RELATED PARTY TRANSACTIONS:

9 Months Ended

Sep. 30, 2020

RELATED PARTY TRANSACTIONS:

RELATED PARTY TRANSACTIONS:

NOTE 6 — RELATED PARTY TRANSACTIONS:

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

between $8.0 million and $10.0 million be authorized by the General Counsel and Chief Financial Officer of the Company and (iii) that all related party transactions, including any Material Affiliate Transaction, be reported to the Audit Committee of the Board of Directors or to its subcommittee of related party transactions.

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

	At September 30,		At December 31,
	2020		2019
Related parties receivable current:
Grupo Mexico and affiliates:
Asarco LLC	$	22.4	$	10.8
AMMINCO Apoyo Administrativo, S.A. de C.V. (“AMMINCO”)		—		0.1
Compania Perforadora Mexico S.A.P.I. de C.V. and affiliates		0.3		0.3
Grupo Mexico		2.7		2.7
Mexico Generadora de Energia S. de R.L. ("MGE")		15.1		15.3
Grupo Mexico Servicios de Ingenieria, S.A. de C.V.		0.2		0.2
Related to the controlling group:
Boutique Bowling de Mexico, S.A. de C.V.		0.1		0.1
Mexico Transportes Aereos, S.A. de C.V. ("Mextransport")		1.5		0.4
Operadora de Cinemas, S.A. de C.V.		0.1		0.1
	$	42.4	$	30.0
Related parties receivable non-current:
Grupo Mexico and affiliates:
Asarco LLC	$	58.0	$	59.5
Related parties payable:
Grupo Mexico and affiliates:
Asarco LLC	$	18.3	$	4.3
AMMINCO		17.5		16.9
Eolica El Retiro, S.A.P.I. de C.V.		0.3		—
Ferrocarril Mexicano, S.A. de C.V.		5.3		6.4
Grupo Mexico		0.9		1.1
MGE		36.4		40.2
Mexico Compania Constructora S.A de C.V.		19.4		16.0
Grupo Mexico Servicios de Ingenieria, S.A. de C.V.		0.5		—
Related to the controlling group:
Boutique Bowling de Mexico, S.A. de C.V.		0.1		0.2
Mexico Transportes Aereos, S.A. de C.V. (“Mextransport”)		0.8		1.2
Operadora de Cinemas, S.A. de C.V.		0.1		0.1
	$	99.6	$	86.4

Purchase and sale activity:

Grupo Mexico and affiliates:

The following table summarizes the purchase and sale activities with Grupo Mexico and its affiliates in the nine months ended September 30, 2020 and 2019 (in millions):

	2020		2019
Purchase activity
Asarco LLC	$	224.3	$	32.2
AMMINCO		13.4		6.4
Eolica El Retiro, S.A.P.I. de C.V.		0.8		2.9
Ferrocarril Mexicano, S.A. de C.V.		36.8		35.1
Grupo Mexico		7.5		7.9
MGE		157.2		147.3
Mexico Compania Constructora S.A de C.V.		36.0		47.0
Grupo Mexico Servicios de Ingenieria, S.A. de C.V.		6.4		9.4
Total purchases	$	482.4	$	288.2
Sales activity
Asarco LLC	$	58.6	$	10.6
AMMINCO		0.1		—
Ferrocarril Mexicano, S.A. de C.V.		—		0.1
MGE		37.7		33.3
Total sales	$	96.4	$	44.0

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

In the nine months of 2020, the Company made donations of $7.0 million to Fundacion Grupo Mexico, A.C., an organization dedicated to promoting the social and economic development of the communities close to the Company’s Mexican operations. In the nine months ended September 30, 2019, the Company made donations of $8.9 million to this organization.

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

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

In 2012, the Company signed a power purchase agreement with MGE, whereby MGE will supply some of the Company’s Mexican operations with power through 2032. MGE has two natural gas-fired combined cycle power generating units, with a net total capacity of 516.2 megawatts and has been supplying power to the Company since December 2013. Currently, MGE is supplying 2.6% of its power output to third-party energy users; compared to 6.2% at September 30, 2019.

In 2014, Mexico Generadora de Energia Eolica, S. de R.L. de C.V, an indirect subsidiary of Grupo Mexico, located in Oaxaca, Mexico, acquired Eolica el Retiro. Eolica el Retiro is a windfarm with 37 wind turbines. This company started operations in January 2014 and began to sell power to Industrial Minera Mexico, S.A. de C.V. and subsidiaries

(IMMSA) and other subsidiaries of Grupo Mexico in the third quarter of 2014. Currently, Eolica el Retiro supplies 11.5% of its power output to IMMSA and Mexcobre, compared to 25.4% at September 30, 2019.

The Company sold copper concentrate as well as sulfuric acid, silver and gold to Asarco LLC. In addition, the Company received rental fees from AMMINCO.

In September 2019, Asarco LLC signed a promissory note to pay to the Company´s Mexican operations $62.0 million plus interest no later than October 31, 2021, with quarterly payments of $0.5 million. The annual interest rate of the note is Libor plus 200 basis points, which will be reviewed annually. As of September 30, 2020, $58.0 million is recorded in a separate line as a long-term related party receivable in the condensed consolidated balance sheet. Related to this promissory note, the Company recorded interest income of $1.8 million in the nine months of 2020.

The Company also received fees for natural gas and services provided to MGE, a subsidiary of Grupo Mexico. In May 2020, MGE signed a promissory note to pay to the Company´s Mexican operations 97.2 million Mexican pesos (approximately $4.2 million) plus interest no later than November 30, 2020. The annual interest rate of the note is 8.28% with monthly payments. As of September 30, 2020, the balance of this note is included in the $15.1 million account receivable from MGE.

Companies with relationships to the controlling group:

The following table summarizes the purchase and sales activities with other Larrea family companies in the nine months ended September 30, 2020 and 2019 (in millions):

	2020		2019
Purchase activity
Boutique Bowling de Mexico S.A. de C.V.	$	0.3	$	0.3
Mextransport		3.0		1.1
Operadora de Cinemas S.A. de C.V.		0.1		0.1
Total purchases	$	3.4	$	1.5
Sales activity
Boutique Bowling de Mexico S.A. de C.V.	$	0.1	$	0.1
Empresarios Industriales de Mexico, S.A. de C.V.		—		0.2
Mextransport		1.2		1.3
Operadora de Cinemas S.A. de C.V.		0.1		0.1
Total sales	$	1.4	$	1.7

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

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

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

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

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

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

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

In the nine months of 2020, the Company engaged in no purchase or sales activities with companies that have relationships with SCC executive officers.