Grupo Mexico Annual Report 2016

Plain-text annual report

ANNUAL REPORT TOTALLY SOLID MINING TRANSPORTATION INFRASTRUCTURE Index LeTTeR TO SHAReHOLdeRS FInAnCIAL HIGHLIGHTS 02 08 AnALYSIS And dISCUSSIOn OF COnSOLIdATed ReSULTS GRUPO MÉxICO 10 MInInG dIVISIOn GeOGRAPHIC LOCATIOn ReLeVAnT FIGUReS AMeRICAS MInInG CORPORATIOn BYPROdUCTS PROJeCTS And InVeSTMenTS exPLORATIOnS HeALTH And SAFeTY TRAnSPORTATIOn dIVISIOn GeOGRAPHIC LOCATIOn TRAnSPORTATIOn dIVISIOn ReLeVAnT FIGUReS InFRASTRUCTURe dIVISIOn GeOGRAPHIC LOCATIOn MÉxICO PROYeCTOS Y deSARROLLOS ReLeVAnT FIGUReS GRUPO MexICO FOUndATIOn enVIROnMenTAL And SOCIAL ACTIOnS BOARd OF dIReCTORS And SenIOR MAnAGeMenT 24 26 28 29 36 48 52 62 70 74 76 77 86 88 90 91 102 130 148 2 complex year for metal prices. 3 LETTER TO SHAREHOLDERS during 2016, our company reported sound performance and obtained outstanding results despite the complex macroeconomic environment worldwide, which was mar- ked by high volatility in the markets. The peso suffered an 18% depreciation against the dollar, international stock markets experienced political uncertainty, and it was a nonetheless, our organization’s financial strength allows it to be well positioned to face variations in the exchange rate and the challenges posed by the current scenarios. Grupo Mexico is the fourth largest company in the country in terms of market capita- lization and it remains the leader in copper extraction, with the largest reserves in the world, the lowest extraction costs worldwide, and the best organic growth portfolio. In addition to having world-class assets in investment grade countries, we are the largest, most profitable transportation company with the most extensive coverage in Mexico. Accrued consolidated sales in 2016 totaled US$8.173 billion, in line with 2015, as lower copper prices compensated for an increase in low-cost production. eBITdA, on the other hand, reached US$3.362 billion—11% higher than in the previous year. The Mining division reported an eBITdA margin of 37%, growing 13%, while the Transporta- tion division reported a 44% margin, growing 12%. The Infrastructure division achieved a 46% eBITdA margin. Sunset at La Caridad, Sonora, Mexico. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLIDThanks to our experience and track record, Grupo Mexi- Likewise, we achieved a historical record in the auto- co’s investments have historically stood out for their pru- motive segment hauling 163,245 railroad cars and over dence, long-term vision, and strategic focus. Capital in- 1.9 million vehicles, so we once again ranked as the vestments in 2016 accrued US$1.584 billion, translating largest automobile transporter in the world. We also re- into an investment of US$10.5 billion among our various mained as the n° 1 railroad in international traffic, and divisions over the last five years. And these large invest- began a new service on the Inter-Pacific corridor. ments are already bearing fruit. In our infrastructure division, in 2016 we celebrated the We are happy to report that, during 2016, we concluded 80th anniversary of Mexico Compañía Constructora, the expansion program for Buenavista del Cobre, on time which has significantly contributed to the development 4 and below budget. The startup of new projects increased of the country through the construction of over 200 copper production by 57%, leading us to achieve a new works projects. The drilling division maintained a 97% all-time high of 1,054,414 tons, which translates into a operating efficiency in the platforms; thus, we remain 15% increase vs. 2015. Likewise, our gold and silver pro- the leaders in the industry. The energy division, throu- duction increased 68% and 20%, each. gh its two combined cycle plants (500 MW) and the el Retiro wind farm (74 MW), generated 3,137 gigawatt We should note that the Mining division continues to hours (GWh), translating into a 14% increase from the show growth. We expect a 53% increase in production production of the previous year. The Salamanca-Leon to over 1.6 million tons of copper over the next seven highway reported an Annual Average daily Traffic (AAdT) years, which will be driven by the various projects that we of 10,338 vehicles, translating into a historical record are developing in Mexico, Spain, and Peru. In the latter, both in terms of traffic and revenues. we are currently working on five copper projects, and by 2019, with the start of operations at Toquepala, we ex- Grupo Mexico is a leading company whose performan- Over the years, we have proven our capacity to generate value and wellbeing for our pect a production of 1,145,000 tons. ce is not only measured on the operating and financial collaborators, their families, the communities where we are present, and the environ- side. We also strive to deliver more and better results in ment surrounding us. We have a firm commitment to improve the quality of life of all Year after year, Grupo Mexico has become more and more social, economic, and environmental aspects, conside- those who have some connection to our activities, and we know that respect for the competitive in every sector where it participates. Accor- ring the expectations of our interest groups and betting environment is the basis to achieve responsible progress. ding to the Organization for economic Cooperation and decidedly on sustainability. development (OeCd), we operate the most competitive railroad on the American continent. In 2016, our Trans- portation division hauled 54.445 billion tons–km, gene- rating a record eBITdA of US$775 million; that is, seven percentage points above the figure reported in 2015. Through our various programs and social investments executed via our Community development, environmental Care, and ecology areas, as well as Fundación Grupo México, each year we succeed in benefiting more and more people, both directly and indirectly. 5 Combined cycle energy plants Nacozari, Sonora, Mexico. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID Wind farm, Juchitán, Oaxaca, Mexico. 6 On the other hand, it is very satisfying for us that Grupo Mexico has been chosen to be part of the Mexican Stock exchange’s IPC Sustainability index for the sixth consecutive year. 7 This acknowledges our ongoing commitment to environmental sustainability, social res- ponsibility, corporate governance, and in general, to the country. Last, we must acknowledge the dedication and hard work of each of the over 30,000 collaborators who make up Grupo Mexico, because they were a key factor in the achievements made throughout the year. Our human talent is, undoubtedly, our most valuable asset. Metal prices rebounded towards the end of 2016, and are currently on an upward cycle. This recovery, as well as the results obtained and the new projects we are undertaking, make us feel optimistic and confident regarding 2017. We remain committed to ensure sustained growth, striving to increase our productivity, achieve greater efficiencies, and control costs, to always generate greater value for our investors. GERMÁN LARREA MOTA VELASCO CHAIRMAn OF THe BOARd GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLIDFINANCIAL HIGHLIGHTS 2013 2014 2015 2016 Real Var. % 2016 / 2015 2013 2014 2015 2016 Real Var. % 2016 / 2015 Volumes sold * Copper Zinc Silver Gold Molybdenum Average Price (dollars) Copper (COMEX) Zinc (LME) Silver (COMEX) Gold (LF) (tons.) (tons.) 799,159 826,839 903,259 1,032,347 99,127 91,387 100,769 105,415 (thousands oz.) 16,429 14,554 14,802 17,255 (ounces) (tons.) (lb.) (lb.) (oz.) (oz.) 51,058 59,498 154,757 165,587 19,940 23,301 23,233 21,731 3.34 0.87 3.12 0.98 2.51 0.88 2.20 0.95 23.82 19.04 15.68 17.10 1,411.03 1,266.19 1,160.11 1,248.34 14 5 17 7 (6) (12) 8 9 8 Molybdenum (MW DEALER OXIDE) (lb.) 10.26 11.30 6.59 6.42 (3) Figures per Share ** ** Total Shares Outstanding (thousands) 7,785,000 7,785,000 7,785,000 7,785,000 EBITDA per Share Cash Flow per Share Earnings per Share Book Value Financial Ratios Operating Margin EBITDA Margin Current Assets to Current Liabilities Total Liabilities to Total Assets Debt / Total Equity + Debt (times) 0.53 0.36 0.24 1.21 35% 44% 4.3 44% 34% 0.49 0.32 0.22 1.26 32% 41% 2.4 44% 34% 0.39 0.23 0.11 1.25 26% 37% 3.0 49% 41% 7.15 0.43 0.23 0.14 1.32 28% 41% 2.8 46% 38% 7.37 Railway Division Statistics EBITDA / Interest (times) 12.29 10.84 Ton-km net Cars Hauled Balance Current Assets Fixed Assets Total Assets Bank Liabilities Total Liabilities Total Equity Results Total Sales Cost of Sales Current Taxes EBITDA Net Profit Cash flow Generated from Operations Dividends Paid Taxes Paid Applied to Financial Activities Used for Investments Cash flow after investments and Financial Activities (million tons) 51,054 51,704 54,221 54,445 (thousands units) 1,114.2 1,164.4 1,210.1 1,231.5 (million dollars) (million dollars) (million dollars) 5,341 4,332 4,161 11,682 12,938 13,622 20,209 20,651 21,593 5,811 8,735 5,913 9,044 7,560 10,493 11,474 11,607 11,101 9,357 5,061 966 4,147 1,845 2,882 (729) 964 (69) 9,286 5,095 954 3,833 1,705 2,468 (752) 991 (607) 8,179 4,824 943 3,017 866 1,647 (548) 921 576 4,104 13,922 21,945 7,332 10,147 11,798 8,173 4,642 883 3,366 1,102 1,773 (292) 879 (212) (2,858) (2,433) (1,689) (1,590) 0 2 (1) 2 2 (3) (3) 6 (0) (4) (6) 12 27 8 (47) (5) 137 (6) (774) (1,324) (38) (354) 831 Employees Annual Inflation Mexico USA Peru Exchange Rate at Each Year End Mexico Peru Average Exchange Rate Mexico Peru (pesos/dollar) (soles/dollar) (pesos/dollar) (soles/dollar) 29,980 29,998 30,271 30,657 4% 1% 3% 4% 1% 3% 2% 1% 4% 3% 2% 3% 13.08 2.80 14.72 2.99 17.21 3.41 20.66 3.40 12.77 2.70 13.30 2.84 15.85 3.18 18.66 3.38 Expressed per US Generally Accepted Accounting Principles (US GAAP) * Throughout the report, tons are metric and ounces are troy. ** Regarding 7,785,000,000 shares - 12 (3) 27 5 9 12 (7) (5) (5) 3 1 50 100 (25) 20 (0) 18 6 10 Team working in caliche fields, Mission, Arizona, USA. 11 Analysis and Discussion Of Results THE COMPANY’S FINANCIAL SOUNDNESS ALLOWS FOR ONGOING GROWTH. During 2016, grupo Mexico MaintaineD a low-leverage, soliD balance sheet with a net Debt to ebitDa ratio of 1.9x anD Debt Maturities of over 20 years. FOR THE SIXTH CONSECUTIVE YEAR, GRUPO MEXICO WAS CHOSEN TO BE A MEMBER OF THE MEXICAN STOCK EXCHANGE’S IPC SUSTAINABILITY INDEX, AND OBTAINED ONE OF THE HIGHEST RATINGS AS A SUSTAINABLE COMPANY, ACCORDING TO ESG (ENVIRONMENT, SOCIAL, GOVERNANCE) METHODOLOGY, DESIGNED AND RATED BY ANAHUAC UNIVERSITY. 12 ANALYSIS AND DISCUSSION OF RESULTS GMEXICO RELEVANT FIGURES (US$ Thousands) 2015 2016 VARIANCE Sales 8,178,888 8,173,492 (5,396) Cost of Sales 4,774,696 4,591,462 (183,235) Operating Profit 2,182,416 2,298,569 116,153 EBITDA 3,016,952 3,366,000 344,742 (0.1) (3.8) 5.3 11.4 13 EBITDA Mg. (%) 36.9% 41.1% Net Profit 865,784 1,222,670 356,886 41.2 Profit Margin (%) 10.6% 15.0% RELEVANT CONSOLIDATED FIGURES OF GRUPO MEXICO Investments - (Capex) 1,689,451 1,590,000 (105,212) Accrued consolidated sales in 2016 totaled US$8.173 billion, in line with 2015, as the lower copper prices were compensated by the increase in low-cost copper production thanks to the Buenavista expansion. In the Transportation division, despite an 18% depreciation of the peso vs. the dollar, we experienced a drop of only 7% in sales. In the Infrastructure division, sales decreased 1% to US$608 million, given lower rates from Pemex, and the peso depreciation. Employees 30,264 30,657 393 during 2016, eBITdA reached US$3.3 billion, 11% higher compared with 2015 mainly due to a higher copper production. The Mining di- (6.2) 1.3 On the other hand, the accrued cost of sales in 2016 reached vision reached US$2.3 billion which implies a 13% growth over the US$4.591 billion, 4% less than in 2015. In the Mining division, costs previous year, with a 37% eBITdA margin. The Transportation division decreased 1%, given higher production volumes, while in the Trans- achieved US$775 million, translating into 12% growth vs. 2015, with portation division, they decreased 8% due to greater productivity. In a 44% margin. The Infrastructure division achieved US$279 million in the Infrastructure division, cost of sales increased 11% vs. 2015, par- eBITdA with a 46% margin. ticularly because of the price hike in gas, the startup of the Veracruz modular platform, and the operation of the second stretch of the Consolidated net profit accrued in the year reached US$1.223 billion, Salamanca-Leon Highway. with a net margin of 15%. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID GRUPO MEXICO IS IN A PRIVILEGED SITUATION TO FACE F/X RATE FLUCTUATIONS. OUR REVENUES ARE RELATED TO COMMODITY PRICES, WHICH ARE DOLLARIZED; THUS, 84% OF OUR REVENUES ARE IN DOLLARS. 14 SALES PRODUCT Mining Division VOLUME IN TONS THOUSANDS OF DOLLARS 2015 2016 Var. % 2015 2016 Var. % Copper 903,259 1,032,347 Silver (thousand ounces) 14,802 17,255 Molybdenum 23,233 21,731 Zinc 100,769 105,415 Sulfuric Acid 1,927,029 1,934,927 Gold (ounces) 154,757 165,587 14 17 (6) 5 0 7 $ 4,940,009 $ 5,032,227 227,553 294,797 239,233 268,050 210,702 234,348 2 30 12 11 134,708 95,390 (29) 177,958 207,364 19,130 23,706 24 34,358 43,124 17 26 Lead Others TOTAL SALES TOTAL SALES COPPER PRICES 9,286 3.61 8,179 3.12 8,179 8,173 2.50 2.20 3.50 3.00 2.50 2.00 Per lb. 0.00 2013 2014 2015 2016 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Millions of Dollars 15 ZN SUAU PB AG DI MO Transportation Division 21% SHARe OF SALeS BY PROdUCT 2016 Copper 62% MO - 3% / Molybdenum DI - 3% / Infrastructure division AG - 4% / Silver ZN - 3% / Zinc SU - 1% / Sulfuric Acid AU - 2% / Gold PB - 1% / Lead 44,168 34,657 (22) Europe 12% Transportation Division 1,210,057 1,231,539 2 * 1,854,878 1,722,507 (7) Infrastructure Division Total Sales * loaded cars (thousands of units) 315,322 241,028 (24) $ 8,178,888 $ 8,173,492 (0) Asia 15% Latin America 8% United States 24% Mexico 40% SHARe OF SALeS BY COUnTRY 2016 GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID 16 During 2016, we completed the expansion of Buenavista with an investment of US$3.50 billion, increasing this mine’s copper production capacity by 155%. Panoramic view, Buenavista del Cobre, Sonora, Mexico. CONSOLIDATED DEBT Grupo Mexico maintains a low-leverage, solid balance sheet with a net debt to eBITdA ratio of 1.9x. 94% of the debt is denominated in USd and 6% in pesos. 92% of the debt has a fixed rate. Moreover, the company has a comfortable debt maturities calendar; it has no signifi- cant capital payments until 2035. 17 IN 2016, CAPITAL INVESTMENTS TOTALED US$1.584 BILLION. THUS, GRUPO MEXICO HAS INVESTED OVER US$10.5 BILLION AMONG ITS VARIOUS DIVISIONS OVER THE LAST 5 YEARS. Grupo Mexico’s financial soundness enables it to be well positioned to face the difficult economic environment that affects its various divisions, even as it maintains its commitment to continue with its aggressive expansion program, and to analyze possible opportunities that may arise in the market. CAPITAL INVESTMENTS Capital investments in 2016 accrued US$1.584 bil- In the Transportation division, capital investments MINING DIVISION TRANSPORTATION DIVISION INFRASTRUCTURE DIVISION GRUPO MEXICO MATURITIES AT DECEMBER 31, 2016 lion. Thus, Grupo Mexico has invested more than reached US$360 million, which included the purchase US$10.5 billion among its various divisions over the of 50 locomotives and the development of infrastruc- last five years. ture and telecommunications projects, all of which will generate greater operating efficiencies. We invested US$1.21 billion in the Mining division, 76% of our annual budget. US$532 million was allocated In the Infrastructure division, investments totaled to our projects in Mexico, and US$519 million to the US$15 million. Among the investments, we should note projects in Peru. We must note that we have completed US$5 million in the Tamaulipas platform, and US$3 mil- the US$3.5 billion expansion program at Buenavista del lion in the Salamanca-Leon Highway (recorded as an Cobre on time and below budget. intangible asset). 1,600.0 1,400.0 1,200.0 1,000.0 800.00 600.00 400.00 200.00 17’ 18’ 19’ 20’ 21’ 22’ 23’ 24’ 25’ 26’ 27’ 28’ 29’ 30’ 31’ 32’ 33’ 34’ 35’ 36’ 37’ 38’ 39’ 40’ 41’ 42’ 43’ 44’ 45’ 44’ 45’ GRUPO MEXICOTOTALLY SOLID Campeche Jack-up night view. GMEXICO HISTORICAL STOCK PRICE IN DOLLARS 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 18 JAN-00 JAN-01 JAN-02 JAN-03 JAN-04 JAN-05 JAN-06 JAN-07 JAN-08 JAN-09 JAN-10 JAN-11 JAN-12 JAN-13 JAN-14 JAN-15 JAN-16 JAN-17 19 NATURAL DOLLAR HEDGE In a year of high volatility in the currency market, it is important to note that Grupo Mexico holds a privileged position to face F/x fluctuations. Our revenues are related to commodity prices (metals and energy) which are dollarized. Thus, 84% of these revenues are in dollars. With operations in Mexico and Peru, only 47% of our costs are in US dollars. Therefore, our company has a natural US dollar hedge with a positive impact on results, given the current dollar appreciation. PERFORMANCE OF GRUPO MEXICO’S STOCK Year after year, Grupo Mexico has become a more competitive organization in every segment where it participates. We are maintaining our commitment to ensure sus- tained growth, striving to increase our productivity and control costs, to constantly generate greater value for our shareholders. That’s why we feel proud to see that the stock price in dollar terms has increased over 821% since 2000 (IPC return of +301% in the same period). SALeS USD 100% 35% 60% 84% Mxn - 65% 40% 16% COST OF SALeS Mxn 31% 81% 62% 44% SOLES 13% - - 9% USD 56% 19% 38% 47% Mining division Transportation division Infrastructure division Weighted Total GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID CREDIT PROFILE during 2016, rating agencies Fitch and S&P confirmed Other positives were the geographic diversification, our Grupo Mexico’s BBB+ and BBB ratings, respectively, position as the fourth largest copper producer in the with a stable outlook. world, our vertical integration and long-lasting reserves, as well as the additional cash flows that will be generated The rating agencies highlighted the company’s low-cost by the start of production of the Buenavista del Cobre structure, as well as its solid balance sheet with low expansion, and the assets of our Infrastructure division. leverage levels. 20 MOODY´S STAndARd & POOR’S FITCH Grupo México International Rating Americas Mining Corporation International Rating Southern Copper Corporation International Rating Issuer Rating Minera México International Rating Covered Bond México Generadora de Energía International Rating Issuer Rating Ferromex - - Baa2 Baa2 Baa2 Baa2 Baa2 Baa2 BBB BBB BBB BBB BBB BBB BBB BBB BBB+ BBB+ BBB+ BBB+ BBB+ BBB+ - - Local Long-Term Rating - MXAA+ AA+(Mex) 21 In the Transportation Division, we invested over US$360 million, including the purchase of 50 locomotives. “Casa Redonda” Maintenance yard, Guadalajara, Mexico. GRUPO MEXICO IS PART OF THE IPC SUSTAINABILITY INDEX For the sixth consecutive year, Grupo Mexico was chosen to be part of the Mexican Stock exchange’s IPC Sustainability index. We should note that our company has been part of this index since it was created in 2011, and that in the last assessment, it obtained one of the highest ratings ac- cording to the eSG (Environment, Social, Governance) methodology, designed and rated by the Anahuac University. Thus, we reiterate our commitment to environmen- tal sustainability, social responsibility, and corporate governance. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID CORPORATE STRUCTURE GRUPO MexICO’S STOCK HAS Been LISTed SInCe 1966. 22 MInInG TRAnSPORTATIOn InFRASTRUCTURe 23 AMERICAS MINING CORPORATION (AMC) GRUPO MéXICO TRANSPORTES MéXICO PROYECTOS Y DESARROLLO (MPD) 100% 75% 100% 25% Ferromex Ferrosur IMEX 26% 74% 100% 100% Southern Copper Corporation ASARCO 100% 88.9% Minera Los Frailes (Spain) 97.3% Minera México Southern Peru Perforadora México Grupo México Energía 100% 100% México Compañía Constructora 100% Grupo México Autopistas 100% Grupo México Engineering Services 100% AMOnG THe LARGeST THe MOST COMPeTITIVe 80 YeARS OF exPeRIenCe PROdUCeRS OF COPPeR, TRAnSPORTATIOn MOLYBdenUM, SILVeR, And COMPAnY In MexICO. ZInC In THe WORLd, WITH THe GReATeST COPPeR ReSeRVeS WORLdWIde. In InFRASTRUCTURe And COnSTRUCTIOn PROJeCTS. The power used by billboards use is fed by solar panels. Solar panel, Salamanca-Leon highway, Mexico. GRUPO MEXICO IS THE FOURTH LARGEST COMPANY IN TERMS OF MARKET CAP IN MEXICO. GRUPO MEXICOTOTALLY SOLID24 Workers at the construction site of the geodesic dome. This dome has a storage capacity of 300,000 tons of mineral. Buenavista del Cobre, Sonora, Mexico. Mining Division 25 IN 2016, COPPER PRODUCTION REACHED A NEW ALL-TIME HIGH OF 1,054,414 TONS, TRANSLATING INTO A 16% INCREASE OVER 2015. the increase in low-cost proDuction not only has an effect on our voluMes, but it also favors our cost structure, which helps us to strengthen our privilegeD position as low-cost proDucers. 5 3 23 4 2 7 14 6 10 9 17 13 21 20 1 16 GEOGRAPHIC LOCATION MInInG dIVISIOn - GRUPO MexICO 11 12 19 18 8 22 15 GULF OF MEXICO LOCATION ASARCO AMARILLO HAYDEN MISSION RAY SILVER BELL TUCSON MINERA MÉXICO AGUA PRIETA ANGANGUEO BUENAVISTA ZINC 1 2 3 4 5 6 7 8 9 10 BUENAVISTA DEL COBRE 11 CHALCHIUITES 12 CHARCAS 13 EL ARCO 14 LA CARIDAD 15 MEXICO CITY 16 NUEVA ROSITA 17 PILARES 18 SAN LUIS POTOSI 19 SAN MARTIN 20 SANTA BARBARA 21 SANTA EULALIA 22 TAXCO 23 EL PILAR PACIFIC OCEAN SPCC 24 CATANAVE 25 CHAUCHA 26 CUAJONE 27 ILO 28 LIMA 29 LOS CHANCAS 30 TANTAHUATAY 31 TIA MARIA 32 TOQUEPALA AMC 33 AZNALCOLLAR, SPAIN LEGEND 1 MINES 2 PLANTS 3 OFFICES 4 FUTURE MINING PROJECTS MINERA MÉXICO S E N M I MEXICANA DE COBRE La Caridad, Sonora Copper, Molybdenum, Gold, and Silver BUENAVISTA DEL COBRE Cananea, Sonora Copper, Gold, Molybdenum, and Silver INDUSTRIAL MINERA MÉXICO Charcas, San Luis Potosi Silver, Copper, Lead, and Zinc San Martin, Zacatecas Silver, Lead, Zinc, and Copper Santa Eulalia, Chihuahua Silver, Lead and Zinc Santa Barbara, Chihuahua Gold, Silver, Copper, Lead, and Zinc Taxco, Guerrero Gold, Silver, Lead, and Zinc Nueva Rosita, Coahuila Coal and coke SPCC CUAJONE Copper, Silver, Molybdenum, and Gold TOQUEPALA Copper, Silver, Molybdenum, and Gold ASARCO MISSION, ARIZONA Gold, Silver, Copper, and Molybdenum SILVER BELL, ARIZONA Copper RAY, ARIZONA Gold, Silver and Copper AMC AZNALCOLLAR, SPAIN Polymetallic project Zinc, Copper, Lead, Silver S T N A L P R E H T O D N A S E I R E N I F E R , S R E T L E M S MEXICANA DE COBRE La Caridad, Sonora Copper Smelter Electrolytic copper Refinery Copper Electrowinning Plant Sulfuric Acid Plant Rod Plant Precious Metal Plant Selenium and Tellurium Agua Prieta, Sonora Lime Plant BUENAVISTA DEL COBRE Cananea, Sonora Copper Electrowinning Plants INDUSTRIAL MINERA MÉXICO San Luis Potosi, San Luis Potosi Sulfuric Acid Plant Electrolytic Zinc Plant, Cadmium Nueva Rosita, Coahuila Washing and Coker Plant SPCC ILO Copper Smelter Sulfuric Acid Plant Electrolytic Copper Refinery Precious Metals Plant TOQUEPALA Copper Electrowinning Plant ASARCO HAYDEN, ARIZONA Copper Smelter and Sulfuric Acid Plant RAY, ARIZONA Copper Electrowinning Plant SILVER BELL, ARIZONA Copper Electrowinning Plant AMARILLO, TEXAS Copper, Nickel, Selenium, Tellurium Refinery Rod Plant Slab Plant SPAIN 33 ECUADOR 25 30 PERU 28 29 31 26 32 32 27 24 28 AMERICAS MINING CORPORATION (AMC) (US$ Thousands) 2015 2016 VARIANCE Sales 6,008,688 6,209,957 201,269 Cost of Sales 3,783,133 3,751,103 (32,030) Operating Profit 1,372,839 1,531,006 158,167 EBITDA 2,026,461 2,287,903 261,441 3.3 (0.8) 11.5 12.9 EBITDA Margin (%) 33.7% 36.8% Net Profit 406,798 955,749 548,951 134.9 29 Profit Margin (%) 6.8% 15.4% Investments - (CAPEX) 1,222,075 1,209,579 (12,496) (1.0) RELEVANT FIGURES AND BYPRODUCTS RELEVANT FIGURES FOR AMERICAS MINING Since 2010, when our expansion program was ap- Sales in the Mining division during 2016 were US$6.209 CORPORATION (“AMC”) proved, we have invested over US$8 billion to more than billion, 3% greater than in 2015, thanks to higher cop- Copper rod. Grupo Mexico’s Mining division is represented by its subsidiary AMC, double our copper production and achieve 1,250,000 per production. Metallurgical Complex, whose main subsidiaries in Mexico and Peru are Southern Copper tons by 2020. Nacozari, Sonora, Corporation (SCC), and ASARCO in the US. Mexico. These investments and our ongoing improvement duction, given greater efficiencies and savings in our The cost of sales decreased 1%, despite higher pro- AMC is the leading company in copper extraction, with the greatest program, with a strong focus on cost control, are improving operations. reserves worldwide, the lowest extraction costs in the world, and the the Company’s performance through an increase in our best organic growth portfolio. production and cost savings. Throughout 2016, these eBITdA totaled US$2.287 billion, equivalent to 37% of improvements were reflected in a 16% increase in sales, and represents 13% growth from the previous AMC has world-class assets in investment grade countries: 14 copper production, a 20% rise in silver production, and a year, given the low-cost production and operating effi- mines, as well as exploration projects in Mexico, Peru, the US, Chile, 68% hike in gold production. They were also reflected in ciencies achieved. ecuador, and Argentina. a 15% improvement in extraction costs. Our investment program to optimize the company and increase pro- We believe that, with the current upward cycle of the duction capacity has continued throughout the negative cycle of the metals market, our investment program will further im- metals market. prove returns for our investors. WE ARE THE LEADING COMPANY IN COSTS IN THE INDUSTRY WITH AN EXTRACTION COST OF US$1.08 PER POUND OF COPPER. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID PRODUCTION • El Pilar (Sonora, Mexico). Open-pit mine with an an- In 2016, copper production reached a new record of nual production capacity of 35,000 tons (Sx/eW). 1,054,414 tons, which translates into a 16% increase from 2015, driven by the Buenavista del Cobre mine • El Arco (Baja California, Mexico). Open-pit mine with an expansion, which increased production by 57%. annual production capacity of 200,000 tons of copper and 105,000 ounces of gold (Sx/eW and concentrator). However, the Mining division continues to grow. By 2019, we expect production to reach 1,145,000 tons • Los Chancas (Apurimac, Peru). Open-pit mine with with the start of operations of our Toquepala expansion. an annual production capacity of 100,000 tons of copper and 4,500 tons of molybdenum (Sx/eW and 30 We also expect production to increase by 53% to over concentrator). 31 SX/EW Plant with capacity to produce 120,000 tons of copper annually. Buenavista del Cobre, Sonora, Mexico. COPPER 1.6 million tons of copper in the next 7 years. This grow- th will be driven by the following projects: • Buenavista Zinc (Sonora, Mexico). Buenavista del Cobre Complex. Open-pit mine with an annual pro- • Toquepala (Peru). Annual increase of 100,000 tons in duction capacity of 60,000 tons of zinc. copper production to total 217,000 in 2018, 230,000 tons in 2019, plus 3,100 tons of molybdenum. OPERATING CASH COST Once more, we consolidated as the world leader in pro- • Tía María (Arequipa, Peru). Open-pit mine with an duction costs. In 2016, according to Wood Mackenzie, annual production capacity of 120,000 tons of copper Southern Copper Corporation was the leader in low-cost (Sx/eW). production, followed by Americas Mining Corporation. • Aználcollar (Seville, Spain). Underground polymeta- during 2016, operating cash cost per pound of co- llic mine with an annual production capacity of 67,000 pper, excluding byproducts, was US$1.51—below the Copper is the third most used metal in the world, and an essential component for infra- tons of zinc equivalent. US$1.73 cost accrued in 2015 (-13%). This improve- structure and growth worldwide. It has exceptional chemical and physical properties, such ment was mainly due to lower fuel costs, as well as as high electric conductivity, corrosion resistance, and excellent malleability and ductility, • Pilares (Sonora, Mexico). Open-pit mine, with an an- greater low-cost production, thanks to the expansions making it an optimal material for industries related to electric energy, telecommunications, nual production capacity of 35,000 tons, which will at Buenavista del Cobre, and operating efficiencies at computers, cell phones, construction, transportation, and industrial machinery. Copper is use La Caridad’s infrastructure. our mines. also a very important material for non-electrical applications, such as plumbing and roofing, and when alloyed with tin, it forms bronze and brass. Likewise, it is used to manufacture fungicides, in water treatment, and in various chemical products. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID 32 COPPER PRODUCTION IN REFINERIES YEAR 2016 THOUSAnd TOnS Mexico Ref. La Caridad SX/EW Sub-Total Peru Ref. Ilo SX/EW Sub-Total U.S.A. Ref. Amarillo SX/EW Sub-Total Total 224.2 159.7 383.9 270.2 24.9 295.1 131.6 39.7 171.3 850.3 SEMI-FINISHED COPPER PRODUCTION YEAR 2016 THOUSAnd TOnS Wire rod Mexico La Caridad U.S.A. Amarillo Total Slab U.S.A. Amarillo Total 33 144.5 151.3 295.8 11.2 307.0 Copper concentrate thickeners, Buenavista del Cobre, Sonora, Mexico. Operating cash cost per pound, net of byproducts, was US$1.08, compared to US$1.28 in the previous year. In the future, we expect a more significant reduction in our costs, thanks to the start of operations of the concentrator at Buenavista and our expansion in Toquepala, as well as the shutdown of Hayden. All this will result in a decrease in our operating cash cost per pound, net of byproducts, from US$1.08 to US$0.86 by 2019. COPPER PRODUCTION AT SMELTERS YEAR 2016 RAW MINED COPPER (Concentrates plus Sx/eW) Thousand Tons THOUSAnd TOnS SX/EW CONCENTRATORS Mexico La Caridad Peru Ilo U.S.A. Hayden Total 267.8 323.5 125.2 716.5 224,4 221,3 191,8 167,4 2016 2015 2014 2013 830,0 684,4 655,6 625,1 GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID CAST COPPER Thousands of Tons 2016 2015 2014 2013 669,2 716,5 721,6 705,2 WE HAVE THE BEST ORGANIC GROWTH PORTFOLIO. WE EXPECT A 53% INCREASE IN PRODUCTION TO OVER 1.6 MILLION TONS OF COPPER IN THE NEXT 7 YEARS. 34 REFINED COPPER (Refineries and Sx/eWs) Thousands of Tons SX/EW REFINERIES 224,4 221,3 221,3 625,9 619,2 605,2 191,8 586,2 2016 2015 2014 2013 COPPER PRICES AND INVENTORIES COMEX N.Y. INVENTORY PLUS LME COMEX N.Y. PRICES 400.00 350.00 300.00 250.00 200.00 150.00 100.00 50.00 - USD cents/lb. 361,45 509,0 312,00 228,0 250,81 369,0 402,0 219,73 2013 2014 2015 2016 600.00 500.00 400.00 300.00 200.00 100.00 - Thousands of Metric Tons PRIMARY MINING PRODUCTION AND COPPER RESERVES YEAR 2016 PRODUCTION PROCESSED MINERAL COPPER CONTENT ORE ORE RESERVES COPPER CONTENT ORE GRADE % YEARS IN OPERATION 84 56 4 a 16 35 16 25 96 59 23 - 22 34 45 18 0.24 0.48 0.50 0.18 0.19 0.56 0.52 0.19 0.63 0.38 0.51 0.25 0.28 THOUSAnd TOnS MILLIOn TOnS MEXICO Concentrator: La Caridad Buenavista del Cobre Underground Mines 34,539 66,113 3,032 104.9 316.0 6.4 2,887.1 6.81 3,692.9 17.73 45.9 0.23 Subtotal 103,684 427.3 6,625.9 24.78 SX/EWs La Caridad 41,342 Buenavista del Cobre 123,738 Sub-Total 165,080 28.3 131.4 159.7 671.9 3,034.7 3,706.6 1.19 5.61 6.80 PERU Concentrator: Toquepala Cuajone Sub-Total SX/EWs Toquepala Cuajone 20,071 30,681 50,752 116.5 171.4 287.9 1,928.9 10.74 1,806.2 9.32 3,735.1 20.06 78,485 24.9 1,785.6 - - 4.8 Sub-Total 78,485 24.9 1,790.4 U.S.A. Concentrator: Mission Ray Sub-Total SX/EWs Ray Silver Bell Sub-Total 18,003 13,656 31,659 8,064 10,255 18,319 68.2 46.5 114.7 20.7 19.0 39.7 395.0 469.7 864.7 366.0 183.6 549.6 Total Concentrator 186,095 Total SX/EWs 261,884 829.9 224.3 11,225.7 6,046.6 Grand Total 447,979 1,054.2 17,272.3 3.32 0.03 3.36 1.49 2.37 3.88 0.92 0.51 1.42 48.71 11.59 60.30 * Project reserves totaling 9.3 million tons are not included to reach a total 75.2 million tons of reserves. ** The reserves are valued at $2.90 dollars per lb. of copper. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID BYPRODUCTS MOLYBDENUM Molybdenum is maily used to manufacture stainless and pply on the market and a complex situation in the steel special steels. It is also used as a catalyst in the oil and industry—the main consumer of molybdenum. gas industry, and in fertilizers, dyes, glazes, reagents, and lubricants. Its most remarkable property is that it adds Molybdenum production in 2016 decreased 7% to hardness and corrosion resistance to alloys. 21,736 tons vs. the previous year, given lower production at Toquepala (-20%) and Cuajone (-12%) due to lower The average price of molybdenum in 2016 was US$6.42/ ore grades. 36 lb., equivalent to a 3% decline vs. 2015, due to oversu- MINING PRODUCTION AND MOLYBDENUM RESERVES YEAR 2016 PRODUCTION MINES MEXICO La Caridad Buenavista del Cobre Sub-Total PERU Toquepala Cuajone Sub-Total Total PROCESSED ORE MOLYBDENUM CONTENT ORE RESERVES THOUSAnd TOnS MILLIOn TOnS GRADE % 34,539 66,113 100,652 20,071 30,681 50,752 151,404 9.9 1.6 11.5 6.3 3.9 10.2 21.7 2,887.1 3,692.9 6,580.0 1,928.9 1,806.2 3,735.1 10,710.1 0.029 0.009 0.034 0.020 Ball mill. Buenavista del Cobre, Sonora, Mexico. 37 GRUPO MEXICO’S MINING DIVISION IS A LEADER IN CASH FLOW GENERATION, EVEN AT THE LOW PART OF THE CYCLE OF METAL PRICES. PRIMARY MINING MOLYBDENUM (Thousands of Tons) MOLYBDENUM PRICES AND INVENTORIES MW DEALER OXIDE PRICES 2016 2015 2014 2013 21,7 23,4 23,3 12.0 10.0 8.0 6.0 4.0 2.0 - 19,9 10,26 11,30 6,59 6,42 2013 2014 2015 2016 GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID 38 Interior of the geodesic dome at Buenavista del Cobre. Its function is to store ore lumps and prevent the spreading of dust into the environment. 39 ZINC PRODUCTION AT REFINERY THOUSAnd TOnS Refineries Mexico San Luis Potosi 106.1 ZINC PRICES AND INVENTORIES LME INVENTORY LME PRICES 120,00 100,00 80,00 60,00 40,00 20,00 1,224.0 98,07 86,65 692.0 94,83 87,66 464.0 427.9 USD cents/lb. - 2013 2014 2015 2016 1,400.0 1,200.0 1,000.0 800.0 600.0 400.0 200.0 - Thousands of Metric Tons ANNUAL REPORT / 2016 TOTALLY SOLIDElectrolytic zinc plant, San Luis Potosi, Mexico. AT GRUPO MEXICO, WE HAVE WORLD-CLASS ASSETS IN INVESTMENT GRADE COUNTRIES. PRIMARY MINED ZINC (Thousands of Tons) REFINED ZINC (Thousands of Tons) 2016 2015 2014 2013 74,0 61,9 66,6 2016 2015 2014 2013 99,4 41 106,1 100,6 92,1 97,7 PRIMARY MINING PRODUCTION AND ZINC RESERVES YEAR 2016 PROCESSED ORE ZINC CONTENT ORE RESERVES THOUSAnd TOnS MILLIOn TOnS GRADE % YEARS IN OPERATION PRODUCTION MINES MEXICO Charcas 1,229.2 40 Santa Barbara 1,524.5 San Martin - 28.8 29.1 - Santa Eulalia 278.1 16.1 Total 3,031.8 74.0 4.5 23.7 12.9 2.9 44.0 3.55 2.55 2.14 6.90 4 16 28 10 ZINC Zinc is used for a wide range of applications, given its There is a positive view for zinc prices in the next few high resistance to atmospheric corrosion; thus, its main years, sustained by sound fundamentals. It is estimated application is galvanization in the automotive industry, that there was a deficit of 500,000 tons during 2016, construction, and household appliances. Given its low and that it will amount to 150,000 tons in 2017. melting point, malleability, and high resistance, it is also used to manufacture pressure casting parts. It is also Zinc production in the year increased 20% to 73,984 the base to obtain zinc oxide, used to manufacture ti- tons compared to 61,905 tons in 2015. This increase res, paint, and cattle fodder, among other products. resulted from the start of operations of the Santa eu- lalia mine following the flood that affected production during 2016, prices averaged US$0.95/lb., which last year. translated into an 8% hike in zinc prices vs. 2015. This increase was due to sound fundamentals in the zinc market, given lower supply. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID DURING 2016, OUR GOLD AND SILVER PRODUCTION INCREASED BY 68% AND 20%, RESPECTIVELY, DUE TO THE NEW PRODUCTION AT BUENAVISTA DEL COBRE. 42 PRECIOUS METALS SILVER Silver is used to manufacture electric, electronic, and photographic products. Likewise, it is used in jewelry, ornamental items, coin minting, and catalysts. After 12 years of continuous growth, silver mining production in 2016 was lower than in the previous year. Thus, the average price was US$17.10/oz— 9% higher than in 2015 (US$15.68/oz). In 2016, silver production increased 20% to 17,855 thousand ounces com- pared to 2015, mainly explained by greater production at Buenavista del Cobre (+103%). GOLD Inflation expectations should continue to increase in 2017, and improve de- mand for precious metals, since metals are considered a hedge against infla- tion. The performance of gold prices showed volatility in 2016. Average prices increased 8% vs. 2015, from US$1,160/oz to US$1,248/oz. Gold production increased 68% to 68,651 ounces, thanks to greater produc- tion at Buenavista del Cobre (+126%). MINING PRODUCTION AND RESERVES OF SILVER AND GOLD YEAR 2016 PRODUCTION MINES IN CONCENTRATES: MEXICO COnTenTS OZ SILVER ORE RESERVE GOLd SILVeR MILLIOn TOnS ORE GRADE GRS / TON 43 La Caridad 8,460 1,966,542 2,887.1 Buenavista del Cobre 46,279 4,819,457 3,692.9 Underground Mines 6,420 5,622,056 45.9 Sub-Total 61,159 12,408,055 6,625.9 PERU Toquepala Cuajone Sub-Total U.S.A. Mission Ray Sub-Total Total 2,312 5,180 7,492 - - - 1,585,520 1,928.9 2,178,180 1,806.2 3,763,700 3,735.1 1,308,180 375,276 1,683,456 395.0 469.7 864.7 68,651 17,855,211 11,225.7 3.8 4.1 94.0 4.9 5.0 5.3 1.5 GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLIDPRODUCTION AT SILVER AND GOLD SMELTERS YEAR 2016 OUNCES GOLD 45,985 9,022 5,385 SILVER 7,782,779 4,601,267 1,713,147 La Caridad Ilo Hayden GOLD PRICES AND INVENTORIES COMEX N.Y. INVENTORIES COMEX N.Y. PRICES 11.056,0 1.266,19 1.160,11 1.160,11 1.248,34 10.000,0 12.000,0 7.895,0 9.158,9 6.353,0 1.400,00 1.200,00 1.000,00 800,00 600,00 400,00 200,00 8.00,0 6.000,0 4.000,0 2.000,0 Million Troy ounces - Total 60,392 14,097,193 USd/oz. - 2013 2014 2015 2016 44 45 REFINED SILVER AND GOLD PRODUCTION YEAR 2016 SILVER PRICES AND INVENTORIES COMEX N.Y. INVENTORIES COMEX N.Y. PRICES OUNCES GOLD SILVER REFINERIES La Caridad 154,507 8,259,922 San Luis Potosi 3,608 3,640,518 Ilo 6,749 3,295,316 Amarillo - - Total 164,864 15,195,756 176,0 161,0 147,0 180,00 150,00 120,00 90,00 60,00 183,5 200,0 160.0 120.0 80.0 40.0 - Million Troy ounces 30,00 19,04 15,68 15,68 17,10 USd/oz. - 2013 2014 2015 2016 PRIMARY MINED GOLD (Thousand ounces) REFINED GOLD (Thousand ounces) PRIMARY MINED SILVER (Million ounces) REFINED SILVER (Million ounces) 2016 2015 2014 2013 41,0 36,6 35,5 68,7 2016 2015 2014 2013 164,9 155,2 59,3 51,7 2016 2015 2014 2013 17,9 2016 2015 2014 2013 14,5 14,9 14,9 15,2 13,6 13,3 15,6 GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID 46 Inside SX/EW III, Buenavista del Cobre, Sonora, Mexico. MINING PRODUCTION SUMMARY* DISTRIBUTION 2016 TONS 2016 2015 2014 2013 2012 Copper concentrates 3,341,903 2,770,966 2,653,044 2,529,015 2,603,914 Copper content in concentrates 830,047 684,430 655,576 625,105 650,846 Copper content SX/EWs (Cathode) 224,366 221,261 191,812 167,364 175,362 Total copper content of mine 1,054,413 905,691 847,388 792,469 826,208 Copper content of smelter 716,541 721,610 705,187 669,240 703,301 Refinery copper 625,924 619,163 605,197 586,207 578,366 47 Refined copper (refineries + SX/EWs) 850,290 840,424 797,009 753,571 753,728 Refined copper turned into rod 295,800 286,635 280,996 276,326 289,865 Refined copper turned into slap 11,202 16,210 11,345 11,494 6,911 Zinc concentrates 139,697 115,031 123,955 185,254 166,952 Zinc content in concentrates 73,984 61,905 66,614 99,372 89,884 Refinery Zinc 106,093 100,576 92,133 97,692 93,542 Lead concentrates 40,737 32,769 36,105 40,077 35,345 Lead content in concentrates 24,385 20,693 22,286 23,918 19,978 Gold content in concentrates (ounces) 68,651 40,995 36,593 35,544 43,959 Refinery gold (ounces) 164,864 155,180 59,332 51,718 64,076 Silver content in concentrates (ounces) 17,855,211 14,912,611 14,542,464 14,933,798 15,034,604 Refinery silver (ounces) 15,195,756 13,637,723 13,348,048 15,572,552 15,974,465 Molybdenum content in concentrates 21,736 23,368 23,290 19,897 18,297 Coal Coke Sulfuric acid Cadmium Lime 194,285 248,527 276,082 291,505 325,308 71,701 97,544 96,086 93,214 91,263 2,691,371 2,703,588 2,650,031 2,365,051 2,539,794 664 637 607 584 622 271,560 251,928 165,698 133,568 136,970 * Figures in metric tons except where otherwise stated. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID The Quebalix will reduce the processing time and improve mining and hauling costs. It will also increase production by improving our SXEW recovery Quebalix IV, Buenavista del Cobre, Sonora, Mexico. 48 49 PROJECTS AND INVESTMENTS PROJECTS IN MEXICO BUENAVISTA DEL COBRE Crushing, Conveying, and Spreading System for Toquepala Expansion Project. This project worth ral. The budget for this project totals US$40 million and Leachable Ore (Quebalix IV).- The main goal of this US$1.2 billion includes a new concentrator with ad- we have invested US$21.9 million through december We are very proud to have completed the US$3.5 billion project is to reduce processing times, as well as mining vanced technology that will increase annual production 31, 2016. The project should be completed by 4Q17. investment program at Buenavista del Cobre, on time and hauling costs through its 7km-long conveyor belt. capacity by 100,000 tons of copper to 235,000 tons in and US$100 million below budget. It will also increase production by improving Sx/eW co- 2018. It will also increase molybdenum production by Cuajone’s Heavy Mineral Management Optimizing pper recovery. At yearend 2016, the project had achie- 3,100 tons. At december 31, 2016, we have invested Project. The project consists of installing a primary in- Concentrator II is working at 105% of its total design ved 98% progress with a US$311 million investment US$550.4 million with 53% progress, and we expect to pit crusher at the Cuajone mine with a conveyor system capacity of 188,000 tons of copper content. This con- out of an approved budget of US$444 million. complete it by 2Q18. to transport the ore to the concentrator. The project will cludes our 2 main expansions in Mexico: Sx/eW III plant optimize the hauling process, substituting rail haulage, (solvent extraction and electrowinning plant), and the PROJECTS IN PERU Toquepala High Pressure Grinding Roller System and thus reducing operating and maintenance costs, as Concentrator II plant. All projects will be working at full We are currently working on five copper projects in (HPGR). The main goal of this project is to ensure that well as the environmental impact of the mine. The crus- capacity in 2017, including Quebalix IV (crushing and Peru, with a capital investment of US$2.9 billion. the current concentrator operates at its full grinding ca- her will have a processing capacity of 43.8 million tons leaching systems). pacity, which is 60,000 tons per day, given the increase per year. The main components, including the crusher in the hardness of the material. Moreover, recoveries and the 7 km conveyor belt, have been acquired and we and production will improve with a better ground mine- are going ahead with the electromechanical assembly. ANNUAL REPORT / 2016 TOTALLY SOLID Through december 31, 2016, we have invested US$150.9 million out of an approved capital budget of US$215.5 million, with 80% progress. We expect to conclude in 2Q17. 50 Tailings Thickeners at Cuajone Concentrator. In this project, two of the three existing thickeners will be replaced by a new high-capacity thicke- ner. The purpose is to optimize the concentrator’s flotation process and improve water recovery efficiency, increasing the content of solid tailings from 54% to 61%. This will reduce fresh water consumption, replacing it with recovered water. At december 31, 2016, we have nearly completed the engineering and ac- quisition process, and have begun the excavations and civil works. We have invested US$14.4 million out of an approved budget of US$30 million, with 62% progress. We expect it to be completed in 2017. Tia Maria. We have concluded all the engineering and have obtained appro- val of the environmental Impact Assessment. We are currently working to obtain the construction license for this greenfield project, which will have an Sx/eW production of 120,000 tons per year, with a total capital investment of US$1.4 billion. Aerial view of La Caridad mine, Sonora, Mexico. 51 GRUPO MEXICOTOTALLY SOLIDEL ARCO IS A COPPER DEPOSIT THAT COULD HAVE AN ANNUAL CAPACITY OF 200,000 TONS OF COPPER AND 105,000 OUNCES OF GOLD, ONCE THE PROJECT IS DEVELOPED. MEXICO EL ARCO 53 el Arco is a copper, gold, molybdenum, and silver porphyry The results obtained allowed us to confirm reserves of deposit located in the middle of the Baja California penin- 379.8 million tons with copper ore grades of 0.26%, sula. during July 2015 and February 2016, we executed translating into an increase of 20.6 million tons of the a 20,170-meter drilling program to define the deposit at a mineral resource compared to the information available depth of 300 to 600 meters. The highly favorable results at the time of the acquisition. obtained in this campaign have enabled us to increase the estimated resources to 923.7 million tons with ore grades Moreover, the results have made it possible to identify of 0.50% of copper, 0.01% of molybdenum, 0.12 g/t of and define areas of interest with potential for both oxi- gold, and 1.7 g/t of silver. This resource is added to the des and sulfides. existing reserves of 2.2 billion tons (previously estimated). EL PILAR during 2017, we plan to carry out a geochemical survey covering 4,000 hectares and an additional 52 EXPLORATIONS We have carried out broad exploration activities to locate the greatest mineral resour- ces in our current concessions, maintaining our focus on the ongoing discovery of new deposits in Peru, Mexico, Chile, Argentina, ecuador, the US, and Spain. Aerial view of El Arco exploration project, Baja California, Mexico. We also carried out explorations in our current mining operation areas. We inves- el Pilar is an exotic copper project constituted by co- 20,000-meter drilling campaign. ted US$40.1 million in exploration programs in 2016, US$48.8 million in 2015, and pper oxides, located 40 km to the north of our Buena- US$74.6 million in 2014, and expect to spend around US$50.8 million in 2017. vista del Cobre operation. This project was acquired by BUENAVISTA - ZINC We currently have direct control of 332,694 hectares of concessions for exploration, navista del Cobre porphiric deposit, at the northeast end 80,979 of which are in Peru and 154,937 in Mexico. We also hold 58,138 hectares of during 2016, we carried out a confirmatory exploration of the pit. exploration concessions in Argentina, 36,097 hectares in Chile, and 2,543 hectares campaign of 15,316 meters to confirm the deposit’s Southern Copper in 2015. Buenavista del Zinc is a project located within the Bue- in ecuador. mineralization. Once completed, it was complemented This is a Skarn-type deposit consisting of a mineralization with a second additional campaign of 3,700 meters of sulfurs with zinc, copper, silver, and lead. It has 158 and a 40-km geophysical survey in 4Q16. million tons in ore reserves, with zinc ore grades of 1.76%, GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID The ore body has potential for continuity; thus, to fina- obtained indicate the presence of five different areas lize the delimitation of its morphology, we will continue with potential. the drilling works throughout 2017. The project consi- ders the generation of an aerial hyperspectral image that In 2017, we plan to carry out a geophysical survey to will span 40,000 square km. and a drilling campaign of refine drilling targets and confirm their existence throu- 15,000 meters. gh a 5,000-meter exploration campaign. CHALCHIHUITES ALFAREÑA PROJECT Chalchihuites is a Skarn-type deposit consisting a sul- Alfareña is a silver, gold, lead, zinc, and copper vein fide mineralization with zinc, lead, silver, and copper. It is project within the Santa Barbara district, located 6 km. located in the north of the state of Zacatecas, very close from the concentrator plant. It has reserves of 21.1 mi- to the San Martin mining unit. Based on the information llion tons of ore, with average contents of 3.46% of 55 obtained in various exploration campaigns carried out zinc, 0.38% of copper, 2.44% of lead, and 100 gr/ton between 1980 and 2014, totaling 68,000 meters dis- of silver. 2011 and 2014 have implied a total of 140 tributed among 144 bore holes, reserves of 12.6 million bore holes. tons with ore grades of 110 g/t of silver, 2.66% for zinc, 0.37% for copper, and 0.67% for copper have been es- The development of this project probably requires the timated. Results to date report that the mineralization construction of a new mine and possibly of a new con- consists of a complex mix of oxides and silver, lead, and centrator plant to process the ores in the Santa Barbara zinc sulfides; thus, additional work focused on metallur- unit. In 2017, we are considering a drilling program of gical research is still required. 15,000 meters to raise resources to reserve status and proceed to develop the project. In 2017, an exploration campaign of 21,000 meters is planned, in order to obtain material that will enable us to PERU advance on the testing and metallurgical research. LOS CHANCAS CAMPO MEDIO PROJECT This property is a copper and molybdenum porphyry de- Campo Medio is immediately to the west of the Santa posit located in the Apurimac department, in southern eulalia unit. The area shows evidence of the possible Peru. Current estimates indicate the presence of 545 mi- 54 0.54% copper and 21 gr/ton of silver. In 2016, we worked on revising the deposit’s geological model. Moreover, the lithological description of old blast holes was chec- ked and analyzed through infrared ray spectrometry. With the new information obtai- ned, we updated the database for reserve estimations. At present, the basic engineering has been completed and we are working on a revised mining plan which should be completed during the first quarter of 2017. Moreover, works continue on the flotation metallurgical testing to optimize ore recovery. Drill cores at 600 meters deep in the El Arco exploration project, Baja California, Mexico. BELLA UNION (LA CARIDAD) Bella Union is a mineralized breccia with copper and molybdenum located less than presence of limestone replacement bodies, similar to llion tons of mineralized material with average contents 1 km from the current limit of the La Caridad pit. In 2016, 2,1730 meters were drilled those currently exploited in the mine. during 2016, the of 0.59% of copper, 0.04% of molybdenum, 0.039 g/t, to define the geometry of the ore body. With this successful exploration program, total geological and geochemical survey of 800 hectares lo- and 181 million tons of leachable mineralized material reserves of roughly 63.3 million tons with an average ore grade of 0.43% for copper cated between the two operating mines in the district with a total copper content of 0.357%. during 2016, and 0.04% for molybdenum were defined. and those that have historically extracted more than 25 the social and environmental sustainability with the local million tons of ore was completed. The promising results communities was continued and optimized. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLIDIn 2017, we are considering beginning the preparation the existence of mineralization of a copper-molybde- and presentation of the environmental Impact Assess- num porphyry system. This campaign will be executed ment, as well as continuing our social responsibility during 2017. We also expect to execute a 20,000-me- and relationships. ter diamond drilling program in areas with evidence of ARIKEPAY copper porphyry systems, located in the metallogenic strip of southern Peru, between Tacna, Moquegua, and This project is located in Arequipa. In 2016, we comple- Arequipa. Last, we will continue with the prospecting ted a 3,500-meter drilling program. The results obtained program in various metallogenic environments around indicated evidence of mineralization in irregular sections the country. 56 of the deposit. In 2017, we are planning a 4,000-meter drilling campaign to determine the continuity of the de- CHILE posit’s mineralization. EL SALADO (MONTONERO) OTHER PROJECTS el Salado is an IOCG-type copper-gold project lo- during 2016, we completed the exploration works at the cated in the Atacama region in Chile. In 2016, a Lana project located in Arequipa, in the sourth of Peru, 12,169-meter exploration campaign was carried where 2,105 meters were drilled. The drilling began in out to define the classification of the existing ore. In April 2015, and ended in May 2016. Unfortunately, the 2017, we are considering a 4,000-meter diamond results obtained have not been favorable, and no further drilling program to define the project’s profile and its exploration works will be carried out. preliminary prefeasibility. different targets have been explored on the southern coast RESGUARDO DE LA COSTA of Peru to locate copper porphyry systems. For this purpo- Resguardo de la Costa is an epithermal gold deposit lo- se, a total of 22,087 meters were drilled, but the results cated to the south of Chañaral, where we are conside- were not satisfactory. Thus, no additional exploration pro- ring a 3,000-meter drilling program throughout 2017. grams are considered here for 2017. Moreover, we will continue with the prospecting of We obtained environmental permits to carry out a areas with promising indicators of mineralization pre- 5,000-meter diamond drilling program in the Tambillo sence with copper porphyry systems in the Antofa- project, located on the central coast of Peru, to confirm gasta region. 57 Blast hole drill, Cuajone, Peru. ANNUAL REPORT / 2016 TOTALLY SOLID58 The Toquepala expansion will ECUADOR CHAUCHA – RUTA DEL COBRE Likewise, we completed certain evaluations on third-party properties in the San Juan provin- ce. We found targets with potential epithermal gold and silver systems in Cerro Abanico and Cerro Las Minas, located in the Rio negro province. In 2017, we have considered continuing the exploration of these systems. Moreover, in 2017, we will begin exploration activities at the Marisa I property, located in the San Juan province. These exploration concessions were awarded through a resolution in favor of Southern Copper Argentina by the mining authorities of San Juan. Preliminary evidence suggests the possible existence of a copper and molybdenum system. SPAIN LOS FRAILES 59 Los Frailes is located in the Aznalcóllar municipality, only 35 km. from the city of Seville, Spain. After the project was won in a public bidding in May 2015, in July 2015, the regional authorities granted us permission to begin exploration activities on 2,160 concessioned hectares. We immediately began to carry out various works: a photogrammetric restitution, a topographic survey, and geological cartography of all the concessioned surface. We also carried out a drilling campaign of 56 bore holes totaling 27,200 meters. Moreover, 3,000 meters were drilled and piezometers and inclinometers were installed to perform the geote- result in an annual increase of 100,000 tons of copper and 3,100 tons of molybdenum. Night view of the Toquepala expansion, Peru. Ruta del Cobre is located to the west of the city of Cuenca and to the south of the chnical and hydrogeological research. Guayaquil locality. The deposit offers a mineralization system of copper and molyb- denum porphyries. In 2016, we executed 25,081 meters of diamond drilling, in com- With the material obtained through drilling, we began the first phase of the metallurgical pliance with ecuador’s socio-environmental management regulation. This drilling has testing by differential flotation and bulk flotation. We hope to complete this initial exploration enabled us to consolidate the information obtained to date for a better geological and campaign by mid-March 2017. economic interpretation. In 2017, we are planning to carry out a 12,000-meter diamond drilling program to UNITED STATES CHILITO perform geotechnical and metallurgical studies, as well as to prepare a conceptual Chilito is in Gila County, Arizona. In 2016, we acquired 62 mining concessions covering the study for an initial economic assessment of the project. northern part of the project, in order to investigate certain geophysical anomalies that could ARGENTINA during 2016, the prospecting and geological assessment works were completed at the La Voluntad and Cochico prospects (copper-gold systems), located in the neuquen province. Unfortunately, the results obtained were not satisfactory. increase the mineral resource. A geological mapping and sample collection is being carried out with favorable results so far. In 2017 we will continue these studies. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLIDN° 1 IN COPPER RESERVES WORLDWIDE: OVER 75 MILLION TONS. 60 61 75.2 74.3 COPPeR ReSeRVeS BY COMPAnY Million tons Grupo México / AMC Codelco Freeport Mc Moran BHP Glencore / xstrata Fisrt Quantum Anglo American Rio Tinto Antofagasta Vale 49.6 35.9 26.9 23.5 23.3 22.1 16.2 13.1 Warehouse of copper cathodes ready to be transported. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLIDIN THE LAST 5 YEARS, THE MINING DIVISION HAS MANAGED TO REDUCE ITS ACCIDENT RATE BY 40%, AND THEIR SEVERITY BY 60%. THE WELLBEING OF OUR COLLABORATORS IS A TASK THAT CONCERNS US ALL. WE KNOW THAT CARING FOR OUR TEAM BRINGS PEACE OF MIND TO THEIR FAMILIES. Workers at underground mine Santa Barbara, Chihuahua, Mexico. 62 63 OCCUPATIONAL HEALTH AND SAFETY MINING DIVISION For Grupo Mexico, caring for the lives, health, and wellbeing of our collaborators and their families is the number one priority in all our operations. no task is more important. Our main commitment is to create optimal and safe work environments for our co- llaborators, applying the highest occupational health and safety standards. Our goal: ZeRO accidents. The Mining division’s Integrated of Labor Health and Safety Management System allows us to implement effective processes and provide our collaborators with the necessary knowledge and skills to identify, control, and mitigate risks, prioritizing the necessary measures and care to prevent accidents. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLIDACTIVITIeS AIMed AT: COMPANY PERSONNEL WORKERS’ FAMILIES AND COMMUNITIES Safety conferences and courses Guided tours “Meet my company” Safety Expo Health race Internal Safety Cells Forum Value promotion family contests Healthcare fair Health race 64 Awards to workers or departments with ZERO INCIDENTS Fire-fighting courses Family get-togethers and parades Healthcare fair In 2016, we maintained 12 units in Mexico and Peru • In Peru, we continue to work on the Safety Based with the Occupational Health and Safety Advisory Ser- Behavior program, hoping that the first results will vices certification, per OHSAS 18001:2007 standard. In enable us to enrich the culture of prevention among addition, in Mexico, we have 18 units accredited by the our collaborators. Ministry of Labor’s Health and Safety at Work program (PASST for its Spanish acronym), thus consolidating our • Our US mining operations once again achieved the commitment to implement the best practices in health lowest incidents and severity indices in their his- and safety in the workplace. during 2016, we reported tory, with an incident rate that is 57% below the the following achievements in Health and Safety: national average. • Mexico’s Mining Chamber (Camimex) awarded the • In Mexico, we held the sixth Forum on Safety Cells, Silver Helmet, a “Jorge Rangel Zamorano” Award, where our collaborators present projects to carry out to Mexicana del Cobre’s Sx/eW plant, as well as to their activities more safely and productively. the Lime Plant and the Santa eulalia Mine, as they reported the lowest incident rates in the industry, as well as for their efforts in accident prevention. 65 Thanks to our collaborators’ work and commitment, we have managed to re- duce the accident rate by 40% and their severity by 60% in the last 5 years. These efforts are a result of actions aimed to improve our processes to care for the physical integrity of our collaborators. InCIdenT RATe (IR) MINING DIVISION, 2012-2016 2016 2015 2014 2013 2012 0.75 0.69 0.84 0.94 1.06 IR = no. of incapacitating accidents Total no. of man-hours worked x 200,000 SeVeRITY RATe (SR) MINING DIVISION, 2012-2016 0.30 0.23 0.19 2016 2015 2014 2013 2012 0.49 0.61 SR = no. of days lost Total no. of man-hours worked x 1,000 GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID 66 Personal protection gear in central repair shop for underground mine equipment, Chihuahua, Mexico. OCCUPATIOnAL dISeASe RATe MINING DIVISION, 2012 - 2016 0.37 0.32 0.12 2016 2015 2014 2013 2012 0.47 0.61 67 ODR = Number of cases of occupational diseases Total man-hours worked x 200,000 OCCUPATIONAL HEALTH INVESTMENT IN HEALTH & SAFETY during 2016, we invested nearly US$133 million in occupational health and Healthy environments are part of our organizational culture and management system, as a safety, representing a 14% increase over 2015. These investments were responsibility of the company, which establishes a culture of involvement, participation, and made primarily in engineering works, purchasing personal protective gear, commitment, to generate better health conditions that lead to an increase in the quality of training and industrial hygiene studies. In occupational health, we invested life of our collaborators, their families, and the communities where we operate. in raising awareness, promotion and health protection, and early detection, treatment and rehabilitation in the company’s hospitals. Over the last 5 years, we have managed to reduce our occupational disease rate by 56%, thanks to various education, prevention, and risk control programs, as well as illness treat- ment. These programs are provided to our collaborators and, in some cases, family mem- bers, contractors, suppliers, institutions, and the public. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLIDFemale mining truck operators, Buenavista del Cobre, Sonora, Mexico. 69 68 INVESTMENT IN WORKPLACE SAFETY (US$ millions) Administrative costs Training Personal protective gear Industrial hygiene studies engineering works Total MINING DIVISION $ $ $ $ $ $ 5.43 5.01 10.28 18.56 86.81 126.10 INVESTMENT IN WORKPLACE HEALTH (US$ millions) Health awareness, promotion and protection detection and prevention Treatment Rehabilitation Total MINING DIVISION $ $ $ $ $ 0.99 2.30 3.31 0.03 6.64 GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID70 71 Transportation Division IN 19 YEARS OF OPERATION, WE HAVE CONSOLIDATED AS THE LEADING CARGO TRANSPORTATION COMPANY IN MEXICO. During 2016, we hauleD 54.445 billion tons-KM, thus enabling the railroaD to gain MarKet share within the total voluMes hauleD nationwiDe, froM 19% to 26%. Bulk hoppers. Although the results in US dollar terms were affected by the peso depreciation (17.7% in the year), operating results rose 0.6%, and eBITdA 11.5% over the previous period. The same concepts expressed in pesos show 18% and 31% growth, respectively. Intermodal train in rail corridor in the Cuyutlan Lagune, Colima, Mexico. 72 eBITdA US 2016 eBITdA US 2015 eBITdA Mxn 2016 eBITdA Mxn 2015 $ 774,961 $ 695,154 VAR: 11.5% $ 14, 441 $ 10,992 VAR: 31.4% In 2016, we remained the n° 1 railroad in interna- tional traffic, thanks to the sharp increase in border crossings, with a 56% share of railway exchange traffic with the US. Mexican freight trains remain the most competitive and productive in America. After the startup of operations of two assembly plants in 2016, vehicle production nationwide grew 1.95%. Out of every ten vehicles produced in Mexico, seven are hauled by our Transportation division. 73 GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID F.T. WORTH DALLAS LONGVIEW SHREVEPORT FT. STOCKTON 32 SAN ANGELO 33 34 SAN ANGELO JCT SPOFFORD EAGLE PASS HOUSTON IOWA MOBILE, AL NEW ORLEANS EL PASO 11 31 ALPINE 30 SAN DIEGO 1 WELLTON PHOENIX PICACHO TUCSON CLIFTON 2 3 4 5 6 74 GEOGRAPHIC LOCATION TRAnSPORTATIOn dIVISIOn - GRUPO MÉxICO 12 18 13 19 15 16 14 8 9 20 29 21 17 23 24 25 7 PACIFIC OCEAN LEGEND RAILWAYS GRUPO MEXICO 1 MEXICALI 2 NOGALES 3 4 5 6 7 8 9 10 11 12 13 14 B. HILL HERMOSILLO GUAYMAS TOPOLOBAMPO MAZATLÁN GUADALAJARA COLIMA MANZANILLO CD. JUÁREZ CHIHUAHUA ESCALÓN TORREÓN 15 FELIPE PESCADOR 16 AGUASCALIENTES 17 IRAPUATO 18 19 20 21 PIEDRAS NEGRAS CD. FRONTERA PAREDÓN MONTERREY 10 RIGHT OF WAY OTHER RAILWAYS 22 23 24 25 26 ALTAMIRA VIBORILLAS HUEHUETOCA VALLE DE MÉXICO VERACRUZ 27 COATZACOALCOS 28 SALINA CRUZ 29 SALTILLO 30 PRESIDIO OJINAGA 31 ALPINE 32 FT. STOCKTON 33 SAN ANGELO 34 SAN ANGELO JCT SAN ANTONIO CORPUS CHRISTI 22 GULF OF MEXICO 26 27 28 75 RAIL FERRY CENTRAL AMERICA GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLIDRELEVANT FIGURES GMEXICO TRANSPORTES (Millions of USd) 2015 2016 VARIANCE Vol. Transported (million tons-km) Cars hauled 54,220 54,445 225 1,210,057 1,231,539 21,482 Sales 1,890,863 1,767,303 (123,560) Cost of Sales 1,126,522 1,032,752 (93,770) Operating Profit 528,326 (7,134) 0.4% 1.8 % (6.5%) (8.3%) (1.4%) EBITDA 695,154 774,961 79,807 11.5% 777 7 EBITDA Mg (%) 36.8% 43.8% Net Profit 303,955 357,020 53,065 17.5% Profit Margin (%) 16.1% 20.2% Investments (Capex) 377,842 359,830 (18,012) (4.8%) Since the beginning of its operations, the Transportation division has im- plemented new operating practices, and carried out significant capital investments to reduce long-term risks and improve operating efficiency. The Transportation division offers railway cargo services in the segments of agriculture, automotive, minerals, energy, chemicals, steel, cement, and consumer goods. Regardless of the 0.4% increase in tons per kilometer hauled and a better rate mix, revenues accrued at december 2016 reported a 6.5% decrease in US dollar terms vs. the previous year, affected by the peso depreciation (17.7%). Revenues in peso terms showed a 9.8% rise, in line with volume and rate increases. IN 19 YEARS OF CONCESSION, WE HAVE INVESTED US$5.95 BILLION IN THE TRANSPORTATION DIVISION, ALLOCATED TO TO RAILWAY INFRASTRUCTURE, LOCOMOTIVES, AND RAILWAY MAINTENANCE, AMONG OTHERS. 76 TRANSPORTATION DIVISION Grupo Mexico’s Transportation division is represented by its subsi- diary, Grupo México Transportes, S.A. de C.V. (GMxT). Its main subsi- Bulk hoppers, Culiacan, Sinaloa, diaries are Grupo Ferroviario Mexicano, S.A. de C.V. (GFM), Ferrocarril Mexicano, S.A. de C.V. (Ferromex), Infraestructura y Transportes Ferro- Mexico. viarios, S.A. de C.V. (ITF), Ferrosur, S.A. de C.V. (Ferrosur), Intermodal México, S.A. de C.V. (IMex), and Texas Pacifico, LP, Inc. (TxP). GMxT is the largest railway company with the most extensive coverage in Mexico. It has a network of over 10,500 km of rails through 24 states in Mexico, and the state of Texas in the US. GMxT’s lines connect at five border points with the US, as well as at five ports on the Pacific Coast, and four more on the Gulf of Mexico. GMxT is controlled by Grupo Mexi- co (75%) and Grupo Carso-Sinca Inbursa (25%). Ferromex is controlled by GMxT (74%) and Union Pacific (26%). Ferrosur is fully controlled by GMxT, which holds 100%. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID WE HAVE 2.7 MILLION HORSE POWER TO HAUL 1.5 MILLION CARS PER YEAR. TRANSPORTATION DIVISION 2016 SALES DIVERSIFICATION BY SEGMENT The contribution to revenues of each segment at december 31, 2016, is displayed below: Containers, Intermodal Terminal, Silao, Guanajuato, Mexico. 78 79 Cement 4.1% Other revenues 5.2% Metals 6.6% Agriculture 29.5% ReVenUeS BY SeGMenT Energy 7.8% Intermodal 7.8% Chemicals 8.4% Minerals 8.6% Industrial 9.9% Automotive 12.0% Industrial 2,891 Automotive 2,809 Cement 3,028 Energy 3,781 Intermodal 4,312 Chemicals 4,857 Agriculture 20,063 54,445 TOnS-KM Steel 5,292 Minerals 7,412 Volumes transported during 2016 reached 54.445 bi- After the increase of operations of two assembly plants llion net tons per kilometer. The segments with the most in 2016, vehicle production nationwide grew 1.95%. growth were: steel (12%) due to greater penetration in Since 2015, the Transportation division has consolida- the traffic of the segment and a decrease in steel prices, ted as the largest automobile transporter in the country, which has increased exports and imports of both raw hauling 62% of the exports from the plants it serves, materials and finished products; Intermodal (7%), due particularly towards the US. to the increased traffic at the Manzanillo and Veracruz ports, as well as in the cross-border corridors of Piedras In the intermodal segment, we continued to grow with negras and Ciudad Juarez, which connect to north Ame- a 5.3% expansion in the volume of containers hauled, rican railroads; agriculture (3%), given the increase in the totaling 395,363. traffic of both national and imported harvests; and auto- motive (2%), given the increase in vehicle transportation, due to greater production by assembly plants. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLIDRAILROAD TRANSPORTATION HELPS TO CONSIDERABLY REDUCE POLLUTION, AS A SINGLE TRAIN IS EQUIVALENT TO OVER 300 TRUCKS DRIVING ALONG THE ROAD NETWORK. IT ALSO REDUCES AUTOMOTIVE TRAFFIC AND THE NUMBER OF ROAD ACCIDENTS. AC Locomotive. 80 IN 2016, WE GENERATED A RECORD EBITDA OF US$775 MILLION, WITH A RECORD MARGIN OF 44%. The cross-border service increased container volumes by 23%, thanks to new traffic of auto parts and household appliances, mainly. In July 2016, a new service began on the Inter Pacific corridor with a 81 terminal in Culiacan. Significant achievements were made throughout the year in other segments as well, such as the hauling of 25 million tons of agricultu- ral products, thus guaranteeing supply in the country. TRANSPORTATION DIVISION MARKET SHARE LAND TRANSPORTATION MARKET SHARE TRUCK OTHERS FERROMEX 80% 20% *TKN’S expressed in billions % 5 6 % 5 3 75% 25% *TKN’S expressed in billions % 5 6 % 5 3 1999 239 TKN’S 2015 328 TKN’S GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID Automaxes in San Jose Chiapa, Puebla, Mexico. 82 CAPITAL INVESTMENTS TRANSPORTATION DIVISION The Transportation division invested US$360 million in 2016. Among other segments, the investments were allocated to the acquisition of 50 locomotives, infrastructure improve- ments, repairing railroads, expanding and building sidings and yards, and purchasing railway machinery, increasing ca- pacity, speed, service, and efficiency. GMéXICO TRANSPORTES, S.A. DE C.V. MAINTENANCE INVESTMENTS Millions of USd Railway Maintenance and Improvement $ 4,146 equipment Others Telecommunications Total $ 1,237 $ 342 $ 222 $ 5,947 83 GRUPO MEXICOTOTALLY SOLIDBulk Train. TRANSPORTATION DIVISION RESOURCES FERROMEX FeRROSUR TXPT IMex TOTAL Railway network (Km) 8,131 1,823 616 Engines Cars Workers/Employees Productivity (million of TKN/worker) 612 23,983 7,570 6.1 200 4,674 1,930 4.4 20 - 55 10,570 832 28,657 629 10,184 84 85 SALES BY SEGMENT (Million USd) Agriculture Automotive Industrial and Others Minerals Chemicals and Fertilizers Intermodal Energy Steelmakers Cement 2016 29.5% 12.0% 9.9% 8.6% 8.4% 7.8% 7.8% 6.6% 4.1% 2015 28.2% 12.0% 10.6% 9.7% 2016 2015 VAR % $ $ $ $ 521,771 212,924 175,117 152,255 $ $ $ $ 532,375 (2.0%) 227,454 (6.4%) 200,411 (12.6%) 184,274 (17.4%) 8.5% $ 148,234 $ 159,806 (7.2%) 7.4% 7.8% 6.2% 4.4% $ $ $ $ 138,393 137,181 116,965 71,969 $ $ $ $ 139,364 (0.7%) 148,026 (7.3%) 117,267 (0.3%) 83,033 (13.3%) Subtotal freight 94.7% 94.7% $ 1,674,809 $ 1,792,010 66.5% Other income 5.2% 5.2% $ 92,494 $ 98,853 (6.4%) Total income 100.0% 100.0% $ 1,767,303 $ 1,890,863 (6.5%) TRANSPORTATION DIVISION eBITdA Margin % 2016 2015 2014 2013 2012 43.8% 36.7% 34.5% 34.1% 34.1% GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID86 87 Infrastructure Division WITH 80 YEARS OF TRACK RECORD, THE INFRASTRUCTURE DIVISION HAS CONSIDERABLE EXPERIENCE REFLECTED IN ITS GROWTH. the Division’s ebitDa increaseD 4.4x in the last four years froM us$63 Million in 2012 to us$279 Million in 2016. Sunset at combined cycle energy plant Nacozari, Sonora, Mexico. 1 2 88 89 GEOGRAPHIC LOCATION InFRASTRUCTURe dIVISIOn - GRUPO MexICO ASSETS 1 2 3 4 5 6 7 8 9 CANANEA COMBINED CYCLE PLANTS, 500 MW LEON-SALAMANCA HIGHWAY HEADQUARTERS, MEXICO CITY LAND-DRILLING BAZE, POZA RICA, VERACRUZ EL RETIRO, WIND FARM, 74 MW ZACATECAS JACK-UP CHIHUAHUA JACK-UP VERACRUZ JACK-UP 10 SONORA JACK-UP 11 TABASCO JACK-UP 12 OFFSHORE DRILLING RIG. CD. DEL CARMEN, CAMPECHE 13 CAMPECHE JACK-UP 14 GUADALAJARA 15 IRAPUATO 16 MONTERREY PACIFIC OCEAN LEGEND 1 PEMSA 2 MGE 3 MCC 4 ROAD 16 14 3 15 5 GULF OF MEXICO 8 13 4 9 7 12 11 10 6 CENTRAL AMERICA GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLIDCampeche Jack-up structure. FINANCIAL HIGHLIGHTS (MPd) 90 INFRASTRUCTURE DIVISION Sales Cost of Sales Operating Profit EBITDA EBITDA Mg (%) Net Profit Profit Margin (%) Investments- (Capex) 2015 616,183 283,723 218,857 308,922 50.1% 128,710 20.9% 89,534 2016 608,265 315,645 167,644 278,631 45.8% 94,287 15.5% 14,830 VARIANCE (7,918) 31,922 (51,213) (30,291) (1.3) 11.3 (23.4) (9.8) (34,424) (26.7) 91 (74,704) (83.4) THE DIVISION’S EBITDA HAS HAD A 30% CAGR FROM 2012 TO 2016. The Infrastructure division is represented by México Proyectos y de- Sales in the Infrastructure division in 2016 totaled US$608 million, 1.3 lower than in sarrollos, S.A. de C.V. (MPd). Its main subsidiaries are: Controladora 2015. This decrease was mainly due to the rise in Fx throughout the year. Sales in de Infraestructura Petrolera, S.A. de C.V. (CIPeMe), Controladora de peso terms showed a 15% increase from the previous year. Infraestructura energética México, S.A. de C.V. (CIeM), México Com- pañía Constructora, S.A. de C.V. (MCC), Concesionaria de Infraestruc- eBITdA totaled US$279 million, translating into a 10% decrease from 2015. This tura del Bajío, S.A. de C.V. (CIBSA) and Grupo México Servicios de decrease is explained, among other reasons, by the adjustment in PeMSA’s rates, Ingeniería, S.A. de C.V. (GMSI). Grupo Mexico controls 100% of all the increase in gas prices, the lower revenues from the Sonora platform, and the de- these subsidiaries. creased volume of work to complete the Salamanca-Leon Highway in 2015. CIPeMe offers marine drilling services for oil production and explora- In 2016, we invested US$26.5 million in the Infrastructure division. The investments tion, as well as comprehensive drilling services, including cementation include US$10.1 million for the optimization of the Zacatecas platform, and the Tam- engineering, and directional drilling. CIeM produces energy, mainly for aulipas modular platform. Likewise, US$11.6 million was invested in the last works self-consumption. MCC and GMSI offer engineering, procuring, and in- for the Salamanca-Leon Highway, which was reported as an intangible asset as it is frastructure construction services, as well as specialized engineering a concession. services to develop projects. CIBSA is the concessionaire that runs the Salamanca-Leon superhighway. This year, we will consolidate the operations of the assets developed in the last few years. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID92 OIL AND GAS SECTOR Veracruz modular platform. 93 CONTROLADORA DE INFRAESTRUCTURA PETROLERA MÉXICO, S.A. DE C.V. (CIPEME). In 2016, Controladora de Infraestructura Petrolera Mexico obtained US$174 million in revenues and US$90 million in eBITdA, with a net profit of US$18 million. Although in 2016 two of our drilling rigs underwent suspensions in two periods, while we experienced an additional reduction in sales, we achieved 52% eBITdA. MARINE DRILLING As a result of the low oil prices, we ended the year with six active contracts, three of them in continuous operation (Campeche, Tabas- co, and Chihuahua platforms), two temporarily suspended (Zacatecas and Veracruz platforms), and one awaiting structure from Pemex to be installed (Tamaulipas platform). Only the Sonora platform is under no contract. The platforms’ operating efficiency during 2016 was 97%. GRUPO MEXICOTOTALLY SOLID THROUGHOUT 2016, WE MAINTAINED AN AVERAGE EFFICIENCY OF 97% IN OUR PLATFORMS, THUS REMAINING AS THE INDUSTRY LEADERS. 94 third party immediately. 95 The Sonora platform completed its major maintenance to preserve its class certificate and be suitable for leasing to Pemex or some other The Chihuahua platform reached 98.94% productivity, standing out as reporting the best performance among our platforms. This resulted in a contract extension to September 1st, 2017. Moreover, its tech- nological capacity to operate with 18-3/4” preventers and 15,000 psi gush control system was increased. The Zacatecas platform had 97.18% productivity. On november 16, 2016, it entered suspension and is currently awaiting workload. The Tabasco platform increased its productivity to 98.67% and has an active contract ending March 16, 2022. The Campeche platform achieved 97.25% productivity and has an active contract ending August 11, 2021. The Veracruz modular platform achieved 97.27% productivity with an active contract ending September 5, 2020. The contracting of the Tamaulipas modular platform was postponed by Pemex until mid-2017, and the contract will end January 6, 2021. Veracruz modular platform. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLIDTHROUGH TWO COMBINED CYCLE PLANTS (500 MW) AND THE EL RETIRO WIND FARM (74 MW), THE ENERGY DIVISION GENERATED 3,137 GIGAWATT HOURS (GWH), TRANSLATING INTO A 14% INCREASE VS. THE PREVIOUS YEAR’S PRODUCTION. ENERGY LAND DRILLING CONTROLADORA DE INFRAESTRUCTURA during 2016, a contract for comprehensive services ENERGÉTICA MÉXICO, S.A. DE C.V. (“CIEM”) 96 was signed with Geodesa, in alliance with Weatherford, As for production and sales, 2016 was a record year for under which we drilled three geothermal wells and re- the energy division. The generation plant’s operational in- paired two others, with 95% productivity. crease in nacozari, Sonora, given higher demand from EVALUATION OF NEW OPPORTUNITIES hike. This translates into a 6.3% increase compared to Throughout 2016, the opportunities in the bidding 2015. In addition, we achieved US$117 million in eBITdA. our self-supply partners, resulted in a US$256 million rounds of the national Hydrocarbons Commission (CnH in Spanish) were assessed, as were the biddings for Grupo Mexico energia focused on the construction of a Pemex farmouts. We decided not to participate in the portfolio of assets under development that will enable it biddings of round 1.4 (deepwater), given the high level to invest in the short and medium term. Currently, we of risk and ratings required. In 2017, we will consider are working on the initial development stages of solar MÉXICO GENERADORA DE ENERGÍA (MGE) participating in rounds 2.1, 2.2, and 2.3 (land and wa- projects, and analyzing opportunities to acquire renew- The generation plant increased its production by 14% vs. 2015, equivalent ter fields), and present our bids in June. able energy project portfolios. to 3,137 GWh, given the increased consumption by the Buenavista del Cobre mine. This translated into a record US$244 million and US$100 Regarding off-shore operations, the strategy is to di- The energy division is preparing itself with technical and million in eBITdA. versify our client base; thus, we have presented com- human capital resources to be able to participate in the prehensive drilling proposals for several new operators, new Wholesale electricity Market. Thus, in 2017, we are The combined cycle generation plants have proven that they can operate which we expect to complete during 2017. projecting using growth opportunities. above their design capacity. Thus, we expect the excess capacity to be traded on the new market during the second half of 2017 to increase revenues and operating efficiency. 97 View of combined cycle plants Nacozari, Sonora, Mexico. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID We have a capacity of 574 (MW) of energy generation, with state of the art technology. Wind farm, Juchitan, Oaxaca, Mexico. 98 By the second quarter of 2017, we expect to begin sell- Mexicana de Cobre, S.A. de C.V. ing energy at 45 more points of sale to increase the wind during the year, we worked on the construction of rais- farm’s profitability; this would translate into a portfolio with ing the levee of tailings dam no. 7 at the La Caridad 350 points of sale. mine in the nacozari de Garcia municipality in Sonora, reaching the safety height of 875.0 for the levee. In 2016, we strengthened our relations with the commu- nity where we operate, fostering 17 productive projects, Ferrocarril Mexicano, S.A. de C.V. which benefited over 3,000 individuals in La Ventosa, Oax- In 2016, we completed the first stage of the expan- aca. This effort ensures the wind farm’s continuing oper- sion of the 15-tunnel gauge on the T Line, in the ation in the area. Guadalajara division, consisting of in the topograph- CONSTRUCTION ic, geological, and geophysical studies, as well as the 99 executive project, and the construction works. In May 2017, we will complete the expansion works on all the MÉXICO COMPAÑÍA CONSTRUCTORA, S.A. tunnels, enabling double-stack trains to pass on DE C.V. (MCC) the Guadalajara-Tepic stretch. In 2016, Mexico Compañía Constructora celebrated 80 years of uninterrupted work, reporting US$122.5 mil- MANAGEMENT OF QUALITY, OCCUPATIONAL lion in revenues and US$37 million in eBITdA. SAFETY, AND ENVIRONMENTAL CARE Throughout 2016, MCC achieved the rectification of its MAIN WORKS UNDER DEVELOPMENT: comprehensive management systems in compliance Secretaría de Comunicaciones y Transporte (SCT). with current national and international legislation; Quali- We worked on the Leon and Silao’s Puerto Interior branch ty ISO9001:2015, Workplace Health and Safety OHSAS We should note that, in terms of safety, by the end of 2016, we had accrued 1,192 days lines, both in Guanajuato, in the right-of-way areas that 18001:2007, and environmental ISO 14001:2015, which without incidents. Moreover, during the year, MGe received an acknowledgement from the the SCT was able to release. We expect to complete them backs the company until 2019. This certification has been Federal environmental Protection Agency (PROFePA in Spanish) and Civil Protection of the in 2017. held since 2007. State of Sonora, for participating in activities designed to foster the creation of the national Preparedness and Response for Chemical Contingencies day (dInAPReQ in Spanish). Buenavista de Cobre, S. A. de C. V. The performance in workplace health and safety is in full EL RETIRO WIND FARM (ERSA) ings dam no. 3, and we continued the works on stage 2 The wind farm’s production reached 214,000 megawatts-hour (MWh), translating into of the new tailings pond, guaranteeing an overflow ca- • In our operations, we had a monthly workforce of US$11.7 million in revenues, thanks to the incorporation of higher consumption clients. pacity in the 10-meter levee. We completed the works 1,805 collaborators, accruing 5,120,754 man-hours This translated into a US$16.5 million eBITdA. on the Quebalix IV dam, as well as the construction of per year, achieving the goal of zero fatal incidents. Work was done to reinforce and give maintenance to tail- legal compliance, and we can note that: the contingency dam, and of the recovered water dam. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID IN OUR OPERATIONS AT MéXICO COMPAñíA CONSTRUCTORA, WE HAD AN AVERAGE MONTHLY WORKFORCE OF 1,805 COLLABORATORS, WITH AN ANNUAL ACCRUED FIGURE OF 5,120,754 MAN-HOURS, MANAGING TO ACHIEVE THE GOAL OF ZERO FATAL INCIDENTS. Toll-road Salamanca - Leon, Guanajuato, Mexico. 100 101 GRUPO MéXICO AUTOPISTAS • Additionally, we achieved accident rates below the • Railway construction to service the new Mexico City In 2016, sales in peso terms grew 15% to Mxn$312 averages reported by OSHA (US) and the Mexican International Airport (nAICM in Spanish). million, given the progress on the engineering works of CONCESIONARIA DE INFRAESTRUCTURA DEL Chamber of Construction Industry (CMIC). • Possibility of obtaining a state concession for a the Toquepala expansion in Peru. 12.5-kilometer road stretch, from the Silao road BAJÍO, S. A. DE C. V. (CIBSA) during 2016, the Salamanca-Leon Highway reported environmental and quality performance audited and cer- junction of the Salamanca-Leon highway to connect For 2017, we expect to continue the Toquepala expan- over $535 million pesos in revenues, and achieved a tified by third parties is in compliance with all regulation with highway 45. sion project which, through december 2016, reported weighted traffic rate of 11,633 vehicles per day, trans- and specifications of the company’s construction projects. 87.3% progress; the remainder will be completed in lating into an increase of slightly over 50%. POSSIBLE PROJECTS 2017 • Expansion of the levee of the No. 7 tailings dam in GRUPO MéXICO SERVICIOS DE INGENIERíA the first months of 2017. POSSIBLE PROJECTS 2017 and a slightly higher advance in revenues, given that In 2017, we expect a moderate 10% increase in traffic, nacozari. GRUPO MÉXICO SERVICIOS DE INGENIERÍA • Engineering for petrochemical complexes. the vehicle mix is starting to include a greater number • Construction of the Celaya railway bypass. S.A. DE C.V. (GMSI) • Engineering for new production plants in the food of trucks. We also expect to obtain the necessary per- • Construction of railways and supply zone of the during 2016, sales totaled US$16.8 million, 1% less industry. mits for the last stretch to reach the south side of the new Rio escondido yard, km 21, R Line, Piedras than in 2015, given the effect of the Mexican peso • Engineering for gasoline, diesel, and wholesale prod- city of Leon, and the branch line to Puerto Interior. The negras - Ramos Arizpe. depreciation. uct terminals. Highway is operated through a subsidiary of the Group: • Engineering for mining projects. Operadora de infraestructura del Bajío, registered be- fore the SCT and certified with iSO 9001-2015. ANNUAL REPORT / 2016 TOTALLY SOLID 102 103 Fundación Grupo México AT FUNDACIÓN GRUPO MéXICO, WE FOCUS OUR EFFORTS ON PROJECTS THAT WILL IMPACT SOCIETY, AND WILL ALSO TACKLE THE PROBLEMS THAT OUR COUNTRY FACES. this is why we are very prouD to announce in each annual report the start of a new proJect. Girls in Oaxaca benefited through the World Food Day event. EDUCATION AND ENVIRONMENT 104 Educational material on sexuality, nutrition, addictions, and violence for children, adolescents, elementary school teachers. 105 HEALTH AND LIFE EDUCATION It is well known that on the topic of education, Mexico has faced many difficulties; the current administration has proposed a complete structural overhaul. Thereby, Fundación Grupo México has taken advantage of this juncture to develop and propose, with great acceptance, the Health and Life Education materials and educational platform. The goal of these materials is to complement the educational support provided in elementary schools around the country, to assist in solving various social issues experienced in our society. The contents of the edu- cational materials cover topics of greater interest and conflict among chil- dren and teenagers. Therefore, we have developed two versions—one for elementary school children and teachers, and one for middle school kids and their teachers. Elementary: 1. I eat, nourish myself, and have fun 2. I learn to protect myself from violence 3. What are addictions? How to decide 4. My body is to be respected! GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLIDONLY TWO WEEKS SINCE ITS LAUNCH, TWO THOUSAND PROFESSORS HAVE SIGNED UP, WHICH IS A RECORD FIGURE, PARTICULARLY IF WE NOTE THERE IS NO OTHER MATERIAL OR DIGITAL PLATFORM LIKE IT. Middle school: Together with the national educators Union (SnTe in 1. I identify violence and protect myself Spanish), Fundación Grupo Mexico made a topic guide 106 2. Addictions? Maximum alert! of each educational material to match it to the annual 3. To eat better planning guide from the Ministry of education (SeP). 4. Regarding my body, I decide! This alliance offers all teachers the possibility of using these materials within their teaching guide, and it can General for parents and teachers help and guide them so they can have the necessary 1. I eat, enjoy, and nourish myself tools to properly use the contents in the classroom, know which of the students’ abilities is favored, and in Our educational platform www.educacionsaludyvida.org what subjects they can provide the information proper- became operational in October this year. Only two weeks ly and precisely. We are very pleased that, after only 3 after its launch, two thousand teachers have registered, months, the response has been so great that we ended which is a record figure, particularly if we note that there the year with 4,938 active users. Animal Heroes, Sura, Fundación Posadas, and Hogan Lovells. These actions impacted is no material or digital platform like it in our country. It is a very important achievement for us to be the first REFORESTATION 192,000 inhabitants of the neighboring areas. to directly impact the whole country’s educational com- during 2016, we carried out the 6th Fundación Gru- Through our support of the Made in Mexico program with the “Mexico in 1 image, 1 munity on matters unrelated to academics. Through the po Mexico Tree Planting day in Huixquilucan, State of Photo=1 Tree” Contest, 40,000 trees were planted in Metepec, State of Mexico. This platform, visitors can download educational material, and Mexico. during this event, 6,000 trees were planted on project, which encourages participants to take quality pictures and “trade” them for a be active on the various forums, where they can discuss 4 hectares. As in the last 6 years, we had 608 volun- tree, has had a significant response since its first edition some time ago. now, in 2016, their questions, experiences, or request legal, psycholo- teers including employees and family members of Grupo the family members of participants and people from the communities to be reforested gical, or judiciary assistance. Likewise, we have experts Mexico, Intermodal, Ferromex, Ferrosur, and Cinemex. joined the contest; thus, the number of trees planned for reforestation was doubled. on the various fields that we cover, who write articles of This year we added new allies who are interested in interest and provide knowledge for all platform users. building a community with environmental awareness: The goal of the contest is to express through photos: Why are you proud of being Mexican? And it is divided into three categories: Professional, amateurs, and a special category for, people with down syndrome. 107 Sixth Fundación Grupo México Tree Planting Day in Huixquilucan, State of Mexico, Mexico. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID For every photo registered, Fundación Grupo México dona- 2,810 students in the states of Sonora and Colima. In tes a tree. The 50 photos with the most votes are currently 2016, 613 students graduated (413 high school stu- on display at the Soumaya museum and will later be dis- dents in Sonora, 100 university students in Sonora, and played in Puebla, Monterrey, and the State of Mexico. 100 high school students in Colima). In parallel with the work performed by our volunteers and WORKSHOPS through the Made in Mexico program, we have created Together with Fundación nemi, 129 workshops, which various alliances with municipal and state governments currently have a greater social impact, have been offe- and institutions committed to the environment, impac- red in 61 middle and high schools in Sonora, Baja ting 3,427,725 people in 9 states around the Republic, California Sur, Zacatecas, and Chihuahua, assisting and High school students benefited from financial education workshops in Guerrero Negro, Baja California Sur, Mexico. 108 planting 400,900 trees on 403 hectares in: guiding 11,629 students: 109 1. State of Mexico 2. nayarit 3. Puebla 4. Veracruz 5. Michoacan 6. San Luis Potosi 7. Chihuahua 8. Mexico City 9. Jalisco 1. Violence 2. Sexuality 3. nutrition 4. Addictions 5. Financial education 6. Life Plan 7. Intelligent communication FREE TRANSPORTATION SIERRA TARAHUMARA Through all the above, the reforestation actions carried With the assistance of Ferromex, this year 860 tons out translate into 3,619,725 people impacted through of goods were transported free of charge, impacting the planting of 410,990 trees on 411 hectares in 9 sta- 17,230 people in 3 Tarahumara communities: Cre- tes around the Mexican Republic. el, Cuauhtemoc, and Temoris, Chihuahua, through our collaboration with Banco de Alimentos de Cuauhtemoc SCHOLARSHIP PROGRAM A.C., Comunidad educativa Yermista, Fundación educa- Through the alliance created 6 years ago with Fun- tiva Marista Tarahumara A.C., Casa Misión Sta. María de dación Televisa, scholarships have been awarded for Guadalupe, Santa Teresita clinic, and Tewecado Santa high school and public and technological universities to María de Guadalupe. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID110 Chiapas community benefited through the World Food Day event. In Chihuahua, 60,492 people are illiterate and 772,000 The states that dr. Wagon visited are: Sinaloa, nayarit, have not completed their elementary education. Thus, Jalisco, Colima, Guanajuato, Querétaro, Hidalgo, Puebla, jointly with the Chihuahua Institute for Adult education Veracruz, Coahuila, nuevo León, Zacatecas, and Sono- (ICHeA in Spanish), the Chihuahua entrepreneur Foun- ra. They served the following communities: Sinaloa de dation (FeCHAC in Spanish), and Proeduca Chihuahua Leyva, Guasave, Salvador Alvarado, Acaponeta, Ruíz, A.C., we began the “Plaza Movil Parral” program in April; Compostela, Tequila, Sayula, Tuxpan, Colima, Coquimat- this is a bus that visits 40 communities around Parral, lan, Tecoman, Celaya, Silao, Apaseo el Grande, Tequis- Chihuahua, to assist adults over 15 years old to begin quiapan, Huicha pan, San Martin Texmelucan, San Jose or complete their elementary or middle schooling. In 8 Guerrero, Cañada Morelos, Jose Azueta, Cordoba, Acul- months of operation, we have provided 1,280 adults tzingo, nava, Muzquiz, San Pedro, Hidalgo, Monte More- with ongoing literacy and elementary and middle school los, Linares, Calera, Fresnillo, Felipe Pescador, Benjamín 111 certifications vouched by the Ministry of education. Hill, Carbo, and Guaymas. Thanks to this project, in only 8 months of operation, Thanks to the alliance with Fundación Farmacias del 650 adults have completed their elementary ed- Ahorro, 64,741 medicines were provided free of ucation and 350 their middle school. The commit- charge to patients served by the Health Train to begin ment of the institutions participating in this project is to a timely medical treatment. Likewise, with the assis- help 18,000 adults certify their elementary and middle tance of Fundacion MVS Radio and the “Ponte Oreja” school education over the next 15 years. program, 200 hearing aids were provided to people HEALTH TRAIN who, during their hearing checkup, were found to have some hearing “problem”. Simultaneously, our optome- try service performed visual checkups and diagnoses WORLD FOOD DAY INVITATION dr. Wagon, the Health Train, has been operating for two and delivered 7,249 eyeglasses. Through the alliance formed with Fundación CMR and HSBC years ago, Fundación years, providing comprehensive medical services free Grupo Mexico is part of the “World Food day” event, a project whose goal is to of charge to highly marginalized communities in the vi- The Health Train’s operation seeks to cover all the fields eliminate child malnutrition in children under 5. This program benefited four insti- cinity of Ferromex’s tracks. during 2016, the Health that will help to strengthen the health of all its patients. tutions, jointly serving 728 children suffering from malnourishment. Train offered 184,928 free medical assessments to Our Health and Life education workshops offered to PLAZA MOVIL PARRAL 45,573 people including children, women, men, and patients while they wait for their appointment have been senior citizens. very well received. People participate, ask questions, This project has filled us with satisfaction. education is not only the key to many doors, and show interest. Many people approach our workshop but also to the “world of knowledge and learning, and this “world” can provide us with during 2016, our Train covered 12,796 km in 13 states of instructors requesting psychological and emotional the opportunity to live a different life, as it gives us tools for wellbeing.” the Mexican Republic, serving patients in 35 communities. assistance. The workshops offered cover not only self- GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID 112 Dr. Vagón The Health Train. 113 care and prevention, but this year we also included dental emergencies, Lactation, Child nutrition and growth, 28,000 Grupo Mexico volunteers participated in this program on a workshops covering the sanitary contingencies that effective education, and Sexuality, HIV and AIdS prevention. national level, in Peru, and in the US, benefiting schools, public spac- have been present lately: zika, dengue, chikungunya, and rickettsia viruses. during 2016, 22,975 people SOCIAL LIAISON es, and social institutions through some of the following activities: Volunteers participating in Fundación Grupo Mexico’s Volunteer Day. attended the 803 workshops offered. For the fourth consecutive year, the employees of Gru- • Outdoor and indoor painting po Mexico’s member companies and their families par- • Infrastructure improvement At Fundación Grupo Mexico, we are interested in ticipated as volunteers, channeling their selfless work, • Rehabilitation of recreational areas providing knowledge, skills, and attitudes for an efficient joining forces, and multiplying efforts to benefit those in • Outdoor and indoor cleaning performance by the medical personnel who collaborate most need in the communities where they operate. • Reforestation of green areas with the Health Train. In 2016, we carried out a program of 10 monthly conferences with relevant healthcare topics, As of 2016, given the success and impact of this pro- attended by 333 participants. Some of the conferences gram, these social activities were extended to commu- offered were: Alcohol Myths and Realities, Palliative Care nities in Peru and the US, through the participation of and Thanatology, Physical Activity and Health, How to have collaborators from Grupo Mexico’s companies: Southern a healthy and adequate nutrition, early child development, Copper Corporation and ASARCO. 28,000 GRUPO MEXICO VOLUNTEERS PARTICIPATED THROUGH THIS PROGRAM NATIONWIDE, IN PERU, AND IN THE US. ANNUAL REPORT / 2016 TOTALLY SOLIDVolunteers participating in Fundación Grupo Mexico’s Volunteer Day. 114 115 The benefited communities were: MEXICO 1.- Baja California Sur: Guerrero negro 2.- Campeche: Ciudad del Carmen 3.- Coahuila: Torreon, nueva Rosita 4.- Chihuahua: Chihuahua, Santa Barbara, Santa eulalia, Parral 5.- Guanajuato: Irapuato, Leon 6.- Guerrero: Taxco 7.- Jalisco: Guadalajara 8.- Michoacán: Angangueo 9.- Oaxaca: Juchitán de Zaragoza 10.- San Luis Potosí: Charcas, San Luis Potosi 11.- Sonora: Guaymas, Agua Prieta, Hermosillo Cananea, nacozari, esqueda 12.- Zacatecas: Sombrerete 13.- Veracruz: Veracruz 14.- Mexico City UNITED STATES 1.- Texas: Amarillo 2.- Arizona: Tucson, Sahuarita, Marana, Kearny, Hayden PERU 1.- Moquegua: Ilo GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID A YEAR SINCE THE NETWORK PLATFORM HAS BEEN FUNCTIONAL, WE HAVE 51 MEMBERS INCLUDING BUSINESS FOUNDATIONS AND SOCIALLY RESPONSIBLE ENTREPRISES. 1. Fundación Herdez 2. Anáhuac Querétaro 26. Gas Natural Fenosa 27. Asociación de Bancos de México 3. 4. 5. 6. Fundación Farmacias del Ahorro (ABM) Fundación CMR Volaris 28. Ford Motors 29. Hogan Lovells BSTL, S.C. Fundación del Empresariado 30. Fundación ABC 117 Chihuahuense (FECHAC) 7. Universidad la Salle México 31. Fundación Axa 32. Fundación Acir 8. 9. Fundación Gigante Fundación Helvex 10. KPMG 33. Nacional Monte de Piedad 34. Teletón 35. Appleseed México 11. Centro Mexicano Pro bono 36. Fundación Grupo Posadas (CEMPRO) 12. Danone/Bodafont 13. IBM 14. Pfizer 37. Deloitte 38. Sura 39. Fundación Proempleo 40. Fundación del Empresariado 15. Fundación Social del Empresariado Yucacateco (FEYAC) Jalisciense (FEJAL) 41. Fundación Televisa 16. Dentalia 17. Fundación MVS 18. Banco HSBC 19. Nestlé 20. Restaurantes Toks 21. Fundación Chedraui 22. Fundación Kalúz 23. Fundación GIN 42. Fundación Motorola México 43. Fomento Cultural Banamex 44. Red Probono México 45. Fundación Mapfre 46. Fundación Paloma 47. VINOMEX / FECHAC 48. Fundación Gentera 49. Samsung México 116 NETWORK OF BUSINESS ASSOCIATIONS AND FOUNDATIONS The network is an alliance among Business Foundations • Civil Associations and companies with social activities who join to align the • Public Charities options of assistance and thus achieve a unification of • Private Welfare Institutions social work in our Country. Likewise, within the network, • NGOs all the Charity Organizations registered find a unique space to become professional and get training under On the network’s digital platform: www.RedAsocia- the international criteria that guide social activity. Affili- ciones.com, Charity Organizations create sinergies ation to the network is absolutely FRee. The network is with other organizations, receive legal and tax advice, open to: receive constant on-line training, and attend the mul- tiple workshops that the network offers. All this, under • Business Foundations international standards and free for the 985 nGOs that, • Companies with Social Activity so far, are members of the network. 24. Instituto Tecnológico de Monterrey 50. Conservation International • Charity Organizations campus Monterrey ITESM Mexico A.C. 25. Fundación José Cuervo 51. Corresponsables GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID 118 PACIFIC OCEAN GULF OF MEXICO In some of the most outstanding segments, we find that 31% are organizations related to the environment, animal protection, and community development, 27% are organizations related to citizen participation, research, human rights, indigenous rights, consulting, legal attention; 24% are organizations related to education, healthcare, and nutrition, philanthro- py, and sports; and the remaining 18% are organizations in various sectors, such as legal counseling, art and culture, and services for the disabled. SPAIN Valuable information for the business organizations and foundations is offered on matters of social responsibility, fiscal reforms, calls for funds, and news on relevant social issues. 119 each month, the organizations receive in their email the monthly newsletter listing the most important events of the month within the network: Upcoming workshops, invita- tions, events, etc. Business Foundations and companies with social activity that are part of the network shared over 12 calls for funds, sustainable, or social projects of interest CENTRAL AMERICA for the organizations. THIS YEAR, THE NETWORK SUPPLIED 48 FREE LEGAL COUNSELING SESSIONS PROVIDED BY OUR ALLIES TO THE ORGANIZATIONS IN THE NETWORK. PRESENCE NETWORK OF BUSINESS ASSOCIATIONS AND FOUNDATIONS CHILE ARGENTINA Likewise, through the network, 41 national and international invitations from various insti- tutions such as the embassies of Japan, new Zealand, Canada, or Germany, and interna- tional institutions like USAid, Un Americas, Wingu Argentina, and Ford Foundation, among others, were announced. This year, the network provided to its organizations 48 free legal counseling sessions via our allies AppleSeed México, Red Pro bono México, Centro Mexicano Pro bono (ceMPRO), and important firms such as Hogan Lovell’s BSTL, Fundación Basham, and others. These institutions offer free legal advice to the organizations on various matters such as: fiscal, labor, and notary matters, changes in their corporate purpose, changes in powers, CLUnI processing, procedure to set up as an authorized tax-exempt organization, counseling on establishing a foundation or society, among others. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID 120 121 EDITORIAL FUNDACIÓN GRUPO MéXICO gory, for the Gourmand World Cook Awards 2017, to be during 2016, 29 premieres were held and the 26 participating institutions thus “Chiles” Chili was the ingredient we chose to continue with our held in Yantai, China, in May 2017. We would like to note directly benefited 53,498 people. collection of ingredients of Mexican origin. This book, as that our books are already for sale in various bookstores, all the previous ones, aims firmly to safekeep in a mem- as the purchase serves to aid various institutions in con- Most distributors have supported the program from the start, and some new ones have orable document the cultural and gastronomic wealth of tinuing their social work. joined recently. The trust given is a result of the care that Fundación Grupo Mexico and Cin- seventh book in the Xocoyo collection. this ingredient, used in many cuisines around the world. Through this edition, we assisted Centro de Atención a CINEMEX AWARENESS niños de la Calle Betesda I.A.P., which provides shel- emex place in the handling of their titles and the program itself. We are constantly working with other distributors to develop new alliances, and thus have more titles to hold premieres. ter and a family environment and care for boys aged 3 Charity Premieres SOCIAL MESSAGING “CINEMINUTO” to 17, who have been abandoned and live in extreme As is known, together with various allied film distrib- Through this program, we spread and promote the organizations’ social work. during poverty in the communities of the navojoa municipality utors, through this program we provide a fundraising 2016, 13 organizations displayed the Cineminuto of their cause over 4 weeks at in Sonora. In addition to a safe home, Bestesda, I.A.P, tool so the participating nGOs can carry out a specific 220 theaters. Thus, we posted 2,786 copies reaching 26,189,152 spectators. The provides these boys with clothing, food, education, and project to further their cause. Through this program, we Cineminutos displayed this year:John Landon down, Children International, Hábitat medical and psychological care, to help them achieve encourage their active work, as these organizations are para la Humanidad, Únete, Fundación Luis Pasteur, Olimpiadas especiales, ORT Méxi- a healthy physical and mental development. The book in charge of the sale of the premiere assigned, while co, Fundación Clínica Médica Sur, expo Fundación y Congreso, Convivencia sin Violen- “Chiles” is nominated under the Historical Recipes cate- Fundación Grupo México also doubles the sum raised. cia, Fundación cMR, TeCHO México and FeCHAC. ANNUAL REPORT / 2016 TOTALLY SOLIDSeventh Cinemex Race In benefit of the Special Olympics. 122 123 CINEMEX RACE The Cinemex Race is an event with a cause that benefits an organi- zation that we select carefully each year. This year, thanks to all the runners of our race, we provided assistance to Olimpiadas especiales de Mexico A.C. to carry out the “Somos más que deporte” project. This project will benefit 28,309 people with various intellectual disabil- ities, and ongoing free training for a year in Olympic sports, such as gymnastics, swimming, and figure skating, among others. Thorugh this program, participants can develop physically, display valor, experience joy, and participate in an exchange of gifts, skills, and comradeship with their families, other athletes, and the overall community, simultaneously fostering their inclusion as useful and productive citizens of society in a framework of acceptance, equality, and respect. Simultaneously, their participation in national and international competitions, such as the World Winter Games in Austria 2017; with the view that sports will open hearts and minds towards people with intellectual disabilities to create inclusive communities around the world. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLIDMarco Antonio Regil, Fundación y Congreso 2016 Expo at Cinemex Patriotismo. 125 CONVIVENCIA SIN VIOLENCIA FORUM In an alliance begun in 2013 with Convivencia sin Vio- lencia, FGM has participated in the annual forum “Mex- ico empiezo yo, me sigues tu, cambiamos todo”, where high school students are shown “options” of success through well-known speakers who highlight leadership, 124 self-esteem, the value of talent, and determination to succeed against adversities, so they will value and rec- THE EVENT WAS ATTENDED BY 176 INSTITUTIONS, WHICH REPLICATE THE LEARNING ACQUIRED IN THEIR ORGANIZATIONS AND SOCIAL PROGRAMS. ognize the opportunities that life is currently offering. México, Mexico City Citizen Council, Fundación CMR, Taiyari, and Museo Memoria y Tolerancia. Held in October 2016, this forum was an absolute suc- cess, gaining the participation on-site of 2,209 teen- FOUNDATION AND CONGRESS EXPO agers, and with a total impact on 646,632 people, through live streaming online and social media. Un- In June, the Foundation and Congress expo was held doubtedly, the Convivencia sin Violencia forum inspires for the third time. Its goal is to provide a space for young people to achieve anything they set out to do, training, exchanging information, and understanding that no obstacle is too great for success if you base it the social work of Charity Organizations. Among our on work, constancy, discipline, and effort, encouraging speakers we included dr. denise dresser, who offered them to be better citizens. a keynote speech under the topic “What can I do? 10 proposals to change Mexico”, creating awareness in SOCIAL CAMPAIGN THROUGH BILLBOARDS the institutions about generating a deeper change in This relatively new program has proven its success and society with a direct impact on the country. Speakers impact. Organizations are avid to promote and broad- Annette Candanedo, Marco Antonio Regil, Pau Vidal, cast their work, and there are also many people who and norma Galafassi, among others, filled the forum don’t know about them but can receive the assistance with innovative knowledge and provided attendees they need from these Organizations. This year, 1,514 with practical tools to improve the handling of their posters were displayed at 220 theater complexes for institution. 176 institutions attended the event, who 4 consecutive weeks. The benefited organizations were replicate what they learned in their organization and The Mexican Red Cross, Olimpiadas especiales de their social programs. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLIDCOMPARISON 2015 VS 2016 DR. WAGON, THE HEALTH TRAIN Project States Increase 2015-2016 Dr. Vagón, The Health Train 2015 2016 12 13 8% 126 127 Concession stand campaign in benefit of Christel House Mexico 2016. SOCIAL MARKETING CAMPAIGNS CAI MONTERREY Simultaneously, through the concessions stands at all The assistance provided to CAI Monterrey by equipping its theaters nationwide, Cinemex offers its guests the the styling shop in 2012 has trained 1,440 people option to supersize their popcorn bucket from large to through various workshops: styling, barbering, colorim- jumbo, and the difference in price is donated to the ben- etry, nail care and decoration, and professional makeup, efited organization. This program was made possible aiming to offer opportunities to people with limited op- thanks to the generosity of the “Cinemex guests”. The tions of formal employment, so they can improve their organizations benefited this year by this program were: level of life through training for work, in line with em- Christel House, with 211 children benefited, Olimpiadas ployment demand and entrepreneurship. especiales, with 28,309 special athletes benefited, and nutre a Un niño, with 1,009 people benefited. Project Communities Patients Increase 2015-2016 2015 2016 2015 2016 36 35 32,408 45,573 41% Project Medical Services Increase 2015-2016 2015 2016 148,756 184,928 24% Workshops offered Increase 2015-2016 Attendance at Workshops Increase 2015-2016 2015 598 2016 803 34% 2015 2016 19,775 22,975 16% Medicines Increase 2015-2016 Kilometers 2015 2016 39,880 64,741 62% 2015 2016 13,859 12,796 GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLIDCOMPARISON 2015 VS 2016 SOCIAL LINKAGE Project States Countries People Impacted Increase 2015-2016 FGM Volunteer Day 2015 2016 2016 2015 2016 14 14 3 43,000 70,000 6,325 7,020 63% 11% Increase 2015-2016 Volunteers 2015 2016 COMPARISON 2015 VS 2016 NEW PROJECTS AND ASSOCIATION NETWORK 128 Project States number of companies benefited Increase 2011-2016 Red de Asociaciones y Fundaciones Empresariales 2015 2016 32 32 2015 625 2016 985 57% COMPARISON 2015 VS 2016 EDUCATION AND ENVIRONMENTAL MANAGEMENT Project States People Impacted Increase 2015-2016 Delivering foodstuffs to the Sierra Tarahumara 2015 2016 2015 2016 1 1 11,400 people 17,230 people 51% COMPARISON 2015 VS 2016 CINEMEX AWARENESS AND INSTITUTIONAL SUPPORT Project Benefit Premieres 2015 17,996 People Impact 53,498 People 2016 Increase 2015-2016 17,520,000 Animals 197% 24 Premieres 29 Premieres Project events States Impact 2015 2016 2015 2016 2015 2016 ExpoFundación 1 1 1 1 157 Institutions 174 Institutions Increase 2015-2016 11% Project Cineminutos Sociales Impact Increase 2015-2016 2015 2016 22,249,745 26,189,152 18% 12 institutions 13 institutions Project Impact Increase 2015-2016 Social Marketing Campaigns 2015 178,862 2016 250,000 2 Institutions 3 Institutions 129 40% Project Increase 2015-2016 2015 2016 Carrera Cinemex 215 people 28,309 people 13067% 1 Institution 1 Institution Project Marquee Campaign Project CAI MTY Increase 2015-2016 2015 2016 Visual impact 4,007,520 28,052,637 Marquees 540 1,514 600% 180% 2015 212 2016 476 1 Institution 1 Institution Increase 2015-2016 125% GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID 130 131 Environmental and Social Actions TO CONSOLIDATE THE TRUST OF OUR STAKEHOLDERS, we worK harD to incluDe theM in the ManageMent anD Keep theM inforMeD of the coMpany’s perforMance, always consiDering their expectations. Grupo Mexico is a leading company whose innovation does not depend exclusively on the progress of more efficient pro- cesses and new technologies, but also on working day by day so our operations will have more and better results, always aiming for the organization’s sustainability over time. We stri- ve constantly so the company’s perofrmance in the social, economic, and environmental aspects will consider the ex- pectations of our stakeholders. 132 Our business focus is development with Purpose , to which we align our actions and investments for the distribution of eco- nomic value. To consolidate the trust of our interest groups, we work hard to include them in the management and keep them informed of the company’s performance, always consi- dering their expectations. In the current world context, there is growing interest among all types of investors to work together with sustainable com- panies. Thus, it is very satisfying and rewarding for us that Grupo Mexico has been chosen to be part of the Mexican Stock exchange’s IPC Sustainability index for the sixth conse- cutive year. This financial indicator recognizes the Mexican companies with the highest commitment related to envi- ronmental performance, social responsibility, and corpora- te governance. This achievement is a faithful reflection of Grupo Mexico’s actions and commitment to development with Purpose. The production of renewable energy from our wind farm “El Retiro” is equal to taking 21,307 cars off the road. 133 GRUPO MEXICOTOTALLY SOLIDIN 2016, WE HAD 8 UNITS CERTIFIED UNDER ISO 14001:2004, IN ADDITION TO THE 29 CLEAN INDUSTRY AND ENVIRONMENTAL QUALITY CERTIFICATIONS. 134 135 OUR ENVIRONMENTAL COMMITMENT ENVIRONMENTAL BALANCE IN DETAIL To continue our commitment to the environment, we are not satisfied with merely com- 1. Rational use of water and natural resources plying with regulations, but we go above and beyond all regulatory requirements. Thus, we work to the strictest quality standards to optimize our performance and identify, 2. Prevention, control, and mitigation of emissions into the atmosphere assess, and mitigate the effects that our activities have on the environment. We per- manently move forth in harmony with the environmental, expansion, and modernization 3. efficient use of energy challenges of the industries where we participate. 4. Reduction of GHG per ton produced To make all this possible, we have strategies that meet the specific environmental needs of each region, and operate through 9 lines of action that make up our system 5. Minimization in the generation of waste and better comprehensive management of environmental management. These lines of action are carried out within the framework of the international and local certifications that our operating units have in all three countries where we 7. Preservation of biodiversity are present. In 2016, we held 8 units certified under ISO 14001:2004, together with the 29 Clean Industry and environmental Quality certificates, resulting from 8. Reforestation the efforts of each of our collaborators, and the transversal application of our environmental practices. 9. Compliance with environmental regulation 6. Shutdown of operations GRUPO MEXICOTOTALLY SOLIDENERGY AND CLIMATE CHANGE At Grupo Mexico, we know that the fight against climate environmental impact. The wind turbines of the wind farm change is everyone’s responsibility, including the priva- allowed us to produce a total of 220 gigawatt hours te sector and all the industries in it. Moreover, we are (GWh) of energy in 2016 from fully renewable sources. well aware of the possible impacts that it may have on By substituting traditional sources of energy with those our operations; therefore, we have identified the possi- which use natural gas and wind energy efficiently, in ble risks linked to the global temperature change to be able to anticipate any situation that could have adverse 2016 we avoided emitting 242,278 tons of CO2eq., or the equivalent of recycling 76,888 tons of trash. effects for the company. 136 As part of our strategy for climate change, and given the Faced with the challenges of climate change, at Grupo opening of the energy market in Mexico, we are betting Mexico we are working on: on more clean energy generation projects. Grupo Mexi- • Making a more efficient use of energy. co’s goal is not only to produce renewable energy for our • Diversifying our energy matrix. operations, but to supply the market and contribute to • Developing and using renewable energy sources. the development of a sustainable energy infrastructure • Reusing 100% of industrial water. in the country. • Promoting activities to capture greenhouse gas emis- sions (GHG). With the growth of the infrastructure division, Grupo Mexico intends to consolidate slowly as a relevant pla- 137 By participating in initiatives for transparency regarding climate change, we consolidate our role as leaders in sustainability. Combined cycle energy plant, Sonora, Mexico. Thus, we are betting on diversification towards cleaner yer in the energy industry in Mexico and the world. particularly relevant if we consider that 99% of the energy supply of the Transportation division is based and renewable energy generation sources for our su- on diesel consumption. pply, and exploring business models that will be com- Regarding fuel savings, in the Transportation division patible with the generation of energy through renewa- we strive to make diesel consumption per ton-km of Through these and other actions, Grupo Mexico confirms its commitment to reduce its greenhouse gas ble sources. product hauled more efficient, as well as to achieve emissions and perform as a sustainable company, both on a national and international level, improving considerable savings that benefit the operation, ena- its competitiveness and helping in the transition towards a green economic development. In addition, through its subsidiary Mexico Generadora de bling us to reduce the amount of emissions released energía (MGe), the Company has two combined cycle into the atmosphere. Thus, the constant implemen- Last, we must note that regarding climate change, Grupo Mexico has begun to work together with nGOs plants—“La Caridad I and II”—and one wind farm called tation of Automatic equipment Start Stop (AeSS) has to contribute to the fight against climate change. Such is the case of our first report in 2016 to the Car- “el Retiro”. Through these facilities, we take advantage of enabled our engines to be more energy efficient when bon disclosure Project, through which we have doubled efforts to be even more transparent regarding the energy content of natural gas, and use wind energy they are stopped or idling. Thanks to this mechanism, the actions that the Company performs to measure, verify, and mitigate its carbon footprint, as well as to to feed our operations with green energies that have little we saved 12.25 million liters of diesel in 2016. This is work towards a green economic development. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID138 endangered species, including the Mexican Gray Wolf by other parties. 139 WATER As part of our effort to preserve the biodiversity, we have For our mining operations, water is the most import- an environmental Management Unit (UMA in Spanish) ant resource; thus, to preserve it, we have devel- with enclosures totaling 5.7 hectares, which have been oped projects to keep gaining greater efficiency in conditioned to replicate the habitats of threatened and its use, boost reutilization, and use water discarded and the Wild Turkey, among others, that are part of our important program. The efficient use of water and the water-saving pro- grams are based on the implementation of recovered The UMA has a clear strategy focused on the reproduc- water pumping systems, the ongoing recovery of pro- tion and release of species, as well as ecosystem regen- cess water, the implementation and maintenance of eration. In addition, this work clearly reflects our efforts closed circuits for total water use, and a zero-discharge to involve the community in the common challenge of program for wastewater, which seeks to achieve a protecting our environment, and specifically the biologi- more efficient management of water resources. These cal diversity of Sonora. This can be expanded to include programs have allowed a large part of our total water the UMA’s ecological path that offers educational and consumption to come from recovered water. In 2016, recreational activities along 1.8 km, visited by around 71% of the total water consumption at our mining op- 5,000 people and an average of 52 schools per year. erations was recovered water, which is the result of In Peru, we continue to carry out significant investments good management. and maintenance actions under the remediation program At Grupo Mexico, by being constant in our commitments, BIODIVERSITY Our operating units have tree nurseries and greenhouses whose production of regio- for Ite Bay, in Tacna. This work translates into the fact we continue to perform environmental and sanitary mon- nal species is aimed at ecosystem reforestation and rehabilitation, including areas that Ite now has the broadest wetland with the greatest itoring of the Sonora and Bacanuchi rivers to ensure the that are not adjacent to our operations. On the one hand, these nurseries contribute diversity of water birds. ecosystem’s stability. to the biological diversity and enrichment of plant and animal life; on the other, they are natural carbon sinks, capturing CO2 from the environment. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLIDTHROUGH PROJECTS BY INVITATION, SEED CAPITAL AND COMMUNITY COMMITTEES, WE FOSTER THE CREATION OF DEVELOPMENT GENERATORS AND PROACTIVE LEADERS THAT WILL STRENGTHEN THE WELLBEING OF THEIR COMMUNITIES. 140 OUR COMMUNITIES Our community development model is based on a view In 2016, we should note the participation of 13,397 whose main goal is to favor the triggering of endoge- community volunteers who were key in increasing the nous transformation processes that will generate op- social capital of the communities where we operate. portunities in the communities where we participate. With projects developed through invitations, seed cap- This model is implemented through various tools, such ital, and summer camps, we foster the creation of de- as community committees in the places where we op- velopment generators and proactive leaders who will erate, Casa Grande, social investment funds, invita- strengthen the wellbeing of their communities. This tions for projects, and corporate volunteer teams. generates dynamics of shared responsibility between the company, society, and the environment. At Grupo Mexico we understand social wellbeing as the synergy of various factors, which we seek to strength- during 2016, 108 projects by invitation were active at the en through a multifocal strategy, in close dialogue with 16 operations and explorations in Mexico. These projects the communities. This is why we are constantly seek- foster capacity installation, and make it possible to bol- ing to strengthen healthcare, education, culture, and ster our long-term view and create strategic alliances to INVESTMENTS IN COMMUNITY DEVELOPMENT (Millions of dollars) PROGRAM Community development Community development programs Sponsoring and donations Infrastructure and equpping at nearby neighborhoods Employees and communities Investment in education Sports and cultural promotion sports in each community where we participate. strengthen each of the communties where we are present. Infrastructure investment in GMexICO neighborhoods Total 141 The “The Path to Life” program of Grupo Mexico provides transportation to bring health services closer to the communities. Grupo México $ $ $ $ $ $ $ 10.59 6.01 28.91 1.67 1.04 14.05 62.27 GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID An example of this can be the improvement of educational environ- ments and infrastructure construction in San Martin, Zacatecas, or the invitation to “Participate for Cananea”, at Buenavista del Cobre. AT GRUPO MEXICO, WE ARE COMMITTED TO PROVIDING EQUAL OPPORTUNITIES. THUS, MEN AND WOMEN ARE AT THE CORE OF OUR ACTIONS TO DRIVE DEVELOPMENT WITH PURPOSE. 142 In Peru, our operations are located in a place where water is a key 143 Casa Cien, our community development center in Nacozari, Sonora, is a meeting point. Interaction between families and collaborators is a pillar in Development with Purpose. resource, as this is a region where farming and cattle are key elements for economic dynamics. Thus, at Grupo Mexico, we seek to expand on communities’ development and self-management capacities. There- fore, we contribute to the expansion of water supply infrastructure and automation of irrigation in the areas where we operate. An example of this is the work throughout 2016 to improve the irrigation infrastruc- ture at Torata, in the Moquegua region. The works included improve- ments to the water reservoirs, pipe installation, construction of support walls, and other maintenance works for the water infrastructure. Backing women’s enterprises is also one of our goals, creating op- portunities for their professional development and contributing to strengthen families’ economy. In the Peruvian province of Mariscal nieto, the Torateñas emprendedoras program has been a success through the creation of the company Frutylac SAC. The enterprising women in this program make preserves, regional breads, and other local products. To expand their horizons, the women of this successful program participated in the International Fair of Tacna, FeRITAC 2016, displaying their achievements and promoting their regional products. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID WITH 33,958 PEOPLE BENEFITED IN 2016 THROUGH THE REDUCED FARE PROGRAM, “EL CHEPE” HAS CONSOLIDATED AS THE BACKBONE OF DEVELOPMENT IN THE MOUNTAIN COMMUNITIES OF CHIHUAHUA. 144 el Chepe, the Chihuahua-Pacific train, is a strategic form of transportation 145 for the residents of Chihuahua and Sinaloa, and particularly the mountain municipalities of these states. Thus, in the Transportation division, we have implemented a reduced fare program jointly with the government of the State of Chihuahua, designed for the Tarahumara, and low-income pop- ulation whose only transportation is this train. during 2016, the el Chepe reduced fare program benefited a total of 33,958 people. In addition to the reduced fare program, the Transportation division sup- ports the mountain communities and religious orders of Chihuahua by transporting goods free of charge, so the residents will have access to food and several basic products. In 2016, we assisted the transportation of potatoes and other farm products to feed children who live in the Sierra Tarahumara. The Transportation division is proud to be part of the regional development of the states where it operates. In 2016, dr. Wagon continued to operate offering free, comprehensive healthcare services to marginalized communities close to the railway, and thanks to the joint work of Fundación Grupo Mexico and Ferromex, dr. Wagon continues to bring hope to every corner of the country it visits. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID146 147 The Transportation Division supports the mountain communities and religious orders of Chihuahua with free transportation of goods. At Grupo Mexico, our business model is focused on continuously improving the quality of life of the com- munities where we operate, fostering development with purpose, and strengthening the collective par- ticipation that will trigger common wellbeing, always making people the key generators of development. The efforts mentioned in this report reflect Grupo Mexico’s commitment to a sustainable way of doing business. For further information regarding our per- formance and activities in terms of sustainability, we invite you to view our Sustainable development Re- port 2016 at our website: www.gmexico.com. GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLID GRUPO MÉXICO MAnAGeMenT BOARd Germán Larrea Mota Velasco Oscar González Rocha PRESIDENT PATRIMONIAL ADVISOR xavier García de Quevedo Topete Alfredo Casar Pérez VICE-PRESIDENT PATRIMONIAL ADVISOR 148 Luis Castelazo Morales PATRIMONIAL ADVISOR daniel Muñiz SECRETARY OF THE BOARD Prudencio López Martínez INDEPENDENT DIRECTOR emilio Carrillo Gamboa INDEPENDENT DIRECTOR Fernando Ruiz Sahagún INDEPENDENT DIRECTOR Rolando Vega Sáenz INDEPENDENT DIRECTOR Antonio del Valle Ruiz INDEPENDENT DIRECTOR Carlos Prieto Sierra INDEPENDENT DIRECTOR Claudio x. González Laporte Carlos Rojas Mota Velasco INDEPENDENT DIRECTOR INDEPENDENT DIRECTOR Antonio Madero Bracho INDEPENDENT DIRECTOR AMERICAS MINING CORPORATION MInInG dIVISIOn MAnAGeMenT TeAM Germán Larrea Mota Velasco daniel Chávez Carreón Vidal Muhech dip CHAIRMAN OF THE BOARD DIRECTOR OF OPERATIONS MINERA MEXICO DIRECTOR OF ENGINEERING AND CONSTRUCTION Oscar González Rocha EXECUTIVE PRESIDENT daniel Muñiz Quintanilla EXECUTIVE VICE-PRESIDENT Jorge Hugo Meza Viveros Jaime Ramírez del Villar DIRECTOR OF OPERATIONS SOUTHERN PERU PROCUREMENT DIRECTOR Manuel Ramos Rada Rodrigo Sandoval navarro DIRECTOR OF OPERATIONS ASARCO CHIEF OF CORPORATE FINANCE Oscar González Barrón Raquel Tobar Sáiz DIRECTOR OF ADMINISTRATION AND CONTROL DIRECTOR OF NEW BUSINESS DEVELOPMENT Jorge Jáuregui Morales Francisco López Guerra DIRECTOR OF HUMAN RESOURCES PROJECT DIRECTOR 149 Jorge Lazalde Psihas GENERAL COUNSEL Aldo Massa Peschiera MARKETING DIRECTOR René Verde Guzmán IT DIRECTOR MAnAGeMenT TeAM SOUTHERN COPPER CORPORATION MInInG dIVISIOn MAnAGeMenT BOARd Germán Larrea Mota Velasco xavier García de Quevedo Topete EXECUTIVE PRESIDENT CHIEF FINANCIAL AND ADMINISTRATIVE OFFICER Germán Larrea Mota Velasco emilio Carrillo Gamboa Luis Miguel Palomino Bonilla CHAIRMAN OF THE BOARD INDEPENDENT DIRECTOR INDEPENDENT DIRECTOR AND CHAIRMAN OF THE BOARD Mauricio Ibañez Campos GENERAL COUNSEL Rafael Ríos García DIRECTOR OF SECURITY Guillermo Barreto Mendieta DIRECTOR OF AUDIT Miguel Valdés neaves DIRECTOR OF ADMINISTRATION AND CONTROL Marlene Finny de la Torre HEAD OF INVESTOR RELATIONS Alfredo Casar Pérez PATRIMONIAL ADVISOR Gilberto Perezalonso Cifuentes INDEPENDENT DIRECTOR enrique Castillo Sánchez Mejorada Carlos Ruiz Sacristán INDEPENDENT DIRECTOR INDEPENDENT DIRECTOR xavier García de Quevedo Topete Jorge Lazalde Psihas PATRIMONIAL ADVISOR SECRETARY Oscar González Rocha PATRIMONIAL ADVISOR daniel Muñiz Quintanilla PATRIMONIAL ADVISOR ANNUAL REPORT / 2016 TOTALLY SOLID ASARCO, LLC. INC. MInInG dIVISIOn MAnAGeMenT BOARd Germán Larrea Mota Velasco CHAIRMAN OF THE BOARD Oscar González Rocha 150 EXECUTIVE PRESIDENT GRUPO MÉXICO TRANSPORTES TRAnSPORTATIOn dIVISIOn MAnAGeMenT BOARd Bernardo Ayala Yáñez Alfredo Casar Pérez Jaime Corredor esnaola Arturo elías Ayub xavier García de Quevedo Topete Robert M. Knight Jr. Roberto Slim Seade Cristian Lippert Helguera SECRETARY Alfredo Casar Pérez xavier García de Quevedo Topete Oscar González Barrón daniel Muñiz Quintanilla Manuel Ramos Rada Jorge Lazalde Psihas SECRETARY MAnAGeMenT TeAM Germán Larrea Mota Velasco CHAIRMAN OF THE BOARD Alfredo Casar Pérez EXECUTIVE PRESIDENT Fernando López Guerra CHIEF FINANCIAL AND ADMINISTRATIVE OFFICER Hugo Rafael Gómez díaz OPERATIONS DIRECTOR Lorenzo Reyes Retana Padilla PROJECT DIRECTOR MÉXICO PROYECTOS Y DESARROLLOS InFRASTRUCTURe dIVISIOn MAnAGeMenT BOARd MAnAGeMenT TeAM Alfredo Casar Pérez Julio Francisco Larrea Mena Vidal Muhech dip daniel Muñiz Quintanilla Octavio J. Ornelas esquinca Javier Gómez Aguilar SECRETARY 151 Germán Larrea Mota Velasco CHAIRMAN OF THE BOARD xavier García de Quevedo Topete EXECUTIVE PRESIDENT Octavio J. Ornelas esquinca CHIEF FINANCIAL AND ADMINISTRATIVE OFFICER Rogelio Vélez López de la Cerda DIRECTOR OF PERFORADORA MEXICO Gustavo Ortega Gómez ENERGY DIVISION DIRECTOR Julio Francisco Larrea Mena DIRECTOR OF CONSTRUCTORA MÉXICO Juan Francisco Bueno Zirion DIRECTOR OF GRUPO MEXICO AUTOPISTAS Antonio Martínez DIRECTOR OF GRUPO MÉXICO SERVICIOS DE INGENIERÍA GRUPO MEXICOANNUAL REPORT / 2016 TOTALLY SOLIDFUNDACIÓN GRUPO MÉXICO MAnAGeMenT BOARd Alfredo Casar Pérez Luis Castelazo Morales xavier García de Quevedo Topete Oscar González Rocha daniel Muñiz Quintanilla SECRETARY 152 MAnAGeMenT TeAM Germán Larrea Mota Velasco PRESIDENT ximena Ugarte Luiselli GENERAL DIRECTOR Karla Guadalupe díaz Castro ADMINISTRATIVE MANAGER OF DR. WAGON, THE HEALTH TRAIN Adriana Hernández Rojas OPERATIONS MANAGER DR. WAGON, THE HEALTH TRAIN Gardenia Lemmen-Meyer Valero SOCIAL LIAISON MANAGER Jessica Pons Fernández MANAGER OF NETWORK OF ASSOCIATIONS AND NEW PROJECTS Yazmín Torres Martínez MANAGER OF EDUCATION AND ENVIRONMENT Lucero Vallejo durán MANAGER OF CINEMEX AWARENESS AND SUPPORT FOR INSTITUTIONS TOTALLY SOLID

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