Earnings Call: Q1 2021

Apr 28, 2021

Good afternoon, and thank you for holding, and welcome to Grupo Mexico's First Quarter twenty twenty one Earnings Conference Call. With us this afternoon are all of Grupo Mexico's top executives, who will discuss the first quarter twenty twenty one financial performance of the company, giving you a summary of the latest news and address any questions you might 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 risk and uncertainty. 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. The presentation may be followed through our webcast. A copy of the slides that the company will be reviewing today is available on the website at gupomexico.com. At this moment, I would like to remind everyone that your lines must be in listen only mode on to the question and answer session. Now we will begin with Ms. Manantine. Hi. Good evening, everybody, and thank you for joining us today in Proverco Mexico's first quarter earnings conference call. Joining me today are the top executives from all of our divisions, Mining, Transportation and Infrastructure divisions. And as Karen was mentioning, for today's call, we will be following the presentation that can be downloaded from our website or by accessing the webcast, whichever you prefer. I would like to start today today's call by reinforcing our commitment with our employees and community and hoping you and your loved ones continue to be healthy. On today's call, we will be following the program detail on slide number three. Uh-huh. On Slide number three of our presentation. I will start with the report Mexico's main highlights, ESG achievement, scorecard and financial highlights for the quarter. Then, unfortunately, today, Mr. Javier Sanchez de Vedro couldn't be with us, but Leonardo Leonardo Contreras, A and C Director, will be and will provide detailed information regarding our mining division commenting on the industry's economic environment, the division's financials and its highlights, then followed by Fernando Lopez Herras, who will dive deep into the financial results and main events of our Transportation division. And finally, Francisco Sinclair will comment on the relevant events that occurred during the quarter in our Infrastructure division. At the end, the line will be open for the questions and answers you might have or any issue you want to address. Today, I'm very pleased to announce that as we maintain the strictest protocols against COVID nineteen throughout the month of the pandemic, during the first quarter of the year, all of our divisions have excelled in different ways. From improving our cash cost in the mining division to returning to pre COVID volumes in our transportation division to winning the designation to build the railway for the Section 5 South Of The Trenmaya by our infrastructure division. So we have significant achievement by each division. But let's start by analyzing our main ESG achievement in slide number five. This is. We have been included, and I think this is very important. As you know, ESG is now at the core of our strategy. It has been for many years, but now we're trying to be more proactive and focusing on on much more on giving the information and trying to to communicate everything that we do because we think it this is very important. And even though we do a lot of things, we are trying to communicate it better. So you can all have the information you might need to make any decision. So this year, we have been included in the Dow Jones Sustainability Index for the for the fourth time in a row. And as we move towards the adoption of best practices, the company's sustainability and corporate governance development policy have been updated, formalizing our commitments and objectives to increase sustainability and best practices all over the company. On a more local note, Minera Mexico received three Cascos de Plata, which is an award, an important a significant award here in Mexico for its performance in safety and occupational health awarded by the Mexican mining chamber. So it's a significant award. And before we continue, it's important to highlight that we have not put this guard down against the COVID nineteen pandemic. We continue to follow the strictest protocols in all in all of our facilities in Mexico, Peru, The United States, working alongside the authorities in each location and mounting intense communication campaign to educate our community about the prevention and hygiene measures recommended by health authorities. Here, I will mention this during our call earlier today in Solomon Copper's call, but I think it's important to to highlight as well that in the vax to the vaccination plan, one hundred percent of the medical staff in our operations have already been vaccinated. In addition to that, ninety eight percent of our staff over the age of 60 in Kalania and one hundred percent one hundred percent in Nakotari have been vaccinated. A significant program protects our staff from becoming infected with COVID nineteen and allows them to have peace of mind from the for themselves and their families. We continue to contribute as we kind to the vaccination plan by providing logistics support. And we have continued as well with the medical the the nation of medical supplies in Mexico and Peru, amounting more than two point two million, emphasizing the reasons where COVID nineteen infections have been increasing, including areas where the company does not have an operational presence, but where the health situation has the warranty. In the case of Peru, given the increased increased demand for breakout rate of oxygen, and the Los Melter signed a contract for an agent of 2,500 tons of liquid oxygen. As that, we have been doing a lot of other things. You can read everything in our in our press release. That was just a brief comment on what we have been doing. So moving next to Slide number six. Scorecard for the quarter shows record breaking results as we achieved quarterly sales record, netting 3,430,000,000.00 for the quarter, an increase of over 40% versus the first quarter of twenty twenty, driven mainly by higher copper, molybdenum, zinc and silver prices. To give you an idea, copper prices were 50% higher than during the first quarter of twenty twenty. But this is not only because of higher copper prices. We have invested over the past ten years more than 18,000,000,000, So we have increased our production significantly. So now we are seeing with this good cycle in terms of prices, we have seen the results coming back as well in the other divisions with more growth and new projects. So it's very interesting right now. We have also achieved a quarterly EBITDA record of 140,000,000.00, an increase of almost 100% versus the same quarter of last year. Our operating income also achieved an outstanding result, reaching $1,700,000,000, an increase of over 140% versus the first quarter of twenty twenty, and an EBITDA margin of 52.3. And this compared to last year is a significant increase as we had during the first quarter of twenty twenty, '40 '3 point '7 EBITDA margin versus right now 62.3. So it is a significant increase. Our Board committed to transfer and create and generate value to our shareholders, approved a cash dividend per outstanding share of MXN 1 point 5 per share, a 20% increase versus last quarter, reinforcing our strong dividend program, which translates into a 5.9 dividend yield. That's very significant. And during the fourth quarter, we had a 5.5%. And even with a higher share prices, we continue and we maintain similar dividend yields. So that's our intention, and I think it's very generally tight. We were able to reach a copper production of more than 271,000 tons. This is a slight decrease versus the first quarter of twenty twenty, but practically in line with production. So that was a good threshold as well. To end our record quarterly scorecard, I would like to highlight our 5.5 cash cost improvement versus the same quarter of last year, ending in $0.88 per pound. Moving forward to Slide number seven, you can find a summary of our financial highlights, which is therefore used to have in hand in case you need to in case you need it at any point during the presentation. As you can see, the growth that we were mentioning before of the forty, one hundred and forty and ninety nine, almost 20% growth in revenues, operating income and EBITDA as well as our net income. I think you have it there, but we had an improvement as well from a net loss during the first quarter of twenty twenty to a total net income of roughly 1,000,000,000 during this quarter, at least above BRL 1,000,000,000. Moving on to Slide eight. We can see that Grupo Mexico maintained a solid balance sheet with low leverage and a net debt to EBITDA ratio of 0.7 times. Our debt is mainly issued in U. S. Dollar, representing 80% of the total debt, while the remainder is denominated in Mexican pesos. Normally, and this we have mentioned this before, what we try to do is to match the type of assets that we have with our financing strategy. So for example, in the mines, which are long term assets with 100% revenues in dollars, we normally issue debt long term debt in dollars. But in other cases, for projects, it depends, and that's how we try to do it. We match the time and the currency, depending on what makes more sense to improve or to have a good capital structure. On this slide, you can also see the dividend paid and the implied dividend yield from 2019 and 2020 and the next and now the 1.5 cash dividend for the quarter approved by our Board that has a 5.9 dividend yield I was mentioning before. As for our debt maturity profile, which is on Slide number nine, sorry, we continue to have a comfortable maturity schedule with no significant payments until 02/1935 and a cash flow generation of over $750,000,000 during the quarter to total at $4,800,000,000 for the end of the quarter. We also saw a 16% reduction of net debt versus last quarter as we continue to pay some of our debt, depending if it makes sense or not, in or in time and order. Now I will pass the call to Leonardo Contreras, who will comment on our Mining Division's performance. Thank you, Marlene. First of all, I hope you and your long ones continue to be healthy and strong. Let me start with the Mining Division's operating and financial highlights on Slide 11. As Marlene previously mentioned, production was practically flat for the quarter, totaling 271,312 tonnes, representing a decrease of only 0.5% versus the quarter on 2020. The slight drop in production was due to lower ore grades in our Peruvian operations, while our INSA and Dassarco operations helped mitigating this effect. Along with our high production level, higher copper and byproduct prices propelled our sales during the quarter, which ended the period in a record $2,800,000,000 a 56.1% increase when compared to the same period of last year and 6.5% versus the fourth quarter of twenty twenty. We continue to be the cost leader in the industry worldwide as our net cash cost ended the quarter at $0.88 continuing the downward trend of our net cash cost, this time supported by higher byproduct credits. Our cost efficiency focus and higher metal prices led us to an outstanding 158% increase in EBITDA when compared to the same period of last year. Our EBITDA margin set at 64.6% is also a quarterly record as an improvement of over 2,500 basis points. The Mining Division's CapEx ended the quarter at USD $239,000,000 as we continue to invest in our projects. I would like to continue talking about our projects and their progress in Slide 12. In Pilares, the construction of the road for mining trucks between the Pilares Peak and the primary crossing to Ancina Caridad started a couple of months ago, and it is already materially completed. In regards to our Buenavipasin project, which is expected to be operational by 2023, ended the quarter with a basic engineering completed and an 89% completion rate in the detailed engineering plan. It is important to mention that additional preventive COVID-nineteen protocols have been implemented to further advance this project. Finally, we confirmed that there are suitable copper recovery levels in El Pilata, also expected to be operational in 2023, and the basic engineering has already begun. As you might already know, these projects are not the only ones in our robust pipeline. On Slide 13, you can see our upcoming projects and their impact to our production, as we set sail to reach the 2,000,000 tonnes of copper produced by 2028. Before concluding the Mining Division's highlights, I would like to share with you a couple of quick remarks on the current copper market. In the first quarter of the year, the LME copper price increased over 50% from an average of $2.56 during the same quarter last year to $3.85 Today, we're seeing prices over $4.4 per pound, suggesting a positive outlook for the 2021 copper market. We believe the following factors are influencing the market: the automobile industry's global recovery, which has increased its production 89% in the first quarter of twenty twenty one. President Bibbens took 2,000,000,000,000 infrastructure package, which will significantly increase the demand for copper as it is a fundamental element of green energy facilities. In addition to that, the low inventory levels of the LME, COMEX and Shanghai and bundled warehouses and an expected market deficit this year due to a significant recovery in demand, which should be between 3.55.5%. If you happen to have any follow-up questions, we will be pleased to address them during the Q and A session. I would like to close by reinforcing our full support for communities where we operate and all our collaborators. Now I will let Fernando comment on the Transportation division. Thank you, Leo, and thank you, everyone, for joining us today. Continuing with the Transportation division on Slide 15, I would like to talk about our financial highlights for the first quarter of the year. Our sales continued to increase quarter over quarter, totaling $593,000,000 a 9.6% increase versus the last quarter of twenty twenty as we pull out of the COVID pandemic. When compared to the same quarter last year, we saw a decrease of 2.1%, mainly driven by a decline in industrial, automotive and cement segments. It is important to consider that during the first almost two point five months of 2020, we have not suffered any impact of COVID-nineteen in our operations, making this operation somehow this comparison somehow skewed. Along these lines, our EBITDA totaled $264,000,000 a 12.8% increase quarter over quarter, while our net income increased 21.7%, but showing a 6% decrease and a 15.2 decrease, respectively, when compared to the same quarter of 2020. Our transportation volume increased 3.3% in net ton kilometers quarter over quarter and 2.3% year over year. This increase was mainly driven by our energy segment in which we have seen a recovery in fuel exports fuel oil exports, LPG and some new refined products traffics as liquid terminals have come online. As we move forward to Slide 16, you can see our main highlights for the quarter. Volume has returned practically even to pre COVID levels in most of our segments. Revenue has seen is you saw a slight decrease of 0.3% in Mexican pesos versus the same quarter last year, and our EBITDA only decreased 3.5% in Mexican pesos. Also, it is important to highlight that our Board approved a zero three zero dollars dividend per share, and we continued with our share repurchase program, buying back 2,400,000.0 shares over the quarter at an average price of 29.73. Continuing with our main valuations of our revenue on Slide 17, we can see that, as I mentioned before, the energy segment showed the highest growth during the quarter, followed by metals, in which we saw an increase in volume in raw materials and finished products for Mexican consumption. The other three segments that showed medium growth were minerals, ag and intermodal. The minerals segment growth was due to U. S. Market, where weaker the Minerals segment growth was due to U. S. Market share, where we gained and propelled by a solid Florida construction market, which has come back really, really strong. We had four segments with negative impact in revenue growth, including the chemical, automotive chemical, automotive and cement segment and industrial as well. This one showed a decline of 11%, mainly due to decrease of rail car exports. And we've mentioned this before, as railroads have become are becoming more efficient in in everything, we are needing less railcars to move the same volume. That is mainly the reason. On Slide eight, in automotive, the main reason was the shortage that has been topped in many industries worldwide, the shortage of chips for the automotive industry and basically that's our main impact. On Slide 18, we show our operating metrics for the first quarter since 2019. Here we can see that our average train speed is practically flat at 38 kilometers per hour. Our dwell time did decrease at 9% moving up from twenty four hours to twenty six hours. And the addition of these two variables equate to the car velocity in kilometers per day, which dropped by 6%. Our dwell time was impacted mainly due to the weather challenges that we had in Texas that The U. S. Carriers had in Texas with weather conditions. This is completely this has been completely corrected by now, and we see the dwell time and car velocity improve. On train length, it has improved by 6%, almost reaching 2,000 meters per train and gross tons per train gross tons per train improving by 10% over 6,400 tons per train. This equates to less crew start and by in that order of ideas, crews to do the exact same thing and move the exact same cargo. Now moving into Slide 19, which is our CapEx plan. I will address our main growth and efficiency projects. Our intermodal terminals that we're building outside the Port Of Manzanillo will be operational by fourth quarter of twenty twenty one. This will allow us to receive all the units that lack capacity inside well capacity inside the Port Of Manzanillo so that we can hold them may into Mainland. The refined refined products terminals from one of our one of our main customers are coming online. This, the Veracruz Port Terminal is already operational, and it's being unloaded in, in Puebla on a on a transfer basis within the next month, a month, a month and a half. It will have tanks and be ready to unload unit trains, full unit trains and the same for Mexico City within a month and a half or two months. The Celaya Bypass, we now have full access into Honda, and the entire bypass should be done by fourth quarter of twenty twenty two. The Monterrey Bypass, we should be done between October and November of this year. This will give us great access and our and and faster access into and out of Monterrey and become very, very competitive versus over the road and trucks from the port and out of the port, into the Port Of Altamira. The Chihuahua Hinata Corridor, this is us connecting our Tejas Pacifico line into our Mexican rail network, which is a very good project for us with very with with a lot of potential for refined products, grain and some consumer products. As you all know, Texas is Mexico's largest trading partner. So this should be done by third quarter twenty twenty one. In efficiency projects, our transportation management project, which is one of our most important projects right now, we are to be done third quarter of twenty twenty one. This project gives us complete visibility into what we currently operate. It's a great upgrade into our operational system. The LNG conversion is to be done the first phase by third quarter of twenty twenty one, And we're already receiving some of the locomotives and some of the tenders, but this is a sequential process and needs to be done by third quarter of twenty twenty one. On the trip optimizer, we're fully operational on all of our road locomotives and the union has also agreed to utilize these these project, these these systems which allows our crews to practically run on autopilot, and this allows us to have the best run possible out there for fuel consumption, and we're witnessing those improvements as well. As for our outlook on 2021, depicted on Slide 20, we expect volume growth between 57%. We reaffirm our expectation of a double digit revenue growth over the year, boosted by a recovery from COVID-nineteen and new traffic. This concludes a general overview of our Transportation division. I will now let Francisco Cuncin to comment on the Infras division. Thank you very much, Fernando, and good afternoon, everyone. Starting with the financial highlights of the Infrastructure division in Slide '22. Revenues totaled EUR 148,000,000 for this quarter, which represents an 8.3% increase compared to the same quarter of last year, continuing with a positive trend of 8.4% increase quarter over quarter. Our EBITDA totaled $60,000,000 for the quarter, which translates into a 25% decrease versus the first quarter of twenty twenty. This was mostly due by a lower exchange gain in our peso denominated debt due to the appreciation of the Mexican peso. We also had the reduction of our oil rig tariffs, which were implemented in the third quarter of twenty twenty and lower traffic levels in our toll roads division. It is relevant to say that in the last few weeks, we have achieved pre pandemic levels in our toll roads, which we consider a significant milestone, and they continue to recover. Our net income totaled $17,000,000 during the quarter, showing a net positive result after a couple of quarters. As we continue into Slide 23, I'll go over the most relevant events of the division and a brief update on the different projects that we have. Starting with our Energy Generation division, sales totaled $81,000,000 which is an increase of 47% when compared to the same quarter of last year. This was driven by an upsurge in the price of the molecule of the gas, and this was caused by the polar vortex that affected the state of Texas in The US in February of this year, which created havoc about different industries. Our PENSA division, where the oil and rigs are, ended the quarter with six oil rigs in operation and an average efficiency of 99.8, which is an all time high. Despite these record, unfortunately, as I mentioned before, our sales and EBITDA showed a decrease of 2226%, respectively, versus the same quarter of last year, totaling $38,000,000 and $90,000,000 This was due, as I mentioned, to an adjustment in the Pemex tariff as we were looking to assure operation and avoid suspension of any of our platforms, which we have achieved successfully, becoming one of the only companies, if not the only one, to have avoided an extensive suspension. It is also important to mention that we have been able to mitigate the impact of the tariff reduction, which flows all the way down to the income statement bottom line, thanks to a strict cost control plan that we have achieved in the past few quarters. As for the project, here is the most recent update. In our Fenicias wind farm, which is located in Nebologne, we reached a 94% completion rate. We have finished engineering and construction. We have finalized the erection of all 42 wind turbines, which are 4.2 megawatts each, and 18 out of the 42 wind turbines are already operational. We were able to energize our 60 kilometer transmission line, which interconnects us into the grid, and we have already started our testing period, initiating our test energy delivery into the grid. In our fuel storage terminals, we continue with progress in order to achieve commercial operation by the fourth quarter of 'twenty two and the second quarter of twenty twenty three. And finally, as Marlene mentioned previously, during this quarter, Grupo Mexico, Intrescuntura and Acciona, an infrastructure Spanish company, were awarded by HONACUR, which is an agency of the federal government, a contract to complete the executive project, meaning detailed engineering, build a railway, adapt the highway and install the electric infrastructure for the section five south of the Maya train, which is a 60 kilometer project that runs from Playa Del Carmen in Quintanaro to Tulum. I will now let Marlene proceed with her closing remarks. Thank you, Francisco, and thank you, Fernando and Leonardo as well. As a closing remark, well, I would like to thank everybody for your time and attention, and and reiterate our commitment with our with everybody that works with us in the communities that we continue to navigate the pandemic. Now we will open the line to address any question you might have or anything with or or any issues you might want to address. Thank you so much. Thank you. Thank you so much. And as a reminder, to ask a question, you will need to press Our first question comes from Carlos De Alba with Morgan Stanley. Please go ahead. A few questions, if I may. First, Marlene, thank you for now publishing the more details on Asarco production and cost. I'll just bother you with cash cost before byproducts for Asarco. Also, if you could provide an update on that. I didn't see it in the press release. Maybe I missed it, but then you can give us an update. That would be great. Then in in in the railway, is possible to for you to elaborate what did you read on the proposal by by certain senators in Mexico to change the timing of the railway concession, I think, from fifty years to twenty to thirty or thirty years, if I recall correctly. And then finally, on the infrastructure division, I think I heard that the impact of the lower tariffs and never should have been tenanted will be mitigated by cost reduction. Is this fully mitigated so no impact on the bottom line or EBITDA as a result of the lower tariffs because the company reduced cost? Thank you very much. Thank you, Carlos. I think I will let Leonardo answer the Alcalco Alcalia questions, the cash cost, and the update, and then Fernando and Francisco the transportation, and then the other stuff, your questions. Is that okay? Leo, you want to comment something on Azarco and Azarcoya? For sure. Thanks for the question, Carlos. First, let me address, Acarco's cash cost before byproducts, January. And in regards to Acarcoia, earlier this month, we submitted an addendum for our environmental impact license. We expect to have a final approval during the second semester during this year to have it fully permitted. Okay. Regarding the the railway, the senate proposal, you mentioned Carlos. We're highly confident that the law will not be voted as it currently is or even voted at all. As the proposed changes do not reflect, what the federal government, the transportation sector, not what its users want, it is merely a proposal of a fraction of the senate. However, to the point that you arrived of, concessions now being lowered from, fifty to thirty years, this would be for new concessions as we have already been granted a fifty plus fifty years concession, as you know, and it's on the Mexican constitution on Article 14 that this cannot be retroactive. So we're very confident that, one, this will not this will not be there will not be substantial changes. And two, even if there were, this is not is not meant for us. And finally, Carlos, regarding your your question about the Pemex tariffs and the impact in our income statement, unfortunately, it is not possible to mitigate the full impact of the impact of the tariff reductions because, as you know, you need to pay to keep the same service levels, the same staff, the same basically, you need to keep the platforms in exactly the same way as as if there were no tariff reductions. However, just to give you a flavor, the the the impact on our quarter on sales was $10,000,000 less in sales. But in our EBITDA, it only hitting six. So so we were able to mitigate about 40% of that impact, which, again, taking into account that you need to keep the same service level, that would be considered a significant reduction. Yeah. No. That that that makes sense. I mean, I'm not not misunderstanding on what you said before. Thank you very much, gentlemen, on my end. I appreciate it. Hopefully, you guys are doing well and you found me too. Thank you. Thank you, Carlos. Our next question comes from Luis Yance with Compact. Please go ahead. Hi, guys. Thanks for taking my questions. Two questions on my side. The first one, it's on the Transportation division. But I guess more to the holding level, I mean, the what we've seen in terms of M and A activity or potential M and A activity in the sector, just wondering what actions are you planning to take to close the valuation gap that you guys have on Grupo Mexico versus your peers. We see your closest peer at seventeen, eighteen times. I guess you've been rerating a little bit, but you're still far away from that. Just wondering if you could give us some thoughts on, you know, what's on the table? Is it on the table to potentially sell the entire company to realize the value on this estate? So so so that's that's my first question. And and the second question is on ESG. I mean, you mentioned, you know, some of the improvements you've been showing on that area. But still, on the corporate governance side, we don't see any woman on the board. And a lot of companies are going through that same situation. Most of them talk about doing something about it, but facing worse. Just wondering if we could expect to see a woman being proposed on the next general assembly meeting or what are your thoughts about, you know, how how do you get to a more balanced approach, you know, in in that regards? Thank you. Sir, I will start with the ESG question, and then I will let Fernando and talk about GMXT and how we plan to close the valuation gap between what we see in GMXT and the other companies. Regarding the corporate governance in our board and including and changing our board, as of this year, we will not change it. This is all very public. We will approve, and if everybody is agreed, that will be approved or not during the shareholder meeting. That will take place this Friday, you know, this Friday, April 30. So we will continue with this our board, which has been a very good everybody is an expert in in different things, but we have the expert in taxes. And we have very good board members with incredible trajectories, logistic trajectories and everything they have done. You can see a little bit of what they have done in our annual report, and and and we will put that in our website as well. Then you can see why we have that work, which is very good. Including and having a diversity, I think it is very important. We are working towards that. We are moving towards best practices and trying to improve our cost of governance. Definitely something that we have in mind, something that we're working on, and hopefully, we could see something by next year or including somebody else by next year. But the good thing is that now you can see there are more people female and women in in in important positions in Grupo Mexico, including all the divisions. So I think that has the diversity and everything that we are trying to reach, and it will only take a little bit of time to reach out to the board. Thank you. And if you want, I I'll take it from here, Marlene. I got your question about us and and the and the difference GMC and the difference versus its peers. Yeah. It it's it's quite clear that that it's not that it's non noncomparable. No. The the fact that that they're trading at those levels 15 the the 15 times the average of the industry and almost 20. And now an offer for 23, 20 four times from CN. And we will so we will continue with our buyback program that is the discount is evident. And I don't know how we were reading the an article on the Financial Times, and we were pretty surprised when they were talking about the transaction between the KC and CP or Centimeters. And they mentioned one railroad in Mexico. So the fact that probably we are known in the Mexican market, and we're not that known abroad, so our investor relations teams will also have the task to to continue knocking on doors and and getting our company known. The the the gap is enormous, and it's completely nonsense. No? So that's basically where we're continuing to focus. Great. Thanks a lot, Marlene and Fernando, for the answers. Thank you. Our next question comes from Thiago Lofiego with Bradesco. Please go ahead. Guys, if you could discuss a little bit about capital allocation from a general perspective. So free cash flow generation is likely going to be very strong given the high copper prices. Are you considering eventually increasing dividends further or considering a share buyback? Or should we expect M and A activity intensifying maybe in the Transportation Division, Infrastructure Division. So if you could give us a little bit more color on that general perspective about capital allocation, that would be great. And the second question about the Monterrey and Guadalajara fuel storage projects. Just to understand why they are delayed and if you also could remind us the contribution of each one of those projects to EBITDA going forward? Sure, Thiago. Thank you for your question. Regarding capital allocation, as we know, we treat each of our divisions separately as an independent company, so they're comfortable for their growth and financing needs. And that's why we have been able to grow within the three divisions at the same time. So that's very interesting in for Grupo Mexico, the company, because we are able to grow and to build our projects and to develop our projects in mining company. At the same time, we are doing projects and everything in transportation and having new businesses and new projects as well as new infrastructure. So we have been we are very cautious and no no no cautious. Conservative. Sorry. We are very conservative in in that kind of decisions in terms of capital allocation. But with all the cash flow, yes, as you mentioned, we have increased our dividend. So this quarter, we increased our dividend from the past quarter for the 20%. And the past quarter, we increased our dividend as well. So we have been constantly increasing our dividend. You can see this at the Southern Copper level as well because of this higher metal prices. They increased their dividend as well. As you suspected that in the form of Mexico and Southern Copper? And going forward, we will try to continue with this way of deciding and get capital allocation in which each division is accountable for the growth, And we will continue with our projects in Mexico. We have, as we already mentioned, three right now in Mexico in the short term. And then we have medium to long term projects in Mexico and Peru. So we will continue to develop that. We will continue to grow in our to invest in our project growth and strategic in transportation. And in the infrastructure division, we are doing new things such as the 13 facilities we're mentioning is a new business line. The Monterrey and Guadalajara facilities were I will let Francisco give you further details, but you you have to remember that last year during the COVID nineteen at the beginning of the pandemic, during three or two and a half months or something like like that or even more, construction was non essential activities that we had to postpone some of the of the construction we were doing and things like that. So that affected. But Francisco will give you further details. Yes. Thank you, Marlene. So so, yeah, Marlene, as as she was saying, there's a couple of things that impacted the timeline for our for our fuel storage terminals. First, as she was saying, construction was not declared an essential activity under the pandemic, which which she delayed for a couple of months. But but the the the reason or the biggest reason behind the delay is that, as as you probably know, several agencies of the federal government closed for very long periods of time because of the pandemic. I mean, just just the the energy ministry was closed for over fourteen months. And by closed, I mean, that they were not allowing any permit to be submitted, any follow-up. So that definitely delayed projects across the sector, and that's the main reason why we have been pushing our commercial operation dates in the past few months. Now we remain fully committed with this project and a couple of other ones that we are currently analyzing. Aguascalientes was already announced as well, and we're looking into Chihuahua and a few other places where we will continue to to increase our presence. We as as you know, there's also been some noise about the new law that is about to be passed that that affects the hydrocarbons industry. And we have taken a look at it, and and we believe that, you know, by the partnership that we have and everything with Valero, which is a strong off taker and the way we we are structuring this, they have over 3,000,000 barrels already in capacity in Mexico, and that's one of the requirements that they're asking for in the new law. So so we continue fully committed. It's just that, unfortunately, it was out of our control to continue with some of the key permits. Now your your second question regarding the contribution to the to the income statement in our division. By the time they are fully operational, these two terminals were expecting sales of about $35,000,000 with an EBITDA contribution of of between 21 and $22,000,000 once they become operational. That's each In general, I I think that's Each one of them or that's consolidated? That that that's the two of them combined. They're they're roughly about the same size. So so it's it's the the two of them, that's the contribution that they combined. That's the contribution. Okay. So I forgot your to to to answer your question regarding M and A, we keep a close look at all the opportunities in all of our divisions to see if there's something interesting at a reasonable valuation. So that's something that we always have in mind. As of now, we don't have something in particular, but we always keep a close look. Okay. Thank you, Marlene. Thank you, Francisco. Thank you, Thiago. Thank you. And our last question is coming from Amin Vera from Black Wall Street Capital. Hi. Good afternoon. Can you hear me? Yes. Thank you. Oh, great. Thank you. I wanted to ask about two things. What are the expected revenues contribution coming from the MyInsurance contract? And, also, I understand there is proposal in Peru to increase the the taxation and or the participation of the government in profits, I believe, from 30 to 80%. So if this proposal were to be passed, would you have any recourse to to try to challenge it? Okay. Is the Yes. Francisco will answer the first one. I I mean, regarding your your first question of of contribution, I'm sorry. There's some there's some echo on the line. If you could mute the Carmen, can you mute your line while you're getting the answer, please? Thank you. So so regarding your question about the the Mayatrain contribution to the income statement in the infrastructure division, this is a a contract that was awarded for $880,000,000 taking the current exchange rate between Axiomna and us. The the partnership that we have with them is a fifty fifty partnership. So so you you would have to take that by half. And then the the scope that we have for the project is a thirty one month project starting in mid March starting in for the construction and the engineering. So we could be finishing it by the third quarter of twenty twenty three. And and it it's roughly I mean, it really depends on on the the the way that flows into this period of time really depends on on how the the federal government allows us to make progress because they are responsible for a few of the things such as the right of way and and environmental permit. But I think that a good approximation would be a linear approach starting in September for about 80% of that amount, and the rest is engineering, which we will be executing in the next couple of of months. And, you know, with with average EBITDA margins for the construction industry, you know, which which go from between 15% to 20%. It's important to mention that unlike our scope is only construction and engineering, so we will be executing the full amount during this period of time. So it's very different from our other projects where we would be operating them for for the long term. So so we expect that the cash flow will be pretty much neutral between what we receive from the federal government and what we spend as we execute the the project. I I think that answers the question. See. And I think the second part is going through in the increase in participation in profit. I think Raul is going to grow is gonna answer. Yes. More in Yes. Thank you very much, Marlene and everyone. Hello. Well, that's the the what you mentioned, it's a proposal that was indicated at certain point during the beginning of the second round, the round off campaign that it's going on nowadays in Peru. However, we have seen in the past that once the president is selected, some of these initial ideas are review or revise and as a consequence adjusted or drop. So we don't want to speculate on what will be the company position or the industry position, something like this. It's proposed until we have a clear definition on who the next president is going to be and what are the proposals. What we have seen in some other elections is that once you have a President-elect and this person takes begins to review information and policies of the mining companies, they well, what we have seen is that they changed their minds and see that we are a very strong partner for developing Peru. And as a consequence, these ideas are living on the site. Thank you. You're welcome. Our next question comes from Alfonso Salazar with Scotiabank. Yes. Thank you, and good afternoon, everyone. I have two follow-up questions. The first one is regarding the railway reform. And I just want to know if group of Ferroviario or Ferro Mex were invited to discuss the bill, or did you have any conversations either with the Ministry of Economy? I understand that they had several concerns about the deal or or with the Senate before the commission of the Senate approved the the deal. That's the first question. The second one is is you can confirm that you do not expect for the fuel turning out any impact from the hydrocarbon reform. If if that is correct. Thank you. You. And and if she no need to take it. Regarding the real reform for for GMXT, we have been talking to many senators and to the federal government at different levels and at different entities. And then that is why I I am again, you know, we're highly confident that the law will not be voted as it is right now or even voted at all. But, again, now it is it is something that, as I mentioned before, it should not impact us as we are protected. Our concession was 50 plus 50, and the retroactive is protected by the Mexican constitution on Article 14. So we are this might have generated noise, and we're trying to to be more clear with them and to make the law more clear. But, again, now it's still it's still in on their court, and then it's totally it's a fraction of the senate. We're trying to explain. It's been back and forth for months, I I believe now, but but but we would like it to be even more clear. However, we're not it's not something that's taking sleep away from us right now. Sorry. That's nothing And Alfonso, regarding your your second question, let me dig a little bit deeper. So so, basically, the reform has has the following impacts. One, they have for a minimum storage inventory. We we, again, do not think this will impact our terminals. As I said before, Valero, which is our partner and our off taker, has over 3,000,000 barrels, which represents over three days of capacity already in the country. This is new capacity that has been added in the last couple of months and and years, and this will continue to increase as we build our Monterrey and Guadalajara terminals to over 4,000,000 barrels, which is very, very significant. We actually consider this to be a competitive advantage against other players in the industry that do not have this storage capacity. So that's one. Then the second one is that they do add some language in that they might revoke certain permits if they think it's against the national interest or or which is not very objective and, of course, it's something we're taking a look at. But they have since reworded this clause to give a bit more sensitive to the to the serious players such as us that that we're here to to actually increase the the national security by having additional inventory. And this goes more against other practices that have been happening lately that are outside the law and that they are trying to prevent. And and this is this is the focus, and we've been having conversations with them and confirmed this as well, and that's why they rewarded this clause. And finally, another impact is that they have a negative affidavit, basically means that if you submit a permit and they do not reply in in the ninety day period that they have, then then you have to to do it again. Whereas today, it's it's an affirmative feedback. They do not reply you. You have it. So that will, of course, potentially delay certain certain processes, but but it's not, in our opinion, a material change. So so, basically, we we're taking a look at it. We we are continuing to to do it. We expect, of course, as we have seen with the energy and the power and you know, that there might be some pushback, you know, from from companies. But but, again, we at at the time and with the information that we have, we we continue with our plans, and and we are very coordinated with our partner. That that's very very careful. Thank you for the clarifications. Yes. You're welcome. Our next question comes from Regina Castillo with GBM. Hi. Congratulations on the results. I just have one question for Leonardo. I didn't catch the copper price range that you shared earlier to 2021. And while, also, do you have any other price expectations that you could share with us going forward? That would be great. Sure, Ricky. Give me one one moment. For the first quarter of twenty twenty one, the price of copper was $3.86 in average. I'm sorry. Could you repeat your second question? Yeah. If you have any copper price expectations going forward that you could share with us? I mean, what we've seen is the consensus on in the different the Bloomberg consensus on the different rewards, Mackenzie's, the close, and we see an anorax of three agents. That's what we've seen from them. So that's all I I can say. Alright. Thank you. You're welcome. Thanks. And as a reminder, ladies and gentlemen, to ask a question, simply press 1 on your telephone. Our next question is from Federico Galasi with PAMCO. Please go ahead. Hi. Thank you for taking my question. Just to to to the answer is, with the change of law of outsourcing in Mexico, do you see any risk in one of the companies of the group? Thank you. The outsourcing law, Perico? That was your question. Yeah. Sure. That's the question. Yeah. We we are not expecting almost all or practically all of our employees and the people that work with us are part and are in our operating company. So the outsource the outsourcing changes or the new outsourcing law will not have a significant impact or no impact at all. We are gonna analyze more into it, but the important thing that we have is that everybody in our operating company. So that's the main thing. Okay. Thank you. Alright. And I'm not showing any further questions in the queue, ma'am. Well, thank you everybody for joining us. Thank you, Leonardo, Fernando, Francisco, and our team, Raul and everybody. And if you have any further questions, please let us know. We will try to keep you in touch. And thank you for joining us today. Hope you have a good day. Bye. And thank you to everyone. This concludes today's program, and you may now disconnect.