Silver Pays the Copper Bill: Cash Costs Go Negative on a Record Quarter, But Volumes Go Backwards and Growth Waits for 2028

Results vs. Consensus

Southern Copper released first-quarter results after the close on Tuesday, April 28, and held its conference call on Thursday, April 30. The gap between the two is unusual for a large-cap reporter and it mattered here: the print landed in the middle of a broad copper-equity drawdown, and by the time management spoke, the market had already decided how to treat a record quarter.

Consensus is published for net sales and EPS only. The remaining lines carry no Street estimate and are scored against the company's own prior-period figures.

Year-over-Year Income Statement

Sequential Comparison (1Q26 vs. 4Q25)

Revenue assessment. A 36.2% revenue increase on 4.9% lower copper sales volume is arithmetically striking and analytically thin. Copper was 70% of sales in the quarter and its contribution grew 23% while its volume fell 5%. The genuine surprise sits in the by-products: silver sales grew 201%, molybdenum sales grew 48%, and zinc sales grew 30%. Two of those three moves are price. Only zinc and silver carried real volume, and only because of two specific assets, the Buenavista zinc-silver concentrator and the IMMSA underground unit. The revenue line is therefore best modeled as a fixed volume base multiplied by four independent commodity prices, one of which (silver) just did something historically unusual.

Margin assessment. Adjusted EBITDA margin of 63.8% is a remarkable absolute number for a mining company and it is the clearest evidence of what Southern Copper actually is: a low-cost, long-life orebody portfolio where incremental revenue converts to cash at a very high rate. That is a durable structural advantage. What is not durable is the level. Total operating costs and expenses rose 11.6% against a 36.2% revenue increase, and the entire margin expansion is the gap between those two rates. Run the same cost base against 2025's average copper price of $4.51 per pound and 2025's average silver price of $39.99 per ounce and the margin compresses toward the mid-50s. The company earns a high margin at any price; it earns this margin only at these prices.

EPS assessment. The cleanest part of the print. There is no tax benefit, no share-count trick, no one-time gain, and no non-GAAP bridge to argue about, because Southern Copper does not report an adjusted EPS at all. Reported EPS is the number, it grew 67.0%, and it grew for the same reason operating income grew. The one item worth flagging is the 36.5% effective tax rate, which includes Peruvian and Mexican mining royalties and the Peruvian special mining tax and is therefore structurally high and structurally levered to price. Southern Copper's government partners take a fixed proportion of the upside, which caps how much of a further metal-price move reaches shareholders.

The Silver Quarter

The defining fact of the quarter is not copper. Silver averaged $83.33 per ounce against $32.31 a year earlier, a 157.9% increase, and in the process displaced molybdenum as Southern Copper's largest by-product for the first time. Management stated it plainly.

"Silver represented 13% of the company's sales in the first quarter of 2026 and is currently our first byproduct." — Raul Jacob, VP Finance, Treasurer and CFO

"After many years of leading our byproduct list, molybdenum was outpaced by silver, which rose on the back of higher production volumes and better prices." — Raul Jacob, VP Finance, Treasurer and CFO

This is the mechanism that produced the headline. By-product credits totalled $1,189 million in the quarter, which management quantified at $2.41 per pound of copper, up from $920 million and $1.78 per pound in 4Q25. Against a gross cash cost of $2.30 per pound, that credit is what tipped the net figure below zero.

"A negative cash cost means that our byproduct revenues of $1.2 billion more than cover our production costs for copper." — Raul Jacob, VP Finance, Treasurer and CFO

Read that sentence carefully, because it is both true and load-bearing. It says the copper business is being funded by the silver, molybdenum, zinc and sulfuric-acid businesses. Southern Copper's copper cost position is genuinely first-quartile, and a portfolio that throws off this much by-product value is a real and difficult-to-replicate asset. But the specific number, minus $0.11, is not a fact about Southern Copper's mining efficiency in the March quarter. It is a fact about the silver price in the March quarter.

Assessment: The negative cash cost will be the most-quoted line from this quarter and it is the one that deserves the least weight. It is a by-product price artifact reported as a cost metric. The durable read is that Southern Copper's gross cash cost of $2.30 per pound is stable and low, and that its by-product optionality is unusually broad. The transient read is the minus sign.

Segment Performance

Southern Copper runs three reportable segments: the Mexican open-pit operations (La Caridad-Pilares and Buenavista), the Peruvian operations (Toquepala and Cuajone plus the smelter, refinery, railroad and port), and the Mexican underground IMMSA unit. The chief operating decision maker evaluates them on operating income and total assets. All three expanded margin this quarter; only the Peruvian unit shrank copper volume.

Segment total operating income is shown as filed; the three segment components sum to $2,492.0M with rounding.

Copper Sales Volume by Segment

Mexican Open-Pit (57.2% of sales)

The largest segment and the larger of the two that grew copper volume, up 3.6% to 300.6 million pounds, with La Caridad up 5.5% on mined copper. It also carried the by-product story: zinc sales volume in the segment rose 27.4% and silver volume rose 24.6%, both attributable to the Buenavista zinc-silver concentrator that management flagged when asked how volume guidance could go up across multiple products at once. Operating income of $1,427.5 million on $2,432.9 million of sales is a 58.7% margin against 55.2% a year ago, the smallest margin expansion of the three segments precisely because this segment was already the most profitable.

"a few years back, we did an important investment at the Buenavista operation where we now have a zinc-silver concentrator." — Raul Jacob, VP Finance, Treasurer and CFO

The segment also absorbed the only operational incident disclosed on the call, and management framed it as closed.

"We had an incident at the Buenavista operation that affected one of the lines of production. This was fixed, and the Buenavista facility is operating now at full capacity." — Raul Jacob, VP Finance, Treasurer and CFO

Assessment: This is the segment doing the work, and the Buenavista concentrator investment is now visibly paying in exactly the by-products the market is repricing. It is also the segment most exposed to the Mexican policy questions around El Arco and the Empalme smelter, none of which advanced this quarter. Constructive on execution, unresolved on growth.

Peruvian Operations (37.2% of sales)

The problem child of the quarter on volume and the star on margin. Copper sales volume fell 15.6% to 207.8 million pounds, mined copper across the Peruvian units fell 9.8%, and segment silver sales volume fell 24.3%. Yet operating income rose 64.5% to $923.7 million and the margin expanded from 44.4% to 58.4%, a fourteen-point move, because this segment had the most operating leverage to reclaim among the two large segments. Cost of sales actually fell year over year, to $557.8 million from $597.1 million, and DD&A fell to $85.9 million from $94.5 million.

"This reduction was resulting from lower ore grades and recoveries that are in line with the annual plan." — Raul Jacob, VP Finance, Treasurer and CFO

Management was consistent between the release and the call that this was planned grade sequencing rather than a surprise, and expects recovery by the end of 2026. That claim is checkable next quarter and it should be checked. This segment also carries the Tia Maria construction spend, $235.7 million of the quarter's $441.9 million of capital investment, and the near-term labor risk: 50.4% of the company's 5,485 Peruvian employees are unionized across six unions, none holding a majority under Peruvian labor law, and Peru is in an election cycle.

Assessment: A 15.6% volume decline that still produced 64.5% operating-income growth demonstrates the leverage but disguises the risk. Peru is where the growth capital is going and where the grade recovery must show up. If the second-half grade improvement does not appear, the 2026 guidance raise becomes the first thing to unwind.

IMMSA Unit (5.6% of sales)

Small in revenue and outsized in optics. Sales more than doubled to $237.2 million and operating income went from $18.4 million to $140.8 million, taking the margin from 17.3% to 59.4%. The driver is the underground unit's zinc and silver: zinc sales volume up 8.7%, silver up 13.5%, into price moves of 14.0% and 157.9% respectively. Intersegment sales of $81.4 million rose 66.5% from $48.9 million, reflecting concentrate feeding the Mexican smelting and refining chain.

Assessment: IMMSA is the purest expression of what happened this quarter. A segment that was barely profitable a year ago at a 17.3% margin now earns the highest margin in the company, and essentially none of that came from doing anything differently. It is a levered call option on silver and zinc attached to a copper company, and it should be modeled as such rather than as a growth business.

Key KPIs

The right-hand column is the one to sit with. Every single price in the quarter printed above the full-year 2025 average, silver by a factor of more than two. Southern Copper's first quarter was not a normal quarter for any of its six revenue lines simultaneously.

Key Topics & Management Commentary

Overall Management Tone: Procedural and unhurried, with the CFO delivering a record quarter in the same register he would use for an ordinary one. Prepared remarks tracked the press release almost line for line and added little beyond the production-guidance updates. Where management was least convincing was on capital allocation, where a direct question about the rising cash balance drew an answer about the historical cost basis of treasury shares rather than about the cash, and on 2026 cost guidance, which was declined outright.

1. The Cash Cost Went Negative, and the Company Told You Why

Southern Copper's operating cash cost per pound of copper, net of by-product revenue credits, was minus $0.11 in the quarter, against $0.77 a year ago and $0.51 in the December quarter. The press release led with it and the call reinforced it. To the company's credit, management did not dress it up as an efficiency achievement; the CFO explicitly attributed it to by-product revenue.

"Operating cash cost per pound of copper before byproduct credits was $2.30 per pound in the first quarter of this year." — Raul Jacob, VP Finance, Treasurer and CFO

That figure rose by a penny sequentially, from $2.29. So the gross unit cost of mining a pound of copper at Southern Copper went slightly up in a quarter when the headline cash cost fell $0.62. Both statements are true and they describe different things.

Assessment: The gross cost is the number that belongs in a model; the net number belongs in a headline. At $2.30 per pound before credits, Southern Copper remains one of the lowest-cost large copper producers in the world, which is the durable point. Modeling forward off minus $0.11 would embed a silver price no one should underwrite.

2. Copper Volumes Fell, and Management Says That Was the Plan

Mined copper of 230,544 tons was down 4.0%, driven by a 9.8% decline in the Peruvian operations on lower ore grades and recoveries, partly offset by a 5.5% increase at La Caridad. Both the release and the call framed this as scheduled grade sequencing rather than an operating problem, with recovery expected toward the end of 2026.

"This outcome was primarily driven by lower production at our Peruvian operations that decreased by 10%, the production of the Peruvian operations. This reduction was resulting from lower ore grades and recoveries that are in line with the annual plan." — Raul Jacob, VP Finance, Treasurer and CFO

Set against the sector backdrop this is a favorable comparison. Southern Copper's volume shortfall is a grade-sequencing matter of its own design; the largest recent volume disappointments elsewhere in copper have come from material-handling and restart failures that forced repeated guidance cuts. Southern Copper raised guidance in the same window.

Assessment: Credible, and the second-half grade recovery is the single most checkable commitment management made. If Peruvian grades do not improve by the December quarter, the "in line with the annual plan" framing retroactively becomes a problem, because the full-year number depends on it.

3. The Volume Air Pocket: Guidance Up for 2026, Flat for 2027

Management nudged full-year 2026 copper guidance higher and was candid that the following year brings nothing.

"At this point, we expect to produce 915,000 tons of copper in 2026, which is 4,000 tons above our planned target for the year." — Raul Jacob, VP Finance, Treasurer and CFO

"For the next few years, we have for next year, 2027, we're expecting production relatively flat from where we are now. For 2028, when we will have the full effect of Tia Maria, we're expecting 967,000 tons of copper. For 2029, 1,056,000 tons, 2030, about over a million tons." — Raul Jacob, VP Finance, Treasurer and CFO

Every by-product was also guided up: silver to roughly 24.3 million ounces (1.3% above the prior goal), molybdenum to 27,400 tons (5% above the initial plan), zinc to 166,800 tons (1% above the initial plan). Those raises are welcome and they are small.

Assessment: This is the crux of the investment case and the reason a record quarter does not compel a positive rating. For the next roughly seven quarters Southern Copper is a fixed-volume vehicle. Whatever the earnings do between now and the Tia Maria ramp, they will do because metal prices moved, not because the company produced more. An investor buying SCCO today is expressing a view on copper and silver prices, with an option on 2028 volumes attached.

4. Tia Maria: One Third Built, Capex Held, and a Permit Scare

The 120,000-tonne-per-year SX-EW project in Arequipa is the entire near-term growth story. Progress stood at 32.5% at March 31, $948 million has been committed, 7.5 million tons of material has been moved from the La Tapada deposit, and first production is targeted for 3Q27. Two facts from the call matter more than the percentage. The first is that the remaining capital requirement has not moved.

"The additional CapEx that we need is $1.8 billion. We haven't changed that view so far." — Raul Jacob, VP Finance, Treasurer and CFO

The second is the project's cost position once running.

"Tia Maria will have a cash cost estimated at $1.16 per pound, so we are adding much lower cost per pound production when Tia Maria kicks in, which we are expecting to be the case in the second half of next year." — Raul Jacob, VP Finance, Treasurer and CFO

A permit question surfaced during the quarter when a Peruvian state entity asked the Ministry of Energy and Mines to reissue a resolution. Management characterized it as administrative housekeeping that never touched the critical path.

"It was fixed by the authorities themselves. We feel that the project Tia Maria is moving forward in a very nice way. We are not concerned on having any interruption." — Raul Jacob, VP Finance, Treasurer and CFO

Assessment: Holding capital guidance in an inflationary construction market while a third of the way through the build is a genuine positive, and roughly $900 million of purchase orders and signed contracts already sit inside that budget, which limits the escalation risk on the committed portion. Tia Maria has a long history of social opposition in Peru and it is being built into an election cycle. The base case should be that it lands in 3Q27; the risk case is measured in quarters, not in whether it happens.

5. Los Chancas and El Arco: Two Projects Blocked by Things Outside the Company's Control

Beyond Tia Maria, the pipeline did not move. Los Chancas, a $2.6 billion project envisioned to produce 130,000 tons of copper and 7,500 tons of molybdenum annually with a 2031 start, remains physically obstructed.

"Despite these efforts, the presence of illegal miners within the project area has prevented the project from progressing further." — Raul Jacob, VP Finance, Treasurer and CFO

El Arco, the world-class Baja California deposit with more than 1,230 million tons of sulphide reserves, is waiting on the Mexican state.

"In this context, our project's initiation is dependent on action at the Mexican government level." — Raul Jacob, VP Finance, Treasurer and CFO

Asked directly for a timeline on the transmission interconnection, management said it does not have one, and expects some engineering results by year-end covering part of the deposit rather than the whole. El Pilar was described as on track, without a date. Michiquillay is at the geotechnical and hydrological study stage.

Assessment: Southern Copper's $20.5 billion decade-long capital program is frequently cited as the reason to own the stock through the cycle. This quarter clarified how much of it is contingent: $10.3 billion of Peruvian projects and $10.2 billion of Mexican projects, of which exactly one, Tia Maria, is under construction with a date. The rest depends on Peruvian law enforcement and Mexican electricity policy. That optionality is real but it should be valued at a heavy discount and it should not be confused with a pipeline.

6. The Copper Market: A 315,000-Ton Deficit and Sixteen Days of Inventory

Management's market framing was the most constructive part of the call and the least hedged.

"Based on current supply and demand dynamics, we estimate a copper market deficit of 315,000 tons for 2026. Copper inventories worldwide stood at 1.2 million tons as of April 21 of this year. We estimate that this inventory currently can cover approximately 16 days of global demand." — Raul Jacob, VP Finance, Treasurer and CFO

Sixteen days of cover is a tight number, and it is the analytical foundation under a $5.83 average LME price. It is also, importantly, a house estimate from a producer with an interest in the conclusion.

Assessment: We agree with the direction and treat the precision with caution. The structural argument for copper is the strongest it has been in years, and the supply side has been visibly failing to deliver across the industry. But management's own inventory arithmetic (1.2 million tons covering roughly 16 days) implies annual demand near 27.4 million tons, which makes a 315,000-ton deficit a 1.2% imbalance, well inside the error bars of any demand forecast. Own the thesis; do not model the decimal.

7. Leadership Transition: Fifty Years Ends, and the Successor Does Not Speak

Oscar Gonzalez Rocha, Executive President and Chief Executive Officer, died on April 7 after five decades with the organization. On April 23 the Board appointed Leonardo Contreras Lerdo de Tejada as Chief Executive Officer. He has held leadership roles at the company for eight years, has been a Board member since 2021, previously led Asarco as CEO, and served as Commercial Director and then CFO of AMC before becoming its CEO in 2024.

"At today's conference, I am accompanied by Mr. Leonardo Contreras, recently appointed by our Board as CEO of Southern Copper." — Raul Jacob, VP Finance, Treasurer and CFO

He was introduced in the second paragraph of the call. He did not say a word for the rest of it. Every question, including strategic questions on smelter investment, project timelines and capital allocation, was answered by the CFO.

Assessment: There are benign readings, including deference during a period of mourning and a deliberate decision to let the CFO run a routine results call. There is also a less benign reading, which is that a new chief executive with no operating remarks on his first public appearance leaves investors with nothing to judge. Southern Copper is 88.9% owned by Grupo Mexico, so the practical locus of strategic decisions may sit above the CEO regardless. We would want to hear him next quarter before drawing conclusions, and we treat this as an open item rather than a negative.

8. The Hybrid Dividend and the Growing Cash Pile

On April 23 the Board declared a quarterly cash dividend of $1.00 per share plus a stock dividend of 0.0100 shares per share, payable May 29. Cash dividends paid in the quarter were $819.2 million against free cash flow of $1,252.6 million, a 65% payout. Cash and equivalents rose to $4,915.4 million from $4,304.6 million at year-end, with a further $434.1 million in short-term investments. Long-term debt was essentially unchanged at $6,751.9 million with no current maturities, putting net debt at roughly $1.4 billion against $2.9 billion a year ago.

Asked why the cash balance keeps growing, management answered about the stock component instead.

"the average cost of those shares was $26. The market is receiving them, we believe, in a good standing." — Raul Jacob, VP Finance, Treasurer and CFO

Shares outstanding rose from 819.1 million at December 31 to 826.1 million at March 31. The per-share disclosure in the income statement values the stock dividend at $1.53 per share against the $1.00 cash dividend, which invites the reading that shareholders received $2.53. They received $1.00 of cash and 1% more paper.

Assessment: The cash dividend is well covered at these prices and the balance sheet is close to unlevered, which is a genuine defensive quality heading into a $20.5 billion capital decade. The stock dividend is not a return of capital and presenting it adjacent to one is the least attractive disclosure practice in the release. Note also that the $819.2 million quarterly cash outflow is comfortable against $1,252.6 million of first-quarter free cash flow generated at record metal prices, and considerably less comfortable against mid-cycle prices. The dividend is explicitly reviewed at each Board meeting, so it is a variable, not a floor.

9. Input Costs: Diesel Up, Gas Regulated, Acid a Tailwind

The one cost topic that drew sustained questioning was fuel and reagents. Management's answer was granular and, unusually, split by jurisdiction: Peruvian diesel is exposed to world prices and feeds the mine truck fleet; Peruvian and Mexican gas are both administered prices and largely insulated.

"increasing diesel prices are affecting us at the diesel consumption, which is mainly used in our truck fleet at the mines and a little bit on the smelter." — Raul Jacob, VP Finance, Treasurer and CFO

On sulfuric acid, where the market feared a squeeze, Southern Copper sits on the right side of the trade.

"We are long in sulfuric acid. We actually sell sulfuric acid to our customers in the U.S. and in the southern part of South America. So, in that regard, we're actually benefiting from the higher sulfuric acid prices." — Raul Jacob, VP Finance, Treasurer and CFO

Management also isolated the timing of the fuel hit.

"At this point, we had one month, which was March, with higher fuel costs. That will certainly affect our total cost in the short term. But we don't think that this is going to be a long-term change for the company." — Raul Jacob, VP Finance, Treasurer and CFO

Assessment: Being long acid in a tight acid market is an underappreciated structural advantage of an integrated smelting footprint, and it is one of the few places where Southern Copper's vertical integration shows up as a hedge rather than as capital intensity. The diesel exposure is real but bounded, and one month of the quarter carried it. The genuine watch item is the second quarter, where a full three months of higher fuel runs through the cost base.

10. Integration, Smelters and the Ilo Question

A question about whether higher acid prices justify building a new smelter drew the most forward-leaning strategic comment of the call, and also a clear statement of the constraint.

"we have this as a possibility for both our Peruvian and Mexican operations. Obviously, the acid prices are good news for us because it improves the possibilities of a new smelter." — Raul Jacob, VP Finance, Treasurer and CFO

"Obviously, the company has a call for being an integrated producer, and we want to come back to that as soon as we can, but under the right circumstances for the company." — Raul Jacob, VP Finance, Treasurer and CFO

The offset management named is lower treatment and refining charges, which are a revenue line for a smelter owner and are currently depressed across the industry.

Assessment: Copper smelted rose 22.2% year over year to 166,788 tons, so the existing smelting footprint is being used harder. A new smelter would be a multi-year, multi-billion-dollar commitment layered on top of an already-large capital program, and management's framing (a possibility, under the right circumstances) is appropriately non-committal. This is optionality worth watching and not worth modeling.

11. Balance Sheet: Net Debt Halves Ahead of the Capital Decade

Total assets reached $21,925.0 million against $19,791.2 million a year earlier. Cash plus short-term investments of $5,349.5 million now sits against $6,751.9 million of long-term debt and no current maturities, having retired the $500.0 million current portion that was outstanding a year ago. Against annualized first-quarter adjusted EBITDA the company carries roughly 0.13 turns of net leverage.

Capital investments of $441.9 million rose 39.0% year over year but represented only 28.3% of net income, and split $235.7 million to Peru, $170.5 million to the Mexican open-pit segment, $33.5 million to IMMSA and $2.2 million to corporate.

Assessment: Southern Copper is entering its heaviest construction period with essentially no balance-sheet constraint, which materially de-risks Tia Maria and preserves the cash dividend even if metal prices fall. This is the strongest single argument for the equity and it is the reason we are initiating at Hold rather than lower.

Guidance & Outlook

Southern Copper does not guide revenue, EBITDA or earnings. It guides volumes, and this quarter it raised all four of them. The raises are modest in every case, which is itself the message.

Implied quarter-over-quarter ramp: First-quarter mined copper of 230,544 tons is 25.2% of the 915,000-ton full-year target, so the remaining three quarters need to average roughly 228,000 tons each. That is slightly below the March-quarter run rate, in a year where management expects ore grades and recoveries to improve into the second half. On its face the annual guide looks set to be beaten, and the CFO said as much when pressed.

"My personal take is that we may improve on top of that." — Raul Jacob, VP Finance, Treasurer and CFO

Street at: No published consensus exists for Southern Copper's production volumes, and the company issues no financial guidance, so there is no guide-versus-consensus gap to score. The Street's model is effectively a metal-price deck applied to a volume base the company has now nudged up by less than half a percent.

Guidance style: Conservative and volume-only. Southern Copper has a long-standing practice of setting an annual plan, beating it modestly, and declining to guide anything below the production line. On cost, management refused even a qualitative commitment for the balance of the year when asked twice, on the stated grounds that oil prices are unknowable. That is defensible and it is also a reminder that there is no management-supplied floor under the 2026 cost base.

Analyst Q&A Highlights

Fuel Inflation and Sulfuric Acid Availability

The call opened on costs rather than on the record, and specifically on whether Middle East conflict was reaching Southern Copper's input basket through diesel and reagent markets. Management split the answer by country, distinguishing world-priced diesel from administered gas prices in both Peru and Mexico, and characterized the net effect as worse than prior months but less severe than feared. The follow-up on sulfuric acid produced the more valuable disclosure: the company is a net seller, so a tight acid market is a revenue tailwind rather than a cost headwind.

Q: "I wanted to ask a bit more on detail regarding costs for the second quarter and any impact from higher diesel or tougher availability of sulfuric acid given the conflict in the Middle East."
— Timna Tanners, Wells Fargo Securities

A: "We are long in sulfuric acid. We actually sell sulfuric acid to our customers in the U.S. and in the southern part of South America. So, in that regard, we're actually benefiting from the higher sulfuric acid prices."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: A useful clarification that the market appears not to have priced. Integrated smelting turns an industry-wide input squeeze into a Southern Copper revenue line. The diesel answer was more evasive on magnitude, and no quantification of the fuel impact was offered at any point on the call.

How Four By-Product Volume Guides Could Rise at Once

Raising silver, molybdenum and zinc guidance in the same quarter invited the question of what changed. The answer was specific and asset-level rather than macro: a zinc-silver concentrator installed at Buenavista several years ago is now operating in a zone of the deposit with meaningful zinc and silver content, and the IMMSA underground operations are lifting both metals this year.

Q: "I noticed -- I think I caught across the different commodities that you were able to increase volume guidance for 2026. Can you expand on how that was possible and if there's further potential increases in volume as the year progresses?"
— Timna Tanners, Wells Fargo Securities

A: "a few years back, we did an important investment at the Buenavista operation where we now have a zinc-silver concentrator. This facility, it's currently in an area of the Buenavista mine where you have a significant deposit for zinc and silver, and that's somehow explaining the increase that you are seeing."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: This is the most bankable disclosure on the call because it ties the by-product volume story to a specific piece of installed capital rather than to price. It also implicitly bounds the story: the concentrator is mining a favorable zone, which is a mine-plan condition rather than a permanent step change.

Capital Allocation and the Rising Cash Balance

The sharpest question of the call asked two things at once: whether the hybrid cash-plus-stock dividend continues, and what purpose the growing cash position serves. Management answered the first (it is a Board decision, reviewed each meeting) and addressed the second only by reference to the historical cost of the treasury shares being distributed. The cash question went unanswered.

Q: "It has been for some quarters now that you have been paying a hybrid dividend. Just wondering if this is going to continue and what is the point of increasing the cash position of the company?"
— Alfonso Salazar, Scotiabank

A: "the average cost of those shares was $26. The market is receiving them, we believe, in a good standing. So, what is going to happen in the next Board meetings, I don't know. They are always discussing this, but that's what we're seeing now."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: A clean dodge on the substantive half. With cash and short-term investments at $5.35 billion, a $20.5 billion decade-long capital program and only one funded project under construction, the question of why cash is accumulating rather than being returned or deployed is the right one to keep asking. In a company 88.9% controlled by a single holder, capital-allocation opacity carries more weight than it would elsewhere.

The Multi-Year Production Path

A request for the shape of the copper ramp produced the most quantitative answer of the call and, inadvertently, the clearest statement of the near-term problem. Management walked the volume path year by year, and the path is flat until Tia Maria arrives.

Q: "there was this view that production was going to be good in 2026 and 2027. Apparently, you are going to be performing better than expected this year. I don't know what the outlook is for 2027. But I'm just wondering what is changing or what drove this better outlook for copper production over the coming years?"
— Alfonso Salazar, Scotiabank

A: "For the next few years, we have for next year, 2027, we're expecting production relatively flat from where we are now. For 2028, when we will have the full effect of Tia Maria, we're expecting 967,000 tons of copper. For 2029, 1,056,000 tons, 2030, about over a million tons."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: Management deserves credit for answering a five-year volume question with five specific numbers rather than a framework. The numbers themselves are the issue: roughly two years of no growth, then a 5.7% step in 2028 and a 9.2% step in 2029. Investors buying the copper cycle here are buying prices, not tons.

Grade Recovery Versus a Flat 2027

A recurring line of questioning probed the apparent tension between guidance that ore grades and recoveries improve toward the back half of 2026 and into 2027, and a 2027 volume outlook that is flat. Management resolved it by pointing out that grade recovery in Peru is offset by grade movement in the other operations, and framed the flat outlook as a current forecast rather than a ceiling.

Q: "you mentioned in the release that copper grades should improve toward the back end of the year and extending into 2027, but your guidance for 2027 implies relatively flattish production levels. I'm just wondering how these two things are going to play out."
— Matheus Moreira, Bradesco BBI

A: "we're expecting a recovery of ore grades and recoveries for the Peruvian operations, but usually you have a difference in ore grades in the other operations of the company. So, our current forecast is what we just mentioned, and we are expecting to improve it as we move on through the year up to arriving to 2027."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: An honest answer that concedes the portfolio has offsetting grade profiles, which is exactly what a mature multi-asset miner should look like. It also quietly removes the "grades recover" story as a 2027 volume catalyst. The grade recovery matters for 2026 cost per pound, not for 2027 tons.

Acid Balance Once Tia Maria Consumes Its Own Supply

The most technically interesting exchange asked what happens to the acid trading position once Tia Maria, a pure SX-EW operation, comes online and starts consuming acid internally. Management sized the internal requirement precisely and confirmed it will be met in-house at the cost of external sales.

Q: "Will Southern Copper remain as a net seller of acid, or will it need to move towards some external acid purchases?"
— David Feng, CICC

A: "The Tia Maria operation will require about 700,000 tons of sulfuric acid, and we will be able to provide that from our own sulfuric acid production. Obviously, the sales will be reduced, but you will have the benefit of the refined copper produced by Tia Maria."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: A real and under-modeled offset. The acid tailwind currently flowing through by-product credits partially reverses when Tia Maria starts up in 3Q27, converting an external revenue stream into an internal transfer. The economics improve overall because refined copper is worth more than the acid, but anyone extrapolating today's by-product credit into 2028 should net this out.

Cost Guidance for the Balance of 2026

Asked twice, with an explicit prompt on whether $2.30 per pound before by-product credits was a reasonable run rate for the second quarter and the year, management declined to commit, attributing the uncertainty to oil and to the fact that unit cost is not driven by the denominator alone.

Q: "what is the guidance for cash costs before byproducts for the second quarter and for 2026? Is for that to remain around $2.30, $2.30 per pound?"
— Carlos de Alba, Morgan Stanley

A: "Well it's contingent to what we will see on the oil market somehow. For the other cost elements, obviously as you have a higher cost for fuels, you usually have an increase in transportation and some other costs. So, I think that we will improve our costs when we have Tia Maria kicking in."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: The single most important non-answer on the call. A producer that will not put a range on its own controllable unit cost one quarter out is telling you the second quarter has a fuel problem it does not want to size. March was the only month of the first quarter that carried elevated fuel; the second quarter carries three.

Tia Maria Permit Durability and Capital Escalation

The final exchange combined the two live risks on the only funded growth project: whether the permit episode could recur closer to commissioning, and whether industry-wide cost inflation reopens the capital budget. Management was firm on both, describing the permit issue as a bureaucratic matter resolved by the authorities themselves and holding the remaining capital requirement unchanged.

Q: "do you feel there is a space for higher CapEx on Tia Maria?"
— Tathiane Candini, J.P. Morgan

A: "we already updated the CapEx for Tia Maria. The additional CapEx that we need is $1.8 billion. We haven't changed that view so far. If there is anything that may affect it, the market knows that. Now, keep in mind that we already have almost $900 million in purchase orders and contracts signed, et cetera, et cetera, that are under this budget."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: The strongest answer of the call, and the reason to give the project the benefit of the doubt. Roughly half the committed spend is already locked into signed contracts and orders, which caps the escalation exposure on the portion most vulnerable to it. Management also volunteered that the social environment is positive even during a Peruvian election cycle, which is the historical risk factor for this specific project and is worth revisiting each quarter.

What They're NOT Saying

1. The new chief executive did not speak. Leonardo Contreras was introduced by name and title in the opening minutes and contributed nothing thereafter. On a call one week after his appointment, following the death of a fifty-year company leader, investors received no statement of priorities, no view on the capital program, and no voice to evaluate.
2. Why the cash balance is growing. Cash and short-term investments reached $5,349.5 million. The question was asked directly and answered with the historical cost of treasury shares. There is no stated target cash level, no stated funding plan tied to the $20.5 billion capital program, and no discussion of buybacks.
3. Any 2026 cost guidance. Management declined twice to put a range on cash cost before by-product credits, even qualitatively, for the second quarter or the year. With one month of elevated fuel in the first quarter and three in the second, the omission is conspicuous.
4. Silver price sensitivity or hedging. Silver became the largest by-product and moved 157.9% year over year, driving the entire negative-cash-cost headline. The call contained no sensitivity disclosure, no hedge-book discussion, and no acknowledgement that by-product price risk is now the dominant swing factor in reported unit costs.
5. COMEX versus LME exposure. Asked how the mix of sales between the two exchanges has evolved, management declined on commercial grounds and noted only that the arbitrage has narrowed. Given how much U.S. copper policy has moved prices in recent periods, this is a material undisclosed exposure.
6. Any timeline for El Arco. Management stated it does not have an expected timing for the Mexican transmission interconnection the project depends on, and expects engineering results by year-end for only part of the deposit. A world-class asset with no date is not a pipeline entry.
7. Any remediation date for Los Chancas. The illegal-mining occupation has now blocked the project across multiple reporting periods. The disclosure is that the company continues to work with the relevant authorities, unchanged and undated.
8. The stock dividend framed as dilution. The income statement presents "stock dividends paid" of $1.53 per share directly beneath "cash dividends paid" of $1.00. Share count rose from 819.1 million to 826.1 million. Nowhere is the stock component described as what it is.
9. Second-quarter volume shape. No quarterly production guidance was given, only the annual figure, so the required back-half grade recovery cannot be tracked against a stated near-term milestone.
10. The Empalme smelter, Angangueo and Chalchihuites. Three Mexican projects named in the release as potential organic growth received no update beyond being listed, and the $10.2 billion Mexican investment figure was described as the subject of ongoing talks with the administration rather than as a committed program.

Market Reaction

• Pre-print setup: Shares closed at $166.80 on April 28, the release date, after five consecutive down sessions including a 4.29% decline on the print day itself, before the after-the-close release. The stock entered the print up 17.7% year to date against the S&P 500's 4.3%, up 83.5% over trailing twelve months, and up 4.2% over the trailing thirty days. Critically, it entered 22.9% below its 52-week closing high of $216.25 set on March 2, against a 52-week closing low of $85.56.
• Reaction session (April 29): Opened at $166.83, essentially flat to the prior close, traded a $162.88 to $167.81 range, and closed at $164.78, down 1.21% or $2.02. Volume was 1.3 million shares against a 1.7 million 30-day average, or 0.8 times normal. The S&P 500 was unchanged on the day.
• Peer context: The copper-miner complex fell 1.22% on the same session while the copper price itself rose 0.26%. Southern Copper's move matched the group to within a basis point.
• Call session (April 30): Shares rose 1.94% to $167.97, recovering the reaction-day decline, again broadly in line with a copper-equity group that rose on the day.

The record print generated no idiosyncratic reaction whatsoever. That is the most informative fact in this section. A company beat consensus EPS by 6.7%, printed record sales, record EBITDA and record net income, drove its net cash cost below zero, and raised guidance on all four products, and its stock moved exactly as much as the index of companies that did none of those things. Below-average volume confirms it: this was not a contested print being argued over, it was a print nobody traded.

What the market is actually pricing. The setup explains it. Southern Copper is 22.9% below its early-March closing high while its trailing earnings rose 66.7%. That combination is not the market doubting the results; it is the market compressing the multiple it will pay for them. Copper equities across the board de-rated through April even as the metal held near record levels, which is textbook late-cycle behaviour: the equity discounts mean reversion in the commodity long before the commodity delivers it. Investors have decided that $5.83 copper and $83 silver are the numerator of a peak, and they are unwilling to capitalize peak earnings at a peak multiple.

The sector overhang mattered more than the company. The five-session slide into the print was a copper-complex event, not a Southern Copper event. The sector's largest recent disappointment had already reset expectations for copper producers a week earlier, and the entire group carried the discount. Southern Copper's own quarter, which contained no negative surprise of any kind, could not push against that.

Street Perspective

Debate: Is a negative cash cost a moat or a mirage?

Bull view: The bull case on the Street is that a producer whose by-product revenues fully cover its copper production costs occupies a structurally unassailable position on the cost curve, will remain cash-generative at any copper price the cycle can produce, and deserves a premium multiple for that resilience alone. On this reading the breadth of the by-product portfolio, spanning silver, molybdenum, zinc and sulfuric acid, is a diversification asset that single-metal producers cannot replicate.

Bear view: The bear camp contends that the minus sign is a silver artifact and nothing more. Cost before credits went up sequentially; the entire improvement came from a by-product credit that expanded $0.63 per pound in a single quarter on a metal that rose 157.9% year over year. Capitalizing that as a permanent cost advantage is capitalizing a commodity spike.

Our take: The bears have the better of the specific number and the bulls have the better of the general point. A $2.30 gross cash cost is genuinely first-quartile and would still be attractive with silver at half today's price. The correct treatment is to model the gross cost, model by-product credits off a normalized price deck, and treat any period where the net cost prints negative as a windfall rather than a run rate. Anyone building a valuation on minus $0.11 is going to be surprised.

Debate: Has the 23.8% de-rating made the multiple defensible?

Bull view: The optimistic argument is that the stock has already done the work. Shares are nearly a quarter below their March high while earnings rose two thirds, net debt halved to roughly $1.4 billion, and the cash dividend yields about 2.4% with 65% first-quarter free-cash-flow coverage. At roughly 21.5 times annualized first-quarter earnings, an investor is paying a reasonable price for the lowest-cost major producer in a metal facing a structural deficit.

Bear view: The skeptical argument is that 21.5 times is not a discount when the "E" is a cycle peak. The multiple is being applied to earnings inflated by four simultaneous above-trend metal prices, with no volume growth to backfill if any of them normalize, and an effective tax rate of 36.5% that embeds Peruvian and Mexican mining royalties and the Peruvian special mining tax, all of which scale with price.

Our take: We land closer to the bears but without conviction enough to be negative. A 23.8% de-rating against a 66.7% earnings increase is a meaningful compression and it is why we are not initiating below Hold. It is not yet a margin of safety, because the earnings base itself has not been tested against a normal price deck. A further de-rating without an earnings cut is the setup that would move us to Outperform.

Debate: Is the 2028 volume story worth waiting two flat years for?

Bull view: The long-horizon case is that Southern Copper owns the largest copper reserve base in the industry, has a funded project entering production in 3Q27 at a $1.16 per pound cash cost, and has articulated a path from 915,000 tons today to 1.6 million tons by the middle of the next decade. Buying two flat years to own that ramp at a de-rated multiple is the trade.

Bear view: The bear response is that only Tia Maria is actually funded and under construction. Los Chancas is physically occupied by illegal miners, El Arco waits on a Mexican transmission line with no timeline, and Michiquillay is at the study stage with a 2032 start. The 1.6 million ton figure requires most of a pipeline that is not permitted, not funded, and not scheduled.

Our take: The bear framing is factually correct and the bull framing is directionally right about the asset base. Our resolution is to underwrite Tia Maria, treat Michiquillay as a real but distant option, and value Los Chancas and El Arco at close to nothing until something changes on the ground. That produces a company with a genuine 2028 inflection and very little visible beyond it, which is a fair business at a fair price rather than a compelling one.

Model Update Needed

This is our initiation on Southern Copper, so there is no prior model to revise. The table below records the assumptions we are establishing coming out of the quarter and the basis for each, so that subsequent quarters can be scored against them.

Valuation impact: At the $164.78 reaction close, 826.1 million shares outstanding imply a market capitalization of roughly $136.1 billion, and net debt of approximately $1.4 billion takes enterprise value to about $137.5 billion. On annualized first-quarter figures that is roughly 21.5 times earnings and about 12.7 times adjusted EBITDA, against a cash dividend yield of 2.4%. We regard those multiples as full but not extended given the asset quality and the balance sheet, and we regard the earnings they are applied to as cyclically elevated. The combination supports a neutral stance rather than a directional one.

Thesis Scorecard Post-Earnings

This is our initiation, so the pillars below are established rather than graded. Each carries the status tag we will track forward from here.

Overall: Thesis established. Southern Copper is a high-quality, low-cost, well-capitalized producer that delivered a genuinely excellent operating quarter, and simultaneously a business whose reported earnings power is currently being set by commodity prices rather than by anything it controls, with no volume growth available to offset a price reversal for roughly seven quarters. Those two statements are both true, and they net to neutral.

Action: Hold. We would move to Outperform on a further de-rating that is not accompanied by an earnings cut, on Tia Maria reaching mechanical completion ahead of schedule, or on a credible resolution at Los Chancas or El Arco that puts a date on the second growth leg. We would move to Underperform on a silver or copper price reversion that exposes the cost base, on the 2026 grade recovery failing to appear by the December quarter, or on Tia Maria capital guidance moving above $1.8 billion.