Southern Copper Corp
NYSE:SCCO
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Southern Copper Corp
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Good morning, and welcome to Southern Copper Corporation's Fourth Quarter and 2022 Full 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 past quarter and year 2022 as well as answer any questions that you might have.
The information discussed on today's call may include forward-looking statements regarding the company's results and prospects, which are subject to risks and uncertainties. Actual results may differ materially, and the company cautions to not place undue reliance on these forward-looking statements. Southern Copper Corporation undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All results are expressed in full U.S. GAAP.
Now I will pass the call on to Mr. Raul Jacob.
Thank you very much, Gigi. Good morning, everyone, and welcome to Southern Copper's Fourth Quarter of 2022 and Full Year 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. Javier Garcia de Careo and Leonardo Contreras, both also federal Board members.
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.
Before we get to the agenda of today's meeting, let me say that 2022 was a very challenging year for us. We faced some difficulties in the economies where we operate, which have tested our strength and ability to operate at competitive terms. On top of lower metal prices and inflation, we had to deal with the 54 days to a hundred stoppage in the first half of 2022.
Nonetheless, we have for severe, bolstered by the resilience of our workforce, SEC's strength and our strong financial position. Evidence of our quality can be seen when we compare the fourth quarter of 2022 were the third quarter of the same year. Net sales were in the fourth quarter, 31% over the same period. Consistent with these positive results, the operating cash cost per pound of copper, including byproduct revenue credits was $0.45 per pound. This is 57% lower than the $1.03 we reported in the third quarter of 2022.
On December 7 of last year, the Peruvian Congress invoked its power under the constitution and removed President Pedro Castillo from office. Mrs. Dina Boluarte, the Vice President, immediately assumed the presidency -- these fast-moving events led to considerable upheaval, particularly in the south of Peru, where acts of vandalism ambient has escalated. Road blocks are scattered through the country -- throughout the country, which has natively affected the normal course of business in various regions.
Fortunately, our operations has not been impacted. SEC hopes that the government will take clear actions to restore order to take the rights of all citizens and set the stage for a peaceful solution to process, so that Peru can resume growth and achieve the development it deserves.
For 2023, we continue to focus on growth, and we expect to deliver or to La Caridad concentrator from the Pilares mine in the second quarter of this year. This will contribute with 35,000 tons of copper annually.
Additionally, the new zinc concentrator at Buenavista is expected to begin operations in the second half of 2023, generating 100,000 tons of zinc and 20,000 tons of copper per year. Now let us focus on the copper market. In the fourth quarter of 2022, the London Metal Exchange copper price decreased 18% from an average $4.40 per pound in the fourth quarter of 2021 to $3.63 per pound, reflecting these concerns about a possible recession in the U.S. and Europe, partially offset by good news on a positive Chinese recovery. Current prices for copper are over $4.10 per pound, reflecting a relatively more positive outlook for this market.
We believe this is due to the following factors: a reduction in global inflation, which may slow down or even stop eventually, the interest rate hike cycle led by the Fed and the European Central Bank. The turnaround in China's policies regarding COVID-19 after the government embraced proven practices. Stimulus measures have been implemented also in China to show up a weak real estate market.
The most relevant market intelligence houses for the copper market are expecting a market balance or a small surplus for 2023. This assumes a growth in demand of about between 2% and 3% this year. Uncertainty regarding future production growth in Chile and Peru, which together represent about 40% of the global supply.
Low copper inventories, which stood at 241,000 tons as of December of 2022. These low inventories represent about 3.5 days of consumption, an extremely low level by copper inventories, I mean here, the addition of the London Metal Exchange, the Comex, the Shanghai, and the bonded warehouses in China.
It is important to emphasize that copper plays a leading role in the global shift to clean energy, which correlates positively with our assertion that the underlying demand for copper will be strong in the long term.
Now let's look at Southern Copper's production for the past quarter and the year 2022. Copper represented 70% of our sales in the fourth quarter of 2022. Copper production registered an increase of 1.6% in the fourth quarter to stand at 241,273 tons. Our quarterly results reflect a 4% increase in production in Peru and flat growth in production in Mexico.
On a year-on-year basis, copper production fell 6.6% in 2022 and totaled 894,703 tons. This figure was nonetheless, 0.5 percentage point higher than our adjusted year plan of 890,000 tons. With the exception of the Buenavista operation, where production levels were higher than those registered in 2021, a decrease in yearly copper production was reported by our other open pit operations due to a temporary drop in ore grades and to the Cuajone stoppage, which reduced this platform, our 2022 production by 22,208 tons.
Compared to the third quarter, Copper production increased 4.7%, which was mainly attributable to our growth in production at all the open pit operations. For 2023, we expect to produce 925,800 tons of copper, an increase of about 4% over the 2022 final trend.
This growth will unfold as we get Peruvian production back on track, which coupled with new production in our Mexican operations through our Pilares and Buenavista zinc concentrator project. Bollesen represented 18% of the company sales value in the fourth quarter of last year and is currently our first by-product. Molybdenum prices averaged $21.17 per pound in the quarter compared to $18.53 in the fourth quarter of 2021. This represents an increase of 14% in prices.
Molybdenum production decreased by 16% in the fourth quarter of 2021 -- '22 when compared to the same period of 2021. This was mainly driven by a drop in production at the Toquepala mine due to lower ore grades. These results were partially offset by higher production at Cuajone and Buenavista. Molybdenum production fell 13% year-on-year in 2022 after production fell at Toquepala, Cuajone, and La Caridad. This was partially offset by an increase at the Buenavista mine. For 2023, we expect to produce 22,200 tons of molybdenum. Current money prices are over $35 per pound. We believe that prices will be supported by global supply shortages and a strong demand in China and the U.S. Silver represented 4% of our sales value in the fourth quarter of last year with an average price of $21.25 per ounce in the quarter, which reflected a decrease of 9%.
Silver is currently our second by-product. Mine silver production increased 10% in the fourth quarter versus the same period of 2021 and serve production rose at Ina, Buenavista, Cuajone and Toquepala. This was partially offset by a decrease in production at La Caridad. Refined silver production fell by 1% year-over-year, which was mainly driven by a drop in production at our IMS and Hilo refineries.
In 2022, we produced 18.6 million ounces of silver, which represents a 2% decrease with regard to the 2021 figure. This was mainly due to a drop in production at Cocapala, Cuajone and Caridad that was partially offset by an increase in production at the Buenavista and insane. In 2023, we expect to produce 20.5 million ounces of silver. This is an increase of 10% compared to 2022 and higher than the 19 million ounces produced in 2021, higher by 8% when you compare that to 2021 as well.
Zinc represented 3% of our sales value in the fourth quarter of last year with an average price of $1.36 per pound in the quarter, which represents an 11% decrease with regard to the fourth quarter of 2021 figure. Zinc is currently our third by-product. Zinc mine production decreased 7% quarter-on-quarter and total 15,263 tons. This was driven primarily by a drop in production at the Charcas and Santa Barbara mine. Refined zinc production increased by 26% in the fourth quarter of 2022 when compared to the same period of 2021.
For the year 2022, we produced 6,010 tons of zinc, a decrease of 10% compared to 2021 that was mainly attributable to a drop in production at the Charcas and Santa Barbara operations. This was partially offset by increases in production at the San Martin, mine. Refining production increased 8% in year-over-year terms. For 2023, we expect to produce 116,800 tons of zinc, which represents an increase of 95% over our 2022 production level. This growth will be driven by production start-up at the Buenavista zinc operations. The Buenavista zinc concentrator will add 51,600 tons of zinc to our production and also by the recovery of the Insamines that will add 6,200 tons. In the case of the ISA mines, we have identified better ore areas for the -- in the different mines. And we are contributing with a much higher production for this year coming from the inside.
For the year 2024 and on, we expect to produce over 200,000 tons of zinc per year. Financial results. For the fourth quarter of 2022, sales were $2.8 billion, which is similar to the level reported in the fourth quarter of 2021. Copper sales volume increased by 2%, while value decreased after prices drop for this metal.
Regarding our main by-products, we reported higher sales of molybdenum that increased by 65% due to better prices. This was partially offset by a drop in molybdenum volume. Zinc sales were up by 26% due to an increase in volume of 38%, which was partially offset by lower prices. Silver sales were down in the fourth quarter by 0.5 percentage point due to lower prices. This evolution was partially offset by an uptick in silver volume.
Comparing the fourth quarter of 2022, with the third quarter of last year, as I said in the fourth quarter, Sales totaled $2.8 billion. This represented an increase of [ 663 million ] over the figure reported in the third quarter of the past year. This is a 31% increase in sales.
The copper sales volume saw 1% while value increased by 23% in a scenario of better prices. Regarding our main by-products, we registered higher sales of molybdenum for 138% due to an increase in the volume and better prices. Molybdenum is were also favored by provisional price adjustments of $92.6 million. Silver sales increased by 26% due to an uptick in the volume and in prices. And since sales fell 7% due to lower prices. This drop was partially offset by an increase in the volume of 4%.
Our total operating cost and expenses increased by $157 million or 12% when compared to the fourth quarter of 2021. The main cost increment has been in higher inventory consumption, workers' participation, repair materials, diesel and fuel, explosives and sales expenses. These cost increases were partially offset by a decrease in leachable material costs, translation difference, labor cost.
Our total operating cost and expenses in the fourth quarter of 2022, increased by $80 million or 6% in comparison with the third quarter of last year. The main cost increments has been in workers' participation, purchased copper, sales expenses, operating and repair materials, higher inventory consumption, and contractors. These cost increases were partially offset by a drop in the energy cost and the effect of translation difference and other factors.
The fourth quarter of 2022 adjusted EBITDA was 1,647 million, which represented a decrease of 5% with regard to the 1,726 million registered in the fourth quarter of 2021. The adjusted EBITDA margin in the fourth quarter of last year was 58% versus 61% in the fourth quarter of 2021.
For the year 2022, EBITDA -- adjusted EBITDA was $5,365 million. This is 22% below the figure of 2021. The adjusted EBITDA margin in 2022 was 53% versus 63% in 2021. Operating cash cost per ton of copper before byproduct credits was $2.04 per pound in the fourth quarter of 2022. That is $0.25 lower than the value for the third quarter of last year. This 1% decrease in operating cash cost was driven by a drop in cost per pound from higher production that was partially offset by an increase in treatment and refining charges, administrative expenses, and a decrease in the premiums received by our refined Corp.
Southern Copper's operating cash cost, including the benefit of by-product credit, was $0.45 per pound in the fourth quarter of 2022. This cash cost was $0.59 lower than the cash cost of $1.03 reported in the third quarter of 2022. This is a 47% reduction. Regarding by-products, we had a total credit of $806 million or $1.59 per pound in the fourth quarter of 2022. These figures represent a 55% increase over the $501 million or $1.03 per pound reported in the third quarter of last year.
Total credits have increased for molybdenum, silver and silver and decreased for zinc and sulfuric acid. -- byproduct credit has benefited from the adjustment on open molybdenum sales of $93 million, which represented an extra cash credit of $0.18 per pound in the fourth quarter of 2022.
Net income in the fourth quarter of 2022 was $902 million, which represented an 8% increase with regarded $833 million registered in the fourth quarter of 2021. The net income margin in the fourth quarter of last year was 32% versus 30% in the fourth quarter of 2021. Let me point out that net income in the fourth quarter of last year reflected a 74% increase with regard to the $519 million registered in the third quarter of last year.
For the full year 2022, net income was $ 2,638 million which is 22% lower than the mark for 2021. The net income margin in 2022 was 26% versus 31% in 2021. Cash from operations. Cash flow from operating activities in the fourth quarter was $1,082 million, which represented an increase of 83% over the $590 million posted in the third quarter of 2022 and a decrease of 12% over the 1,220 million posted in the fourth quarter of 2021. Looking into capital investments. As you know, Southern Copper's investment philosophy is not based on the outlook for copper prices but on the quality of the assets that we operate and develop. So the years, our strong financial discipline has consistently allowed us to make ongoing investments in our considerable asset portfolio.
Our current capital investment program for this decade exceeds $15 billion and include investments in the Buenavista Zinc, Pilares, El Pilar, and El Arco projects in Mexico, and in the Tia Maria, Los Chancas, and Michiquillay projects in Peru. This capital forecast includes several infrastructure investments, including key investments to bolster the competitiveness of the El Arco projects.
In 2022, we spent $948 million in capital investment, which reflected a 6% increase year-on-year and represented 36% of net income in 2020. For our Mexican projects, we have the Buenavista zinc concentrator in the Sonora state. This project is located between the Buenavista deposit. And we are building now a new concentrator to process zinc. This facility has a production capacity of 100,000 tons of zinc and 20,000 tons of copper per year.
We have completed the engineering study and the proving has all the necessary permits. When operating, this facility will double the company's zinc production capacity and provide more than 2,000 operational jobs. As I mentioned before, we're expecting for this year a significant contribution of -- on the zinc production, over 50,000 tons and for 2024, [ anounover ] 200,000 tons of addition for zinc production for the comp.
Well, for as a project update, the capital budget for the project is $416 million, most of which has already been invested. We expect to initiate product operations in the second half of 2023 at this point. The Pilares project is located 6 kilometers from La Caridad. This project consists of an open pit mine operation with another production capacity of 35,000 tons of copper is concentrated. This project will significantly improve the oral mineral ore grade, considering the 0.78% expected from Pilares and the 0.29% from La Calia.
Project update. The budget for Pilares is $159 million, most of which has already been in -- the project is currently operating and delivering copper mineral oxides to the SX-EW facilities of the La Caridad operation. We expect to produce mineral for the La Caridad concentrator at full capacity in the second quarter of 2023.
El Pilar. This is a low capital-intensive copper greenfield project, which is strategically located in Sonora, Mexico, approximately 45 kilometers from our Buenavista mine. Its copper oxide mineralization contains estimated proven and probable reserves of 317 million tons of ore with an average copper grade of 0.25%. We anticipate that El Pilar will operate as a conventional open pit mine with an annual production capacity of 36,000 tons of copper cathodes. This operation will use highly cost-efficient and environmentally friendly SX-EW technology. The budget for Pilar is $310 million.
Project update. The results from experimental paths in the leaching process have confirmed adequate levels of copper recovery. Basic engineering study is finished and the company continue to develop the project and engage in all site environmental activities. The SX-EW plant EPCM project contract has been awarded to a contractor and has started. We expect production to begin in 2024, and mine life is estimated at 13 years.
El Arco, it's a world-class copper deposit located in the central part of the Baja California peninsula with all reserves of over 1,230 million tons with an average ore grade of 0.4% and 141 million tons of leach material with an average ore grade of 0.27%. The project includes an open pit mine combining concentrator and SX-EW operations, and our production is expected to total 190,000 tons of copper and 105,000 ounces of gold per year.
Project update. The company has completed the environmental baseline study for the mine and industrial facilities and is reviewing the basic engineering analysis to request the environmental impact permit. For the Peruvian projects, we have the Tia Maria project, which is a greenfield project located in Arequipa in the Arequipa region in Peru. This project will use the state-of-the-art SX-EW technology with the highest international environmental standards to produce 120,000 tons of refined copper capital per year. The estimated capital budget for the project is $1.4 billion.
Southern Copper has been consistently working to promote the welfare of the population of this life province. As part of these efforts, we have implemented successful social programs in education, health care and productive development to improve the quality of events in the region. We have also promoted agriculture and livestock activities in the Tambo Valley and supported growth in manufacturing, fishing and tourism in a -- in the case of Los Chancas, we have a project update that is the following. As of December 31 of 2022, part of the project's plan continue to be occupied by illegal miners, some of whom have irregularly registered their stakes in the integral registry of mining formalization, known in Spanish [indiscernible].
The company has filed criminal complaints and other legal remedies which have new claims of 70 illegal miners were while 5 cases remain open. You can see it's quite a minor number, and we hope that we will solve this problem shortly.
For the Michiquillay project, in the fourth quarter of 2022, the company informed MINEM that it has begun exploration activities and initiated an assessment of the existing mineral resource at depth. In 2022, in accordance with our social agreements with the Michiquillay and La Encañada communities, the company hired unskilled labor and pay for the use of surface land. SCC will continue to make surface land payments in 2023 and plans to support social programs in both communities as it rolls out additional exploration activities.
For environmental, social and governance investments, Southern Copper is committed to improving its ESG record by adopting best practices and informing the investment community and other stakeholders about our progress in this matter. Give me for , please -- in line with best practice, the Board of Directors has approved the formation of a new sustainability committee shared by an independent director.
The purpose of this committee is to support the Board of Directors of Southern Copper Corporation in developing and monitoring the company's compliance with ongoing commitments to environment, health, safety, communities, human rights and corporate goes. This is a significant step in our pledge to a robust and strong ESG performance.
The Sustainable Development Committee held several sessions in the fourth quarter of 2022. During these meetings, our counselors review our advances in terms of our main performance indicator and gave us recommendations for the climate change strategy we are building.
Progress on the corporate sustainability assessment front. S&P Global increased SEC's rating by 13% year-on-year in its corporate sustainability assessment 2022. This situates the company among the top 8% of best performance in the mining sector and places SEC 50% above the average rate. These results reflect the upward trend the company is experiencing in the rem of sustainability and reaffirm SEC's listing in the Dow Jones Sustainability Index for the Latin American integrated market, known as Mila. This is for the fourth consecutive year in which we achieve -- are considering these listings.
Our ongoing improvement has been driven by positive performance in areas such as cybersecurity, water management, operations closure, occupational safety and health, among others. The open-pit mine of La Caridad and the Sonora metallurgical complex, both smelter refinery at this context, received copper mark certification. Both units were addressed -- assessed by this independent assurance system to demonstrate that SEC copper is produced responsibly and highlight the company's contribution to achieving the sustainable development goals of the United Nations in 5 main areas: the business and human rights, community, working conditions, environment and governance. SE's goal is to ensure that copper production at all of our units meet Copper Mark criteria.
Additionally, La Caridad received the molybdenum mark. The aforementioned pilot programs were implemented by Copper Mark and the International Molybdenum Association. So producers have a framework of reference to the most leadership with regard to sustainability and responsible production practices. --occupational safety, the mining chamber of commerce of Mexico coming next and the national accounting to regulate and certify workplace practices, Konasel, awarded first place to the rescue class of the Charcas and Santa Barbara units in the categories of underground NRiskerQ and first age, respectively, the framework of the 6 national competition of underground mining rescues, first aid and hazard dose materials.
Fundacion Grupo Mexico organized a volunteer day, which was attended by 8,000 volunteers in 13 states of Mexico and 5 regions of Peru. Efforts benefit more than 40 institutions near our operations with a focus on improving the quality of life at the community, family and environment levels.
Dividend announced. Regarding dividends, as you know, it is the company's policy to review our cash position, expected cash flow generation from operations, capital investment plans and other financial needs at each Board meeting to determine the appropriate orderly dividend. Accordingly, as announced to the market on January 26, the Board of Directors authorized a cash dividend of $1 per share of common stock payable on March 1 to shareholders of record at the close of business on February 14 of this year.
Ladies and gentlemen, with these comments, we would like to end up our presentation today -- thank you very much for joining us. We would like to now open the forum for questions.
[Operator Instructions] Our first question comes from the line of Matthew Murphy from Barclays.
I have a question about your CapEx estimates for long-term projects. I'm wondering if we should be adjusting those for inflation. I noticed Grupo Mexico's disclosures, used to talk about investments of $10 billion in long-term projects, and that's now $15 billion, including EL Arco infrastructure. So I'm just wondering what has changed there and how it might impact the CapEx spending profile in the next few years?
Well, the figure that I mentioned, the $15 million refers to what we expect to spend in the next 10 years. Let me correct what I just said, through the second, up to 2030. We have been adjusting some of our budgets. We have been including some new expenditures related to our projects. And that's basically what we're thinking. Let me give you the estimate of CapEx that we have for the next 5 years that will be -- that will give some color on what we are seeing now. For this year, we're expecting to spend $1.1 billion in capital for next year, 2 billion, 2025, $1.8 billion, 2026, 2.5 billion and 2027, $2.8 billion.
Okay. And the -- just the timing of the projects. So Los Chancas and Michiquillay have been pushed out, I guess, 3 years. And can you just address the reason for those changes? And how that reflects in the CapEx budget? Has there been sort of any reordering of your project pipeline?
No, not at the ordering, but we have been looking into the projects, seeing how have they advanced. In the case of Los Chancas, for instance, we have this problem that we have been building of illegal mining inside the concession that we are very close to solve that has stopped as our work in this project for a while, even though we have been doing some cabinet work regarding the environmental permitting for Los Chancas, but that has affected somehow our forecast. And in the case of Michiquillay, given the delay that we had in signing the social contracts and beginning the exploration season that we are currently doing, we decided to make an adjustment on the time lines for these 2 projects. That's why we moved a little bit start--to the start-up for both of them.
Obviously, if we see opportunities to advance them in time, we'll take that and inform when appropriate. But that's currently -- this is our view on the projects.
Our next question comes from the line of Timna Tanners from Wolfe Research.
I wanted to ask just a follow-up on the CapEx detail. Does that include a potential Kuoni expansion? And does it include TM Maria? So can you quantify those a bit, please.
For now, it does not include the Cuajone expansion, Timna, and it does include Tia Maria.
Okay. One about...
Let me add that we expect to have that through this year, we expect to have more clarity on the Cuajone project and will inform to the market regarding that.
Okay. Excellent. Molybdenum has obviously been an outperformer and you see continued strength there. Your run rate in Q4 is higher than what you're calling for into 2023. I'm just wondering, broadly, if you can help us understand that change. And also are there opportunities to maybe shift production a little higher or shift your focus there a bit given the better outlook in May?
Yes. Well, molybdenum have surprises on the positive side, given the price that we're seeing now are $35 per pound which is much, much higher than what we had -- we reported a little bit more than $21 per pound for the fourth quarter. So if you do the math, it's over 50% of price increase for molybdenum.
We are looking into ways to produce a little bit more. As you know, our mining plans are made considering copper, the main product, that there are always opportunities to improve a little bit the production of ore products. And in this case, we're certainly taking a good look into how can we produce a little bit more molybdenum without affecting our copper forecast for 2023 and on.
Okay. Excellent. If I could just one more. There's a lot of questions we're getting about the implications to Southern Copper of Grupo Mexico's reported bid for Banamex. Is that something that you can comment on one way or another? It would be very helpful.
I think that, that question should be posed to Grupo Mexico. But from our side, we haven't seen any -- we have nothing to report about that.
Our next question comes from the line of Gabriel Simoes from Goldman Sachs.
So the first one would be -- it'd be interesting to hear your thoughts on the realized prices for the quarter, not only for copper, but also for the audio commodities as well. So may I get here be to understand what drove the much better than expected prices that we saw as the benchmark prices did grow as much as what as implied in your numbers. So was that a matter of timing for the sales of molybdenum for anything? Are there any other effects that you'd like to highlight here? And the second question is regarding costs, right? So the cost of for byproducts are already decreasing. So we already saw the tree this quarter as we were guiding for, but they're still above with $2 per ton mark. So my question is then, has something changed in your outlook for costs? Or should we expect costs to continue changing downward towards the $1.9 per pound that you spoke about earlier last year...
Okay. Let me start by the last -- your second question on cost. Well, what we're seeing in the fourth quarter and now is that some of the much higher cost that we had before are somehow adjusting downward, particularly in the case of gas still explosive a little bit and -- but mainly this -- that's where we're seeing some adjustments -- some reductions put differently. We, at the same time, we'll be increasing our production from 895,000 tons last year to 926,000 tons this year. So that should have a positive benefit in our cash cost before byproduct credits. We expect it to be -- well, about 2 -- a little bit more than $2 and hopefully, less than $2 as we go through 2023.
For the byproducts, we are expecting -- well, as you have -- we talked a little bit on molybdenum before. These prices are supported by a combination of higher demand as well as some supply surpass of primary production or primary mines of molybdenum that are having some travel in China and some other locations.
For zinc, well, we are very positive on the market. The price currently is over $1.50 per pound, which is much higher than what we have been recording in the last -- in the fourth quarter. We are seeing a very good zinc demand for refinancing -- and we are obviously very encouraged by the beginning of our new concentrator that will produce about 100,000 tons of zinc per year and 20,000 tons of copper and some silver as well.
So those are positive news for us. We see good demand for zinc, and we're happy on delivering, hopefully, on the third quarter at full speed, the thing a new facility for zinc production. And we also see on the positive side, the fact that our into mines are turning into -- or getting into a better ore grade area where we will have some more production.
Now for gold and silver, I think that it's much more complicated to make a forecast, so I will stop in there. I have mentioned that we have a very good sulfuric acid sales in both volume and prices in 2002 and '22. So I expect this -- well, even though prices are not as good as the average of last year, we're still seeing a very positive market for sulfuric acid sales in 2023
[Technical Difficulty]
Our next question comes from the line of Alfonso Salazar from Scotiabank.
One question on production. As you mentioned, production for 2023 copper production. Can you give us the outlook or your expectations for the years, '24 to '27. And the second one is on El Arco. It seems to me that once again, El Arco from the big projects that you have in the pipeline is becoming the one that can move faster. So just wondering if this is the case? And also, if you can talk about the challenges that you see ahead, especially environmental ones, it will require an operation of an open pit mine and also infrastructure, the legal challenges, anything that you can mention about the El Arco, please.
Yes. Thank you for your question, Alfonso. The forecast that we have for the next 5 years is the following: for 2023, as I said, [ 126,000 ] tons, 2024 1,061,000 tons, at 2025 1,021,000 tons, 2026 1,108,000 tons and 2027 1,070,000 tons -- regarding El Arco, well, it is a very good project. We're working in it. We have secured all the land that is required for the project. We are -- we have been looking into the infrastructure that is required for the project to move on. And we're on that process as well as looking into the environmental permitting that we require for the project.
Obviously, in some of these permits, there are certain challenges that we have to overcome. But we are very positive. So this is actually a very good project, and we believe that we can -- we will be able to develop it at a good pace at a certain point in time...
Our next question comes from the line of John Tumazos from Very Independent Research.
Could you refresh my memory -- in Peru, there's a statutory requirement to share a certain amount of profits with the employees, labor participation. Could you please just refresh my memory as to that formula and review your social programs in Peru and some of the programs associated with your 3 major projects, I think that maybe there's -- could even be a short line in railroad, for example, with TM Maria. And then help us to explain the communications efforts to the community to understand these benefits and advance your projects for permitting and social license and community approval. We know you work very hard on these things.
Thank you for your question, John. Let's start by profit sharing. We have legally in both Mexico and Peru to have a profit sharing program. In Peru, it's 8% of profit before taxes. In Mexico, it's 10% of profit before taxes. The Mexico has some adjustment given on the fact that you need to take a 3-year -- the average of 3 years for giving the benefit to the labor force, but that's basically how it works.
In the case of our social programs, let me point out first that we are in an area of the country with currently, there is some social uphill. And our operations are -- has been not affected by them so far, and we are making significant efforts to maintain them, as I said, just in good shape and operating at full capacity as we are right now. That's for the current operations of our 2 mines and our metallurgical complex.
In the case of our projects, we have been in the last few years developing several programs on the social front in order to maintain a good relationship with the local communities or population. In some cases, we don't have a community that is nearby, but population. That's the case, for instance, of the Kia Maria project, where we have the slight province population, and there are no communities.
For the other 2 projects for Los Chancas and Michiquillay, we do have communities in the case of Los Chancas 2 communities in both cases, 2 communities, also for the Michiquillay. In the case of Los Chancas, we had an incident last year where group of illegal miners going to our concession and fire our facilities in there. We have been working to recuperate our operational capacity for the project.
I'd like to point out that we have evidence that no members of the communities participated in these Violin Act. It was driven by a group of people that want to develop in legal activities, mining legal mining in this area. We proceed to put all the legal tools that we have and to both retire these people from our premises, which over 75, we already managed to work with 70 of them canceling by the government, their permit to do mining. And obviously, they were proceeding illegally and doing these activities in our concession of first chunk.
So there are 5 cases remaining, and then we will be able to recuperate the pace that we have lost a little bit on this pad. In the case of Michiquillay, last year, we signed social contracts with the 2 communities that are over there. These social contracts have several initiatives, some programs for hiring for the work of the project, for instance, for the exploration efforts -- we can -- we have a commitment on hiring local people from the 2 communities.
We have also a program to recognize some rental for the use of certain facilities in these areas. And we are basically moving forward with these programs that have some other initiatives that we're considering. So that's basically where we are. But on top of that, we have been -- we have several programs that are very, very interesting and very powerful that we're using in our own current operations of Toquepala and Cuajone and we're extending them to the 3 projects that I just mentioned.
For instance, we have project that developed certain abilities or, for instance, heavy weight machinery operation, electricity and some other civil works that can -- that are trained. We have programs to train people on this kind abilities. And with that, we can hire them for different jobs inside our operations as well as for the project.
So all of this and mainly having a good communication standard with the communities is helping us to maintain these areas, we believe moving forward for a better development and to have these projects being successful over time.
If I could follow up, please, in Peru or in Mexico, roughly -- in very round numbers, how much is the statutory profit sharing per employee when copper is $4 in cash costs or $0.45, it must be very wonderful.
For Peru, this year should be about -- let me put it in terms of monthly salaries, about 5% or a little bit more monthly salaries this year as a profit sharing. In Mexico, the number varies, but it's depending on the different operations, but it's also a very attractive profit sharing as well.
So when you say 5, you mean it's 5x the base salary.
5x the monthly salary.
Our next question comes from the line of Hernan Kisluk from MetLife.
It's related to the revenues of the quarter. So if I do the...
Sorry, I can -- I can't copy you well.
Yes. Can you think me better now?
Much better.
Okay. So my question is regarding revenues. So if I do the math for the quarter, multiplying the volume sold of each product by the reference price, I still have a very big gap compared to the reported revenues of about $450 million. So I would like to know if there is any kind of effects like provisional pricing or things like that, that are distorting the revenue for the quarter?
Well, it's not distorting, but we're recognizing the value of the sales that we have at open safe. In the case of molybdenum, for instance, the adjustment on open sales, it's using the last price quoted by the market. It's a little bit -- it's almost $32. That's why we had a significant adjustment of over $92 million for molybdenum. Then we have some other revenue sources that are usually not some overlook such as forecasted revenues, we had a very good sulfuric acid prices through this past quarter and in the year that have been benefit the corporation. So those are the ones that have been -- that have been increasing our revenues in the fourth quarter of this year.
Okay. And is there something of this effect on the copper side of the business? Or is it just modified on other product...
No, no, no. There is also an adjustment on operating copper open sales but in the copper sales, we do have future curve while in molybdenum, we just have the price at the end of the month, there is no future prices for molybdenum. So in copper, we do have also an adjustment that is not as significant as the $92 million that I just mentioned.
Yes. But let me comment a little bit on the revenues other than molybdenum. A moment thank you -- mainly, it's on molybdenum copper, zinc the ones that have been better in the case of zinc, it was more volume than anything else in molybdenum price and the open sales adjustment. So that's basically the -- so for cat that was an important driver of revenues. So over for -- just to give you an idea, in 2021, we had $83 million of sales so forecasted in 2022, the number went up $212 million. So there you have a significant chunk, $130 million of additional revenues on the year.
Our next question comes from the line of Camilla Barder for Bradesco BBI.
My question have just been address. Thank you.
At this time, I am showing no further questions. I would like to turn the conference back over to Victor Pedraglio for closing remarks.
It's going to be me, thank you. [indiscernible] Well, with this, we conclude our conference call for Southern Copper's Fourth Quarter of 2022 and full year results. We certainly appreciate your participation and hope to have you back with us when we report the first quarter of 2023. Thank you very much, and have a nice day.