Grupo Mexico SAB de CV

BMV:GMEXICOB

Q2-2025 Earnings Call

[Operator]

Good afternoon, and thank you for holding. Welcome to Grupo Mexico's Second Quarter Earnings Conference Call. With us this afternoon are all of Grupo Mexico's top executives who will discuss the financial performance of the company during the second quarter 2025 results, giving you a summary of the latest news and addressing any questions you may have at the end of the call.

Before we begin, I would like to remind you that information discussed on today's call may include forward-looking statements regarding the company's results and prospects, which are subject to risks and uncertainties. Actual results may differ materially, and the company cautions not to place undue reliance on these forward-looking statements. Grupo Mexico undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

All results are expressed in full U.S. GAAP. [Operator Instructions] A copy of the slides that the company will be reviewing today is available on the website at grupomexico.com. [Operator Instructions] Now it's my pleasure to turn the call to Ms. Marlene Finny.

[Marlene de la Torre, executive]

Thank you so much, Carmen, and good afternoon. And thank you, everybody, for joining us today for Grupo Mexico's Second Quarter Earnings Conference Call in a very, let's say, interesting day to be having this call with the recent news just published like an hour ago. So it's an interesting day. With me today are the top executives from our three divisions. So we can comment about this. During our call, as usual, we will be following a presentation that can be downloaded from our website or followed by accessing the webcast. But as Carmen was mentioning before, if you want to make a question, you have to do it through the phone.

So today's detailed program can be found on Slide #3. And I'll pick up with Grupo Mexico's ESG highlights, followed by the quarter scorecard and financial highlights. Then Leonardo Contreras will provide detailed information regarding our Mining division's main highlights, project updates and comments on the industry economic environment that's going to be interesting, Leonardo. He will then be followed by [indiscernible], who will go through the financial results and main events of our Transportation division. Lastly, Francisco Zinser Sine will comment on the Infrastructure division's relevant events and financial results.

As usual, at the end, the line will be open for questions and answers. With that being said, let's go through our main ESG highlights on Slide #5. Grupo Mexico was recognized for its inclusion in one of the most relevant evaluation in ESG performance. This was very important for us, the 2025 S&P Global Sustainability Yearbook. This recognition places us within the top 15% of companies in the metals and mining -- the best company within the metals and mining sector. So it was like very relevant for the company.

In line with our commitment to responsible management, in 2024, we recorded a 30% reduction in lost-time injury rate over the past 7 years. We also reached 35% of our electricity consumption from renewable sources and a 7% increase in the participation of women across the organization. Another highlight, which is also very important to us and significant both within the ESG and in the operations of the Mining division as the construction of Tia Maria progresses in Arequipa in Peru, we continue to promote the development of neighboring communities through job creation and engagement of local supplier. The new jobs generated so far represents 11% of the economically active population of the Tambo Valley, near the project site. Additionally, 50 local suppliers have been contracted for transportation, general services, and equipment rental, improving life quality for more than 300 families.

Now let's go to Slide #6 to continue with the ESG highlights. And here, we can see that in addition to the master classes offered to all students and teachers participating in our Youth Orchestra and Choirs program, scholarships have been awarded to outstanding students to pursue higher education in Orchestral Conducting and Pedagogy at the Instituto Superior de Música in Puebla, Mexico, reaffirming the company’'s commitment to cultural and educational development.

And lastly, for the ESG highlights, Dr. Vagón served almost 6,000 patients, of which 58% were women and were provided with eyeglasses, free medications, hearing aid, mammogram among other services. Additionally, Cine Vagón, which is part of Dr. Vagón, welcomed more than almost 3,000 attendees in across 14 screenings.

Now let's continue with our scorecard on Slide #7. Our revenues for the first half of the year totaled $8.4 billion, almost 3% higher than 2024. Our cumulative EBITDA totaled just short of $4.6 billion. This is 6.5% above 2024. Our copper production reached almost 533,000 tons of copper during the first half of the year. This is a 1% decrease when compared to the first -- last year's first half. Our net cash cost totaled [indiscernible] per pound during the first half of the year. This is 15% lower than the first half of 2024. And this is reaffirming that we continue to have the best cash cost in the copper industry worldwide.

Lastly, our Board approved a dividend of $1.30 per share during this quarter, which translates into a 4.4% dividend yield. As usual, you can find a summary of our financial highlights on Slide #8, which is there for you to have in case you need any point during the presentation. Let me continue with Slide #9. Grupo Mexico continues to have a solid balance sheet with low leverage and net debt-to-EBITDA ratio of 0.1x. As you might already know, our debt is mainly issued in U.S. dollars, representing 79% of the total debt, while the rest is denominated in Mexican peso. And 91% of our total debt was issued with a fixed rate. On this slide, you can also see the dividends paid from 2023 to 2025 and the implied dividend yield, including the MXN 1.30 dividend approved for the quarter, which will be paid on September 5, 2025.

On the next slide, #10, we show that we continue to have a comfortable debt maturity profile with no payments of over $1 billion until 2032, while our cash position ended the quarter at $9 billion. Now I will let Leonardo comment on our Mining division performance.

[Leonardo Contreras Lerdo de Tejada, executive]

Thank you, Marlene. Good afternoon, everyone, and thank you again for joining us today. I will start today with a brief remark on the copper current market on Slide 12. The LME copper price decreased 2% from an average of $4.42 per pound to $4.32 this past quarter. Based on the current supply and demand dynamics, we estimate that the deficit at the year-end will stand at around 65,000 metric tons. Copper inventories worldwide have dropped 28%, going from 627,000 tons at the end of March to 450,000 tons at the end of June 2025. We estimate that this inventory currently covers approximately 5 days of global demand.

And as was the case in the first quarter of the year, the copper market registered a significant arbitrage difference between COMEX and LME prices. At its peak on, I think I believe July 11, the COMEX price was 27% above the LME price, around $1.20 per pound above the LME. This reflected the strong possibility that a 50% tariff would be imposed on U.S. copper imports. But as we have seen in the previous -- in the last hour, there have been recent developments and apparently, that arbitrage is almost back to 0. We will continue to monitor it and adapt to the ongoing circumstances as we have been doing it for the rest of the year. Then although we maintain a very positive long-term outlook for copper with growth in Asia, new energy technologies and artificial intelligence.

We believe, once again, this intentional commercial war between the U.S. and China could affect economic growth worldwide and consequently, it could impact the copper demand. Now let's dive into the Mining division's financial highlights on Slide 13. Our accumulated sales reached USD 6.7 billion, 7.3% increase versus the first half of 2024, mainly due to an increase in metal prices and byproducts. Our EBITDA totaled close to $3.7 billion for the first half of the year, 9.4% higher than the first half of 2024 with a margin of 55%.

Now moving on to production. Our production totaled just shy of 533,000 tons, a decrease of 1.1% versus the first half of 2024, mainly due to a production decrease in Mexico of 1.7% related to the decision of benefiting zinc and silver production at our Buenavista Zinc plant, thus impacting the copper production that we produced the last semester of last year. Our net cash cost showed a 15% improvement compared to the first half of 2024, standing at $0.98, mainly due to higher by-product credits.

Now regarding CapEx, we invested $618 million during the first half of this year. And then I would like to continue about our projects and their progress in Slides 14 and 15. Starting with our Peruvian projects, Tia Maria, as of June 30, the company has generated more than 1,376 new jobs, of which 800 positions were filled by local candidates as we try to fill the 3,500 jobs needed during the construction of Tia Maria with workers from the Islay province. Once operations begin in 2027, the project will generate 764 direct jobs and 5,900 indirect jobs. We're currently in the early construction phase with 90% progress on access roads and platform stands. To date, we have installed 60 kilometers of light fence to the limited property.

Now moving to Los Chancas in Apurimac, Peru. On June 6, 2025, the Framework Agreement for the Development of the Tiaparo Peasant Community and the Los Chancas Mining Project was signed with the community of Tiaparo. This agreement will be in effect throughout the construction and operation phase of the project. Now lastly, in Michiquillay, located in Cajamarca, Peru as of June 30, 2025, the exploration projects progress was 45%. We have drilled almost 146,000 meters and obtained 59,000 drill core samples for chemical analysis. Diamond drilling has provided information necessary to interpret the distribution of mineralization in geological sections and for geological modeling. The geometallurgical studies have been successfully completed and the hydrological, hydrogeological, and geotechnical studies for the project are about to begin.

Now moving on to Mexico. We have El Arco located in Baja California, Mexico. The environmental baseline study for the mine has been completed and detailed engineering is still underway for the concentrator SX-EW plant, water desalination plant, logistics infrastructure, and power delivery. And with our project El Pilar located in Sonora, approximately 45 kilometers from our Buenavista mine, it 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.

Now if you happen to have any follow-up questions, I'd be pleased to address them during the Q&A session. Now I will let Alberto comment on the Transportation division.

[Unknown Executive]

Thank you, Leonardo, and good afternoon, everyone. Continuing with the Transportation division results on Slide 17, I would like to talk about our financial highlights for this quarter. Our sales reached $5.6 billion, a 7.8% decrease versus the first half of 2024, mainly driven by a 6.6% decrease in car loads. Our accumulated EBITDA by the end of the quarter totaled $712 million, 6.8% lower than the first half of 2024. The EBITDA margin stood at 43.7% at the end of the first half of 2025. As for our net income, it totaled $255 million during the first half of the year, 8.4% lower than 2024. Lastly, as you might already know, a dividend of MXN 0.50 per share was approved by our Board.

Continuing with the main variation of our revenue on Slide 18. As a reminder, these variations are considering results in Mexican peso, so this might vary using a different currency. I will start with the segment that delivered the strongest revenue growth. The Automotive segment led with a 24% increase, driven by improved network fluidity that allowed us to gain market share in export to the U.S., outperforming maritime routes and other railroad [indiscernible].

Following that, the Mineral segment grew by 19%, supported by higher import volumes and more consistent longer haul shipments. Agriculture also performed well with a 12% increase in revenue, mainly due to higher imports of grain carousel trains have [indiscernible] offset the impact of weaker local drops and the low volumes we experienced in the first quarter due to adverse weather conditions.

[indiscernible] posted an 11% increase, reflecting strong cross-border and domestic volumes in both Mexico and Florida. In the mid range, the Chemicals segment grew by 4%, supported by increased ethanol shipments in the U.S. and a higher imports into Mexico. This was partially offset by maintenance related shutdowns at chlorine plants in Mexico. The Energy segment saw a 2% increase in revenue compared to the same period last year.

On the other hand, we saw revenue declines in a few segments. The Industrial segment decreased by 3%, mainly due to the lower volume resulting from a reducing man ] in the new railcar market and a softer [ per ship ] into the U.S. Cement and metal experienced declines of 6% and 9%, respectively, primarily to a slowdown in effect projects in Mexico compared to the previous year.

Now let's take a look to our operating metrics shown on Slide 19. In general, metrics show consistent improvement in performance during the quarter, as we saw an 11% decrease in [ oil time ] that results in an improvement of over 5.5% in car velocity, settling at 311 kilometers per day and a improvement in the average [ in Chinese ] period. As for the rest of the metrics, a 2% increase in a train line reaching 1.8 kilometers and a few to start with a 1% reduction.

On Slide 21, we can see an expected CapEx for the 2025. GMXT's Board approved and to increase the CapEx for the year to over $580 million for maintenance, growth, efficiency, and special projects. The additional CapEx will be spending new locomotives, allowing GMXT to continue growing and improving to sustained investment in infrastructure and increase efficiency. Approximately 70% of our annual CapEx will be dedicated to rail infrastructure, covering investment in tracks, tie, bridge, acquisition of 60 locomotives, as well as overhauls and other critical equipment. $82 million will be deployed for cards on reconfiguration, signing enlargement and intermodal terminal. An investment of $84 million is planned for special projects, targeted key infrastructure and safety initiatives, including safety program, the [indiscernible] path and the rehabilitation of the [ Mexican Toni ].

This concludes the overview of the Transportation division. I will now let Francisco Zinser comment on the Infrastructure division.

[Francisco Gonzalez, executive]

Thank you very much, Alberto, and good afternoon, everyone. I will start by going through the financial highlights of the Infrastructure division shown in Slide #22. Our sales reached $342 million for the first half of this year, a 12% decrease when compared to the first half of 2024. This was due to the impact of four oil rig suspension and the negative exchange rate effects. This was partially offset by the operation of the Fenicias Wind Farm and the integration of the new K8+Puebla portfolio. As it is well known, PEMEX is currently going through a restructuring period with significant financial debt and debt to suppliers.

Given the suspension of our 4 jack-ups, we have mobilized them in short to reduce costs and keep them on the temporary shutdown. Our EBITDA totaled $161 million, a decrease of 30% versus the first half of 2024 with the EBITDA margin standing at 47%. It is important to mention that aside from Perforadora Mexico, all of our business units are growing in sales and EBITDA in their functional currency. Lastly, net income totaled $30 million, a decrease of 55% when compared to the first half of 2024.

To close the Infrastructure division highlights, I would like to go through some of our most relevant events depicted on Slide #23 and 24. Our Energy segment posted solid growth in the quarter with cumulative net sales of $157 million, an increase of 17.3% versus 2024 and EBITDA of $81 million, 12% higher year-over-year. This was largely driven by higher revenues at the La Caridad combined cycle power plant and strong performance at the Fenicias wind farm, which generated 390 gigawatt hours of clean energy. Since August 2024, Fenicias has been supplying power to IMMSA's mining and metallurgical operations further advancing our commitment to energy diversification and sustainable industrial development.

Our Real Estate division continued to post strong results, ending the quarter with net sales of $46 million and EBITDA of $30 million, which translated into increases of 22% and 26% year-over-year, respectively, primarily driven by the incorporation of the new K8+Puebla portfolio, which added 9 power centers to our operations as well as stronger lease performance. This reinforces the effectiveness of our acquisition-led growth strategy and our ability to generate long-term value across our real estate platform. Revenues and EBITDA in Mexican pesos grew 42% versus last year.

Our Construction and Engineering division maintained stable operations throughout the second quarter, showcasing disciplined execution and operational continuity across multiple infrastructure fronts. Accumulative revenues reached $64 million and EBITDA stood at $13 million, a decrease of 0.7% and 5.3%, respectively, year-over-year. These variations reflect the natural cycle of project completions and the phase start of new contracts. Revenues and EBITDA in Mexican pesos grew 14% and 2.7%, respectively, versus last year.

Our toll road business continued to show operational strength with average daily traffic increasing by 3% year-over-year to 22,623 equivalent vehicles, reflecting same demand and consistent network usage. However, results were impacted by adverse exchange rate movements, leading to net sales of $34 million and EBITDA of $23 million, a 7.6% and 5.7% lower versus the same period of 2024. While these F/X fluctuations affected reported figures, the sustained growth in traffic underlines the segment's resilient fundamentals and long-term value potential. Revenues and EBITDA in Mexican pesos grew 8.4% and 11% versus the same period of last year.

With this, I conclude the review of the main highlights of the Infrastructure division. Now I will let Marlene give her closing remarks. Thank you.

[Marlene de la Torre, executive]

Thank you, Francisco, and thank you, Leonardo and Alberto, for your comments, and thank you, everyone, again, for your time and attention. Now we will open the line for the Q&A session.

[Operator]

[Operator Instructions] And it comes from Alejandro Demichelis with Jefferies.

[Alejandro Anibal Demichelis, analyst]

Couple of questions from me, please. First one, Leonardo, maybe you can comment on how you see the situation for the smelters in the U.S., particularly given the news that's happened over the past hour or so, meaning what kind of spread do you need for these projects to be attractive enough on economic terms? That's the first question. And then on the group in general, maybe you can comment on how you see opportunities for inorganic investment and the uses of your cash balance, if you may.

[Leonardo Contreras Lerdo de Tejada, executive]

Alejandro, I will probably answer the first question in regards to the smelters in the U.S. I do believe that -- where we were before the announcement today, the amount of arbitrage that was out there, it was worth taking a look and seeing any alternatives to push for additional smelting capacity in the U.S. Obviously, the -- our main concern there was the time horizon.

But now with the recent developments, I mean, we're continuously evaluating if we should or we should not restart our Hayden operation. I think we will continue to monitor on how these global changes happen on a daily basis. But for now, we're just keeping our options open.

[Marlene de la Torre, executive]

And for the second question regarding our cash, I couldn't hear you well, but I think it was regarding how we're going to use the cash that we have in general as a group. So regarding that, as we can see, we increased our dividend this quarter. So we now have MXN 1.30 per share. And you could also see that as Leonardo was mentioning, and we also mentioned in our press release, we're analyzing different investments that we could do in our three divisions. So the one that -- ones that we are going to do definitely such as Tia Maria and other investments that are a lot of moving parts. So it's a difficult time to answer everything because it's just a lot of recent events. But we are analyzing different opportunities of investment to grow within our three divisions, our Mining, Transportation, and Infrastructure division.

[Alejandro Anibal Demichelis, analyst]

Okay. As a small follow-up, just to be very clear. So you are not looking for opportunities outside of those three divisions?

[Marlene de la Torre, executive]

We are not actively looking for opportunities outside our three divisions. We want to maintain the focus on what we know how it does.

[Operator]

One moment for our next question. It comes from [ Emerson Vera ] with Goldman Sachs.

[Unknown Analyst]

I have two questions. The first one is on the mismatch that we have been perceiving in the past quarters regarding the dividends GMEX has received from its subsidiaries and the amount the holding is paying. So can you guys elaborate on the reason for this mismatch and if you can expect dividends received by subsidiaries to be fully paid to GMEX shareholders. So this is question number one. And question number two is on the infrastructure business. So in this quarter, you guys mentioned the operation was impacted by a temporary suspicion of the rigs. So I wanted to understand better when this should normalize and if this is expected for this year already or it's more longer term? That's it.

[Marlene de la Torre, executive]

With the first question -- I don't know if it's us, but I couldn't hear everything very, very clearly. But if it's regarding the dividends, we increased our dividend. And as you can see, we have that in our presentation. We have kept our dividends -- or we have been very consistent with our dividend for many years now at the Grupo Mexico level. And Southern Copper decided -- the Board of Southern Copper decided to give the dividend that was part in cash and part in shares. So I don't know if you were referring to that.

We as the Board of Grupo Mexico decided to give a cash dividend of MXN 1.30, which is 4.4% dividend yield, in line with what we have had through the past years. I don't know if that answers your question, sorry.

[Unknown Executive]

So if there's no follow-up question on the dividend. Regarding the second question of oil rig suspension. I mean, it's hard to say when they will be back operating. As you know, PEMEX has had significant budget reductions in its exploration and production division from $25 million a couple of years ago to $9 million now. So this is not a problem that is only of us. There have been many suspensions to different oil rig owners here in Mexico, more than half of the total oil rigs that there are in the country.

We have been having conversations with PEMEX, obviously, trying to let them know that our oil rigs operating mean an increase in production, which, of course, is one of the main goals of PEMEX, and they are aware of that. But unfortunately, they have these constraints on budget. So it's hard to say exactly when.

What we have done, as I mentioned in my participation during the call, is that we have moved the four oil rigs from the open waters into -- not land, but it's one of a point in Campeche. And we have been connecting them and reducing costs significantly more than 85% of the cost of operating so that we can be at least cash neutral and not having an impact on our cash flows, which we were having before also because, as you know, PEMEX has not been consistently paying suppliers.

So we think that the position where we are at right now allows us to wait in terms of cash. And hopefully, PEMEX with all this restructuring will have either more budget or do some changes so that our oil rigs will continue to operate. But again, this is an industry-wide problem, its not something that is only affecting us.

[Operator]

One moment for our next question, please. It comes from the line of Alfonso Salazar with Scotiabank.

[Alfonso Salazar, analyst]

Quick question, Marlene. From Grupo Mexico, the holding company perspective, what are the rationale behind the decision to release Grupo Mexico Transportes? So if you can give us some color on that. And then for the platform for the oil rigs, is there any plan B? I mean, can you elaborate on what other options you have, whether to sell the assets to operate them elsewhere? Any comment on that will be very appreciated. Thank you.

[Marlene de la Torre, executive]

Yes, Alfonso. I will let Francisco answer because it's the same thing he was mentioning before.

[Francisco Gonzalez, executive]

Yes, sorry. Yes. So of course, this situation obliges us to look at all the different alternatives. Right now, worldwide, there are approximately 430 oil rigs, and about 100 of those are not being utilized. So it's not a market right now perhaps to sell them, although we have contacted over 90 different potential buyers. But again, the market is perhaps not there, and that's why we think we're in a good position to wait even for PEMEX to reactivate platforms or the market in general worldwide to improve. We have also been looking at potentially having them working in other countries. But again, it's related to how the market is right now.

The platform market worldwide is very cyclical. And as you know, the consumption of oil worldwide has been actually increasing rather than decreasing some experts thought a couple of years ago. So what this tells us is that this will come around. And perhaps at that time, we find an interesting place to sell the assets. We will, of course, evaluate it. It is not the time right now, again, but we are constantly looking for options given the circumstances where we're at.

[Marlene de la Torre, executive]

And answering your first question, Alfonso, I think this is something we have discussed previously, and this is a question we always get. We don't think right now, the value of our Transportation division is reflected. So we did like a very thorough strategic review, and we decided that in order to gain flexibility and to think -- and because of this reason, it was better to make this decision of delisting from the Mexican Stock Exchange.

While we recognize the value of public markets, we believe that operating as a private entity right is now better aligned with our current business objectives and growth strategies for GMXT and we remain fully committed to transparency and to delivering value to our stakeholders. So that is a commitment that we have. I think that is mainly valuation and giving more value to our shareholders -- our Grupo Mexico shareholders was part of the reasoning behind this decision.

[Operator]

[Operator Instructions] Our next question comes from the line of Rafael Barcellos with Bradesco BBI.

[Rafael Barcellos, analyst]

I just have like a follow-up on the tariffs. So in your release, you detailed some opportunities to invest in the U.S. So could you please elaborate on the timing of these investments? And I understand that the situation is very fluid, but I mean, which of these initiatives that you pointed out in the release still makes sense after the recent update on...

[Technical Difficulty]

[Operator]

And we lost our analyst.

[Unknown Executive]

But I mean, I don't know if he's still on the call, but I can answer the question in regards to U.S. investment opportunities that were released on the press release, basically, I think that we have been talking about before. But what we've been doing is we've been accelerating the expansion at Ray Mine and the transition to sulfur at Silver Bell mine. And then we already talked about the smelter and the refineries, but we're looking at a time frame within the next 3 to 5 years.

[Operator]

And as I am not showing any further questions in the queue, I will turn the call back to Marlene Finny for any final comments.

[Marlene de la Torre, executive]

Thank you so much, everybody, and we'll keep in touch. If you have any further questions, let us know, and we'll try to answer everything, and thank you. See you next quarter.

[Operator]

All right. Thank you, ladies and gentlemen. This concludes our program for today. Thank you all for participating, and you may now disconnect.