the mark for the 9 months of 2023. The adjusted EBITDA margin in this year, year-to-date as of September, stood at 57% versus 52% for the 9 months of 2023.
Southern Copper operating cash cost including the benefit of by-product credit, was $0.76 per pound in the third quarter of 2024. This cash cost was similar to the cash cost for the second quarter of this year 2024. So we had $0.76 this past quarter of cash cost. And in the second quarter of this year, we have $0.758, so pretty much the same.
The operating cash cost per pound of copper before by-product credits was $1.95 per pound in the third quarter of this year. This is $0.20 below the value for the second quarter of 2024. This 9% decrease in the operating cash cost is a result of lower cost per pound from production cost, treatment and refining charges and administrative expenses. These were partially offset by lower premiums on our refined sales.
Regarding by-products, we had a total credit of $639 million, which is $1.19 per pound of credits in the third quarter of this year. These figures represent an 11% decrease when compared to the credit of $716 million or $1.40 per pound of credits that we had in the second quarter. Other credit has decreased for molybdenum and silver and increased for zinc and sulfuric acid when we compare the third quarter to the second one of this year.
Net income in the third quarter of 2024 was $897 million, which represented a 45% increase with regard to the $620 million registered in the third quarter of 2023. The net income margin in the third quarter of this year stood at 31% versus 25% in the third quarter of 2022. These improvements were mainly driven by an increase in sales and our strict cost control measures.
In the 9 months of 2024, the net income was $2,583 million, which represents growth of 30% compared to the $1,980 million reported for the 9 months of 2023. The net income margin for first 3 quarters of the year stood at 30% versus 26% for the 9 months of 2023. Cash flow from operating activities in the third quarter of 2024 was $1,440 million, an increase of 37% versus the figure in the third quarter of 2023. In the 9 months of this year, cash flow from operating activities stood at $3,061 million which represented an increase of 1% over the $3,032 million posted in the 9 months of 2023.
For capital investments. Our current capital investment program exceeds $15 billion and includes investments in the Tia Maria, Los Chancas and Michiquillay projects in Peru and in the Buenavista Zinc, El Pilar and El Arco projects in Mexico. This capital forecast includes several infrastructure investments, including key investments to bolster competitiveness of the El Arco project.
In the 9 months of this year, we spent $792 million on capital investments, which represents 31% of net income and reflects a 5% uptick in capital expenses year-on-year. Given that there is a description of our main capital project in Southern Copper's press release, I'm going to focus on updating new developments for each of them.
For the Tia Maria project, which is located in the Arequipa region of Peru, we have as of September of the year, the company generated more than 422 jobs. Of those, 355 were filled with local applicants. To the fullest extent possible, we intend to fill the 9,000 jobs estimated to be required during Tia Maria's construction with workers from the Islay province. When we start operations in 2027, the project will generate 600 direct jobs and 4,800 indirect jobs.
In the coming months, we expect to build roads and access points, train operators, update topographic network, install and delimit properties along the living fence, install a temporary camp and begin earth moving activities. For 2025, our Board has approved a CapEx budget of $363 million for the project and its related activity.
In the case of the Los Chancas project in Apurimac in coordination with the Peruvian authorities, efforts continue to eradicate illegal mining activities. Once this process has concluded, we will resume the environmental impact assessment and begin hydrogeological and geotechnical studies. We will also begin a 40,000 meter infield drilling campaign to gather additional information on the geological characteristics of the Los Chancas deposit.
For the Michiquillay project in the Peruvian region of Cajamarca, as of September 30 of this year, the total progress on the exploration program is 30%. We have drilled 121,000 meters on a total program of 148,000 meters and obtained 39,234 drill core samples for chemical analysis.
Diamond drilling will continue and will provide information for the interpretation of geological sections related to mineralization, geological modeling and mineral resource evaluation. Geo-metallurgical studies are currently underway. Hydrological and hydrogeological studies for the project will begin shortly.
Regarding environmental, social and corporate governance practices, our 3 operations in Peru, Cuajone, Toquepala and Ilo were awarded with the Copper Mark and the Molybdenum Mark certifications for responsible production following an independent third-party assessment of environmental, social and governance performance. We are proud to report that all our open pit copper and molybdenum production has been certified under this standard. This applies also obviously for the Mexican operations.
Regarding education, we delivered the Center for Research with a specialized engineering study -- engineering laboratories to the Universidad Nacional de San Agustín de Arequipa, named UNSA, in Peru. This facility, which was built under the Works for Taxes mechanism at a cost of $18 million is equipped with 24 laboratories and will benefit 6,500 students and 174 researchers.
In Mexico, the Cultural Center located in Charcas in San Luis Potosi obtained first place in the Noldi Schreck awards, in the category, private institutional architecture and repurposing of buildings. In this space, which began operations in the summer of 2023 has hosted over 4,700 participants and 120 volunteers across 200 activities related to education, culture, health and sports. The Cultural Center, which is open to the public is now considered a cultural attraction and received visits from tourists, local and state authorities.
We have -- Grupo Mexico has a program named Dr.
Vagón, that has provided more than 80,000 medical services in Sonora over the last 10 years. In September of this year, Dr. Vagón, which is our Fundación Grupo México’'s health program, visited Cananea to provide more than 6,000 free medical services to 2,050 people. Patients were evaluated by specialists and needy candidates received medicine, eyeglasses and hearing aids. During these interventions, 102 elderly residents received cataract surgery to help them recover their sights.
Switching gears, we are going to talk about dividends. As you know, it is the company's policy to review our cash position, expected cash flow generation from operations, capital investment plan and other financial needs at each for meeting to determine the appropriate quarterly dividend. Accordingly, on October 17 of this year, Southern Copper Corporation announced a quarterly cash dividend of $0.70 per share of common stock and a stock dividend of 0.0062 shares of common stock per share, payable on November 21 of this year to shareholders of record at the close of business on November 6.
Ladies and gentlemen, with these comments, we end our presentation today. Thank you very much for joining us. Now we would like to open the forum for questions.
[Operator Instructions] And it comes from the line of Gabriel Simoes with Goldman Sachs.
I would first like to understand, if you could please comment on the gap between -- that we saw between copper production and sales this quarter. And if we should see that effect being reversed potentially in the fourth quarter, right?
My second question is about Tia Maria. We saw some news this week on protests regarding the project. So it would be interesting to understand how fast you're being able to move forward with this project. And if you could comment on local community support for the project and your actions in the region, that will also be great.
Okay. Thank you very much for your question, Gabriel. Regarding the gap between copper production and sales, well, we are also concerned about that, but what we have identified, that -- well, we have a portion of our copper production, it's embedded in the -- it's a material in process at our smelters and refineries at this point. So we should close that gap shortly.
Regarding Tia Maria, well, we have -- we haven't had much activity on the protests. Today and tomorrow, in Peru, several organizations are calling for a protest against the government, which is not specifically related to the project. And that is basically -- so far now as well as in the last 2 days, we haven't -- we have seen that things are peacefully at the area of the project. Today, our workforce is working with no interruptions.
I mentioned that we have over 400 employees working at this moment in Tia Maria, and they are -- they went to work with no problems, no issues at all. So we want to move on with the project as soon as we can. I mentioned already that there is a budget approved for the project for next year. Obviously, we'll be entitling several activities among them, initial pre-stripping work of the La Tapada mine.
Okay. Just a quick follow-up, if I may, on the first question. So you mentioned you expect the gap to close in the future, right, not to be reversed necessarily, right? If you could just confirm that and potentially add some more color on the issues that you're having. So like you'd be -- if the gap closes, but doesn't reverse, you'd be like working with higher inventories. Is that the plan? So just to...
No, as we have said, it is to have our inventory coming back to the profit level.
Okay. So a reversion, is that expected already for the fourth quarter? Just to be clear, sorry.
Yes, we would like to do that in the fourth quarter.
And it's from the line of Carlos De Alba with Morgan Stanley.
A couple of questions. First, can you give us the guidance for cash costs before by-products for 2024 and 2025? And then what can you share in terms of the potential for dividends to continue to come in the coming quarters, the combination of cash and shares? And maybe to that last point, can you let us know what is the current -- what will be the current number of treasury shares after the recently announced dividend is paid out?
Okay. On the cash cost, Carlos, I think we -- obviously, this is one of the most difficult data to forecast, because you have not only what you do on the cost, but also what happens with the prices of your by-products and your production. But we believe that we should maintain the current cash cost of about in the 70s, let's say, $0.76 was the last mark, but about -- around that number as long as we have the prices that we have for the different by-products, but mainly molybdenum, silver and zinc.
Obviously, the better production of zinc that we have, it's significant for improving this. And it depends on -- as I say, the production, we believe that we will -- we'll fill up with the estimates that I provide you. And then the difference is for prices on the by-products and for the current production, we believe that we are at about this less -- a little bit less than $2 that we have reported for the past quarter.
So the cash -- the cost before the benefit of our by-products should remain around $2 per pound?
Yes, we believe so.
This year and next year?
Next year, we'll see, but we're expecting to have more production of zinc and silver next year, so that will be a little bit better.
On dividends, it's always up to the Board. We have been -- the Board has been approving dividends of 50-50, a portion in cash and a portion in shares. We think that this is a good way to maintain the company liquidity. As you may imagine, we will be using some of the cash generated for the projects that we have, mainly Tia Maria. And we do have next year to pay $500 million in a bond that matures in the second quarter of the year. Current number of shares after recently announced dividend, in treasury, it's -- okay, we have 99 million shares in treasury at this point, Carlos.
One moment for our next question, please. And it's from the line of Rafael Barcellos with Bradesco BBI.
Could you please elaborate further on the regulatory environment in both Mexico and Peru? It would also be interesting to hear from you, I mean, specifics about your growth initiatives in Mexico, whether there's any news on the discussions related to open pit operations in Mexico and so on. So if you can comment anything here, it would be interesting.
And my second question is about production. I mean I wanted to understand your expectations for copper production in 2025, if possible.
Okay. Thank you very much for your questions, Rafael. On the regulatory environment in Mexico and Peru, in the case of -- let me start by Peru first. In the case of Peru, the government is proposing some changes in current procedures in order to shorten the time lag, that the time that they take to obtain the different permits. This is a positive thing that we're seeing and working with the National Society of Mining of Peru in order to produce a proposal that is good for mining companies that are here and for projects as well.
In the case of regulatory environment in Mexico, so far, we had some changes last year that mainly affected the exploration activities and concessions. In our case, we were not affected by the new regime of concessions. So far, we are okay on that.
On the open pit mining, well, we have to see what happens at the end of the day. However, it will not affect companies and projects that have already concessions, that's our understanding on this matter.
On the production expectations for 2025, let me give you our -- repeat our forecast on this. Okay. I'm sorry, I think I haven't said it for 2025, but I'm going to repeat 2024 and what we're expecting for 2025 at this point.
For 2024, in copper, we're expecting 975,000 tons. For next year, the number should be 978,300. That's our latest estimate. For molybdenum, this year, we're expecting 28.2 million -- 28,200 tons, and for next year, 26,200 tons. For zinc, we're expecting this year, 120,300 tons of zinc. For next year, 154,600 tons for 2025. Silver, we're increasing our production from 20.8 million ounces to 22.9 million ounces.
So as you can see, we're improving a little bit our copper production. That's our current view. On molybdenum, we're expecting a little bit less than what we are producing this year, but hopefully, we will have some catch-up on this as we have done in some other years. For zinc, we are increasing it from 120,300 to 154,600. For silver from 20.8 million ounces to 22.9 million ounces. And I think that, that's for our main product, which is copper and our main by-products as well.
Our next question comes from the line of Ian Snyder with JPMorgan.
I had 2 that was covered on the open pit mining question on Mexico. But my other question, can you talk about your plans for debt issuance in the upcoming 12 months? First, regarding the 2025 bond maturity that you mentioned. And second, anything related to the elevated CapEx for greenfield projects at Tia Maria in particular. Could we see you upsize -- do a 2025 refinancing and upsize the notional to account for some expansion CapEx?
Well, we will eventually tap the debt markets in the next few quarters. But so far, we have not closed a specific proposal. We want to understand what would be the environment in which such an issuance will have to be put in the market. And we want to obviously find a time where interest rates are okay for this kind of financing.
As we have done in the past, we will very likely go to the debt market as we initiate the construction of major projects. Right now, we're considering the initiation of Tia Maria. So we will consider new debt for financing the project and some other activities, corporate activities as well in the next few months. But so far, we have not put in place any specific structure or anything similar to that.
Our next question comes from the line of David Feng with CICC.
My first question is regarding the operating cash cost reconciliation on the last page of your press release. So firstly, you can see that there is about a positive $188 million of treatment and refining charges and then negative $262 million in other charges, which are both with some significant changes than previous quarters. We all know that the TC/RC in the market has been staying at a very low level or even negative sometimes.
I think the majority of your concentrate is smelted and refined by yourself. How should we understand the figures of these 2 like significant changes here? And how should we expect like how about your outlook for this in the following quarters? I'll come off with the second.
Hold on a sec, please. Okay. There has been a mistake on the information. It should be -- this treatment and refining should be a negative number, 11.1% for the 9 months of this year, and that is creating the difference that we're talking about.
You mean that the -- I mean, we can see that the 9-month number is basically brought by the significant changes for the 3 months in the last quarter. So would you mind just give me some like extra clarification on that?
It's a typo. It's -- I'm so sorry about that. Basically, the press release has -- should be a negative number of 11.1%.
Okay. Got it. Understood. Maybe I'll come with my second one. So previously, I think you've mentioned that you may provide a revised CapEx estimate for Tia Maria by the end of this year. So I just wonder how is the progress on the evaluation. And is there any color on what should we expect from what will be the main items in the CapEx to be revised?
We're looking at the different -- the CapEx that we are using for Tia Maria was approved in 2016. So 8 years has passed by. Obviously, there has been some technological improvements in the process. We want to start a new solar extraction, electrowinning operation. And there are also some other parts of the project that we are looking into considering them or not for this year -- for this new stage of the project.
We have, for instance, a new road that we will want to build between where the plant is going to be in the middle of the desert, down to the coast. That road has obviously a cost, and we're including that in the budget.
So it's a mix of changes due to technology or better processes that are available now and some changes that we want to do on the structure and some things that we have had. For instance, the road is something that we believe will be very helpful to eliminate any complaints of the people in the valley because we will pass through a desertic area all the way down to the coast and then to the Mollendo, Matarani cities which are okay with the project. So that's the kind of things that are being considered.
We're also looking into different ways to transport the production and the sulfuric acid required by the project. By this, I mean that we have our main idea to have a railroad. However, we want to design or decide on the proper way or the proper part of the area where the railroad will pass by.
So they are a little bit different, and that's why we are not providing at this point a specific budget. The ballpark number that we're seeing is about $1.8 billion, but we still are looking into this number to be sure that that's the one that we want to execute.
Our next question is from Alejandro Demichelis with Jefferies.
One quick question. So you mentioned the copper production for next year, and that's great. Could you please give us some indication of CapEx for next year? That's the first question.
Well, we are still looking into our budgets for CapEx for next year. We have been considering about $920 million for CapEx for 2025. That number may vary a little bit where -- but we still don't have -- we don't have a definite number at this point. So we are maintaining our latest forecast on this.
That's very clear. And then the second question is, could you please comment on the situation of water in Mexico and how that's -- how you're seeing that evolving over the next few quarters, please?
Well, for now, we have all the water that is required for our operations for what is remaining in 2024 and next year. Obviously, we are looking into this matter with extremely care because it's a key element that we need to develop our operations. But so far, we're happy that we have -- we currently have all the water. All our water needs are filled, and we're okay with that and expecting that, that will be the case in 2025.
Okay. And just to kind of finish on the water situation, we have seen new reports about the situation of the Sonora River and kind of the incidents that happened in the past. What -- how do you see the situation at the moment?
Well, generally speaking, we have been looking to different sources that we have for water. And we believe that we are fine with what we have. We are storing water for our needs next year and a small cushion in case that something does not go as we expect.
Our next question is from Pablo Abraham Peregrina with BBVA.
My question has been answered. It was about the other charts here and $64 million...
Pablo, if you can maybe slow down a little bit. You have some background noise.
Yes. Sorry, about that. My question has been answered, and it was about the $64 million from the other charge line. But just to clarify the $1.95 for the cash cost before by-product remains unchanged, right?
Well, that's our number for the third quarter.
One moment for our next question, please. And it's from the line Timna Tanners with Wolfe Research.
I just wanted to follow up. I know you provided new numbers for production for copper and zinc and new CapEx. But I didn't really get the why. Like why has the copper production number now seemed flat when before, it was going to see a decent decline. Why is the zinc production number lower than expected? And why the lower CapEx number?
Okay. On the CapEx number, it's basically what we are expecting at this point, Timna. We are reviewing currently our budgets, so I'll ask you to wait for our next conference call in January, where we will provide much more defined information on CapEx specifically.
In the case of copper production, well, we have had a big increase in production this year. We're expecting to close 2024 with 975,000 tons, which compares with 911,000 tons in 2023. So that's -- and this is basically the result of a recovery of the Mexican operations, particularly SX-EW facilities and higher production at the Peruvian operations. So for next year, we're expecting to maintain the current levels, which is -- that's why we're forecasting 978,000 tons for next year.
And for zinc, we are -- we're moving forward with the production of the new facility, which is the Buenavista Zinc concentrator we'll be producing about 92,000 tons next year. And the Ilo's operations are also recovering and increasing their production to 85,000 tons. Altogether, that is 178,000 tons of zinc. I think that this is a much higher number than the 121,000 tons that we are forecasting for this year for 2024.
Okay. One quick follow-up, if I could, for 2026, and I know that's pretty far out, but you had also guided to kind of 938,000 tons for copper. But with the revised higher 2025, is it fair to say that, that value could be sustained at the more recent annual run rate going forward? Or is there something on the horizon that could cause that to correct?
We will -- we have to stick to our mine plans and in some times, in some circumstances, ore grade as well as recoveries are affected by different circumstances at the deposits -- in the deposits. And that's why we have variances in our total production.
For now, we expect a slightly lower production of copper for 2026. But we still are working on revising the mining plans and see if we can improve it, so we don't have a significant variance between 2025 and 2026. And as you will mention, Timna, we're a little bit far away right now from it. So let's wait until we have more information and we can provide a more solid forecast on this.
One moment for our next question, please. And it's from the line of Jon Brandt with HSBC.
I just first wanted to just go back quickly to Tia Maria. You mentioned you had set these targets in 2016. There's been a lot of improvement. So I'm just wondering, I understand the CapEx is going to go up, but are there -- is there any other sort of changes that we could expect? Could you see an increase in production or capacity above the 120,000 tons? How should we think about unit cost expectations at the mine?
And then my second question is just on Los Chancas. Could you provide a bit of an update there? I mean, it seems like every quarter, we talk about sort of the illegal mining activities. Is there any scope to sort of have this finalized so you can start operations there again? Or do you expect that this is going to carry on for the foreseeable future?
The second point is regarding Los Chancas, right?
Yes, correct. Los Chancas.
Okay. Well, we are working on this with the national police. We are taking certain actions that we believe will be very helpful for removing these illegal miners from the Chancas deposit. And this takes a while. We have been doing some progress, but we still have to have to do more work and coordination with the National Police.
So I'm sorry that I can't provide you any specific time line on this. Our expectation is that between now and say, the first quarter of next year, we will be able to remove them, but that's our expectation. We have to see how things evolve.
And on the other point, on production for Tia Maria, we're basically maintaining the forecast that was prepared a couple of years ago. it's mainly what you have seen. And we have on the cash cost, about $1.16 per pound. That's our current cash cost for the first 10 years of the project.
And well, obviously, it's a little bit higher than the $1 that we have been using in the past, $1.10. But at the same time, the price drag that we're considering now has increased just due to inflation. We were doing cash cost estimations considering $3 per pound of copper. Now we are using $3.80 as a reference for a long-term market.
So we believe that the project is still very profitable. We have -- even though we have some changes in our CapEx, still will be a very good project with an extremely low cost per ton of installed capacity. And I think that is something very positive for the project of Tia Maria.
One moment for our next question. That is from Alfonso Salazar with Scotiabank.
I have 2 questions. The first one, if we can go back to the water situation in Mexico. Is there any update on the pipeline that you need to bid at Buenavista? And if you are moving your water by truck, what is the increase in operating costs by doing that?
And the second question that I have is, if you can remind us the breakdown of costs in Mexican pesos, what percentage is in Mexican pesos at our Mexican mines?
Okay. Thank you, Alfonso. Regarding the water pipeline, we have now -- we are still working on getting the permit to build the pipeline. At this point, we're not using water trucks to provide the water that the Buenavista operation requires. So we're using our own other sources of water for filling up the water needs of Buenavista at this point.
Regarding your second question, cost, Mexican pesos, it's 39% according to our estimation, 39% of our total cost, it's in Mexico pesos, Alfonso.
That is only for Mexican mines, right?
Yes. That's for Mexico.
Thank you so much. And one moment for our last question. I'm sorry, but it seems that there is no more questions in the queue, sir.
Thank you very much, Carmen. With this, we conclude our conference call for Southern Copper's third quarter 2024 results. We certainly appreciate your participation and hope to have you back with us when we report the fourth quarter of this year and the full 2024 results. Thank you very much for being with us today, and have a nice day.
And thank you, ladies and gentlemen, for participating in today's conference. You may now disconnect.