Record Prices Masked a $0.17 Cost Jump, a Tia Maria Slip to 2028 and an Unexplained $8 Billion Cash Pile: Downgrading to Underperform, Fair Value $144–156

Results vs. Consensus

Southern Copper's release is dated Tuesday, October 20. The 8-K that carries it reached EDGAR at 9:20 AM ET on Wednesday, October 21, before the open, and the call followed on Thursday, October 22, at 11:00 AM ET. In July the print and the call landed in the same session. This time the market traded the numbers for a full session before it heard management, and it traded them lower. A sector-wide sell-off on call day then took the stock lower again.

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 periods.

Year-over-Year Income Statement

As in every quarter, the identical share count in both columns reflects the recurring stock dividend. The release restates the prior-year denominator to the current count, so the year-over-year EPS comparison is internally consistent. Several growth rates above differ by a few tenths from the percentages printed in the release, because we compute them on the rounded dollar figures shown rather than on unrounded inputs.

Sequential Comparison (3Q26 vs. 2Q26)

The sequential view is the one that matters this quarter. Revenue rose 9.5% and operating income rose only 7.3%, so the margin fell 120 basis points in a quarter in which three of the four metal prices rose. The reported EPS change compares 838.1 million weighted shares with 829.1 million; on net income the sequential growth is 7.9%.

Revenue assessment. A 39.1% increase on 0.4% lower copper volume is the same structural picture as the two prior quarters. The sequential gain is the better news: for the first time in our coverage, sold volume did some of the work, because sales stopped trailing production by a wide margin. That is a working-capital effect rather than new production, the first-half build has still not been sold, and it does not change the fact that this is a fixed-volume producer. Copper rose to 74% of sales from 73%, and molybdenum to 12% from 11%. Silver fell to 7% from 9%, so the revenue line is now weighted more heavily toward the metal the company actually mines.

Margin assessment. An adjusted EBITDA margin of 64.7% is excellent in absolute terms and 190 basis points below July. That direction is the point. In April and July, margins expanded faster than prices because unit costs held flat. This quarter unit costs rose faster than the copper price did sequentially (7.3% against 6.1%), and the margin gave back ground. At these price levels the company is very profitable. The evidence that the cost base sits still underneath the price, which we credited in July, did not survive the third quarter.

EPS assessment. Reported EPS rose 62.9% and the growth is operational: operating income rose 59.2% and the below-the-line items move the result by a few cents. The 35.6% 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 price. The stock dividend dilutes the per-share line by about 1% a quarter. Shares outstanding are 3.95% above a year ago. Because the release restates prior denominators, the year-over-year EPS line does not show this, but EPS as first reported each quarter will trail net income growth by about that margin while the practice continues.

The Cost Base Gives Back July's Gain

In July we called the cost result the most important disclosure of the quarter. Gross cash cost fell to $2.29 a pound in a quarter that carried three months of elevated diesel, and we wrote that a producer that delivers a sequential decline against a known input shock has earned some benefit of the doubt. We also flagged the risk: maintenance fell from 26.2% to 16.9% of production cost, and maintenance deferred is maintenance owed. The third quarter is where that question was answered, and the answer went the wrong way.

"Operating cash cost per pound of copper before by-product credits was $2.46 per pound this past quarter. This is $0.23 higher than the value for the third quarter of 2023 (sic) [ 2025 ]. This 10% increase in operating cash cost before credits was the result of an increase in cost per pound from production costs and for administrative expenses, which was partially offset by an increase in the premium and treatment and refining benefits that the company has been collecting."
— Raul Jacob, VP Finance, Treasurer and CFO

The release's reconciliation tables let us bridge the quarter line by line.

Strip out the items the measure excludes and the production-cost core of cash cost rose to 253.3 cents a pound from 231.0, an increase of 22.3 cents or 9.7%, on 0.7% more pounds produced. A 5.7-cent larger benefit from treatment and refining charges and sales premiums offset part of it, the same offset the CFO cited against last year. Management did not break down the sequential increase. Its only list of cost drivers explained the 17% year-over-year rise in total operating costs, which include depreciation and workers' participation:

"The main cost increments were in diesel and fuel, workers' participation, inventory consumption, depreciation, power and labor costs."
— Raul Jacob, VP Finance, Treasurer and CFO

We cannot yet say whether maintenance came back. The 10-Q, which carries the cost-component breakdown we used in July, had not been filed by publication. Inventory timing does not explain the increase either: the reconciliation removes inventory effects, and that line moved 17.7 cents in the other direction.

What changes the read is what management said next. On the April call it declined three times to give any range for gross cash cost, and in July it volunteered none. This quarter it gave one, and the base was $2.46.

"We should be reporting a cash cost before by-product credits in line or slightly better than what we did last quarter. That's our expectation at this point."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: One quarter of cost improvement was one quarter. Gross cash cost has now run 211.2 cents (2Q25), 222.7 (3Q25), about 230 (1Q26), 228.8 (2Q26) and 245.5 (3Q26). The trend is roughly 10% a year, and July was a pause in it, not a break. Management has reset the forward base to the higher number. We now model $2.45 to $2.50 for the fourth quarter and 2027, against the $2.29 to $2.35 we adopted in July. The cost half of the July thesis was the reason we held a full multiple. It no longer supports one.

By-Products: The Credit Rose, and the Marginal Dollar Moved to Molybdenum

The by-product story ran the other way from July. Silver fell again, 14.5% sequentially to $62.80 an ounce, but molybdenum rose 11.9% to $32.93 and zinc 10.8% to $1.74, and the credit rose.

"Regarding by-products, we had a total credit of $1.2 billion or $2.36 per pound in the third quarter of 2026. These figures represent a 31% increase compared to a credit of $900 million or $1.81 per pound in the third quarter of 2025. Total credits increased for molybdenum, zinc, silver and sulfuric acid."
— Raul Jacob, VP Finance, Treasurer and CFO

In dollars the credit was $1,172.9M against $1,106.2M in July, up 6.0%. The diversification argument we tested in July passed a second time: one by-product fell sharply and the portfolio still added value. The exposure has also changed shape, and the sensitivity table shows how.

In July a full silver reversion was worth about 37 cents a pound. It is now about 26 cents. The change is all price: at $62.80 silver sits $22.81 above its 2025 average, against $33.50 in July, while ounces sold were essentially unchanged (5.555 million against 5.516 million). Molybdenum, at 50% above its 2025 average, is now the larger single exposure at about 38 cents. A full reversion of all three by-products would take roughly 72 cents out of the credit and put the net cash cost near 81 cents.

Assessment: Our Bear 1 said the marginal dollar is silver. That is no longer true: the marginal by-product dollar is molybdenum, and the largest dollar of all is copper, which is 42% above its 2025 average. The credit rising in a quarter when silver fell 14.5% is real evidence for the breadth argument. It also means the company's earnings now lean on a molybdenum price at a cycle high, and molybdenum is a smaller market that has typically swung harder than copper. The earnings are still a price event. Only the weighting changed.

Segment Performance

Southern Copper reports three segments: the Mexican open-pit operations (La Caridad and Buenavista), the Peruvian operations (Toquepala and Cuajone plus the smelter, refinery, railroad and port), and the Mexican underground IMMSA unit. The release carries no segment P&L, and the 10-Q that does had not been filed by publication. The tables below use the operating disclosures in the release and the call: production by mine, and the product mix of sales. We will revisit the segment margins when the filing arrives.

The release's narrative describes the 1.1% copper decline as quarter on quarter. It is year over year: mined copper rose 0.8% against the June quarter.

Mexican Open-Pit Operations

Mexico carried the volume again, with total Mexican production up 2.5%. Buenavista rose 5.2% on higher grades, and La Caridad fell 7.1% with no explanation in either the release or the call. The by-product picture at the two open pits was weak. Molybdenum fell 12.5% at La Caridad and 8.3% at Buenavista, and the Buenavista zinc concentrator fell 8.1% on lower grades. This is the second consecutive quarter in which Buenavista's zinc output has declined.

"These were partially offset by an increase of 2.5% in production at our Mexican operations, which was mainly fueled by higher production at our Buenavista and IMMSA mines."
— Raul Jacob, VP Finance, Treasurer and CFO

Mexico is also where the one region-specific cost question came up. The Mexican operations import natural gas from the Permian Basin, and management said it sees no supply or cost problem there. It also carries El Pilar, where early site works began in September.

Assessment: Still the engine, and still the portfolio benefit a two-country footprint is supposed to provide. The unexplained 7.1% decline at La Caridad is the item to check against the 10-Q segment volumes. A second quarter of falling by-product output at both open pits weakens the argument that by-product breadth is a volume story as well as a price story.

Peruvian Operations

Peru remains the drag and is improving. Production fell 6.1% year over year against declines of 9.8% in the March quarter and 12.0% in the June quarter, so the rate of decline roughly halved. The improvement we noted in July was in sales volume, a different measure. The call added recoveries to the release's grade-only explanation, as the July call did.

"Our quarterly results reflects a 6% drop in production in Peru, which was driven by a decrease in production at both our Toquepala and Cuajone mines due to lower ore grades and recoveries."
— Raul Jacob, VP Finance, Treasurer and CFO

The by-product read was better. Molybdenum rose 8.9% at Toquepala and 6.1% at Cuajone, which offset most of the Mexican decline and left company molybdenum down only 2.2%. The segment also holds the company's long sulfuric acid position, which management called a revenue tailwind this quarter, and the Cuajone expansion added to the pipeline this quarter.

Assessment: The July commitment was Peruvian copper volume turning positive year over year. It has not, although the production decline roughly halved this quarter. The segment sales volumes in the 10-Q will settle the sales version of the question. On production, Peru needs one more quarter of the same improvement to reach zero, which is consistent with management's expectation that company production improves year over year in the fourth quarter.

IMMSA Unit

IMMSA was the bright spot operationally. Copper production rose 14.8% on higher grades and its silver output rose, while its zinc fell 7.5%. In July this was the segment that lost fifteen points of operating margin in a quarter on no operational change, because silver fell. This quarter silver fell further and zinc rose 10.8% in price, so the unit's revenue mix moved toward zinc.

Assessment: Without the segment P&L we cannot score the margin. The direction of the inputs (silver -14.5%, zinc +10.8%, zinc volume down) suggests another quarter of pressure on the most price-levered unit in the portfolio. At 4.6% of sales in the June quarter it moves the consolidated result very little. It remains the leading indicator of what a by-product reversion does to this company's segments.

Smelting and Refining

Smelter output rose 17.8% and refinery output 16.1% year over year, the largest increases in the operating table. Sequentially, smelting fell 4.0% and refining rose 2.1%.

"Our copper smelters and refineries increased their production by 18% and 16%, respectively, in the third quarter."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: The value-added mix keeps rising, and in a market where Chinese treatment charges have turned negative, owning smelting capacity is worth more than usual. The higher treatment-charge and premium benefit in the cost bridge (5.7 cents a pound sequentially) is where this shows up. Management was clear that negative charges make a new smelter hard to justify, so this is a margin benefit on existing capacity, not a growth project.

Key KPIs

Every price still prints above its 2025 average: copper by 42%, molybdenum by 50%, zinc by 34% and silver by 57%. Silver has now fallen two quarters running, by a cumulative 24.6% from the March-quarter average, and among the guided by-products it is the only one moving toward normal. Molybdenum and zinc are still rising.

Key Topics & Management Commentary

Overall Management Tone: Procedural and less forward-leaning than in July. The prepared remarks led with records and the 156,000-ton combined contribution of Tia Maria and El Pilar, and they treated the start-date slip, the higher unit cost and the move to a surplus view as routine. Under questioning, management deferred almost everything that matters for 2027 (production, project budgets, cost) to a January review, which leaves this call more of a placeholder than a progress report. Q&A was fuller than in July and, for the first time since April, reached capital allocation, where the answer was the least convincing of the call.

1. The Cost Line Reverses, and Management Finally Guides It

The cost bridge above covers the mechanics. The analytical point is the guidance. On the April call management declined three times to put a number on gross cash cost, and in July, with a favorable result to point at, it volunteered none. This quarter, with an unfavorable one, it offered a range, and the range is anchored to the new level.

"But let's say that we should be about to where we are now or a little bit better cash cost-wise for next year."
— Raul Jacob, VP Finance, Treasurer and CFO

A follow-up question confirmed that "where we are now" means the third-quarter run rate, not the nine-month average of $2.35.

Assessment: A company that guides for the first time in three calls after a 7.3% unit-cost increase, and anchors the guide to the higher number, is telling investors that the higher number is the base. We take it at its word. The fair reading of 2026 is that gross cost is rising by around 10% a year beneath a price deck rising faster. The second part will not last indefinitely.

2. Tia Maria: A Third Start-Date Formulation in Three Quarters

April's release said first production in the third quarter of 2027. July's said the second half of 2027, and management denied it was a delay. October's says the first half of 2028.

"Operations are scheduled to begin in the first half of 2028."
— Raul Jacob, VP Finance, Treasurer and CFO

The progress numbers explain why. The project went from 32.5% complete in March to 42% in June, 9.5 points in a quarter, and to 49.6% in September, 7.6 points. At the September pace, the remaining 50.4 points take about six and a half quarters, which would put completion around mid-2028. The first half of 2028 therefore needs the pace to recover. Percent-complete is not linear through mechanical assembly, and management attributed the slip to assembly and engineering taking longer, so the arithmetic illustrates the pace and does not set a schedule. Invested capital rose $191M to $884.3M. Committed capital stayed at $1,101M, unchanged from June.

Assessment: In July we said a slip of the start date into 2028 would take us to Underperform, and it has. The delay is not large, one to two quarters on management's own framing. What makes it matter is the pattern around it: the third different formulation in three releases, physical progress slowing, commitments flat, the desalination order (described as in process in July) not mentioned at all, and the budget opened for review in the same breath. That is the profile of a project schedule being reset in stages. The project is not in trouble, and its single most important external variable, the community, has not moved. Its timing and cost are now less certain than at any point in our coverage.

3. Every Budget Is Under Review

Three separate questions asked whether project capital would rise, citing the Tia Maria delay and industry-wide cost inflation. Management declined each time to reaffirm a figure.

"So regarding inflation, we're looking into our projects, current budgets, see if they have to accommodate any variances for next year. So far, we have not reported anything specific on this."
— Raul Jacob, VP Finance, Treasurer and CFO

In July the CFO said the company expects to spend $1.8 billion in total on Tia Maria. This quarter the figure was not restated in the release or in management's remarks; it came up in an analyst's question. The release also states the decade capital programme as "exceeds $15 billion", against "exceeds $20.5 billion" in April and July, while its own Peruvian ($10.3 billion) and Mexican ($10.2 billion) components are unchanged. On the call the CFO said the programme exceeds $21 billion. We treat the $15 billion as an editing inconsistency rather than a cut. It is not the only one in this release.

Assessment: Our July downgrade list included Tia Maria capital being restated above $1.8 billion. That has not happened. A review explicitly opened for January, with no reaffirmation and with inflation cited by the questioners, is close enough that we now treat a higher figure as the base case rather than the risk case. El Pilar has already shown the pattern: the CFO confirmed this quarter that its $551M budget is an increase on a historic budget more than five years old.

4. The Company's Copper View Moved to Surplus

This is the third quarter in which we have tracked the same passage, and it has moved in one direction each time.

"Based on current supply and demand dynamics, we estimate now a slight copper market surplus for 2026. Copper inventories worldwide, the total combining stock in LME, COMEX, Shanghai and bonded warehouses, stood at 1,105,000 tons as of October 9 of this year. We estimate that this inventory can currently cover approximately 14 days of global demand."
— Raul Jacob, VP Finance, Treasurer and CFO

April: a 315,000-ton deficit with 16 days of inventory cover. July: a "slight" deficit with 15 days. October: a "slight" surplus with 14 days. Inventories kept tightening while the producer's own balance estimate moved from deficit to surplus. Copper rose 6.1% in the quarter.

Assessment: The two halves of this disclosure point in opposite directions, and we weight the balance estimate more heavily, because it is the company's own forward view of the market it sells into, while inventory cover is a snapshot. Our Bull 4 said a structural deficit underpins the price deck. The producer we cover no longer says so for 2026, and has dropped from a quantified deficit to a surplus in six months. We mark that pillar broken. Copper at $6.41 is now a price the company's own supply-demand view does not explain, which raises the stakes on Bear 1.

5. Guidance: Copper Up 1,000 Tons, Molybdenum Up Again, Zinc Down Again

"For 2026, we expect to produce 918,000 tons of copper, an increase of 0.7% over our initial plan."
— Raul Jacob, VP Finance, Treasurer and CFO

That is the third copper raise of the year, 1,000 tons above July's 917,000. Molybdenum rose to 29,000 tons from 27,900. Zinc was trimmed for the second time, to 163,400 tons from 163,900, and silver held at 24 million ounces. The 2027 framing changed most. In July management offered "more or less the same" as 2026, and it now offers nothing until January.

"On production for next year, it should be expected to be now for this year, about a little bit less than 920,000 tons. And for next year, we'll provide an update when we finish our -- we're doing currently a thoughtful review on all our mining plans."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: The copper guide behaves like a conservative plan being beaten in small steps, which is to the company's credit. Withdrawing the 2027 framing is the more important change. A producer that described 2027 as flat in July and now needs a full mine-plan review to say anything, in the same call that moved Tia Maria into 2028, is warning that the bridge year may be softer than flat. We now model 2027 slightly below 2026.

6. The Sales-to-Production Gap Narrowed, but the First-Half Build Is Still Unsold

In July the CFO said material built up in process during the first half would reach the market in the second half. Copper sales of 233,278 tonnes rose 5.7% sequentially, and the gap between total production and sales narrowed to 2,223 tonnes from 11,809. Sales still trailed production, though, so the build kept growing: 12,787 tonnes over the first half and 15,010 tonnes over nine months. Balance-sheet inventories were flat at $1,059.8M against $1,060.9M at the end of June.

"Copper sales increased 41% while volume decreased 0.4% in a scenario of better prices."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: Half of the July claim has played out. Sales stopped falling behind production, which is why the sequential revenue comparison had real volume help. The other half, sales exceeding production as the first-half material converts, has not happened. In July we said this needed to actually happen rather than be re-promised. If it comes in the fourth quarter, it is a one-time benefit of about 15,000 tonnes. If it does not, the working-capital explanation needs revisiting.

7. $8 Billion of Cash, a Direct Question, No Framework

Cash and equivalents of $4,823.7M plus short-term investments of $3,239.2M total $8,062.9M, up $733.0M in the quarter and $3,537.4M in a year. Against $7,995.9M of long-term debt, Southern Copper is now net cash by $67M. In July nobody asked about it. This quarter the question was asked plainly.

"Well, and regarding dividends, as you know, it is always contingent of a Board decision. The company has been giving dividends in cash as well as in stock that was acquired at $26 per share that are being handed back to our shareholders, considering the current position of the company, which I think is very favorable in that regard."
— Raul Jacob, VP Finance, Treasurer and CFO

That answer addresses the form of the dividend, not the size of the balance. It offers no target cash level, no buyback, no special dividend and no statement of what the balance is held against. The questioner noted that cash would keep building even with capital spending of about $2.5 billion in 2027.

Assessment: This was the second of our July downgrade triggers: cash past $8 billion with no capital-allocation framework articulated. Both conditions are now met, and the framework was asked for directly. A company that borrowed $1.25 billion in June with $5.3 billion of cash and short-term investments already on hand at the end of March, and now holds $8.1 billion while saying only that distributions are the Board's decision, is making capital-allocation choices for its 88.9% holder that it does not explain to the other 11.1%. That is a governance discount, and the market is right to apply one.

8. The Dividend Rises 18%, and the Stock Component Continues

"Accordingly, on October 15, Southern Copper Corporation announced a quarterly cash dividend of $1.30 per share of common stock and a stock dividend of 0.0106 shares of common stock per share."
— Raul Jacob, VP Finance, Treasurer and CFO

The cash dividend rose to $1.30 from $1.10, the second raise in two quarters. On 844.3 million shares it costs about $1,098M a quarter, 64% of third-quarter free cash flow, against 54% for the dividends actually paid this quarter. The income statement now shows "stock dividends paid" of $2.13 a share beneath cash dividends paid of $1.10. Shares outstanding rose 1.2% in the quarter and 3.95% in a year.

Assessment: The cash raise is real and covered, and at $5.20 annualized it yields 2.81% at the October 23 close. It is also the only capital-allocation answer the company gave, and it is small relative to the balance. The stock component dilutes ownership by about 1% a quarter and is still presented as if it were cash returned.

9. Cuajone Expansion: The Cheapest Tons in the Pipeline

The most constructive new item on the call was a brownfield project.

"Current estimates point to a capital cost of $680 million to produce an average of 55,000 tons of copper and 1,400 tons of molybdenum per year."
— Raul Jacob, VP Finance, Treasurer and CFO

The plan raises Cuajone's milling capacity to 120,000 tons a day from 90,000, a 33% increase, with additional mining equipment and a new concentrator line. Management said the technical studies are well advanced, the Board allowed disclosure because approval is close, and the water for 120,000 tons a day is secured. A larger 150,000-ton option is being studied, and management declined to give its cost.

Assessment: At about $12,400 of capital per annual ton of copper, against roughly $15,000 for both Tia Maria and El Pilar, this is the most capital-efficient growth in the portfolio. It sits at an existing operation with water secured and no illegal-mining or grid dependency. We do not include it in our numbers until the Board approves it. It is the strongest argument on the call against our Bear 3.

10. El Pilar: Works Started, the Budget Already Rose

Early site preparation began in September, as committed, and construction is still set for the first quarter of 2027, with the EPCM bid for the SX-EW plant to close before year-end. Two details complicate the picture. The release's project section gives annual output as 29,000 tons of cathode, while the chairman's quote in the same release and the call say 36,000. And the CFO confirmed that the $551M budget is itself an increase.

"Keep in mind that the cost of El Pilar, the prior one was kind of a historic budget that was prepared a few years back, a little bit more than 5 years away."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: El Pilar is on schedule, and that is worth noting in a quarter when Tia Maria is not. The output discrepancy is most likely a drafting error and should be cleared in the 10-Q. The budget comment and the unanswered question on transmission lines (see Q&A) are the more useful signals: even the simplest project in the pipeline has seen its capital rise, and part of its infrastructure scope is not yet defined publicly.

11. Los Chancas, Michiquillay and Peru's New Administration

For the first time management sized the Los Chancas problem: "a little bit north of 200 illegal miners." It tied the 2031 start to their removal in "a relatively short term", with construction from the second half of 2028. Michiquillay holds at 2032 with community agreements in place, and management praised the new administration's technical appointments and its permit-streamlining effort.

"We think that the government has been appointed in key positions, a very well-rounded and technical capable personnel. That should improve the process of moving forward of projects."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: The tone on Peru is constructive and the content is unchanged. Los Chancas still has no removal date, and its 2031 start now rests on an unspecified near-term enforcement action. Its construction window opens just as Tia Maria is due to start production. We continue to carry Los Chancas and El Arco near zero, and Michiquillay as a distant option.

12. Smelting Economics in a World of Negative Treatment Charges

Negative treatment and refining charges in China mean concentrate sellers are being paid a premium, which undercuts the economics of new smelting capacity. Management was candid about it.

"Well, obviously, it's hard to consider building a new smelter with this environment where you get a premium on top of your concentrate copper price."
— Raul Jacob, VP Finance, Treasurer and CFO

It pointed instead to sulfuric acid, where it is long, particularly in Peru, and to the refined-copper premium that Tia Maria and El Pilar will earn as cathode producers.

Assessment: This all but shelves the Empalme smelter for now, and it is the honest answer. It also explains part of the cost bridge: the 5.7-cent sequential improvement in treatment charges and premiums is the existing integrated footprint earning money in a tight concentrate market. That benefit depends on the concentrate market staying tight, so it is not a cost the company controls.

13. El Niño and Water

One question asked how the company is preparing for a strong El Niño, which the questioner said is expected in early 2027. Management said its southern Peruvian operations face drought rather than flooding in that scenario, and that its water balance is adequate.

"And that is -- the balance has shown us that we have a reasonable supply even to address this drought that we're expecting at the southern part of Peru."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: A reasonable answer and one to hold the company to. Toquepala and Cuajone are already grade-constrained, and a dry year that limits throughput would compound that in exactly the year we now model as a slight decline. We note it as a 2027 risk without sizing it.

14. Leadership: A Third Silent Call

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

The chief executive did not speak. The CFO delivered the prepared remarks and answered every question, including those on capital allocation, project budgets and the pipeline. The chairman's commentary again carried the release.

Assessment: Six months into the role, three calls, no remarks. In a quarter when the project schedule moved, the budgets were opened for review and the cash question was finally asked, the person accountable for those decisions said nothing. Together with the release's internal inconsistencies, this is why we move the governance bear point to materializing.

Guidance & Outlook

Southern Copper guides volumes, and this quarter for the first time it gave a qualitative cost range.

Implied fourth-quarter ramp: Nine-month mined copper of 693,602 tonnes leaves 224,398 tonnes to reach 918,000, which is 3.4% below the third quarter's 232,396. As in each prior quarter, the annual guide implies a below-run-rate finish, the pattern of a company that intends to beat its own number. Molybdenum's implied 6,736 tonnes is 12.5% below the third quarter, so that guide has even more room.

Street at: No published consensus exists for production volumes or unit costs. The published fourth-quarter revenue estimate of about $4.43B sits 5.6% below the third quarter's actual against a below-run-rate volume guide, so the Street already assumes some easing in price or volume. That is where the real disagreement sits.

Guidance style: Conservative on volume and newly explicit on cost, at a level that resets expectations upward. Everything with a 2027 date (volumes, budgets, project capital) was deferred to January. That makes the January call the most important event in our coverage so far, and it means this quarter's guidance carries less information than its tables suggest.

Analyst Q&A Highlights

Q&A ran nine participants, almost twice July's five. Project timing and capital dominated, and five participants asked about project budgets in different forms. Capital allocation came up for the first time since April.

What Moved Tia Maria, and Whether the Budget Moves With It

The call opened on the delay. Management attributed it to mechanical assembly and engineering taking longer than planned. On capital, it declined to confirm the existing figure and deferred the question to January for every project. The answer's own wording of the new date was garbled, giving the first half of 2027 rather than 2028.

Q: "My first question is just on Tia Maria, maybe a little bit more color with what seems to be a little bit of a delay from the fourth quarter of 2027 to the first quarter or the first half of 2028. If you can provide a little bit more color as to what prompted that decision? And if you could expect maybe a potential increase in CapEx."
— Carlos De Alba, Morgan Stanley

A: "On the expected start-up of Tia Maria, we have found that it will take a little bit longer for us to assemble doing the mechanical assembly of all the equipment as well as some works related to engineering on the project. ... On potential CapEx increase, we are not reporting on any changes on that. We will mention this issue and address it in the call that we have in January, not only for Tia Maria, but in general, for our production forecast as well as our CapEx for this next year and on."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: A specific cause for the delay and no commitment on cost. "Not reporting on any changes" is not the same as "no changes", and tying the answer to a company-wide review in January widens the question rather than closing it.

The Remaining Tia Maria Capital, Asked Again

A later participant asked management to confirm that remaining spending would stay near $1 billion despite the delay, and whether the slower physical progress was a one-off. The answer declined the first part and did not address the second.

Q: "So just confirming the company does not expect CapEx to increase, I mean, to above the $1 billion that is remaining, right? Despite of this, let's say, 1, 2 quarter delay."
— Emerson Vieira, Goldman Sachs

A: "On CapEx, we're going -- we're currently reviewing all of them. So I'm not making a specific comment on that."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: The clearest moment of the call. A project half-built with $884M invested would normally have a firm view of its remaining cost, and management chose not to give one. We read this as a budget that is expected to rise and has not yet been sized.

Whether the Third-Quarter Cost Is the New Base

Several participants tried to pin down the cost guidance. The clarifying exchange established that the stated range is anchored on the third-quarter run rate, not on the year-to-date average.

Q: "But it sounds like you're guiding or pointing to flat sequential costs before by-products for Q4. And then for 2027, when you said flat to lower, is that from the Q3 level, like the Q3 run rate? Or are you talking about full year 2026?"
— Matthew Dushkin, Wells Fargo

A: "No, it's sequential for where we are. Please keep in mind that cash cost is very difficult to predict. ... We should be reporting a cash cost before by-product credits in line or slightly better than what we did last quarter. That's our expectation at this point."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: The most model-relevant answer on the call. It moves our cost base from $2.29 to $2.46 on management's own word, and a related question on Mexican energy costs drew reassurance on gas supply but no quantification of the structural question.

What the Cash Pile Is For

The capital-allocation question was asked directly for the first time since April. The participant framed it around continued cash accumulation even with heavier 2027 capital spending. Management answered on the form of the dividend rather than on the balance.

Q: "First, on capital allocation. I mean, cash obviously continues to build at a very fast pace. And even with CapEx expected to reach $2.5 billion in 2027, we would expect cash accumulation to continue at this strong pace, right? So I'm just wondering how is management thinking about the potential for increased shareholder distributions for you?"
— Matheus Moreira, Bradesco BBI

A: "Well, and regarding dividends, as you know, it is always contingent of a Board decision. The company has been giving dividends in cash as well as in stock that was acquired at $26 per share that are being handed back to our shareholders, considering the current position of the company, which I think is very favorable in that regard."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: A non-answer to a well-framed question. Pointing to treasury shares bought at $26 as the source of the stock dividend says nothing about the $8.1 billion. We set this question as a downgrade test in July, and the test is now failed.

Cuajone at 150,000 Tons a Day

A participant asked whether the larger expansion option would cost roughly twice the base case. Management declined to estimate it and said the 120,000-ton case is the likely outcome, with a decision implied for early 2027.

Q: "On the Cuajone expansion, if you go large to 150,000 tons per day, should we assume the CapEx is broadly the $1.4 billion, twice the $680 million if you put one mine in?"
— Myles Allsop, UBS

A: "On this, we're not making any comments."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: Reasonable for a project still in study. The base case is the one that matters: management described it as very likely and said its water is secured, which makes it the most credible addition to the pipeline this year.

The Los Chancas Clock

A participant asked how comfortable management is with 2031 and 2032 start dates for Los Chancas and Michiquillay, given the illegal-mining occupation at the former. Management would not set a removal deadline but tied construction to the second half of 2028.

Q: "So I'm just trying to understand your level of comfort around hitting these time lines of 2031 and 2032 start-up for both of these projects."
— Jonathan Brandt, HSBC

A: "I don't want to put a specific deadline for removing them, but obviously, it has to be in a relatively short term. ... we consider that we could begin the construction in 2028 and in the second half of 2028. And with that, we will -- we should be finishing the project by 2031, as I said."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: The 2031 date now has a visible dependency chain: removal, then the environmental assessment, then permits, then construction in 2H28. None of its links is dated. That is a target, not a schedule.

Whether El Pilar's Budget Includes Its Power Lines

A participant asked whether the El Pilar budget includes transmission lines, and whether those lines explain the higher capital. Management confirmed a budget increase driven by recovery work and equipment inflation. Asked directly about the transmission lines, it had no answer.

Q: "For El Pilar, you need to -- are you including the transmission lines in your budget for the project or not?"
— Alfonso Salazar, Scotiabank

A: "I don't have a specific answer for that question."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: A small project and a small gap, but the scope of a $551M budget should be known to the CFO who presented it. Paired with the 29,000-versus-36,000-ton discrepancy in the release, the El Pilar disclosure is less precise than a Board-approved project's should be.

Negative Treatment Charges and a New Smelter

A participant asked how negative Chinese treatment charges affect the company's plans for its own smelting and refining capacity. Management said they make a new smelter hard to justify for now and pointed to sulfuric acid and refined-copper premiums as the integrated model's current benefits.

Q: "And I know historically, you said there might be some investment in your own smelting and refining capacity. So I guess I just want to understand sort of how the negative TC/RCs in China are impacting you, your potential capital investment going forward"
— Jonathan Brandt, HSBC

A: "Well, obviously, it's hard to consider building a new smelter with this environment where you get a premium on top of your concentrate copper price. ... The upside is that sulfuric acid prices are at a good level, and that is something that help us in our revenues because we are long in sulfuric acid, particularly at the Peruvian operations."
— Raul Jacob, VP Finance, Treasurer and CFO

Assessment: Candid, and it effectively removes the Empalme smelter from any near-term view. The acid and premium benefits are real this quarter and are set by a concentrate market the company does not control.

What They're NOT Saying

1. The Tia Maria capital figure. In July the CFO put total spending at $1.8 billion. This quarter it was not restated in the release or the remarks, and management twice declined to reaffirm it when asked.
2. Whether the desalination plant has been ordered. In July management described the order as in process. This quarter neither the release nor the call mentioned it. Committed capital did not move from $1,101M, which is hard to square with a major equipment order placed in the quarter.
3. What drove the 7.3% sequential unit-cost increase. The only driver list on the call explained the year-over-year rise in total operating costs, none of the drivers was sized, and the question we raised in July (whether maintenance returns) cannot be answered until the 10-Q.
4. Any 2027 production number. July's "more or less the same" was replaced by a January review of all mine plans. The 2028 and 2029 targets were not restated.
5. Why the copper view moved from deficit to surplus. The second consecutive change in the same passage, again without explanation, in a quarter when copper rose 6.1%.
6. What $8.06 billion of cash and short-term investments is for. Asked directly and answered on the form of the dividend. No target level, no buyback, no special dividend.
7. The size of the decade programme. The release says "exceeds $15 billion" while listing $10.3 billion in Peru and $10.2 billion in Mexico. The CFO said "exceeds $21 billion". April and July said $20.5 billion.
8. El Pilar's output and scope. 29,000 tons in one part of the release and 36,000 in another; whether its budget covers transmission lines was not answered.
9. Why La Caridad's copper production fell 7.1%. Every other mine-level change was explained.
10. Any timeline for El Arco. Third consecutive quarter with the grid constraint restated and no date. Unlike April, no one asked.
11. The Empalme smelter, Angangueo and Chalchihuites. Still listed, still without updates, and the smelter now has an explicit economic headwind.
12. The chief executive's view of anything. Present, introduced and silent for the third consecutive call.

Market Reaction

• Pre-print setup: Shares closed at $202.34 on Tuesday, October 20, up 42.7% year to date against 12.7% for the S&P 500, up 53.0% over twelve months and up 3.4% over thirty days. The stock entered the print 7.9% below its 52-week closing high of $219.70, set on August 25, against a 52-week closing low of $118.60.
• First session on the release (October 21): Opened at $199.99, down 1.2%, traded as low as $190.69 (down 5.8%), and closed at $198.07, down 2.1% or $4.27, on 1.8 million shares, 1.8 times the 30-day average. The copper-miner complex fell 1.43%, the largest US copper peer was flat, copper fell 0.36% and the S&P 500 rose 0.58%.
• Call day (October 22): Opened at $190.00 and closed at $183.59, down 7.31%, on 2.1 million shares, 2.1 times average. It was a sector-wide sell-off: the copper-miner complex fell 6.27%, copper 2.76% and the S&P 500 1.21%.
• October 23: Closed at $185.01, up 0.77%, with the copper-miner complex flat and copper up 1.71%.
• Three sessions: Down 8.56% from the pre-print close, against 7.66% for the copper-miner complex, 1.45% for copper and 1.15% for the S&P 500. Since the last close before our July note, the shares are down 4.2% against a 1.7% gain in the S&P 500, and they sit 15.8% below the August high.

A sector tape, with a stock-specific point attached. Most of the 8.6% three-day decline belongs to the sector: miners fell more than 6% on call day for reasons outside this print. What belongs to Southern Copper is smaller and consistent. The stock lagged the miner complex by about 70 basis points on the first session, while the largest US peer was flat and the broad market rose. It lagged by about another point on call day, and it ended the three sessions roughly 90 basis points behind the group. The first session's volume, 1.8 times normal on a release that beat on both lines, says the market read past the headline to the cost line and the Tia Maria date before it heard the call.

What the market paid for in July, and took back. In July the stock rose 3.97% against a falling metal because three things improved: unit cost, the copper guide and a funded project added to the pipeline. This quarter the first reversed, the second improved by 1,000 tons, and the third was offset by a slip at the bigger project. The roughly one-point stock-specific penalty is small next to the sector move. It runs the opposite way from July for the opposite reasons, which is about as clean a market read of a quarter as this stock offers.

Where that leaves the multiple. At $185.01 the stock trades at 21.5 times annualized third-quarter earnings and 12.8 times annualized adjusted EBITDA, essentially the multiples of our April initiation (21.5 times and 12.7 times) and well below July's 24.0 times and 14.2 times. The de-rating is real. The difference from April is what sits under it: a higher unit cost, a later Tia Maria with an open budget, a producer that no longer calls a deficit, and earnings set by four prices that are 34% to 57% above their 2025 averages.

Street Perspective

Debate: Is $2.46 a new cost base or a one-quarter catch-up?

Bull view: The bull case being made on the Street is that the increase is input inflation the company is already containing. Management guided the fourth quarter flat to better, the benefit from treatment charges and premiums keeps growing, and on a nine-month basis gross cost is $2.35, only 10% above a year ago in a year of sharp diesel inflation. The net cash cost of $0.09 remains among the lowest in the industry.

Bear view: The bear camp contends that the per-pound measure already excludes workers' participation and inventory timing, and that the production-cost core still rose 9.7% in one quarter. Management anchored its first cost range in three calls to the higher figure. The July improvement came from a 930-basis-point drop in the maintenance share of cost, which looked unsustainable at the time, and the reversal is what that looks like.

Our take: The bears have the better argument because management made it for them. The measure already strips out the timing items, so the increase is in the cost of producing a pound. A company that guides for the first time in three calls after a cost increase, and guides to the new level, is resetting the base, and we model it that way. The net figure stays excellent only for as long as molybdenum stays near its high.

Debate: Does a 1H28 Tia Maria with an open budget change the growth story?

Bull view: The optimistic argument is that a one-to-two-quarter slip on a project that is half-built, substantially funded and socially accepted is normal for a large SX-EW build. Meanwhile the pipeline grew again: Cuajone's brownfield expansion adds 55,000 tons at the best capital intensity in the portfolio, El Pilar's works began on time, and the combined Tia Maria and El Pilar contribution takes the company above a million tons.

Bear view: The skeptical argument is that the start date has moved twice in two quarters, physical progress slowed, committed capital stalled, and management declined to reaffirm the budget while opening every project for review. The bridge year, 2027, lost its flat-volume framing in the same call, so the period in which this company is a fixed-volume price vehicle just got longer.

Our take: Both are true, and they operate on different horizons. Cuajone is a genuine positive and we would underwrite it on Board approval. For the next twelve months, which is our rating horizon, the relevant facts are a later first-production date, an open budget and a withdrawn 2027 framing. None of these is a disaster, and all of them point the same way. The January call becomes the next real test.

Debate: Is $8 billion of cash an option or a discount?

Bull view: Some argue that net cash at the start of a $20 billion decade programme is prudence, not waste. It funds Tia Maria, El Pilar and Cuajone without dilution or dividend risk, it earns interest ($71.4M this quarter), and the cash dividend just rose 18% for the second raise in two quarters. A buyback or special dividend is an option the company can exercise whenever it chooses.

Bear view: The bear camp points out that the company borrowed $1.25 billion in June with $5.3 billion already on hand at the end of March, now holds $8.1 billion, and answered a direct question on distributions by describing the stock dividend. With 88.9% of the shares held by one owner, the minority has no way to force the option, and an unexplained balance growing by $700M or more a quarter is a cost of capital, not an asset.

Our take: The bears have the stronger case on the facts as disclosed. The balance sheet is a genuine strength and we continue to score it as one. But an option the holder will not describe is worth less to the minority than its face value, and this quarter's answer was the clearest refusal yet. Until the company articulates a framework, we treat the cash as earning its interest rate and nothing more in valuation.

Model Update Needed

Valuation impact. We set fair value at $144–156, on 23–25 times a mid-cycle FY27 EPS of about $6.25. That EPS assumes FY27 copper sales of about 907,500 tonnes (the midpoint of our 2027 volume row), gross cash cost of $2.45 to $2.50, and each metal reverting halfway from its third-quarter average toward its 2025 average (copper about $5.46, molybdenum about $27.47, silver about $51.40 and zinc about $1.52). It also assumes about 875 million weighted shares, if the 1% quarterly stock dividend continues. The price reversion alone takes about $405M a quarter off the third quarter's $1,801.8M of net income, and the lower volume, valued at the reverted price less a $2.46 cash cost, takes about another $28M. At $185.01 the midpoint implies about 19% downside, or about 16% after the 2.81% cash yield. The multiple is a premium one: 23–25 times mid-cycle earnings credits the reserve life, the first-quartile net cost position and the net-cash balance sheet. It sits slightly above the 21.5 to 24 times the stock has traded on annualized peak earnings this year, as a mid-cycle multiple should. Two scenarios frame the range. If third-quarter prices hold, FY27 EPS is about $8.05 and the same multiples give about $186 to $202, roughly the current price to modest upside, and that case requires no reversion at all. At 2025 average prices, EPS falls to about $4.45 and the same multiples give about $102 to $111. Market capitalization is about $156.2 billion and enterprise value about $156.1 billion.

Thesis Scorecard Post-Earnings

Overall: Thesis weakened. Four tags moved this quarter, all in the wrong direction. Tia Maria went to at risk, the copper-deficit pillar broke on the company's own forecast, and both the governance and cost bear points moved to materializing. The two bull points that held, the balance sheet and by-product breadth, are real, and they were never the reason the stock could carry a full multiple. That reason was a flat cost base under a rising price, and it lasted one quarter.

Action: Downgrade to Underperform from Hold; fair value $144–156 (23–25x a mid-cycle FY27 EPS of ~$6.25), with conviction at 5/10. In July we held because better cost execution offset a valuation that was no longer cheap, and we named four events that would take us to Underperform. Two occurred: the Tia Maria start moved into 2028, and the cash balance passed $8 billion with the framework question answered by describing the dividend. The cost execution behind the Hold also reversed. The stock has de-rated to 21.5 times annualized earnings, but those earnings rest on prices the company now places in a surplus market, and our fair value midpoint sits 19% below the October 23 close. Conviction is moderate because commodity momentum could carry the shares: our spot-price case is worth $186 to $202. We would return to Hold on any of three signals: a January outlook that holds Tia Maria at 1H28 with total capital at or below $2.0 billion and 2027 copper at or above 2026; fourth-quarter gross cash cost back at or below $2.35; or a stated capital-allocation framework for the cash balance. A move into our fair-value range without a cut to our mid-cycle estimate would also bring us back to Hold. Going forward we watch the 10-Q segment margins and cost components, the desalination order, the Cuajone Board decision, any Los Chancas removal action, and the molybdenum price.