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Good morning, and welcome to the Southern Copper Corporation’s Third Quarter and Nine Months 2018 Results Conference Call. With us, this morning, we have Southern Copper Corporation, Mr. Raul Jacob, Vice President of Finance, Treasurer and CFO, who will discuss the results of the company for the third quarter and nine months 2018 as well as answer any questions that you may have.
The information discussed on today’s call may include forward-looking statements regarding the company’s results and prospects, which are subject to risks and uncertainties. Actual results may differ materially and the company cautions to not 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 turn the call on to Mr. Raul Jacob. You may proceed.
Thank you very much, Victor, and good morning, everyone, and welcome to Southern Copper’s third quarter 2018 earnings conference call. Participating with me today in today’s conference is Mr. Xavier Garcia de Quevedo, a board member of Southern Copper. Let me first say that as a result of the startup of the new Toquepala concentrator and the recovery of the San Martin mine, 2019l mark another inflection point for our company, in which we will significantly increase the production of our main metals. When compared to our 2017 annual production, we’re expecting an increase of 13% in production of copper, 38% in production of zinc, 31% in silver, and 21% in molybdenum. At the average prices of the third quarter of this year, these production enhancements will represent an increasing sales of over $800 million.
Now I will pass the call to Mr. Victor Pedraglio, Southern Copper’s Manager of Financial Planning and Investor Relations. Victor?
Thanks, Raul. In today’s call, we will begin with an update on our view of the copper market. We then will review Southern Copper’s key results related to production, sales, operating cost, financial results and expansion projects. After that, we will open the session for questions. Now let us focus on the copper market, the core of our business. During the last quarter, the LME per pound copper price decreased from an average of $2.88 in the third quarter of 2017 to $2.77 in the third quarter of 2018 that is a 3.8% decrease.
We view this fall in copper prices as a reflection of market sentiment for a possible escalation of trade protectionism between the United States and China. However, we strongly believe that copper market fundamentals are solid and that these disputes will not be a long-term detriment to the copper market. We expect a recovery in copper prices in the coming months. As a result of the economic performance of the world major economies, refined copper demand is currently growing at about 2.9% worldwide, with China’s consumption growing at 4.9%.
Demand growth is outperforming our initial forecast, and industry experts are currently forecasting an increasing demand of about 2.5% to 3% for the year. In 2018, we have not had significant supply disruptions, leading to a balanced market for the year. However, due to price volatility, the required investments to provide new production in coming years have now materialized, giving support to better future prices. As you know, Southern Copper has the greatest – sorry, has the largest copper reserves in the industry.
Operating high-quality, world-class assets in investment-grade countries, such as Mexico and Peru. Given the current market outlook, we are focusing on developing the next phase of our growth program, aiming to reach a milestone copper production capacity of 1.5 million tons by 2025, that is a 50% increase, with a very competitive cash cost. We expect to do this delivering enhanced performance, sustainable growth and superior value.
Let us now focus on Southern Copper’s production for the past quarter. Copper represented 80.7% of our sales in the third quarter of 2018. Copper production increased 1.1% to 223,921 tons in the third quarter of this year compared with third quarter of last year, principally, due to higher production at our Peruvian operations of Toquepala, which increased by 16.6%, and Cuajone, which increased by 9.8%, resulting from higher ore grades at both mines. These increases were, partially offset by lower production at our Buenavista operations due to lower grade and throughput at the SX-EW facilities.
The operating plan to improve Buenavista SX-EW production to its design capacity is showing positive results. And we expect these facility’s production to increase by 18% in the fourth quarter of this year compared with the third quarter.
Continuing with our investment program, we have started the ramping up process of the Toquepala expansion project in Peru, where the new concentrator has initiated operations in this quarter, the fourth quarter.
Our current forecast is to produce 14,000 tons of copper in 2018 at this new facility. For this year, our total copper production is expected at 885,000 tons. For 2019, the Toquepala expansion is adding 100,000 tons to our annual copper production capacity, allowing us to reach 1 million tons of annual copper production next year with an even lower cash cost per pound of copper. Our current expectation is to increase our 2019 production by 13% next year.
Regarding molybdenum, it represented 8% of the company’s sales value in the third quarter of 2018. Molybdenum prices average $11.74 per pound in the quarter, which compares to $8.05 in the third quarter of last year, a 45.8% increase from the prior year.
Molybdenum mine production increased by 6.9% in the third quarter of 2018 compared with the third quarter of previous year due to higher production at Buenavista, which increased by 24.7%, resulting from higher production at the new concentrator, and also at Toquepala, which increased by 9.5% as a result of better ore grades.
For 2018, we expect to produce 21,900 tons of molybdenum, an increase of 2.7% in production due to additional production coming from Buenavista and the partial recovery of our Peruvian operations. In 2019, we expect to produce 25,900 tons of molybdenum with a significant contribution from the molybdenum plant at the new Toquepala concentrate.
Regarding zinc, it represented 3.7% of our sales value in the third quarter, with an average price of $1.15 per pound in the quarter, a price reduction of 14.2% from the third quarter of last year. Zinc mine production decreased by 4.9% to 17,469 tons in the third quarter of this year compared with the third quarter of last year due to lower production at Santa Eulalia, which decreased by 26.6% due to lower grades of recoveries, and at Santa Barbara, which decreased by 3% due to lower grades. This was partially offset by higher production at Charcas, increasing by 4.1%, due to higher recoveries. Refined zinc production increased by 18.9%.
On August 22 of this year, the company resumed control of the San Martin mine, located in Zacatecas, Mexico. As the San Martin facilities deteriorated during 11 years of illegal stoppage, we are undertaking a major renovation in order to start operations with an estimated capital value of $77 million.
Once in operation, we believe San Martin will have an annual production capacity of 20,000 tons of zinc, 2.8 million ounces of silver, 8,000 tons of copper and 1,000 tons of lead per year. A labor force of approximately 600 contractors is currently working to restart this facility. When in operation, San Martin will generate new labor opportunities for approximately 3,000 direct and indirect jobs as well as revenues for federal, state and local governments. For 2018, we expect to produce 73,200 tons of zinc, an increase of 7%, largely as a result of the recovery of the Santa Eulalia and the Santa Barbara mines’ production. In 2019, we expect to produce 94,500 tons of zinc with an important contribution from the San Martin mine.
Regarding silver production, it represented 4.2% of our sales value in the third quarter, with an average price of $14.92 per ounce in the quarter, an 11.2% decrease from the third quarter of last year. Mined silver production increased by 1.4% in the third quarter of this year with comparison with the same period of last year, mainly as a result of higher production at our Toquepala and IMMSA operations, resulting from higher grades. Refined silver production increased by 2.6% in the third quarter of this year from the third quarter of last year.
For 2018, we expect to produce 17.1 million ounces of silver, an increase of 7% in production from 2017. In 2019, we expect to produce 20.9 million ounces of silver, mainly as a result of important contribution of the San Martin mine.
Let us go now to financial results. For the third quarter of 2018, sales were $1.72 billion, $47.2 million higher than sales of the third quarter of last year, that’s a 2.8% increase. Copper sales volume increased by 3%, while value decreased slightly by 0.7% as a result of lower prices for this metal, which decreased by 3.8%.
Regarding our main products, we had higher sales of molybdenum, increasing 50.9% due to better prices and volume. Prices improved by 45.8% and volume by 8%. Also, zinc sales came 5.3% – were 5.3% higher due to higher volume and partially offset by lower prices. In the case of zinc, volume increased by 21.3% and prices decreased by 14.2%. And silver sales were up 1.4% due to higher volume, which was partially offset by lower prices. In the case of silver, volume was higher by 14.2% and prices were lower by [indiscernible].
Operating cost. Our total operating costs and expenses in the third quarter of 2018 increased by $43.1 million or 4.4% when compared to the third quarter of last year. The main cost increments have been in the inventory consumption, operation, contractors and services, diesel and fuel cost and other factors. These cost increments were partially offset mainly by lower purchase copper.
Adjusted EBITDA for the third quarter of 2018 was $868.1 million with a 50.4% margin compared with $863.1 million and a 51.5% margin for the third quarter of last year.
Operating cash cost per pound of copper before by-product revenues was $1.55 per pound in the third quarter of this year, that is $7.06 higher than the value of the second quarter of this year. This 5.2% increase in operating cash cost is a result of higher cost per pound from production cost, partially offset by lower treatment or refining charges, administrative expenses and higher premium.
Southern Copper operating cash cost, including the benefit of by-product revenues was $0.897 per pound in the third of this year, this cash cost was $0.804 higher than the cash cost of $0.813 for the second quarter of this year, which is a 10.3% increase.
Regarding by-products, we had a total credit of $310 million or $0.648 per pound in the third quarter of this year. These figures represent a 1.2% decrease when compared with a credit of $308 million or $0.656 per pound in the second quarter of this year.
Total credits have increased for molybdenum by 31.7% and sulfuric acid by 6%, while decreased for zinc by 19.8%, silver by 6.4% and gold by 29.3%. Net income attributable to SCC shareholders in the third quarter of this year was $369.4 million, which is 21.4% of sales or diluted earnings per share of $0.48. This figure compares with net income attributable to SCC shareholders for the third quarter of last year of $401.8 million that is 24% of sales or diluted earnings per share of $0.52. The decrease was mainly the result of lower metal prices and a higher noncash tax provision for the quarter to recognize our annual tax liability.
Regarding capital expenditures, Southern Copper’s investing philosophy is not based on the outlook of copper prices, but on the quality of the assets that we operate and develop. Throughout the years, our strong financial discipline has consistently allowed us to invest on a continuous basis in our superior asset portfolio. Capital investment in the first nine months of the year were $831.8 million compared with $710.4 million in the first nine-month of last year.
Capital investments in the first nine-month includes $329 million for the Toquepala expansion. For 2018, we are reducing our capital expenditure forecast to $1.1 billion as a result of rescheduling our capital expenses to 2019 and onwards. Regarding Peruvian projects, our portfolio of board-approved projects in this country has had total capital budget of $2.9 billion, of which $1.9 billion have already been invested.
Considering the Michiquillay $2.8 billion, and Los Chancas – sorry, Michiquillay $2.5 billion, and Los Chancas $2.8 billion projects, our total investment program in Peru increases to $8.2 billion. Regarding the Toquepala expansion project, this $1,255 million project includes a new state-of-the-art concentrator that will increase Toquepala’s annual copper production by 100,000 tons to reach 258,000 tons by next year at 74% production increase, when compared to 2017.
As of September 30, 2018, we have invested $1,192.4 million in this expansion. The project has reached 98% progress and is expected to initiate production in the fourth quarter of this year. Regarding Tia Maria, we have completed engineering and after having complied with all environmental requirements, we have obtained the approval of the environmental impact assessment. We are working jointly with the Peruvian government to obtain the construction license for this 120,000-ton annual SX-EW copper greenfield project with a total capital budget of $1,400 million.
We expect the license to be issued during the fourth quarter of this year. The company expects the project to generate 3,600 jobs during the construction phase. When in operation, Tia Maria will directly employ 600 workers and indirectly provide jobs to another 4,200. Through its expected 20 years life, the project related services will create significant business opportunities in the Arequipa region.
Regarding Mexican projects, we have Buenavista zinc project in Sonora, which is located within the Buenavista facility and includes the development of a new concentrator to produce approximately 80,000 tons of zinc and 20,000 tons of additional copper per year. Currently, we have completed the basic engineering and are working on the purchasing process for the main project components. The project’s budget is $413 million, and we expect to initiate operations in 2021. When completed, this new zinc concentrator will double the company’s zinc production capacity.
Regarding the Pilares Sonora project located 6 kilometers from La Caridad, it consists of an open-pit mine operation with an annual production capacity of 35,000 tons of copper in concentrates. The ore will be transported from the pit to the primary crushers of the La Caridad copper concentrator through a new 25-meter wide off-road facility for mining trucks.
Environmental permit studies were presented to the government’s environmental authorities. This project will significantly improve the overall mineral ore grade by combining the 0.78% ore grade expected from Pilares with the current 0.34% ore grade at La Caridad. The budget for Pilares is $159 million, and we expect it to start producing in early 2020.
Regarding dividends, as you know, it is a company policy to review at each board meeting cash resources, expected cash flow generation from operations, capital investment plan and other financial needs in order to determine the appropriate quarterly dividend. Accordingly, as announced to the market on the 18 of October, the Board of Directors authorized a cash dividend of $0.40 per share of common stock payable on November 21 to shareholders of record at the close of business on November 7, 2018.
With this in mind, ladies and gentlemen, thank you very much for joining us, and we’ll like now to open the forum for questions.
[Operator Instructions] And our first question will come from the line of Thiago Lofiego from Bradesco. You may begin.
Thank you, and good afternoon, gentlemen. Two questions. First one on Tia Maria. Do you think it’s – what’s the – in your view, the likelihood of the project being approved in the fourth quarter? I know you mentioned in the press release that, that’s your expectation. But how realistic is this assumption considering the election, the regional elections will take place on December 9, if I’m not mistaken. So the window until the end of the year seems to be very tight and what’s the rationale behind your assumption for the fourth quarter of 2018 approval of Tia Maria?
And then the second question on cash cost, considering the full ramp-up of Toquepala and also the improvement in Buenavista next year, what could we expect in terms of cash cost per ton before that products for 2019? Thank you.
Okay. Thank you very much for your questions, Thiago. On the Tia Maria question, well, we’re very optimistic on the way that circumstances have evolved at the area of the project. The new – we expect the new authorities that has been elected locally for the five districts that are in the province of Islay as well as the Islay provincial Mayor. These are new people that we believe we can work with them on a very positive way for the progress of Islay and Arequipa.
We see that resistance to the project that it had in the past has been diminished significantly. And that encouraged us for expecting the approval of the construction license or permit before year-end, that’s our expectation at this point.
Regarding cash cost, well, we announced the recovery of the San Martin mine. We mentioned in the press release the possibility for production at San Martin has and what we expect from it. Just to give you an idea, if we convert the silver production, the copper production, et cetera, of San Martin into zinc tons, it’s equivalent to 75,000 tons of zinc of new production. So being copper or zinc or silver or lead, it will certainly contribute with the very good cost structure to our cash cost, that plus the expansion of the Toquepala – the new Toquepala concentrators that has an annual capacity in copper production of 100,000 tons of copper and 3,100 tons of molybdenum makes us to believe that our cash cost will keep decreasing and has been the case through 2018.
And our expectation, at this point, given the current price deck for energy, fuel, et cetera, labor cost, it’s that we should have a cost – a cash cost in the range of $0.75 per pound for 2019.
Very, very clear. Thank you, Raul.
You’re welcome, Thiago.
Thank you. And our second question comes from the line of Carlos De Alba from Morgan Stanley. You may begin.
Thank you, Raul and Victor. And Raul, just finishing probably or completing the response from the last question, what is the cash cost before by-products for 2019? And then, continue with San Martin, the IMMSA mines are not particularly that profitable from what I recall, the company has not released information on those – that unit for some time, but could you give us a sense of guidance of how much EBITDA contribution will San Martin bring to the operations? And also – or what is the cash cost of zinc or zinc equivalent that the company is expecting for this operation? And then, finally, if I may, what are the third-party concentrate purchases that you believe the company would make – would do in the fourth quarter of this year?
Okay. Let me focus first on your question on cash cost. We’re expecting our cash cost before credits to decrease from what it is right now to $1.48 per pound next year. So – and cash cost – total cash cost at about $0.75 per pound. So the difference is the contribution of by-product credit. In the case of San Martin, I don’t have with me the EBITDA contribution of this operation; however, in – regarding IMMSA, IMMSA, for us, it’s a very profitable unit. Its contribution is mainly on the by-product’s side of our business. Cash cost and zinc units, it’s very, very low, close to zero. If you subtract the by-product that the IMMSA operation has when you measure zinc being the main metal and silver, lead, et cetera, gold are the by-products in case of the IMMSA.
If you want to look at the operating profit of this unit, you can see in our 10-Q, when we – where we divide our segments for the Peruvian operations, the Mexican open-pit operations and the IMMSA operations as well. And regarding the third-party’s concentrate purchases for the fourth quarter, well, we are large in copper concentrates in Mexico. We expect to be large in copper concentrate as well in Peru. So we are expecting to – for now, not to buy any additional purchase concentrates and that’ll be the case for next year because we will be large in concentrates vis-a-vis our smelting capacity in both Mexico and Peru.
Thank you very much for that Raul. Why did the company buy concentrates in – third-party concentrates in the third quarter? Was the company short? Or was more strategic or what happened?
It’s driven by technical reasons. Basically, we acquired some more concentrates for having our smelting circuit running at full speed and capacity. In some cases, it was appropriate to start concentrates given very advantage commercial terms that we got from them. And as you move on through the year, you may need to buy some third-party concentrate just to fill in the operations. From now on, we’re not expecting to do that next year.
But also not in the fourth quarter?
Yes.
Okay, thank you.
Thank you very much, Carlos.
And our next question comes from the line of Alfonso Salazar from Scotiabank. You may begin.
Thank you. Thank you, Victor and Raul. I have two questions. The first one is pretty much the same, I always ask, regarding the expansion projects in Mexico. And if there is any news about the Empalme or any other projects that has been approved by the board? And the second is more related to legal risks. Do you have a social impact study for each of your operations in Mexico, and what does that to them? Thank you.
Okay. No news to report regarding any investments on smelting, such as in Empalme or some other facilities in Mexico and that applies as well to the other operations of the company. We’re, obviously, looking at different possibilities to invest in different locations, not only in Mexico and Peru, But, at this point, it’s what we presented in the press release. Basically, we’re focusing on two projects, the Buenavista zinc concentrator and the Pilares. Those are the ones that were being developed. Regarding some other projects, we’re moving forward with them, but we don’t have a specific board approval for them.
Yes, we do have a social impact study for each of our operations in Mexico as well as in Peru. Well, this is something that is key as part of doing business, in generally speaking, in our industry. We are complying with the most advanced techniques regarding environmental and community relations at this point.
Make sense. Thank you very much.
You’re welcome.
Thank you. Our next question comes from the line of Petr Grishchenko from Barclays. You may begin.
Good afternoon and thanks a lot for taking my questions. Can you please provide may be a guidance for CapEx for next year and beyond? And kind of break it up in the expansion and maintenance? And staying with CapEx for a second, I think you were estimating $1.7 billion for full year 2018, and maybe you’re run rating it around, call it $1.1 billion. So in addition to Tia Maria delay, what was the reason for lower CapEx so far?
Okay. First, let me mention that our guidance at this point for 2018 is $1.1 billion. Maintenance, it’s slightly higher than $400 million at this point, about $450 million that’s our current guidance on maintenance CapEx. Now on the reasons why we have been decreasing our initial expectations on capital, well you have – you mentioned, Tia Maria, besides that, we have our other projects that are moving at a good pace, but not strong as we expected them to be at the beginning of the year. And nothing is specific to mention just Tia Maria, where we have some money budget for this year. We are not being able to spend this money so far, but we’re looking forward for getting the construction permit in this case and moving forward with the product as soon as we can.
Got it. That’s very helpful. And maybe can you comment on your pipeline and, specifically, the largest projects you have; Michiquillay, El Arco, Los Chancas, like what’s, specifically, the time line you think you could start ramping those up? And how long would it take?
Sure. Certainly. Well, in Michiquillay, we are expecting to do exploration as well as community work for now – from next year, all the way to 2021, 2022, that’s where we believe we should be finishing the exploration, the feasibility study and work on the environmental impact assessment. Michiquillay should initiate a much more important investments in 2023, should be up and running by the end of 2025 and initiating production in 2026, that’s our view at this point. It may accelerate if we have better results on the exploration site, and that allow us to accelerate the environmental impact assessment as well as the feasibility study.
In the case of Los Chancas, this is a project that we’re expecting to develop once we finish with Tia Maria. Tia Maria should be up and running by 2021, if we initiate the construction of the project next year, as we expect. In the case of Los Chancas, we are expecting to initiate investments by 2022 and have it finish by 2025 in production. Los Chancas, it’s 110,000 tons of copper production with significant by-products, over 7,000 tons of molybdenum as well as gold. And in case of Los – Michiquillay, it’s a project aiming to 225,000 tons of copper and by-products of molybdenum mainly in the case of Michiquillay.
Got it. That’s very helpful. And I guess, switching gears to dividend. I understand the Board frequently revisits the payments, but given you’re run rating around the $1 billion for full year, what’s your expectation for next year assuming copper prices stay here on average? Do you expect it – dividend to be around the same levels this year?
It’s up to the Board. It’s not for us, that’s management to comment on that. However, you can see that this Board has been very keen about rewarding shareholders, when prices of copper and our cash flow forecast allow us to do that. So we’re currently at $0.40 per share per quarter, that’s what has been approved two quarters in a row. But I can’t comment on decision, that is outside the management reach.
Got it. Thank you very much. That’s very helpful. Best of luck.
And our next question comes from the line of Marcos Assumpcao from Itau BBA. You may begin.
Good afternoon, everyone. First question, how – if you could provide, please, an update on your Peruvian and also Mexican labor contracts? And second question on copper prices, how do you see them at current levels? Historically, you have been – you guys have been a bit more bullish on copper prices. And if you could comment a bit on your long-term incentive price forecast as well, it could be helpful?
Certainly. Thank you very much for your questions, Marcos. Mexico and Peru, let me start with Peru, where we’re negotiating currently two-year labor contracts with our workforce here in Peru. Well, we already signed contracts for three years with the four of the six unions that the company has. We’re negotiating with the two that are remaining, or – and expecting to finish these before year-end. These – the contractors, we have already signed, call for a 5% increase per year on the three years, each of the years of the three-year contract. And basically, that’s for the Peruvian operations. We’re very optimist and positive that we may arrive to a final negotiation with the Peruvian unions shortly.
In the case of Mexico, we had review in salaries. They were increased, I think, at 6% this year. And that’s what – well, it’s the case in Mexico. You have to discuss salaries one year, and the next year you discuss on benefits. So this year was salaries and it was 6%, as I mentioned already. On the long-term price view of the company, well, we are in the business – this business, we like it. We think that copper has a very, very positive long-term profile and what is happening in our view has been summarized in the presentation that Victor Pedraglio did. I’m going to mention it.
I think the key things here for us is that we have had after the super cycle of prices, we had five years in which copper prices were each year lower than the prior year, that end in 2016. In 2017, we believe we have initiated a new upside cycle for prices – copper prices. And we think that we’re not seeing yet the incentive price for the new production that will be required in the next few years being approved as projects. We believe that, that incentive price is in the range of $325 to $350 per pound. And we think that eventually the market will reflect the scarcity of copper that we will face, given the current trends in demand as well as supply. For this year, as we mentioned, the market – we see the market in balance, but that is not the case for the next few years. And we believe that prices will start reflecting that reality or this outlook in the next few quarters.
Perfect. Thank you very much, Raul.
You’re welcome.
And our next question comes from the line of Renan Criscio from Credit Suisse. You may begin.
Hi, everyone. Thanks for the questions. My first question’s on, if you can provide an update on Buenavista, the correction program. So can we – based on what you have been seeing, can we see the plant or the operation back to normalized levels as of next year or whenever you see that? And also, on Toquepala, if you can comment, if the new concentrator is already operating? And how is the ramp-up evolving? And if it’s not concentrating, when do you expect that to happen? And finally, my last question is on, if you can combine all these informations and provide what you expect for copper production next year?
Certainly. Thank you for your questions, Renan. On the Buenavista SX-EW correction program, well, we have been working very hard. The plant or the SX-EW operations have two main problems that we need to correct. One was on the ore grade or the grade of the pregnant liquid solution that goes into these facilities. We have been – we are seeing a better ore grade on this – ore grade of copper content in these pregnant liquid solutions, that’s why we are mentioning that we’re expecting an increase of about 18% in SX-EW production vis-a-vis the prior quarter or the third quarter of this year. And the other thing is the throughput of pregnant liquid solution. For the second factor, we have – we are using at full capacity, our new SX-EW 3 plant in Buenavista, the southern construction plant in Buenavista as well as the SX-EW 2, which is a relatively older or the one that we have in operations at Buenavista.
So we’re trying to reduce the impact of the lower grade in the pregnant liquid solution by having more throughput in the different plants that we have. This is working, and we’re doing some other actions in order to restore the full capacity of these facilities. We think that we’re in the right direction and that’s our view and our expectation that we will get this normalized through – well, through 2018. We are doing very good progress, and we expect to be finishing this through 2019 and getting full capacity on this plant. On the new concentrator of Toquepala, well, we had a small delay in the total project. It’s about a little bit more than a quarter. The concentrator line 1 has 2 lines. Line 1 is already recharged of mineral and it’s producing concentrate, small amounts at this point, but we’re – we believe that we can do the ramp-up of this facility through the fourth quarter of this year and into the first quarter of next year.
So getting the new concentrator at full speed will most likely be by the end of the first quarter or by April, say, of next year. In terms of copper production, our view is that next year, we will be producing slightly less than one million tons. Our current forecast is 990,000 tons. We want to – that’s the forecast – that’s what has been provided by our engineers. Our view is that we want to increase this production to over one million tons and we believe it’s a landmark for the company. For 2020, it’s 1,111,000 tons. For 2021, it’s 1,145,000 tons. 2022 1,126,000 tons that’s basically then in 2024, 2025, we will get the benefit of Michiquillay, Los Chancas and some other projects and that will increase our production arriving at to over 1.5 million tons by 2025.
Clear. That’s very helpful. Thank you.
You’re welcome.
Thank you. And our next question from the line of Lucas Pipes from B. Riley FBR. You may begin.
Thank you very much, and good afternoon everybody. I wanted to first follow-up a little bit on the copper market itself. Raul, you mentioned kind of your outlook in one of the prior questions over the next few years, but can you elaborate on what exactly happens here over the summer, and what you think has been driving prices lower? Is it supply-demand? And if so, how much on the supply side? How much on the demand side? Would really appreciate your perspective? Thank you.
Yes. Well, let me saying that even though we certainly follow the copper market, we’re more focused in cost control, cost improvement in different parts of our operations and that’s where we believe the value is generated for our shareholders. Obviously, being in copper and believing that copper has a good outlook is certainly something that is helping us to generate value that our shareholders deserve as a return to their investment. Now what has happened through 2018 is that we have had – we were expecting at the beginning of the year that about one third of the total supply worldwide was – were possibly affected by labor negotiations.
But generally speaking, labor talks end up very positively with no strikes, no interferences. Even in operation that has been in past years, very conflicting months. I mean, this is for the industry, not for us. We have a very good outlook regarding supply and demand has gone even better as what we expected worldwide. At the beginning of the year, we were expecting demand growth of 2.1%. While now we’re looking at demand growth for copper between 2.5% and 2.9% for the year – 3%, I’m sorry. So the market has been much better-than-expected in both sides of the equilibrium that it may have.
An important fact for us is that we’re looking at two things that are important here, commercial terms for next year are very positive, higher than what we have before, which is an indication of a strong market. And also the inventory has been decreasing consistently in the last few weeks. So we believe that we have very encouraging signs in the market. The market is in balance. It’s balanced market, but at the same time, we see positive developments. And as I said before, no significant new project has been approved to that we see a market with an excess supply or balance for year, say, 2020 and on, what we’re seeing is a deficit and that’s our view at this point.
Very helpful. I appreciate all the color. Switching over to maybe something more on the regulatory side, can you remind us to what extent there are changes in the Mexican mining what extent they would be affecting you specifically?
Well, so far we haven’t seen any significant changes that affect us at this point.
Anything that has a high likelihood of coming through over the next year or so?
No. We don’t want to speculate on different changes in laws. We want to -- we will make an opinion when we have specific information.
Got it, okay. And then maybe, lastly, can you – there has been some press around the court decision regarding Buenavista. Can you remind us on kind of your update on the situation, I would appreciate your thoughts? Thank you.
Certainly, well, this was a decision by the Supreme Court of Mexico that was not related directly to us. It was related to the environmental agency of the Mexican government. The ruling say that environmental agency should have consulted the Bacanuchi community and has asked for different actions to be taken regarding that. We as a third-party involved in this process are taking the actions that has been request by the Supreme Court, and we are doing that and we don’t see, at this point, any risk for the company of having an extra cost or disruption in production related to this ruling. So we’re well operating and we’re seeing this with no interference in our current business.
That’s good to hear and best of luck. Thank you very much.
You are welcome.
Thank you. And our next question comes from the line of Charles Tumazos from John Tumazos Very Independent Research, you may begin.
Could you elaborate a little more on the dividend policy? The $0.40 in the current quarter is a relatively high payout in relation to the $0.48 of earnings?
Well, I think it’s up to them. It’s up to the Board to decide on the dividend to pay. The way that this decision is done is by a review on the copper market, review of any specific loans that the company has to pay or capital investments. We have been, as you know, and the market recognized the company has been growing significantly in the last few years with very solid investment, very low cash cost investments.
And we already finished a big growth cycle in Mexico by the expansion of our Buenavista operation. In Peru, we are finishing the Toquepala expansion and we’re looking forward to initiate the Tia Maria project. As I said, during the years of low prices, the company has been investing significant amounts of money in projects that are ready to go. We are facing a new better price copper cycle at this point. So we believe that, that is – that this positive outlook is being reflected in our dividend.
But as I mentioned before, it is a decision that’s entirely in the hands of the Board. Now the company has no specific pick to pay a ratio or specific cents per share as a policy. The policy is that at each board meeting, the Board will review, as I said, the cash position of the company, the cash flow generation projects that we have to fund, any payments related to loans, et cetera. And on that basis, dividend will be considered.
Thank you very much.
You are welcome.
[Operator Instructions] Our next question comes from the line of Carlos De Alba from Morgan Stanley, you may begin.
Raul, just two maybe I missed this, but when does the company expect San Martin to actually restart production? And when do you think the operation will reach full capacity? And also, could you repeat the expected production – copper production in 2018? Raul
Yes. We are expecting to have San Martin initiating production of concentrate by the second quarter of next year. In the first quarter, we will be already producing mineral and storing it. But for the second quarter, we’re expecting to have the concentrator already fixed and initiating production.
For 2018 our production guidance, it’s 885,000 tons of copper.
885,000?
885,000
885,000. Okay thank you very much.
You’re welcome.
Thank you. And I’m showing no further questions at this time.
So thank you very much. With this, we conclude our conference call for Southern Copper’s third quarter results. We certainly appreciate your participation and hope to have you back with us when we report the year 2018 in January. Thank you, very much, and have a much, and have a nice day.
Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.