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0 Southern Copper Corporation May, 2016

Southern Copper Corporation May, 2016...Cash Flow Statement: Capital Expenditures $1,530 $1,150 $1,193 $1,578 Free Cash Flow 1 (270)(174) (405) (318) Dividends paid to common shareholders

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Page 1: Southern Copper Corporation May, 2016...Cash Flow Statement: Capital Expenditures $1,530 $1,150 $1,193 $1,578 Free Cash Flow 1 (270)(174) (405) (318) Dividends paid to common shareholders

0

Southern Copper CorporationMay, 2016

Page 2: Southern Copper Corporation May, 2016...Cash Flow Statement: Capital Expenditures $1,530 $1,150 $1,193 $1,578 Free Cash Flow 1 (270)(174) (405) (318) Dividends paid to common shareholders

1

I. Introduction

Page 3: Southern Copper Corporation May, 2016...Cash Flow Statement: Capital Expenditures $1,530 $1,150 $1,193 $1,578 Free Cash Flow 1 (270)(174) (405) (318) Dividends paid to common shareholders

2

Management Presenter

Presenters Title

Raul Jacob Vice President, Finance & CFO

Executive Vice PresidentDaniel Muñiz

Page 4: Southern Copper Corporation May, 2016...Cash Flow Statement: Capital Expenditures $1,530 $1,150 $1,193 $1,578 Free Cash Flow 1 (270)(174) (405) (318) Dividends paid to common shareholders

3

This presentation contains certain statements that are neither reported financial results nor other

historical information. These estimates are forward-looking statements within the meaning of the

safe-harbor provisions of the Mexican securities laws. These forward-looking estimates are

subject to risk and uncertainties that could cause actual results to differ materially from the

expressed in the forward-looking statements. Many of these risks and uncertainties relate to

factors that are beyond Grupo Mexico’s ability to control or estimate precisely, such as future

market conditions, commodity prices, the behavior of other market participants and the actions of

governmental regulators. Readers are cautioned not to place undue reliance on these forward-

looking statements, which speak only as of the date of this presentation. Grupo Mexico does not

undertake any obligation to publicly release any revision to these forward-looking estimates to

reflect events or circumstances after the date of this presentation.

Safe Harbor Statement

Page 5: Southern Copper Corporation May, 2016...Cash Flow Statement: Capital Expenditures $1,530 $1,150 $1,193 $1,578 Free Cash Flow 1 (270)(174) (405) (318) Dividends paid to common shareholders

4

Corporate Structure

100.0% (*)

99.29 % 99.96 %

11.2% (*)

Public Float

SCC Peru Branch Minera Mexico

(*) As of March 31, 2016

AMERICASMINING

CORPORATION

88.8% (*)

Page 6: Southern Copper Corporation May, 2016...Cash Flow Statement: Capital Expenditures $1,530 $1,150 $1,193 $1,578 Free Cash Flow 1 (270)(174) (405) (318) Dividends paid to common shareholders

Transport11%

Electrical Network

23%

Construction31%

Industrial Machinery

10%

Consumer Products

25%

LME Copper Cash Price vs. Inventories Copper Consumption by End-use

Solid Fundamentals Copper Consumption by Region

Wood Mackenzie 2015

Copper – The Best Fundamental Story in Commodities

5

► Copper has the best fundamentals in the basic materials space:

― 2016 demand driven by US and EU markets.

― China: Expect 3% demand growth due to housing market recovery (tier 1 and 2 cities) and good state electrical infrastructure demand.

― Additional production expected for 2016-2017, will be offset by 845K production cuts, ore grade decay and scrap scarcity.

― No greenfield projects approvals at current prices.

― Market copper prices below estimated incentive price of $3.00 - $3.50 for greenfield production.

Wood Mackenzie Dec. 2015

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

3-Ja

n-12

16-A

pr-1

2

26-J

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2

6-N

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18-F

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12-S

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24-D

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8-A

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4

21-J

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4

30-O

ct-1

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12-F

eb-1

5

27-M

ay-1

5

7-S

ep-1

5

17-D

ec-1

5

31-M

ar-1

6

LME COMEX shanghai LME Cash

Page 7: Southern Copper Corporation May, 2016...Cash Flow Statement: Capital Expenditures $1,530 $1,150 $1,193 $1,578 Free Cash Flow 1 (270)(174) (405) (318) Dividends paid to common shareholders

6

Southern Copper Strengths

►Highest copper reserves of the industry

►Excellent organic growth projects

►Low cost, fully integrated operations

►Experienced management team

►Strong financial performance / investment grade since 2005

►Outstanding dividend history

►Good long-term copper & molybdenum fundamentals

Page 8: Southern Copper Corporation May, 2016...Cash Flow Statement: Capital Expenditures $1,530 $1,150 $1,193 $1,578 Free Cash Flow 1 (270)(174) (405) (318) Dividends paid to common shareholders

7

II. Overview of Operations

Page 9: Southern Copper Corporation May, 2016...Cash Flow Statement: Capital Expenditures $1,530 $1,150 $1,193 $1,578 Free Cash Flow 1 (270)(174) (405) (318) Dividends paid to common shareholders

8

Peru

Ilo

Mexico

Copper open pit mines

Underground mines

Smelters and Refineries

Key

Company Overview

Copper Reserves 1: 70.1 mmt

1Q 2016 Cash Cost $ 0.98/lb.

2016 Estimates (@ $2.25 x Lb of Cu):

Copper Production: 910 kt

Sales: $ 5.4 B

EBITDA: $ 2.3 B

41% of Sales

#1 copper company by reserves 2

#5 copper producer 3

#10 copper smelter 3

#8 refinery 3

Source: Company FilingsNotes: 1 Copper contained in reserves based on US$2.90 per pound of copper as of December 31, 20142 Based on available companies reports3 Wood Mackenzie Limited 2014

Santa Barbara

Charcas

Taxco

San Luis Potosi

Santa Eulalia

San Martin

Cuajone

La Caridad

Buenavista

ToquepalaTia Maria

Projects

El Arco

El Pilar

Page 10: Southern Copper Corporation May, 2016...Cash Flow Statement: Capital Expenditures $1,530 $1,150 $1,193 $1,578 Free Cash Flow 1 (270)(174) (405) (318) Dividends paid to common shareholders

94

59

34 34

2521 21 18

0

20

40

60

80

100

SCC2015

SCC afterexpansion

AngloAmerican

Codelco Freeport BHPBilliton

Rio Tinto Xstrata

9

Copper Reserves as Reported SCC Highlights

►#1 mine life among copper producers

►#5 world’s largest producer of mined copper

►Highly diversified geographical presence

►Four large-scale open-pit mines

►Two world class copper greenfield projects (El Arco / Tia Maria) and several other opportunities

Mine Life

World’s Largest Copper Reserves

70.1

56.7

36.633.7 31.8

27.020.7

13.0 10.7

0

10

20

30

40

50

60

70

80

SC

C

Cod

elco

Free

port

BHP

Billi

ton

Angl

oA

mer

ican

Gle

ncor

eXs

trata

Rio

Tin

to

Ant

ofag

asta

VALE

Cop

per R

eser

ves

(Mt)

Source 10K Annual Rep. 10K 20F Annual Rep. Reserve Rep. Annual Rep. 20F 20F

Period Dec.31, 2015 Dec.31, 2014 Dec.31, 2014 Jun. 30, 2015 Dec.31, 2014 Dec. 31, 2014 Dec. 31, 2014 Dec. 31, 2014 Dec. 31, 2014

Cu Price $2.90 N/A $2.00 3.35 N/A N/A N/A $3.10 $3.35

Page 11: Southern Copper Corporation May, 2016...Cash Flow Statement: Capital Expenditures $1,530 $1,150 $1,193 $1,578 Free Cash Flow 1 (270)(174) (405) (318) Dividends paid to common shareholders

Geographic Footprint & Product Diversification

1Q16 Revenue by Product 1Q16 Revenue by Market

10

Copper80%

Silver5%

Molybdenum4%

Zinc4%

Acid2%

Other5% Mexico 27%

Europe 18%

United States20%

Asia 23%

Brasil 4%

Chile 2%

Peru 6%

Page 12: Southern Copper Corporation May, 2016...Cash Flow Statement: Capital Expenditures $1,530 $1,150 $1,193 $1,578 Free Cash Flow 1 (270)(174) (405) (318) Dividends paid to common shareholders

1.921.89

1.66

1.41

1.20

1.70

2.20

2013 2014 2015 1Q16

(US$

/lb)

Operating Materials

21%

Fuel13%

Power19%

Labor13%

Maintenance17%

Other17%

11

Low Cost Operations

Cash Cost per Pound of Copper Produced Net of By-Products

Cost Structure (1)Operating Cash Cost per Pound of Copper Produced

Low Cost Drivers

Fully integrated low cost operations

World class assets

Significant SX-EW production

Strong by-product credits

Management focus on cost efficiency

(1) LTM

1.00 1.05

1.12

0.98

0.8

1.0

1.2

2013 2014 2015 1Q16

(US$

/lb)

Page 13: Southern Copper Corporation May, 2016...Cash Flow Statement: Capital Expenditures $1,530 $1,150 $1,193 $1,578 Free Cash Flow 1 (270)(174) (405) (318) Dividends paid to common shareholders

2015 Copper Production Cash Cost by Company

12Source: Wood Mackenzie Copper Mine Cost Model, WMQ42015

Page 14: Southern Copper Corporation May, 2016...Cash Flow Statement: Capital Expenditures $1,530 $1,150 $1,193 $1,578 Free Cash Flow 1 (270)(174) (405) (318) Dividends paid to common shareholders

13

III. Financial Overview

Page 15: Southern Copper Corporation May, 2016...Cash Flow Statement: Capital Expenditures $1,530 $1,150 $1,193 $1,578 Free Cash Flow 1 (270)(174) (405) (318) Dividends paid to common shareholders

14

SCC Financial Summary

(US$ MM) 2014 2015 LTM 2016E

Copper Price (LME) US$ per pound 3.11 2.50 2.37 2.25Income Statement:Net Revenues $5,788 $5,046 $5,016 $5,439EBITDA 2,728 1,945 1,870 2,255EBITDA Margin 47% 38% 37% 41%Net Income 1,333 736 639 808Dividends paid per share 0.46 0.34 0.27 0.08Balance Sheet Statement:Cash, Equivalents & Short Term Investments $703 $878 $659 $561Total Assets 11,394 12,593 12,808 14,080Total Debt 4,181 5,952 5,952 5,978Total Liabilities 5,557 7,294 7,400 7,513Total Shareholders' Equity 5,804 5,263 5,371 6,535Cash Flow Statement:Capital Expenditures $1,530 $1,150 $1,193 $1,578Free Cash Flow 1 (174) (270) (405) (318) Dividends paid to common shareholders 381 271 214 62

Total Debt / EBITDA 1.5x 3.1x 3.2x 2.7x

1 Free Cash Flow defined as net cash from operating activities less capital expenditures.

Page 16: Southern Copper Corporation May, 2016...Cash Flow Statement: Capital Expenditures $1,530 $1,150 $1,193 $1,578 Free Cash Flow 1 (270)(174) (405) (318) Dividends paid to common shareholders

Top Tier Margins and Conservative Leverage for Increased Financial Flexibility

2016E Total Debt / EBITDA (x)2016E EBITDA Margin (%)

15Source: Bloomberg Consensus

Amortization Schedule

Source: Company Reports and Bloomberg Consensus

Solid Financial Performance

21%

27%

30%

31%

33%

36%

41%

AngloAmerican

First Quantum

Freeport

Rio Tinto

Antofagasta

BHP

SCC

6.1

4.6

4.1

2.8

2.7

2.4

2.1

First Quantum

AngloAmerican

Freeport

BHP

SCC

Rio Tinto

Antofagasta

$1,500

$1,200

$1,100

$1,000

$51

$500

$300

$400

2045

2042

2040

2035

2028

2025

2022

2020

Page 17: Southern Copper Corporation May, 2016...Cash Flow Statement: Capital Expenditures $1,530 $1,150 $1,193 $1,578 Free Cash Flow 1 (270)(174) (405) (318) Dividends paid to common shareholders

1,150

1,578 1,685

1,239

678

400

-

400

800

1,200

1,600

2,000

2015 2016 2017 2018 2019 202016

Source: SCC

Toquepala Concentrator Expansion1Q18 - $1.2B - 100K Tons Cu , 3.1K

Tons Mo

2013-15 2016-19Buenavista Molybdenum Plant 3Q13 -$38M - 2K Tons Mo

Buenavista:- Concentrator Plant 1Q16 - $1.4B -

188K Tons Cu, 2.6K Tons Mo- Mine equipment $505M

Los Chancas. - $1.2B - 100K Tons Cu, 7.5K Tons Mo

Los Chalchihuites - $140M26K Tons Cu

Buenavista Zinc Conc. - $332M 16K Tons Cu - 55K Tons Zn

Investment Program to SignificantlyIncrease Production

Board approved Other projects

Buenavista SX/EW III 4Q14 - $525M 120K Tons Cu

Cuajone: Variable Cut-off Grade + HPGR 2H13 - $158M - 22K Tons Cu, 0.7K Tons Mo

2015-2020 Capex Program Overview (MM) 2015-2020 Copper Production Forecast (‘000 MT Cu)

Tia Maria SX/EW 4Q19 – $1.4B - 120K Tons Cu

El Arco Conc & SX/EW - $2.6B 190K Tons Cu, 105K Oz Au

Empalme Cu Smelter - $812M 350K Tons Cu Cont.Copper Refinery - $318M 350K Tons Cu Cont.Zinc Refinery - $600M – 120K Tons Zn

Cuajone Concentrator Expansion - $500M – 50K Tons Cu, 0.7 Tons Mo

Ilo Smelter & Refinery Expansion

El Pilar 1Q18 - $310M - 20K Tons Cu ,

MEXICO PERU

743

910 944

1,058 1,039

1,155

0

200

400

600

800

1,000

1,200

2015 2016 2017 2018 2019 2020

Page 18: Southern Copper Corporation May, 2016...Cash Flow Statement: Capital Expenditures $1,530 $1,150 $1,193 $1,578 Free Cash Flow 1 (270)(174) (405) (318) Dividends paid to common shareholders

Initial Capex % of Total Incremental Production Capital IntensityType (US$MM) Capex Av. Cu Eq. (kt/a) (US$/tpa Av. Cu Eq.)

Brownfield ProjectsCuajone variable cut-off grade + HPGR Expansion (X) 158.0 2.5% 22.0 7,182 Toquepala concentrator expansion Expansion (N) 1,253.2 19.9% 100.0 12,532 Buenavista SXEW III Expansion (N) 1,363.5 21.6% 120.0 11,363 Buenavista concentrator expansion Expansion (N) 1,785.4 28.3% 188.0 9,497 Pilares Extension 189.5 3.0% 40.0 4,738 Total / Weighted Average Intensity 4,749.6 75.3% 470.0 10,105 Greenfield ProjectsTia Maria SXEW Project Probable 1,379.2 21.9% 120.0 11,493 Angangueo Possible 174.7 2.8% 10.4 16,798 Total / Weighted Average Intensity 1,553.9 24.7% 130.4 11,916

Key Differentiators to Achieve Lower Capital Intensity

• Use of less capital intensive and environmentally friendly SX/EWtechnology for 45% of production growth

• Significant economies of scale in infrastructure for 77% of production increase coming from brownfield expansions

• Reduced mining preparation cost due to low pre stripping for Tia Maria and Buenavista projects

• Experienced project development team focused on capital efficiency

Source: Wood Mackenzie (Global Copper Mine Supply Summary, May 2014), SCCO filings and presentations

Project Capital Intensity at SCCO Projects

Industry-Wide Capital Intensity Comparison vs. SCCO Projects 2011-2015 Capex Evolution

US$MMWeighted Avg. Project Capital Intensity of Existing ProjectsUS$ 000 per tonne of Cu Equivalent Annual Incremental Production

4.9

9.9 11.7

16.5

10.1

17.7

21.6

11.9

0

5

10

15

20

25

Restarts Extensions ofExisting Mine

Life

Expansionsto Existing

Mine/Plant (X)

ExpansionsNew Process

Plant (N)

SCCOBrownfield

Probable Possible SCCOGreenfield

Brownfield - Industry Greenfield - Industry

SCCO Project Pipeline

17

Best-in-class Mining Projects Reaching Completion Providing Competitive Cash Costs and Increased Production Levels

613

1,052

1,703 1,535

1,150

-

400

800

1,200

1,600

2,000

2011 2012 2013 2014 2015

Page 19: Southern Copper Corporation May, 2016...Cash Flow Statement: Capital Expenditures $1,530 $1,150 $1,193 $1,578 Free Cash Flow 1 (270)(174) (405) (318) Dividends paid to common shareholders

$2,865

$3,910 $3,773

$2,945 $2,728

$1,945$2,255

56.0% 57.0% 57.0% 49.0% 47.0% 38.0% 41.0%

2010 2011 2012 2013 2014 2015 2016E

SCC is the Premier Copper Play• World class assets in investment grade countries

• #1 in reserves of any company with various exploration prospects

- Increasing copper production

• Capacity to deliver projects through flexible capital structure and significant cash generation capability. Investments focused on cost competitiveness

• Fully integrated low cost operations

• Outstanding dividend history

• Experienced management with proven track record

18

(in US$ millions)

SCC EBITDA and % Margin

SCC’s Major Strengths

$3.42 $3.32 $3.11 $2.50Cu price $4.00 $3.61 $2.25