Southern Copper - Q3 2023

Transcript

Operator (participant)

Good morning, and welcome to Southern Copper Corporation's Q3 2023 results conference call. With us this morning, we have Southern Copper Corporation, Mr. Raúl Jacob, Vice President, Finance, Treasurer, and CFO, who will discuss the results of the company for the Q3 2023, as well as answer any questions 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 risk 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. Raúl Jacob.

Raúl Jacob Ruisánchez (VP of Finance and CFO)

Thank you very much, Carmen. Good morning, everyone, and welcome to Southern Copper Q3 of 2023 results conference call. Before we go into today's agenda, let me mention that on October 5 of this year, Southern Copper lost one of the pillars of our organization. Mr. Xavier García de Quevedo, board member and Executive Vice President of Grupo México, passed away. Over a period spanning 50 years, Xavier steered the company with intelligence, sound judgment, and hard work. He took great pleasure in sharing knowledge, mentoring and developing talent, as well as supporting multiple generations of employees at our organization. We will miss him deeply. At today's conference, I'm joined by Mr. Oscar González Rocha, CEO of Southern Copper and board member, as well as Mr. Leonardo Contreras, who is also a 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 costs, financial results, expansion projects, and ESG. After this, we will open the session for questions. Now let us focus on the copper market. In the Q3 of this year, the London Metal Exchange copper price increased 8% from an average of $3.51 per pound in the Q3 of last year, up to $2.79 this year. Even though this is a better price than what we had a year ago, we still see the market reflecting the uncertainty that involves basic metals due to the slow recovery of the Chinese economy, a recession in Europe, and a soft landing or minor recession in the U.S.

At this point, we see the following factors affecting the copper market. The most relevant market intelligence houses for the copper market are now expecting a market in surplus of about 170,000 tons for this year. Even though copper inventories are still at a very low level, they have increased from, 235,000 tons in June up to 292,000 tons in September. This is a 24% increase, and, what we're looking at is the sum of the London Metal Exchange, the COMEX Exchange, Shanghai Exchange, and the bonded warehouses in China. On top of this, we're seeing a stronger than expected U.S. dollar, which is reducing copper and other metal prices expressed in the greenback.

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. In this scenario, we believe the current cycle of relatively low prices will be short-lived. Now let's look at Southern Copper's production for the past quarter. Copper represented 75% of our sales in the Q3 of 2023. Copper production registered a decrease of 1.9% in the Q3 of this year, in a quarter-on-quarter terms, to stand at 226,120 tons. Our quarterly result reflects a 2.1% decrease in production in Peru, driven by our Cuajone mine, which reported lower ore grades.

This was partially offset by higher production at Toquepala due to better ore grades. Production at our Mexican operations decreased 1.8%. In a quarter-on-quarter terms, mainly due to lower production at our Buenavista mine. Compared to the Q2 of this year, copper production slightly decreased 0.6%, which was mainly attributable to a reduction in production at the Cuajone and Buenavista mines. For this year, 2023, we expect to produce 917,700 tons of copper, an increase of 2.6% over the 2022's final trend. For molybdenum, it represented 40% of the company's sales value in the Q3 of this year, and is currently our first by-product.

Molybdenum prices averaged $23.59 per pound in the quarter, compared to $16 in the Q3 of 2022. This represents an increase of 47.4% in the molybdenum price. Molybdenum production increased also by 12.6% in the Q3 of 2022. This was mainly driven by an increase in production at the La Caridad, Toquepala, and Buenavista mines, due to higher ore grades, and these results were partially offset by lower production at the Cuajone mine. For 2023, we expect to produce 25,900 tons of molybdenum. For the short term, we believe molybdenum prices will have good support due to a market deficit and a higher demand coming from the aerospace and defense industries.

Silver represented 4% of our sales value in the Q3 of 2023, with an average price of $23.60 per ounce in the quarter. This reflected an increase of 23.5% compared to the Q3 of 2022. Silver is currently our second by-product. Mine silver production decreased 10% in the Q3 versus the same period of 2022, after production decreased at our operations, with the sole exception of the Toquepala mine. Refined silver production fell by 11.4% quarter-over-quarter, which was mainly driven by a drop in production at our IMMSA refinery. For commercial and operational reasons, the lead concentrate is now being sold to the market as concentrate instead of being processed in the refinery.

In 2023, we expect to produce 19.3 million ounces of silver, an increase of 4% compared to 2022. Zinc represented 3% of our sales value in the Q3 of 2023, with an average price of $1.10 per pound in the quarter. This represents a 26% decrease with regard to the Q3 of 2022 figures. Zinc mine production increased 9.4% quarter-on-quarter and totaled 16,281 tons. This was driven primarily by an increase in production at the Santa Bárbara and Charcas mines, which was partially offset by lower production at the San Martín mine. Refined zinc production decreased by 12% in the Q3 compared to the same period of 2022.

For the year 2023, we expect to produce 64,200 tons of zinc, which represents an increase of 7% over our 2022 production level. For our financial results, in the Q3 of 2023, sales were $2.5 billion. This is $348 million higher than sales for the Q3 of 2022, which is a 16% increase in sales. Copper sales volume increased by 4.5%, while value increased 16% in a scenario of better prices for this metal. Regarding our main by-products, we had higher sales of molybdenum. That increased by 61% in molybdenum sales, and this was due to a combination of better prices and higher volume. Silver sales increased 19%, due mainly to better prices.

Same on zinc, we had lower sales by 31%, mainly due to lower prices and volume. Our total operating costs and expenses increased by $67 million, or 5%, when compared to the Q3 of 2022. The main cost increases has been in repair materials, workers' participation, depreciation, sales expenses, operations contractors, and other factors. These cost increases were partially compensated by lower energy costs and lower inventory consumption. The Q3 of 2023 Adjusted EBITDA was $1,291 million, which represented an increase of 27% with regard to the $1,018 million registered in the Q3 of last year. The Adjusted EBITDA margin in the Q3 stood at 52% versus 47% in the same period of 2022.

Adjusted EBITDA for the nine months was $3,974 million. This is 7% higher than what we had in 2022 for the nine months. The adjusted EBITDA margin in the nine months of 2023 stood at 52%, which compares with 51% in the same period of 2022. Southern Copper operating cash costs, including the benefit of by-product credits, was $0.98 per pound in the Q3 of 2023. This cash cost was $0.14 lower than the cash cost of $1.12 that we had in the Q2 of this year. Operating cash cost per pound of copper before by-product credit was $2.24 per pound in the Q3 of the year....

That is $0.05 higher than the value for the Q2 of 2023, which was $2.19. This 3% increase in operating cash costs before credits is a result of higher cost per pound from production and administrative expenses. These two increases in costs were partially compensated by lower treatment and refining charges and higher premiums. Regarding by-products, we have a total credit of $604 million, or $1.26 per pound, in the Q3 of this year. This year represent an 18% per pound increase in by-product credits when compared to the credit that we had in 2022, which was $517 million in total credits or $1.07 per pound.

That's for the Q2 of 2022. Total credits have increased for molybdenum, zinc, and sulfuric acid, and decreased for silver. For net income, net income in the Q3 of this year was $619.5 million, which represented a 19.4% increase with regard to the $519 million registered in the Q3 of 2022. The net income margin was in the Q3 of this year 24.7% versus 24.1% in the same period of 2022. These improvements were mainly driven by an increase in sales.

Cash flow from operating activities in the nine months of this year was $3,032 million, which represented an increase of 76% over the $1,720 million posted in the nine months for 2022. For capital expenditures, our current capital investment program for this decade exceeds $15 billion and includes investments in the Buenavista Zinc, Pilares, El Pilar, and El Arco projects in México, and in the Tía María, 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 project. In the nine months of the year, we spent $753 million on capital investments, which represent a 38% of net income and reflects a 14.5% uptick in capital expenses year-on-year.

Since there is a short description of our main capital projects in SEC's press release, I'm going to update new developments for each. For the Buenavista Zinc Concentrator in Sonora, the capital budget for this project is $413 million, most of which has already been invested. Progress is 99%, and we have initiated the commissioning process. Ramping up of the plant, initially scheduled to conclude in this quarter, has been pushed back to the Q1 of 2024, given that the concentrator requires some technical adjustments. For the Pilares project in Sonora, this is a project that has a budget of $176 million, of which $144 million has been invested. Pilares is currently operating and delivering copper ore to the La Caridad concentrator.

We will report on Pilares one more time at the closing of 2023, and after that, we will remove it from the list of ongoing projects of the company. For the El Pilar project in Sonora, we are having already the results from experimental tests in the leaching process that have confirmed adequate levels of copper recovery, and we're evaluating different options to improve the same. Basic engineering study has been completed, and the company is engaging in project development and on-site environmental activities. Project engineering is being developed by an external engineering and technology company. Mine life, as you know, is estimated at 13 years.

For El Arco, the company has completed the environmental baseline study for the mine concentrator and crusher facilities, and will proceed to submit the environmental impact statement, in Spanish, Manifestación de Impacto Ambiental, or MIA, to the Secretary of Environment and Natural Resources, SEMARNAT. This prospective environmental impact permits. The company is currently preparing studies for the port, power line, townsite, and auxiliary services. For the Peruvian projects, we have the Tía María project in the Arequipa region in Peru. This is a greenfield project located in Arequipa, Peru, that will use a state-of-the-art SX-EW technology with the highest international environmental standards to produce 120,000 tons of SX-EW copper cathodes per year. The estimated capital budget for this project is $1.4 billion. It's important to mention that the company is ready to undertake this project.

We have the natural resources, as well as all the engineering ready to go for Tía María. Southern Copper has been consistently working to promote the welfare of the population through its local programs. As part of these efforts, we have implemented successful social programs in education, healthcare, and productive development to improve the quality of life in the region. We have also promoted agriculture and livestock activities in the valley, in the Tambo Valley, and supported growth in manufacturing, fishing, and tourism in the area. For Los Chancas in the Apurímac region of Peru, as of September 30 of this year, the company has held talks with representatives of the Tiaparo community to acquire part of the land required for the project. Simultaneously, we continue to work with the Peruvian authorities to eliminate illegal mining activities at our concession.

SCC will initiate hydrogeological and geotechnical studies soon to gather additional information on the characteristics of the Los Chancas deposit. The Michiquillay project in the Cajamarca region of Peru, in 2023, in accordance with our social agreements with the Michiquillay and the Encañada community, the company has hired unskilled labor and is paying for the use of surface land. We're also supporting social programs in both communities. Simultaneously, exploration activities are underway. As of September of this year, we have drilled 46,500 meters and obtained 14,882 core samples, which are currently under evaluation. Regarding environmental, social, and corporate governance practices, ESG, as it is known, we're building drinking water infrastructure to remedy shortages in Cananea and Nacozari communities in Sonora, in México. Approximately 75,000 residents will benefit from these initiatives.

This effort is aligned with our policies and commitments for sustainable development, and is part of the $77 million that we have invested in México and Peru over the last 5 years. We're doing some innovation in the use and efficiency of water. We are currently recovering about 6,000 cubic meters of water per day through the new tailings filtering plant in Quebrada Honda, in Peru. This is equivalent to 0.6 cubic meters of water per ton of tailings. With a design capacity of 10,000 tons per day and an investment to date of $27 million, this dam filter is the largest tailings processing unit of its kind in the market. We're continuing with focus on prevention and risk management.

In September of this year, our Buenavista del Cobre unit in Sonora received the Safe and Healthy Work Environment recognition from the Mexican government after successfully passing an audit conducted by the Mexican Social Security Institute. All of our other Mexican units also hold this recognition, which is awarded to companies that implement effective strategies and preventive actions for occupational health and safety. We continue to make progress with our critical risk registry, and the performance levels of the controls in place to prevent or mitigate undesirable events have improved. To achieve this, we have involved the head of each operating unit in the process to establish and continuously monitor controls. All results are reported to managing executives on a monthly basis to facilitate supervision and subsequent monitoring by the board of directors. Innovation in climate change mitigation.

In September of this year also, Southern Peru received the 2023 National Mining Award in the mining economy category, within the framework of PERUMIN 36 Mining Convention, held in the Arequipa region in Peru. The winning study, Integration Scenarios of Renewable Electricity Generation Systems in the Mining Sector of Peru by 2050, prepared by Engineer Rolando Jesús Claros from the Power Systems Area of Southern Peru, proposes the use of clean and renewable energy sources as part of the global energy transition process. Southern Copper aims to achieve net zero emissions by 2050.

For disclosure, transparency, and accountability, to provide more clarity regarding Southern Copper's performance on ESG issues, we have published a supplement to the 2022 Sustainable Development Report, and have also incorporated new topics on our sustainable development page to address biodiversity, our people, human rights, and supply chain. At the behest of our investors, we have expanded our responses to the CDP questionnaire to include the fourth questionnaire. This information complements responses to our climate change and water security questionnaires that has been available since 2016 and 2022, respectively. From lost to me, a journey of environmental restoration. Year to date, we have reforested three times the area impacted in the same period. We have restored 1,398 hectares we planted versus 424 hectares impacted.

Additionally, we have implemented works to retain 10,722 tons of soil that would have otherwise been lost to erosion in the state of Sonora, in México. These actions are between the framework of our strategy to achieve zero net deforestation and generate a net positive impact on biodiversity, particularly in areas close to our operations. Inhabitants of the communities near our operations are highly active in social programs we offer. Thus far this year, we have recorded 170,000 participations in these programs, which is a 7% increase from the previous year. One of our most noteworthy efforts, the Youth Orchestras and Chorus program, recently celebrated its fifth year and is now present in 11 communities, with 1,596 students in México and Peru.

To date, 8 out of 10 of our alumni pursue a bachelor's degree, with 2% choosing music as their life's work. Changing, changing subjects, regarding dividends, as you know, it is the company policy to review our cash position, expected cash flow generation from operations, capital investment plans, and other financial needs in each board meeting to determine the appropriate quarterly dividends. Accordingly, as announced to the market on October 19, the board of directors authorized a cash dividend of $1 per share of common stock, which will be payable on November 22 to shareholders of record, at the close of business on November 8 of this year. Ladies and gentlemen, with these comments, we would like to end our presentation today. Thank you very much for joining us, and we, we would like now to open up the forum for questions.

Operator (participant)

Thank you. As a reminder, to ask a question, simply press star one one on your telephone. You will then hear a message advising that your hand is raised. To withdraw the question, simply press star one one again. One moment for our first question, please. It's coming from the line of Gabriel Simões with Goldman Sachs. Gabriel, your line is open.

Gabriel Simões (Executive Director and Analyst)

Hi, thank you for the presentation. Thank you for taking my questions. I have two questions here. The first one is about capital allocation. Right, so El Pilar was postponed basically because of the new regulatory process that you have to go through to get it approved in México, and some issues with—we've seen some issues with the other projects advancing in the near term. So we're at the point that El Pilar is the last board-approved project.

So, I just wanted to have an idea of what we should expect in terms of CapEx, and the capital allocation for the coming years, and when we should see new projects being taken to the board, given the advancements that you guys are making on the other projects that you have on the pipeline. And in the meantime, if you have any thoughts that you could share on dividend distribution, thinking about the future distributions. So that's the first question. And the second question here is about the costs in the mining division for the company. So, in the beginning of the year, if I'm not mistaken, we were in at $1.9 per pound before byproducts for the costs, and we're running at a much higher level.

So we just wanted to understand what was the main change this year versus the beginning of the year that would explain this difference and the fact that we're running at higher levels. And how should we think about the cost for the Q4 and for 2024, and the main drivers for this in your opinion here? Thank you.

Raúl Jacob Ruisánchez (VP of Finance and CFO)

Yes, thank you for your question, Gabriel. Actually, you said two questions, but there are at least four, but I'm glad that you made them.

Gabriel Simões (Executive Director and Analyst)

Sorry about that.

Raúl Jacob Ruisánchez (VP of Finance and CFO)

Okay, let's, no, no, no, not a problem at all. On capital allocation, well, we're working. We're still doing some engineering work for El Pilar, some tests. We want to be sure on the recovery. And actually, what we would like to get is even an improvement of the current recovery rates that we have in this project, to improve its profitability for the future. This is the time where you need to do these tests, not when you have the whole facility designed and already built. On the other projects, basically, we will be informing to the market as we undertake the different projects that are in our pipeline.

We can give you always a forecast of our CapEx, considering the development of the projects that I comment a few minutes ago, and I'll do that now. For this year, we're expecting to finish the year at about $1 billion in capital expenditures. For 2024, number will be $1.3 billion. For 2025, $1.7 billion. 2026, $2.1 billion and 2027, $2.6 billion. Dividends, it's always up to the board. The board approved a dividend of $1 per share for the last quarter. And if you look at our track record, it's quite clear that the company will not hoard cash.

That has been our record, and we expect that to be the case for the future as well. Cash cost, we had, we have, some expenditures that were not considered in terms of our operating cost, and let me comment on that. As you may know, the Mexican exchange rate appreciated through the year. That impacted our pesos-denominated costs. In the Peruvian case, we had no significant variance in the exchange rate, so we didn't have that much of an effort or an effect on that. For some costs, we are seeing now the effect of inventory consumption. And a practical example is what has happened with the tires for mining trucks.

When we had the beginning of the war, or the invasion, to be more proper, of Russia to Ukraine, we had right away an increase in fuel and some other materials, like ammonia, that was used for explosives. But certain costs, such as the ones for tires, were not impacted because we were consuming our stocks. Now, we're replenishing the stocks for some of these materials, and that is somehow affecting our cash cost per pound, even though we are producing a little bit more copper than last year. But as I'm saying that, we're also seeing some reductions in some costs, particularly in three items. Fuel, where we have a slight variance. Explosive, also some reductions in costs, as well as steel.

And what we are also doing is catching up in certain maintenance expenditures that we couldn't make in the through the COVID years and later on last year. Regarding what we are expecting for cash flow for this year, we believe we could close at about the level that we are now or slightly better because we will have a little bit more production in the Q4. For 2024, about $1 very close to where we are now. And then it depends on how the new projects are kicking in into our production profile for the next few years.

Gabriel Simões (Executive Director and Analyst)

That's very clear. Thank you very much. I just wanted to do a follow-up, basically on the cash costs. Just want to understand if you have guidance for the by-product cost as well. That'd be helpful. Thank you.

Raúl Jacob Ruisánchez (VP of Finance and CFO)

At about what we are now, on the last quarter. In the last quarter, it was $2.24 per pound. We believe it could be lower than that, for the next, few quarters. But, for now, it will be, a little bit more of, of $2.20.

Gabriel Simões (Executive Director and Analyst)

Okay. Thank you very much.

Raúl Jacob Ruisánchez (VP of Finance and CFO)

You're welcome.

Operator (participant)

Thank you. One moment for our next question, please. All right, it comes from the line of Sofia Martin with GBM. Please proceed.

Sofia Martin (Analyst)

Hi, thank you for taking my question, and congratulations on your results. I have two main questions. My first one is, could you give us any color on production for the rest of the year and 2024, and if you have any further guidance going forward? And my second question is related to copper prices and market dynamics. Do you have any color heading into 2024? Thank you.

Raúl Jacob Ruisánchez (VP of Finance and CFO)

Thank you for your questions, Sofia. For this year, as I mentioned, we're expecting 917, 918 thousand tons. That's for 2023. For next year, we expect to increase it for a few reasons. Let me comment on that. Our goal is 946,700 for next year. We will have the contribution at full speed of Pilares. Pilares, this year, we are getting about 23,000 tons of copper from Pilares. And the reason for that is that at the beginning of the project, we had oxides that were sent to mineral in the form of oxides, that were sent to our SX-EW plants, and they take a little bit longer to process than the usual sulfide mineral.

For next year, we're expecting Pilares to increase from 23,000 tons of copper to 30,000 tons of copper. We will get the positive contribution of the Buenavista zinc for about 30,000 tons, and we will have improvements in the Toquepala and Cuajone ore grades that will increase a little bit their production, in the case of Toquepala, by 7,000, in the case of Cuajone, by 9,000. So we have some additions on that. Later on, we will have for 2025, our expectation is 956,500. In that case, we're expecting the contribution of El Pilar, a partial contribution of El Pilar, as well as Buenavista zinc as well, and Pilares copper production at full speed.

For 2026, 998,500 tons of copper production, and for 2027, 1,000,000 tons of copper production. For 2024, well, it's hard to say. We're looking at the market. As I mentioned, even though we had an 8% increase in prices, we're still seeing a market that is not defining its direction, actually. For now, we are expecting prices in the range of where we are now, maybe a little bit better if China comes back consuming more basic materials than what has had in the past third through this year. It's hard to predict at this point. Long term, we do see a very strong demand coming from the energy revolution.

That includes electric vehicles and some other important copper construction consumption as transmission lines, eolic energy, and so on.

Sofia Martin (Analyst)

Thank you very much.

Operator (participant)

Thank you. One moment for our next question, please. It comes from the line of John Tumazos with Very Independent Research. Please proceed.

John Tumazos (President)

Thank you very much. The $1 quarterly dividends, thank you, have been bigger than reported earnings in 2022 and 2023, and the four very big capital projects are delayed and distant. There is $7 billion of debt and lease before cash balances and investments. Does the board place a priority on perhaps reducing the debt just in case when feasibility studies are updated, the capital costs rise? There's other companies or projects where capital costs doubled. I know that won't happen at Southern Copper, but you never know. Thank you.

Raúl Jacob Ruisánchez (VP of Finance and CFO)

Well, let me comment on our debt position. Currently, well, you indicated, John, that you are considering also a lease included as part of our debt. Actually, it's a long-term contract. It's a PPA that we have for power for both the Peruvian and Mexican operations. Accounting-wise, we have to register that as a lease, but actually it's a PPA, Power Purchase Agreement, Power Purchase Agreement. But our debt position is about $6.2 billion. The average rate is at 6%. In the last few years, we did several bond issues that allow us to capture lower rates, and that has improved our debt profile.

We will not have to pay for any principal up to 2025 when we have $500 million that are due. Last year, we paid $300 million. For now, unless we have a project going on and getting into the construction phase, one of the main projects that I mentioned already, we believe that we will maintain the current cash position and debt position. For dividends, as I mentioned, it's a decision that always taken by the board. But what we're seeing is that, generally speaking, the company is not hoarding any cash. I think that that will be our behavior in the next few quarters.

John Tumazos (President)

Thank you.

Operator (participant)

Thank you. And as a reminder, ladies and gentlemen, to ask a question, simply press star one one to get in the queue. One moment for our next question, and it comes from the line of Timna Tanners with Wolfe Research. Please proceed.

Timna Tanners (Managing Director, Metals & Mining Equity Research)

Hey, good morning. I know one of the other large copper producer CEOs mentioned that at current copper prices, projects were no longer so attractive, especially given higher costs for startups. But I'd like your thoughts on that. I know you still have quite a few projects in your pipeline, but they have been delayed a bit. I'm just wondering if you still find building attractive or, you know, if there's a different approach to building versus buying, you know, if M&A is interesting. Great to get your thoughts.

Raúl Jacob Ruisánchez (VP of Finance and CFO)

Oh, thank you very much for your question, Tina. Okay, on our projects, the current price at current prices, say $2.60, even though cost has increased, for both CapEx as well as OpEx, we see that they are attractive in terms of the returns that they are providing to the company. I think that as costs increase for operating purposes, we are seeing also an increase in the long-term price for the market. And let me explain what I mean. Usually, long-term reasonable way to look at the long-term price will be the average industry cost, plus maintenance capital for the current operations worldwide.

As the long-term price used to be at about $3.30 to promote the growth of our industry, now you have to add to that whatever inflation it's affecting both CapEx as well as OpEx. And considering that, I believe that we will be at about $3.60 or even higher than that for the long run as a new price reference. So, I believe that if copper prices decrease further down from where they are, which is not our base case, but that may happen, we should see, again, what we have seen in some other copper price cycle where supply is somehow affected by a demand restriction.

Now, having said that, it seems important to me to consider that the production coming from Chile and Peru has been affected by different circumstances in these two countries, and that has somehow slowed the development of new projects that should supply the copper for the future. So my view is it's positive in the sense of a midterm to long term, but we still have to pass through these strange seas that we're seeing nowadays.

Timna Tanners (Managing Director, Metals & Mining Equity Research)

Okay, thanks, Raúl. That's helpful. I know there's also been some headlines around your Buenavista operations and some blockages that have been reported in the local press that have caused some concern. I think that wasn't a cause of any disruption, but would be great to get your perspective on that or how you see that getting resolved. Thanks.

Raúl Jacob Ruisánchez (VP of Finance and CFO)

Well, as you well mentioned, it has not affected our operations. We're seeing some maybe related to the political campaign that it's about to begin, or it's already underway in México. As you know, we had a significant change in unions regarding the Buenavista operation in the past decade. And I think that there are certain external forces or political forces that would like to affect our operations. They haven't had any success so far in these many years, and I believe that will be the case for the future as well.

Timna Tanners (Managing Director, Metals & Mining Equity Research)

Okay, super. Thanks again.

Raúl Jacob Ruisánchez (VP of Finance and CFO)

Thank you very much for your question, Timna.

Operator (participant)

Thank you. One moment for our next question, and it comes from the line of Alex Hacking with Citi. Please proceed.

Alexander Hacking (Metals & Mining Equity Research Analyst)

Hi, Raúl, and thanks for the call. I just wanted to clarify on the guidance. You said 946,000 tons next year. In my notes, I had that last quarter, that guidance was 1,026,000 tons, which is an 80,000-ton cut to that guidance. Am I correct? And if so, I guess what's driven that downgrade in expectation for next year? Thanks.

Raúl Jacob Ruisánchez (VP of Finance and CFO)

Hold on a sec, please. The reference that you gave us, Alex, is correct. We have made an adjustment in our production for the current operations, particularly Buenavista and Buenavista Zinc. Those two has reduced their forecast for next year. This number is still under review. We will do a new set of forecasts at the beginning of next year in our January conference. Currently, what we're considering is how are we going to improve the 946,000 tons that I mentioned before?

Alexander Hacking (Metals & Mining Equity Research Analyst)

Thanks. And then just to follow up, would, with the issue there, obviously there's a little bit of timing slippage, right, on Buenavista Zinc. But would the other, would the main issue be, be grade? Would that be the reason that, like, the grade is effectively going to be a little bit lower than was previously forecast?

Raúl Jacob Ruisánchez (VP of Finance and CFO)

It's basically ore grade because the operations are full, at full speed, 24/7. So it's mainly ore grades or recoveries, depending on the different phases that you are in the mines, that changes a little bit. And that, plus the start-up of projects are the drivers of changes in production on a yearly basis.

Operator (participant)

Okay, makes sense. Thank you, Raúl.

Raúl Jacob Ruisánchez (VP of Finance and CFO)

You're welcome.

Operator (participant)

Thank you. One moment for our last question, please. It comes from the line of Carlos de Alba with Morgan Stanley. Please proceed.

Carlos de Alba (Analyst)

Yeah, thank you very much. Good morning, everyone. So Raúl, any comments on how Southern Copper has taken the plan proposed by the Mexican government to remediate what they claim is still contamination in Río Sonora from the spill in 2014?

Raúl Jacob Ruisánchez (VP of Finance and CFO)

Very straightforward answer is no, Carlos. We are looking at the information, and we're studying it, and we'll answer that when it corresponds. But at this point, we have no comments on this.

Carlos de Alba (Analyst)

Okay, that, that's clear. Now, just the company, if I understand correctly, has done several analyses throughout the years, and they don't show any contamination left. Is that fair?

Raúl Jacob Ruisánchez (VP of Finance and CFO)

That's our view on the matter, yes.

Carlos de Alba (Analyst)

All right. Thank you very much.

Raúl Jacob Ruisánchez (VP of Finance and CFO)

You're welcome.

Operator (participant)

Thank you, sir. I'm not showing any further questions in the queue.

Raúl Jacob Ruisánchez (VP of Finance and CFO)

Okay, thank you very much, Carmen. With this, we conclude our conference call for the Q3 of 2023. We certainly appreciate your participation and hope to have you back with us when we report the Q4 of this year and the end-of-the-year results in January. Thank you very much, and have a nice day.

Operator (participant)

Thank you all for participating, and you may now disconnect.