Executive Summary / Key Takeaways

• Strategic Growth Catalyst: The recent authorization for the Tia Maria project in Peru marks a pivotal moment, de-risking a significant organic growth driver and positioning Southern Copper for substantial long-term copper production expansion.
• Robust Financial Performance: Southern Copper delivered record net sales, adjusted EBITDA, and net income in Q3 2025, driven by strong by-product production volumes and favorable metal prices across its portfolio.
• Industry-Leading Cost Efficiency: The company maintains one of the lowest operating cash costs in the industry, achieving $0.42 per pound of copper (net of by-product credits) in Q3 2025, bolstered by strategic by-product maximization and cost containment.
• Deep Organic Project Pipeline: Beyond Tia Maria, Southern Copper boasts an extensive pipeline of high-return projects in Peru and Mexico, including Los Chancas, Michiquillay, El Pilar, and El Arco, underpinning a long-term goal of 1.6 million tons of copper production by the mid-2030s.
• Favorable Market Tailwinds: The global copper market faces a projected deficit of 380,000 tonnes, with inventories covering only eight days of demand, driven by accelerating demand from electrification, AI data centers, and electric vehicles, providing a strong backdrop for future copper prices.

A Copper Powerhouse in a Demanding World

Southern Copper Corporation ($SCCO) stands as a formidable integrated producer within the global mining landscape, with extensive operations spanning Peru and Mexico. Incorporated in 1952, the company's trajectory was fundamentally reshaped in 1999 when Grupo Mexico (GMBXF) became its majority shareholder, leading to the strategic consolidation of its Peruvian and Mexican assets in 2005. This integration has forged a business model encompassing mining, smelting, and refining of copper and other valuable minerals, supported by exploration activities across Argentina, Chile, Mexico, and Peru.

The global demand for copper is experiencing an unprecedented surge, fueled by transformative macroeconomic trends. The explosive growth of artificial intelligence (AI) data centers, which are significantly more energy-intensive than traditional facilities, relies heavily on copper for power and cooling infrastructure due to its superior conductivity. This demand layer is superimposed on the already copper-intensive global transition to clean energy, driven by the proliferation of Electric Vehicles (EVs) and the build-out of renewable energy infrastructure like wind and solar farms. These forces are converging to create a structurally undersupplied market, with a projected copper deficit of 380,000 tonnes and global inventories covering merely eight days of demand as of September 2025. Southern Copper, as one of the world's largest copper mining companies, is strategically positioned to capitalize on these powerful tailwinds.

Southern Copper's overarching strategy is anchored in disciplined organic growth, cost efficiency, and maintaining a prudent capital structure. The company aims to achieve a long-term goal of producing 1.6 million tons of copper at the lowest possible, most competitive cost per pound. This strategy is executed through continuous capital spending programs, focused exploration efforts, and robust cost reduction initiatives.

Technological Edge and Operational Excellence

Southern Copper leverages differentiated technologies and operational practices to enhance its competitive standing and drive sustainable production. A cornerstone of its technological advantage is the application of state-of-the-art Solvent Extraction-Electrowinning (SX-EW) technology in projects like Tia Maria and El Pilar. This technology is highly cost-efficient and environmentally friendly, enabling the direct production of high-purity copper cathodes from oxide ores without the need for smelting and refining. For Tia Maria, this translates to an annual production capacity of 120,000 tonnes of SX-EW copper cathodes, offering a streamlined and lower-cost production pathway compared to conventional concentrate processing.

Beyond SX-EW, the company's commitment to operational excellence extends to its energy matrix and environmental stewardship. Southern Copper has strategically invested in renewable energy sources through power purchase agreements with Grupo Mexico subsidiaries. For instance, the Fenicias wind farm has enabled a significant reduction of 180,000 carbon tons in greenhouse gas emissions from its underground mines in 2025, equivalent to the electricity supply for 40,000 Mexican households. This initiative not only lowers operational costs but also enhances the company's sustainability profile, a critical factor for discerning investors.

The company also implements comprehensive environmental conservation programs, including advanced water recovery systems (such as those at the Quebrada Honda tailings dam in Peru and Buenavista del Cobre in Mexico), reforestation programs to stabilize tailings dams, and scrubbing technology in mines to reduce dust emissions. These efforts contribute to operational efficiency by conserving resources and mitigating environmental risks, reinforcing the company's social license to operate. The tangible benefits of these technological and operational differentiators are evident in Southern Copper's ability to maintain one of the industry's lowest cash costs, a key competitive moat.

Financial Fortitude: Records Amidst Market Shifts

Southern Copper's financial performance in the third quarter and first nine months of 2025 underscores its operational effectiveness and strategic execution. The company achieved new records for net sales, adjusted EBITDA, and net income in Q3 2025. Net sales for the third quarter reached $3,377.30 million, a 15.20% increase over the same period in 2024. This growth was primarily fueled by higher sales volumes of molybdenum (+7.90%), silver (+21.90%), and zinc (+7.30%), alongside robust price increases for copper (LME +6.50%, COMEX +14.20%), molybdenum (+12.10%), silver (+34.40%), and zinc (+1.60%). This strong performance occurred despite a 3.60% decrease in copper sales volumes.

For the nine months ended September 30, 2025, net sales climbed 10.40% year-over-year, reaching $9,550.20 million. This was driven by increased sales volumes across key by-products and higher metal prices, slightly offset by a 1% decrease in copper sales volume. Net income attributable to SCC for Q3 2025 surged 23.50% to $1,107.60 million, and for the nine-month period, it rose 17.20% to $3,027 million. This profitability was a direct result of increased sales and effective cost containment, although partially offset by higher operating costs and income taxes. The adjusted EBITDA for Q3 2025 stood at $1,975 million, a 17% increase from Q3 2024, with an impressive adjusted EBITDA margin of 59%. Year-to-date, adjusted EBITDA reached $5,512 million, up 13%, maintaining a strong margin of 58%.

A critical measure of Southern Copper's competitive strength is its operating cash cost. In Q3 2025, the operating cash cost per pound of copper before by-product revenues increased to $2.23 from $1.96 in Q3 2024, primarily due to a 7.50% drop in copper production and 8.90% higher production costs. However, the significant increase in by-product revenues per pound, which rose 51.40% from $1.19 to $1.81, dramatically reduced the operating cash cost per pound net of by-product revenues to an industry-leading $0.42. This 44.80% reduction from $0.76 in Q3 2024 highlights the strategic value of the company's diversified production and its ability to maximize value from by-products like molybdenum, zinc, and silver.

The company maintains a healthy liquidity position, with net cash provided by operating activities reaching $3,257.80 million for the nine months ended September 30, 2025, a 6.40% increase year-over-year. While net cash used in investing activities increased to $1,233.30 million (including $902.70 million in capital investments), Southern Copper plans to fund its ambitious capital projects through a combination of cash on hand, internally generated funds, and potentially external financing. The recent issuance of $1 billion in fixed-rate senior notes by its subsidiary Minera Mexico in February 2025 demonstrates its access to debt markets, balanced by a $500 million debt repayment in April 2025. The Board's decision to issue a quarterly cash dividend of $0.90 per share and a stock dividend of 0.0085 shares per common stock in October 2025 reflects a prudent approach to shareholder returns, balancing liquidity needs for significant upcoming capital expenditures with providing value to investors.

The Growth Engine: Strategic Projects and Future Outlook

Southern Copper's future is intrinsically linked to its robust organic growth pipeline, which is poised to significantly expand its production capacity and reinforce its market leadership. The most immediate and impactful catalyst is the Tia Maria project in Arequipa, Peru. On October 14, 2025, the company received authorization from the Peruvian Ministry of Energy and Mines to commence exploitation activities, a critical milestone that de-risks this long-awaited project. With a budget of $1,802 million, Tia Maria is expected to begin ramping up in mid-2027, eventually producing 120,000 tonnes of SX-EW copper cathodes annually. This project is projected to export $18.20 billion and contribute $3.80 billion in taxes and royalties during its first 20 years of operation, while also creating 9,000 jobs during construction and 764 direct jobs during operation, prioritizing local labor.

Another significant operational achievement is the Buenavista Zinc Concentrator in Mexico, which completed its ramp-up in Q2 2024 and is now operating at full capacity. This facility is a key driver of by-product growth, expected to produce 113,400 tonnes of zinc in 2025 and an average of 90,200 tons of zinc and 20,000 tons of copper annually over the next five years. This strategic focus on maximizing zinc and silver production from high-grade ore at Buenavista, even at the expense of some copper production from that specific concentrator, demonstrates management's agility in optimizing value based on market conditions.

Looking further ahead, Southern Copper's pipeline includes several world-class projects:

• Los Chancas (Apurímac, Peru): This copper and molybdenum porphyry deposit is slated to be the next project in execution after Tia Maria, with an estimated capital investment of $2,600 million and an expected start-up in 2031. It envisions an open-pit mine producing 130,000 tonnes of copper and 7,500 tonnes of molybdenum annually.
• Michiquillay (Cajamarca, Peru): A world-class mining project with inferred mineral resources of 2,288 million tonnes and an estimated copper grade of 0.43%, Michiquillay is expected to produce 225,000 tonnes of copper per year with by-products of molybdenum, gold, and silver. An estimated investment of $2.50 billion is required, with production start-up by 2032.
• El Pilar (Sonora, Mexico): This low-capital intensity copper greenfield project is expected to produce 36,000 tonnes of copper cathodes annually using SX-EW technology.
• El Arco (Baja California, Mexico): A world-class copper deposit with over 1,230 million tonnes of ore reserves, this project includes plans for a 120 ktpd concentrator and 28 ktpy SX-EW operations.

To support its existing operations and mitigate expected ore grade declines, particularly at Cuajone, the company is also considering an expansion of the Cuajone concentrator with a new line. This project, estimated to cost between $600 million and $700 million, could add approximately 40,000 tons of copper production.

Management's production guidance for 2025 includes 960,000 tonnes of copper, 30,000 tonnes of molybdenum, 23 million ounces of silver, and 174,700 tonnes of zinc. For 2026, copper production is expected to be around 911,000 tonnes, with further increases anticipated in 2027 (to 960,000 tonnes) and 2028 (to over 1 million tonnes) as Tia Maria ramps up. Capital expenditures are projected to rise significantly to approximately $2 billion in 2026, with Tia Maria alone accounting for about $866 million, reflecting the intensive construction phase of its growth projects.

Risks and Mitigations: Operating in a Complex Landscape

Despite its strong positioning, Southern Copper operates in an inherently complex and volatile industry. Commodity price risk remains a primary concern, with the profitability of its operations directly tied to the fluctuating international market prices for copper, molybdenum, zinc, and silver. Management's sensitivity analysis indicates that a $0.10/lb change in copper price can impact net earnings by $31.20 million, highlighting this exposure.

Geopolitical and regulatory risks are also significant, particularly in its key operating regions of Peru and Mexico. The Tia Maria project, while now authorized for exploitation, has historically faced legal challenges and social opposition, with seven lawsuits still pending against the Peruvian Branch. Similarly, the Los Chancas project is contending with illegal mining activities, requiring coordinated efforts with Peruvian authorities. In Mexico, amendments to mining laws in May 2023, including reduced concession terms and new water use restrictions, introduce regulatory uncertainty, although the company does not anticipate a material negative impact on its operations. Furthermore, U.S. tariff policies, such as the 50% tariff on semi-finished copper products effective August 1, 2025, could affect market dynamics and product prices.

Operational challenges include issues like the water supply at the Buenavista mine, which necessitated the use of water trucks in 2023 due to pipeline permit delays, impacting production and increasing costs. Labor relations also present a risk, as evidenced by long-standing strikes at the San Martin and Taxco mines in Mexico, leading to suspended operations and asset impairment at Taxco.

Southern Copper actively employs mitigation strategies to address these risks. It vigorously defends against legal challenges, engages in extensive social programs to foster community relations (e.g., "Works for Taxes" initiatives in Peru, Dr. Vagón Health Train in Mexico), and implements alternative operational solutions like water transport to ensure continuity. The company's focus on cost control and operational efficiency, coupled with its diversified by-product portfolio, provides a buffer against price volatility. Its strong sustainability ratings and commitment to environmental programs also help maintain its social license to operate and reduce regulatory friction.

Conclusion

Southern Copper Corporation is poised for a transformative period, driven by the strategic activation of its world-class organic growth pipeline. The recent authorization for the Tia Maria project is a monumental step, providing a clear pathway to substantial copper production expansion and solidifying the company's long-term investment thesis. This growth, coupled with an industry-leading cost structure and robust financial performance, positions Southern Copper favorably to capitalize on the accelerating global demand for copper, fueled by electrification and technological advancements.

While geopolitical complexities and commodity price volatility remain inherent risks, Southern Copper's integrated operations, technological advantages in SX-EW, and proactive environmental and social initiatives provide a resilient foundation. The company's commitment to organic growth, prudent capital allocation, and maximizing value from its diversified mineral portfolio underscores its potential for sustained shareholder returns. Investors looking for exposure to a copper major with a clear growth trajectory and proven operational excellence in a tightening market will find Southern Copper's story compelling.