The Cost Base Passed Its Fuel Test; Silver Started to Give Back. Better Quarter, Worse Entry Point.

Results vs. Consensus

Southern Copper released second-quarter results after the close on Tuesday, July 21 and held its conference call the following morning, July 22, at 11:00 AM ET. The one-day gap is far tighter than the two-day gap at the first quarter, and it mattered in the company's favour: the market digested the print and the call in the same session rather than letting a record land into a vacuum.

Consensus is published for net sales and EPS only. Southern Copper issues no revenue, EBITDA or earnings guidance, so every other line is scored against the company's own prior-period figures.

Year-over-Year Income Statement

The identical weighted-average share count in both columns is not an error. Southern Copper's recurring quarterly stock dividend causes the prior-year per-share denominators to be restated alongside the current ones, which is why the as-reported year-over-year EPS comparison is internally consistent even though third-party per-share histories for this company are not.

Sequential Comparison (2Q26 vs. 1Q26)

Read the last three rows together and the quarter explains itself. Revenue was essentially flat sequentially, the gross unit cost of mining a pound of copper got marginally cheaper, and the entire deterioration in the headline cost metric came from the credit.

Revenue assessment. A 40.6% increase on 1.5% lower copper volume is the same structural picture as the first quarter with one important amendment. Copper was 73% of sales this quarter against 70% last, because copper prices rose while silver fell. The revenue line remains a fixed volume base multiplied by four independent commodity prices, but the weighting has shifted back toward the metal the company actually mines. That is a modest improvement in earnings quality: copper at $6.04 with a structural supply story behind it is a more defensible base than silver at $83, and this quarter proved the point by taking $9.84 per ounce off silver without dislodging the record.

Margin assessment. Adjusted EBITDA margin of 66.6% is 280 basis points above the first quarter and 790 above last year, on a company that sold fewer pounds of copper than it did in either comparison period. The durable component is visible in the cost stack: total operating costs and expenses rose 13.8% against a 40.6% revenue increase, and the unit cost of production fell sequentially in the quarter management had implicitly warned about. Run the same cost base against 2025's average copper price of $4.51 and silver at $39.99 and the margin still compresses toward the mid-50s. The difference from April is that we now have evidence the cost base is not drifting upward underneath the price.

EPS assessment. Reported EPS grew 71.8% and grew because operating income grew. The 36.4% effective tax rate remains structurally high because it embeds Peruvian and Mexican mining royalties and the Peruvian special mining tax, all of which scale with realized price. The 93 basis point decline in the rate is the only below-the-line item of any size, and it flatters the year-over-year comparison by roughly three cents. Nothing in the per-share line requires a caveat except the vendor restatement issue, which is a data-provider problem rather than a company one.

The By-Product Credit Turns

The defining fact of the first quarter was silver at $83.33 an ounce pushing Southern Copper's net cash cost below zero. The defining fact of the second quarter is that silver went the other way and the machinery worked in reverse, exactly as arithmetic requires and roughly at the magnitude we sized in April.

"Regarding by-products, we had a total credit of $1,106 million or $2.24 per pound in the second quarter of 2026. These figures represent a 7% decrease compared to a credit of $1,189 million or $2.41 per pound reported in the first quarter of 2026. Total credits have increased for molybdenum and zinc and decreased for silver and sulfuric acid."
— Raul Jacob, VP Finance, Treasurer and CFO

Silver averaged $73.49 per ounce against $83.33 in the March quarter, an 11.8% decline, and 5.516 million ounces were sold at that price for roughly $405M of revenue, against roughly $526M in the first quarter on 6.311 million ounces at the higher price. That single line accounts for the bulk of the $83M contraction in the credit. Molybdenum and zinc, both of which rose in price and both of which management named as offsets, absorbed part of it.

The consequence flowed straight to the headline metric.

"Southern Copper operating cash cost, including the benefit of by-product credits, was $0.05 per pound in the second quarter of 2026. Even though this cash cost was $0.15 higher than the cash cost of minus $0.11 for the first quarter, we think that this is an excellent mark for the company."
— Raul Jacob, VP Finance, Treasurer and CFO

Management is right that five cents a pound is an excellent absolute number. It is also sixteen cents worse than a quarter ago on rounded figures, and the entire move is a price the company does not control. We wrote in April that the minus sign was a by-product price artifact reported as a cost metric and would deserve the least weight of anything in that quarter. One quarter later, the sign has flipped without a single thing changing in the mine plan.

The sensitivity, updated

Southern Copper sold 5.516 million ounces of silver in the quarter and produced 493.3 million pounds of copper. Every $10 per ounce move in silver is therefore worth roughly $55M of quarterly revenue and roughly $0.11 per pound on the by-product credit. A full reversion of silver to its 2025 average of $39.99, holding volumes constant, would cut about $185M of quarterly revenue, take about $0.37 per pound out of the credit, and put the net cash cost near $0.42 per pound. That is essentially the same answer we computed in April at a higher silver price, because the two moving parts offset: less exposure per ounce, more ounces of downside still available.

Assessment: The reversion has started and it cost sixteen cents a pound in one quarter on an 11.8% price move. Silver remains 84% above its 2025 average, so most of the exposure is still in front of the stock rather than behind it. The offsetting good news is that molybdenum and zinc both moved up and both are now larger contributors, which is precisely the diversification argument for a broad by-product portfolio doing its job. The credit is compressing, not collapsing.

Segment Performance

Southern Copper reports three 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 press release carries no segment P&L; the figures below come from the 10-Q. Margins are computed on external net sales, the same basis used in our first-quarter note.

Sequential Segment Detail (2Q26 vs. 1Q26)

The sequential view is the more informative one this quarter, because it isolates what the silver move did to a portfolio in which the three segments carry very different by-product weightings.

Copper Sales Volume by Segment

Variances and percentages in the table above are as reported by the company and are computed on unrounded volumes, so a small number of rows do not recompute exactly from the rounded figures shown.

Mexican Open-Pit (58.4% of sales)

The segment did everything asked of it. Copper sales volume rose 2.2% to 288.6 million pounds, the only segment to grow volume, on higher SX-EW output at Buenavista (mined copper up 2.9%) and better recoveries and grades at La Caridad (up 3.9%). Operating income of $1,610.7M on $2,505.5M of external sales is a 64.3% margin against 56.4% a year ago and 58.7% in the March quarter, the largest sequential margin expansion in the company.

The by-product picture inside the segment is more mixed than the margin implies. Zinc sales volume fell 30.2% year over year to 44.9 million pounds and molybdenum fell 7.1%, with the Buenavista zinc concentrator down 18.6% on production. Silver volume was roughly flat, down 3.0%. The margin expansion is therefore price rather than the zinc-silver concentrator volume story that carried the first quarter.

Assessment: This remains the engine, and its ability to raise copper volumes while the Peruvian assets sequence through poor grades is exactly the portfolio benefit a two-country footprint is supposed to deliver. The zinc concentrator's volume contribution has faded, which is a reminder that the favourable mining zone management described in April is a mine-plan condition rather than a step change. It is also the segment carrying El Pilar, the one genuinely new item in the growth story.

Peruvian Operations (36.9% of sales)

Last quarter's problem child improved materially. Copper sales volume fell 6.5% to 196.1 million pounds against a 15.6% decline in the March quarter, and while Toquepala mined copper was still down 14.7% and Cuajone down 7.8% on grades, the rate of deterioration halved. Operating income of $935.9M on $1,584.4M of sales is a 59.1% margin against 49.5% a year ago. Sequentially the segment was almost perfectly flat on both sales and margin, which in a quarter when silver fell 11.8% is a reasonable outcome for the operation most exposed to Peruvian silver volumes, down 27.0% year over year.

Management quantified the grade drag with more precision than it did in April.

"the main reason for the change or for the lower production vis-a-vis last year, it's ore grades, particularly at the Cuajone mine, where we had a reduction that translates into about 35,000 tons of lower copper production and the difference comes from Toquepala."
— Raul Jacob, VP Finance, Treasurer and CFO

The segment also carries the construction: $246.9M of the quarter's $422.8M of capital investment went to Peru, and the $1.25B June bond was issued specifically at the Peruvian branch to fund Tia Maria.

Assessment: The single most checkable commitment from the April call was that Peruvian ore grades and recoveries would improve into the second half. The direction is right and the magnitude of the drag has halved. It has not yet turned positive, and the full-year copper guide still needs the back half to average roughly 228,000 tons a quarter against 230,662 mined this quarter, so the claim is on track rather than proven.

IMMSA Unit (4.6% of sales)

In April we described IMMSA as a levered call option on silver and zinc attached to a copper company, and said it should be modeled as such rather than as a growth business. This quarter tested the description. Sales fell 16.1% sequentially to $199.0M and the operating margin fell from 59.4% to 44.2%, a fifteen-point collapse in three months, while the underground unit's own production was fine: IMMSA mined copper rose 9.9% and its silver rose 2.6%. The segment did nothing wrong. Silver fell 11.8% and zinc volume in the unit was flat, and that was enough.

Year over year the segment still looks spectacular, with sales up 68.6% and operating income up 394.4% off a $17.8M base, which is the danger of anchoring on the annual comparison for an asset this price-levered.

Assessment: The clearest single-quarter validation of the bear case in the portfolio. A segment whose margin can move fifteen points in a quarter with no operational change is a price instrument, and it is the part of Southern Copper that will de-rate first and hardest if silver keeps normalizing. At 4.6% of sales it does not move the consolidated result much. As a leading indicator it moves the analysis a great deal.

Key KPIs

The QoQ column is new to this note and it is the one to sit with. Four of six prices rose sequentially and two fell, ending five consecutive quarters in which essentially everything went up together. Every price still prints above the 2025 full-year average, silver by 84%, so the cyclical exposure is intact. But the correlation has broken, and that is the first evidence in this cycle that Southern Copper's revenue line behaves like a portfolio of four prices rather than one.

Production Cost Structure

Key Topics & Management Commentary

Overall Management Tone: Confident and noticeably more forward-leaning than in April, with the same procedural delivery. The quarter's difficult item, the sixteen-cent deterioration in net cash cost, was disclosed plainly and framed as still excellent rather than argued away. Where management was least convincing was on the copper market itself, where a precise 315,000-ton deficit estimate from three months ago was replaced by the word "slight" without comment, and on the year-ahead outlook, which was volunteered in year-by-year tons but declined entirely on cost. Q&A was unusually thin at five participants and never reached capital allocation, the balance sheet or the by-product reversion.

1. The Fuel Test the Company Passed

The single most consequential open question leaving the first quarter was cost. Only March of 1Q26 carried elevated fuel and gross cash cost still ticked up to $2.30 per pound; the second quarter carried three such months, and management had twice declined to put any range on it. The answer arrived in the other direction.

"Operating cash cost per pound of copper before by-product credits was $2.29 per pound in the second quarter of 2026. That is $0.02 lower than the value for the first quarter of this year. The 1% decrease in operating cash cost is a result of lower cost per pound from production and administrative expenses and higher premiums. This result was partially offset by a decrease in treatment and refining charges."
— Raul Jacob, VP Finance, Treasurer and CFO

The 10-Q shows how it was done. Fuel rose to 18.0% of total production cost from 14.4% a year earlier, so the diesel hit was entirely real and roughly the size feared. Maintenance fell to 16.9% from 26.2%, and power fell to 9.4% from 11.2%. The company absorbed a 360 basis point increase in its most exposed input by cutting elsewhere, on a slightly smaller production base, and still delivered a lower unit cost.

Assessment: This is the most important disclosure of the quarter and the one most likely to be overlooked next to the headline records. A producer that will not guide its unit cost but then delivers a sequential decline against a known input shock has earned some of the benefit of the doubt it refused to ask for in April. It also raises a question for later quarters: a 930 basis point drop in the maintenance share of cost is a large swing, and maintenance deferred is maintenance owed. We treat $2.29 to $2.35 as the working range rather than assuming further improvement.

2. Copper Guidance Up Again, By-Products Quietly Down

Volume guidance moved in both directions this quarter, and only one direction was highlighted.

"For 2026, we expect to produce 917,000 tons of copper, an increase of about 1% over our initial plan."
— Raul Jacob, VP Finance, Treasurer and CFO

That is 2,000 tons above the 915,000 guided in April, and it delivers on the CFO's April remark that his personal take was the company might improve on top of the previous raise. Molybdenum went the same way, to 27,900 tons and 7% above the initial plan, from 27,400 tons and 5% above plan.

The other two moved down. Zinc guidance fell to 163,900 tons from the 166,800 tons guided in April, a 1.7% reduction, and silver reverted to the plan rather than exceeding it.

"In 2026, we expect to comply with our plan to produce 24 million ounces of silver."
— Raul Jacob, VP Finance, Treasurer and CFO

In April the same figure was framed as slightly exceeding the goal by 300,000 ounces. Neither reduction was flagged as a change, and neither was raised in Q&A.

Assessment: The copper raise is genuine and the second in two quarters, which is the right pattern for a company that sets a conservative annual plan. The by-product trims are small in tonnage and larger in signal, because they arrive in the same quarter that mined zinc fell 14.5% and mined silver fell 3.8%. Volume is now working against Southern Copper in three of its four products simultaneously, which matters more than usual in a year where volume is the only lever it has.

3. The Copper Market View Got Quieter

Three months ago management put a number on the market it sells into. This quarter it did not.

"Based on current supply and demand dynamics, we estimate a slight copper market deficit for 2026. Copper inventories worldwide, the total combining stock held in London Metal Exchange, COMEX, Shanghai and London warehouses, but the sum of these inventories stood at 1,123,000 tons as of yesterday, July 21. We estimate that this inventory can currently cover approximately 15 days of global demand."
— Raul Jacob, VP Finance, Treasurer and CFO

In April the identical passage read "a copper market deficit of 315,000 tons for 2026" with inventories of 1.2 million tons covering approximately 16 days. Inventories fell and days of cover tightened by one day, both of which are constructive. The quantified deficit simply disappeared and became "slight," with no explanation offered and no question asked.

Assessment: We were sceptical of the precision in April, noting that a 315,000-ton deficit against implied demand near 27 million tons is a 1.2% imbalance inside the error bars of any forecast. Management appears to have reached a similar conclusion. The honest reading is that the company's own view of 2026 tightness has softened marginally while the copper price rose 3.6% sequentially, and that is a small negative for anyone underwriting the price deck on the producer's supply-demand framing. The inventory cover number is the more useful disclosure and it improved.

4. Tia Maria: 42% Built, and Two Pieces of Language That Moved

Physical progress was strong. Completion reached 42% from 32.5% at March 31, earthworks moved 13.85 million tonnes from the La Tapada deposit against 7.5 million a quarter ago (71% of the total), committed capital rose to $1,101M from $948M with $693M already invested, and 5,817 construction jobs have been created with 1,254 filled locally.

"At the close of June, the Tia Maria project had reached 42% completion and 5,817 new jobs has been created. Of these positions, 1,254 has been filled with local applicants."
— Raul Jacob, VP Finance, Treasurer and CFO

Two things changed in the wording, and only one of them was challenged. First, the start date. April's language was first production in the third quarter of 2027; the release and the call now say the second half of 2027. Management denied that this constitutes a delay when asked directly. Second, and unchallenged, the capital framing. In April the CFO said the additional capital required was $1.8 billion, on top of $948M already committed. This quarter the same figure was described differently.

"As you know, we expect to spend in total $1.8 billion in Tia Maria. So with this bond, we should cover a significant portion of it."
— Raul Jacob, VP Finance, Treasurer and CFO

Additional and total are not the same number. Nobody asked which one governs, and the release does not reconcile them.

Assessment: The build is going well and is now substantially funded, which removes the financing question that hung over it. The two language shifts are individually minor and jointly worth tracking, because they both move in the direction of a slightly less precise commitment than the one made in April. Our working assumption remains first production in 2H27 and a total programme in the $1.8B to $2.0B range, and we would treat any explicit capital revision above $1.8B as a downgrade trigger, as stated in April.

5. El Pilar: The Pipeline Finally Grew

The most genuinely new item on the call was a small project that has been sitting on the shelf for eleven years. El Pilar in Sonora received Board approval, has its environmental permits, and now has a schedule and a budget: $551M of investment, 36,000 tons a year of copper cathode via SX-EW, 317 million tonnes of reserves at 0.249% copper, an 18-year mine life, early site preparation beginning in September 2026, full construction from the first quarter of 2027 and production in the second half of 2029.

The water permit that had been the outstanding obstacle is resolved.

"We already have the license -- the water license renewed. So we're ready to go, and that's why we are reporting it, beginning initial works of construction in September, and then a full construction process in the first quarter of next year."
— Raul Jacob, VP Finance, Treasurer and CFO

Alongside it, Michiquillay was elevated from a study-stage mention to a named pillar in the chairman's own commentary: $2.5B, roughly 225,000 tons a year of copper with molybdenum, gold and silver by-products, a mine life above 25 years, and a 2032 start. Reserve estimation, mine planning, hydrological and hydrogeological work are underway and geotechnical research is entering its final phase.

Assessment: El Pilar is modest in tonnage, at roughly 4% of current copper production, and it is the first project in more than a year to move from the "potential organic growth" list to a funded schedule. That matters more than its size, because our April bear case was that exactly one project of a $20.5B decade programme was funded and dated. Two now are. Michiquillay's promotion is presentational rather than substantive at this stage, but a 225,000-ton asset with an active reserve study is a more credible option than it was three months ago.

6. Los Chancas and El Arco: Still Waiting on Other People

Neither of the two blocked projects moved. Los Chancas remains physically occupied.

"as of June 30, the presence of illegal miners within the project area continues despite the state's on-site enforcement efforts through the environmental prosecutor's office. This has hindered the project's progress."
— Raul Jacob, VP Finance, Treasurer and CFO

El Arco, the Baja California deposit with more than 1,230 million tonnes of sulphide reserves, received no update beyond a restatement of the constraint: under the Mexican constitution the state is solely responsible for electricity transmission, and the project cannot begin until the Comisión Federal de Electricidad interconnects the Baja California peninsula with the rest of the country. No timeline was given, and unlike April, no analyst asked for one.

Assessment: Unchanged, which after a second consecutive quarter is itself information. The one difference is that management now attaches a specific policy hope to Los Chancas, linking it to the incoming Peruvian administration's stated intent to fight illegal mining and to legislate for artisanal miners. That is a real potential catalyst and it is entirely outside the company's control. We continue to value both assets near zero.

7. The Bond, the Balance Sheet, and a $7.3 Billion Cash Pile

On June 24 the company issued $1.25B of ten-year senior unsecured notes at 5.350%, due 2036, at the Peruvian branch and earmarked for Tia Maria.

"Demand for the notes was $4 billion, which was 3.2x greater than the total issuance amount."
— Raul Jacob, VP Finance, Treasurer and CFO

The striking part is what happened to the balance sheet around it. Long-term debt rose to $7,994.4M from $6,750.7M at year-end, with still no current maturities. Cash and equivalents reached $5,665.0M and short-term investments $1,664.9M, a combined $7,329.9M against $4,909.2M at December 31 and $4,010.3M a year ago. Net debt is therefore roughly $664M, down from about $1.4B at March 31 and $2,738M a year ago, or 0.06 turns against annualized second-quarter adjusted EBITDA. The company raised $1.25B and its net debt still halved, because cash plus short-term investments grew by roughly $1,980M in three months.

Assessment: The financing itself was excellent: a 3.2 times covered book at 5.35% for ten years, sized to cover a significant portion of the remaining Tia Maria spend, removes the last financing question from the only project under construction. The accumulation is a different matter. Southern Copper now holds $7.3B of cash and near-cash against a decade programme in which two projects are funded, and this quarter not a single analyst asked why. In April the question was asked and answered with the historical cost basis of treasury shares. This quarter it was not asked at all, which is worse.

8. The Dividend Rises 10%, and the Stock Component Is Still Presented as Return of Capital

On July 16 the Board declared a quarterly cash dividend of $1.10 per share, up from the $1.00 paid in each of the last two quarters, plus a stock dividend of 0.0120 shares per share, both payable August 27. Cash dividends paid during the quarter were $826.2M against free cash flow of $1,565.7M, a 52.8% payout, comfortably below the 65% ratio of the March quarter.

"Let me mention that factoring in both the cash dividend and the equivalent value of the stock dividend, the total estimated dividend payment is $3.23 per share."
— Raul Jacob, VP Finance, Treasurer and CFO

The income statement continues the practice we criticised in April, presenting "stock dividends paid" of $1.87 per share directly beneath "cash dividends paid" of $1.00. Shares outstanding rose to 834.3 million at June 30 from 826.1 million at March 31 and 804.1 million a year ago, a 3.8% increase over twelve months. A shareholder who did nothing owns a smaller fraction of the company than a year ago and received $1.00 of cash in the quarter, not $2.87.

Assessment: The cash raise is real, well covered, and welcome, and at $4.40 annualized it yields 2.28% at the post-print price. The presentation is unchanged and continues to invite a misreading, now at a larger notional value than in April because the stock price is higher. With $7.3B of cash on the balance sheet, a 10% cash raise while the stock component continues to expand the share count is a curious allocation of an abundant resource.

9. Peru's Political Transition

The chairman's commentary in the release and the CFO's prepared remarks both led with Peru's incoming administration. Management was explicit that its hopes are less about mining law than about enforcement.

"No, it's more than reviewing the mining law. It's improving the safety, the security, excuse me, the security environment in the country. That by itself will be very useful for mining projects in Peru. Besides that, we expect the government to maintain the fiscal accounts order."
— Raul Jacob, VP Finance, Treasurer and CFO

Management also flagged the return of a Peruvian senate for the first time in more than thirty years as an institutional stabiliser, and deferred any firm judgement to the president-elect's July 28 inauguration speech. It declined to engage on a specific proposal to distribute up to 40% of the mining canon directly to residents of producing areas.

Assessment: Peru is where $10.3B of the capital programme sits and where the volume problem currently lives, so the political read is load-bearing. Management's framing is credible and appropriately unspecific, and its linkage of the illegal-mining agenda to Los Chancas is the most concrete potential catalyst on that asset in two quarters. The canon proposal is the item to watch: a direct-distribution scheme could either buy community acceptance or complicate existing agreements, and management declined to speculate on which.

10. The Sales-to-Production Gap

Copper total production of 232,521 tonnes exceeded copper sales of 220,712 tonnes by roughly 11,800 tonnes, a gap that recurs in the six-month figures and that one analyst pressed on.

"I think we should do a little bit better in terms of volume in the second half. The reason for that is that we have been increasing a little bit our material in process at our operations in the first half of the year. So I expect that metal to show up and be available for sales at a certain point in the second half of this year. So that's my personal view."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: A working-capital timing effect rather than a demand problem, and the same CFO's "personal view" formulation preceded the guidance beat he delivered this quarter, so it is worth weighting. If the in-process material converts, second-half copper sales volume should exceed production and the year-over-year sales decline should narrow further. It is also the second consecutive quarter in which the sold volume undershot the mined volume, so this needs to actually happen rather than be re-promised.

11. The Multi-Year Volume Path, Restated

Management again volunteered a year-by-year copper path, and the numbers moved slightly upward from April while the shape stayed identical.

"For next year, for copper, we will -- we are expecting to produce more or less the same that we have this year. ... For 2028 and on, we expect Tia Maria to fill in and increase our production level to about 970,000 tons. In 2029, our copper production should be -- should be over 1 million tons, 1,060,000 tons."
— Raul Jacob, VP Finance, Treasurer and CFO

April's figures were 967,000 tons for 2028 and 1,056,000 for 2029, so both nudged up by roughly 4,000 tons. The long-run ambition was restated as above 1.6 million tons by 2033 or 2034, from "the midpoint of the next decade" in April. 2027 remains flat, with only a partial-year Tia Maria contribution hoped for late in the year.

Assessment: Nothing has changed about the central problem. Southern Copper produces 917,000 tons this year and roughly the same next year, and the step change is a 2028 event. That is five more quarters as a fixed-volume vehicle from here, down from seven at our initiation, which is the only sense in which the air pocket improved. Every earnings move between now and then will be a price move.

12. Leadership: Present, Introduced, Silent

Leonardo Contreras, appointed chief executive on April 23, attended his second earnings call.

"At today's conference, I'm accompanied by Mr. Leonardo Contreras, CEO of Southern Copper and also a Board member."
— Raul Jacob, VP Finance, Treasurer and CFO

He did not speak again. The CFO delivered the entire prepared presentation and answered every question, including questions on the multi-year growth path, project financing strategy and the political outlook in Peru, all of which are chief-executive subject matter. The chairman's commentary in the release, which in most companies would carry the CEO's name, carried the chairman's.

Assessment: One silent call a week after appointment was understandable. Two silent calls, a full quarter into the role, at a company where 88.9% of the shares sit with a single holder, is a governance data point rather than a scheduling artifact. It is not a thesis-breaking issue and it is not costless: investors have now had two opportunities to hear the strategy from the person accountable for it and have received neither.

Guidance & Outlook

Southern Copper guides volumes and nothing else. This quarter it raised two and lowered two.

Implied second-half ramp: Six-month mined copper of 461,206 tonnes is 50.3% of the 917,000-tonne full-year target, so the remaining two quarters need to average roughly 227,900 tonnes each against 230,662 mined in the second quarter. As in April, the annual guide implies a slightly below-run-rate pace in a period when management expects grades to improve, which is the pattern of a company that intends to beat its own number. The company has now raised this guide twice.

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. Published second-half and 2027 revenue estimates imply a lower metal price deck than the second quarter realized, which is where the real disagreement sits.

Guidance style: Conservative, volume-only, and asymmetric in disclosure. The two upward revisions were called out in prepared remarks with the percentage above plan attached; the two downward revisions were stated as flat figures with no comparison to April. On cost, management again offered nothing forward-looking, though this quarter it had a favourable result to point at rather than an unknown to avoid.

Analyst Q&A Highlights

Q&A ran five participants and roughly ten exchanges, notably thin for a company of this size and materially thinner than the April call. The topics that dominated were project execution and Peruvian politics. Cost, by-products, the dividend, capital allocation and the balance sheet were not raised at all.

Peruvian Ore Grades and the Shape of the Second Half

The call opened on the volume problem rather than the record, and the answer was more quantitative than April's. Management sized the Cuajone grade effect directly in tonnes, attributed the balance to Toquepala, and described roughly 40,000 tonnes of aggregate Peruvian shortfall being partly offset by deliberate effort in Mexico. It also used the question to deliver the guidance raise.

Q: "Just want to talk about copper production in the quarter was down 3.5% year-over-year. Can you just talk about how the grades have progressed at Toquepala and Cuajone? And what do you see that doing in the second half of this year? And is that impacting your full year production expectations at all?"
— Richard Garchitorena, Barclays

A: "Now we're expecting for this year 917,000 tons of copper. So we're improving a little bit on our plan. But the main reason for the change or for the lower production vis-a-vis last year, it's ore grades, particularly at the Cuajone mine, where we had a reduction that translates into about 35,000 tons of lower copper production and the difference comes from Toquepala."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: A better answer than the "in line with the annual plan" formulation of April, because it puts a tonnage on the drag and separates the two mines. What it does not do is confirm that grades improve from here; the guidance raise is sourced to Mexican effort and portfolio efficiencies, not to a Peruvian recovery that has yet to appear in the numbers.

Financing the Rest of the Peruvian Programme

With $10.3B of Peruvian projects named and one bond just issued, the natural question was whether debt becomes the standing funding model. Management confirmed the June issue was sized against Tia Maria specifically, declined to commit to a financing pattern, and gave a general preference for carrying some leverage as a matter of capital structure rather than of need.

Q: "you did issue $1.25 billion of debt for Tia Maria. Is funding going to be the main expectation for financing these new projects? Or how do you think about financing the remainder of the projects?"
— Richard Garchitorena, Barclays

A: "Generally speaking, the company considers use of some debt at a certain point in the developing of the projects of the company. Well, as a good practice to have a balance or a better balanced capital -- debt capital structure in our financial statements. ... So I believe that we could move on in that same direction for the future projects as well."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: The answer is reasonable and it sidesteps the more interesting question. A company with $7.3B of cash and near-cash, generating $1.57B of free cash flow a quarter, does not need to borrow to build a $551M project or a $1.8B one. Choosing to issue debt while cash accumulates is a capital-structure preference that has never been explained, and the exchange came close to that point without reaching it.

The Desalination Plant and a Start Date That Widened

The sharpest question of the call caught the language shift. April's guidance was first production in the third quarter of 2027; the release now says the second half of 2027, and the desalination plant is the long-lead item most capable of moving a date. Management confirmed the equipment order is still in process and offered a commitment to disclose rather than a denial of risk.

Q: "I wanted just to double check if the order to purchase that equipment has already happened. And if not, if this is a risk for delaying the project. If I recall well, last quarter, it was mentioned start-up in the third quarter of 2027. And in this press release, the company mentioned start-up in the second half. So just trying to understand if you guys see a risk of some delays in the project."
— Emerson Vieira, Goldman Sachs

A: "we are putting purchase orders and doing the proper contacts to different suppliers of the major parts of equipment, among them, the desal plant. 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. But for now, we don't have nothing to report on this."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: The question was correct and the answer did not fully close it. A purchase order for the single most critical remaining item is described as in process rather than placed, three quarters before the equipment needs to be installed, in a project that just widened its own start-date language from a quarter to a half. We read this as a schedule with a quarter of slack being consumed rather than a project in trouble, and we would want the desalination order confirmed placed by the October call.

Peru's Political Transition and Los Chancas

Two of the five participants spent their questions on the incoming administration. Management's answer connected the political change directly to the one asset where politics is currently costing it money, framing enforcement against illegal mining as the specific lever rather than tax or royalty policy.

Q: "in the case of Los Chancas, also in this context on the political environment, I mean, you've been facing these illegal mining activities, right? So I just wanted also to understand how can those things change given the new government."
— Rafael Barcellos, Bradesco BBI

A: "the priorities that the incoming administration have mentioned are important because one of them is the fight to illegal mining, which is something that is affecting us on Los Chancas. So we believe that some initiatives that are twofold, a new law for artisan mining, which is something that is widespread in Peru and has centuries of activities being Peru, a strong mining country. So for that, I think that we'll see some positive developments. Some of them will be favorable for Los Chancas, we believe so."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: The first constructive thing management has said about Los Chancas across two quarters, and it is entirely contingent on a government that had not yet taken office at the time of the call. A $2.6 billion project whose unblocking depends on national enforcement policy is an option, not a plan. The linkage is worth tracking because it converts a static disclosure into something with a potential date attached.

Tia Maria's Cash Cost and What Sits Inside It

The $1.16 per pound cash cost attached to Tia Maria has been quoted for several quarters without definition, and a question finally established the basis. The answer was cleaner than expected and carried a small hedge at the end.

Q: "we saw that you have provided a cash cost estimate of $1.16 per pound. Just would like to double confirm if it's after by-product credits? And if so, what by-product price assumptions underpin this estimate?"
— Tingshuai Feng, CICC

A: "Tia Maria has no by-products. So it's just copper, what we will be produced. And as you mentioned, the cash cost estimate that we have, it's $1.16. So it's $1.16. That's the cash cost that we have as an estimate right now. Hopefully, well, we have seen some changes in fuel prices and some other materials. But so far, this is the estimate that we're looking at right now."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: Materially useful. A $1.16 per pound cost with no by-product credit inside it is a genuinely low-cost asset and is not exposed to the silver reversion that dominates the current consolidated metric. It also means Tia Maria's contribution to group unit costs will be measured against the gross $2.29, not the net $0.05, and will therefore look better than the headline comparison suggests. The trailing caveat on fuel and materials is the first hint that the operating cost estimate, like the capital estimate, is being carried forward from an older price environment.

The Gap Between What Was Mined and What Was Sold

Copper sales trailed production by roughly 11,800 tonnes in the quarter and by a similar pattern across the half, and one participant asked whether that unwinds. Management attributed it to material in process rather than to demand and framed the reversal as a personal expectation rather than as guidance.

Q: "There was a gap this quarter. Sales was a little bit below production. So just trying to understand if you guys expect to see a reversal in the second half. I don't know, maybe inventories being consumed so that we see sales coming above production for the second half of this year."
— Emerson Vieira, Goldman Sachs

A: "I think we should do a little bit better in terms of volume in the second half. The reason for that is that we have been increasing a little bit our material in process at our operations in the first half of the year. So I expect that metal to show up and be available for sales at a certain point in the second half of this year."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: A benign explanation and a checkable one. The same "personal view" hedge preceded the copper guidance beat delivered this quarter, so the formulation has a track record. If second-half sales volumes do not exceed production, the working-capital explanation becomes a demand or logistics question instead.

Eleven Years to Approve a Small Open Pit

The most pointed exchange came from outside the large sell-side firms and asked why a straightforward 36,000-tonne oxide project acquired in 2015 took until 2026 to reach construction. Management attributed roughly half the delay to metallurgical work on copper recoveries and the balance to permit renewals that lapsed while the technical review ran.

Q: "It's now 11 years that you've had it. Please explain the delays in engineering and permitting and why it takes so long. This seems to be much easier than Tia Maria or Michiquillay or Los Chancas or some of the other projects."
— John Tumazos, John Tumazos Very Independent Research

A: "in the case of El Pilar, we had a technical -- an in-depth technical review in order to be absolutely sure that we will get in 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 ... Besides this, in the meantime, we have to renew some of the permits that we have for the project, and we have finishing this process recently, and that's why our last Board meeting, the project was presented for approval and we got it."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: An honest answer to an uncomfortable question, and a useful calibration for the rest of the pipeline. If the simplest project in the portfolio, fully owned, fully permitted in principle, small and technically conventional, took eleven years from acquisition to Board approval, the implied timelines for Michiquillay, El Arco and the Empalme smelter should be discounted accordingly. This exchange is the strongest evidence on the call for treating the $20.5 billion programme as an aspiration rather than a schedule.

What They're NOT Saying

1. Why the quantified copper deficit disappeared. April's "deficit of 315,000 tons for 2026" became "a slight copper market deficit" with no acknowledgement of the change. The company's own view of the market it sells into softened, in a quarter when the copper price rose, and nobody asked.
2. Cost guidance, for a third consecutive quarter. Management has now declined three times to put any range on cash cost before by-product credits. This quarter it had a favourable number to talk about and still offered nothing forward-looking, which means the good result is not a commitment.
3. Whether the maintenance reduction is sustainable. Maintenance fell from 26.2% to 16.9% of production cost, which is how the fuel increase was absorbed. No explanation was offered for a 930 basis point move in a cost category that is usually scheduled rather than optional.
4. Silver sensitivity, hedging, or by-product price risk. Second consecutive quarter with no sensitivity disclosure, in the first quarter where the reversion actually happened and cost sixteen cents a pound. The by-product credit fell 7% and no analyst raised it.
5. Whether $1.8 billion for Tia Maria is additional or total. April described it as the additional capital required on top of $948M committed. July described it as the total expected spend. The two framings are not reconcilable and the release does not address it.
6. Why the zinc and silver guides came down. Both were reduced without being flagged as reductions, in prepared remarks that explicitly framed the copper and molybdenum increases as beats against plan.
7. What the $7.3 billion cash and short-term investment balance is for. Up roughly $1,980M in a single quarter and up $3.3B year over year. Asked in April and answered evasively; not asked at all in July. No target level, no framework, no buyback discussion.
8. Why the company issued $1.25 billion of debt while holding $7.3 billion of cash. The answer given was a general preference for a balanced capital structure. The specific case was not made.
9. Any timeline for El Arco. Second consecutive quarter with the constraint restated and no date, and this quarter without even a question.
10. The chief executive's view of anything. Present on the call, introduced, silent throughout for the second consecutive quarter.
11. Whether the desalination purchase order has been placed. Described as in process among several major equipment orders. This is the long-lead item most capable of moving the start date, and the start-date language moved this quarter.
12. The Empalme smelter, Angangueo and Chalchihuites. Named again in the release as potential organic growth and given no update for a second consecutive quarter, with the $10.2 billion Mexican figure still described as the subject of talks with the administration.

Market Reaction

• Pre-print setup: Shares closed at $185.78 on Tuesday July 21, the release date, after rising 7.39% during that session alongside a 3.34% move in the copper price and a 5.93% move in the copper-miner complex. The stock entered the print up 31.0% year to date against the S&P 500's 9.7%, up 93.7% over trailing twelve months, and down 3.7% over the trailing thirty days. It entered 14.1% below its 52-week closing high of $216.25 set on March 2, against a 52-week closing low of $88.57.
• Reaction session (July 22, which also contained the 11:00 AM call): Opened at $185.65, essentially flat, traded a $185.65 to $194.10 range, and closed at $193.16, up 3.97% or $7.38. Volume was 1.2 million shares against a 1.4 million 30-day average, or 0.9 times normal.
• Peer context: The copper-miner complex rose 2.24% on the same session and the copper price itself fell 0.90%. The S&P 500 fell 0.14%.

This is the opposite of what happened in April, and the contrast is the most useful thing in this section. At the first quarter, a record print with a negative cash cost and a guidance raise produced a 1.21% decline that matched the copper-miner group to within a basis point, on below-average volume. This quarter, a similar record produced a 3.97% gain against a group that rose 2.24% while the underlying metal fell. Roughly 173 basis points of that move belongs to Southern Copper rather than to copper, which is a genuine idiosyncratic reaction to a print for the first time in this coverage.

What the market appears to have paid for. Three things in this quarter were not in the last one: a unit cost that fell in the quarter everyone expected it to rise, a second consecutive raise to the copper guide, and a funded project added to a pipeline that had exactly one. Volume at 0.9 times average says this was not a contested repricing, but the relative move against a falling metal says the market did read the print rather than trade the sector.

The cost of the applause. The same move that validates the quarter removes the argument that supported our rating. In April the stock sat 23.8% below its March high with trailing earnings up two thirds, and we said the de-rating was the reason not to rate it lower. It now sits 10.7% below that high after a 17.2% advance from the April reaction close, so roughly half of that cushion is gone, and it went while the by-product credit that produces the earnings began to compress.

Street Perspective

Debate: Does the by-product reversion break the cost story or prove the portfolio?

Bull view: The bull case being made on the Street is that this quarter is the diversification argument working in public. Silver fell 11.8% and molybdenum and zinc rose enough to hold the by-product credit within 7% of a record, while the gross cost of mining a pound of copper actually declined. A single-metal producer would have taken the full hit. On this reading, breadth of by-products is a shock absorber, not a source of volatility.

Bear view: The bear camp contends that a portfolio of four correlated cyclical prices is not diversification, it is leverage with extra steps. The credit still fell $0.17 a pound on an 11.8% move in one metal, the net cash cost moved sixteen cents, and silver remains 84% above its 2025 average with most of the reversion still ahead. The segment most exposed to it lost fifteen points of margin in a single quarter.

Our take: Both are right about different horizons. The offset was real this quarter and should not be dismissed, because molybdenum and zinc genuinely absorbed part of the silver decline and that is what a broad by-product book is for. But the arithmetic is unforgiving: at 5.5 million ounces of silver a quarter, a full reversion to the 2025 average still costs roughly $0.37 per pound, and molybdenum would need another very large move to offset it. Model the gross cost, model the credit off a normalized deck, and treat this quarter as the first instalment rather than the resolution.

Debate: Has the operational evidence earned the re-rating?

Bull view: The optimistic argument is that the market spent three months pricing Southern Copper as a pure price proxy and this quarter proved it is also an operator. The cost base absorbed a 360 basis point fuel shock and got cheaper, the Peruvian volume decline halved, the copper guide rose for a second time, a fully funded project entered the pipeline, and net debt fell to 0.06 turns despite a $1.25 billion issue. A 17% advance is a modest price for that much resolved uncertainty.

Bear view: The skeptical argument is that a 17% advance takes the stock to roughly 24 times annualized second-quarter earnings and 14 times annualized EBITDA on a business that will produce roughly the same tonnage in 2027 as in 2026. The published aggregate Street price target sits close to $149, roughly 23% below the post-print price, and the aggregate rating skews to reduce. The operational improvements are real and they are worth basis points of multiple, not a re-rating.

Our take: The bulls have the better of the quarter and the bears have the better of the price. The cost result genuinely changes our view of the business, because the specific thing we flagged as the biggest near-term risk in April did not happen, and that is worth something. It is not worth two and a half turns of P/E expansion on an earnings base whose largest recent tailwind just started reversing. When a stock re-rates upward on good operational news in the same quarter its price tailwind turns, the risk/reward gets worse even as the company gets better.

Debate: Is two funded projects a pipeline?

Bull view: The long-horizon case is that the growth story is finally moving. Tia Maria is 42% built and fully funded, El Pilar is approved with a budget and a schedule, Michiquillay has been promoted to an actively studied 225,000-tonne asset with a 2032 start, and the incoming Peruvian administration has named illegal mining as a priority, which is the specific obstacle at Los Chancas. Four of the pipeline's assets moved forward in a single quarter.

Bear view: The bear response is that El Pilar took eleven years from acquisition to Board approval and adds 36,000 tonnes, about 4% of current output, arriving in 2029. Michiquillay's promotion was a change in presentation, not in status. Los Chancas remains physically occupied and El Arco still has no date, both dependent on governments. Of $20.5 billion, roughly $2.4 billion is funded and scheduled.

Our take: The bears are still factually correct and the gap narrowed. Going from one funded project to two, and getting a specific policy linkage on the blocked one, is real progress against the standard we set in April. The El Pilar timeline is the more important disclosure, because it is the best available evidence for how long this company takes to convert an owned, permitted, technically simple asset into a construction decision. Underwrite Tia Maria and El Pilar, treat Michiquillay as a distant option, and continue to carry Los Chancas and El Arco near zero until something changes on the ground.

Model Update Needed

Valuation impact: At the $193.16 reaction close, 834.3 million shares outstanding imply a market capitalization of roughly $161.2 billion, and net debt of approximately $0.7 billion takes enterprise value to about $161.8 billion. On annualized second-quarter figures that is roughly 24.0 times earnings and about 14.2 times adjusted EBITDA, against a cash dividend yield of 2.28%. The comparable figures at our April initiation were 21.5 times and 12.7 times at a 2.4% yield. Earnings rose 5.9% sequentially and the multiple rose 12%, which is the definition of a re-rating rather than an earnings-driven advance. We regard the multiple as full, the balance sheet as immaculate, and the earnings base as still cyclically elevated with the first leg of reversion now visible.

Thesis Scorecard Post-Earnings

Overall: Thesis intact with the internal balance materially rearranged. Two bear points weakened (fuel cost pressure did not appear; the funded pipeline grew), one bull point weakened (the company's own copper-market framing softened), and the central bear point moved from emerging to materialising exactly as modeled. The operating business is better than we underwrote in April. The security is more expensive than we underwrote in April. Those two changes very nearly cancel, and the net is the same rating reached by a different route.

Action: Hold. In April we held because a 23.8% de-rating offset earnings set by four above-trend prices; today we hold because materially better cost execution offsets a valuation that has re-rated to roughly 24 times annualized earnings with the by-product tailwind already turning. We would move to Outperform on a second consecutive quarter of gross cash cost at or below $2.29 with the maintenance line normalised, on Peruvian copper volumes turning positive year over year, or on a dated resolution at Los Chancas under the incoming administration. We would move to Underperform on silver approaching its 2025 average without a copper offset, on the desalination order or the Tia Maria start date slipping into 2028, on Tia Maria capital being restated above $1.8 billion on a comparable basis, or on the cash balance passing $8 billion with no capital-allocation framework articulated.