SCC(SCCO) - 2024 Q2 - Quarterly Report

Part I. Financial Information Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements of Southern Copper Corporation, including statements of earnings, comprehensive income, balance sheets, cash flows, and changes in equity, along with detailed notes explaining the company's business, accounting policies, and financial positions Condensed Consolidated Statements of Earnings The Condensed Consolidated Statements of Earnings show a significant increase in net sales and net income attributable to SCC for both the three and six-month periods ended June 30, 2024, compared to the same periods in 2023 | Metric | 3 Months Ended June 30, 2024 (Millions USD) | 3 Months Ended June 30, 2023 (Millions USD) | 6 Months Ended June 30, 2024 (Millions USD) | 6 Months Ended June 30, 2023 (Millions USD) | | :----------------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Net Sales | $3,118.3 | $2,300.7 | $5,718.1 | $5,094.6 | | Operating Income | $1,607.3 | $900.7 | $2,797.0 | $2,254.4 | | Income Before Income Taxes | $1,530.6 | $847.9 | $2,686.2 | $2,150.7 | | Net Income Attributable to SCC | $950.2 | $547.5 | $1,686.2 | $1,360.7 | | Net Earnings-Basic and Diluted (per share) | $1.22 | $0.71 | $2.17 | $1.76 | Condensed Consolidated Statements of Comprehensive Income The Condensed Consolidated Statements of Comprehensive Income show that total comprehensive income attributable to SCC increased significantly for both the three and six-month periods ended June 30, 2024, mirroring the net income trend | Metric | 3 Months Ended June 30, 2024 (Millions USD) | 3 Months Ended June 30, 2023 (Millions USD) | 6 Months Ended June 30, 2024 (Millions USD) | 6 Months Ended June 30, 2023 (Millions USD) | | :--------------------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Total Comprehensive Income | $953.8 | $549.6 | $1,692.6 | $1,365.6 | | Comprehensive Income Attributable to SCC | $950.2 | $547.5 | $1,686.2 | $1,360.7 | Condensed Consolidated Balance Sheets The Condensed Consolidated Balance Sheets indicate an increase in total assets and total equity as of June 30, 2024, compared to December 31, 2023, primarily driven by higher cash and cash equivalents and additional paid-in capital | Metric | June 30, 2024 (Millions USD) | December 31, 2023 (Millions USD) | | :--------------------------- | :----------------------- | :--------------------------- | | Total Current Assets | $5,333.7 | $4,429.5 | | Total Assets | $17,777.7 | $16,725.3 | | Total Current Liabilities | $1,898.2 | $1,388.5 | | Total Liabilities | $9,217.5 | $9,244.1 | | Total Southern Copper Corporation Stockholders' Equity | $8,492.5 | $7,418.1 | | Total Equity | $8,560.2 | $7,481.2 | Condensed Consolidated Statements of Cash Flows The Condensed Consolidated Statements of Cash Flows show a decrease in net cash provided by operating activities for the six-month period ended June 30, 2024, compared to 2023, while net cash used in investing activities slightly decreased, and net cash used in financing activities significantly reduced due to lower dividend payments | Metric | 3 Months Ended June 30, 2024 (Millions USD) | 3 Months Ended June 30, 2023 (Millions USD) | 6 Months Ended June 30, 2024 (Millions USD) | 6 Months Ended June 30, 2023 (Millions USD) | | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Net Cash Provided by Operating Activities | $962.1 | $797.1 | $1,621.8 | $1,982.3 | | Net Cash Used in Investing Activities | $(331.7) | $(112.1) | $(275.5) | $(282.5) | | Net Cash Used in Financing Activities | $0.0 | $(775.8) | $(620.1) | $(1,550.5) | | Cash and Cash Equivalents, at End of Period | $1,875.3 | $2,199.0 | $1,875.3 | $2,199.0 | Condensed Consolidated Statements of Changes in Equity The Condensed Consolidated Statements of Changes in Equity reflect an increase in total equity and Southern Copper Corporation stockholders' equity for the six-month period ended June 30, 2024, primarily due to net earnings and changes in additional paid-in capital, partially offset by dividends | Metric | 6 Months Ended June 30, 2024 (Millions USD) | 6 Months Ended June 30, 2023 (Millions USD) | | :--------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Total Equity, beginning of period | $7,481.2 | $8,146.9 | | Net Earnings | $1,686.2 | $1,360.7 | | Dividends Declared and Paid, Common Stock | $(618.5) | $(1,546.2) | | Total Equity, end of period | $8,560.2 | $7,962.6 | Notes to Condensed Consolidated Financial Statements The notes provide detailed information on the company's business, short-term investments, inventories, income taxes, related party transactions, leases, asset retirement obligations, benefit plans, commitments and contingencies, stockholders' equity, fair value measurements, revenue recognition, segment information, and subsequent events NOTE 1— DESCRIPTION OF THE BUSINESS Southern Copper Corporation (SCC) is an integrated producer of copper and other minerals, operating mining, smelting, and refining facilities in Peru and Mexico, with exploration activities in Argentina, Chile, Ecuador, Mexico, and Peru. Grupo Mexico, through Americas Mining Corporation, holds an 88.9% ownership stake in SCC as of June 30, 2024 - SCC is an integrated producer of copper and other minerals, with primary operations in Peru and Mexico, and exploration in Argentina, Chile, Ecuador[16] - Grupo Mexico, via Americas Mining Corporation, owns 88.9% of SCC's capital stock as of June 30, 2024[16] NOTE 2 — SHORT-TERM INVESTMENTS Short-term investments primarily consist of trading securities and a small portion of available-for-sale securities. Trading securities, mainly publicly traded bonds, decreased from $599.1 million at December 31, 2023, to $328.9 million at June 30, 2024 | Investment Type | June 30, 2024 (Millions USD) | December 31, 2023 (Millions USD) | | :------------------- | :----------------------- | :--------------------------- | | Trading Securities | $328.9 | $599.1 | | Available-for-sale | $0.2 | $0.2 | | Total | $329.1 | $599.3 | - Trading securities are publicly traded bonds intended for short-term sale[18] - Interest income is recorded from these investments, and gains/losses from fair value changes are recorded as other income (expense)[19] NOTE 3 — INVENTORIES Total current inventory remained stable at approximately $1,017.2 million as of June 30, 2024, compared to $1,016.9 million at December 31, 2023. Long-term ore stockpiles on leach pads increased slightly | Inventory Type | June 30, 2024 (Millions USD) | December 31, 2023 (Millions USD) | | :--------------------------- | :----------------------- | :--------------------------- | | Finished Goods | $58.9 | $68.8 | | Work-in-Process | $308.4 | $313.0 | | Ore Stockpiles on Leach Pads (Current) | $227.6 | $230.9 | | Supplies | $422.3 | $404.2 | | Total Current Inventory | $1,017.2 | $1,016.9 | | Ore Stockpiles on Leach Pads (Long-term) | $1,146.4 | $1,121.7 | - Leaching costs capitalized as non-current inventory for ore stockpiles on leach pads amounted to $128.8 million for the six months ended June 30, 2024[21] NOTE 4 — INCOME TAXES The total income tax provision for the six-month period ended June 30, 2024, increased to $1,002.1 million from $774.9 million in 2023, with the effective income tax rate rising to 37.3% from 36.0%. This increase was primarily due to exchange rate movements of the Mexican peso versus the U.S. dollar | Tax Component | 6 Months Ended June 30, 2024 (Millions USD) | 6 Months Ended June 30, 2023 (Millions USD) | | :------------------------ | :-------------------------------------- | :-------------------------------------- | | Statutory Income Tax | $852.3 | $649.2 | | Peruvian Royalty | $29.1 | $18.7 | | Mexican Royalty | $75.7 | $72.3 | | Peruvian Special Mining Tax | $45.0 | $34.7 | | Total Income Tax Provision | $1,002.1 | $774.9 | | Effective Income Tax Rate | 37.3% | 36.0% | - The increase in the effective income tax rate in 2024 was primarily due to exchange rate movements of the Mexican peso versus the U.S. dollar[22] - The Company made payments for uncertain tax positions of $72.5 million in Peru and $17.2 million in Mexico in the first six months of 2024[24] NOTE 5 — RELATED PARTY TRANSACTIONS The Company engages in various transactions with Grupo Mexico and its affiliates, as well as other entities controlled by the Larrea family, including services, energy supply, and product sales. Total related party receivables decreased, while payables also saw a reduction - Transactions include lease of office space, transportation, construction, energy supply, and other mining-related services[26] | Related Party Balance | June 30, 2024 (Millions USD) | December 31, 2023 (Millions USD) | | :-------------------- | :----------------------- | :--------------------------- | | Receivables Current | $16.9 | $27.3 | | Payables | $61.8 | $93.6 | - The Company has equity investments in Compania Minera Coimolache S.A. (44.2%) and Apu Coropuna S.R.L. (30.0%), with the latter being evaluated for liquidation due to unfavorable exploration results[38] NOTE 6 — LEASES The Company has operating leases for power generating facilities, vehicles, and properties with remaining terms of one to nine years. Total lease expense for the six-month period ended June 30, 2024, was $48.8 million, a decrease from $58.3 million in 2023 - Weighted average remaining lease term is approximately eight years, with a weighted average discount rate of 4.00%[41] | Lease Expense Classification | 6 Months Ended June 30, 2024 (Millions USD) | 6 Months Ended June 30, 2023 (Millions USD) | | :--------------------------- | :-------------------------------------- | :-------------------------------------- | | Cost of Sales | $48.7 | $58.2 | | Selling, General & Admin. | () | $0.1 | | Exploration | $0.1 | () | | Total Lease Expense | $48.8 | $58.3 | | Year | Lease Liabilities (Millions USD) | | :-------- | :--------------------------- | | 2024 | $56.5 | | 2025 | $106.9 | | 2026 | $106.7 | | 2027 | $106.3 | | 2028 | $106.0 | | After 2028 | $422.1 | | Total Lease Payments | $904.5 | | Less: Interest on Lease Liabilities | $(159.2) | | Present Value of Lease Payments | $745.4 | NOTE 7 — ASSET RETIREMENT OBLIGATION The Company maintains asset retirement obligations for its mining properties in Peru and Mexico, driven by legal requirements and constructive obligations. The total obligation increased to $619.2 million as of June 30, 2024, from $612.6 million at January 1, 2024, despite downward adjustments in estimates for both Peruvian and Mexican operations - Peruvian operations are subject to the Peruvian Mine Closure Law, requiring annual guarantees and approved closure plans[44] - Mexican operations recognize a constructive obligation for mine closure and environmental remediation, even without enacted law[49] | Metric | 2024 (Millions USD) | 2023 (Millions USD) | | :-------------------------- | :-------------- | :-------------- | | Balance as of January 1 | $612.6 | $585.3 | | Changes in Estimates | $(7.7) | $0.0 | | Accretion Expense | $14.3 | $12.9 | | Balance as of June 30 | $619.2 | $597.9 | NOTE 8 — BENEFIT PLANS The Company operates post-retirement defined benefit pension plans for former salaried employees in the US and certain expatriates in Peru, and for union employees in Mexico. Post-retirement health care plans are also provided in Mexico. Net periodic benefit costs for both pension and health care plans remained relatively stable - The Company has non-contributory defined benefit pension plans in the US and Peru, and a defined contribution plan for salaried employees and a defined benefit plan for union employees in Mexico[50] - In Mexico, the Buenavista unit's healthcare obligation for retired unionized employees was assumed by the Secretary of Health of Sonora in 2011[52] | Net Periodic Benefit Cost (Pension) | 6 Months Ended June 30, 2024 (Millions USD) | 6 Months Ended June 30, 2023 (Millions USD) | | :---------------------------------- | :-------------------------------------- | :-------------------------------------- | | Service Cost | $1.3 | $1.0 | | Interest Cost | $2.0 | $1.7 | | Expected Return on Plan Assets | $(3.2) | $(2.7) | | Net Periodic Benefit Cost | $0.3 | $0.2 | | Net Periodic Benefit Cost (Healthcare) | 6 Months Ended June 30, 2024 (Millions USD) | 6 Months Ended June 30, 2023 (Millions USD) | | :------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Interest Cost | $1.1 | $1.0 | | Net Periodic Benefit Cost | $1.1 | $1.0 | NOTE 9 — COMMITMENTS AND CONTINGENCIES This section details the Company's environmental commitments, ongoing litigation, labor relations, and other significant commitments, including capital projects and social responsibility initiatives in Peru and Mexico Environmental matters The Company has comprehensive environmental conservation programs in Peru and Mexico and believes it is in material compliance with applicable environmental laws. Environmental capital investments significantly increased in Mexican operations in the first six months of 2024 - Peruvian operations are subject to MINAM audits and new AQS for daily sulfur dioxide, cadmium, arsenic, and chromium, which the Company expects to meet[53][57] - Mexican operations are subject to federal, state, and municipal environmental laws, with recent amendments to the Mining Law and other related laws potentially impacting the industry[60][66] | Environmental Capital Investments | 6 Months Ended June 30, 2024 (Millions USD) | 6 Months Ended June 30, 2023 (Millions USD) | | :-------------------------------- | :-------------------------------------- | :-------------------------------------- | | Peruvian Operations | $2.0 | $3.5 | | Mexican Operations | $92.8 | $43.9 | | Total | $94.8 | $47.4 | Litigation matters The Company is involved in several lawsuits related to its Tia Maria project in Peru and the 2014 Buenavista mine spill in Mexico. While the Company asserts these lawsuits are without merit and is vigorously defending them, the potential contingency amounts cannot be reasonably estimated - Five lawsuits are pending against the Peruvian Branch related to the Tia Maria project, challenging environmental approvals and concessions[67] - The Supreme Court of Justice of Peru ratified the legality of the Tia Maria Environmental Impact Assessment in February 2022, which is expected to favorably impact pending cases[68] - In Mexico, criminal complaints and collective/civil action lawsuits are pending against the Company's subsidiary (BVC) regarding the 2014 Buenavista mine spill, with the Company believing it has completed all remediation and compensation[74][75] Labor matters In Peru, 57.9% of employees are unionized, with six separate unions. The Company maintains collective bargaining agreements and ongoing communication. In Mexico, labor relations have improved, with workers shifting to less politicized unions, though strikes at San Martin and Taxco mines, ongoing since 2007, remain pending resolution - 57.9% of the Company's 5,157 Peruvian employees are unionized, with collective bargaining agreements in place[79] - A Peruvian Supreme Court ruling in October 2023 favored the Company in a 12-year litigation regarding a worker payment, with the union intending to comply[83] - Strikes at the San Martin and Taxco mines in Mexico have been ongoing since July 2007, with the San Martin conflict evolving towards resolution under the legal framework, and Taxco operations remaining suspended[84][88] Other commitments The Company has significant commitments for capital projects and social responsibility initiatives in Peru, including the Michiquillay copper project and various infrastructure and social programs in the Tacna, Moquegua, Apurimac, and Arequipa regions. Power purchase agreements are also in place for both Peruvian and Mexican operations - Michiquillay copper project in Peru (estimated $2.5 billion investment) is 30% advanced in exploration, with social agreements in place with local communities[90][92][93] - Social and infrastructure commitments in Tacna region total S/445.0 million (approximately $116.0 million), with significant progress on schools and agricultural projects[94] - In Moquegua, the Company has offered S/1,000 million (approximately $260.6 million) to a development fund and committed S/251.3 million to projects, including an educational project and a residual water treatment plant[96] - The Company has committed approximately $274.7 million to capital investment projects as of June 30, 2024[100] NOTE 10 — STOCKHOLDERS'EQUITY This section details changes in stockholders' equity, including treasury stock, common stock ownership, and activity related to the Directors' Stock Award Plan, Employee Stock Purchase Plan, and non-controlling interest Treasury Stock Treasury stock for Southern Copper common shares decreased due to a dividend payment in common stock, while Parent Company common shares in treasury also saw a slight decrease | Metric | June 30, 2024 (Millions USD) | June 30, 2023 (Millions USD) | | :----------------------------------- | :----------------------- | :----------------------- | | Southern Copper Common Shares (Balance) | $2,566.9 | $2,766.8 | | Parent Company Common Shares (Balance) | $379.3 | $365.0 | | Total Treasury Stock Balance | $2,946.2 | $3,131.8 | - On May 23, 2024, the Company paid a dividend of 0.0104 shares per common share, reducing treasury stock by 8,039,992 shares for $199.5 million[103] Common Stock Grupo Mexico's indirect ownership in SCC increased to 88.92% at December 31, 2022, due to share purchases and SCC's repurchases - Grupo Mexico's indirect ownership increased to 88.92% at December 31, 2022[103] Directors' Stock Award Plan The Directors' Stock Award Plan provides non-employee directors with common stock awards upon election and annually thereafter. The plan was extended until January 27, 2028, and stock-based compensation expense for the first six months of 2024 was $0.9 million - Non-employee directors receive 1,600 shares upon election and 1,600 additional shares annually (or 400 quarterly)[104] - The plan was extended for five years until January 27, 2028[104] | Metric | 2024 (Shares) | 2023 (Shares) | | :----------------------------------- | :------------ | :------------ | | Total SCC Shares Reserved for the Plan | 600,000 | 600,000 | | Total Shares Granted at June 30 | (437,600) | (423,200) | | Remaining Shares Reserved | 162,400 | 176,800 | Employee Stock Purchase Plan The 2018 Employee Stock Purchase Plan allows eligible employees to purchase Grupo Mexico stock through payroll deductions over eight years, with a bonus of 1 share for every 10 purchased at the end of the period. Stock-based compensation expense for the first six months of 2024 was $0.3 million - Employees can purchase Grupo Mexico shares via payroll deductions over eight years, receiving a 1-for-10 bonus at the end[106] | Metric | June 30, 2024 (Shares) | June 30, 2023 (Shares) | | :----------------------------------- | :--------------------- | :--------------------- | | Outstanding Shares at January 1 | 1,962,936 | 2,754,506 | | Exercised | (41,742) | (694,565) | | Forfeited | — | — | | Outstanding Shares at June 30 | 1,921,194 | 2,059,941 | | Metric | 2024 (Millions USD) | 2023 (Millions USD) | | :----------------------------------- | :-------------- | :-------------- | | Stock Based Compensation Expense | $0.3 | $0.3 | | Unrecognized Compensation Expense | $1.4 | $2.1 | Non-controlling interest The non-controlling interest in total equity increased to $67.7 million as of June 30, 2024, from $63.1 million at January 1, 2024, primarily due to net earnings, partially offset by distributions paid | Metric | 2024 (Millions USD) | 2023 (Millions USD) | | :-------------------------- | :-------------- | :-------------- | | Balance as of January 1 | $63.1 | $62.7 | | Net Earnings | $6.4 | $4.9 | | Dividend Paid | $(1.8) | $(4.6) | | Balance as of June 30 | $67.7 | $63.0 | NOTE 11 — FAIR VALUE MEASUREMENT The Company's financial instruments are categorized into a fair value hierarchy (Level 1, 2, or 3). Long-term debt is primarily Level 1, with Yankee bonds as Level 2. Short-term trading securities and provisionally priced sales are Level 1, while available-for-sale investments are Level 2 - Fair value hierarchy prioritizes inputs: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), Level 3 (unobservable inputs)[112] | Liability Type | June 30, 2024 Carrying Value (Millions USD) | June 30, 2024 Fair Value (Millions USD) | December 31, 2023 Carrying Value (Millions USD) | December 31, 2023 Fair Value (Millions USD) | | :------------------- | :-------------------------------------- | :---------------------------------- | :------------------------------------------ | :------------------------------------------ | | Long-term Debt Level 1 | $6,205.3 | $6,217.9 | $6,203.4 | $6,431.9 | | Long-term Debt Level 2 | $51.2 | $54.7 | $51.2 | $54.0 | | Total Long-term Debt | $6,256.5 | $6,272.6 | $6,254.6 | $6,485.9 | - Provisionally priced copper and molybdenum sales are valued using quoted market prices (LME, COMEX, Platts Metals Week) and classified as Level 1[117] NOTE 12 — REVENUE Net sales for the three and six-month periods ended June 30, 2024, significantly increased compared to 2023, driven by higher metal prices (copper, molybdenum, zinc, silver) and increased sales volumes across most products. Copper sales remain the largest contributor, followed by molybdenum | Metric | 3 Months Ended June 30, 2024 (Millions USD) | 3 Months Ended June 30, 2023 (Millions USD) | 6 Months Ended June 30, 2024 (Millions USD) | 6 Months Ended June 30, 2023 (Millions USD) | | :--------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Net Sales | $3,118.3 | $2,300.7 | $5,718.1 | $5,094.6 | | Product | 6 Months Ended June 30, 2024 (Millions USD) | 6 Months Ended June 30, 2023 (Millions USD) | | :--------- | :-------------------------------------- | :-------------------------------------- | | Copper | $4,410.3 | $3,930.3 | | Molybdenum | $652.8 | $556.0 | | Silver | $268.7 | $155.1 | | Zinc | $185.0 | $213.8 | | Other | $201.2 | $239.4 | | Total | $5,718.1 | $5,094.6 | - As of June 30, 2024, the Company has long-term contracts to deliver 177,500 tonnes of copper concentrates, 48,000 tonnes of copper cathodes, 23,543 tonnes of molybdenum concentrates, and 271,628 tonnes of sulfuric acid in 2024[129] NOTE 13 — SEGMENT AND RELATED INFORMATION The Company operates three reportable segments: Peruvian operations, Mexican open-pit operations, and Mexican underground mining operations (IMMSA unit). Financial performance is evaluated based on operating income and total assets for each segment - The three reportable segments are Peruvian operations, Mexican open-pit operations, and Mexican underground mining operations (IMMSA unit)[132] - The Chief Operating Decision Maker (CODM) evaluates segments based on operating income and total assets[133] | Segment (3 Months Ended June 30, 2024) | Net Sales (Millions USD) | Operating Income (Millions USD) | Capital Investment (Millions USD) | Total Assets (Millions USD) | | :------------------------------------- | :------------------- | :-------------------------- | :---------------------------- | :---------------------- | | Mexican Open-pit | $1,738.5 | $952.4 | $234.7 | $9,164.4 | | Mexican IMMSA Unit | $133.1 | $51.1 | $29.4 | $1,214.7 | | Peruvian Operations | $1,246.7 | $620.4 | $65.9 | $5,735.6 | | Corporate, Other & Eliminations | $(52.1) | $(16.7) | $1.8 | $1,663.0 | | Consolidated | $3,118.3 | $1,607.3 | $331.8 | $17,777.7 | | Segment (6 Months Ended June 30, 2024) | Net Sales (Millions USD) | Operating Income (Millions USD) | Capital Investment (Millions USD) | Total Assets (Millions USD) | | :------------------------------------- | :------------------- | :-------------------------- | :---------------------------- | :---------------------- | | Mexican Open-pit | $3,204.4 | $1,703.3 | $341.7 | $9,164.4 | | Mexican IMMSA Unit | $238.2 | $44.4 | $61.2 | $1,214.7 | | Peruvian Operations | $2,275.4 | $1,077.9 | $136.4 | $5,735.6 | | Corporate, Other & Eliminations | $(93.4) | $(28.7) | $6.2 | $1,663.0 | | Consolidated | $5,718.1 | $2,797.0 | $545.6 | $17,777.7 | NOTE 14 — SUBSEQUENT EVENTS Subsequent events include the decision to restart construction of the Tia Maria project in Peru, effective July 1, 2024, and the authorization of a quarterly cash dividend of $0.60 per share and a stock dividend of 0.0056 shares per common share, payable on August 26, 2024 - Construction of the Tia Maria project will restart on July 1, 2024, following discussions with the Peruvian government[138] - The Board authorized a quarterly cash dividend of $0.60 per share and a stock dividend of 0.0056 shares per common share, payable August 26, 2024[139] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations, including an executive overview, key matters affecting performance, ESG practices, accounting estimates, new disclosure rules, detailed results of operations, liquidity and capital resources, and non-GAAP reconciliations EXECUTIVE OVERVIEW Southern Copper Corporation is a major copper mining company with operations in Peru and Mexico, focusing on copper production, cost control, and production enhancement. The company also produces significant by-products like molybdenum, silver, and zinc. The outlook for 2024 anticipates a copper market deficit and increased production across key metals - The Company's primary business is copper production and sale, with valuable metallurgical by-products[143] - In Q2 2024, copper accounted for 75.9% of revenue, molybdenum 12.2%, silver 5.0%, and zinc 3.7%[144] - The LME copper price increased by 14.8% in Q2 2024 YoY, and a market deficit of approximately 217,000 tonnes of copper is anticipated for 2024[145] | Metal | Q2 2024 Average Price (per pound/ounce) | Q2 2023 Average Price (per pound/ounce) | % Change | 2024 Production Outlook (tonnes/million oz) | % Increase over 2023 | | :----------- | :-------------------------------------- | :-------------------------------------- | :------- | :------------------------------------------ | :------------------- | | Copper (LME) | $4.42 | $3.85 | 14.8% | 963,200 tonnes | 6.0% | | Molybdenum | $21.69 | $20.87 | 3.9% | 27,400 tonnes | 2.0% | | Silver | N/A | N/A | N/A | 20.6 million ounces | 12.0% | | Zinc | N/A | N/A | N/A | 121,800 tonnes | 86.0% | KEY MATTERS This section discusses key factors influencing the Company's financial condition and results, including earnings, production volumes, operating cash costs, metal prices, business segments, inflation and exchange rates, and capital investment programs Earnings Net sales and net income attributable to SCC saw substantial increases in Q2 2024 and the first half of 2024, driven by higher metal prices and sales volumes, particularly for copper, molybdenum, zinc, and silver | Metric | 3 Months Ended June 30, 2024 (Millions USD) | 3 Months Ended June 30, 2023 (Millions USD) | % Change | 6 Months Ended June 30, 2024 (Millions USD) | 6 Months Ended June 30, 2023 (Millions USD) | % Change | | :----------------------------------- | :-------------------------------------- | :-------------------------------------- | :------- | :-------------------------------------- | :-------------------------------------- | :------- | | Net Sales | $3,118.3 | $2,300.7 | 35.5% | $5,718.1 | $5,094.6 | 12.2% | | Operating Income | $1,607.3 | $900.7 | 78.5% | $2,797.0 | $2,254.4 | 24.1% | | Net Income Attributable to SCC | $950.2 | $547.5 | 73.6% | $1,686.2 | $1,360.7 | 23.9% | | Earnings per Share | $1.22 | $0.71 | 71.8% | $2.17 | $1.76 | 23.3% | - Q2 2024 net sales increased by 35.5% due to higher prices for copper (+14.8%), molybdenum (+3.9%), zinc (+12.2%), and silver (+18.9%), and increased sales volumes for copper (+5.5%), molybdenum (+21.4%), zinc (+78.1%), and silver (+31.6%)[149] Production Copper mine production increased by 6.6% in Q2 2024 and 7.1% in the first six months of 2024, driven by higher ore grades and recoveries at Peruvian operations. Molybdenum, silver, and zinc production also saw significant increases, particularly zinc due to the Buenavista zinc concentrator | Metal (Mine Production) | 3 Months Ended June 30, 2024 (million pounds) | 3 Months Ended June 30, 2023 (million pounds) | % Change | 6 Months Ended June 30, 2024 (million pounds) | 6 Months Ended June 30, 2023 (million pounds) | % Change | | :---------------------- | :--------------------------- | :--------------------------- | :------- | :--------------------------- | :--------------------------- | :------- | | Copper | 534.6 | 501.6 | 6.6% | 1,064.3 | 993.9 | 7.1% | | Molybdenum | 16.9 | 14.0 | 20.8% | 32.5 | 28.2 | 15.1% | | Silver | 5.2 | 4.8 | 8.0% | 10.0 | 9.2 | 8.2% | | Zinc | 64.9 | 38.0 | 70.8% | 123.0 | 71.2 | 72.7% | - Copper production growth in Q2 2024 was primarily from Toquepala (+21.1%), Cuajone (+7.3%), and La Caridad (+7.1%)[153] - Zinc production surged by 70.8% in Q2 2024 due to the Buenavista zinc concentrator's start-up, producing 13,653 tonnes[154] Operating Cash Costs Operating cash cost per pound of copper before by-product revenues slightly decreased in Q2 2024 and the first six months of 2024, indicating improved production efficiency. By-product revenues significantly offset costs, leading to a substantial reduction in net operating cash cost per pound - Operating cash cost is a non-GAAP measure used to track performance and allocate resources[157][161] | Metric | 3 Months Ended June 30, 2024 (USD per pound) | 3 Months Ended June 30, 2023 (USD per pound) | % Change | 6 Months Ended June 30, 2024 (USD per pound) | 6 Months Ended June 30, 2023 (USD per pound) | % Change | | :--------------------------------------- | :--------------------------- | :--------------------------- | :------- | :--------------------------- | :--------------------------- | :------- | | Operating Cash Cost per Pound before By-product Revenues | $2.15 | $2.19 | (1.6)% | $2.13 | $2.14 | (0.3)% | | By-products per Pound Revenues | $(1.40) | $(1.07) | 30.5% | $(1.22) | $(1.20) | 1.6% | | Operating Cash Cost per Pound net of By-product Revenues | $0.76 | $1.12 | (32.3)% | $0.91 | $0.94 | (2.8)% | - By-product revenues per pound increased significantly from $1.07 to $1.40 in Q2 2024, leading to a 32.3% reduction in net operating cash cost per pound[164] Metal Prices The Company's profitability is highly dependent on international market prices for copper, molybdenum, zinc, and silver. Price sensitivity analysis indicates the potential impact of metal price changes on net income attributable to SCC - Profitability is significantly affected by the international market prices for copper, molybdenum, zinc, and silver[165] | Metal | Change in Metal Prices (USD per pound/ounce) | Change in Net Earnings (Millions USD) | | :----------- | :--------------------------------------- | :-------------------------------- | | Copper | $0.10 | $62.8 | | Molybdenum | $1.00 | $16.9 | | Zinc | $0.10 | $11.3 | | Silver | $1.00 | $6.7 | Business Segments The Company manages its operations through three reportable segments: Peruvian operations, Mexican open-pit operations, and Mexican underground operations (IMMSA unit), each producing various metals and by-products - The three reportable segments are Peruvian operations, Mexican open-pit operations, and Mexican underground operations (IMMSA unit)[167] - Peruvian operations include Toquepala and Cuajone mine complexes, producing copper with molybdenum, silver, and other by-products[167] - Mexican open-pit operations include La Caridad and Buenavista mine complexes, producing copper with molybdenum, silver, and other by-products[167] Inflation and Exchange Rate Effect of the Peruvian Sol and the Mexican Peso The Company's functional currency is the U.S. dollar, but significant operating costs are in Peruvian sol and Mexican pesos. Exchange rate fluctuations can impact operating results and the dollar value of net monetary assets - The Company's functional currency is the U.S. dollar, but operating costs are significantly denominated in Peruvian sol and Mexican pesos[168] - Exchange rate volatility has been high but had a limited effect on results in recent years[168] | Metric | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Peru: Peruvian Inflation Rate | (0.0)% | 0.7% | 1.6% | 2.5% | | Peru: Appreciation/(Devaluation) | (3.1)% | 3.5% | (3.3)% | 4.9% | | Mexico: Mexican Inflation Rate | 0.4% | (0.1)% | 1.7% | 1.4% | | Mexico: Appreciation/(Devaluation) | (10.2)% | 5.7% | (8.8)% | 11.8% | Capital Investment Programs The Company invested $545.6 million in capital projects in the first six months of 2024, an 11.2% increase from 2023, aimed at increasing production, decreasing costs, and fulfilling social/environmental commitments. Key projects include El Pilar in Mexico and Quebrada Honda dam expansion and Tia Maria in Peru - Capital investments totaled $545.6 million in H1 2024, an 11.2% increase YoY, focused on production, cost reduction, and social/environmental commitments[148][169] - El Pilar project in Sonora, Mexico, is a low-capital intensity copper greenfield project with an estimated budget of $310 million, expected to produce 36,000 tonnes of copper cathodes annually using SX-EW technology[170] - Quebrada Honda dam expansion in Tacna, Peru, has a total budget of $165.0 million, with $152.1 million invested as of June 30, 2024[171] - The Tia Maria project in Arequipa, Peru, will restart construction on July 1, 2024, aiming to produce 120,000 tonnes of SX-EW copper cathodes annually with an estimated budget of $1.4 billion[172][173] Potential projects The Company continuously evaluates new projects based on long-term objectives, ROI, environmental concerns, and estimated production. Potential projects include El Arco in Baja California, Los Chancas in Apurimac, and Michiquillay in Cajamarca - El Arco project in Baja California, Mexico, is a world-class copper deposit with over 1,230 million tonnes of ore, expected to produce 190,000 tonnes of copper and 105,000 ounces of gold annually[175] - Los Chancas project in Apurimac, Peru, is a copper and molybdenum porphyry deposit, envisioning an open-pit mine to produce 130,000 tonnes of copper and 7,500 tonnes of molybdenum annually, with an estimated capital investment of $2,600 million[176] - Michiquillay project in Cajamarca, Peru, is a world-class mining project with inferred mineral resources of 2,288 million tonnes of copper, expected to produce 225,000 tonnes of copper per year for over 25 years, with an estimated investment of $2.5 billion[179] ENVIRONMENTAL, SOCIAL AND GOVERNANCE ("ESG") PRACTICES The Company is committed to ESG practices, including transitioning to renewable energy, enhancing transparency through sustainability reports, achieving responsible production certifications (Copper Mark and Zinc Mark), and investing in education and human development programs for its workforce and local communities - Starting August 1, 2024, the Company will receive eolic energy from the Fenicias wind park, reducing CO2 emissions by approximately 250,000 tonnes per year (7% of SCC's carbon footprint)[180] - The Buenavista mine in Sonora, Mexico, received Copper Mark and Zinc Mark certifications for responsible production, indicating compliance with ESG standards for the majority of Mexican open-pit copper production[181] - The IMPULSA program provides educational opportunities for workers in Mexico, with over 970 participants and 430 graduates since 2022[181] ACCOUNTING ESTIMATES The preparation of consolidated financial statements requires management to make significant estimates and assumptions, particularly concerning ore reserves, revenue recognition, asset impairment, asset retirement obligations, and fair value measurements. Actual results may differ from these estimates - Key areas requiring significant estimates include ore reserves, revenue recognition, ore stockpiles on leach pads, asset impairment, asset retirement obligations, discount rates for lease liabilities, deferred tax assets, and fair value of financial instruments[183] NEW ACCOUNTING DISCLOSURE RULES The U.S. SEC's final climate disclosure rule, effective for fiscal years beginning on or after January 1, 2025, will require disclosures on greenhouse gas emissions (Scope 1 and 2) and other climate-related subjects when material. The Company anticipates updating its Form 10-K disclosures accordingly - The SEC's climate disclosure rule, effective January 1, 2025, will require disclosures on Scope 1 and Scope 2 greenhouse gas emissions and other material climate-related subjects[184] RESULTS OF OPERATIONS This section provides a detailed analysis of the Company's financial performance for the three and six-month periods ended June 30, 2024 and 2023, covering net sales, operating costs and expenses, non-operating income/expenses, income taxes, and segment-specific results NET SALES Net sales for Q2 2024 increased by 35.5% to $3,118.3 million, and for H1 2024 by 12.2% to $5,718.1 million, primarily driven by higher metal prices and increased sales volumes across copper, molybdenum, zinc, and silver | Metric | 3 Months Ended June 30, 2024 (Millions USD) | 3 Months Ended June 30, 2023 (Millions USD) | % Change | 6 Months Ended June 30, 2024 (Millions USD) | 6 Months Ended June 30, 2023 (Millions USD) | % Change | | :-------- | :-------------------------------------- | :-------------------------------------- | :------- | :-------------------------------------- | :-------------------------------------- | :------- | | Net Sales | $3,118.3 | $2,300.7 | 35.5% | $5,718.1 | $5,094.6 | 12.2% | - Q2 2024 net sales growth was influenced by higher prices for copper (+14.8%), molybdenum (+3.9%), zinc (+12.2%), and silver (+18.9%), and increased sales volumes for copper (+5.5%), molybdenum (+21.4%), zinc (+78.1%), and silver (+31.6%)[187] | Product Sales as % of Total Net Sales | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Copper | 75.9% | 77.5% | 77.1% | 77.1% | | Molybdenum | 12.2% | 11.1% | 11.4% | 10.9% | | Silver | 5.0% | 4.3% | 4.7% | 4.2% | | Zinc | 3.7% | 2.7% | 3.2% | 3.0% | | Other By-products | 3.2% | 4.4% | 3.6% | 4.8% | OPERATING COSTS AND EXPENSES Operating costs and expenses increased in Q2 2024 and H1 2024, primarily due to higher repairing materials, fuel, labor costs, and operations contractors, partially offset by decreases in energy costs and inventory variance | Operating Cost Component | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :----------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Power | 11.6% | 14.0% | 14.3% | 14.3% | | Labor | 11.9% | 11.6% | 11.3% | 11.3% | | Fuel | 15.9% | 14.9% | 15.2% | 15.2% | | Maintenance | 22.8% | 21.2% | 21.2% | 21.2% | | Operating Material | 19.2% | 19.9% | 20.3% | 20.3% | | Other | 18.6% | 18.4% | 17.7% | 17.7% | - Q2 2024 operating costs increased by $111.0 million, mainly due to workers' participation ($27.5 million), repairing materials ($26.3 million), operations contractors ($16.5 million), and freight ($14.3 million), partially offset by a decrease in energy costs ($(31.9) million)[194][195] - H1 2024 operating costs increased by $80.9 million, primarily due to repairing materials ($58.8 million), fuel ($32.7 million), labor costs ($25.4 million), and operations contractors ($22.5 million), partially offset by decreases in energy costs ($(35.3) million) and inventory variance ($(28.8) million)[195] NON-OPERATING INCOME (EXPENSES) Non-operating income (expense) resulted in a net expense of $76.7 million in Q2 2024 and $110.8 million in H1 2024, representing an increase in expense compared to the same periods in 2023, primarily due to higher other expenses and interest expense - Q2 2024 non-operating expense increased by $23.9 million, driven by a $25.5 million increase in other expenses (including a $4.0 million inventory write-off and $4.0 million legal liabilities provision) and a $1.7 million increase in net interest expense[196] - H1 2024 non-operating expense increased by $7.1 million, mainly due to a $17.0 million increase in other expenses[196] INCOME TAXES The provision for income taxes for the six-month period ended June 30, 2024, increased to $1,002.1 million, with an effective income tax rate of 37.3%, up from 36.0% in 2023. This includes income taxes for Peru, Mexico, and the United States, as well as mining royalties and special mining taxes | Metric | 6 Months Ended June 30, 2024 (Millions USD) | 6 Months Ended June 30, 2023 (Millions USD) | | :----------------------------------- | :-------------------------------------- | :-------------------------------------- | | Provision for Income Taxes | $1,002.1 | $774.9 | | Effective Income Tax Rate | 37.3% | 36.0% | - The provision includes income taxes for Peru, Mexico, and the United States, along with Peruvian and Mexican mining royalties and the Peruvian special mining tax[196] SEGMENT RESULT ANALYSIS This section analyzes the performance of the Company's three segments: Peruvian operations, Mexican open-pit operations, and Mexican underground mining operations (IMMSA unit), detailing sales volumes and financial results for each Peruvian Open-pit Operations Peruvian operations saw a significant increase in net sales and operating income for both Q2 and H1 2024, driven by higher sales volumes of copper, molybdenum, and silver, coupled with favorable metal prices. Operating costs also increased due to various factors | Metric | 3 Months Ended June 30, 2024 (Millions USD) | 3 Months Ended June 30, 2023 (Millions USD) | % Change | 6 Months Ended June 30, 2024 (Millions USD) | 6 Months Ended June 30, 2023 (Millions USD) | % Change | | :--------------- | :-------------------------------------- | :-------------------------------------- | :------- | :-------------------------------------- | :-------------------------------------- | :------- | | Net Sales | $1,246.7 | $886.9 | 40.6% | $2,275.4 | $1,912.6 | 19.0% | | Operating Income | $620.4 | $316.7 | 95.9% | $1,077.9 | $765.9 | 40.7% | - Q2 2024 net sales increased by $359.8 million, fueled by higher sales volumes of copper (+14.2%), molybdenum (+53.1%), and silver (+36.4%), and higher prices for copper (+14.8%), molybdenum (+3.9%), and silver (+18.9%)[199] - Q2 2024 operating costs increased by $56.1 million, mainly due to workers' participation ($30.2 million), repairing materials ($15.4 million), and fuel ($6.9 million)[200][201] Mexican Open-pit Operations Mexican open-pit operations experienced strong net sales growth in Q2 and H1 2024, driven by higher metal prices and increased sales volumes, particularly for zinc due to the Buenavista zinc concentrator. Operating costs also rose due to foreign currency effects, inventory, and repairing materials | Metric | 3 Months Ended June 30, 2024 (Millions USD) | 3 Months Ended June 30, 2023 (Millions USD) | % Change | 6 Months Ended June 30, 2024 (Millions USD) | 6 Months Ended June 30, 2023 (Millions USD) | % Change | | :--------------- | :-------------------------------------- | :-------------------------------------- | :------- | :-------------------------------------- | :-------------------------------------- | :------- | | Net Sales | $1,738.5 | $1,311.2 | 32.6% | $3,204.4 | $2,938.1 | 9.1% | | Operating Income | $952.4 | $605.2 | 57.4% | $1,703.3 | $1,521.0 | 12.0% | - Q2 2024 net sales increased by $427.3 million, driven by higher prices for copper (+14.8%), molybdenum (+3.9%), zinc (+12.2%), and silver (+18.9%), and increased sales volumes for copper (+1.7%), molybdenum (+4.4%), and silver (+36.4%). Buenavista zinc concentrator contributed 39.4 million pounds of zinc sales[204] - Q2 2024 operating costs increased by $80.1 million, mainly due to foreign currency effect ($37.8 million), inventory variance ($15.6 million), freight ($11.8 million), and repairing materials ($11.5 million)[205][206] Mexican Underground Operations (IMMSA) IMMSA unit experienced an increase in net sales for Q2 and H1 2024, driven by higher metal prices and copper sales volumes, despite decreases in zinc sales volumes. Operating costs decreased due to foreign currency effects and inventory variance | Metric | 3 Months Ended June 30, 2024 (Millions USD) | 3 Months Ended June 30, 2023 (Millions USD) | % Change | 6 Months Ended June 30, 2024 (Millions USD) | 6 Months Ended June 30, 2023 (Millions USD) | % Change | | :--------------- | :-------------------------------------- | :-------------------------------------- | :------- | :-------------------------------------- | :-------------------------------------- | :------- | | Net Sales | $185.2 | $141.2 | 31.2% | $331.6 | $320.7 | 3.4% | | Operating Income | $51.1 | $(2.9) | (1,862.1)% | $44.4 | $(1.5) | (3,057.6)% | - Q2 2024 net sales increased by $44.0 million, driven by higher prices for copper (+14.8%), zinc (+12.2%), and silver (+18.9%), and copper sales volume (+64.4%)[208] - Q2 2024 operating costs decreased by $10.0 million, mainly due to foreign currency effect (**$(20.1) mill