CHEMICALS
By continually improving the quality of our chemical products, we are strengthening our response capacity to face the future recovery of market demand.
CHEMICALS PRODUCTION

Sodium sulfate
kt

16
750
17
753.5
18
780.6
19
774.2
20
745.9
-3.7%

magnesium oxide*
kt

16
68.2
17
78.9
18
84.8
19
87.9
20
57.2
-34.9%

*Includes refractory, caustic, electric, electrofused and hydroxide grades.

magnesium sulfate
kt

16
55.4
17
57.1
18
54.8
19
62.2
20
62.6
0.6%

AMMONIUM sulfate
kt

16
199.7
17
189.3
18
180.1
19
194.4
20
192.3
-1.1%
US$ 16 M
invested in chemical operations maintenance and improving processes.

The Chemicals Division makes high-margin, high-value-added products from natural brines and salts extracted by hydraulic mining at our Química del Rey plant, located at Laguna del Rey, in the municipality of Ocampo, Coahuila.

The primary product of this division is sodium sulfate, which makes up for more than half of its revenues. This input is used to make powdered detergents, glass and paper, and in the textile industry. Today, Química del Rey is the largest sodium sulfate plant anywhere in the world outside China, with a 780,000 annual production capacity.

The second most important product, magnesium oxide, is made from residual brine resulting from sodium sulfate operations and dolomite ore from La Esmeralda mine in Coahuila. It is produced in various grades: refractory grade, used to make the bricks that line high-temperature kilns in the steel and cement industries; caustic grade, used to make animal feed and fertilizers; hydroxide grade, used as a flame retardant; and electrical grade, useful as an insulating material and to make electrical resistors. This product accounts for between a third and a quarter of the Chemicals Division’s revenues.

The third product, magnesium sulfate, also known as Epsom salt, is used as a fertilizer, in the leather tanning industry, in processing chemical products and making detergents.

Additionally, the sulfuric acid —a byproduct from the lead smelting operations— is used to make ammonium sulfate, a component in the manufacture of fertilizers. It is produced at Fertirey, which adjoins the Met-Mex metallurgical complex at Torreón.

Actions in connection with COVID-19

Our chemical operations strictly followed internal protocols and the guidelines established by the IMSS and STPS to mitigate the impact of the COVID-19 pandemic, avoid the spread of the virus and protect employee health. The IMSS awarded the company its Sanitary Safety distinction in recognition of our compliance with guidelines to control contagion.

2020 was a difficult year for the magnesium-based products.

US$ 105 M
sales in sodium sulfate. We increased exports to Central and South America.

We assigned administrative personnel and those with specific vulnerabilities to work from home, and set up access checkpoints at all our facilities, with strict monitoring and hygiene measures to ensure a safe return of employees during staggered work hours, in close communication with the company’s Crisis Committee.

Ten people were added to our medical staff, and the course "Training monitors for a healthy return" was given. We also developed a biological risk exposure assessment to apply to suppliers and other visitors before entering our facilities.

Production and performance

We produced 745,892 metric tons of sodium sulfate in the period, 3.7% less than the year before, as a result of a strategic inventory adjustment. Domestic demand in the detergent industry shrank around mid-year, but thanks to a commercial effort we were able to place the excess product in the export market, primarily to Central and South America, which took up an increasing share of our sales. With this, sales volume grew 249.7% over the previous year.

In dollar terms, the average price per metric ton of sodium sulfate was lower, which pressured margins for this product. Despite the decline in volume, the unit cost of production remained stable, thanks to efficiency measures to optimize natural gas consumption, offsetting an increase in shipping and maintenance expenses.

Magnesium oxide was the product most heavily affected by the pandemic, with a steep decline in demand for the main grades we produce for the construction, steel and automotive industries, which account for 66% of our sales volume.

Mexico, Europe and North America continue to be our main markets, although their combined weight in sales declined from 85% in 2019 to 73% in 2020.

At the global level, sales volume dropped by 36% compared to 2019. As a commercial strategy, we made some spot sales to new clients in Europe, Asia and Africa. Although our magnesium oxide varieties are in the industrial testing phase, we hope to become regular suppliers to these clients in 2021, economic recovery permitting. In the meantime, we will continue to pursue projects and actions to improve the quality and consistency of our magnesium varieties in order to be ready to meet demand as it recovers in the future.

Magnesium sulfate performed well during the year, since it is sold in the agricultural industry, an essential activity linked to food production which was not directly affected by the public health emergency. We achieved consecutive records in production and sales volume, totaling 62,583 and 63,087 metric tons, respectively.

Finally, ammonium sulfate also benefited from demand in the agricultural sector, which brought us new clients and distributors from various parts of Mexico.

We invested US$ 16.4 million during the year, most of which went to maintenance and upgrades of critical equipment. Most notably, we invested in improving furnace efficiency, installing a bagging system for magnesium specialties, and moving forward on construction of a polymers lab.


As domestic demand contracted, we placed sodium sulfate in Central and South America.
CONTENTS

2020 brought us great challenges and lessons. Our Annual Report highlights the strengths that have allowed us to overcome difficulties while generating value to our stakeholders.

The following abbreviations will be used throughout the report:

oz =
lb =
Mm3 =
Ml =
Mlb =
Mlbe =
Moz =
koz =
t =
Mt =
kt =
MI =
US$B =
US$M =
US$/t =
US$/oz =
US¢/lb =
US¢/lbe =
ounces
pounds
million cubic meters
million liters
million pounds
million pounds equivalent
million ounces
thousand ounces
metric tons
million metric tons
thousand metric tons
million liters
billion dollars
million dollars
dollars per metric ton
dollars per ounce
dollar cents per pound
dollar cents per pound equivalent

PROFILE
We are a proud Mexican company, committed to our country, with presence in the international market.

FINANCIAL HIGHLIGHTS
In a complex environment, we focused on preserving liquidity, while continuing our priority investments.

MANAGEMENT REPORTS
We manage our business responsibly and prudently, with a long-term vision.

PERFORMANCE
Our operations faced great challenges during the year. We improved our processes and sought cost reduction.

ENERGY AND TECHNOLOGY
We incorporated new technologies to increase productivity and efficiency.

CORPORATE GOVERNANCE
Our corporate governance ensures transparency, the compliance with organizational values and accountability.

INFORMATION FOR SHAREHOLDERS
Contacts available for our shareholders

FINANCIAL STATEMENTS
We present our audited financial information in thousand US dollars.



DISCLAIMER
This Annual Report contains certain forward-looking information relating to Industrias Peñoles, S.A.B. de C.V. and its subsidiaries (Peñoles or the Company) that is based on assumptions made by its management. Such information, as well as the statements with respect to future events and expectations are subject to certain risks, uncertainties and factors that could cause the actual results, performance or achievements of the Company to be materially different at any time. Such factors include changes in general economic, governmental policy and/or business conditions nationally and globally, as well as changes in interest rates, inflation rates, exchange rates, mining performance in general, metal demand and quotations, and raw material and fuel prices, among others. Due to these risks and factors, actual results may vary materially from the estimates described herein, for which reason Peñoles does not assume any obligation with respect to such variations or to information provided by official sources.