Good morning, and welcome to the Southern Copper Corporation First Quarter 2021 Results Conference Call. With us this morning, we have Southern Copper Corporation, Mr. Raul Jacob, Vice President, Finance, Treasurer and CFO, who will discuss the results of the company for the Q1 2021 as well as answer any questions that you might 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 statement whether as a result of new information, future events or otherwise. All results are expressed in full U. S. GAAP. Now I will pass the call on to Mr.
Raul Jacobs.
Thank you very much, Jenny. Good morning, everyone, and welcome to Southern Copper's Q1 2021 Results Conference Call. At today's conference, I'm Quarter, let me first express my best wishes for you and your loved ones during these trying times. In today's call, we will begin with an update and the measures that we have taken to keep COVID-nineteen at bay. We will then review the copper market and Southern Copper's key results for production, sales, operating costs, financial results and expansion projects.
Subsequently, we will open the session for questions. Let me say first that since the beginning of the pandemic, Southern Copper has faced its challenges with resilience, innovation and solidarity. The new normal that the bureaus has imposed in the world requires government, companies and society to work together to protect citizens as we resume growth, generate value and fuel economic recovery. In this regard, we believe that the vaccination efforts, which have been carried out by the state of Sonora in Mexico represent a positive development. Through this interview, 100% of the medical personnel at our operations has been vaccinated.
Similarly, 98% of the workers over the age of 60 in Cananea and 100% of those in Macosari has also received a vaccine. This significant event gives us our personnel needed protection against the COVID-nineteen virus, provides peace of mind to workers and their families and allows the company to begin normalizing operating levels at our installations. Our company is contributing to this effort by providing logistical support during the vaccination rollout. Now let us focus on the copper market, the core of our business. For copper, in the Q1 of 2021, The London Metal Exchange copper price increased for an average of $2.56 per tonne in the Q1 of 2020, up to $3.85 per pound, that is a 50.4% increase in copper prices.
As of today, we're seeing prices over at about $4.50 per pound, which bodes a positive outlook for the 2021 Copper Market. We believe the following factors are influencing the market at this point. The automobile industry's global recovery was reflected in an increase in sales of 89% in the Q1 of 2021. The $2,000,000,000,000 infrastructure package announced by President Biden will significantly increase the demand for copper, which is a fundamental element at Dream Energy Facility. The combined inventories of the London Metal Exchange, the COMEX warehouse Shanghai and Bonde warehouses remained at relatively low levels, particularly given the number of days of consumption considered by these inventories.
The most important market intelligent houses for the copper market are expecting a market deficit this year due to a significant recovery in demand, which should be between 3.5% and 5.5%. Now let us look at Southern Copper Production for the past quarter and for the past quarter. Copper represented 83.6% of our sales in the Q1 of this year. Copper production registered a slight decrease of 1.5% compared to the Q1 of last year and situated at 238,402 tons in the Q1 of this year. This was primarily attributable to lower production at our Peruvian mines and the Caridad mine in Mexico.
This was driven by a decrease in ore grades. However, it was partially set by an increase in production in our INSA operations, which was spurred by a recovery in production of 52.8% of additional production at the San Martin Mine. Molybdenum represented 6.7 percent of the company's sales value in the Q1 of 2021 and it's currently our 1st byproduct. Molybdenum prices averaged $11.19 per pound in the quarter compared to $9.56 in the Q1 of 2020. This represents a 17.1% increase.
Molybdenum production increased slightly by 0.2% in the Q1 of this year compared to the same period of 2020. This was mainly due to higher production at our Peruvian mines, the increased production of molybdenum by about 10% due to higher grades and recoveries. And it was also partially offset by a decrease in production at our Buenavista in the Q1 of this year with an average price of $26.29 per ounce of silver in the quarter, up 55.8% from the Q1 of last year. Silver is currently our 2nd byproduct. Mine silver production decreased by 6.3% in the Q1 of this year after production fell at Buenavista, Inza and Toquepala.
This was partially offset by higher production from the Cuajone and Caridad operations. We find silver production increased by 6% in the Q1 of this year, mainly due to higher production at our INSA facilities. Zinc represented 1.4% of our sales value in the Q1 of this year, with an average price of $1.25 per pound in the quarter. This is a 28.9% increase in price from the same period of 2020. Zinc mine production decreased by 14.5% quarter on quarter to deplete at 16,466 tons.
This was primarily attributable to lower ore grades at the Santa Barbara operation and charters and to the shutdown of our Santa Eulalia operation in the Q1 of last year due to a severe flooding. Refined zinc production decreased by 35.7% in the first quarter compared to the same period of 2020 due to a fire at the facility. This has temporarily reduced the capacity of our San Luis Potosi Zinc Refinery. For our financial results, In the Q1 of 2021, sales were $2,500,000,000 which is $812,800,000 higher than the sales for the Q1 of 2020. Our sales increased by 47.3% in total.
Copper sales volume decreased by 4.5%, while the value increased by 55% due to a scenario of better prices. As I said, copper prices increased by 50.4% during the past quarter. Regarding our name by products, we reported higher sales of molybdenum by 34.6%, mainly due to better prices. Prices increased by 17.1% for molybdenum, and we have for open sales and adjustment that completed 34.6% increase in molybdenum sales. For silver, sales increased by 57.6 percent also due to better prices.
In this case, prices increased by 55.8%. These results were partially offset by a decrease in volume of 3.3% and sales of zinc due to lower volumes of refined zinc. This was partially offset by higher zinc price. Our total operating cost and expenses decreased by $5,500,000 or 0.5 percent when compared to the same period of 2020. The main cost reductions were driven by a decrease in copper purchases from 3rd party and an increase in capitalized leachable material.
These cost reductions were partially offset by an increase in workers' participation, an uptick in energy cost due to a temporary gas shortage in Northern Mexico, an increase in the diesel and fuel costs, higher figures for inventory consumption for the quarter. We also have higher depreciation and other factors for a minor value. Let me focus on the increase in due to temporary gas shortage that we have in the Q1 that represented an increase in energy cost of about $30,600,000 as a consequence of the temporary scarcity that we had in February of natural gas in the northern part of Mexico. Our Q1 2021 adjusted EBITDA was dollars 1,554,500,000 which represented an increase of 116.3% compared to the same period of 2020, where the adjusted EBITDA was $718,800,000 The EBITDA margin in the Q1 of this year was 61.4%, and that compares with 41.8% in the Q1 of last year. On a quarter on quarter basis, Adjusted EBITDA was 24% higher than in the Q4 of 2020.
For the cash cost. Operating cash cost per pound of copper before baklava credits was 1.51 cents per pound in the Q1 of 2021. This is $0.074 higher than the value for the Q4 of 2020. This 5.2% increase in operating cash cost is a result of higher costs per pound from production cost and lower premiums, which were partially compensated by lower treatment and refining charges and administrative and lower administrative expense. Southern Copper operating cash cost, including the benefits of bifocal trade, was $0.739 per pound in the Q1 of this year.
The cash cost was $0.67 higher than the cash cost of $0.672 that we had in the Q4 of 2020. That is a 10% increase in cash costs. Regarding by products, We had a total credit of $393,700,000 or $0.07 to $0.071 per ton in the Q1 of this year. These figures represent a 1% increase when compared to a credit of $0.763 per pound in the Q4 of 2020. Total credits have increased for molybdenum, silver, gold and sulfuric acid and the 3rd 4th zinc.
Net income attributable to SEC shareholders in the Q1 of this year was $763,800,000 that is 30.2% of our sales or diluted earnings per share of $0.99 Capital Investments. As you know Southern Copper's investment philosophy is not based on the outlook for 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 make ongoing investments in our considerable asset portfolio. The conditions generated by COVID-nineteen has led us to implement measures to reduce vulnerability at the project execution level. These measures, which are constantly under review, include enforcing social distance rules, strengthening sanitation efforts and requiring quarantine periods for personnel.
Some activities in the project execution stage, which are located in regions in Peru or Mexico, where new cases of inflation are on the rise, have experienced delays. Consequently, we expect some delays, albeit minimal at this point. We expect these delays in the execution of our investment projects. Nevertheless to date, to date primarily affect construction activities that require personnel to work in close physical proximity. All other engineering, procurement and construction activities that entail limited interaction between personnel are on schedule.
In the Q1 of 2021, we spent $232,600,000 on capital investments, which represented 130% increase with regard to the same period of 2020 and accounted for 30.5% of our net income. For the Peruvian projects, our portfolio is for approved projects in Peru totaled $2,800,000,000 BRL 1,600,000,000 of which has already been invested. If we include the up and coming Michiquillay, dollars 2,500,000,000 budget and Los Chancas, dollars 2,600,000 budget. These two projects will increase our total investment program in Peru to reflect a commitment of $7,900,000,000 For Tia Maria, a project that is located in the Peruvian region Arequipa. Southern Copper has been consistently working to promote the welfare of the Islay Province population.
As part of these efforts, we have implemented successful social programs in education, health care and productive development to improve the quality of life in the region. We have also promoted agricultural and livestock activity in the Tambo Valley and supporting growth in manufacturing, fishing and tourism industry. On January 7, 2020, this is the past quarter, the mayor of St. Louis province award a 50 diploma to to Southern Copper in recognition of the company's efforts to assist the population of Israel during the COVID-nineteen pandemic. Southern Copper provided medical assistance, tests of CN, personnel protection, equipment and food staff for the population in the area of influence of the Tia Maria province.
We reiterate our view that the intention of construction activities at Tia Maria who will generate significant economic opportunities for the Islay Province and the Arequipa region. Given the current Peruvian economic situation, it is crucial to move ahead on projects that will stimulate a sustainable growth cycle. During the construction operation phase, We will make it a priority to hire local labor to fill the 9,000 jobs, of which 3,600 are direct and 5,400 are indirect, jobs that we expect to generate during the Tia Maria construction. When operating, we expect Tia Maria to directly employ 600 workers and indirectly provide jobs for another 4,200. Additionally, from day 1 of our operations, we will generate significant contributions revenues in the Arequipa region via royalties and taxes.
We expect the Peruvian government to acknowledge the significant progress the company has made on the social front for this project and the important contributions that Tia Maria will generate for Peru's economy and consequently take the necessary steps to provide Southern Copper with adequate support to initiate construction. For our Mexican projects. In Buenavista, we have a new concentrator to produce zinc concentrate. Buenavista, our operation at the Sonora Estate Index. This project includes the development of a new concentrator produce approximately 100,000 tons of zinc and 20,000 tons of copper per year.
We have completed the basic engineering study and the detailed engineering study is 89% complete. In order to continue with the project, the stronger preventive measures to combat COVID-nineteen has been put in place. Purchase orders have been placed for major equipment. As part of this process, The new manufacturing process has been completed and the respective elements are being shipped or are already at the project site. The project has all the necessary permits and the capital budget is $413,000,000 We expect to initiate operations in 2023.
When completed, this new facility will double the company zinc production capacity and provide 4.90 direct jobs and 14.70 indirect jobs. For the Pilares project, also in the Sonora state of Mexico, this is a project that is 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 concentrate. A new 25 meter wipe off road facility for mining trucks has been built and will be used to transport the ore from the pit to the primary crushers at the La Caridad copper concentrate. This project will significantly improve the overall mineral ore grade, combining 0.78% expected ore from filari with the 0.34% ore from La Caridad.
The budget for Pilares is $159,000,000 and we expect the project to begin production in the Q1 of next year. El Pilar, it's a low capital intensity copper greenfield project, which is strategically located in Sonora, Mexico, at about 45 kilometers from our Buena Vista mine. Its copper oxide mineralization contains estimated proven and probable reserves of 281,000,000 tons of ore with an average copper grade of 0.31%. We anticipate that Paypiar will operate as a conventional open pit mine with an annual production capacity of 36,000 tons of copper capitals. This operation will use highly cost efficient and environmentally friendly SX EW Technology.
The budget for Epirilar is $310,000,000 We expect the project to start production in 2023, and the mine life is expected to be 13 years. The results from the experimental path in the leaching process have confirmed adequate levels of copper recovery. The company has started the project basic engineering and 5 species collection. For El Arco, a project that is located at the Baja California Peninsula. This is a world class copper deposit, which is located at the central part of the Baja California Peninsula.
It has ore reserve of over 2,400,000,000 tons with an ore grade of 0.42 percent. And to that, we add 0.3000000000 tons of leach material with an ore grade of 0 point 28.8 percent. And
as a
byproduct, the mineral contains 0.11 grams of gold per tonne. The project considers the construction of an open pit mine combining concentrator and Fx EW operations. The annual production is expected to situate at 190,000 tons of copper and 105,000 ounces of gold with an estimated capital budget of $2,900,000,000 The company has started the baseline study and it's reviewing the basic engineering analysis to request environmental impact permit. We have had the corresponding mining concessions for several years now. And during 2020, we finished acquiring all the Llan Bieder.
You may have noticed that we have added a new section to our press release, which tackles the matters of the issues of environmental, social and government Governance Investment or ESG. Southern Copper is committed to improving its ESG record by adopting best practices and communicating to the investment community and other stakeholders who are covered in these matters. In this regard, the company's sustainable development policies were recently updated. These policies applicable to SEC and its subsidiaries formalize the company's vision, commitment and objective to promote sustainable development and generate share value for our stakeholders. In 2020 And for the 2nd consecutive year, Southern Copper was listed on the S&P, the Dow Jones Sustainability Index or MILA.
Additionally, our score on S&P Global annual sustainability assessment increased to 50 points during the same period. This represents a 5 point increase over the 2019 year. In Peru, Southern Copper is coordinating with the Peruvian government and our main oxygen supplier to adapt, which has already been done, our ILO oxygen plant number 2 in record time to produce 140 tons per week of liquid oxygen. What we have done is work together with the Peruvian government and our main oxygen industrial oxygen supplier to adjust or to adapt our and one of our 2 oxygen plants to produce liquid oxygen. Plan number 2.
Plan number 1 has already being adopted in the past, and it's been it has been producing oxygen. But given the needs of this element by to fight the COVID pandemic. The company decided to move on with this investment. The production is being used to supply hospital and medical facilities in Peru, Central and Southern regions, where medicinal oxygen is extremely scarce. The company has committed to donate 2,500 tonnes of liquid oxygen, which is the equivalent of 194,000 of oxygen tons of 10 cubic meters each.
As of March 31, we have delivered 13.46 tons of liquid oxygen over 53% of the committed donations. In addition to this effort, in March, we donated 2 mobile oxygen plants, each with a capacity of 7 20 cubic meters per day of megacal oxygen. These plants will be transported to towns that lack sufficient oxygen supply to fight against COVID-nineteen. Last year, 3,667 students from 11 educational centers sponsored by the company in Mexico and Peru were able to continue their school programs remodeled. To cope with the global pandemic, the company's programs, which are developed under the community development model, migrated to virtual platforms.
Last year, 4,634 online workshops were held, consolidating a community of over 2,090 1,000 I'm sorry, 290,000 users on social networks, which represent an increase of 63% compared to 2019. In the Q1 of this year, we continued to roll out remote school programs to provide education to 3,756 school aged children. Alongside these efforts, Southern Copper offered virtual workshops to the community, which has been reproduced more than 10,000,000 tons since the beginning of the pandemic. Last year was marked by a good performance in terms of educational safety since no fatalities were registered announcing rates and loss rates in the mining division dropped by 44% 78%, respectively. This compared to 2019.
Minera Mexico obtained for the 2nd consecutive year 3 of the 6 Extinctions or Cascos de Plata, awarded by the Mining Chamber of Mexico for for occupational health and safety performance. The survey conducted by the Mining Chamber of Mexico, which determines Our recipients includes approximately 120 minuteing companies of different sizes that are grouped into diverse categories, such as open and underground mining, smelting and refining. Regarding dividends, as you know, It is the company's policy to review the company's cash position, expected cash flow generation from operations, Capital Investment Plans and other financial needs at each Board meeting to determine the appropriate quarterly dividend. Accordingly, as announced to the market on April 2022, the Board of Directors authorized a cash dividend of dollars 0.70 per share of common stock, payable on May 25 to shareholders of record at the close of Business on May 11, 2021. With this in mind, ladies and gentlemen, thank you very much for joining us, And we would like now to open up the phone for questions.
Thank you. And our first question comes from Timna Tanners from Bank of America. Your line is open. Yes. Hey there.
Good day, everyone. Hope you're doing well. I wanted to ask a little bit more about how to think about the upcoming quarters. In particular, if we look at the run rate in the Q1 for copper volumes, they're ahead of your annual guidance, but silver is below. And in CapEx, you're below your run rate.
So just any update on how you're thinking about the progress for the year would be great. Thank you.
Thank you very much for your question, Timna. Basically, we're maintaining our forecast. Even though we believe that in production, it may be a little bit higher than what we forecast, at the beginning of the year, we mentioned that We're expecting to produce 943,000 tons of copper. At this point, the number looks more like 950,000 tons, but we're still keeping our initial forecast to see how we evolve in that regard through the year. Regarding our CapEx, we're also maintaining our budget.
Please keep in mind that we will be doing some catch up work that we We've been done through 2020, and that will certainly require some more activity in that regard. Our current forecast is the same that we have at the beginning of the year, which considers $1,400,000,000 of capital expenditures for this year, for 2021.
Okay. So CapEx can ramp up, it sounds like, and some catch up is implied in there. Is that right?
Yes. And let me comment on why CapEx is relatively slower than the run rate as you well mentioned in your question. The reason for that is that usually you initiate the process of certain new projects at the beginning of the year once the budget has been approved and you usually catch up and have a little bit more higher run rate at the, say, the second half of the year. That's why we're really comfortable with maintaining our current capital budget for this year.
Okay. Thanks. And if I could one more. On the cost side, we've been hearing from many of the miners that Higher prices lead to higher costs, which makes a lot of sense. You talked a little bit about factors to think about from Q4 to Q1.
If you could help also talk to us about what to expect in coming quarters, freight costs are higher, higher copper prices, higher costs. But are there other factors that we should be mindful of, like any change in COVID measures maybe coming off or other inflationary measures that you should follow?
Well, obviously, fuel prices are higher now than what we had last year at this time. We had in the Q1, we had a onetime event, which is the scarcity and much higher price for gas, natural gas. That's already that has already passed. We're not seeing that. We're not seeing Exchange rate appreciations both in Mexico and Peru at this point.
At least that an exchange rate that may impact And our cost at this point, we're not seeing that. And obviously, higher prices, as you mentioned, May reflecting the future on higher prices for certain materials. At this point, we are not other than fuel, as I mentioned. We're not seeing anything significant at this point.
Okay. Thanks very much.
Let me add something else to your question, Tina. We increased our cash cost before by total credit a little bit. It was $0.074 from what we had at the Q4 last year. And that's basically because of the catch up that the company is doing in certain maintenance and stripping and some other jobs that were postponed at the beginning of 2020 at our operations due to the COVID pandemic. At the beginning, we were operating with about 40% of the workforce.
That is not the case now. We're very close to 90% in total workforce Corporation of the corporation in average. And that's basically what we're doing now, it's catching up in certain maintenance, certain stripping and some other works that were part of 2020 and are being done now. That explains the increase that we are seeing in cash cost before by product sales. Now we have a much more attractive windtail coming from the prices of our byproducts as well as the price of copper, which is certainly helping our cash cost this year.
Thank you. Our next question comes from Thiago Lofiego from Bradesco BBI. Your line is open.
Thank you, gentlemen. Two questions. Raul, if you could talk a little bit more about Tia Maria. Our conversation is completely stalled ahead of the elections here. And also, what could be the timing for the other large projects, Migikayai, Los Chancas.
Is there any way you can accelerate those? And what could be the earliest start up times for years for those projects. And the second question is just about the regulatory risk in Mexico. How do you Steve, that risk at this point. Any potential for higher royalties, changes in concessions or any other regulatory risks that you're seeing?
Or is this more and more on the quiet side now? Thank you.
Let me start by the second part I don't we don't see a risk at this point on the regulatory front. You and all the audience have seen In Mexico, at the beginning of the current administration, we're some concerns about oil increasing in taxation or regulatory Matters, we don't see that, that has materialized specifically affecting our industry, and we are comfortable with things we are now. Regarding for the large projects that we have, Well, for Tia Maria first, that was the beginning of your question. We are working actually in a very good way with both the civil society, the population and the territories. And that is reflected, as I mentioned, in recognition that the company has received from the major of the province of Istlae, which is the area where the project is due to the contribution of the company to fight the pandemic.
That was recognition that we see at the beginning of the year. And I think it reflects the improvement that we have been obtaining regarding Tia Maria. On the case of the other projects, they take their time for Michiquillay, where We're currently very close to signing a new agreement with the local communities to initiate the For the project, we need to comply also with environmental First environmental study that it's presented to the Peruvian authorities. We already did that. We already presented in February of this year, and we're expecting the approval that this will take about a little bit more than 2 months.
So we're close to the time where we will get the feedback and hopefully The approval of this environmental first environmental scale. We may accelerate the project a little bit if we can. If we can, we will do that. But at this point, we are holding to our current forecast for PPI. In the case of Los Chantas, we're working currently on the final environmental impact assessment.
Good progress has been obtained in that regard. So we're relatively comfortable to how things are moving forward for Los Chancas. I think that I covered the 3 major projects that we have already. And we're not moving the start up date for these projects. For the case of Tia Maria, It is expected to initiate production by 2024.
For Los Chancas, it will be in 2027 and Michiquillan next year 2028. If we see an opportunity For moving faster with these projects, we'll take it. But first, we will be keen on getting the best a project designed to have a very competitive operation, which we believe is one of the key elements of the company's success in delivering good results to the investment community and obviously to our shareholders.
Thank you. And just a quick follow-up. El Arco would be then after those 3, right?
El Arco will be yes, El Arco is expected for 20 28 as well with Michiquill. I haven't commented on the Mexican can probably let me do that. I thought that you referred to Peruvian ones, but Yes.
No, just the general. Yes, sorry.
Yes. For El Arco, it is expected to initiate production by 2028. As we reported, we already have all the necessary land. We finished that process. We have all the concessions.
So we can we want to deploy it now with a much more comfortable position than we were in the plant. For Killares. We are expecting, as I said, to initiate it in 2022 and for TR in 2023.
Yes. And very final question, Giro. When we think about Los Champs, for example, which is the First project, considering Tia Maria to start up in the future, the first big project, right, which you mentioned, 2027 startup. What's holding you back from really accelerating that project, for example? I understand You mentioned you guys are studying and making sure you have the best project, but it's 6 years from here into 2027, right?
I would imagine that there is room for you guys. If you want to accelerate maybe a couple of years, you could, right? Or is there something Really, that would make this impossible to happen.
Certain work that has to be done in order to have already the land where the plants and some other facilities will be built It will take a while, and that's why we are not moving this. As you well mentioned, it looks like an unusual longer timeframe for term frame for that. Now there are certain things that we can do and depend also on how the industry is performing, which is, for instance, accelerating the delivery of key critical equipment that could be done or requesting to build the with them delivered to us on a ban. So we have, let's say, the mills for the concentrator ready to install, and that could save us some lead time. At this point, that's the forecast that we have, as I mentioned, and we want to maintain it.
We will report if there is a catch up in that regard that allow us to reduce the time as we move on with it.
Got it. Thank you, Rodol.
Please keep in mind that the company has been very, very careful in developing these capital budgets, not only in the fact that they have to be accurate cost 1, Capital Cost Lines, but also in the time line that they should follow. So when we initiate a project, we want to be Very, very sure that we will comply with both the time line that we have for the project and the capital budget. That's why if you see our track record, You won't see that the company has failed with the budget for the project that we have indicated at the construction time.
All right. Thank you. We will again.
You're welcome, Thiago.
Thank you. Our next question comes from Carlos De Alba from Morgan Stanley. Your line is open.
Yes. Thank you. Hello, L. A. I hope we'll at least find a new company.
Just a Question on well, I have several questions. So the first one, if I may, is on cash cost before my products. While you mentioned why You increased quarter on quarter. You are certainly better, I think, than at least I expected and maybe better than the guidance for the year. So Could you maybe elaborate how sustainable this level of cash costs are?
And is there any Additions to the guidance for the year in terms of cash costs before byproducts?
Well, we expect to have our cash cost, but that's about where we are now. We think Yes. As I say, we're catching up with certain works, and we have an unexpected event regarding the gas prices and cost and availability in the Q1. So that should be removed from now on, that spike in gas prices. And then for the rest of the year, let's say that We're going to focus to have before by product trade between $1.50 1.55 And well, the products will certainly help given the better prices that they are that we're seeing in that regard and the stronger production that we're getting from our molybdenum plants.
And also, we expect to have a better zinc production for the rest of the year as we recuperate our zinc refinery and initiate the sales of refined zinc for the rest of 2021.
Yes. That was my second question. How do you see that recovery? You expect Refining Production and Shipments sales to recover already in the 2nd quarter After the fire, I mean, what is the progress that you have made in separating the damage done in the timing?
The first part of the Q1 during the Q1, we have this fire that affected our whole facility. We pretty much repair most of the damage, but We couldn't produce the forms that the shapes that are required for selling the refined zinc. And that's what we have been working on through this quarter. So we're expecting it to initiate production. And as you may recall, Carlos, we are alone in refining capacity at our CIN Corporation.
So we do have some, I think, concentrates that we will process through the Q2 and the rest of the year, and that will allow us to catch up on refining sales for the rest for this year.
All right. And then 2 more, if I may. Just one on capital allocation. Clearly, the quality of the assets that Southern Copper has in copper specifically are very good and the cash generation is impressive. The debt and the company pays recurring dividends, but there is not a capital allocation in place or policy, a capital allocation policy in place as we are seeing Mining companies incorporating aluminum in iron ore that had been developed recently.
Can we ever expect Southern Copper to maybe have a more formal allocation policy for the excess cash generation that it has. And the second question, my last question, Jose, is do you have any specific number So the company got an analysis on how much corporate demand could come from the U. S. Infrastructure package that we mentioned earlier in the call.
Okay. Thank you for your questions, Carlos. On capital allocation policy, Well, that is something that we may consider. But so far, I think that the company's track record, it's quite clear what What we want to do, we basically are developing projects that will maintain the company characteristics of being a low cost Copper producer, probably the lowest cost copper producer given the size of the company. I mean, among our peers, we believe that we're the lowest cash cost of copper at this point.
Regarding Dividends, as you see, the company is basically not holding cash. Our Board has been increasing our quarterly dividend as we are moving towards a different price of the different parts of the price cycle and as we have increased our production. Just as a reference for our audience, About 10 years ago, we were producing less than 500,000 tons of copper. Now we're producing about 1,000,000 tons. We have doubled our capacity.
Our goal is to grow up to 1.8 1000000 tons of copper production in the next in this decade. And by doing that, we who will keep our characteristic of being a low cost producer. And the last question, Well, we have not we don't have a formal internal estimate to how much is the Green Revolution or the infrastructure package that has that is going to be discussed for infrastructure in the U. S. We don't have that information yet.
Our commercial team is very positive about this. But and I've seen some studies that are doing a forecast that will be extremely favorable for copper producers in the next few years if this materialize. But at this point, we don't have a formal estimate ourselves.
Thank you. Our next question comes from Rodrigo Salazar from A. M. Advisors. Your line is open.
Thank you. My question has been answered. Thank you.
Thank you. Our next Question comes from Ivan Fernandez from Kenya. Your line is open.
Hi, good morning, Joe. Thanks for your time. I have a question about the political risk in Peru. I wonder how you're seeing the candidate Castillo and his proposals, particularly on risks related to the naturalization or Corporation of mining operations or excessive taxation of mining operations or even potentially less government protection against protests that could affect operations. If you could comment on kind of defenses you might have against that in case it pushes forward with that kind of a position?
Or even more useful would be to hear your views on what it's actually likely to try to do, if you win, whether it's just Kentein, Lassereka. You really believe you would push for these kinds of things. It would be very helpful to understand the risks you see for the company around that. Thank you. Thank you for your question, Ivan.
I think that at this point, we Don't want to comment on the proposals that the candidates both of them are doing regarding the mining industry in particular, because they did we have seen that as the campaigns proceed, The positions not necessarily hold. We have seen that in the past. We believe that once the elected President to start looking at the matters regarding to our industry. He or she will see that we We're a partner for the Peruvian development and one of the very strong locomotives that the country could use to go out of the very hard recession that COVID-nineteen has created in Peru. So at this point, we're not making any specific comment on that.
Once we have a definition, we who will comment on specific measures that will be announced, if any, By the elected president. Okay, though. I understand. Thank you for your time. You're welcome.
Thank you. Our next question comes from Leopold Ozova from Laurential. Your line is open.
Thanks very much. Hi, Raul. Thanks for all the detail. So my question is regarding your smelter smelter project. Here, could you please share with us some of the recent developments you have had on these projects in Ilo, Peru and Palme, Mexico?
On what stage are they currently?
Yes. We have indicated to the market. We have 2 smelting projects. 1 is in Peru and the other one is in Mexico. Let me comment on the Mexican.
First, we are expecting to initiate these investments later on this decade. For now, we're considering This project requires certain studies that are being developed, but We don't have this as, let's say, a priority, specific priority in our expenditures for the future. Regarding the Peruvian project, we do have all the economics of the project already review. There is a very interesting concentrate market at the northern part of Chile and the southern part of Peru. And as such, we are considering also an investment for a new smelter for the future.
Now on the as I say, on the economic side, it's we have finished the review of the technology to use and the economic It's also fit and it's very interesting, very actually a very good investment for the company. It has not been approved by our Board. We need to present it to the Board for formal approval and also we need to initiate all the environmental permits for this project. We're considering some investment for this year, but it's related to a cogeneration of power at the Ilo smelter. That's what we're considering this year.
And for 2022 and on, We will considering investing the total budget for the project. In the case of Mexico, For the smelter, we're doing technical studies this year, and we will be we will consider certain investments on the project for 2022. There is also a very good and very interesting market for concentrates at the northern part of Mexico, not only because we are long in concentrate in in Mexico as well as in Peru. But as I say, there are good opportunities to capture value for smelting in the both Mexico and Peru.
Great. And regarding your answer, Could you perhaps guide us to breaking down the strategic value of this investment? 1st, meaning, How much do you see the weight, the
returns of
the stand alone business? And how does that fit with being the lowest cost producer. That's on the one hand. And on the other, How much doesn't wait in the eyes of miners, the value of having smelting capacity in this side of the Pacific and also securing sulfuric acid supply coming from the smelters. I mean, is there like a hidden Value of having the smelters on this side of the Pacific?
Well, certainly, there is always the possibility of saving all the freight that will take to send, say, concentrates from the northern part of Chile, the southern part to China and the same applies to Mexico. There are U. S. Copper concentrate that could go to these smelters as well as our loan production that we have from the Buenavista operation at this point. On the budget, Smelter in Mexico has an estimated budget of BRL 864,000,000 And for the Peruvian one, it's R1357 million.
That's based on the budget. Please keep in mind that this report has not been approved by our Board. So they are still under review technical studies, And we don't have a specific goal for them, but it's in our current outlook for the future.
Okay. Thank you very much, Rahul.
You're welcome.
Thank you. Our next question comes from Andreas Bokkenhauser from UBS. Your line is open.
Thank you very much. Just two quick questions for me, a follow-up and a question on volumes last year. So one of the things we noticed, obviously, last year Out of Peru on a national level is that copper production fell on the back of COVID-nineteen and all the mining shutdowns and whatnot. You didn't really experience that. You bucked the trend and you actually saw production volume up on a year on year basis.
Can you just spend a little time talking about how you were able to grow your production in an otherwise somewhat pressured market? And How do you see yourself setting yourself apart from the guys that are producers that have been under pressure production wise? That's the first question. And I guess the second question, just a follow-up on the Peruvian risk. I get the point that you don't want to comment on the current candidates.
But if we talk about it like hypothetically, what would it actually take if you wanted to start nationalizing mining assets in Peru? I mean, my understanding, Based on conversations over the past month, is that it would require constitutional changes. Is that something you could confirm, any visibility on what would be required? Those are my two questions. Thank you very much.
Sure. Thank you very much for your questions, Andrea. Well, on the Please keep in mind that in 2020 in 2019, In May, we initiated the production of the 2nd concentrator of Toquepala. So in 2019, We have 8 months of production of a new facility that has a capacity of 100,000 tons of copper per year. And in 2020, We have that facility running at full speed through the whole year, 12 months.
Now As I mentioned a while ago, we at the beginning of the pandemic, we cut everything that we could in order to maintain only the concentrators, the smelter, the refinery and the FSEW operations moving forward. In the case of Peru, we were authorized, given that our operations are isolated and we have no cases of COVID at that point. At the beginning of the pandemic, we have quite a few months, we've been where We didn't have most of the year, I would say, we didn't have any outbreaks of COVID inside the premises where our workers and their families' needs. We had some cases of people that were not staying at the premises, but leaving, staying their houses in Moguela or Ilo or Tanya. So we managed to produce the mineral that our concentrators require.
We didn't do any stripping Any specific stripping works for Toquepala, very little, just necessary to extract the mineral. And that allow us to maintain our production level while having no cases inside our premises and having our production to hold. And as I say, we had the beginning of 20 in May and the Q2 of 2019. We initiated production with the new a concentrator of Toquepala. And we have a full year of production, and that explains while we increased our production in 2020 of copper concentrate and copper containing concentrate in this year, last year.
Now regarding your question on possible expropriation of mining operations. Well, the candidate that expressed that has indicated recently that he's considering more a change in taxation than a change or an expropriation of Operations. So we actually don't think that this is going to The material I think that will be materialized, but as I say, we will see We have a new President and this person takes the measures that he or she believes are the appropriate one for the country. That's very clear. Thank you
very much for those answers. I appreciate that.
Hope you guys are all safe and stay safe. Thank you. Thank you. Same to you, Andrea, and all the audience, obviously.
Thank you. Our next question comes from Fernando Assad from Ashmore. Your line is open.
Hi, Roelik. Congrats on the results in still a very challenging environment. My question is always hypothetical in nature. If the Peruvian political situation, Leveraging power continues to be much of a headwind and mixed as it in terms of investments and perhaps production from Peru to Mexico Or are the growth projects in Mexico totally unrelated in terms of from the Peruvian projects, in particular, Tia Maria. Is there any way you can put the Mexican growth projects ahead of Tia Maria.
Thank you.
Okay. Thank you for your question, Fernando. Well, we have 3 projects that are being underdeveloped in Mexico. FICO. We have a budget, a combined budget of a little bit north of $900,000,000 These projects were okay, generally Speaking, particularly Pilares, it's pretty much finished.
We are looking into some details to initiate production, And we expect to have it there is a good possibility that we advance a little bit the production for Pilanes. That's one of The comment that I think it's important to share. Now our El Pilar, it's moving forward. We're on a technical It's part of the project, so that we can move on with no problems at all. The one that we're affected a little bit by the pandemic, it's the zinc concentrator of Buenavista.
We are expecting the final vaccination of people over 60 years in the area where the project is, and we expect that to be a starting point for coming back into operation at the zinc concentrator, meaning by this construction of the Same concentrator will be will take some speed as we as Mexican government finish distributing the shots of vaccines in Kanameha. We reported on at a very promising activity conducted by Sonora government, which we certainly Yes, a very positive development. The company is constantly looking into different opportunities to acquire assets that fit the company characteristic of being a low cost operation. And we are looking basically on copper, which is We believe it's a metal that has excellent an excellent forecast for the next few years. So we're focusing on that.
Obviously, if conditions are better in some other country that who will be attractive for us to get in, and there is a good project to develop in there. We will Certainly, the first thing will be that assets management will have to study this in detail and Please have a recommendation to our Board, which will at the end of the day, they will take the decision of moving into This kind of acquisitions or some other activities in places where we see opportunities.
Thank you. And our next question comes from Alfonso Salazar from Scotiabank. Your line is open.
Thank you, and good day, Raul. Just a full congratulations on all the COVID-nineteen support initiatives of the company. Alfonso, could you I can't copy you. Could you approach a little bit your microphone, please? Can you hear me better now?
Much better. Thank you. Excellent. So the question that I have is regarding the growth beyond the points that you have announced. And after what you see, that's the Capella and Bonavista.
And let's leave aside the increase in Greece, for example, in Peru because of the elections. But including that aside, is it possible that Southern Copper Increased capacity at, say, Kandahar, ancajone. I remember that you mentioned ancajone expansion many years ago. Is that something that is feasible or not really? And that's my first question.
And the second one is regarding the mining reform in Mexico. I was disconnected, Bryce, until you were talking about that. But let me be a little bit nosy. What we have seen is a lot of any reforms in Mexico, strategic nature, many of them in natural resources like the Energy Reform, Hydrocarbons Reform. So why do you think that the mining industry would be excused?
Hold on a sec, please. I couldn't get your the final part of your second question, Alfonso. Yes. Just trying to understand why we think that Mining reform is not likely to be materialized in Mexico. I just got disconnected when you were talking about that.
Well,
let me first answer your first On the increased capacity in Toquepala, I would say that we are at the optimal capacity level for this operation nowadays. Keep in mind that we pretty much doubled the concentrating capacity of Toquepala in 2019. So it's a fresh investment, so We feel happy and comfortable with that. In the case of Quahone, we have now a lower milling rate on a daily basis for the Cuajone mine. And we're currently looking into possible expansion of the Cuajon operation to put it at the same milling level of the Peru of the Toquepala Operation also in Peru.
That is a project that has been resources has been assigned to review this expansion. We're looking into ways to increase our water recovery, which will be an important step in order to go on with the Quahone expansion. So with that, we may increase our production capacity in Peru a little bit more. Regarding the mining reform in Mexico, well, I think that we need to see how political circumstances evolve in Mexico as well. But at this point and for what we have seen through 2000 since the beginning of the new administration, We haven't seen any specific actions either than No.
Yes?
Yes. This is Oscar. Can I Mentioned that there was some okay, there was some reform last year to the special mining tax, some changes where there was a reduction on the concession fees that could be credited to the special mining tax and also some adjustment that the government did to the concessions and how that special tax was paid? So there was some reform last year addressing some issues that the government felt The mining industry wasn't managing well with the special mining tax. So there was some, And it's having an effect this year and increased special mining tax.
Thank you. And our next question comes from Gene Briony from BBVA. Your line is open.
Hi, there. Thank you for taking the question. Probably just a quick one on ESG. I found it very interesting that you put a full page dedicated to that matter to SG. Is it something we can open now to open every quarter?
Maybe you can develop Metrics we'll be using in the future of our company today. And are you considering Maybe the medium term depends on the demand on the project, using wind bonds or Swiss rail bonds to find Monsanto, some specific projects. Thank you very much. I couldn't get your question. Sorry.
Yes, please. It's just on the ESG that you're using a few full page on the ESG, the communique. So we'd like to know if it's something we can see now every quarter, What kind of metrics you will be using in that part of the communicate? And are you analyzing the issuance The bond or sustainable bond in the future green or sustainable bond in the future. Thanks.
Okay. Yes, thank you for your As you have seen, we are we have a section on ESG at our press release, and We will keep it as we move on. We believe that one of the there are 2 things that we have been doing lately in the last few years actually. One is, well, we did a GAAP analysis on what we need to do in order to improve our ESG metrics for now and the future. And that is a corporate effort that we are moving forward with.
And we believe that part of this effort should be on the communication side to express and to show the different progress that we're getting on this matter as we move on. You will see these use metrics as we report them in the next few quarters. Now regarding well, green bonds are obviously an interesting source of funds for the future, and we will considering them if we go to the capital market as an option. And that's Part of what we're doing is communicating what we're doing and catching up in whatever we feel that there is an opportunity to improve on ESG Metrix. Thank you.
Thanks.
You're welcome.
Thank you. And I am showing no further questions at this time. I'd now like to turn the conference back over to management for any closing remarks.
Thank you very much, Jenny. Well, this will conclude our conference call for Southern Copper's Q1 2021 results. We certainly appreciate your participation and hope to have you back with us when we report the Q2 of this year. Thank you very much, and stay well all of you. Thank you very much again.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect. Everyone, have a wonderful day.