Southern Copper Posts Record Quarter as Prices Surge, Raises 2026 Output Guidance While Flagging Peru Ore-Grade Weakness
Q2 2026 earnings call, July 22, 2026
Southern Copper delivered its strongest quarter on record, with adjusted EBITDA of $2,856 million, up 60% year-over-year, and net income of $1,670 million, up 72%, as copper prices surged 40% to average $6.04 per pound on the London Metal Exchange. CFO Raul Jacob called it "another exceptional quarter, registering record-breaking results in sales, adjusted EBITDA and net income," and the numbers back that up: EBITDA margin hit 67%, up from 59% a year earlier, while net margin expanded to 39% from 32%.
Production Guidance Raised Despite Peru Weakness
The headline operational news is a modest but notable guidance increase. Southern Copper now expects to produce 917,000 tons of copper in 2026, up from its original 910,000-ton plan, even as second-quarter output fell 3.5% year-over-year to 230,662 tons. The shortfall was concentrated in Peru, where production dropped 12% due to lower ore grades and recoveries at both Toquepala and Cuajone, with Cuajone alone accounting for roughly 35,000 tons of the decline. Mexico offset much of the gap, with production up 3.2% on stronger output at Buenavista, La Caridad and IMMSA. Jacob noted the company has been building material-in-process inventory in the first half that should convert to shippable metal in the second half, suggesting sales volumes could outpace production for the remainder of the year.
Tia Maria Construction at 42%, No Delays Flagged Despite Desalination Question
Tia Maria, the company's flagship Peruvian growth project, has reached 42% completion, with $693 million invested against a committed $1,101 million and mass earthworks 71% complete. The project is being funded in part by a $1.25 billion 10-year bond issued June 24 at 5.35%, which drew demand of $4 billion, 3.2 times the offering size. When Goldman Sachs analyst Emerson Vieira pressed on whether the desalination plant purchase order had been placed and whether the project timeline had slipped from a previously stated third-quarter 2027 start-up to a vaguer "second half" reference, Jacob was direct: "For now, we don't expect a delay in the project. That's what we're reporting. But if there is a perception that the project will delay a little bit, we will certainly report that to the market." Total capital cost for Tia Maria is pegged at $1.8 billion, with cash costs estimated at $1.16 per pound, unusually clean given the project carries no by-products.
Long-Term Growth Path: 1 Million Tons by 2029, 1.6 Million by Early 2030s
Management laid out a multiyear production bridge that investors will want to track closely. 2027 copper output is expected to be roughly flat with 2026, with Tia Maria tonnage only contributing late in the year. By 2028, Tia Maria ramps meaningfully and output should reach approximately 970,000 tons. In 2029, the company expects to cross 1 million tons, specifically 1,060,000 tons, aided by El Pilar coming online and improved ore grades at the Mexican operations. The longer-term target remains 1.6 million tons of copper by 2033-2034, all organic growth from projects the company fully owns.
El Pilar Greenfield Project Clears Permitting Hurdle
El Pilar, a $551 million greenfield open-pit project in Sonora, Mexico, has secured its renewed water license and will begin site preparation in September, with full construction starting in the first quarter of 2027 and production targeted for the second half of 2029. The project will produce 36,000 tons of copper cathode annually via SX-EW technology over an 18-year mine life. Independent analyst John Tumazos pushed on why a relatively straightforward 36,000-ton project has taken over a decade to advance since Southern Copper acquired it in 2015. Jacob's answer pointed to technical diligence rather than external delay: "We had an in-depth technical review in order to be absolutely sure that we will get the recoveries on copper that we were expecting for the project. That was something that took us a little bit longer than what we believed when we acquired the project," adding that permit renewals compounded the timeline once the technical work was settled.
Peru's Political Transition: Cautious Optimism, Illegal Mining Still a Drag on Los Chancas
With President-elect Keiko Fujimori set to take office July 28, management struck a constructive but noncommittal tone. Jacob cited the incoming administration's stated priorities, including a crackdown on illegal mining, as encouraging for Los Chancas, where illegal miners continue to occupy the project area despite enforcement efforts from Peru's environmental prosecutor's office. He also flagged the restoration of a Peruvian Senate after more than 30 years as a stabilizing structural change. On a proposal to redirect up to 40% of mining canon revenue directly to residents in producing areas, raised by CICC's Tingshuai Feng, Jacob declined to speculate: "We will not comment on this until we see specifically what's the proposal." The company's three Peruvian growth projects, Tia Maria, Los Chancas and Michiquillay, represent a combined $10.3 billion investment, while Mexican pipeline projects add another $10.2 billion, underscoring the scale of capital at stake in how the new government's policies unfold.
By-Product Windfall Cushions Cost Base
Silver prices more than doubled year-over-year to $73.49 per ounce, up 118%, while molybdenum averaged $29.44 per pound, up 43%. Total by-product credits reached $1,106 million, or $2.24 per pound, bringing operating cash cost including by-product credits to just $0.05 per pound for the quarter, though that was $0.15 higher than the negative $0.11 per pound posted in the first quarter as silver and sulfuric acid credits softened sequentially. Cash cost before by-product credits came in at $2.29 per pound, down modestly quarter-over-quarter. The company raised its full-year molybdenum production outlook by 7% to 27,900 tons, even as second-quarter molybdenum output fell 11% on lower ore grades across all mines.
Balance Sheet and Capital Returns
Operating cash flow for the first half surged 117% to $3,683 million, driven by higher sales and a $719 million favorable swing in working capital. Capital expenditures rose 56% year-over-year to $865 million for the half, representing 27% of net income, part of a capital program exceeding $20.5 billion for the decade. The board declared a quarterly cash dividend of $1.10 per share plus a stock dividend of 0.012 shares, together valued at an estimated $3.23 per share, payable August 27 to shareholders of record August 11.