Table of Contents

​

​

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

​

FORM 10-K

​

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

​

For the fiscal year ended: December 31, 2021

​

OR

​

☐  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)

​

​

​

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

​

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

​

Securities registered pursuant to Section 12(g) of the Act: None

​

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ⌧ No ◻

​

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ◻ No ⌧

​

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.

​

​

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ⌧ No ◻

​

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

​

At March 4, 2022, there were of record 773,086,869 shares of common stock, par value $0.01 per share, outstanding.

​

The aggregate market value of the shares of common stock (based upon the closing price at June 30, 2021 as reported on the New York Stock Exchange-Composite Transactions) of Southern Copper Corporation held by non-affiliates was approximately $5,519.0 million.

​

PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED BY REFERENCE:

​

​

​

​

​

Table of Contents

Southern Copper Corporation (“SCC”)

INDEX TO FORM 10-K

​

​

​

2

Table of Contents

PART I

​

ITEM 1. BUSINESS

​

THE COMPANY

​

We believe Southern Copper Corporation (“SCC”, “Southern Copper” or the “Company”) is one of the largest integrated copper producers in the world. Our major production includes copper, molybdenum, zinc and silver. All of our mining, smelting and refining facilities are located in Peru and Mexico and we conduct exploration activities in those countries and in Argentina, Chile and Ecuador. See Item 2 “Properties—Review of Operations” for maps of our principal mines, smelting facilities and refineries. The considerable scale of our operations makes us one of the largest mining companies in Peru and Mexico. We believe we have the largest copper reserves in the world. We were incorporated in Delaware in 1952 and have conducted copper mining operations since 1960. Since 1996, our common stock has been listed on both the New York and Lima Stock Exchanges.

​

Our Peruvian copper operations involve mining, milling and flotation of copper ore to produce copper concentrates and molybdenum concentrates; the smelting of copper concentrates to produce blister and anode copper; and the refining of anode copper to produce copper cathodes. As part of this production process, we also produce significant amounts of molybdenum concentrate and sulfuric acid. Our precious metals plant at the Ilo refinery produces refined silver, gold, and other materials. Additionally, we produce refined copper using solvent extraction/electrowinning technology (“SX-EW”). We operate the Toquepala and Cuajone open-pit mines high in the Andes Mountains, approximately 860 kilometers southeast of the city of Lima, Peru. We also operate a smelter and refinery west of the Toquepala and Cuajone mines in the coastal city of Ilo, Peru.

​

Our Mexican operations are conducted through our subsidiary, Minera Mexico, S.A. de C.V. (“Minera Mexico”), which we acquired in 2005. Minera Mexico engages primarily in the mining and processing of copper, molybdenum, zinc, silver, gold and lead. Minera Mexico operates through subsidiaries that are grouped into three separate units. Mexicana de Cobre, S.A. de C.V. (together with its subsidiaries, the “La Caridad” unit) operates La Caridad, an open-pit copper mine, a copper ore concentrator, a SX-EW plant, a smelter, refinery and a rod plant. The La Caridad refinery has a precious metals plant that produces refined silver, gold and other materials. Operadora de Minas e Instalaciones Mineras, S.A de C.V. (the “Buenavista unit”) operates Buenavista, an open-pit copper mine, which is located on the site of one of the world’s largest copper ore deposits, two copper concentrators and two operating SX-EW plants. Industrial Minera Mexico, S.A. de C.V. (together with its subsidiaries, the “IMMSA unit”) operates five underground mines that produce zinc, lead, copper, silver and gold, and a zinc refinery.

​

We utilize modern, state of the art mining and processing methods, including global positioning systems and computerized mining processes. Our operations have a high level of vertical integration, which allows us to use our facilities, employees and equipment to manage the entire production process, including ore mining and production of refined copper rod and other products, and to execute most associated transport and logistics functions.

​

The sales prices for our products are largely determined by market forces beyond our control. Our management, therefore, focuses on cost control and production enhancement to remain profitable. We endeavor to achieve these goals through capital spending programs, exploration efforts and cost reduction programs. Our focus is on remaining profitable during periods of low copper prices and maximizing results in periods of high copper prices. For additional information on the sale prices of the metals we produce, please see “Metal Prices” in this Item 1.

​

Currency Information:

​

Unless stated otherwise, all our financial information is presented in U.S. dollars and any reference herein to “U.S. dollars,” “dollars,” or “$” are to U.S. dollars; references to “sol,” “soles” or “S/”, signify Peruvian soles; and references to “peso,” “pesos,” or “Ps.,” represent Mexican pesos.

​

3

Table of Contents

Unit Information:

​

Unless otherwise noted, all tonnages are in metric tonnes. To convert to short tons, multiply by 1.102. All ounces are troy ounces. All distances are in kilometers. To convert to miles, multiply by 0.621. To convert hectares to acres, multiply by 2.47.

​

ORGANIZATIONAL STRUCTURE

​

The following chart describes our organizational structure, starting with our controlling stockholders, as of December 31, 2021. For clarity purposes, the chart identifies only our main subsidiaries and eliminates intermediate holding companies.

​

​

We are a majority-owned, indirect subsidiary of Grupo Mexico S.A.B. de C.V. (“Grupo Mexico”). As of December 31, 2021, Grupo Mexico, through its wholly-owned subsidiary Americas Mining Corporation (“AMC”), owned 88.9% of our capital stock. Grupo Mexico’s principal business is to act as a holding company for the shares of other corporations engaged in the mining, processing, purchase and sale of minerals and other products and in the provision of railway and other related services.

​

We conduct our operations in Peru through a registered branch (the “SPCC Peru Branch”, “Branch” or “Peruvian Branch”). The SPCC Peru Branch comprises virtually all of our assets and liabilities associated with our copper operations in Peru. The SPCC Peru Branch does not constitute a corporation that is separate from SCC, and, as such, the obligations of the SPCC Peru Branch are direct obligations of SCC and vice-versa. The SPCC Peru Branch is, however, registered as a branch of a foreign company pursuant to Peruvian law and through this entity, we hold assets, incur liabilities and conduct operations in Peru. Although the SPCC Peru Branch has no capital or liability that is separate from that held or applicable to SCC, the SPCC Peru Branch is deemed to have equity capital for purposes of determining the economic interests of holders of our investment shares (See Note 14 “Stockholders´ Equity” of the consolidated financial statements).

​

In April 2005, we acquired Minera Mexico, from Americas Mining Corporation (“AMC”), a subsidiary of Grupo Mexico, our controlling stockholder. Minera Mexico is a holding company and all of its operations are conducted through subsidiaries that are grouped into three units: (i) the La Caridad unit (ii) the Buenavista unit and (iii) the IMMSA unit. We own 99.96% of Minera Mexico.

4

Table of Contents

In 2008, our 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, through December 31, 2021 we have purchased 119.5 million shares of our common stock at a cost of $2.9 billion. These shares are available for general corporate purposes. We may purchase additional shares 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.

​

REPUBLIC OF PERU AND MEXICO

​

Our revenues are derived primarily from our operations in Peru and Mexico. Risks related to our operations in both countries include those associated with economic and political conditions, the effects of currency fluctuations and inflation, the effects of government regulations and the geographic concentration of our operations.

​

​

OUR BUSINESS

​

COPPER BUSINESS

​

Copper is an important component in the world’s infrastructure chain. It is the third most widely used metal, after iron and aluminum. Copper has unique chemical and physical properties, including high ductility; malleability; thermal and electrical conductivity; and resistance to corrosion, and as such, is considered a prime material for use in electrical and electronic products, including components for power transmission and generation, which accounts for about three quarters of copper global use, and for telecommunications, building construction, transportation and industrial machinery. Copper is also an important metal in non-electrical applications such as plumbing and roofing and, when alloyed with zinc to form brass, is used in many industrial and consumer applications.

​

Copper is an internationally traded commodity whose prices are mainly determined by the major metal exchanges, the Commodities Exchange, or “COMEX,” in New York and the London Metal Exchange or “LME,” in London. Copper is usually found in nature in association with sulfur. Pure copper metal is generally produced in a multi-stage process, beginning with the mining and concentrating of low-grade ores containing copper sulfide minerals, and followed by smelting and electrolytic refining to produce a pure copper cathode. An increasingly larger share of copper is being produced from acid leaching of oxidized ores. Copper is one of the oldest metals known to man and has contributed significantly to the development of civilization.

​

BUSINESS REPORTING SEGMENTS:

​

Our management divides Southern Copper into three reportable segments and manages each as a separate segment.

​

The three segments identified are groups of individual mines, each of which constitutes an operating segment with similar economic characteristics, product types, processes and support facilities, regulatory environments, employee bargaining contracts and 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.

​

Inter-segment sales are based on arm’s length prices at the time of sale. These may not be reflective of actual prices realized by the Company due to various factors, including additional processing, timing of sales to outside customers and transportation cost. Information regarding the Company’s sales is included in the segment data. The segments identified by the Company are:

​

​

5

Table of Contents

​

​

Financial information is periodically prepared for each of the three segments and the results are reported to the Chief Operating Decision Maker (“CODM”) on a segment basis. The CODM 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.

​

Segment information is included in Item 2 “Properties.” More information on business segment and segment financial information is included in Note 19 “Segment and Related Information” of the consolidated financial statements.

​

CAPITAL INVESTMENT PROGRAM AND EXPLORATION ACTIVITIES

​

For a description of our capital investment program, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Investment Program” and for our exploration activities, see Item 2 “Properties—Explorations Activities.”

​

PRINCIPAL PRODUCTS AND MARKETS

​

Copper is primarily used in the building and construction industries; in the power generation and transmission industry; and in the electrical and electronic products; and, to a lesser extent, in industrial machinery and equipment; consumer products; and in the automotive and transportation industries. Molybdenum is used to toughen alloy steels and soften tungsten alloy and is also used in fertilizers, dyes, enamels and reagents. Silver is used for electrical and electronic products and, to a lesser extent, in brazing alloys and solder, jewelry, coinage, photographic, silverware and catalysts. Zinc is primarily used as a coating on iron and steel to protect against corrosion; it is also used to make die cast parts to manufacture batteries and to form sheets for architectural purposes.

​

Our marketing strategy and annual sales planning emphasize developing and maintaining long-term customer relationships. As such, acquiring annual or other long-term contracts for the sale of our products is a high priority. Generally, 80% to 90% of our metal production is sold under annual or longer-term contracts. Sales prices are determined based on the prevailing commodity prices for the quotation period according to the terms of the contract.

​

We focus on end-user customers as opposed to selling on the spot market or to trading companies. In addition, we devote significant marketing efforts to diversifying our sales both by region and customer base. We also strive to provide superior customer service, including timely deliveries of our products. Our ability to consistently fulfill customer demand is underpinned by our substantial production capacity.

​

For additional information on sales please see “Revenue recognition” in Note 2 “Summary of Significant Accounting Policies” and Note 19 “Segment and Related Information” of the consolidated financial statements.

​

METALS PRICES

​

Prices for our products are principally a function of supply and demand and, with the exception of molybdenum, are established on COMEX and LME. Prices for our molybdenum products are established by reference to the publication Platt’s Metals Week. Our contract prices also reflect any negotiated premiums and the costs of freight and other factors. From time to time, we have entered into hedging transactions to provide partial protection against future decreases in the market price of metals and we may do so under certain market conditions. For a further discussion of our products market prices, please see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Metal Prices.”

6

Table of Contents

​

The table below shows the high, low and average COMEX and LME per pound copper prices during the last 10 years:

​

​

The per pound COMEX copper price during the last 5 and 10 year periods averaged $3.10 and $3.03, respectively. The per pound LME copper price during the last 5 and 10 year periods averaged $3.10 and $3.02, respectively.

The table below shows the high, low and average prices per pound with the exception of silver, which is priced per ounce. The market prices for our three principal by-products over the last 10 years are as follows:

​

​

The per ounce COMEX silver price during the last 5 and 10 year periods averaged $18.93 and $20.15, respectively. The per pound Platt’s Metals Week Dealer Oxide molybdenum price during the last 5 and 10 year periods averaged $11.07 and $10.25, respectively. The per pound LME zinc price during the last 5 and 10 year periods averaged $1.24 and $1.07, respectively.

​

7

Table of Contents

COMPETITIVE CONDITIONS

​

Competition in the copper market is based primarily on price and service basis, with price being the most important factor when supplies of copper are ample. Our products compete with other materials, including aluminum and plastics. For additional information, see Item 1A “Risk Factors—The copper mining industry is highly competitive.”

​

HUMAN CAPITAL RESOURCES

​

As of December 31, 2021, we had 14,700 employees, approximately 75% of whom are covered by a Collective Labor Agreement and are represented by nine different labor unions. We believe that the labor environment in our operations in Mexico and Peru is favorable, which has allowed us to increase productivity as we advance the goals of our capital expansion program. In addition, around 14,000 people were working as contractors in support of our operations. In accordance with our Community Development commitment, more than 55% of our workforce is hired locally.

​

Talent Development, Training and Retention

​

As a large integrated copper producer, we have a wide range of employees, including management professionals, technicians, engineers, and production employees. We believe in our people, and we provide a wide variety of opportunities for professional growth for all employees in Peru and Mexico. In 2021 we had a training investment of over $1.7 million, which resulted in more than 274,000 training hours, focused on safety and health, technical training, soft skills development, and compliance training. We also seek to enhance institutional knowledge through on-the-job training experiences, and designed more than 400 Individual Development Plans, as part of our succession planning.

​

All of our employees receive initial training and opportunities for continuous development throughout their careers, which we believe favors talent retention. More than 65% of the positions are covered by internal employees and our retention rate is around 92%. Voluntary turnover indicators in all of the countries in which we operate remain at single digits year-over-year. We believe this suggests our employees have a strong desire to continue working with us.

​

Company Culture

​

We believe in a shared mission, vision, values and improving our employer brand for existing and future employees. The Company seeks to create value for its employees to help ensure that their working experience is optimal. Various efforts are made on this front, including promoting a safe and collaborative work environment and culture and ensuring employees continue to be engaged with the Company’s values and principles.

​

In terms of corporate culture, the Company is committed to the continuous growth and development of its employees and surrounding communities. Through values such as creativity, honesty, equality and respect, we ensure that our employees are aligned with the same principles and work ethics, which in turn results in a standardized culture across the Company. The Company also seeks to promote goal-oriented principles to obtain results that positively affect our main stakeholders and communities and which focus on innovation, human growth and wellbeing, environmental care, and forward thinking.

Compensation and Benefits

​

We also focus on attracting and retaining employees by providing compensation and benefit packages that are competitive within the applicable market, considering the location of the position, responsibilities and compensation requirements in the countries where we operate. Our compensation practices consider many factors, including individual performance and responsibilities; years of service; elements of compensation mandated by Peruvian and Mexican law; future challenges and objectives; contributions to the future success of our Company; the employee’s total compensation and our financial performance. We may also look at the compensation levels of comparable companies.

​

Health and Safety

​

During 2021, we intensified our COVID-19 related communication to the entire organization, with a view to strengthening the application of the health safety protocols in all of the Company’s operations and offices, which include:

8

Table of Contents

​

Our focus on health and safety includes prevention and wellness programs, through the Medical and HR departments, such as clinical attention and periodical revisions, wellness training and a wellness platform for our employees.

​

We are committed to having our operations audited and certified under the ISO 45001 standards, which we expect to be completed in 2022. Health and safety programs include annual training, compliance with the regulators at each site, risk management and Behavior Based Safety programs that extend our safety culture to contractors.  

​

Talent Attraction and Recruiting

​

We deploy several talent attraction programs, which entail leveraging organizational relations; establishing links with national and regional institutions of higher learning in the countries where we operate; and participating in job fairs. We also have a job opportunities section in our webpage and use several local and international job boards to publish openings.

​

We offer professional internship programs to attract students before they graduate from universities or centers for vocational training. Additionally, we believe that we are a first-choice employer in the countries where we operate. This reflects our efforts to strengthen relationships with our stakeholders, including employees, and engage in community development. We have transparent selection processes and are committed to upholding principles for human rights and diversity, inclusion and non-discrimination.

​

Employee Engagement

​

Additionally, we conduct a biannual Employee Opinion Survey to measure employees’ perceptions of the Company and take actions intended to increase employee engagement, develop a positive organizational environment, and strengthen our culture. We measure the employee engagement level with 18 sub-factors, grouped into two major sets of factors: loyalty and satisfaction. The first factor represents the degree to which an individual identifies with the organization and its business goals, and the second reflects the individual’s degree of satisfaction with his/her working conditions and draws a line between satisfaction levels and performance at work.

​

The average of these factors indicates the level of engagement on a scale of 1 to 5 (a Likert scale). In 2017, we had an engagement rating of 3.71 and in 2019, our rating was at 3.77. In 2021 the rating increased to 4.09. We believe this positive trend suggests a continuous improvement on the engagement level of our people.

​

For this year’s survey, we added and measured the COVID-19 factor to better understand the opinion of our people about the actions taken by SCC in favor of our employees’ health and prevention, and we obtained a very high rating for this particular factor. The survey also included new sociodemographic elements, in order to consider the opinions of our diverse groups within our Company and respond with our “ECO Action Plan” for the next two years.

​

All employees, both unionized and non-unionized, are invited to participate in all of our human talent initiatives. This reflects our belief that it is in the Company’s best interest to listen to all of our people and create open communications channels.

9

Table of Contents

76% of our employees participated during 2021, which is an increase of 6% compared to 2019. This number exceeds that registered by other companies that apply similar surveys.

​

We have adopted a corporate social responsibility policy that is designed to integrate the Company´s operations with local communities in areas influenced by our operations. This policy focuses on creating permanent and positive relationships to generate optimal social conditions and promote sustainable development in the area. We continue to make significant expenditures for community programs.  For additional information on our community programs, refer to Corporate Social Responsibility under Note 13 “Commitments and contingencies” to the consolidated financial statements.

​

DIVERSITY, EQUITY AND INCLUSION (DEI)

​

Our vision on DEI is to ensure that our people always feel included, welcomed and valued for their personal and professional contributions. This vision is based on our core values of respect, honesty and responsibility.

​

Consistent with our Code of Conduct and Human Rights Policy, our goal is to (i) build an organizational culture of total quality and well-being with focus on diversity, inclusion and non-discrimination, (ii) increase sensitivity, knowledge and skills in our leaders and employees in order to integrate diverse and inclusive teams and promote a culture of respect, and (iii) extend this culture to the communities in which we operate.

​

Based on the results of a DEI survey in Mexico and Peru, we aligned our diversity and inclusion Strategic Plan with six strategic initiatives to create Key Performance Indicators and increase participation of women by 2% in the organization, reinforce our human resources policies for inclusion, consolidate the executive level commitment and implement continuous training and communication campaigns at all levels in the organization.

​

During 2021, we issued and distributed our DEI Corporate Policy and trained 3,280 leaders end employees on DEI fundamental principles through the Training Capsule “Let´s talk about Diversity, Inclusion and Non-Discrimination.” We are committed to inclusion and to honor our diversity. We increased our female workforce from 854 to over 940, which represents an increase of 10%. Additionally, 30% of our female workforce hold a STEM position (Science, Technology, Engineering, Mathematics).

​

We now have a better understanding of our diversity distribution, which we believe allows us to direct special efforts for each group, such as parents with children under 12.

​

CODE OF ETHICS

​

We yearly certify our employees in our Code of Ethics. Every employee, starting with new hires, commit and sign agreement with our main document and guidance tool for our conduct in terms of our legal, professional and ethical obligations, both in our business dealings and our interpersonal relationships.

​

Peru

​

73% of the Company’s 4,675 Peruvian employees were unionized as of December 31, 2021. Currently, there are six separate unions, none of which represents the majority of workers, as defined by current Peruvian labor legislation.

​

During 2021, the Company decided to hold talks with the six unions to sign collective agreements prior to their effective dates. As a result, between June and December 2021, the Company signed collective agreements with the six unions with durations between three to six years. All of them granted annual salary increases of 5%. Additionally, each agreement granted, among other things, a signing bonus of between S/ 45,000 (approximately $ 11,256) and S/ 90,000 (approximately $ 22,511), depending on the duration of the agreement. A long-term agreement bonus of S/ 10,000 (approximately $ 2,501) was granted to the union that signed a six-year extension of the collective bargaining agreement. All these concepts have been recorded as labor expense.

​

As of December 31, 2021, the Company has no pending negotiations with Peruvian unions.

10

Table of Contents

Employees of the Toquepala and Cuajone units reside in townsites, where we have built 3,700 houses and apartments. We also have 90 houses in Ilo for staff personnel. Housing, together with maintenance and utility services, is provided at minimal cost to most of our employees. Our townsite and housing complexes include schools, medical facilities, churches, social clubs and recreational facilities. We also provide shopping, banking and other services at the townsites.

​

Mexico

​

73% of our 9,677 Mexican employees were unionized as of December 31, 2021 and are represented by four separate unions. Under Mexican law, the terms of employment for unionized workers are set forth in collective bargaining agreements. Mexican companies negotiate the salary provisions of collective bargaining agreements with the labor unions on an annual basis and negotiate other benefits every two years. We conduct negotiations separately at each mining complex and each processing plant.

​

Our Taxco mine in Mexico has been on strike since July 2007. For a discussion of labor matters, refer to the information contained under the caption “Labor matters” in Note 13 “Commitments and Contingencies” of the consolidated financial statements.

​

Employees of La Caridad and Buenavista units reside in townsites at Nacozari and Cananea, where we have built approximately 1,800 houses and apartments. Most of the employees of the IMMSA unit reside on the grounds of the mining or processing complexes where they work. We have built 356 houses and apartments on these sites. Housing, together with maintenance and utility services, is provided at minimal cost to most of our employees. Our townsites and housing complexes include educational and medical facilities, churches, social clubs, shopping centers, banking and other services. Through 2007, the Buenavista unit provided health care services to employees and retired unionized employees and their families through its own on-site hospital. In 2010, the Company signed an agreement with the Secretary of Health of the State of Sonora to provide these services to its retired workers and their families. The new workers of Buenavista receive health services through the Mexican Institute of Social Security as is the case for all Mexican workers.

FUEL, ELECTRICITY AND WATER SUPPLIES

​

The principal raw materials used in our operations are fuel, gas, electricity and water. We use natural gas to power boilers as well as generators and for metallurgical processes at our Mexican operations and utilize diesel fuel to power mining equipment. We believe that sufficient sources of fuel, electricity and water are readily available. Fluctuations may occur in the prices of these raw materials that are beyond our control; as such, we focus our efforts on reducing costs through cost and energy-saving measures.

​

Energy generates the main cost in mining, so concern for its conservation and efficient usage is critical. We have energy management committees at most of our mines, which meet periodically to discuss consumption and to develop measures directed at saving energy. Also, alternative sources are being analyzed at the corporate level, including both traditional and renewable energy sources. This approach has helped us to develop a culture of energy conservation directed at ensuring the sustainability of our operations.

​

Peru:

​

Fuel: In Peru, we obtain fuel primarily from Valero Peru, a local subsidiary of Valero Energy Corporation, a U.S. producer of fuel and power. The Company believes that adequate supplies of fuel are available for its operations in Peru.

​

Electricity: In June 2014, we entered into a power purchase agreement for 120 megawatt (“MW”) with the state company Electroperu S.A., which began supplying energy to our Peruvian operations for a twenty-year period that started on April 17, 2017. In July 2014, we entered into a power purchase agreement for 120MW with a private power generator Kallpa Generacion S.A. (“Kallpa”), which began supplying energy to our Peruvian operations for a ten-year period that started on April 17, 2017. In May 2016, we signed an additional power purchase agreement for a maximum of 80MW with Kallpa, under which Kallpa will supply energy to the operations related to the Toquepala expansion and to other minor projects for a period starting on May 1, 2017 and ending after ten years of commercial operations at the Toquepala Expansion or until April 30, 2029; whichever occurs first.

11

Table of Contents

We feel confident that additional power can be obtained from the Peruvian national grid, should the need arise.

​

Additionally, we have nine megawatts of power generation capacity from two small hydro-generating installations at Cuajone. Power is distributed over a 224-kilometer closed loop transmission circuit, which is connected to the Peruvian network.

​

Water: We have water rights or licenses for up to 1,950 liters per second from well fields at the Huaitire, Vizcachas and Titijones aquifers and surface water rights from Lake Suches and two small water sources, Quebrada Honda and Quebrada Tacalaya. We believe these water sources are sufficient to supply the needs of our operating units at Toquepala and Cuajone, including the Toquepala expansion. In Ilo, we have two desalination plants that produce water for industrial use and domestic consumption that we believe will produce sufficient water for both current and projected needs.

​

Mexico:

​

Fuel: In Mexico, since 2018, we have purchased fuel from Petroleos Mexicanos (“PEMEX”), the state producer, and from private suppliers.

​

The La Caridad unit imports natural gas from the United States through its pipeline (between Douglas, Arizona and Nacozari, Sonora). This allows us to import natural gas at market prices and thereby reduce operating costs. Several contracts with PEMEX and the United States provide us with the option of using a monthly or daily fixed prices for our natural gas purchases.

​

Natural gas is used for metallurgical processes and to power furnaces, converters, casting wheels, boilers and electric generators. Diesel oil is a backup method for all these uses. We use diesel oil to power mining equipment at our operations.

​

Electricity: Electricity is used as the main energy source at our mining complexes. We purchase most of our electricity from Mexico Generadora de Energia S. de R. L. (“MGE”), a subsidiary of Grupo Mexico which has two power plants designed to supply power to La Caridad and Buenavista units. MGE supplies 2.0% of its power output to third party energy users. These plants are natural gas-fired combined cycle power generating units, with a net total capacity of 516.2 megawatts. In 2012, we entered into a power supply agreement with MGE that will last until 2032. The first plant was completed in 2013 and the second in 2014. The first plant began to supply power to the Company in December 2013, and the second plant in June 2015.

​

We also purchase electricity from the Comision Federal de Electricidad (the Federal Electricity Commission or the “CFE”), the state’s electrical power producer. In addition, we recover some energy from waste heat boilers at the La Caridad smelter. Accordingly, a significant portion of our operating costs in Mexico is dependent upon the pricing policies of CFE and PEMEX, which are affected by political and regulatory environments, international market prices for crude oil and natural gas; and conditions in the refinery markets.

​

Some IMMSA mining operations also purchase electricity from Eolica el Retiro, S.A.P.I de C.V. (“Eolica”), a windfarm energy producer that is an indirect subsidiary of Grupo Mexico. In August 2013, IMMSA and other of the Company’s mining operations entered into a purchase agreement and in late 2014 started to purchase electricity from Eolica. Due to the nature of the production process there is not a fixed power capacity contracted. Currently, Eolica el Retiro is supplying approximately 61.0% of its power output to IMMSA and Mexcobre.

​

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 July 2022.

​

Water: In Mexico, water is deemed public property and industries that are not connected to a public service water supply must obtain a water concession from Comision Nacional del Agua (the National Water Commission or the In 2020 and 2021, no legal, environmental, labor or tax regulations came into effect that required the Company to incur material costs of compliance, had material adverse effects on the Company’s operations, or affected normal execution of the Company’s projects.

12

Table of Contents

“CNA”). Water usage fees are established in the Ley Federal de Derechos (the Federal Rights Law), which distinguishes several availability zones with different fees per unit of volume according to each zone, with the exception of Mexicana de Cobre. All of our operations have one or several water concessions and pump out the required water from wells. Mexicana de Cobre pumps water from the La Angostura dam, which is close to the mine and plants. At our Buenavista facility, we maintain our own wells and pay the CNA for water usage. Water conservation committees have been established at each plant to conserve and recycle water. Water usage fees are updated on a yearly basis and have been on the rise in recent years.

​

LEGAL AND REGULATORY MATTERS

​

Additionally, we believe that all our facilities in Peru and Mexico are in material compliance with applicable environmental, mining and other applicable laws and regulations.

​

For a discussion of environmental and labor matters, reference is made to the information contained in Note 13 “Commitments and Contingencies” of the consolidated financial statements. For more information on tax matters, refer to Note 7 “Income taxes” of the consolidated financial statements.

​

MINING RIGHTS AND CONCESSIONS

​

Peru:

​

We have 171,743 hectares in concessions from the Peruvian government for our exploration, exploitation, extraction and production operations, at various sites, as follows:

​

We believe that our Peruvian concessions are in full force and effect under applicable Peruvian laws and as such, comply with all material terms and requirements applicable to said concessions. The concessions have indefinite terms, subject to our payment of concession fees of up to $3.00 per hectare annually for the mining concessions and a fee based on nominal capacity for the processing concessions. Fees paid during 2021, 2020 and 2019, were approximately $2.3 million, $1.4 million and $1.8 million, respectively. We have two types of mining concessions in Peru: metallic and non-metallic concessions.

​

In 2011, the Peruvian Congress approved an amendment to the mining royalty charge. The new mining royalty charge is based on operating income margins with graduated rates ranging from 1% to 12% of operating profits; the minimum royalty charge is equivalent to 1% of net sales. If the operating income margin is 10% or less, the royalty charge is 1% and for each 5% increment in the operating income margin, the royalty charge rate increases by 0.75%, up to a maximum of 12%. In 2021, 2020 and 2019, we made provisions of $140.8 million, $60.6 million and $42.3 million, respectively.

​

At the same time the Peruvian Congress amended the mining royalty charge, it enacted a new tax for the mining industry. This tax is also based on operating income and its rates range from 2% to 8.4%. For additional information see Note 7 “Income Taxes” to the consolidated financial statements.

​

13

Table of Contents

Mexico:

​

In Mexico we have 493,533 hectares in concessions from the Mexican government for our exploration and exploitation activities as outlined on the table below: