NOTE 17-SEGMENT AND RELATED INFORMATION:

Company management views Southern Copper as having three 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 three reportable segments identified are groups of mines, each of which constitute an operating segment, with similar economic characteristics, type 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 type of customers for their products and services and each group incurs expenses independently, including commercial transactions between groups.

Intersegment 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. Added to the segment data is information regarding the Company’s sales. The segments identified by the Company are:

Peruvian operations, which include the Toquepala and Cuajone mine complexes and the smelting and refining plants, including a precious metals plant, industrial railroad and port facilities that service both mines. The Peruvian operations produce copper, with production of by-products of molybdenum, silver and other material.

Mexican open-pit operations, which include La Caridad and Buenavista mine complexes and the smelting and refining plants, including a precious metals plant and a copper rod plant and support facilities that service both mines. The Mexican open-pit operations produce copper, with production of by-products of molybdenum, silver and other material.

Mexican underground mining operations, which include five underground mines that produce zinc, copper, silver and gold, a coal mine which produces coal and coke, and a zinc refinery. This group is identified as the IMMSA unit.

The Peruvian operations include two open-pit copper mines whose mineral output is transported by rail to Ilo, Peru where it is processed at the Company’s Ilo smelter and refinery, without distinguishing between the products of the two mines. The resulting product, anodes and refined copper, are then shipped to customers throughout the world. These shipments are recorded as revenue of the Company’s Peruvian mines.

The Mexican open-pit segment includes two copper mines whose mineral output is processed in the same smelter and refinery without distinguishing between the products of the two mines. The resultant product, anodes and refined copper, are then shipped to customers throughout the world. These shipments are recorded as revenues of the Company’s Mexican open-pit mines.

The Company has determined that it is necessary to classify the Peruvian open-pit operations as a separate operating segment from the Mexican open-pit operations due to the very distinct regulatory and political environments in which they operate. The Company’s senior management must consider the operations in each country separately when analyzing results of the Company and making key decisions. The open-pit mines in Peru must comply with stricter environmental rules and must continually deal with a political climate that has a very distinct vision of the mining industry as compared to Mexico. In addition, the collective bargaining agreement contracts are negotiated differently in each of the countries. These key differences result in the Company taking varying decisions with regards to open-pit operations in the two countries.

The IMMSA segment includes five mines whose minerals are processed in the same refinery. This segment also includes an underground coal mine. Sales of product from this segment are recorded as revenues of the Company’s IMMSA unit. While the Mexican underground mines are subject to a very similar regulatory environment of the Mexican open-pit mines, the nature of the products and processes of two Mexican operations vary distinctly. These differences cause the Company’s senior management to take a very different approach when analyzing results and making decisions regarding the two Mexican operations.

Financial information is regularly prepared for each of the three segments and the results of the Company’s operations are regularly reported to senior management on the segment basis. Senior management of the Company focus 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 Company’s segments is as follows:


	Year Ended December 31, 2018
	(in millions)
			Mexican				Corporate, other
	Mexican		IMMSA		Peruvian		and
	Open-pit		Unit		Operations		eliminations		Consolidated
Net sales outside of segments	$	4,075.9	$	448.6	$	2,572.2	$	—	$	7,096.7
Intersegment sales		—		79.3		—		(79.3)		—
Cost of sales (exclusive of depreciation, amortization and depletion)		1,611.0		377.2		1,509.4		(88.6)		3,409.0
Selling, general and administrative		55.3		8.5		36.7		2.1		102.6
Depreciation, amortization and depletion		360.4		47.6		237.4		28.9		674.3
Exploration		2.0		5.3		18.5		3.8		29.6
Operating income	$	2,047.2	$	89.3	$	770.2	$	(25.5)		2,881.2
Less:
Interest, net										(261.1)
Other income (expense)										(30.7)
Income taxes										(1,053.5)
Equity earnings of affiliate										12.3
Non-controlling interest										(5.2)
Net income attributable to SCC									$	1,543.0
Capital investment	$	266.8	$	60.0	$	774.0	$	20.6	$	1,121.4
Property and mine development, net	$	4,783.8	$	448.3	$	3,797.2	$	374.5	$	9,403.8
Total assets	$	8,165.2	$	930.2	$	4,813.1	$	576.3	$	14,484.8


	Year Ended December 31, 2017
	(in millions)
			Mexican				Corporate, other
	Mexican		IMMSA		Peruvian		and
	Open-pit		Unit		Operations		eliminations		Consolidated
Net sales outside of segments	$	3,972.7	$	437.7	$	2,244.1	$	—	$	6,654.5
Intersegment sales		—		71.0		—		(71.0)		—
Cost of sales (exclusive of depreciation, amortization and depletion)		1,594.3		365.3		1,362.8		(69.6)		3,252.8
Selling, general and administrative		47.9		7.9		36.2		1.1		93.1
Depreciation, amortization and depletion		401.0		56.2		203.6		10.3		671.1
Exploration		2.7		5.5		14.4		6.2		28.8
Environmental remediation		(10.2)		—		—		—		(10.2)
Operating income	$	1,937.0	$	73.8	$	627.1	$	(19.0)		2,618.9
Less:
Interest, net										(300.5)
Other income (expense)										(15.7)
Income taxes										(1,593.4)
Equity earnings of affiliate										23.1
Non-controlling interest										(3.9)
Net income attributable to SCC									$	728.5
Capital investment	$	297.6	$	36.5	$	685.4	$	4.0	$	1,023.5
Property and mine development, net	$	5,004.5	$	366.9	$	3,389.8	$	338.4	$	9,099.6
Total assets	$	8,323.1	$	889.1	$	4,314.5	$	253.4	$	13,780.1


	Year Ended December 31, 2016
	(in millions)
			Mexican				Corporate, other
	Mexican		IMMSA		Peruvian		and
	Open-pit		Unit		Operations		eliminations		Consolidated
Net sales outside of segments	$	3,234.3	$	351.1	$	1,794.4	$	—	$	5,379.8
Intersegment sales		—		72.0		—		(72.0)		—
Cost of sales (exclusive of depreciation, amortization and depletion)		1,523.2		304.1		1,280.2		(73.4)		3,034.1
Selling, general and administrative		47.1		7.4		37.5		2.3		94.3
Depreciation, amortization and depletion		364.7		49.8		217.1		15.5		647.1
Exploration		5.2		5.0		13.0		16.9		40.1
Operating income	$	1,294.1	$	56.8	$	246.6	$	(33.3)		1,564.2
Less:
Interest, net										(283.6)
Other income (expense)										(24.6)
Income taxes										(501.1)
Equity earnings of affiliate										23.9
Non-controlling interest										(2.3)
Net income attributable to SCC									$	776.5
Capital investment	$	537.0	$	35.8	$	541.0	$	4.7	$	1,118.5
Property and mine development, net	$	5,136.8	$	448.7	$	2,949.3	$	231.7	$	8,766.5
Total assets	$	8,174.4	$	825.0	$	4,225.3	$	9.6	$	13,234.3

The following table presents information regarding the opening and closing balances of receivables by reporting segment of the Company for the three years ended December 31, 2018 (in millions):


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

As of December 31, 2018:
Trade receivables	$	505.9	$	50.5	$	266.0	$	—	$	822.4
Related parties		81.6		—		—		19.9		101.5

As of December 31, 2017:
Trade receivables	$	556.2	$	79.7	$	254.7	$	—	$	890.6
Related parties		18.0		—		—		8.1		26.1

As of December 31, 2016:
Trade receivables	$	365.2	$	47.1	$	179.6	$	—	$	591.9
Related parties		12.9		—		—		10.5		23.4

SALES VALUE PER SEGMENT:

The following table presents information regarding the sales value by reporting segment of the Company’s significant products for the three years ended December 31, 2018 (in millions):


	Year Ended December 31, 2018
			Mexican
	Mexican		IMMSA		Peruvian		Corporate, Other &		Total
(in millions)	Open-pit		Unit		Operations		Eliminations		Consolidated
Copper	$	3,459.1	$	45.6	$	2,251.2	$	(48.1)	$	5,707.8
Molybdenum		342.5		—		167.4		—		509.9
Silver		175.3		83.5		69.5		(28.1)		300.2
Zinc		—		328.7		—		(0.1)		328.6
Other		99.0		70.1		84.1		(3.0)		250.2
Total	$	4,075.9	$	527.9	$	2,572.2	$	(79.3)	$	7,096.7


	Year Ended December 31, 2017
			Mexican
	Mexican		IMMSA		Peruvian		Corporate, Other &		Total
(in millions)	Open-pit		Unit		Operations		Eliminations		Consolidated
Copper	$	3,480.2	$	37.2	$	1,996.4	$	(37.3)	$	5,476.5
Molybdenum		224.0		—		129.4		—		353.4
Silver		170.7		71.9		70.6		(26.9)		286.3
Zinc		—		327.2		—		(0.6)		326.6
Other		97.8		73.2		47.7		(7.0)		211.7
Total	$	3,972.7	$	509.5	$	2,244.1	$	(71.8)	$	6,654.5


	Year Ended December 31, 2016
			Mexican
	Mexican		IMMSA		Peruvian		Corporate, Other &		Total
(in millions)	Open-pit		Unit		Operations		Eliminations		Consolidated
Copper	$	2,663.1	$	32.0	$	1,557.7	$	(32.0)	$	4,220.8
Molybdenum		144.0		—		124.0		—		268.0
Silver		182.3		82.1		61.5		(31.6)		294.3
Zinc		—		234.4		—		—		234.4
Other		244.9		74.6		51.2		(8.4)		362.3
Total	$	3,234.3	$	423.1	$	1,794.4	$	(72.0)	$	5,379.8

NET SALES AND GEOGRAPHICAL INFORMATION:

The geographic breakdown of the Company’s sales for the three years ended December 31, 2018 was as follows (in millions):


	Year Ended December 31, 2018
			Mexican
	Mexican		IMMSA		Peruvian		Corporate &
	Open-Pit		Unit		Operations		Elimination		Consolidated
The Americas:
Mexico	$	1,343.0	$	385.6	$	—	$	(79.3)	$	1,649.3
United States		1,008.0		6.6		244.0		—		1,258.6
Peru		—		—		390.4		—		390.4
Brazil		—		43.8		228.1		—		271.9
Chile		—		—		136.3		—		136.3
Other American countries		60.6		3.8		1.4		—		65.8
Europe:
Switzerland		453.3		43.4		156.7		—		653.4
Italy		20.6		21.7		305.0		—		347.3
Spain		169.4		—		—		—		169.4
Other European countries		234.8		19.9		124.9		—		379.6
Asia:
Singapore		528.8		2.2		538.2		—		1,069.2
Japan		71.8		—		411.6		—		483.4
Other Asian countries		185.6		0.9		35.6		—		222.1
Total	$	4,075.9	$	527.9	$	2,572.2	$	(79.3)	$	7,096.7


	Year Ended December 31, 2017
			Mexican
	Mexican		IMMSA		Peruvian		Corporate &
	Open-Pit		Unit		Operations		Elimination		Consolidated
The Americas:
Mexico	$	1,240.0	$	349.1	$	6.6	$	(71.8)	$	1,523.9
United States		1,001.2		41.7		147.4		—		1,190.3
Peru		—		0.8		373.4		—		374.2
Brazil		—		48.7		191.4		—		240.1
Chile		—		—		103.4		—		103.4
Other American countries		68.1		4.1		19.3		—		91.5
Europe:
Switzerland		473.1		14.3		114.9		—		602.3
Italy		27.7		18.6		286.1		—		332.4
Spain		142.8		—		—		—		142.8
Other European countries		230.3		30.3		76.6		—		337.2
Asia:
Singapore		547.9		1.4		502.0		—		1,051.3
Japan		93.0		—		386.6		—		479.6
Other Asian countries		148.6		0.5		36.4		—		185.5
Total	$	3,972.7	$	509.5	$	2,244.1	$	(71.8)	$	6,654.5


	Year Ended December 31, 2016
			Mexican
	Mexican		IMMSA		Peruvian		Corporate &
	Open-Pit		Unit		Operations		Elimination		Consolidated
The Americas:
Mexico	$	1,184.8	$	296.9	$	—	$	(72.0)	$	1,409.7
United States		933.6		49.5		66.9		—		1,050.0
Peru		—		—		294.4		—		294.4
Brazil		—		26.1		170.0		—		196.1
Chile		—		—		92.4		—		92.4
Other American countries		52.9		2.6		18.8		—		74.3
Europe:
Switzerland		245.9		9.4		182.0		—		437.3
Italy		20.9		17.2		266.4		—		304.5
Spain		71.2		—		—		—		71.2
Other European countries		127.0		20.8		54.0		—		201.8
Asia:
Singapore		471.9		—		180.9		—		652.8
Japan		49.2		—		360.6		—		409.8
Other Asian countries		76.9		0.6		108.0		—		185.5
Total	$	3,234.3	$	423.1	$	1,794.4	$	(72.0)	$	5,379.8

PROVISIONAL SALES PRICE:

At December 31, 2018, the Company has recorded provisionally priced sales of copper at average forward prices per pound, and molybdenum at the year-end market price per pound. These sales are subject to final pricing based on the average monthly copper prices on the London Metal Exchange (“LME”) or New York Commodities Exchange (“COMEX”) and Dealer Oxide molybdenum prices in the future month of settlement.

Following are the provisionally priced copper and molybdenum sales outstanding at December 31, 2017:


	Sales volume	Priced at
	(million lbs.)	(per pound)	Month of settlement
Copper	102.4	2.68	January through March 2019
Molybdenum	9.0	11.88	January through March 2019

Provisional sales price adjustments included in accounts receivable and net sales were as follows at December, 31 (in millions):


	At December 31,
	2018		2017
Copper	$	(7.6)	$	8.3
Molybdenum		(2.4)		14.6
Total	$	(10.0)	$	22.9

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

LONG-TERM SALES CONTRACTS:

The following are the significant outstanding long-term contracts:

In 2013, a five year copper cathodes sales agreement was signed with Mitsui, with shipments beginning in 2015. Mitsui and the Company will negotiate market terms and conditions for annual contracts no later than November 30 of the year prior to shipment. The contract considers the following annual volumes of copper cathodes; 6,000 tons for 2015 and 48,000 tons for each of the years from 2016 through 2019. The contract volume would increase by 24,000 tons the year after Tia Maria reaches full production capacity. Failure to reach an agreement on market terms would cancel the annual contract but not the long-term agreement. Under the terms of the agreement all shipments would be to Asia and there are no exclusivity rights for Mitsui or commissions included. This contract may be renewed for additional years, upon the agreement of both parties.

Under the terms of a sales contract with Molymet Group (Molibdenos y Metales, S.A. and Sadaci N.V.), SPCC Peru Branch is required to supply approximately 70% of the molybdenum concentrates production from 2019 through 2022. The roasting charge deduction is agreed based on international market terms.

Under the terms of a sales contract with Molymex, S.A. de C.V., Operadora de Minas de Nacozari, S.A. de C.V. and Operadora de Minas e Instalaciones Mineras, S.A. de C. V. are required to supply at least the 80% of their molybdenum concentrates production from 2016 through 2019. The sale price of the molybdenum concentrate is based on the monthly average of the high and low Metals Week Dealer Oxide quotation. The roasting charge deduction is negotiated based on international market terms.