Southern Copper 10Q 2021 Q3 Quarterly report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2021

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-14066

SOUTHERN COPPER CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		13-3849074
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1440 East Missouri Avenue Suite 160 Phoenix, AZ		85014
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (602) 264-1375

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

Trading Symbol

Name of each exchange on which registered:

Common stock, par value $0.01 per share

SCCO

New York Stock Exchange

Lima Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	⌧	Accelerated filer	◻
Non-accelerated filer	◻	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ⌧

As of November 1, 2021 there were outstanding 773,081,269 shares of Southern Copper Corporation common stock, par value $0.01 per share.

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Southern Copper Corporation (“SCC”)

INDEX TO FORM 10-Q


		Page No.
Part I. Financial Information:

Item. 1	Condensed Consolidated Financial Statements (Unaudited)	3

	Condensed Consolidated Statements of Earnings for the three and nine months ended September 30, 2021 and 2020	3

	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020	4

	Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020	5

	Condensed Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2021 and 2020	6

	Condensed Consolidated Statements of Changes in Equity for the three and nine months ended September 30, 2021 and 2020	7

	Notes to Condensed Consolidated Financial Statements	8-37

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38-59

Item 3.	Quantitative and Qualitative Disclosure about Market Risk	60-61

Item 4.	Controls and procedures	62

	Report of Independent Registered Public Accounting Firm	63

Part II. Other Information:

Item 1.	Legal Proceedings	64

Item 1A.	Risk Factors	64

Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	64

Item 4.	Mine Safety Disclosures	64

Item 6.	Exhibits	65-67


	Signatures	68

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PART I — FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Southern Copper Corporation

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020

	(in millions, except for per share amounts)
Net sales (including sales to related parties, see note 5)	$	2,680.9	$	2,129.1	$	8,110.4	$	5,634.2
Operating cost and expenses:
Cost of sales (exclusive of depreciation, amortization and depletion shown separately below)		927.5		948.9		2,856.8		2,881.3
Selling, general and administrative		31.3		33.4		92.9		94.0
Depreciation, amortization and depletion		203.4		196.0		599.4		582.8
Exploration		10.9		6.9		26.7		21.8
Total operating costs and expenses		1,173.1		1,185.2		3,575.8		3,579.9

Operating income		1,507.8		943.9		4,534.6		2,054.3

Interest expense		(96.7)		(96.7)		(290.0)		(296.6)
Capitalized interest		7.8		7.5		22.2		18.7
Other income (expense)		(1.9)		(14.0)		(7.8)		(22.4)
Interest income		1.5		2.8		5.2		14.9
Income before income taxes		1,418.5		843.5		4,264.2		1,768.9
Income taxes (including royalty taxes, see Note 4)		548.6		338.5		1,703.8		784.7
Net income before equity earnings of affiliate		869.9		505.0		2,560.4		984.2
Equity earnings of affiliate, net of income tax		1.3		3.1		14.4		1.0
Net income		871.2		508.1		2,574.8		985.2
Less: Net income attributable to the non-controlling interest		3.6		2.1		10.6		4.9
Net income attributable to SCC	$	867.6	$	506.0	$	2,564.2	$	980.3

Per common share amounts attributable to SCC:
Net earnings-basic and diluted	$	1.12	$	0.65	$	3.32	$	1.27

Weighted average shares outstanding-basic and diluted		773.1		773.1		773.1		773.1

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Southern Copper Corporation

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020

	(in millions)
Net income and comprehensive income	$	871.2	$	508.1	$	2,574.8	$	985.2
—Derivative instruments classified as cash flow hedge:						—		—
- Unrealized gain of the period (net of income tax of $2.7 million in 2021)		6.4		—		6.4		—
Total other comprehensive income		6.4		—		6.4		—
Total comprehensive income		877.6		508.1		2,581.2		985.2
Comprehensive income attributable to the non-controlling interest		3.6		2.1		10.6		4.9
Comprehensive income attributable to SCC	$	874.0	$	506.0	$	2,570.6	$	980.3

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Southern Copper Corporation

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	September 30,		December 31,
	2021		2020

	(in millions)
ASSETS
Current assets:
Cash and cash equivalents	$	2,583.7	$	2,183.6
Short-term investments		626.8		410.8
Accounts receivable trade		1,493.4		1,068.9
Accounts receivable other (including related parties 2021- $34.6 and 2020 - $23.3)		86.4		67.7
Inventories		912.5		950.2
Prepaid taxes		134.1		104.8
Other current assets		53.9		29.2
Total current assets		5,890.8		4,815.2

Property and mine development, net		9,476.1		9,458.7
Ore stockpiles on leach pads		1,171.1		1,125.0
Intangible assets, net		139.0		143.0
Right-of-use assets		926.6		979.0
Deferred income tax		286.7		230.0
Equity method investment		120.5		114.3
Other non-current assets		99.5		81.3
Total assets	$	18,110.3	$	16,946.5

LIABILITIES
Current liabilities:
Accounts payable (including related parties 2021- $112.7 and 2020- $104.3)	$	611.2	$	594.6
Accrued income taxes		654.9		340.9
Accrued workers’ participation		279.6		247.8
Accrued interest		131.2		98.6
Lease liabilities current		72.6		70.6
Other accrued liabilities		39.6		32.3
Total current liabilities		1,789.1		1,384.8

Long-term debt		6,546.7		6,544.2
Lease liabilities		854.0		908.4
Deferred income taxes		118.4		159.4
Non-current taxes payable		—		—
Other liabilities and reserves		89.1		128.7
Asset retirement obligation		559.6		545.0
Total non-current liabilities		8,167.8		8,285.7

Commitments and contingencies (Note 10)
STOCKHOLDERS’ EQUITY (NOTE 11)
Common stock par value $0.01; shares authorized, 2021 and 2020–2,000; shares issued, 2021 and 2020–884.6		8.8		8.8
Additional paid-in capital		3,460.2		3,441.5
Retained earnings		7,709.8		6,846.4
Accumulated other comprehensive income (loss)		(2.0)		(8.4)
Treasury stock, at cost, common shares		(3,080.8)		(3,063.5)
Total Southern Copper Corporation stockholders’ equity		8,096.0		7,224.8
Non-controlling interest		57.4		51.2
Total equity		8,153.4		7,276.0
Total liabilities and equity	$	18,110.3	$	16,946.5

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Southern Copper Corporation

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020

	(in millions)
OPERATING ACTIVITIES
Net income	$	871.2	$	508.1	$	2,574.8	$	985.2
Adjustments to reconcile net earnings to net cash provided from operating activities:
Depreciation, amortization and depletion		203.4		196.0		599.4		582.8
Equity earnings of affiliate, net of dividends received		2.8		(3.1)		(6.3)		(3.9)
(Gain) loss on foreign currency transaction effect		(36.6)		4.1		(50.0)		(24.8)
Benefit for deferred income taxes		(103.3)		(45.9)		(100.1)		(57.2)
Other, net		5.1		4.2		16.9		15.2
Change in operating assets and liabilities:
Increase in accounts receivable		(57.7)		(101.6)		(424.5)		(122.6)
(Increase) decrease in inventories		(9.5)		(0.6)		(8.3)		155.8
Increase in accounts payable and accrued liabilities		332.3		268.2		409.5		99.3
Decrease (increase) in other operating assets and liabilities		12.9		(35.9)		53.3		58.2
Net cash provided by operating activities		1,220.6		793.5		3,064.7		1,688.0
INVESTING ACTIVITIES
Capital expenditures		(243.1)		(134.5)		(695.5)		(348.8)
Proceeds from (purchase) sale of short-term investments, net		(81.0)		—		(216.0)		50.0
Other		9.9		0.8		(0.6)		1.2
Net cash used in investing activities		(314.2)		(133.7)		(912.1)		(297.6)
FINANCING ACTIVITIES
Repayments of debt		—		—		—		(400.0)
Capitalization of debt issuance cost		—		—		—		0.1
Cash dividends paid to common stockholders		(695.8)		(309.2)		(1,700.8)		(773.1)
Other, net		(1.6)		0.3		(4.3)		(2.1)
Net cash used in financing activities		(697.4)		(308.9)		(1,705.1)		(1,175.1)
Effect of exchange rate changes on cash and cash equivalents		(19.6)		(14.3)		(47.4)		5.0
Increase in cash and cash equivalents		189.4		336.6		400.1		220.3
Cash and cash equivalents, at beginning of period		2,394.3		1,808.8		2,183.6		1,925.1
Cash and cash equivalents, at end of period	$	2,583.7	$	2,145.4	$	2,583.7	$	2,145.4

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Southern Copper Corporation

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020

	(in millions)
TOTAL EQUITY, beginning of period	$	7,972.8	$	6,869.6	$	7,276.0	$	6,858.2
STOCKHOLDERS’ EQUITY, beginning of period		7,917.5		6,821.5		7,224.8		6,810.3
CAPITAL STOCK:
Balance at beginning and end of period:		8.8		8.8		8.8		8.8
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of period		3,454.9		3,418.2		3,441.5		3,424.9
Other activity of the period		5.3		7.5		18.7		0.8
Balance at end of period		3,460.2		3,425.7		3,460.2		3,425.7
TREASURY STOCK:
Southern Copper common shares
Balance at beginning of the period		(2,767.4)		(2,767.9)		(2,767.5)		(2,767.9)
Used for corporate purposes		—		0.4		0.1		0.4
Balance at end of period		(2,767.4)		(2,767.5)		(2,767.4)		(2,767.5)
Parent Company common shares
Balance at beginning of period		(308.4)		(273.6)		(296.0)		(281.0)
Other activity, including dividend, interest and foreign currency transaction effect		(5.0)		(6.9)		(17.4)		0.5
Balance at end of period		(313.4)		(280.5)		(313.4)		(280.5)
Treasury stock balance at end of period		(3,080.8)		(3,048.0)		(3,080.8)		(3,048.0)
RETAINED EARNINGS:
Balance at beginning of period		7,538.0		6,446.1		6,846.4		6,435.6
Net earnings		867.6		506.0		2,564.2		980.3
Dividends declared and paid, common stock, per share, 2021- '$2.20, 2020– '$1.00		(695.8)		(309.2)		(1,700.8)		(773.1)
Other activity of the period		—		(0.1)		—		—
Balance at end of period		7,709.8		6,642.8		7,709.8		6,642.8
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
Balance at beginning of period		(8.4)		(10.1)		(8.4)		(10.1)
Other comprehensive income (loss)		6.4		—		6.4		—
Balance at end of period		(2.0)		(10.1)		(2.0)		(10.1)
STOCKHOLDERS’ EQUITY, end of period		8,096.0		7,019.2		8,096.0		7,019.2
NON-CONTROLLING INTEREST, beginning of period		55.3		48.1		51.2		47.9
Net earnings		3.6		2.1		10.6		4.9
Distributions paid		(1.5)		(0.2)		(4.4)		(2.8)
NON-CONTROLLING INTEREST, end of period		57.4		50.0		57.4		50.0
TOTAL EQUITY, end of period	$	8,153.4	$	7,069.2	$	8,153.4	$	7,069.2

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Southern Copper Corporation

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1— DESCRIPTION OF THE BUSINESS:

The Company is a majority-owned, indirect subsidiary of Grupo Mexico S.A.B. de C.V. (“Grupo Mexico”). As of September 30, 2021, Grupo Mexico, through its wholly-owned subsidiary Americas Mining Corporation (“AMC”) owned 88.9% of the Company’s capital stock. The condensed consolidated financial statements presented herein consist of the accounts of Southern Copper Corporation (“Southern Copper”, "SCC" or the “Company”), a Delaware corporation, and its subsidiaries. The Company is an integrated producer of copper and other minerals, and operates mining, smelting and refining facilities in Peru and Mexico. The Company conducts its primary operations in Peru through a registered branch (the "Peruvian Branch" or “Branch” or “SPCC Peru Branch”). The Peruvian Branch is not a corporation separate from the Company. The Company's Mexican operations are conducted through subsidiaries. The Company also conducts exploration activities in Argentina, Chile, Ecuador, Mexico and Peru.

In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to fairly state the Company’s financial position as of September 30, 2021 and the results of operations, comprehensive income, cash flows and changes in equity for the three and nine months ended September 30, 2021 and 2020. The results of operations for the nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full year. The December 31, 2020 balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States of America (“GAAP”). The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements at December 31, 2020 and notes included in the Company’s 2020 annual report on Form 10-K.

COVID – 19 PANDEMIC

Since the World Health Organization (“WHO”) declared the COVID-19 virus outbreak as a global pandemic, all the countries where the Company operates and conducts exploration activities, as well as the countries where its main customers and suppliers are located, have published health and safety rules and restrictions on individuals and business activities.

As of September 30, 2021, the Company‘s production facilities in Mexico and Peru were working at approximately 96% of their production capacity. The Company has developed a rigorous COVID-19 emergency protocol and the workforce is gradually returning to work at all of our facilities. As of September 30, 2021, approximately 96% of the workforce in Mexico and 71% of the workforce in Peru was working on site or at home under strict safety measures; the remaining labor force was not working, including all individuals at high risk due to age and/or preexisting medical conditions.

The Company has fully restored exploration activities at all of its locations, except in Argentina where the Company is developing social and environmental programs for local communities.

The financial reporting process and the information required to prepare the Company’s financial statements suffered no interruption and the financial statements were prepared without restrictions or difficulties.

SCC´s Corporate Crisis Committee as well as its Crisis Committees in Mexico and Peru continue to closely monitor the impact of the pandemic and to analyze and quickly resolve any issues that may arise. As of September 30, 2021, the strong global economic recovery has generated significant challenges for the global shipping industry, which have led to congestion at ports, shortage of containers and a lack of space on ships. This situation has caused the Company to experience some delays in the reception of imported materials as well as in the shipment of its products and receivable collections. This, however, has had no material impact on the financial position of the Company.

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After having completed the first stage of its capital programs at Buenavista in Mexico and Toquepala in Peru, the Company currently has no pending major capital expenditures commitments (see Note 10 - Commitments and Contingencies). The Company has no major debt maturity scheduled until November 2022.

The Company performed a qualitative analysis and as of September 30, 2021, identified no indicators of impairment. As the Company reported in its 2020 Annual report on Form 10-K, the results of its impairment sensitivity analysis showed projected discounted cash flows in excess of the carrying amounts of long-lived assets by margins ranging from 1.3 to 4.3 times such carrying amount. This analysis included a stress test using a copper price assumption of $2.00 per pound and a molybdenum price assumption of $4.00 per pound. (Please see, Management´s Discussion and Analysis, Critical Policies and Estimates, Asset Impairments on the 2020 Form 10-K).

NOTE 2 — SHORT-TERM INVESTMENTS:

Short-term investments were as follows (in millions):


	At September 30,			At December 31,
	2021			2020
Trading securities	$	626.4		$	410.2
Weighted average interest rate		0.2	%		0.4	%

Available-for-sale	$	0.4		$	0.6
Weighted average interest rate		0.7	%		0.7	%
Total	$	626.8		$	410.8

Trading securities consist of bonds issued by public companies and are publicly traded. Each financial instrument is independent of the others. The Company has the intention to sell these bonds in the short-term.

Available-for-sale investments consist of securities issued by public companies. Each security is independent of the others and as of September 30, 2021 and December 31, 2020, included corporate bonds and asset and mortgage backed obligations. As of September 30, 2021 and December 31, 2020, gross unrealized gains and losses on available-for-sale securities were not material.

The Company earned interest related to these investments, which was recorded as interest income in the condensed consolidated statement of earnings. Also, the Company redeemed some of these securities and recognized gains (losses) due to changes in fair value, which were recorded as other income (expense) in the condensed consolidated statement of earnings.

The following table summarizes the activity of these investments by category (in millions):


	Three months ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Trading:
Interest earned	$	0.6	$	(*)	$	1.3	$	0.1
Unrealized gain (loss) at the end of the period	$	(*)	$	(*)	$	(*)	$	(*)

Available-for-sale:
Interest earned		(*)		(*)		(*)		(*)
Investment redeemed	$	0.1	$	—	$	0.2	$	0.1

(*) Less than $0.1 million.

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NOTE 3 — INVENTORIES:

Inventories were as follows:


	At September 30,		At December 31,
(in millions)	2021		2020
Inventory, current:
Metals at average cost:
Finished goods	$	61.3	$	50.8
Work-in-process		278.1		248.9
Ore stockpiles on leach pads		231.0		298.5
Supplies at average cost		342.1		352.0
Total current inventory	$	912.5	$	950.2
Inventory, long-term:
Ore stockpiles on leach pads	$	1,171.1	$	1,125.0

During the nine months ended September 30, 2021 and 2020, total leaching costs capitalized as non-current inventory of ore stockpiles on leach pads amounted to $184.2 million and $144.0 million, respectively. Leaching inventories recognized in cost of sales amounted to $205.7 million and $287.3 million for the nine months ended September 30, 2021 and 2020, respectively.

NOTE 4 — INCOME TAXES:

The income tax provision and the effective income tax rate for the first nine months of 2021 and 2020 consisted of (in millions):


	2021			2020
Statutory income tax provision	$	1,387.0		$	694.7
Peruvian royalty		70.1			14.1
Mexican royalty		162.5			44.1
Peruvian special mining tax		84.2			31.8
Total income tax provision	$	1,703.8		$	784.7

Effective income tax rate		40.0	%		44.4	%

These provisions include income taxes for Peru, Mexico and the United States. The Mexican royalty, the Peruvian royalty and the Peruvian special mining tax are included in the income tax provision. The decrease in the effective income tax rate in 2021 compared to the same period in 2020 was primarily attributable to a movement in exchange gains and losses from the strong depreciation of the Mexican peso against the U.S. dollar in 2020.

Peruvian royalty and special mining tax: The Company has accrued $105.6 million and $39.7 million of royalty charge in the first nine months of 2021 and 2020, respectively, of which $70.1 million and $14.1 million were included in income taxes in 2021 and 2020, respectively.

The Company has accrued $84.2 million and $31.8 million of special mining tax as part of the income tax provision for the first nine months of 2021 and 2020, respectively.

Mexican mining royalty: The Company has accrued $162.5 million and $44.1 million of royalty taxes as part of the income tax provision for the first nine months of 2021 and 2020, respectively.

Accounting for uncertainty in income taxes: The Company effectively settled the 2014 through 2016 IRS audit on April 14, 2021. The decrease in unrecognized tax benefits from the audit settlement had no material effect on the Company’s financial statements.

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NOTE 5 — RELATED PARTY TRANSACTIONS:

The Company has entered into certain transactions in the ordinary course of business with parties that are controlling shareholders or their affiliates. These transactions include the lease of office space, air and railroad transportation, construction services, energy supply, and other products and services related to mining and refining. The Company lends and borrows funds among affiliates for acquisitions and other corporate purposes. These financial transactions bear interest and are subject to review and approval by senior management, as are all related party transactions. Article Nine of the Amended and Restated Certificate of Incorporation of the Company prohibits the Company from engaging in a Material Affiliate Transaction that was not the subject of prior review by a committee of the Board of Directors with at least three members, each of whom is independent, and defines a Material Affiliate Transaction as a transaction or series of related transactions between Grupo Mexico or one of its affiliates (other than the Company or its subsidiaries), on the one hand, and the Company or one of its subsidiaries, on the other hand, that involves consideration of more than $10.0 million in the aggregate. It is the Company’s policy that (i) a Material Affiliate Transaction not be entered into or continued without the review and approval by the Audit Committee or its subcommittee of related party transactions comprised of independent directors,(ii) any potential related party transaction process with aggregate consideration between $8.0 million and $10.0 million be authorized by the General Counsel and Chief Financial Officer of the Company and (iii) that all related party transactions, including any Material Affiliate Transaction, be reported to the Audit Committee of the Board of Directors or to its subcommittee of related party transactions.

Receivable and payable balances with related parties are shown below (in millions):


	At September 30,		At December 31,
	2021		2020
Related parties receivable current:
Grupo Mexico and affiliates:
Asarco LLC	$	7.8	$	5.3
Compania Perforadora Mexico S.A.P.I. de C.V. and affiliates		0.3		0.3
Grupo Mexico		2.7		2.7
Grupo Mexico Servicios		0.1		—
Mexico Generadora de Energia S. de R.L. ("MGE")		23.3		14.4
Grupo Mexico Servicios de Ingenieria, S.A. de C.V.		0.2		0.2
Related to the controlling group:
Boutique Bowling de Mexico, S.A. de C.V.		(*)		0.2
Mexico Transportes Aereos, S.A. de C.V. ("Mextransport")		0.2		—
Operadora de Cinemas, S.A. de C.V.		(*)		0.2
	$	34.6	$	23.3

Related parties payable:
Grupo Mexico and affiliates:
Asarco LLC	$	20.4	$	13.9
Eolica El Retiro, S.A.P.I. de C.V.		5.9		0.3
Ferrocarril Mexicano, S.A. de C.V.		3.5		4.7
Grupo Mexico		—		0.9
Grupo Mexico Servicios		16.7		19.6
Grupo Mexico Servicios de Ingenieria, S.A. de C.V.		0.8		0.7
MGE		50.6		40.8
Mexico Compania Constructora S.A de C.V.		14.1		22.9
Related to the controlling group:
Boutique Bowling de Mexico, S.A. de C.V.		0.3		0.3
Mexico Transportes Aereos, S.A. de C.V. (“Mextransport”)		0.3		0.1
Operadora de Cinemas, S.A. de C.V.		0.1		0.1
	$	112.7	$	104.3

(*) Less than $0.1 million.

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Purchase and sale activity:

Grupo Mexico and affiliates:

The following table summarizes the purchase and sale activities with Grupo Mexico and its affiliates in the first nine months of 2021 and 2020 (in millions):


	2021		2020
Purchase activity
Asarco LLC	$	23.0	$	224.3
Eolica El Retiro, S.A.P.I. de C.V.		6.2		0.8
Ferrocarril Mexicano, S.A. de C.V.		33.1		36.8
Grupo Mexico		—		7.5
Grupo Mexico Servicios		21.9		13.4
Intermodal Mexico S.A. de C.V.		0.5		—
MGE		209.0		157.2
Mexico Proyectos y Desarrollos S.A. de C.V. and affiliates		43.8		42.4
Peru Mining Exploration & Development Company		0.4		—
Total purchases	$	337.9	$	482.4
Sales activity
Asarco LLC	$	22.8	$	58.6
Grupo Mexico Servicios		0.1		0.1
MGE		92.3		37.7
Total sales	$	115.2	$	96.4

Grupo Mexico, the parent and the majority indirect stockholder of the Company, and its affiliates provide various services to the Company. These services are primarily related to accounting, legal, tax, financial, treasury, human resources, price risk assessment and hedging, purchasing, procurement and logistics, sales and administrative and other support services. The Company pays Grupo Mexico and Grupo Mexico Servicios, a subsidiary of Grupo Mexico, for these services and expects to continue requiring these services in the future.

In the first nine months of 2021, the Company made donations of $1.3 million to Fundacion Grupo Mexico, A.C., an organization dedicated to promoting the social and economic development of the communities close to the Company’s Mexican operations. In the same period of 2020, the Company made donations of $7.0 million to this organization.

The Company’s Mexican operations paid fees for freight services provided by Ferrocarril Mexicano, S.A de C.V. and for construction services provided by Intermodal Mexico, S.A. de C.V., which are all subsidiaries of Grupo Mexico. Additionally, the Company´s Peruvian and Mexican operations paid fees for engineering services provided by Grupo Mexico Servicios de Ingenieria, S.A. de C.V., and the Company’s Mexican operations paid fees for construction services provided by Mexico Compania Constructora S.A. de C.V. Both companies are subsidiaries of Mexico Proyectos y Desarrollos, S.A. de C.V., which is a subsidiary of Grupo Mexico.

In addition, the Company’s Peruvian operations purchased 3 mining concessions from Peru Mining Exploration & Development Company, a subsidiary of Grupo Mexico.

The Company’s Mexican operations purchased copper concentrates and rod from Asarco LLC and also paid fees for tolling services. Additionally, the Company´s Mexican operations purchased power from MGE. Both companies are subsidiaries of Grupo Mexico.

In 2012, the Company signed a power purchase agreement with MGE, whereby MGE will supply some of the Company’s Mexican operations with power through 2032. MGE has 2 natural gas-fired combined cycle power generating units, with a net total capacity of 516.2 megawatts and has been supplying power to the Company since December 2013. Currently, MGE is supplying 2.7% of its power output to third-party energy users, compared to 2.6% as of September 30, 2020.

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In 2014, Mexico Generadora de Energia Eolica, S. de R.L. de C.V, an indirect subsidiary of Grupo Mexico, located in Oaxaca, Mexico, acquired Eolica el Retiro. Eolica el Retiro is a windfarm with 37 wind turbines. This company started operations in January 2014 and began to sell power to Industrial Minera Mexico, S.A. de C.V. and subsidiaries (IMMSA) and other subsidiaries of Grupo Mexico in the third quarter of 2014. Currently, Eolica el Retiro supplies 61.0% of its power output to IMMSA and Mexcobre, compared to 11.5% as of September 30, 2020.

The Company sold starter sheets, copper concentrate, sulfuric acid, silver and gold to Asarco LLC. In addition, the Company received rental fees from Grupo Mexico Servicios.

In September 2019, Asarco LLC signed a promissory agreement to pay to the Company´s Mexican operations $62.0 million plus interest no later than October 31, 2021, with quarterly payments of $0.5 million. The annual interest rate of the note was Libor plus 200 basis points, which would be reviewed annually. In November 2020, Asarco repaid this agreement. Related to this agreement, the Company recorded interest income of $1.8 million in the first nine months of 2020.

The Company also received fees for natural gas and services provided to MGE, a subsidiary of Grupo Mexico. In May 2020, MGE signed a promissory note to pay to the Company´s Mexican operations 97.2 million Mexican pesos (approximately $5.1 million) plus interest no later than November 30, 2020. The annual interest rate of the note was 8.28% with monthly payments. MGE repaid this note in December 2020.

Companies with relationships to the controlling group:

The following table summarizes the purchase and sales activities with other Larrea family companies in the first nine months of 2021 and 2020 (in millions):


	2021		2020
Purchase activity
Boutique Bowling de Mexico S.A. de C.V.	$	0.2	$	0.3
Mextransport		1.1		3.0
Operadora de Cinemas S.A. de C.V.		0.1		0.1
Total purchases	$	1.4	$	3.4

Sales activity
Boutique Bowling de Mexico S.A. de C.V.	$	(*)	$	0.1
Mextransport		1.4		1.2
Operadora de Cinemas S.A. de C.V.		(*)		0.1
Total sales	$	1.4	$	1.4

(*) amount is lower than $0.1 million

The Larrea family controls a majority of the capital stock of Grupo Mexico and has extensive interests in other businesses, including transportation, real estate and entertainment. The Company engages in certain transactions in the ordinary course of business with other entities controlled by the Larrea family relating to the lease of office space, air transportation and entertainment.

The Company’s Mexican operations paid fees for entertainment services provided by Boutique Bowling de Mexico, S.A de C.V. and Operadora de Cinemas, S.A. de C.V. Both companies are controlled by the Larrea family.

Mextransport provides aviation services to the Company´s Mexican operations. This is a company controlled by the Larrea family.

In addition, the Company received fees for building rental and maintenance provided to Boutique Bowling de Mexico, S.A. de C.V. and Operadora de Cinemas, S.A. de C.V. The Company´s Mexican operations received fees from Mextransport for reimbursement of maintenance expenses and for rental services.

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Equity Investment in Affiliate: The Company has a 44.2% participation in Compania Minera Coimolache S.A. (“Coimolache”), which it accounts for on the equity method. Coimolache owns Tantahuatay, a gold mine located in the northern part of Peru.

In addition, the Company has a 30.0% participation in Apu Coropuna S.R.L. (“Apu Coropuna”), which it accounts for on the equity method. Apu Coropuna is a company that performs exploration activities in the Pucay prospect, located in Arequipa, Peru.

It is anticipated that in the future the Company will enter into similar transactions with these same parties.

NOTE 6 — DERIVATIVE INSTRUMENTS:

From time to time, the Company uses derivative instruments to manage its cash flows exposure to changes in commodity prices. The Company does not enter into derivative contracts unless it anticipates that the possibility exists that future activity will expose the Company’s future cash flows to deterioration. Derivative contracts for commodities are entered into to manage the price risk associated with forecasted purchases of the commodities that the Company uses in its manufacturing process.

Cash Flow Hedges of Natural Gas

The Company’s objective in using natural gas derivatives is to protect the stability of natural gas costs and manage exposure to natural gas price increases. To protect natural gas costs from estimated price increases in the coming winter season, the Company acquired 2 derivative instruments that begin in November 2021 and end in March 2022.

Derivative instruments are as follows:


	Call		Financial Swap
Derivatives designated as hedging instruments under ASC 815	Option		Cash Settlement

Commodity contracts		Natural gas		Natural gas
Gas volume (MMBTUs)		5,285,000		5,285,000
Fixed price ($)		3.75		0.55
Total option premium (millions of $)		N/A		2.9
Estimated fair value of assets (liabilities) as of September 30, 2021 (millions of $)		12.1		(2.9)
Effect of derivative instruments on the consolidated Statement of Earnings (millions of $)		—		—
(Favorable) unfavorable effect in OCI - net of deferred income taxes (millions of $)		(8.4)		2.0

The Company assessed these derivative instruments as Cash Flow Hedges. As such, the effective portions of said hedges are initially reported in Other Comprehensive Income (OCI) and are reclassified as earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings. Any ineffective portions of these derivatives would be reported in earnings during the current period.

As of December 31, 2020, and September 30, 2020, the Company did 0t hold any derivative instruments.

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NOTE 7 — LEASES:

The Company has operating leases for power generating facilities, vehicles and properties. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. Some of the Company’s leases include both lease and non-lease components which are accounted for separately. The Company’s leases have remaining lease terms of one year to 11 years, and do not include options to extend the leases. The Company’s lease agreements do not contain options to purchase the leased assets or to terminate the leases before the expiration date. In addition, the Company’s lease contracts have no material residual value guarantees or material restrictive covenants. As none of the Company’s leases stipulates an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

The weighted average remaining lease term for the Company’s leases is eight years, and the weighted average discount rate for these leases is 3.74%.

The operating lease expense recognized in the first nine months of 2021 and 2020 was classified as follows (in millions):


Classification	2021		2020
Cost of sales (exclusive of depreciation, amortization and depletion)	$	85.8	$	86.4
Selling, general and administrative		0.1		0.2
Exploration		0.1		0.1
Total lease expense	$	86.0	$	86.7

Maturities of lease liabilities are as follows:


	Lease liabilities
Year	(in millions)
2021	$	28.6
2022		113.7
2023		112.4
2024		104.7
2025		103.7
After 2025		723.0
Total lease payments	$	1,186.1
Less: interest on lease liabilities		(259.5)
Present value of lease payments	$	926.6

NOTE 8 — ASSET RETIREMENT OBLIGATION:

Peruvian operations:

The Company maintains an asset retirement obligation for its mining properties in Peru, as required by the Peruvian Mine Closure Law. In accordance with the requirements of this law, the Company’s closure plans were approved by the Peruvian Ministry of Energy and Mines (“MINEM”). As part of the closure plans, the Company is required to provide annual guarantees over the estimated life of the mines, based on a present value approach, and to furnish the funds for the asset retirement obligation. This law requires a review of closing plans every five years.

On June 24, 2019, MINEM approved a change to the guarantees required for the mining closure plans. The new regulation specifies that annual guarantees can be secured with real estate up to a maximum of 50% of the total required and the remaining amount can be covered by credit instruments. Currently, the Company has pledged the value of its Lima office complex to back 50% of the guarantee and has a stand-by letter of credit for the other 50% as a security for this obligation.Through January 2021, the Company has provided total guarantees of $56.5 million.

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The closure cost recognized for this liability includes the cost, as outlined in its closure plans, of dismantling the Toquepala and Cuajone concentrators, the Ilo smelter and refinery, and the shops and auxiliary facilities at the 3 units. In March 2016, MINEM approved the Mining Closure Plan for the Toquepala expansion project and the revised closure plans for the Cuajone mine and the Ilo facilities were approved in January and October 2019 respectively. Based on these new estimates, the Company increased the asset retirement obligation by $28.1 million in 2019. The closure plan for the Tia Maria project was approved in February 2017. However, the Company has not recorded a retirement obligation for the Tia Maria project because work on the project is still on hold. The Company believes that under these circumstances, the recording of a retirement obligation is not appropriate.

Mexican operations:

The Company has recognized an estimated asset retirement obligation for its mining properties in Mexico as part of its environmental commitment. Even though there is currently no enacted law, statute, ordinance, written or oral contract requiring the Company to carry out mine closure and environmental remediation activities, the Company believes that a constructive obligation presently exists based on the remediation requirements caused by the closure of any facility. The overall cost recognized for mining closure in Mexico includes the estimated costs of dismantling concentrators, smelter and refinery plants, shops and other facilities.

In 2020, the Company made a change in the estimate for the asset retirement obligation for its Mexican operations, mainly due to a detailed review of the closing activities required for each facility. The effect of this change was an increase in the asset retirement obligation of $269.3 million, which was recorded in December 2020.

The following table summarizes the asset retirement obligation activity for the first nine months of 2021 and 2020 (in millions):


	2021		2020
Balance as of January 1	$	545.0	$	262.3
Closure payments		(3.7)		(1.0)
Accretion expense		18.3		11.1
Balance as of September 30,	$	559.6	$	272.4

NOTE 9 — BENEFIT PLANS:

Post retirement defined benefit plans:

The Company has 2 non-contributory defined benefit pension plans to cover former salaried employees in the United States and certain former expatriate employees in Peru. Effective October 31, 2000, the Board of Directors amended the qualified pension plan to suspend the accrual of benefits.

In addition, the Company’s Mexican subsidiaries have a defined contribution pension plan for salaried employees and a non-contributory defined benefit pension plan for union employees.

The components of net periodic benefit costs for the first nine months of 2021 and 2020 are as follows (in millions):


(in millions)	2021		2020
Service cost	$	1.1	$	1.0
Interest cost		1.2		1.2
Expected return on plan assets		(2.6)		(2.1)
Amortization of prior service cost / (credit)		0.1		0.1
Amortization of net loss/(gain)		0.2		0.2
Net periodic benefit cost	$	(0.0)	$	0.4

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Post-retirement health care plans:

United States: The Company adopted a post-retirement health care plan for retired salaried employees eligible for Medicare in 1996. The Company manages the plan and is currently providing health benefits to retirees. The plan is accounted for in accordance with ASC 715 “Compensation retirement benefits”.

In Mexico, health services are provided by the Mexican Social Security Institute.

The components of net periodic benefit cost for the first nine months of 2021 and 2020 are as follows (in millions):


(in millions)	2021		2020
Interest cost	$	1.3	$	0.9
Amortization of net loss (gain)		0.1		—
Amortization of prior service cost/ (credit)		—		—
Net periodic benefit cost	$	1.4	$	0.9

NOTE 10 — COMMITMENTS AND CONTINGENCIES:

Environmental matters:

The Company has instituted extensive environmental conservation programs at its mining facilities in Peru and Mexico. The Company’s environmental programs include, among others, water recovery systems to conserve water and minimize the impact on nearby streams, reforestation programs to stabilize the surface of the tailings dams and the implementation of scrubbing technology in the mines to reduce dust emissions.

Environmental capital investments in the first nine months of 2021 and 2020 were as follows (in millions):


	2021		2020
Peruvian operations (*)	$	2.9	$	(4.0)
Mexican operations		57.7		28.6
	$	60.6	$	24.6

(*) The activity in 2020 for the Peruvian operations includes prepayment settlements classified to expenses.

Peruvian operations: The Company’s operations are subject to applicable Peruvian environmental laws and regulations. The Peruvian government, through the Ministry of Environment (“MINAM”) conducts annual audits of the Company’s Peruvian mining and metallurgical operations. Through these environmental audits, matters related to environmental obligations, compliance with legal requirements, atmospheric emissions, effluent monitoring and waste management are reviewed. The Company believes that it is in material compliance with applicable Peruvian environmental laws and regulations. Peruvian law requires that companies in the mining industry provide assurances for future mine closure and remediation. In accordance with the requirements of this law, the Company’s closure plans were approved by MINEM. See Note 8 “Asset retirement obligation” for further discussion of this matter.

Air Quality Standards (“AQS”): In June 2017, MINAM enacted a supreme decree that defined new AQS for daily sulfur dioxide in the air (250 µg/m3). As of September 30, 2021, the Company maintains a lower daily average level of µg/m3 (micrograms per cubic meter) of SO2, than those required by the AQS.

Soil Environmental Quality Standards (“SQS”): In 2013, the Peruvian government enacted Soil Quality Standards. In accordance with the regulatory requirements of the law, the Company prepared Soil Descontamination Plans (“SDP”) for environmentally impacted sites at each of its operation units (Toquepala, Cuajone and Ilo) with the assistance of consulting companies. The cost of these SDPs are not material, either individually or in aggregated form, for the financial statements of the Company.

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Climate change: On April 17, 2018, the Peruvian government enacted Law N. 30754, establishing a Climate Change

Framework. This law establishes that promoting public and private investments in climate change management is of national interest. The law proposes creating an institutional framework to address climate change in Peru, and outlines new measures, particularly with respect to climate change mitigation. It includes, for example, provisions dealing with: increasing carbon capture and use of carbon sinks; afforestation and reforestation practices; land use changes; and sustainable systems of transportation, solid waste management, and energy systems. This is the first Latin American climate change framework law to incorporate obligations from the Paris Agreement. Regulations to this law were enacted by Supreme Decree 013-2019 published on December 31, 2019 and are applicable to all Peruvian institutions and agencies. It is expected that further Peruvian regulations will be applicable to non-governmental entities. The Company has initiated a multi-year process to align its reporting on climate change for its Peruvian operations with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD). The Company is committed to the environment and to managing climate-related impacts. The Company’s focus is to seek continuous improvement in the responsible use of natural resources while complying with strict applicable legal standards for prevention, mitigation, control and remediation of environmental impacts. Implementing continuous improvement in the Company’s processes improves efficiency in the use and consumption of energy, water, and other natural resources.

Mexican operations: The Company’s operations are subject to applicable Mexican federal, state and municipal environmental laws, to Mexican official standards, and to regulations for the protection of the environment, including regulations relating to water supply, water quality, air quality, noise levels and hazardous and solid waste.

The principal legislation applicable to the Company’s Mexican operations is the Federal General Law of Ecological Balance and Environmental Protection (the “General Law”), which is enforced by the Federal Bureau of Environmental Protection (“PROFEPA”). PROFEPA monitors compliance with environmental legislation and enforces Mexican environmental laws, regulations and official standards. It may also initiate administrative proceedings against companies that violate environmental laws, which in the most extreme cases may result in the temporary or permanent shutdown of non-complying facilities, the revocation of operating licenses and/or other sanctions or fines.

In 2011, the General Law was amended to provide an individual or entity the ability to contest administrative acts, including environmental authorizations, permits or concessions granted, without the need to demonstrate the actual existence of harm to the environment as long as it can be argued that the harm may be caused. In addition, in 2011, amendments to the Civil Federal Procedures Code (“CFPC”) were enacted, which established 3 categories of collective actions under which a group of 30 or more individuals can be considered sufficient to prove a “legitimate interest” to file civil actions for injuries derived from alleged violations of environmental, consumer protection, financial services and economic competition laws and to seek restitution or economic compensation for the alleged injuries or the suspension of the activities which allegedly generated the injuries in question. The amendments to the CFPC may result in more litigation, with plaintiffs seeking remedies, including suspension of the activities alleged to cause harm.

In 2013, the Environmental Liability Federal Law was enacted. The law establishes general guidelines for actions to be considered likely to cause environmental harm. If a possible determination regarding harm occurs, environmental clean-up and remedial actions sufficient to restore environment to a pre-existing condition should be taken. Under this law, if restoration is not possible, compensation measures should be provided. Criminal penalties and monetary fines can be imposed under this law.

Guaymas sulfuric acid spill:

On July 9, 2019, there was an incident at the Company´s Marine Terminal in Guaymas, Sonora, that caused the discharge of approximately 3 cubic meters of sulfuric acid into the sea in the industrial port area.

The Guaymas bay has an estimated water volume of 340 million cubic meters. The spill, upon entering in contact with the sea’s alkaline conditions, led to quick dilution of the discharge and the sulfuric acid was naturally and immediately neutralized. As a result, the discharge was considered harmless; the report from the Ministry of Navy found that neither the flora nor fauna of the port area were affected.

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On July 10, 2019, PROFEPA made a first inspection of the area, concluding that the Company executed all the appropiate procedures in order to contain the discharge, and no reference was made to the existence of negative impacts on the environment resulting from the incident.

On Friday, July 19, 2019, PROFEPA revisited the facilities to carry out a second inspection, declaring a partial temporary shutdown that affected only the storage process and transportation of sulfuric acid at the terminal, arguing the absence of an authorization of environmental impact. It is important to note that these facilities have been operating since 1979, prior to the 1988 Mexican General Law of Ecological Balance and the Protection of the Environment. Companies that were operating before the aforementioned law are exempt from the permit requirement. In addition, in 2009, PROFEPA awarded a certification of “Clean Industry and Environmental Quality” to the facility which was subsequently renewed 4 times (for a two-year period each time).

The Company filed a lawsuit against the closure, which was dismissed by a ruling on August 25, 2021. This ruling has been challenged through a motion to reopen the case, which was submitted on September 28, 2021.

The Company is not aware of the reasons or causes for this partial and temporary closure, but will continue working with the environmental authorities to provide certainty that the operation is in strict compliance with environmental regulations. The Company expects the environmental authorities to suspend the partial temporary shutdown, once they resolve their concerns. Currently, the Company does not expect any impact on its operations. As of September 30, 2021, the matter is pending resolution.

Climate change:

Grupo Mexico, the indirect parent of SCC, has issued sustainability reports under the Global Reporting Initiative (GRI) for more than 10 years. Grupo Mexico also participates in different Mexican and international reporting programs such as the Greenhouse Gases (GHG) Mexico Program and the Carbon Disclosure Program (CDP).

In 2020, the Company began to align its disclosure of efforts to manage climate-related risks and opportunities with the recommendations of the TCFD (Task Force on Climate-Related Financial Disclosures). Grupo Mexico’s Sustainable Development Report 2020 included a section with specific details on the Company’s progress in this regard. This report includes information for all business divisions and subsidiaries, including information on the Company’s operations.

The Company believes that all of its facilities in Peru and Mexico are in material compliance with applicable environmental, mining and other applicable laws and regulations. The Company also believes that continued compliance with environmental laws of Mexico and Peru will have no material adverse effects on the Company’s business, properties, or operating results.

Litigation matters:

Peruvian operations

The Tia Maria Mining Project

There are 5 lawsuits filed against the Peruvian Branch of the Company related to the Tia Maria project. The lawsuits seek (i) to declare null and void the resolution that approved the Environmental Impact Assessment of the project; (ii) the cancellation of the project and the withdrawal of mining activities in the area; (iii) to declare null and void the mining concession application for the Tia Maria project; and (iv) to declare null and void the resolution that approved the construction license. The lawsuits were filed by Messrs. Jorge Isaac del Carpio Lazo (filed May 22, 2015), Ernesto Mendoza Padilla (filed May 26, 2015), Juan Alberto Guillen Lopez (filed June 18, 2015), Junta de Usuarios del Valle del Tambo (filed April 30, 2015), and Gobierno Regional de Arequipa (filed December 16, 2019).

The del Carpio Lazio case was rejected by the court of first instance on November 14, 2016. The plaintiff filed an appeal before the Superior Court on January 3, 2017. On January 9, 2018, the lawyers of both parties presented their respective positions before the Appellate Court. On March 8, 2018, the Appellate Court issued its final decision, which upheld the

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first instance ruling. On April 27, 2018, the plaintiff filed an extraordinary appeal before the Supreme Court. As of September 30, 2021, the case remains pending resolution.

The Mendoza Padilla case was initially rejected by the lower court on July 8, 2015. This ruling was confirmed by the Superior Court on June 14, 2016. On July 12, 2016, the case was appealed before the Constitutional Court. On November 20, 2018, the Constitutional Court reversed the previous decisions and remanded the case to the lower court for further action. In the third quarter of 2020, the Company was notified that the complaint had been reinstated. The Company answered the complaint on September 15, 2020. On December 2, 2020, the lower court issued a resolution, considering the complaint answered. As of September 30, 2021, the case remains pending resolution.

The Guillen Lopez case is currently before the lower court. On July 19, 2019, the oral arguments took place. On January 7, 2020, the Judge decided to suspend the proceeding until the del Carpio Lazio case is concluded. Therefore, as of September 30, 2021, the case remains pending resolution.

The Junta de Usuarios del Valle del Tambo case is currently before the lower court. On May 2016, the Company was included in the process, after the Ministry of Energy and Mines filed a civil complaint. On March 6, 2019, the Company was formally notified of the lawsuit and answered the complaint on March 20, 2019. On July 8, 2019, the Company requested the suspension of the proceeding until the del Carpio Lazio case is concluded. As of September 30, 2021, the case remains pending resolution.

The Gobierno Regional de Arequipa case is currently before the lower court and the Company answered the complaint on September 15, 2020. As of September 30, 2021, the case remains pending resolution.

The Company asserts that these lawsuits are without merit and is vigorously defending against them. The potential contingency amount for these cases cannot be reasonably estimated by management at this time.

Special Regional Pasto Grande Project (“Pasto Grande Project”)

In 2012, the Pasto Grande Project, an entity of the Regional Government of Moquegua, filed a lawsuit against SCC’s Peruvian Branch alleging property rights over a certain area used by the Peruvian Branch and seeking the demolition of the tailings dam where SCC’s Peruvian Branch has deposited its tailings from the Toquepala and Cuajone operations since 1995. The Peruvian Branch has had title to use the area in question since 1960 and has, since 1995, constructed and operated the tailings dams with proper governmental authorization. Following a motion filed by the Peruvian Branch, the lower court has included MINEM as a defendant in this lawsuit. MINEM has answered the complaint and denied the validity of the claim. As September 30, 2021, the case was pending resolution without further developments. SCC’s Peruvian Branch asserts that the lawsuit is without merit and is vigorously defending against it. The amount of this contingency cannot be reasonably estimated by management at this time.

Mexican operations

The Accidental Spill at Buenavista Mine of 2014

In relation to the 2014 accidental spill of copper sulfate solution that occurred at a leaching pond in the Buenavista mine, the following legal procedures are pending against the Company:

On August 19, 2014, PROFEPA, as part of the administrative proceeding initiated after the spill, announced the filing of a criminal complaint against Buenavista del Cobre S.A. de C.V. (“BVC”), a subsidiary of the Company, in order to determine those responsible for environmental damages. During the second quarter of 2018, the criminal complaint was dismissed. This decision was appealed and was pending resolution as of September 30, 2021.

Through the first half of 2015, 6 collective action lawsuits were filed in federal courts in Mexico City and Sonora against 2 subsidiaries of the Company seeking economic compensation, clean up and remedial activities in order to restore the environment to its pre-existing conditions. NaN of the collective action lawsuits have been dismissed by the court. As of September 30, 2021, 3 lawsuits were in process: 2 were filed by Acciones Colectivas de Sinaloa, A.C.

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and 1 by Defensa Colectiva, A.C., requesting precautionary measures about construction of facilities to monitor public health services and prohibiting the closure of the Rio Sonora Trust.

Similarly, in 2015, 8 civil action lawsuits were filed against BVC in the state courts of Sonora seeking damages for alleged injuries and for moral damages as a consequence of the spill. The plaintiffs in the state court lawsuits are: Jose Vicente Arriola Nunez et al; Santana Ruiz Molina et al; Andres Nogales Romero et al; Teodoro Javier Robles et al; Gildardo Vasquez Carvajal et al; Rafael Noriega Souffle et al; Grupo Banamichi Unido de Sonora El Dorado, S.C. de R.L. de C.V; and Marcelino Mercado Cruz. In 2016, 3 additional civil action lawsuits, claiming similar damages, were filed by Juan Melquicedec Lebaron; Blanca Lidia Valenzuela Rivera et al and Ramona Franco Quijada et al. In 2017, BVC was served with NaN additional civil action lawsuits, claiming similar damages. The lawsuits were filed by Francisco Javier Molina Peralta et al; Anacleto Cohen Machini et al; Francisco Rafael Alvarez Ruiz et al; Jose Alberto Martinez Bracamonte et al; Gloria del Carmen Ramirez Duarte et al; Flor Margarita Sabori et al; Blanca Esthela Ruiz Toledo et al; Julio Alfonso Corral Domínguez et al; Maria Eduwiges Bracamonte Villa et al; Francisca Marquez Dominguez et al; Jose Juan Romo Bravo et al; Jose Alfredo Garcia Leyva et al; Gloria Irma Dominguez Perez et al; Maria del Refugio Romero et al; Miguel Rivas Medina et al; Yolanda Valenzuela Garrobo et al; Maria Elena Garcia Leyva et al; Manuel Alfonso Ortiz Valenzuela et al; Francisco Alberto Arvayo Romero et al; Maria del Carmen Villanueva Lopez et al; Manuel Martin Garcia Salazar; Miguel Garcia Arguelles et al; Dora Elena Rodriguez Ochoa et al; Honora Eduwiges Ortiz Rodriguez et al; Francisco Jose Martinez Lopez et al; Maria Eduwiges Lopez Bustamante; Rodolfo Barron Villa et al, Jose Carlos Martinez Fernandez et al, Maria de los Angeles Fabela et al; Rafaela Edith Haro et al; Luz Mercedes Cruz et al; Juan Pedro Montaño et al; and Juana Irma Alday Villa. During the first quarter of 2018, BVC was served with another civil action lawsuit, claiming similar damages. The lawsuit was filed by Alma Angelina Del Cid Rivera et al. In the last quarter of 2018, BVC was served with other 3 civil action lawsuits, claiming similar damages. These lawsuits were filed by Los Corrales de la Estancia, S.C. de R.L.; Jose Antonio Navarro; Jesus Maria Peña Molina, et al; these actions were dismissed by the court, because they have expired. As of September 30, 2021, NaN cases were pending resolution.

In 2015, 4 constitutional lawsuits (juicios de amparo) were filed before Federal Courts against various authorities and against a subsidiary of the Company, arguing; (i) the alleged lack of a waste management program approved by SEMARNAT; (ii) the alleged lack of a remediation plan approved by SEMARNAT with regard to the August 2014 spill; (iii) the alleged lack of community approval regarding the environmental impact authorizations granted by SEMARNAT to 1 subsidiary of the Company; and (iv) the alleged inactivity of the authorities with regard to the spill in August 2014. The plaintiffs of these lawsuits are: Francisca Garcia Enriquez, et al filed 2 lawsuits, Francisco Ramon Miranda, et al and Jesus David Lopez Peralta et al. In the third quarter of 2016, 4 additional constitutional lawsuits, claiming similar damages were filed by Mario Alberto Salcido et al; Maria Elena Heredia Bustamante et al; Martin Eligio Ortiz Gamez et al; and Maria de los Angeles Enriquez Bacame et al. In the third quarter of 2017, BVC was served with another constitutional lawsuit filed by Francisca García Enriquez et al. In 2018, BVC was served with 2 additional constitutional lawsuits that were filed against SEMARNAT by Norberto Bustamante et al. Regarding the constitutional lawsuit filed by Maria Elena Heredia Bustamante et al; which claimed the lack of community approval for the authorization granted by SEMARNAT to build the new BVC tailings dam, on September 5, 2018, the Supreme Court of Justice issued a resolution establishing that such authorization was granted to BVC in compliance with the applicable legislation. However, SEMARNAT must hold a public meeting to inform the community of the technical aspects required to build the dam, potential impacts and prevention measures, with no material effects to for BVC’s operations. SEMARNAT has carried out the consultation ordered by the Supreme Court. As a result, the Judge in the case has been informed about compliance with the resolution, which required BVC to take additional measures of environmental impact prevention, such as: (i) building at least 3 monitoring wells downstream from the curtain of the contingency dam in a period of six months; (ii) monitoring of the groundwater level and water quality every six months; (iii) carrying out rain collection work in order to restore water to the Sonora River basin, for which six months are granted to present the execution program; (iv) determining the location of wildlife conservation and protection areas and defining if biological corridors need to be established; (v) obtaining photographic or videographic evidence every six months; (vi) submitting to SEMARNAT, two years before the closure and abandonment of the site, or earlier if necessary, the closure program that includes the cleaning and restoration of the soil including Mexican regulation NOM-141; (vii) including measures in the Environmental Monitoring Program that are aligned with the environmental components impacted; and (viii) hiring an external environmental consultant to validate compliance with the current and new conditions that are imposed. The foregoing does not impact BVC’s operations. Additionally, the lawsuits filed by Maria de los Angeles

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Enriquez Bacame and Norberto Bustamante have been dismissed and closed without prejudice to the Company. As of September 30, 2021, the remaining cases were still pending resolution.

It is currently not possible to determine the extent of the damages sought in these state and federal lawsuits but the Company believes that these lawsuits are without merit. Accordingly, the Company is vigorously defending against them. Nevertheless, the Company believes that none of the legal proceedings resulting from the spill, individually or in the aggregate, would have a material effect on its financial position or results of operations.

Corporate operations

Carla Lacey, on behalf of herself and all other similarly situated stockholders of Southern Copper Corporation, and derivatively on behalf of Southern Copper Corporation

In April 2019, a derivative lawsuit was filed against the Company, certain current and former Directors, and Grupo Mexico in the Delaware Court of Chancery relating to certain construction contracts, contracts for the purchase and sale of minerals, and transportation contracts entered into between the Company’s subsidiaries and subsidiaries of Grupo Mexico.

In October 2019, the plaintiff amended the complaint to include claims related to certain administrative services contracts between the Company’s subsidiaries and Grupo Mexico. The amended complaint alleges, among other things, that the construction contracts, the mineral contracts, the transportation contracts, and the administrative services contracts were unfair as a result of breaches of fiduciary duties and the Company’s charter. The amended complaint also added Americas Mining Corporation (“AMC”) as a defendant, alleging that AMC breached its fiduciary duties as a controlling stockholder of the Company. The amended complaint seeks, among other things, unspecified monetary damages. In January 2020, the Company, the current and former Directors, and Grupo Mexico responded to the complaint by filing motions to dismiss. The Plaintiff filed a brief in response to the motions on March 13, 2020. On July 16, 2020, the Court denied the motions to dismiss the breach of fiduciary duty claims against the Directors. On October 6, 2020, the Court dismissed the Plaintiff’s claims against Grupo Mexico for lack of personal jurisdiction. On February 11, 2021, the Court granted the Directors’ motion to dismiss plaintiff’s breach of contract claim. The Court also granted AMC’s motion to dismiss all claims against AMC other than those related to the mineral contracts.

On July 12, 2021, the parties reached an agreement-in-principle to settle the lawsuit, subject to Court approval. On September 29, 2021, the parties filed a Stipulation and Agreement of Compromise, Settlement and Release with the Court. The Court has scheduled a hearing to consider the proposed settlement on February 1, 2022.

As of September 30, 2021, and until the Court has ruled on the proposed settlement, the Company is unable to determine whether an unfavorable outcome is either remote or probable.

Labor matters:

Peruvian operations: 70.4% of the Company’s 4,645 Peruvian employees were unionized as of September 30, 2021. Currently, there are 6 separate unions, 1 large union and 5 small unions.

The Company decided to hold talks with the 6 unions to sign collective agreements prior to their effective dates. In June 2021, the Company signed a four-year collective agreement with one of the unions and granted, among other things, annual salary increases of 5% for each year from December 2021 and a signing bonus of S/ 60,000 (approximately $ 14,507) which are being recorded as labor expense.

On July 12, 2021, collective agreement extensions were signed with 2 other unions, under the same conditions as those indicated in the previous paragraph.

On July 22, 2021, a collective agreement with another union was extended for six years. This agreement granted, among other things, annual salary increases of 5% for each year from September 2021; a signing bonus of S/ 90,000

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(approximately $ 21,760); and another long-term agreement bonus of S/ 10,000 (approximately $ 2,418), all of which which are being recorded as labor expense.

The Company continues to hold conversations in advance with the union whose agreement is in effect until August 31, 2022 for the purpose of extending the collective agreement.

Finally, the last of the 6 unions, whose agreement expired in September 2021, decided to forego advancing conversations (in contrast with the decision taken by the other five unions). Currently, the Company is in the process of establishing a venue of formal negotiation with this union. The Company has decided, in accordance with the law, to end direct negotiations and enter into a conciliation phase with the participation of government labor authorities.

Mexican operations: In recent years, the Mexican operations have experienced a positive improvement in their labor environment, as workers opted to change their affiliation from the Sindicato Nacional de Trabajadores Mineros, Metalurgicos y Similares de la Republica Mexicana (the “National Mining Union”) to other less politicized unions.

The workers of the San Martin mine began a strike in July 2007. On February 28, 2018, the striking workers of the San Martín mine of IMMSA held an election to vote on the union that would hold the collective bargaining agreement at the San Martín mine. The Federacion Nacional de Sindicatos Independientes (the National Federation of Independent Unions) won the vote by a majority. Nevertheless, the vote was challenged by the National Mining Union. On June 26, 2018, the Federal Mediation and Arbitration Board issued a ruling recognizing the election results. Due to the agreement between workers and the Company to end the protracted strike, on August 22, 2018, the Federal Mediation and Arbitration Board authorized the restart of operations of the San Martín mine. Such authorization was challenged by the National Mining Union. On April 4, 2019, the Federal Mediation and Arbitration Board recognized, once again, the election results from February 28, 2018, by which the National Federation of Independent Unions won by a majority. In the last quarter of 2019, a Federal Court issued a resolution that established that the Labor Court should analyze the list of workers with the right to vote in the union election. The Company and the National Federation of Independent Unions challenged such determination before the Supreme Court of Justice. Such challenges were dismissed by the Supreme Court. As a consequence, on September 6, 2021, the Federal Mediation and Arbitration Board issued a new resolution determining that, based on the documents submitted by the National Federation of Independent Unions and given the status of the strike until 2018, it was not possible to create a registry of workers holding a right to vote. Therefore, in case of a strike, any economic collective proceedings shall remain suspended. The Company expects that the conflict will be solved in accordance with the legal framework set by labor authorities and that any actions taken will respect the workers’ will.

As of September 30, 2021, the Company had completed most of the rehabilitation plan to restore operations at the San Martin mine, at a total expense of approximately $90.1 million; the mine has since reached full operating capacity.

In the case of the Taxco mine, its workers have been on strike since July 2007. After several legal procedures, in August 2015, the Supreme Court decided to assert jurisdiction over the case and to rule on it directly. As of September 30, 2021, the case was pending resolution without further developments.

It is expected that operations at the Taxco mine will remain suspended until the labor issues are resolved. In view of the lengthy strike, the Company has reviewed the carrying value of the Taxco mine to ascertain whether impairment exists. The Company concluded that there is a non-material impairment of the assets located at this mine.

In 2020, a small group of workers at the Charcas mine claimed an additional workers’ participation payment and a minor incident was reported. This claim lacked legal basis given that the Company had already completely fulfilled said obligation with the workers in question. Consequently, the Company took legal action and through conciliation and mediation with labor authorities, the incident concluded with no further repercussions for the Company.

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Other legal matters:

The Company is involved in various other legal proceedings incidental to its operations, but the Company does not believe that decisions adverse to it in any such proceedings, individually or in the aggregate, would have a material effect on its financial position or results of operations.

Other commitments:

Peruvian Operations

Tia Maria:

On August 1, 2014, the Company received final approval for Tia Maria´s Environmental Impact Assessment (“EIA”). On July 8, 2019, the Company received the construction permit for this 120,000 ton annual SX-EW copper greenfield project with a total capital budget of $1,400 million. This permit was obtained after completing an exhaustive review process, complying with all established regulatory requirements and addressing all observations raised.

On July 15, 2019, anti-mining groups staged a violent demonstration affecting economic as well as other activities in the Islay province. These actions were followed by the filing of 3 complaints, sponsored by groups opposing the Tia Maria project, with the Mining Council, which is the Peruvian administrative authority responsible for ruling on these complaints. The Mining Council temporarily suspended the construction permit on August 8, 2019. On October 7, 2019, as part of the process, the Mining Council conducted a hearing to hear the complaints and the Company´s position. On October 30, 2019, the Mining Council of the Peruvian Ministry of Energy and Mines ratified the construction permit for the Tia Maria project.

The Company has been working to promote the welfare of the Islay province population. As part of these efforts, the Company has implemented social programs in education, healthcare and productive development to improve the quality-of-life in the region. The Company also has promoted agricultural and livestock activities in the Tambo Valley and supported growth in manufacturing, fishing and tourism in Islay.

During the construction and operation phase, the Company will make it a priority to hire local labor to fill the 9,000 jobs (3,600 direct and 5,400 indirect) that the Company expects to generate during Tia Maria’s construction phase. When operating, the Company expects Tia Maria to directly employ 600 workers and indirectly provide jobs for another 4,200. Additionally, from day one of its operations, the Company will generate significant contributions to revenues in the Arequipa region via royalties and taxes.

Tia Maria´s project budget is approximately $1.4 billion, of which $340.7 million had been invested as of September 30, 2021. This project will use state-of-the-art SX-EW technology with the highest international environmental standards. SX-EW facilities are the most environmentally friendly in the industry as they do not require a smelting process and therefore, do not release any emissions into the atmosphere.

Michiquillay:

In June 2018, the Company signed a contract for the acquisition of the Michiquillay copper project in Cajamarca, Peru, at a purchase price of $400 million. Michiquillay is a world-class mining project with estimated mineralized material of 1,150 million tons and a copper grade of 0.63%. It is expected to produce 225,000 tons of copper per year (along with by-products of molybdenum, gold and silver) for an initial mine life of more than 25 years.

On September 3, 2021, the Company signed a social agreement with the Michiquillay community. The Company is also conducting talks to sign a similar agreement with the La Encañada community. Additionally, on October 1, 2021, the Peruvian Ministry of Energy and Mines approved the semi-detailed environmental impact study for the project. These events will allow the Company to initiate an in-depth exploration program in 2022.

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The Company paid $12.5 million at the signing of the contract. In June 2021, the Company made an additional payment of $12.5 million. The balance of $375.0 million will be paid if the Company decides to develop the project, which is not a present obligation.

Corporate Social Responsibility:

The Company has a corporate social responsibility policy to maintain and promote the continuity of its mining operations and obtain the best results. The main objective of this policy is to integrate the Company´s operations with local communities in the areas of influence of its operations by creating permanent positive relationships to develop optimum social conditions and promote sustainable development in the area. Accordingly, the Company has made the following commitments:

Tacna Region: In connection with the Toquepala concentrator expansion, the Company has committed to funding various social and infrastructure improvement projects in Toquepala’s neighboring communities. The total amount committed for these purposes is S/445.0 million (approximately $107.6 million). In relation to this commitment, the Company has recently completed the construction of a school with an investment of S/17.2 million (approximately $4.2 million).

As the Toquepala expansion project has been completed, the Company considers that these commitments constitute present obligations of the Company and consequently has recorded a liability of $32.5 million in its condensed consolidated financial statements as of September 30, 2021.

In addition, the Company has committed S/69.0 million (approximately $16.7 million) for the construction of a high-performance school in the Tacna region under the “social investment for taxes” (obras por impuestos) program, which allows the Company to use these amounts as an advance payment of taxes.

Moquegua Region: In the Moquegua region, the Company participates in a “development roundtable” with local municipal authorities and community representatives to discuss social needs and to determine the ways that the Company can contribute to sustainable development in the region. Currently, the roundtable is discussing the creation of a Moquegua Region Development Fund, for which the Company has offered a contribution of S/1,000 million (approximately $241.8 million). While final funding is not yet settled, the Company has committed to contribute S/108.4 million (approximately $26.2 million) as an advance, which is being utilized to fund an educational project. In addition, there is a commitment to finance the construction of a residual water treatment plant in Ilo for S/79.9 million (approximately $19.3 million), to build 3 schools in Moquegua for S/ 15.9 million (approximately $3.8 million) and to build tracks and sidewalks in Pacocha for S/6.4 million (approximately $1.5 million).

In addition, the Company has committed S/86.7 million (approximately $21.0 million) to build 2 infrastructure projects in the Moquegua region under the “social investment for taxes” (obras por impuestos) program, which allows the Company to use these amounts as an advance payment of taxes.

Power purchase agreements:

●	Electroperu S.A.: In June 2014, the Company entered into a power purchase agreement for 120 megawatts (“MW”) with the state power company Electroperu S.A., under which Electroperu S.A. began supplying energy for the Peruvian operations for twenty years starting on April 17, 2017.

●

Kallpa Generacion S.A. (“Kallpa”): In July 2014, the Company entered into a power purchase agreement for 120MW with Kallpa, an independent Israeli owned power company, under which Kallpa will supply energy for the Peruvian operations for ten years starting on April 17, 2017 and ending on April 30, 2027. In May 2016, the Company signed an additional power purchase agreement for a maximum of 80MW with Kallpa, under which Kallpa began supplying energy for the Peruvian operations related to the Toquepala Expansion and other minor projects starting on May 1, 2017 and ending on October 31, 2029.

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Mexican operations

Power purchase agreements:

●	MGE: In 2012, the Company signed a power purchase agreement with MGE, an indirect subsidiary of Grupo Mexico, to supply power to some of the Company’s Mexican operations through 2032. For further information, please see Note 5 “Related party transactions”.

●

Eolica el Retiro, S.A.P.I. de C.V.: In 2013, the Company signed a power purchase agreement with Eolica el Retiro, S.A.P.I. de C.V. a windfarm energy producer that is an indirect subsidiary of Grupo Mexico, to supply power to some of the Company´s Mexican operations. For further information, please see Note 5 “Related party transactions”.

●

Parque Eolico de Fenicias, S. de R.L. de C.V.: On February 20, 2020, the Company signed a power purchase agreement with Parque Eolico de Fenicias, S. de R.L. de C.V., and indirect subsidiary of Grupo Mexico, to supply 611,400 MWh of power per year to some of the Company´s Mexican operations for 20 years. This agreement is expected to begin in November 2021.

Corporate operations

Commitment for capital projects:

As of September 30, 2021, the Company had committed approximately $369.4 million to the development of its capital investment projects at its operations.

Tax contingency matters:

Tax contingencies are provided for under ASC 740-10-50-15 Uncertain tax position (see Note 4 “Income taxes”).

NOTE 11 — STOCKHOLDERS’EQUITY:

Treasury Stock:

Activity in treasury stock in the nine-month period ended September 30, 2021 and 2020 is as follows (in millions):


	2021		2020
Southern Copper common shares
Balance as of January 1,	$	2,767.5	$	2,767.9
Used for corporate purposes		(0.1)		(0.4)
Balance as of September 30,		2,767.4		2,767.5

Parent Company (Grupo Mexico) common shares
Balance as of January 1,		296.0		281.0
Other activity, including dividend, interest and foreign currency transaction effect		17.4		(0.5)
Balance as of September 30,		313.4		280.5
Treasury stock balance as of September 30,	$	3,080.8	$	3,048.0

Southern Copper Common Shares:

At September 30, 2021 and at December 31, 2020, there were in treasury 111,514,817 and 111,522,817 shares of SCC’s common stock, respectively.

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SCC share repurchase program:

In 2008, the Company’s Board of Directors (“BOD”) authorized a $500 million share repurchase program that has since been increased by the BOD and is currently authorized to $3 billion. Pursuant to this program, the Company has purchased 119.5 million shares of common stock at a cost of $2.9 billion. These shares are available for general corporate purposes. The Company may purchase additional shares of its common stock from time to time, based on market conditions and other factors. This repurchase program has no expiration date and may be modified or discontinued at any time.

The NYSE closing price for SCC common shares as of September 30, 2021 was $56.14 and the maximum number of shares that the Company could purchase at that price was 1.5 million.

As a result of the repurchase of shares of SCC’s common stock, Grupo Mexico’s direct and indirect ownership was 88.9% as of September 30, 2021. There has been no activity in the SCC share repurchase program since the third quarter of 2016.

Directors’ Stock Award Plan:

The Company established a stock award compensation plan for certain directors who are not compensated as employees of the Company. Under this plan, participants currently receive 1,600 shares of common stock upon election and 1,600 additional shares following each annual meeting of stockholders thereafter. 600,000 shares of Southern Copper common stock have been reserved for this plan. On April 26, 2018, the Company's stockholders approved a five-year extension of the Plan until January 29, 2023 and an increase of the shares award from 1,200 to 1,600. The fair value of the award is measured each year at the date of the grant. Commencing with the 2021 grant, the 1,600 shares shall be granted quarterly and conditioned upon the attendance of each director to each Board meeting. The award is not subject to vesting requirements.

Parent Company common shares:

At September 30, 2021 and at December 31, 2020 there were in treasury 85,841,694 and 87,598,097 of Grupo Mexico’s common shares, respectively.

Employee Stock Purchase Plan:

2015 Plan: In January 2015, the Company offered to eligible employees a new stock purchase plan through a trust that acquires series B shares of Grupo Mexico stock for sale to its employees, and employees of subsidiaries, and certain affiliated companies. The purchase price was set at 38.44 Mexican pesos (approximately $2.63) for the initial subscription, which expires in January 2023. Every two years employees will be able to acquire title to 50% of the shares paid in the previous two years. The employees will pay for shares purchased through monthly payroll deductions over the eight year period of the plan. At the end of the eight year period, the Company will grant the participant a bonus of 1 share for every 10 shares purchased by the employee. Any future subscription will be at the average market price at the date of acquisition or the grant date.

If Grupo Mexico pays dividends on shares during the eight year period, the participants will be entitled to receive the dividend in cash for all shares that have been fully purchased and paid as of the date that the dividend is paid. If the participant has only partially paid for shares, the entitled dividends will be used to reduce the remaining liability owed for purchased shares.

In the case of voluntary or involuntary resignation/termination of the employee, the Company will pay to the employee the fair market sales price at the date of resignation of the fully paid shares, net of costs and taxes. When the fair market sales value of the shares is higher than the purchase price, the Company will apply a deduction over the amount to be paid to the employee based on a decreasing schedule specified in the plan.

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In case of retirement or death of the employee, the Company will render the buyer or his legal beneficiary, the fair market sales value as of the date of retirement or death of the shares effectively paid, net of costs and taxes.

The stock based compensation expense for the first nine months of 2021 and 2020 and the unrecognized compensation expense under this plan were as follows (in millions):


	2021		2020
Stock based compensation expense	$	0.5	$	0.5
Unrecognized compensation expense	$	1.0	$	1.5

The following table presents the activity of this plan for the nine months ended September 30, 2021 and 2020:


		Unit Weighted Average
	Shares	Grant Date Fair Value
Outstanding shares at January 1, 2021	1,264,410	$	2.63
Granted	—		—
Exercised	(381,288)	$	2.63
Forfeited	—		—
Outstanding shares at September 30, 2021	883,122	$	2.63
Outstanding shares at January 1, 2020	1,379,734	$	2.63
Granted	—		—
Exercised	(54,221)	$	2.63
Forfeited	—		—
Outstanding shares at September 30, 2020	1,325,513	$	2.63

2018 Plan: In November 2018, the Company offered a new stock purchase plan (the “New Employee Stock Purchase Plan”) to eligible employees through a trust that acquires series B shares of Grupo Mexico stock for sale to its employees, and employees of subsidiaries, and certain affiliated companies. The purchase price was established at 37.89 Mexican pesos (approximately $1.86) for the initial subscription, which expires in October 2026. Every two years employees will be able to acquire title to 50% of the shares paid in the previous two years. The employees will pay for shares purchased through monthly payroll deductions over the eight-year period of the plan. At the end of the eight-year period, the Company will grant the participant a bonus of 1 share for every 10 shares purchased by the employee. Any future subscription will be at the average market price at the date of acquisition or the grant date.

If Grupo Mexico pays dividends on shares during the eight-year period, the participants will be entitled to receive the dividend in cash for all shares that have been fully purchased and paid as of the date that the dividend is paid. If the participant has only partially paid for shares, the entitled dividends will be used to reduce the remaining liability owed for purchased shares.

In the case of voluntary or involuntary resignation/termination of the employee, the Company will pay to the employee the fair market sales price on the date of resignation of the fully paid shares, net of costs and taxes. When the fair market sales value of the shares is higher than the purchase price, the Company will apply a deduction over the amount to be paid to the employee based on a decreasing schedule specified in the plan.

The stock based compensation expense for the nine months ended September 30, 2021 and 2020 and the unrecognized compensation expense under this plan were as follows (in millions):


	2021		2020
Stock based compensation expense	$	0.5	$	0.5
Unrecognized compensation expense	$	3.3	$	4.0

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The following table presents the stock award activity of this plan for the nine months ended September 30, 2021 and 2020:


			Unit Weighted Average
	Shares		Grant Date Fair Value
Outstanding shares at January 1, 2021	3,918,458	$	1.86
Granted	—		—
Exercised	(716,449)	$	1.86
Forfeited	—		—
Outstanding shares at September 30, 2021	3,202,009	$	1.86
Outstanding shares at January 1, 2020	4,002,898	$	1.86
Granted	—		—
Exercised	(37,940)	$	1.86
Forfeited	—		—
Outstanding shares at September 30, 2020	3,964,958	$	1.86

Non-controlling interest:

The following table presents the non-controlling interest activity for the nine months ended September 30, 2021 and 2020 (in millions):


	2021		2020
Balance as of January 1,	$	51.2	$	47.9
Net earnings		10.6		4.9
Dividend paid		(4.4)		(2.8)
Balance as of September 30,	$	57.4	$	50.0

NOTE 12 — FAIR VALUE MEASUREMENT:

Subtopic 820-10 of ASC “Fair value measurement and disclosures — Overall” establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under Subtopic 820-10 are described below:

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 - Inputs that are observable, either directly or indirectly, but do not qualify as Level 1 inputs. (i.e., quoted prices for similar assets or liabilities).

Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable (other than accounts receivable associated with provisionally priced sales) and accounts payable approximate fair value due to their short maturities. Consequently, such financial instruments are not included in the following table, which provides

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information about the carrying amounts and estimated fair values of other financial instruments that are not measured at fair value in the condensed consolidated balance sheet as of September 30, 2021 and December 31, 2020 (in millions):


	At September 30, 2021				At December 31, 2020
	Carrying Value		Fair Value		Carrying Value		Fair Value
Liabilities:
Long-term debt level 1		6,195.8		8,124.6		6,193.6		8,692.1
Long-term debt level 2		350.9		378.4		350.6		385.7
Total long-term debt	$	6,546.7	$	8,503.0	$	6,544.2	$	9,077.8

Long-term debt is carried at amortized cost and its estimated fair value is based on quoted market prices classified as Level 1 in the fair value hierarchy except for the cases of the Yankee bonds and the notes due 2022, which qualify as Level 2 in the fair value hierarchy as they are based on quoted prices in markets that are not active.

Fair values of assets and liabilities measured at fair value on a recurring basis were calculated as follows as of September 30, 2021 and December 31, 2020 (in millions):


	Fair Value at Measurement Date Using:
					Significant
	Fair Value		Quoted prices in		other		Significant
	as of		active markets for		observable		unobservable
	September 30,		identical assets		inputs		inputs
Description	2021		(Level 1)		(Level 2)		(Level 3)
Assets:
Short term investment:
—Trading securities	$	626.4	$	626.4	$	—	$	—
—Available-for-sale debt securities:
Corporate bonds		—		—		—		—
Asset backed securities		0.2		—		0.2		—
Mortgage backed securities		0.2		—		0.2		—
Accounts receivable:
—Embedded derivatives—Not classified as hedges:
Provisionally priced sales:
Copper		707.1		707.1		—		—
Molybdenum		281.7		281.7		—		—
Total	$	1,615.6	$	1,615.2	$	0.4	$	—


	Fair Value at Measurement Date Using:
					Significant
	Fair Value		Quoted prices in		other		Significant
	as of		active markets for		observable		unobservable
	December 31,		identical assets		inputs		inputs
Description	2020		(Level 1)		(Level 2)		(Level 3)
Assets:
Short term investment:
—Trading securities	$	410.2	$	410.2	$	—	$	—
—Available-for-sale debt securities:
Corporate bonds		—		—		—		—
Asset backed securities		0.3		—		0.3		—
Mortgage backed securities		0.3		—		0.3		—
Accounts receivable:
—Embedded derivatives-Not classified as hedges:
Provisionally priced sales:
Copper		491.9		491.9		—		—
Molybdenum		129.2		129.2		—		—
Total	$	1,031.9	$	1,031.3	$	0.6	$	—

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The Company’s short-term trading securities investments are classified as Level 1 because they are valued using quoted prices of the same securities as they consist of bonds issued by public companies and are publicly traded. The Company’s short-term available-for-sale investments are classified as Level 2 because they are valued using quoted prices for similar investments.

The Company’s accounts receivables associated with provisionally priced copper sales are valued using quoted market prices based on the forward price on the LME or on the COMEX. Such value is classified within Level 1 of the fair value hierarchy. Molybdenum prices are established by reference to the publication Platts Metals Week and are considered Level 1 in the fair value hierarchy.

In addition, in the third quarter of 2021 the Company acquired two derivative instruments to protect natural gas costs from estimated price increases in the coming winter season. These derivative instruments will cover the period from November 2021 through March 2022. For further information please refer to Note 6 “Derivative instruments.”

NOTE 13 — REVENUE:

The Company’s net sales were $8,110.4 million in the nine months ended September 30, 2021, compared to $5,634.2 million in the same period of 2020. The geographic breakdown of the Company’s sales is as follows (in millions):


	Three Months Ended September 30, 2021
			Mexican
	Mexican		IMMSA		Peruvian		Corporate &
	Open-Pit		Unit		Operations		Elimination		Consolidated
The Americas:
Mexico	$	483.1	$	115.7	$	4.5	$	(42.8)	$	560.5
United States		324.9		11.2		71.3		—		407.4
Peru		—		(0.4)		148.3		—		147.9
Brazil		—		10.9		93.2		—		104.1
Chile		(0.1)		—		113.8		—		113.7
Other American countries		10.9		—		1.8		—		12.7
Europe:
Switzerland		276.0		20.3		127.6		—		423.9
Italy		—		3.9		62.9		—		66.8
Spain		106.6		—		20.4		—		127.0
Other European countries		54.2		7.0		110.9		—		172.1
Asia:
Singapore		119.9		6.3		159.7		—		285.9
Japan		(0.8)		—		167.7		—		166.9
Other Asian countries		51.1		0.2		40.7		—		92.0
Total	$	1,425.8	$	175.1	$	1,122.8	$	(42.8)	$	2,680.9

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	Nine Months Ended September 30, 2021
			Mexican
	Mexican		IMMSA		Peruvian		Corporate &
	Open-Pit		Unit		Operations		Elimination		Consolidated
The Americas:
Mexico	$	1,431.7	$	291.8	$	4.5	$	(107.9)	$	1,620.1
United States		1,107.5		42.9		152.2		—		1,302.6
Peru		—		(0.3)		438.9		—		438.6
Brazil		—		18.4		310.8		—		329.2
Chile		2.8		—		265.1		—		267.9
Other American countries		28.9		0.7		4.6		—		34.2
Europe:
Switzerland		888.7		46.0		323.1		—		1,257.8
Italy		0.2		5.9		244.8		—		250.9
Spain		299.8		—		63.8		—		363.6
Other European countries		202.2		40.3		310.8		—		553.3
Asia:
Singapore		354.8		14.8		395.7		—		765.3
Japan		23.6		—		478.1		—		501.7
Other Asian countries		196.4		0.3		228.5		—		425.2
Total	$	4,536.6	$	460.8	$	3,220.9	$	(107.9)	$	8,110.4


	Three Months Ended September 30, 2020
			Mexican
	Mexican		IMMSA		Peruvian		Corporate &
	Open-Pit		Unit		Operations		Elimination		Consolidated
The Americas:
Mexico	$	319.5	$	84.5	$	—	$	(29.7)	$	374.3
United States		309.9		11.3		33.6		—		354.8
Peru		—		4.8		95.1		—		99.9
Brazil		—		6.7		58.9		—		65.6
Chile		—		—		55.4		—		55.4
Other American countries		16.9		0.7		1.0		—		18.6
Europe:
Switzerland		274.0		19.2		153.4		—		446.6
Italy		—		2.0		60.2		—		62.2
Spain		62.5		—		—		—		62.5
Other European countries		42.4		11.0		83.2		—		136.6
Asia:
Singapore		55.9		0.6		136.2		—		192.7
Japan		15.2		—		129.1		—		144.3
Other Asian countries		85.4		0.1		30.1		—		115.6
Total	$	1,181.7	$	140.9	$	836.2	$	(29.7)	$	2,129.1

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	Nine Months Ended September 30, 2020
			Mexican
	Mexican		IMMSA		Peruvian		Corporate &
	Open-Pit		Unit		Operations		Elimination		Consolidated
The Americas:
Mexico	$	890.3	$	254.2	$	—	$	(78.0)	$	1,066.5
United States		866.8		15.5		94.0		—		976.3
Peru		—		10.4		208.2		—		218.6
Brazil		—		11.6		134.3		—		145.9
Chile		19.5		—		144.7		—		164.2
Other American countries		25.9		2.1		1.4		—		29.4
Europe:
Switzerland		682.6		50.1		367.7		—		1,100.4
Italy		—		6.3		179.1		—		185.4
Spain		127.3		—		—		—		127.3
Other European countries		118.8		20.7		203.1		—		342.6
Asia:
Singapore		233.9		5.7		383.0		—		622.6
Japan		26.9		—		365.9		—		392.8
Other Asian countries		160.1		0.4		101.7		—		262.2
Total	$	3,152.1	$	377.0	$	2,183.1	$	(78.0)	$	5,634.2

The following table presents information regarding the sales value by reporting segment of the Company’s significant products for the three and nine months ended September 30, 2021 and 2020 (in millions):


	Three Months Ended September 30, 2021
			Mexican
	Mexican		IMMSA		Peruvian		Corporate, Other &		Total
	Open-pit		Unit		Operations		Eliminations		Consolidated
Copper	$	1,195.0	$	24.3	$	912.9	$	(21.8)	$	2,110.4
Molybdenum		146.6		—		147.9		—		294.5
Silver		52.4		37.2		33.6		(19.0)		104.2
Zinc		—		98.6		—		0.1		98.7
Other		31.8		15.0		28.4		(2.1)		73.1
Total	$	1,425.8	$	175.1	$	1,122.8	$	(42.8)	$	2,680.9


	Nine Months Ended September 30, 2021
			Mexican
	Mexican		IMMSA		Peruvian		Corporate, Other &		Total
	Open-pit		Unit		Operations		Eliminations		Consolidated
Copper	$	3,858.2	$	75.5	$	2,697.1	$	(54.7)	$	6,576.1
Molybdenum		387.3		—		359.0		—		746.3
Silver		193.1		122.6		95.8		(48.1)		363.4
Zinc		—		215.1		—		0.5		215.6
Other		98.0		47.6		69.0		(5.6)		209.0
Total	$	4,536.6	$	460.8	$	3,220.9	$	(107.9)	$	8,110.4

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	Three Months Ended September 30, 2020
			Mexican
	Mexican		IMMSA		Peruvian		Corporate, Other &		Total
	Open-pit		Unit		Operations		Eliminations		Consolidated
Copper	$	1,022.1	$	21.2	$	720.7	$	(14.1)	$	1,749.9
Molybdenum		58.2		—		61.6		—		119.8
Silver		67.0		48.4		35.1		(17.5)		133.0
Zinc		—		57.6		—		4.6		62.2
Other		34.4		13.7		18.8		(2.7)		64.2
Total	$	1,181.7	$	140.9	$	836.2	$	(29.7)	$	2,129.1


	Nine Months Ended September 30, 2020
			Mexican
	Mexican		IMMSA		Peruvian		Corporate, Other &		Total
	Open-pit		Unit		Operations		Eliminations		Consolidated
Copper	$	2,687.8	$	50.9	$	1,881.4	$	(34.7)	$	4,585.4
Molybdenum		188.3		—		164.5		—		352.8
Silver		170.6		111.1		77.6		(38.9)		320.4
Zinc		—		174.1		—		1.3		175.4
Other		105.4		40.9		59.6		(5.7)		200.2
Total	$	3,152.1	$	377.0	$	2,183.1	$	(78.0)	$	5,634.2

The opening and closing balances of receivables by reporting segment of the Company were as follows (in millions):


			Mexican
	Mexican		IMMSA		Peruvian		Corporate &
	Open-Pit		Unit		Operations		Elimination		Consolidated

As of September 30, 2021:
Trade receivables	$	658.8	$	57.1	$	777.5	$	—	$	1,493.4
Related parties, current		25.1		—		1.7		7.8		34.6

As of December 31, 2020:
Trade receivables	$	566.0	$	57.8	$	445.1	$	—	$	1,068.9
Related parties, current		15.4		—		0.8		7.1		23.3

As of September 30, 2021, the Company has long-term contracts with promises to deliver the following products in 2021:


Copper concentrates (in tons)		188,000
Copper cathodes (in tons)		48,000
Molybdenum concentrates (in tons)		41,414
Sulfuric acid (in tons)		322,415

Provisionally priced sales: At September 30, 2021, the Company has recorded provisionally priced sales of copper at average forward prices per pound, and molybdenum at the September 30, 2021 market price per pound. These sales are subject to final pricing based on the average monthly London Metal Exchange (“LME”), or New York Commodities Exchange (“COMEX”), copper prices and Dealer Oxide molybdenum prices in the future month of settlement.

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Following are the provisionally priced copper and molybdenum sales outstanding at September 30, 2021:


	Sales volume	Priced at
	(million lbs.)	(per pound)	Month of settlement
Copper	174.1	4.06	October 2021 through February 2022
Molybdenum	15.3	18.45	October 2021 through December 2021

The provisional sales price adjustment included in accounts receivable and net sales as of September 30, 2021 includes negative adjustments of $30.7 million for copper and $8.2 million for molybdenum.

Management believes that the final pricing of these sales will not have a material effect on the Company’s financial position or on operating results.

NOTE 14 — SEGMENT AND RELATED INFORMATION:

Company management views Southern Copper as having 3 reportable segments and manages it on the basis of these segments. The reportable segments identified by the Company are: the Peruvian operations, the Mexican open-pit operations and the Mexican underground mining operations segment identified as the IMMSA unit.

The 3 reportable segments identified are groups of mines, each of which constitute an operating segment, with similar economic characteristics, types of products, processes and support facilities, similar regulatory environments, similar employee bargaining contracts and similar currency risks. In addition, each mine within the individual group earns revenues from similar types of customers for their products and services and each group incurs expenses independently, including commercial transactions between groups.

Financial information is regularly prepared for each of the 3 segments and the results of the Company’s operations are regularly reported to the Chief Operating Decision Maker (“CODM”) on the segment basis. The CODM of the Company focuses on operating income and on total assets as measures of performance to evaluate different segments and to make decisions to allocate resources to the reported segments. These are common measures in the mining industry.

Financial information relating to Southern Copper’s segments is as follows:


	Three Months Ended September 30, 2021
	(in millions)
			Mexican				Corporate, other
	Mexican		IMMSA		Peruvian		and
	Open-pit		Unit		Operations		eliminations		Consolidated
Net sales outside of segments	$	1,425.8	$	132.3	$	1,122.8	$	—	$	2,680.9
Intersegment sales		—		42.8		—		(42.8)		—
Cost of sales (exclusive of depreciation, amortization and depletion)		433.4		135.8		406.7		(48.4)		927.5
Selling, general and administrative		17.4		2.9		8.1		2.9		31.3
Depreciation, amortization and depletion		97.8		12.7		83.5		9.4		203.4
Exploration		0.6		1.7		2.7		5.9		10.9
Operating income	$	876.6	$	22.0	$	621.8	$	(12.6)		1,507.8
Less:
Interest, net										(87.4)
Other income (expense)										(1.9)
Income taxes										(548.6)
Equity earnings of affiliate										1.3
Non-controlling interest										(3.6)
Net income attributable to SCC									$	867.6
Capital investment	$	114.6	$	29.0	$	97.2	$	2.3	$	243.1
Property and mine development, net	$	4,551.1	$	555.5	$	3,713.0	$	656.5	$	9,476.1
Total assets	$	8,200.6	$	1,009.9	$	4,774.2	$	4,125.6	$	18,110.3

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	Nine Months Ended September 30, 2021
	(in millions)
			Mexican				Corporate, other
	Mexican		IMMSA		Peruvian		and
	Open-pit		Unit		Operations		eliminations		Consolidated
Net sales outside of segments	$	4,536.6	$	352.9	$	3,220.9	$	—	$	8,110.4
Intersegment sales		—		107.9		—		(107.9)		—
Cost of sales (exclusive of depreciation, amortization and depletion)		1,441.6		328.8		1,208.9		(122.5)		2,856.8
Selling, general and administrative		49.7		7.8		27.0		8.4		92.9
Depreciation, amortization and depletion		289.0		39.4		242.6		28.4		599.4
Exploration		1.8		3.8		9.9		11.2		26.7
Operating income	$	2,754.5	$	81.0	$	1,732.5	$	(33.4)		4,534.6
Less:
Interest, net										(262.6)
Other income (expense)										(7.8)
Income taxes										(1,703.8)
Equity earnings of affiliate										14.4
Non-controlling interest										(10.6)
Net income attributable to SCC									$	2,564.2
Capital investment	$	389.6	$	61.5	$	237.6	$	6.8	$	695.5
Property and mine development, net	$	4,551.1	$	555.5	$	3,713.0	$	656.5	$	9,476.1
Total assets	$	8,200.6	$	1,009.9	$	4,774.2	$	4,125.6	$	18,110.3


	Three Months Ended September 30, 2020
	(in millions)
			Mexican				Corporate, other
	Mexican		IMMSA		Peruvian		and
	Open-pit		Unit		Operations		eliminations		Consolidated
Net sales outside of segments	$	1,181.7	$	111.2	$	836.2	$	—	$	2,129.1
Intersegment sales		—		29.7		—		(29.7)		—
Cost of sales (exclusive of depreciation, amortization and depletion)		491.0		91.0		395.1		(28.2)		948.9
Selling, general and administrative		19.1		2.6		9.1		2.6		33.4
Depreciation, amortization and depletion		91.0		10.7		85.4		8.9		196.0
Exploration		0.4		1.8		1.9		2.8		6.9
Operating income	$	580.2	$	34.8	$	344.7	$	(15.8)		943.9
Less:
Interest, net										(86.4)
Other income (expense)										(14.0)
Income taxes										(338.5)
Equity earnings of affiliate										3.1
Non-controlling interest										(2.1)
Net income attributable to SCC									$	506.0
Capital investment	$	76.0	$	16.0	$	41.3	$	1.2	$	134.5
Property and mine development, net	$	4,540.5	$	508.1	$	3,726.3	$	369.8	$	9,144.7
Total assets	$	7,551.0	$	879.7	$	5,032.3	$	2,785.4	$	16,248.4

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	Nine Months Ended September 30, 2020
	(in millions)
			Mexican				��	Corporate, other
	Mexican		IMMSA		Peruvian			and
	Open-pit		Unit		Operations			eliminations		Consolidated
Net sales outside of segments	$	3,152.1	$	299.0	$	2,183.1		$	—	$	5,634.2
Intersegment sales		—		78.0		—			(78.0)		—
Cost of sales (exclusive of depreciation, amortization and depletion)		1,482.4		285.1		1,202.0			(88.2)		2,881.3
Selling, general and administrative		55.0		6.8		26.5			5.7		94.0
Depreciation, amortization and depletion		276.0		31.6		247.0			28.2		582.8
Exploration		1.9		6.9		6.0			7.0		21.8
Operating income	$	1,336.8	$	46.6	$	701.6		$	(30.7)		2,054.3
Less:
Interest, net											(263.0)
Other income (expense)											(22.4)
Income taxes											(784.7)
Equity earnings of affiliate											1.0
Non-controlling interest											(4.9)
Net income attributable to SCC										$	980.3
Capital investment	$	179.7	$	55.7	$	107.3		$	6.1	$	348.8
Property and mine development, net	$	4,540.5	$	508.1	$	3,726.3		$	369.8	$	9,144.7
Total assets	$	7,551.0	$	879.7	$	5,032.3		$	2,785.4	$	16,248.4

NOTE 15 — SUBSEQUENT EVENTS:

Dividends:

On October 21, 2021, the Board of Directors authorized a dividend of $1.00 per share payable on November 23, 2021 to shareholders of record at the close of business on November 10, 2021.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion provides information that management believes is relevant to an assessment and understanding of the condensed consolidated financial condition and results of operations of Southern Copper Corporation and its subsidiaries (collectively, “SCC”, “the Company”, “our”, and “we”). This item should be read in conjunction with our interim unaudited Condensed Consolidated Financial Statements and the notes thereto included in this quarterly report. Additionally, the following discussion and analysis should be read in conjunction with the Management Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements included in Part II of our annual report on Form 10-K for the year ended December 31, 2020.

EXECUTIVE OVERVIEW

Business: Our business is primarily the production and sale of copper. In the process of producing copper, a number of valuable metallurgical by-products are recovered, which we also produce and sell. Market forces outside of our control largely determine the sale prices for our products. Our management, therefore, focuses on value creation through copper production, cost control, production enhancement and maintaining a prudent capital structure to remain profitable. We endeavor to achieve these goals through capital spending programs, exploration efforts and cost reduction programs. Our aim is to remain profitable during periods of low copper prices and to maximize financial performance in periods of high copper prices.

We are one of the world’s largest copper mining companies in terms of production and sales and our principal operations are in Peru and Mexico. We also have exploration programs in Chile, Argentina and Ecuador. In addition to copper, we produce significant amounts of other metals, either as a by-product of the copper process or through a number of dedicated mining facilities in Mexico.

Outlook: Various key factors will affect our outcome. These include, but are not limited to, the following:

●	Sales structure: In the third quarter of 2021, approximately 78.7% of our revenue came from the sale of copper; 11.0% from molybdenum; 3.9% from silver; 3.7% from zinc; and 2.7% from various other products, including gold, sulfuric acid and other materials.

●

Copper: In the third quarter of 2021, the LME copper price increased from an average of $2.96 per pound in the third quarter of 2020 to $4.25 (+43.6%). Currently, we are seeing prices at about $4.50 per pound, and as such, the outlook for the Company remains positive. We believe the following factors are influencing the market:

●

The strong demand that we are seeing in the U.S. and Europe, particularly in terms of cathode consumption. China, although affected by real estate troubles and power shortages, is experiencing a notable reduction in scrap imports.

●

The combined inventories of the LME, Comex, Shanghai and Bonded warehouses remain at relatively low levels. The combined sum of these inventories fell from 907,000 tons in June 2021 to 569,000 tons at the end of September 2021; a 37% reduction.

●

The uncertainty regarding future production growth in Chile and Peru, which together represent about 40% of the world supply.

●

The most important market intelligence houses for the copper market are expecting a market deficit of about 200,000 tons this year due to a recovery in demand, which is estimated to grow about 5% in 2021, driven by a recovery in economic activity, mainly in developed economies.

●	Molybdenum: Represented 11.0% of our sales in the third quarter of 2021 and is currently our most important by-product. Molybdenum prices averaged $18.43 per pound in the third quarter of 2021, compared to $7.57 in the same period of 2020. This represented a 143.5% increase.

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Molybdenum is mainly used in the production of special alloys for stainless steel that require significant hardness and corrosion and heat resistance. A new use for this metal is in lubricants and sulfur filtering of heavy oils and shale gas production.

●	Silver: Represented 3.9% of our sales in the third quarter of 2021. We believe that the prices for silver will be supported by its intensive level of industrial use and the fact that, like gold, it represents value shelter in times of economic turmoil.

●	Zinc: Represented 3.7% of our sales in the third quarter of 2021. We consider zinc has very good long term fundamentals due to high levels of industrial consumption and expected production.

●	Production: In 2021 and 2022, we expect to produce 958,000 and 922,000 tons of copper, respectively, given that production during these periods will be affected by a temporary reduction in ore grade and recovery at our Peruvian operations.

We expect our copper production to recover by 2023 and reach 1,000,000 tons of production as we get Peruvian

production back on track and generate new production from our Pilares, El Pilar and Buenavista-Zinc Concentrator

projects.

We also expect to produce 19.3 million ounces of silver in 2021, which represents a decrease of 10% with regard to our 2020 production level. In 2021, we expect to produce 67,500 tons of zinc at our mines, which represents a 2.0% decrease compared to 2020 levels. Additionally, we expect to produce 29,400 tons of molybdenum, which represents a decrease of 3.2% compared to the levels reported in 2020.

●	Capital Investments: In the first nine months of 2021, we spent $695.5 million on capital investments; this represented 27.1% of net income and an increase of 99.4% compared to the amount registered for the same period in 2020.

CYBERSECURITY EVENT

As previously reported, on March 1, 2021, at approximately 02:00 hours Mexico City time, we experienced a Ransomware cyber-attack, which was operated by humans. This cyber-attack encrypted a total of 479 servers and 303 pieces of personal equipment. However, due to the quick response of our IT team, our Enterprise Resource Planning software was not affected by the aforementioned attack.

After the attack, we immediately began a remediation and recovery process and completely restored the affected servers. So far, the forensic investigation has not identified any concrete evidence of information stolen during the attack. However, we maintain active lines of work in cyberintelligence and forensic investigation to continue monitoring the DarkWeb/DeepWeb and social networks to identify any publication or activity related to the Company; ensure that our systems infrastructure is safe and validate the technological controls affected during the attack.

In March 2021, we appointed a new Head of Information Technology, who is implementing a new information security strategy to ensure business continuity based on processes (controls and corporate governance framework), technology and human capital (organizational culture). The areas of compliance, internal control, information technology and internal audit are working together to integrate reference frameworks, risk management models and the necessary controls to implement the information security strategy and corresponding programs.

Our information security strategy is being executed on a continuous basis. In July 2021, Grupo Mexico appointed a Chief Information Security Officer who has been actively involved in the development and implementation of this strategy. In addition, between July and September of 2021 we performed a cybernetic forensic analysis with the assistance of a specialized provider with global experience in this area. The recommendations received have already been integrated in current information security programs. AMC has set up a task force to oversee ongoing initiatives

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and to ensure that targets are met. We are actively following up on this matter with this task force, our internal audit team and will involve specialized third parties as needed.

As of September 30, 2021, we recorded $0.3 million in costs for the aforementioned efforts but may incur additional costs relative to the strategy and the controls being implemented.

COVID-19

The full impact of the COVID-19 pandemic worldwide is not yet known and, accordingly, the magnitude of the COVID-19 impact on the Company’s financial condition, liquidity and future operating results is still uncertain. However, we believe we are beginning a new stage in the COVID-19 crisis, where outbreaks will be better controlled worldwide, which, we hope, will bode well for a strong recovery across the globe in the near future. Senior Management continues to actively monitor the global situation´s effect on the Company´s financial condition, liquidity, operations, suppliers, industry and workforce and is focusing principally on the health, safety and well-being of our employees, their families and the communities where we have operations. As of September 30, 2021, the strong global economic recovery has generated significant challenges for the global shipping industry, which have led to congestion at ports, shortage of containers and a lack of space on ships. This situation has caused the Company to experience some delays in the reception of imported materials as well as in the shipment of its products and receivable collections. This, however, has had no material impact on the financial position of the Company.

As of September 30, 2021, copper prices maintain a positive trend, closing at $4.10 per pound (LME) with regard to $3.00 per pound for the same period of 2020. Considering the market outlook previously described, we have a positive view for the copper market in the near future.

The Company maintains a solid financial position and performance level. We believe this has allowed and will continue to allow us to deal with the effects of the pandemic in a way that prevents adverse material effects on our operations and financial results. The table below compares some of our financial information as follows:


	Sep-21	Dec-20	Sep-20
($ in millions, except ratios)
Cash and cash equivalents	2,583.7	2,183.6	2,145.4
Accounts receivable	1,579.8	1,136.6	1,036.8
Total assets	18,110.3	16,946.5	16,248.4
Long term debt	6,546.7	6,544.2	6,543.4
Sales	8,110.4	7,984.9	5,634.2

RATIOS
Current assets to current liabilities	3.29	3.49	3.78
Accounts receivable turnover (1)	5.13	7.03	5.43
Total debt ratio (2)	0.36	0.39	0.40
Net income margin (3)	31.6%	19.7%	17.4%

(1)

Represents net sales divided by accounts receivable.

(2)

Represents total debt divided by total assets.

(3)

Represents net income divided by net sales, as a percentage.

At the present time, our operations are in compliance with all sanitary and government regulations and maintain proper environmental safeguards. Our COVID-19 emergency protocol has reinforced preventive measures such as disinfecting, clinical monitoring before work, cleaning and sanitizing of work areas and respect for social distancing. We have also restricted the access of contractors, suppliers and personnel to our facilities if visits are not indispensable and enforced multiple actions to limit workforce exposure to COVID-19 by imposing travel

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restrictions, prohibiting face-to-face meetings and urging frequent hand washing, as well as adhering to all other health, safety and social distancing measures required by governmental authorities.

As of September 30, 2021, our production facilities in Mexico and Peru were working at approximately 96% of their production capacity. As of September 30, 2021, approximately 96% of the workforce in Mexico and 71% of the workforce in Peru was working on site or at home under strict safety measures; the remaining labor force was not working, including all individuals at high risk due to age and/or preexisting medical conditions.

We have fully restored exploration activities at all of our locations, except in Argentina where we are developing social and environmental programs for local communities.

KEY MATTERS

Below, we discuss several matters that we believe are important to understand the results of our operations and financial condition. These matters include, (i) our earnings, (ii) our production, (iii) our “operating cash costs” as a measure of our performance, (iv) metal prices, (v) business segments, (vi) the effect of inflation and other local currency issues, and (vii) our capital investment and exploration program.

Earnings: The table below highlights key financial and operational data of our Company for the three and nine months ended September 30, 2021 and 2020 (in millions, except copper price, percentages and per share amounts):


		Three months ended September 30,								Nine months ended September 30,
	2021		2020		Variance		% Change		2021		2020		Variance		% Change
Copper price LME		4.25		2.96		1.29	43.6	%		4.17		2.65		1.52	57.4	%
Pounds of copper sold		506.2		590.5		(84.3)	(14.3)	%		1,550.6		1,740.8		(190.2)	(10.9)	%
Net sales	$	2,680.9	$	2,129.1	$	551.8	25.9	%	$	8,110.4	$	5,634.2	$	2,476.2	43.9	%
Operating income	$	1,507.8	$	943.9	$	563.9	59.7	%	$	4,534.6	$	2,054.3	$	2,480.3	120.7	%
Net income attributable to SCC	$	867.6	$	506.0	$	361.6	71.5	%	$	2,564.2	$	980.3	$	1,583.9	161.6	%
Earnings per share	$	1.12	$	0.65	$	0.47	72.3	%	$	3.32	$	1.27	$	2.05	161.4	%
Dividends per share	$	0.90	$	0.40	$	0.50	125.0	%	$	2.20	$	1.00	$	1.20	120.0	%

Net sales in the third quarter of 2021 were 25.9% higher than in the same period of 2020, which was primarily attributable to higher metal prices for copper (+43.6%), molybdenum (+143.5%) and zinc (+28.3%), as well as to an increase in the sales volume of molybdenum (+5.7%) and zinc (+25.1%). This was slightly offset by a decrease in silver (-1.3%) prices as well as decreases in sales volume of copper (-14.3%) and silver (-18.6%).

Net income attributable to SCC in the third quarter of 2021 was 71.5% higher than in the same period of 2020. This growth was mainly attributable to the increase in metal prices and sales volumes mentioned above.

Net sales in the first nine months of 2021 were 43.9% higher than in the same period of 2020, which was primarily attributable to higher metal prices for copper (+57.4%), molybdenum (+71.4%), silver (+35.1%) and zinc (+33.4%). This was partially offset by decreases in sales volumes of copper (-10.9%), molybdenum (-1.9%), silver (-15.8%) and zinc (-9.1%).

Net income attributable to SCC in the first nine months of 2021 was 161.6% higher than in the same period of 2020. This growth was mainly attributable to the increase in metal prices.

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Production: The table below highlights our mine production data for the three and nine months ended September 30, 2021 and 2020:


	Three months ended September 30,					Nine months ended September 30,
	2021	2020	Variance	% Change		2021	2020	Variance	% Change
Copper (in million pounds)	540.5	543.6	(3.1)	(0.6)	%	1,588.8	1,635.0	(46.2)	(2.8)	%
Molybdenum (in million pounds)	17.9	16.9	1.0	5.4	%	49.1	50.0	(0.9)	(1.8)	%
Silver (in million ounces)	4.8	5.3	(0.5)	(8.8)	%	14.4	16.1	(1.7)	(10.5)	%
Zinc (in million pounds)	37.2	37.9	(0.7)	(1.8)	%	111.3	115.0	(3.7)	(3.3)	%

The table below highlights our copper production data for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,					Nine Months Ended September 30,
Copper (in million pounds):	2021	2020	Variance	% Change		2021	2020	Variance	% Change
Toquepala	130.4	132.5	(2.1)	(1.5)	%	389.0	415.2	(26.2)	(6.3)	%
Cuajone	98.8	89.8	9.0	10.0	%	279.5	273.8	5.7	2.1	%
La Caridad	68.5	75.6	(7.1)	(9.4)	%	213.8	223.9	(10.1)	(4.5)	%
Buenavista	237.8	239.7	(1.9)	(0.8)	%	691.6	705.2	(13.6)	(1.9)	%
IMMSA	5.0	6.0	(1.0)	(16.7)	%	14.9	16.9	(2.0)	(11.6)	%
Total mined copper	540.5	543.6	(3.1)	(0.6)	%	1,588.8	1,635.0	(46.2)	(2.8)	%

Third quarter: Mined copper production in the third quarter of 2021 fell by 0.6% to 540.5 million pounds compared to 543.6 million pounds in the third quarter of 2020. This was mainly attributable to a drop in production at our La Caridad (-9.4%), Toquepala (-1.5%), Buenavista (-0.8%) and IMMSA (-16.7%) mines due to lower grades. This effect was offset by higher production at our Cuajone (+10.0%) mine due to higher ore grades.

Molybdenum production increased 5.4% in the third quarter of 2021 compared to the levels registered in the third quarter of 2020. This was attributable to an increase in production at our Toquepala (+18.4%) and Buenavista (+19.3%) mines due to higher ore grades and recoveries. This effect was partially offset by a decrease in production at the Cuajone (-9.7%) and La Caridad (-6.5%) mines due to lower ore grades.

Silver mine production decreased 8.8% in the third quarter of 2021 due to a drop in production at the Toquepala (-16.2%), Buenavista (-20.8%), La Caridad (-9.9%) and IMMSA (-7.0%) operations. This was offset by a higher production at the Cuajone (+25.2%) mine.

Zinc production decreased 1.8% in the third quarter of 2021 compared to the same period of 2020. This decrease was mainly attributable to lower production at the Santa Barbara (-9.3%) and Charcas (-3.3%) mines, which was partially offset by a higher production at the San Martin mine (+16.4%).

Nine months: Mined copper production in the first nine months of 2021 decreased 2.8% to 1,588.8 million pounds compared to 1,635.0 million pounds in the same period of 2020. This decrease was mainly attributable to a drop in production at our Toquepala (-6.3%), La Caridad (-4.5%), Buenavista (-1.9%) and IMMSA (-11.6%) mines mainly due to lower grades. This effect was slightly offset by a higher production at our Cuajone (+2.1%) mine.

Molybdenum production decreased 1.8% in the first nine months of 2021 compared to the same period in 2020; this was mainly due to lower production at our Buenavista (-13.1%) and La Caridad (-0.4%) mines, which was partially offset by higher production at the Cuajone (+1.4%) and Toquepala (+2.0%) mines.

Silver mine production decreased 10.5% in the first nine months of 2021; this was principally due to lower production at our Toquepala (-16.8%), Buenavista (-16.6%), IMMSA (-14.1%) and La Caridad (-0.4%) operations, which was partially offset by higher production at the Cuajone (+15.7%) mine.

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Zinc production decreased 3.3% in the first nine months of 2021, which was mainly attributable to a decrease in production at the Santa Barbara mine (-16.3%) due to lower grades and a decrease in milled mineral. This was partially offset by an increase in production at the San Martin mine (+16.6%), which was driven by higher grades and recoveries.

Operating Cash Costs: An overall benchmark that we use, which is a common industry metric to measure performance is operating cash costs per pound of copper produced. Operating cash cost is a non-GAAP measure that does not have a standardized meaning and may not be comparable to similarly titled measures provided by other companies. This non-GAAP information should not be considered in isolation or as substitute for measures of performance determined in accordance with GAAP. A reconciliation of our operating cash cost per pound of copper produced to the cost of sales (exclusive of depreciation, amortization and depletion) as presented in the consolidated statement of earnings is presented under the subheading, “Non-GAAP Information Reconciliation” on page 59. We disclose operating cash cost per pound of copper produced, both before and net of by-product revenues.

We define operating cash cost per pound of copper produced before by-product revenues as cost of sales (exclusive of depreciation, amortization and depletion), plus selling, general and administrative charges, treatment and refining charges net of sales premiums; less the cost of purchased concentrates, workers’ participation and other miscellaneous charges, including royalty charges, and the change in inventory levels; divided by total pounds of copper produced by our own mines.

In our calculation of operating cash cost per pound of copper produced, we exclude depreciation, amortization and depletion, which are considered non-cash expenses. Exploration is considered a discretionary expenditure and is also excluded. Workers’ participation provisions are determined on the basis of pre-tax earnings and are also excluded. Additional exclusions from operating cash costs are items of a non-recurring nature and the mining royalty charge as it is based on various calculations of taxable income, depending on which jurisdiction, Peru or Mexico, is imposing the charge. We believe these adjustments allow our management and stakeholders to more fully visualize our controllable cash cost, which we believe is one of the lowest of all copper-producing companies of similar size.

We define operating cash cost per pound of copper produced net of by-product revenues as operating cash cost per pound of copper produced, as defined in the previous paragraph, less by-product revenues and net revenue (loss) on sale of metal purchased from third parties.

In our calculation of operating cash cost per pound of copper produced, net of by-product revenues, we credit against our costs the revenues from the sale of all our by-products, including, molybdenum, zinc, silver, gold, etc. and the net revenue (loss) on sale of metals purchased from third parties. We disclose this measure including the by-product revenues in this way because we consider our principal business to be the production and sale of copper. As part of our copper production process, much of our by-products are recovered. These by-products, as well as the processing of copper purchased from third parties, are a supplemental part of our production process and their sales value contribute to covering part of our incurred fixed costs. We believe that our Company is viewed by the investment community as a copper company, and is valued, in large part, by the investment community’s view of the copper market and our ability to produce copper at a reasonable cost.

We believe that both of these measures are useful tools for our management and our stakeholders. Our cash costs before by-product revenues allow us to monitor our cost structure and address areas of concern within operating management. The measure operating cash cost per pound of copper produced net of by-product revenues is a common measure used in the copper industry and is a useful management tool that allows us to track our performance and better allocate our resources. This measure is also used in our investment project evaluation process to determine a project’s potential contribution to our operations, its competitiveness and its relative strength in different price scenarios. The expected contribution of by-products is generally a significant factor used by the copper industry to determine whether to move forward or not in the development of a new mining project. As the price of our by-product commodities can have significant fluctuations from period to period, the value of its contribution to our costs can be volatile.

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Our operating cash cost per pound of copper produced, before and net of by-product revenues, is presented in the table below for the three and nine months ended September 30, 2021 and 2020:

Operating cash cost per pound of copper produced (1)

(In millions, except cost per pound and percentages)


		Three Months Ended September 30,								Nine Months Ended September 30,
	2021		2020		Variance		% Change		2021		2020		Variance		% Change
Total operating cash cost before by‑product revenues	$	847.1	$	713.8	$	133.3	18.7	%	$	2,436.4	$	2,134.1	$	302.3	14.2	%
Total by‑product revenues	$	(543.4)	$	(374.3)	$	(169.1)	45.2	%	$	(1,458.2)	$	(1,035.9)	$	(422.3)	40.8	%
Total operating cash cost net of by‑product revenues	$	303.7	$	339.5	$	(35.8)	(10.5)	%	$	978.2	$	1,098.2	$	(120.0)	(10.9)	%
Total pounds of copper produced(2)		522.5		526.4		(3.9)	(0.7)	%		1,541.0		1,586.0		(45.0)	(2.8)	%
Operating cash cost per pound before by‑product revenues	$	1.62	$	1.36	$	0.26	19.1	%	$	1.58	$	1.35	$	0.23	17.0	%
By‑products per pound revenues	$	(1.04)	$	(0.71)	$	(0.33)	46.5	%	$	(0.94)	$	(0.66)	$	(0.28)	42.4	%
Operating cash cost per pound net of by‑product revenues	$	0.58	$	0.65	$	(0.07)	(10.8)	%	$	0.64	$	0.69	$	(0.05)	(7.2)	%

(1)	These are non-GAAP measures. Please see page 59 for reconciliation to GAAP measure.

(2)	Net of metallurgical losses.

As seen in the table above, our per pound cash cost before by-product revenues in the third quarter of 2021 was 19.1% higher than in the same period of 2020. This increase was mainly attributable to an increase in production costs. Our cash cost per pound net of by-product revenue for the third quarter of 2021 decreased 10.8% when compared to the same period of 2020. This was mainly attributable to a significant increase in by-product revenues.

For the nine months ended September 30, 2021, our per pound cash cost before by-product revenues was 17.0% higher than in the same period of 2020. This increase was mainly driven by an increase in production costs and to the unit cost effect of lower production. The operating cash cost per pound of copper net of by-product revenues was $0.64 in the nine months ended September 30, 2021. This represented an improvement of 7.2% compared to the $0.69 reported in the same period of 2020 and was mainly due to a significant increase in by-product revenues.

Metal Prices: The profitability of our operations is dependent on, and our financial performance is significantly affected by, the international market prices for the products we produce, and for copper, molybdenum, zinc and silver in particular.

We are subject to market risks arising from the volatility of copper and other metal prices. For the remaining three months of 2021, assuming that expected metal production and sales are achieved, tax rates remain unchanged and no effects are generated by potential hedging programs, metal price sensitivity factors would indicate the following change in estimated net income attributable to SCC resulting from metal price changes:


	Copper		Molybdenum		Zinc		Silver
Change in metal prices (per pound except silver—per ounce)	$	0.10	$	1.00	$	0.10	$	1.00
Change in net earnings (in millions)	$	30.3	$	9.5	$	3.4	$	3.6

Business Segments: We view our Company as having three reportable segments and manage it on the basis of these segments. These segments are (1) our Peruvian operations, (2) our Mexican open-pit operations and (3) our Mexican underground operations, known as our IMMSA unit. Our Peruvian operations include the Toquepala and Cuajone mine complexes and the smelting and refining plants, industrial railroad and port facilities that service both mines. The Peruvian operations produce copper, with significant by-product production of molybdenum, silver and other material. Our Mexican open-pit operations include La Caridad and Buenavista mine complexes, the smelting and refining plants and support facilities, which service both mines. The Mexican open pit operations produce copper, with significant by-

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product production of molybdenum, silver and other material. Our IMMSA unit includes five underground mines that produce zinc, lead, copper, silver and gold, and several industrial processing facilities for zinc, copper and silver.

Segment information is included in our review of “Results of Operations” in this item and also in Note 14 “Segment and Related Information” of our condensed consolidated financial statements.

Inflation and Exchange Rate Effect of the Peruvian Sol and the Mexican Peso: Our functional currency is the U.S. dollar and our revenues are primarily denominated in U.S. dollars. Significant portions of our operating costs are denominated in Peruvian sol and Mexican pesos. Accordingly, when inflation and currency devaluation/appreciation of the Peruvian currency and Mexican currency occur, our operating results can be affected. In recent years, we believe such changes have not had a material effect on our results and financial position. Please see Item 3. “Quantitative and Qualitative Disclosures about Market Risk” for more detailed information.

Capital Investment Programs: We made capital investments of $695.5 million in the nine months ended September 30, 2021, compared to $348.8 million in the same period of 2020. In general, the capital investments and investment projects described below are intended to increase production, decrease costs or address social and environmental commitments.

Set forth below are descriptions of some of our current expected capital investment programs. We expect to meet the cash requirements for these projects by utilizing cash on hand; internally generated funds and additional external financing, including funding received in September 2019. All capital spending plans will continue to be reviewed and adjusted to respond to changes in the economy, market conditions or the COVID-19 pandemic.

Projects in Mexico:

Buenavista Zinc - Sonora: This project is located within the Buenavista facility and includes the development of a new concentrator to produce approximately 100,000 tons of zinc and 20,000 tons of copper per year. We have completed the engineering study. In order to continue with the project, stronger preventive measures to combat COVID-19 have been put in place. Procurement has progressed 93% and all the main equipment is on site. Additionally, construction site works are in progress. The project has all the necessary permits. The project´s budget is $413 million, and we expect to initiate operations in 2023. As of September 30, 2021, we had invested $196.8 million in this project. When completed, we anticipate that this new facility will double the Company’s zinc production capacity and will provide 490 direct jobs and 1,470 indirect jobs.

Pilares - Sonora: This project, located six kilometers from La Caridad, will be developed as an open-pit mine operation with an annual production capacity of 35,000 tons of copper in concentrate. A new 25-meter wide off-road facility for mining trucks has been built and will be used to transport the ore from the pit to the primary crushers at the La Caridad copper concentrator. This will significantly improve the overall mineral ore grade (combining the 0.78% expected from Pilares with 0.34% from La Caridad). The budget for Pilares is $159 million and we expect the project to begin production in the first quarter of 2022. As of September 30, 2021, we had invested $81.4 million in this project.

El Pilar - Sonora: This is a low-capital intensity copper development project strategically located in Sonora, Mexico, approximately 45 kilometers from our Buenavista mine. Its copper oxide mineralization contains estimated proven and probable reserves of 281 million tons of ore with an average copper grade of 0.301%. El Pilar will operate as a conventional open-pit mine with an annual production capacity of 36,000 tons of copper cathodes. This operation will use highly cost efficient and environmentally friendly SX-EW technology. We estimate a development investment of approximately $310 million. The results from experimental pads in leaching process have confirmed adequate levels of copper recovery. We expect this project to start production in 2023 with an expected mine life of 13 years. The basic engineering study is finished and the Company continues developing project and site environmental activities.

The San Martin mine recovery program. After eleven years of illegal stoppage, we resumed control of the San Martin mine in August 2018. The San Martin facilities deteriorated during this period but we made a major renovation and restarted operations during the second quarter of 2019. Currently, the mine has 200,000 tons of ore and the concentrator has initiated production. In 2020, we produced 14,361 tons of zinc, 2.8 million ounces of silver, 3,601 tons of copper,

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and 1,425 tons of lead. As of September 2021, the Company had completed most of the rehabilitation plan to restore operations at the San Martin mine with a total expense of approximately $90.1 million; the mine has since reached full operating capacity.

Projects in Peru:

Quebrada Honda dam expansion – Tacna: This project aims to enlarge the main and lateral dams in Quebrada Honda and includes the relocation of some facilities due to dam growth and implementation of other facilities for water recovery, among other factors. As of September 30, 2021, the engineering study was complete. The majority of the main equipment and materials have been procured and are arriving according to schedule. Construction is in progress with work on three fronts. This project has a total budget of $140.0 million, of which we had committed $37.6 million and invested $89.3 million as of September 30, 2021.

Tia Maria - Arequipa: On July 8, 2019, we were granted the construction permit for this 120,000 ton annual SX-EW copper greenfield project with a total capital budget of $1,400 million. The Government awarded the permit after completing an exhaustive review process, complying with all established regulatory requirements and addressing all observations raised. The challenges surrounding the construction permit were overcome when on October 30, 2019, the Mining Council of the Peruvian Ministry of Energy and Mines ratified the construction permit for the Tia Maria project.

The Company has been consistently working to promote the welfare of the Islay province population. As part of these efforts, we have implemented successful social programs in education, healthcare and productive development to improve the quality-of-life in the region. We also have promoted agricultural and livestock activities in the Tambo Valley and supported growth in manufacturing, fishing and tourism in Islay.

On January 7, 2021, the mayor of the Islay province (Arequipa, Peru) awarded a City Diploma to SPCC in recognition of the Company’s efforts to assist the population of Islay during the COVID-19 pandemic. SPCC provided medical assistance, tests, oxygen, personal protection equipment and food stuffs to the population in the area of influence of the Tia Maria project.

We consider that the initiation of construction activities at Tia Maria will generate significant economic opportunities for the Islay province and the Arequipa region. During the construction and operation phase, we will make it a priority to hire local labor to fill the 9,000 jobs (3,600 direct and 5,400 indirect) that we expect to generate during Tia Maria’s construction phase. When operating, we expect Tia Maria to directly employ 600 workers and indirectly provide jobs for another 4,200. Additionally, from day one of our operations, we will generate significant contributions to revenues in the Arequipa region via royalties and taxes.

We expect the Peruvian government to acknowledge the significant progress the project has made on the social front and the important contributions that Tia Maria will generate for Peru´s economy and, consequently, take the necessary steps to provide SCC with adequate support to initiate construction.

This greenfield project, located in Arequipa, Peru, will use state of the art SX-EW technology with the highest international environmental standards. SX-EW facilities are the most environmentally friendly in the industry due to their technical process with no emissions released into the atmosphere.

Potential projects

We have a number of other projects that we may develop in the future. We continuously evaluate new projects on the basis of our long-term corporate objectives, expected return on investment, environmental concerns, required investment and estimated production, among other considerations. All capital spending plans will continue to be reviewed and adjusted to respond to changes in the economy, market conditions or the COVID-19 pandemic.

El Arco - Baja California: This is a world-class copper deposit located in the central part of the Baja California peninsula, with ore reserves of over 2.4 billion tons with an ore grade of 0.422%, 0.3 billion tons of leach material with an ore grade of 0.288% and 0.11 grams of gold per ton. This project envisions an open-pit mine with a combined

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concentrator and SX-EW operations, with an estimated production capacity of 190,000 tons of copper and 105,000 ounces of gold annually. The project has an estimated capital budget of $2.9 billion. The Company has started the baseline study and it is reviewing the basic engineering analysis to request the environmental impact permit. Several years back, we began to acquire the rights to all relevant mining concessions in the area; this process was completed in 2020.

Los Chancas - Apurimac: This greenfield project, located in Apurimac, Peru, is a copper and molybdenum porphyry deposit. Current estimates indicate the presence of 545 million tons of mineralized material with a copper content of 0.59%, molybdenum content of 0.04% and 0.039 grams of gold per ton, as well as 181 million tons of mineralized leachable material with a total copper content of 0.357%. Los Chancas project envisions an open-pit mine with a combined operation of concentrator and SX-EW processes to produce 130,000 tons of copper and 7,500 tons of molybdenum anually. The estimated capital investment is $2,600 million and the project is expected to be in operation in 2027. In 2019, we continued to engage in social and environmental improvements for the local communities. In 2020,

we continued to work on these activities and in 2021 we are developing the environmental impact assessment for the project.

Michiquillay Project - Cajamarca: On June 12, 2018, Southern Copper signed a contract and made an initial payment of $12.5 million for the acquisition of the Michiquillay project in Cajamarca, Peru. In June 2021, the Company paid an additional $12.5 million to acquire the project. The Company has created a multidisciplinary management team to plan the development of this project. As part of this plan, the Company has established contact with the local and regional authorities and communities in order to promote programs for the sustainable development of the area. In 2020, we continued to develop social and environmental programs for the local communities. On September 3, 2021 the Company signed a Social Agreement with the Michiquillay Community. Additionally, on October 1, 2021 the Peruvian Ministry of Energy and Mines approved the semi-detailed Environmental Impact Study for the project.

The Social Agreement with the Michiquillay community represents an opportunity to improve the quality of life of the residents of Michiquillay via our strong social programs and backed by a solid framework for technical work at the project level. Talks for signing a similar agreement are being conducted with the La Encañada Community, where we expect positive results. These events are important steps that will allow Southern Copper to initiate an in-depth exploration program in the first quarter of 2022.

Michiquillay is a world class mining project with estimated mineralized material of 1,150 million tons with an estimated copper grade of 0.63%. When developed, we expect Michiquillay to produce 225,000 tons of copper per year (along with by-products of molybdenum, gold and silver) for an initial mine life of more than 25 years, at a competitive cash-cost. We estimate an investment of approximately $2.5 billion will be required and expect production start-up by 2028 and that Michiquillay will become one of Peru´s largest copper mines. The project will create significant business opportunities in the Cajamarca region; generate new jobs for the local communities and contribute with taxes and royalties to the local, regional and national governments.

The information above is based on estimates only. We cannot make any assurances that we will undertake any of these projects or that the information noted is accurate.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE (“ESG”)

We are committed to improving our ESG record by adopting best practices. In this regard, our sustainable development policies were recently updated. These policies, applicable to SCC and its subsidiaries, formalize our vision, commitments and objectives to promote sustainable development and generate shared value for our stakeholders. For further information on our disclosure on Human Capital Resources, see the section included in Part I, Item 1 of our Annual report on Form 10-K for the year ended December 31, 2020. Also, see our disclosure on our COVID-19 response, environmental disclosure and support of our local communities elsewhere in this report.

The Company has launched several programs and initiatives in all of the regions where we operate to help communities cope with the COVID-19 pandemic. In Peru, a partnership was established with the government in July 2021 to help vaccinate 40% of the population in the five regions where our operations are located. The Company donated over $2.45

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million to help build, modernize, equip and operate vaccination centers. About 92% of the 850,000 vaccines contemplated in this initiative have been administered by government personnel. To date, 91.4% of Southern Copper Corporation’s workforce has been vaccinated against COVID-19.

The Mining Chamber of Mexico recognized La Caridad’s mine, refinery and metallurgical plants for top safety performance in their respective categories in 2020. La Caridad mine received the “Silver Helmet” (“Casco de Plata”) in the category for open-pit mining operations with more than 500 employees whereas the refinery and metallurgical plants received the same distinction in the category for metallurgical plants and smelters with up to 500 employees.

Southern Copper Corporation reaffirms its commitment to preserving and improving the environment by implementing actions to generate a net positive impact on biodiversity through our operations. To fulfil this commitment, which is outlined in the Company’s Environmental Policy, we have developed action plans for biodiversity management that are aligned with the guide for Good Practice Guidance for Mining and Biodiversity published by the International Council on Mining and Metals (ICMM). These plans further improve the Company’s capacity to implement effective mitigation measures and contribute to the preservation and improvement of the environment in which we operate.

The government of Sonora recognized Southern Copper Corporation for being a “Culturally Responsible Company” for the voluntary initiatives implemented to promote and safeguard the state’s history, culture and traditions. Three of the community programs launched by the Company were pinpointed as particularly relevant: the Itinerant Documentary Cinema Workshop, which led to the creation of over 200 videos; the support provided for organizing the “Festival Alfonso Ortiz Tirado” (“FAOT”) in Nacozari and Cananea; and the creation of Youth Orchestras. These educational music programs, which are offered to more than 2,100 children in the communities surrounding our mining operations in Mexico and Peru, have led to the creation of six orchestras and four choirs.

CLIMATE CHANGE

Southern Copper Corporation recognizes the importance and urgency of tackling climate change. The Company’s operational greenhouse gases emissions have decreased significantly over the last three years despite an increase in production volumes. In addition, we strive to continuously reduce the carbon footprint of our operations and products.

Peruvian operations: On April 17, 2018, the Peruvian government enacted Law N. 30754, establishing a Climate Change Framework. Through this law, promoting public and private investments in climate change management is declared to be of national interest. The law proposes to create an institutional framework to address climate change in Peru, outlining new measures, particularly with respect to climate change mitigation. It includes, for example, provisions regarding: increasing carbon capture and use of carbon sinks; afforestation and reforestation practices; land use changes; and sustainable systems of transportation, solid waste management, and energy systems. This is the first climate change framework law in Latin America to incorporate obligations from the Paris Agreement. Regulations to this law were enacted by Supreme Decree 013-2019, which was published on December 31, 2019 and are applicable to all Peruvian institutions and agencies. It is expected that further Peruvian regulations will be applicable to non-governmental entities. The Company has initiated a multi-year process to align its reporting on climate change for its Peruvian operations with the recommendations of the Task Force on Climate-Related Financial Disclosures (“TCFD”). The Company is committed to the environment and to managing climate-related impacts. The Company’s focus is to seek continuous improvement in the responsible use of natural resources while complying with strict applicable legal standards for prevention, mitigation, control and remediation of environmental impacts. Implementing continuous improvement in the Company’s processes improves efficiency in the use and consumption of energy, water, and other natural resources.

Mexican operations: Grupo Mexico, the indirect parent of SCC, has issued sustainability reports under the Global Reporting Initiative (GRI) for more than 10 years. Grupo Mexico also participates in different Mexican and international reporting programs such as the Greenhouse Gases (GHG) Mexico Program and CDP (formerly the Carbon Disclosure Project).

In 2020, we also began to align our disclosure of efforts to manage climate-related risks and opportunities with the recommendations of the TCFD. Grupo Mexico’s Sustainable Development Report 2020 included a section with specific details on our progress in this regard. The report, which can be accessed at

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https://www.gmexico.com/en/Pages/development.aspx, includes for the first time an analysis of the climate-related risks and opportunities that are most important to the Company’s stakeholders.

We are referring our investors to Grupo Mexico's internet site for details on the aforementioned initiatives for informative purposes only. We do not intend the address to be an active link or to otherwise incorporate the contents of the website into this Report on Form 10-Q. Grupo Mexico strives to continuously reduce the carbon footprint of its operations and products to satisfy growing demand from its stakeholders (including authorities, clients and investors, among others).

ACCOUNTING ESTIMATES

Our discussion and analysis of financial condition and results of operations, as well as quantitative and qualitative disclosures about market risks, are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. Preparation of these consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We make our best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available to management. Areas where the nature of the estimate makes it reasonably possible that actual results could materially differ from amounts estimated include: ore reserves, revenue recognition, ore stockpiles on leach pads and related amortization, estimated impairment of assets, asset retirement obligations, determination of discount rates related to the financial lease liabilities, classification of operating leases versus financial leases, valuation allowances for deferred tax assets, unrecognized tax benefits and fair value of financial instruments. We base our estimates on historical experience and on various other assumptions that we believe reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

RESULTS OF OPERATIONS

The following highlights key financial results for the three and nine months ended September 30, 2021 and 2020 (in millions):


	Three Months Ended									Nine Months Ended
	September 30,									September 30,
Statement of Earnings Data	2021		2020		Variance		% Change			2021		2020		Variance		% Change
Net sales	$	2,680.9	$	2,129.1	$	551.8	$	25.9	%	$	8,110.4	$	5,634.2	$	2,476.2	$	43.9	%
Operating costs and expenses		(1,173.1)		(1,185.2)		12.1		(1.0)	%		(3,575.8)		(3,579.9)		4.1		(0.1)	%
Operating income		1,507.8		943.9		563.9		59.7	%		4,534.6		2,054.3		2,480.3		120.7	%
Non‑operating income (expense)		(89.3)		(100.4)		11.1		(11.1)	%		(270.4)		(285.4)		15.0		(5.3)	%
Income before income taxes		1,418.5		843.5		575.0		68.2	%		4,264.2		1,768.9		2,495.3		141.1	%
Income taxes		(548.6)		(338.5)		(210.1)		62.1	%		(1,703.8)		(784.7)		(919.1)		117.1	%
Equity earnings of affiliate		1.3		3.1		(1.8)		(58.1)	%		14.4		1.0		13.4		1,340.0	%
Net income attributable to non‑controlling interest		(3.6)		(2.1)		(1.5)		71.4	%		(10.6)		(4.9)		(5.7)		116.3	%
Net income attributable to SCC	$	867.6	$	506.0	$	361.6	$	71.5	%	$	2,564.2	$	980.3	$	1,583.9	$	161.6	%

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NET SALES

Net sales in the third quarter of 2021 were 25.9% higher than in the same period of 2020. This improvement was driven by an increase in metal prices for copper (+43.6% - LME), molybdenum (+143.5%) and zinc (+28.3%), as well as an increase in sales volume of molybdenum (+5.7%) and zinc (+25.1%). This was slightly offset by a decrease in silver (-1.3%) prices as well as lower sales volume of copper (-14.3%) and silver (-18.6%).


		Three Months Ended September 30,					Nine Months Ended September 30,
	2021		2020		% Change		2021		2020		% Change
Copper price ($per pound—LME)	$	4.25	$	2.96	43.6	%	$	4.17	$	2.65	57.4	%
Copper price ($per pound—COMEX)	$	4.30	$	2.94	46.3	%	$	4.20	$	2.64	59.1	%
Molybdenum price ($per pound)(1)	$	18.43	$	7.57	143.5	%	$	14.50	$	8.46	71.4	%
Zinc price ($per pound—LME)	$	1.36	$	1.06	28.3	%	$	1.31	$	0.97	35.1	%
Silver price ($per ounce—COMEX)	$	24.28	$	24.59	(1.3)	%	$	25.78	$	19.33	33.4	%

(1)	Platts Metals Week Dealer Oxide

The table below provides our metal sales as a percentage of our total net sales for the three and nine months ended September 30, 2021 and 2020:


		Three Months Ended				Nine Months Ended
	September 30,					September 30,
Sales as a percentage of total net sales		2021		2020		2021		2020
Copper		78.7	%	82.2	%	81.1	%	81.4	%
Molybdenum		11.0	%	5.6	%	9.2	%	6.3	%
Silver		3.9	%	6.2	%	4.5	%	5.7	%
Zinc		3.7	%	2.9	%	2.7	%	3.1	%
Other by‑products		2.7	%	3.1	%	2.5	%	3.5	%
Total		100.0	%	100.0	%	100.0	%	100.0	%

The table below provides our copper sales by type of product for the three and nine months ended September 30, 2021 and 2020. The difference in value between products is the level of processing. At the market price, concentrates take a discount since they require smelting and refining processes, while refined and rod copper receive premiums due to their purity and presentation.


	Three Months Ended September 30,					Nine Months Ended September 30,
Copper Sales (million pounds)	2021	2020	Variance	% Change		2021	2020	Variance	% Change
Refined (including SX‑EW)	232.4	243.0	(10.6)	(4.4)	%	678.7	812.9	(134.2)	(16.5)	%
Rod	115.6	103.3	12.3	11.9	%	361.4	278.6	82.8	29.7	%
Concentrates and other	158.2	244.2	(86.0)	(35.2)	%	510.5	649.3	(138.8)	(21.4)	%
Total	506.2	590.5	(84.3)	(14.3)	%	1,550.6	1,740.8	(190.2)	(10.9)	%

The table below provides our copper sales volume by type of product as a percentage of our total copper sales volume for the three and nine months ended September 30, 2021 and 2020:


	Three months ended September 30,					Nine months ended September 30,
Copper Sales by product type		2021		2020		2021		2020
Refined (including SX‑EW)		45.9	%	41.2	%	43.8	%	46.7	%
Rod		22.8	%	17.5	%	23.3	%	16.0	%
Concentrates and other		31.3	%	41.3	%	32.9	%	37.3	%
Total		100.0	%	100.0	%	100.0	%	100.0	%

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OPERATING COSTS AND EXPENSES

The table below summarizes the production cost structure by major components as a percentage of total production cost:


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Power	16.6	%	16.9	%	17.5	%	16.8	%
Labor	14.1	%	13.8	%	12.6	%	13.8	%
Fuel	14.6	%	11.1	%	14.4	%	11.2	%
Maintenance	20.0	%	22.7	%	20.7	%	22.1	%
Operating material	17.4	%	17.6	%	17.1	%	17.6	%
Other	17.3	%	17.9	%	17.7	%	18.5	%
Total	100.0	%	100.0	%	100.0	%	100.0	%

Third quarter: Operating costs and expenses were $1,173.1 million in the third quarter of 2021 compared to $1,185.2 million in the same period of 2020. The decrease of $12.1 million was primarily due to:


Operating cost and expenses for the third quarter of 2020		$	1,185.2
Less:
•	Decrease in the volume and cost of metals purchased from third parties.		(82.5)
•	Decrease in selling, general and administrative expenses.		(2.1)
Plus:
•	Increase in other cost of sales (exclusive of depreciation, amortization and depletion), which was primarily attributable to an increase in fuel, power, labor and operating contractors costs; this was partially offset by foreign currency effects and an increase in capitalized leachable material.		61.1
•	Increase in depreciation, amortization and depletion expense.		7.4
•	Increase in exploration expense.		4.0
Operating cost and expenses for the third quarter of 2021		$	1,173.1

Nine months: Operating costs and expenses were $3,575.8 million in the first nine months of 2021 compared to $3,579.9 million in the same period of 2020. The decrease of $4.1 million was primarily due to:


Operating cost and expenses for the nine months of 2020		$	3,579.9
Less:
•	Decrease in the volume and cost of metals purchased from third parties.		(246.3)
•	Decrease in selling, general and administrative expenses.		(1.1)
Plus:
•	Increase in other cost of sales (exclusive of depreciation, amortization and depletion) mainly attributable to an increase in fuel, power, workers' participation and operating contractors costs; this was partially offset by an increase in capitalized leachable material, a decrease in inventory consumption and foreign currency effects.		221.8
•	Increase in depreciation, amortization and depletion expense.		16.6
•	Increase in exploration expense.		4.9
Operating cost and expenses for the nine months of 2021		$	3,575.8

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NON-OPERATING INCOME (EXPENSES)

Non-operating income (expense) represented a net expense of $89.3 million and $270.4 million in the three and nine months ended September 30, 2021 compared to a net expense of $100.4 million and $285.4 million in the three and nine months ended September 30, 2020, respectively.

Third quarter: The $11.1 million decrease in the expense level was principally due to:

●	$12.1 million decrease in miscellaneous expense, net, and a

●	$0.3 million increase in capitalized interest; which was partially offset by a

●	$1.3 million decrease in interest income.

Nine months: The $15.0 million decrease in the expense level was principally due to:

●	$14.6 million decrease in miscellaneous expense, net,

●	$6.6 million decrease in interest expense, which was primarily attributable to the debt repayment of $400 million in April 2020, and a

●	$3.5 million increase in capitalized interest; which was partially offset by a

●	$9.7 million decrease in interest income.

INCOME TAXES


	Nine Months Ended
	September 30,
	2021			2020
Provision for income taxes ($ in millions)	$	1,703.8		$	784.7
Effective income tax rate		40.0	%		44.4	%

SEGMENT RESULT ANALYSIS

We have three segments: the Peruvian operations, the Mexican open-pit operations and the Mexican underground mining operations.

The table below presents information regarding the volume of our copper sales by segment for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,					Nine Months Ended September 30,
Copper Sales (million pounds)	2021	2020	Variance	% Change		2021	2020	Variance	% Change
Peruvian operations	224.7	245.1	(20.4)	(8.3)	%	655.3	717.3	(62.0)	(8.6)	%
Mexican open‑pit	281.4	343.7	(62.3)	(18.1)	%	892.0	1,016.2	(124.2)	(12.2)	%
Mexican IMMSA unit	6.2	8.5	(2.3)	(27.1)	%	19.3	23.7	(4.4)	(18.6)	%
Other and intersegment elimination	(6.1)	(6.8)	0.7	(10.3)	%	(16.0)	(16.3)	0.3	(1.8)	%
Total copper sales	506.2	590.5	(84.3)	(14.3)	%	1,550.6	1,740.9	(190.3)	(10.9)	%

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The table below presents information regarding the volume of sales by segment of our significant by-products for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,					Nine Months Ended September 30,
By‑product Sales (million pounds, except silver—million ounces)	2021	2020	Variance	% Change		2021	2020	Variance	% Change
Peruvian operations:
Molybdenum contained in concentrate	9.0	8.2	0.8	9.8	%	23.8	23.2	0.6	2.6	%
Silver	1.4	1.6	(0.2)	(12.5)	%	3.9	4.4	(0.5)	(11.4)	%
Mexican open‑pit operations:
Molybdenum contained in concentrate	8.9	8.8	0.1	1.1	%	25.4	26.9	(1.5)	(5.6)	%
Silver	2.2	2.7	(0.5)	(18.5)	%	7.4	9.0	(1.6)	(17.8)	%
IMMSA unit
Zinc‑refined and in concentrate	69.4	55.5	13.9	25.0	%	155.8	171.4	(15.6)	(9.1)	%
Silver	1.5	1.8	(0.3)	(16.7)	%	4.8	5.7	(0.9)	(15.8)	%
Other and intersegment elimination
Silver	(0.7)	(0.7)	—	—	%	(1.8)	(2.1)	0.3	(14.3)	%
Total by‑product sales
Molybdenum contained in concentrate	17.9	17.0	0.9	5.3	%	49.2	50.1	(0.9)	(1.8)	%
Zinc‑refined and in concentrate	69.4	55.5	13.9	25.0	%	155.8	171.4	(15.6)	(9.1)	%
Silver	4.4	5.4	(1.0)	(18.5)	%	14.3	17.0	(2.7)	(15.9)	%

Peruvian Operations:


	Three Months Ended September 30,									Nine Months Ended September 30,
	2021		2020		Variance		% Change			2021		2020		Variance		% Change
Net sales	$	1,122.8	$	836.2	$	286.6		34.3	%	$	3,220.9	$	2,183.1	$	1,037.8		47.5	%
Operating costs and expenses		(501.0)		(491.5)		(9.5)		1.9	%		(1,488.4)		(1,481.5)		(6.9)		0.5	%
Operating income	$	621.8	$	344.7	$	277.1		80.4	%	$	1,732.5	$	701.6	$	1,030.9		146.9	%

Net sales in the third quarter of 2021 were $1,122.8 million compared to $836.2 million in the third quarter of 2020. The increase in net sales was mainly driven by higher copper (+43.6%) and molybdenum (+143.5%) prices and higher sales volume of molybdenum (+10.2%); this was partially offset by lower copper (-8.3%) and silver (-7.5%) sales volumes.

Operating costs and expenses in the third quarter of 2021 increased by $9.5 million to $501.0 million compared to $491.5 million in the same period of 2020. This was primarily due to:


Operating cost and expenses for the third quarter of 2020		$	491.5
Less:
•	Decrease in cost of metals purchased from third parties.		(67.7)
•	Decrease in depreciation, amortization and depletion expense.		(1.9)
•	Decrease in selling, general and administrative expenses.		(1.0)
Plus:
•	Increase in other cost of sales (exclusive of depreciation, amortization and depletion), which was mainly attributable to higher costs for fuel, labor and operating contractors, and to an increase in inventory consumption; this was partially offset by foreign currency effects due to the depreciation of the Peruvian sol.		79.3
•	Increase in exploration expenses.		0.8
Operating cost and expenses for the third quarter of 2021		$	501.0

Net sales in the first nine months of 2021 were $3,220.9 million compared to $2,183.1 million in the same period of 2020. The increase in net sales was mainly driven by higher copper (+57.4%), molybdenum (+71.4%) and silver

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(+33.4%) prices as well as higher sales volume of molybdenum (+2.2%); this was partially offset by lower copper (-8.7%) and silver (-9.8%) sales volumes.

Operating costs and expenses in the first nine months of 2021 increased by $6.9 million to $1,488.4 million compared to $1,481.5 million in the same period of 2020. This was primarily due to:


Operating cost and expenses for the nine months of 2020		$	1,481.5
Less:
•	Decrease in cost of metals purchased from third parties.		(98.9)
•	Decrease in depreciation, amortization and depletion expense.		(4.4)
Plus:
•	Increase in other cost of sales (exclusive of depreciation, amortization and depletion), which was mainly attributable to higher costs for fuel, workers' participation and operating contractors; this was partially offset by a decrease in the cost of leachable material and by foreign currency effects due to the depreciation of the Peruvian sol.		105.8
•	Increase in exploration expenses.		3.9
•	Increase in selling, general and administrative expenses.		0.5
Operating cost and expenses for the nine months of 2021		$	1,488.4

Mexican Open-pit Operations:


	Three Months Ended September 30,									Nine Months Ended September 30,
	2021		2020		Variance		% Change			2021		2020		Variance		% Change
Net sales	$	1,425.8	$	1,181.7	$	244.1		20.7	%	$	4,536.6	$	3,152.1	$	1,384.5		43.9	%
Operating costs and expenses		(549.2)		(601.5)		52.3		(8.7)	%		(1,782.1)		(1,815.3)		33.2		(1.8)	%
Operating income	$	876.6	$	580.2	$	296.4		51.1	%	$	2,754.5	$	1,336.8	$	1,417.7		106.1	%

Net sales in the third quarter of 2021 were $1,425.8 million, compared to $1,181.7 million in the same period of 2020. The increase of $244.1 million was principally due to higher copper (+43.6%) and molybdenum (+143.5%) prices, and higher sales volume of molybdenum (+1.5%). This effect was slightly offset by decreases in copper (-18.1%) and silver (-17.9%) sales volume, as well as lower silver prices (-1.3%).

Operating costs and expenses in the third quarter of 2021 decreased by $8.7 million to $549.2 million versus $601.5 million in the same 2020 period, primarily due to:


Operating cost and expenses for the third quarter of 2020		$	601.5
Less:
•	Decrease in cost of sales (exclusive of depreciation, amortization and depletion), which was mainly attributable to a decrease in inventory consumption and to an increase in capitalized leachable material; this was partially offset by increases in fuel and power costs.		(37.1)
•	Decrease in the cost of metals purchased from third parties.		(20.5)
•	Decrease in selling, general and administrative expenses.		(1.7)
Plus:
•	Increase in depreciation, amortization and depletion expense.		6.8
•	Increase in exploration expenses.		0.2
Operating cost and expenses for the third quarter of 2021		$	549.2

Net sales in the first nine months of 2021 were $4,536.6 million, compared to $3,152.1 million in the same period of 2020. The increase of $1,384.5 million was principally due to higher copper (+57.4%), molybdenum (+71.4%) and silver (+33.4%) prices. This effect was slightly offset by decreases in copper (-12.2%), silver (-16.6%) and molybdenum (-5.5%) sales volumes.

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Operating costs and expenses in the first nine months of 2021 decreased by $33.2 million to $1,782.1 million versus $1,815.3 million in the same 2020 period, primarily due to:


Operating cost and expenses for the nine months of 2020		$	1,815.3
Less:
•	Decrease in cost of metals purchased from third parties.		(146.6)
•	Decrease in selling, general and administrative expenses.		(5.3)
•	Decrease in exploration expenses.		(0.1)
Plus:
•	Increase in other cost of sales (exclusive of depreciation, amortization and depletion), which was mainly attributable to higher costs for fuel, power and operating contractors; this was partially offset by an increase in capitalized leachable material and by a decrease in inventory consumption.		105.8
•	Increase in depreciation, amortization and depletion expense.		13.0
Operating cost and expenses for the nine months of 2021		$	1,782.1

Mexican Underground Operations (IMMSA):


	Three Months Ended September 30,									Nine Months Ended September 30,
	2021		2020		Variance		% Change			2021		2020		Variance		% Change
Net sales	$	175.1	$	140.9	$	34.2		24.3	%	$	460.8	$	377.0	$	83.8		22.2	%
Operating costs and expenses		(153.1)		(106.1)		(47.0)		44.3	%		(379.8)		(330.4)		(49.4)		15.0	%
Operating income	$	22.0	$	34.8	$	(12.8)		(36.8)	%	$	81.0	$	46.6	$	34.4		73.8	%

Net sales in the third quarter of 2021 were $175.1 million, compared to $140.9 million in the same period of 2020. This increase of $34.2 million was primarily due to higher copper (+43.6%) and zinc (+28.3%) prices and to an increase in zinc (+25.1%) sales volume. This effect was partially offset by a decrease in copper (-27.7%) and silver (-18.2%) sales volumes and by a drop in silver (-1.3%) prices.

Operating costs and expenses in the third quarter of 2021 increased by $47.0 million and reached $153.1 million versus $106.1 million in the same period of 2020. This was primarily due to:


Operating cost and expenses for the third quarter of 2020		$	106.1
Plus:
•	Increase in other cost of sales (exclusive of depreciation, amortization and depletion), which was mainly due to an increase in inventory consumption and in the cost of power and of materials for repairs.		24.9
•	Increase in cost of metals purchased from third parties.		19.9
•	Increase in depreciation, amortization and depletion expense.		2.0
•	Increase in selling, general and administrative expenses.		0.3
Less:
•	Decrease in exploration expenses.		(0.1)
Operating cost and expenses for the third quarter of 2021		$	153.1

Net sales in the first nine months of 2021 were $460.8 million, compared to $377.0 million in the same period of 2020. This increase of $83.8 million was primarily due to higher zinc (+35.1%), copper (+57.4%) and silver (+33.4%) prices. This effect was partially offset by a decrease in zinc (-9.1%), copper (-18.4%) and silver (-16.3%) sales volumes.

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Operating costs and expenses in the first nine months of 2021 increased by $49.4 million and reached $379.8 million versus $330.4 million in the same period of 2020. This was primarily due to:


Operating cost and expenses for the nine months of 2020		$	330.4
Plus:
•	Increase in cost of metals purchased from third parties.		34.3
•	Increase in other cost of sales (exclusive of depreciation, amortization and depletion), which was mainly due to an increase in costs for power, labor and materials for repairs; this was partially offset by a decrease in inventory consumption.		9.4
•	Increase in depreciation, amortization and depletion expense.		7.8
•	Increase in selling, general and administrative expenses.		1.0
Less:
•	Decrease in exploration expenses.		(3.1)
Operating cost and expenses for the nine months of 2021		$	379.8

Intersegment Eliminations and Adjustments:

The net sales, operating costs and expenses and operating income discussed above will not be directly equal to amounts in our condensed consolidated statement of earnings because the adjustments of intersegment operating revenues and expenses must be taken into account. Please see Note 14 “Segment and Related Information” of the condensed consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow:

The following table shows the cash flow for the first nine months of 2021 and 2020 (in millions):


	2021		2020		Variance
Net cash provided by operating activities	$	3,064.7	$	1,688.0	$	1,376.7
Net cash used in investing activities	$	(912.1)	$	(297.6)	$	(614.5)
Net cash (used in) provided by financing activities	$	(1,705.1)	$	(1,175.1)	$	(530.0)

Net cash provided by operating activities:

The change in net cash from operating activities for the first nine months of 2021 and 2020 include (in millions):


	2021		2020		Variance		% Change
Net income	$	2,574.8	$	985.2	$	1,589.6		161.3	%
Depreciation, amortization and depletion		599.4		582.8		16.6		2.8	%
Benefit for deferred income taxes		(100.1)		(57.2)		(42.9)		75.0	%
Gain on foreign currency transaction effect		(50.0)		(24.8)		(25.2)		101.6	%
Other adjustments to net income		10.6		11.3		(0.7)		(6.2)	%
Operating assets and liabilities		30.0		190.7		(160.7)		(84.3)	%
Net cash provided by operating activities	$	3,064.7	$	1,688.0	$	1,376.7		81.6	%

Significant items added to (deducted from) net income to arrive at operating cash flow include depreciation, amortization and depletion, deferred tax amounts, foreign currency fluctuations and changes in operating assets and liabilities.

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Nine months ended September 30, 2021: Net income was $2,574.8 million, which represented approximately 84.0% of the net operating cash flow.

Changes in operating assets and liabilities increased cash flow by $30.0 million due to the following variances:

●	$(424.5) million increase in trade accounts receivable, which was mainly attributable to the increase in metal prices in 2021.

●	$(8.3) million net increase in inventory; this was primarily driven by a $29.2 million increase in the work in process inventory, which was in turn partially offset by a $21.4 million drop in the work in process inventory.

●	$409.5 million increase in accounts payable and accrued liabilities, which was mainly due to the increase in accrued income taxes and workers’ participation at our Mexican and Peruvian operations.

●	$53.3 million decrease in other operating assets and liabilities.

Nine months ended September 30, 2020: Net income was $985.2 million, approximately 58.4% of the net operating cash flow.

Changes in operating assets and liabilities increased cash flow by $190.7 million due to the following variances:

●	$(122.6) million increase in trade accounts receivable, which was mainly driven by an increase in copper prices during the third quarter of 2020.

●	$155.8 million of net decrease in inventory, which included $143.3 million of lower leaching inventory mainly at our Peruvian operations, as well as $29.6 million of lower finished goods inventory, principally at our Mexican operations.

●	$99.3 million increase in accounts payable and accrued liabilities, which primarily reflected growth in income taxes accruals and an increase in payables to related parties.

●	$58.2 million decrease in other operating assets and liabilities, which included principally $70.4 million of lower prepaid taxes.

Net cash used in investing activities:

Nine months ended September 30, 2021: Net cash used in investing activities included $695.5 million for capital investments. The capital investments included:

●	$457.9 million of investments at our Mexican operations:

●

$113.4 million for the Buenavista-Zinc project,

●

$58.2 million for the new tailing disposal deposit at the Buenavista mine,

●

$22.8 million for the Pilares project,

●

$15.9 million for land acquisitions for new projects,

●

$13.0 million for the expansion of the mine pit at Buenavista,

●

$66.2 million at our IMMSA unit,

●

$156.3 million for various replacement and maintenance expenditures, and

●

$12.1 million decrease in capital expenditures incurred but not yet paid.

●	$237.6 million of investments at our Peruvian operations:

●

$59.7 million for the Quebrada Honda dam expansion,

●

$18.4 million for the Toquepala concentrator expansion project,

●

$17.9 million for the relocation of facilities at Toquepala,

●

$8.2 million for projects at the Ilo facilities,

●

$126.2 million for various other replacement and maintenance expenditures, and

●

$7.2 million decrease in capital expenditures incurred but not yet paid.

Investment activities in the first nine months of 2021 include $216.0 million of net purchases of short-term investments, and $12.5 million for the second payment for the acquisition of the Michiquillay project.

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Nine months ended September 30, 2020: Net cash used in investing activities included $348.8 million for capital investments. The capital investments included:

●	$241.5 million of investments at our Mexican operations:

●

$142.5 million for various replacement and maintenance expenditures, mainly at our Buenavista and La Caridad mines.

●

$19.9 million for the Buenavista-Zinc project,

●

$12.2 million for the new tailing disposal deposit at the Buenavista mine,

●

$17.6 million for the Pilares project,

●

$9.5 million for the over elevation of tailings deposit N° 7 at the La Caridad Mine,

●

$57.8 million at our IMMSA unit, and

●

$(18.0) million increase in capital expenditures incurred but not yet paid.

●	$107.3 million of investments at our Peruvian operations:

●

$11.2 million for the Quebrada Honda dam expansion,

●

$12.1 million for the fresh water pipeline replacement at Suches,

●

$8.4 million for the building of the containment dike N°4 at Quebrada Santallana,

●

$6.6 million for the Toquepala concentrator expansion project,

●

$4.0 million for the pumping system neutralization plant at Toquepala,

●

$3.3 million for the new substation at Quebrada Honda, and

●

$61.7 million for various other replacement and maintenance expenditures.

The first nine months of 2020 investment activities include $50.0 million of net proceeds from short-term investments.

Net cash used in financing activities in the nine months ended September 30, 2021 was $1,705.1 million and included a dividend distribution of $1,700.8 million. Net cash used in financing activities in the nine months ended September 30, 2020 was $1,175.1 million, and included a dividend distribution of $773.1 million, as well as a debt repayment of $400 million.

Dividends:

On August 26, 2021, we paid a dividend of $0.90 per share for a total of $695.8 million. On October 21, 2021, our Board of Directors authorized a quarterly dividend of $1.00 per share, for an expected total of approximately $773.1 million, to be paid on November 23, 2021 to SCC shareholders of record at the close of business on November 10, 2021.

Capital Investment and Exploration Programs:

A discussion of our capital investment programs is an important part of understanding our liquidity and capital resources. We expect to meet the cash requirements for these capital investments from cash on hand, internally generated funds and from additional external financing if required. For information regarding our capital investment programs, please see the discussion under the caption “Capital Investment Programs” under this Item 2.

Contractual Obligations:

There have been no material changes in our contractual obligations in the third quarter of 2021. Please see item 7 in Part II of our 2020 annual report on Form 10-K.

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NON-GAAP INFORMATION RECONCILIATION

Operating cash cost: Following is a reconciliation of “Operating Cash Cost” (see page 43) to cost of sales (exclusive of depreciation, amortization and depletion) as reported in our consolidated statement of earnings, in millions of dollars and dollars per pound of copper in the table below:


	Three Months Ended				Three Months Ended				Nine Months Ended				Nine Months Ended
	September 30, 2021				September 30, 2020				September 30, 2021				September 30, 2020
			$ per				$ per				$ per				$ per
	$ millions		pound		$ millions		pound		$ millions		pound		$ millions		pound
Cost of sales (exclusive of depreciation, amortization and depletion)	$	927.5	$	1.77	$	948.9	$	1.80	$	2,856.8	$	1.85	$	2,881.3	$	1.82
Add:
Selling, general and administrative		31.3		0.06		33.4		0.06		92.9		0.06		94.0		0.06
Sales premiums, net of treatment and refining charges		(10.3)		(0.02)		10.3		0.02		(25.9)		(0.02)		19.8		0.01
Less:
Workers’ participation		(40.5)		(0.08)		(77.9)		(0.15)		(250.2)		(0.16)		(172.6)		(0.11)
Cost of metals purchased from third parties		(62.7)		(0.12)		(145.3)		(0.28)		(172.5)		(0.11)		(418.8)		(0.26)
Royalty charge and other, net		(5.9)		(0.01)		(45.7)		(0.08)		(65.8)		(0.04)		(98.8)		(0.06)
Inventory change		7.7		0.02		(9.9)		(0.01)		1.1		—		(170.8)		(0.11)
Operating Cash Cost before by‑product revenues	$	847.1	$	1.62	$	713.8	$	1.36	$	2,436.4	$	1.58	$	2,134.1	$	1.35
Add:
By‑product revenues(1)		(537.3)		(1.03)		(357.4)		(0.68)		(1,442.3)		(0.93)		(979.5)		(0.62)
Net revenue on sale of metal purchased from third parties		(6.1)		(0.01)		(16.9)		(0.03)		(15.9)		(0.01)		(56.4)		(0.04)
Add:
Total by‑product revenues		(543.4)		(1.04)		(374.3)		(0.71)		(1,458.2)		(0.94)		(1,035.9)		(0.66)
Operating Cash Cost net of by‑product revenues	$	303.7	$	0.58	$	339.5	$	0.65	$	978.2	$	0.64	$	1,098.2	$	0.69
Total pounds of copper produced (in millions)		522.5				526.4				1,541.0				1,586.0

(1)	By-product revenues included in our presentation of operating cash cost contain the following:


	Three Months Ended				Three Months Ended				Nine Months Ended				Nine Months Ended
		September 30, 2021				September 30, 2020				September 30, 2021				September 30, 2020
			$ per				$ per				$ per				$ per
	$ millions		pound		$ millions		pound		$ millions		pound		$ millions		pound
Molybdenum	$	(294.5)	$	(0.56)	$	(119.8)	$	(0.23)	$	(746.3)	$	(0.48)	$	(352.8)	$	(0.22)
Silver		(99.7)		(0.19)		(124.9)		(0.24)		(343.1)		(0.22)		(297.1)		(0.19)
Zinc		(71.1)		(0.14)		(52.8)		(0.10)		(149.6)		(0.10)		(142.9)		(0.09)
Sulfuric Acid		(46.8)		(0.09)		(30.5)		(0.06)		(117.0)		(0.08)		(101.7)		(0.06)
Gold and others		(25.2)		(0.05)		(29.4)		(0.05)		(86.3)		(0.05)		(85.0)		(0.06)
Total	$	(537.3)	$	(1.03)	$	(357.4)	$	(0.68)	$	(1,442.3)	$	(0.93)	$	(979.5)	$	(0.62)

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Item 3. Quantitative and Qualitative Disclosure about Market Risk

Commodity price risk:

For additional information on metal price sensitivity, refer to “Metal Prices” in Part I, Item 2 of this quarterly report on Form 10-Q for the period ended September 30, 2021.

Foreign currency exchange rate risk:

Our functional currency is the U.S. dollar. Portions of our operating costs are denominated in Peruvian soles and Mexican pesos. Since our revenues are primarily denominated in U.S. dollars, when inflation or deflation in our Mexican or Peruvian operations is not offset by a change in the exchange rate of the sol or the peso to the dollar, our financial position, results of operations and cash flows could be affected by local cost conversion when expressed in U.S. dollars. In addition, the dollar value of our net monetary assets denominated in soles or pesos can be affected by exchange rate variances of the sol or the peso, resulting in a re-measurement gain or loss in our financial statements. Recent inflation and exchange rate variances are provided in the table below for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Peru:
Peruvian inflation rate	2.4	%	0.5	%	4.6	%	1.4	%

Initial exchange rate	3.866		3.541		3.624		3.317
Closing exchange rate	4.136		3.599		4.136		3.599
Appreciation/(devaluation)	(7.0)	%	(1.6)	%	(14.1)	%	(8.5)	%

Mexico:
Mexican inflation rate	1.4	%	1.3	%	4.9	%	2.1	%

Initial exchange rate	19.803		22.972		19.949		18.845
Closing exchange rate	20.306		22.457		20.306		22.457
Appreciation/(devaluation)	(2.5)	%	2.2	%	(1.8)	%	(19.2)	%

Change in monetary position:

Assuming an exchange rate variance of 10% at September 30, 2021, we estimate our net monetary position in Peruvian sol and Mexican peso would increase (decrease) our net earnings as follows:


	Effect in net
	earnings
	($ in millions)
Appreciation of 10% in U.S. dollar vs. Peruvian sol	$	45.4
Devaluation of 10% in U.S. dollar vs. Peruvian sol	$	(55.5)
Appreciation of 10% in U.S. dollar vs. Mexican peso	$	9.7
Devaluation of 10% in U.S. dollar vs. Mexican peso	$	(11.8)

Open sales risk:

Our provisional copper and molybdenum sales contain an embedded derivative that is required to be separate from the host contract for accounting purposes. The host contract is the receivable from the sale of copper and molybdenum concentrates at prevailing market prices at the time of the sale. The embedded derivative, which does not qualify for hedge accounting, is marked to market through earnings each period prior to settlement. See Note 13 to our condensed consolidated financial statements for further information about these provisional sales.

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Short-term Investments:

For additional information on our trading securities and available-for-sale investments, refer to “Short-term Investments” in Part I, Item 1 of this quarterly report on Form 10-Q for the period ended September 30, 2021.

Derivative Instruments:

From time to time, we use derivative instruments to manage our cash flows exposure to changes in commodity prices. We do not enter into derivative contracts unless we anticipate that the possibility exists that future activity will expose our future cash flows to deterioration. Derivative contracts for commodities are entered into to manage the price risk associated with forecasted purchases of the commodities that we use in our manufacturing process.

Cash Flow Hedges of Natural Gas

Our objective in using natural gas derivatives is to protect the stability of natural gas costs and manage exposure to natural gas price increases. To protect natural gas costs from estimated price increases in the coming winter season, we acquired two derivative instruments that begin in November 2021 and end in March 2022.

Derivative instruments are as follows:


	Call		Financial Swap
Derivatives designated as hedging instruments under ASC 815	Option		Cash Settlement

Commodity contracts		Natural gas		Natural gas
Gas volume (MMBTUs)		5,285,000		5,285,000
Fixed price ($)		3.75		0.55
Total option premium (millions of $)		N/A		2.9
Estimated fair value of assets (liabilities) as of September 30, 2021 (millions of $)		12.1		(2.9)
Effect of derivative instruments on the consolidated Statement of Earnings (millions of $)		—		—
(Favorable) unfavorable effect in OCI - net of deferred income taxes (millions of $)		(8.4)		2.0

We assessed these derivative instruments as Cash Flow Hedges. As such, the effective portions of said hedges are initially reported in Other Comprehensive Income (OCI) and are reclassified as earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings. Any ineffective portions of these derivatives would be reported in earnings during the current period.

As of December 31, 2020, and September 30, 2020, we did not hold any derivative instruments.

Cautionary Statement:

Forward-looking statements in this report and in other Company statements include statements regarding expected commencement dates of mining or metal production operations, projected quantities of future metal production, anticipated production rates, operating efficiencies, costs and expenditures as well as projected demand or supply for the Company’s products. Actual results could differ materially depending upon factors including the risks and uncertainties relating to general U.S. and international economic and political conditions, the cyclical and volatile prices of copper, other commodities and supplies, including fuel and electricity, availability of materials, insurance coverage, equipment, required permits or approvals and financing, the occurrence of unusual weather or operating conditions, lower than expected ore grades, water and geological problems, the failure of equipment or processes to operate in accordance with specifications, failure to obtain financial assurance to meet closure and remediation obligations, labor relations, litigation and environmental risks as well as political and economic risk associated with foreign operations. Results of operations are directly affected by metal prices on commodity exchanges that can be volatile.

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Item 4. Controls and Procedures

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

As of September 30, 2021, the Company conducted an evaluation under the supervision and with the participation of the Company’s disclosure committee and the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness and the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective as of September 30, 2021, to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is:

Recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and

Accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that occurred during the three months ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Southern Copper Corporation:

Results of Review of Interim Financial Statements

We have reviewed the accompanying condensed consolidated balance sheet of Southern Copper Corporation and subsidiaries (the “Company”) as of September 30, 2021, the related condensed consolidated statements of earnings, comprehensive income and cash flows for the three-month and nine-month periods ended September 30, 2021, and 2020, and the related notes (collectively referred to as the “interim financial information”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2020, and the related consolidated statements of earnings, comprehensive income, and cash flows for the year then ended (not presented herein); and in our report dated February 25, 2021, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2020 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Emphasis of a Matter

We draw attention to Note 1 of the interim financial information, which describes the effects of the new outbreak of coronavirus disease ("COVID-19") as of September 30, 2021 and for the three-month and nine-month periods then ended.

Basis for Review Results

This interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the condensed consolidated interim financial statements taken as a whole. Accordingly, we do not express such an opinion.

Galaz, Yamazaki, Ruiz Urquiza, S.C.

Member of Deloitte Touche Tohmatsu Limited


/s/ Daniel Toledo Antonio
C.P.C. Daniel Toledo Antonio
Mexico City, Mexico
November 1, 2021

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings:

The information provided in Note 10 “Commitments and Contingencies” to the condensed consolidated financial statements contained in Part I of this Form 10-Q, is incorporated herein by reference.

Item 1A. Risk Factors:

The Company's operations and financial results are subject to various risks and uncertainties, including those described in “Risk Factors” included in Part I, Item 1A of our Annual report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 25, 2021. The following supplements and updates the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.

Potential delays in transportation of products to customers and possible shortages of critical parts, equipment, and other resources may adversely affect our results of operations.

Current challenges in the global shipping industry have led to congestion in ports, a shortage in containers, and a lack of space on ships. Because of this situation, the Company faces a risk of potential supply chain disruptions that may adversely affect our operations and development projects. To address this potential issue, we have increased our safety stock levels and adjusted our replacement algorithms. Additionally, our revenues and collections may also be adversely affected by transportation delays that could have a negative impact on our sales agreements. Although the recovery of the global economy is causing the aforementioned issues at ports and in the shipping industry, this situation is expected to be resolved gradually and to return to normal levels in the short term. However, if these issues continue for a longer period, our supply chain and our sales flow could be adversely impacted.

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds:

SCC share repurchase program:

In 2008, the Company’s BOD authorized a $500 million share repurchase program that has since been increased by the BOD and is currently authorized to $3 billion. Pursuant to this program, the Company has purchased 119.5 million shares of common stock at a cost of $2.9 billion. These shares are available for general corporate purposes. The Company may purchase additional shares of its common stock from time to time, based on market conditions and other factors. This repurchase program has no expiration date and may be modified or discontinued at any time.

The NYSE closing price of SCC common shares as of September 30, 2021 was $56.14 and the maximum number of shares that the Company could purchase at that price was 1.5 million. As a result of the repurchase of shares of SCC’s common stock, Grupo Mexico’s direct and indirect ownership was 88.9% as of September 30, 2021. There has not been any activity in the SCC share repurchase program since the third quarter of 2016.

Item 4. Mine Safety Disclosures:

Not applicable.

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Item 6. Exhibits


Exhibit No.		Description of Exhibit

3.1		(a) Amended and Restated Certificate of Incorporation, filed on October 11, 2005. (Filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the third quarter of 2005 and incorporated herein by reference). (b) Certificate of Amendment of Amended and Restated Certificate of Incorporation dated May 2, 2006. (Filed as Exhibit 3.1 to Registration Statement on Form S-4, File No. 333-135170) filed on June 20, 2006 and incorporated herein by reference). (c) Certificate of Amendment of Amended and Restated Certificate of Incorporation dated May 28, 2008. (Filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the second quarter of 2008 and incorporated herein by reference).

3.2		By-Laws, as last amended on July 23, 2020. (Filed as Exhibit 3.2 to the Company’s Form 8-K filed on July 28, 2020 and incorporated herein by reference).

4.1		(a) Indenture governing $600 million 7.500% Notes due 2035, by and among Southern Copper Corporation, the Bank of New York and The Bank of New York (Luxembourg) S.A. (Filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on August 1, 2005) and incorporated herein by reference). (b) Indenture governing $400 million 7.500% Notes due 2035, by and between Southern Copper Corporation, The Bank of New York, The Bank of New York (Luxembourg) S.A.(Filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on August 1, 2005 and incorporated herein by reference).

4.2		Form of 6.375% Note (included in Exhibit 4.1).

4.3		Form of New 7.500% Note (included in Exhibit 4.2(a)).

4.4		Form of New 7.500% Note (included in Exhibit 4.2(b)).

4.5		Indenture, dated as of April 16, 2010, between Southern Copper Corporation and Wells Fargo Bank, National Association, as trustee, pursuant to which $1.1 billion of 6.750% Notes due 2040 were issued (Filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on April 19, 2010 and incorporated herein by reference).


4.6		Second Supplemental Indenture, dated as of April 16, 2010, between Southern Copper Corporation and Wells Fargo Bank, National Association, as trustee, pursuant to which the 6.750% Notes due 2040 were issued. (Filed as an Exhibit to the Company’s Current Report on Form 8-K filed on April 19, 2010 and incorporated herein by reference).


4.7		Form of 6.750% Notes due 2040 (Filed as an Exhibit to the Company’s Current Report on Form 8-K filed on April 19, 2010 and incorporated herein by reference).

4.8		Third Supplemental Indenture dated as of November 8, 2012, between Southern Copper Corporation and Wells Fargo Bank, National Association, as trustee, pursuant to which the 3.500% Notes due 2022 were issued (Filed as an Exhibit to the Company’s Current Report on Form 8-K filed on November 9, 2012 and incorporated herein by reference).

4.9		Fourth Supplemental Indenture, dated as of November 8, 2012, between Southern Copper Corporation and Wells Fargo Bank, National Association, as trustee, pursuant to which the 5.250% Notes due 2042 were issued. (Filed as an Exhibit to the Company’s Current Report on Form 8-K filed on November 9, 2012 and incorporated herein by reference).

4.10		Form of 3.500% Notes due 2022. (Filed as an Exhibit to the Company’s Current Report on Form 8-K filed on November 9, 2012 and incorporated herein by reference).

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Exhibit No.		Description of Exhibit
4.11		Form of 5.250% Notes due 2042. (Filed as an Exhibit to the Company’s Current Report on Form 8-K filed on November 9, 2012 and incorporated herein by reference).

4.12		Fifth Supplemental Indenture dated as of April 23, 2015, between Southern Copper Corporation and Wells Fargo Bank, National Association, as trustee, pursuant to which the 3.875% Notes due 2025 were issued. (Filed as an Exhibit to the Company’s Current Report on Form 8-K filed on April 24, 2015 and incorporated herein by reference).

4.13		Sixth Supplemental Indenture, dated as of April 23, 2015, between Southern Copper Corporation and Wells Fargo Bank, National Association, as trustee, pursuant to which the 5.875% Notes due 2045 were issued. (Filed as an Exhibit to the Company’s Current Report on Form 8-K filed on April 24, 2015 and incorporated herein by reference).

4.14		Form of 3.875% Notes due 2025. (Filed as Exhibit A to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on April 24, 2015 and incorporated herein by reference).

4.15		Form of 5.875% Notes due 2045. (Filed as Exhibit A to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on April 24, 2015 and incorporated herein by reference).

10.1		Directors’ Stock Award Plan of the Company, as amended through January 28, 2023. (Filed as an exhibit to the Company’s 2018 Proxy Statement and incorporated herein by reference). The plan expired by its terms on January 30, 2017. A 5-year extension of the plan was approved by the Company’s stockholders at the 2018 Annual Meeting of Stockholders.

10.2		Agreement and Plan of Merger, dated as of October 21, 2004, by and among Southern Copper Corporation, SCC Merger Sub, Inc., Americas Sales Company, Inc., Americas Mining Corporation and Minera Mexico S.A. de C.V. (Filed as an Exhibit to Current Report on Form 8-K filed on October 22, 2004 and incorporated herein by reference).

10.3		Tax Agreement entered into by the Company and Americas Mining Corporation, effective as of February 20, 2017. (Filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the first quarter of 2017 and incorporated herein by reference).

14.0		Code of Business Conduct and Ethics adopted by the Board of Directors on May 8, 2003 and amended on April 23, 2015. (Filed as Exhibit 14 to the Company’s Current Report on Form 8-K filed April 29, 2015 and incorporated herein by reference).

15.0		Consent of Registered Public Accounting Firm (Galaz, Yamazaki, Ruiz Urquiza, S.C. - Member of Deloitte Touche Tohmatsu, Limited) (filed herewith).

31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.1		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C., Section 1350. This document is being furnished in accordance with SEC Release No. 33-8238.

32.2		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C., Section 1350. This document is being furnished in accordance with SEC Release No. 33-8238.

101.INS		XBRL Instance Document (submitted electronically with this report). The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		XBRL Taxonomy Extension Schema Document (submitted electronically with this report).

101.CAL		XBRL Taxonomy Calculation Linkbase Document (submitted electronically with this report).

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document (submitted electronically with this report).

101.LAB		XBRL Taxonomy Label Linkbase Document (submitted electronically with this report).

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Exhibit No.		Description of Exhibit
101.PRE		XBRL Taxonomy Presentation Linkbase Document (submitted electronically with this report).

104		The cover page from our Quarterly Report on Form 10-Q for the period ended September 30, 2021, filed with the Securities and Exchange Commission on November 1, 2021, is formatted in Inline Extensible Business Reporting Language (“iXBRL”).

Attached as Exhibit 101 to this report are the following documents formatted in Inline XBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Statement of Earnings for the three and nine months ended September 30, 2021 and 2020; (ii) the Condensed Consolidated Statement of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020; (iii) the Condensed Consolidated Balance Sheet at September 30, 2021 and December 31, 2020; (iv) the Condensed Consolidated Statement of Cash Flows for the three and nine months ended September 30, 2021 and 2020; and (v) the Notes to Condensed Consolidated Financial Statements tagged in detail. Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

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PART II — OTHER INFORMATION

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	SOUTHERN COPPER CORPORATION
	(Registrant)


	/s/ Oscar Gonzalez Rocha
	Oscar Gonzalez Rocha
	President and Chief Executive Officer

November 1, 2021


	/s/ Raul Jacob
	Raul Jacob
	Vice President, Finance, Treasurer and Chief Financial Officer

November 1, 2021

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Southern Copper (SCCO) 10-Q2021 Q3 Quarterly report

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