Compania de Minas Buenaventura SAA (BVN) 2003 Q4 法說會逐字稿

Good day everyone. Welcome to the de Minas Buenaventura fourth quarter earnings release conference call. Just a reminder, today's call is being recorded for introductions and now, I would like to turn the call over to Mr. Pete Majesky with Advise Corporate Communications, please go ahead

Thank you Mark, and good morning everyone. Welcome to Compania de Minas Buenaventura's fourth quarter and full year 2003 conference call. On the call of us today, are Mr. Roque Benavides, Chief Executive Officer and Mr. Carlos Galvez, Chief Financial Officer. They will be discussing Buenaventura's results as for the press release distributed yesterday. If you cannot receive the copy, please call us in New York at 212-406-3690 and we will e-mail it to you immediately. We would like to remind you that any forward-looking statements made today by Buenaventura's management are subject to various conditions and may this differ materially.

These conditions are outlined in the last page of the company's press release in the disclaimer. We will ask that you refer to it for guidance. It's now my pleasure to turn over the call to Mr. Roque Benavides. Mr. Benavides, you may begin.

Good morning to all and thank you for attending this conference call. This quarter and when entered that for net income was turning $76.1 million, an increase of 56% over the fourth quarter of 2002. The final result is a net income of 54.9 million solid or $15.9 million taking in to account the IAS 39 for derivative instrument. Our operating income this quarter was $7.9 million, 65% higher than the fourth quarter of 2002 EBITDA was $78.7 million or 10% increased when compared to the fourth quarter of 2002.

It is important to mention that 2003 was a record year in terms of net profit, operating profit and EBITDA. These results were mainly due to improvement in our operations at Uchucchacua. Cost cutting effort and at Orcopampa and Antapiti (ph) where gross reduction goes 14% to 265,087 ounces, while our total average realized price of gold increased 21% from $323 per ounce to $381 per ounce. At Yanacocha, our largest affiliate production in the fourth quarter 2003 was 4% lower than during the same quarter 2002. For the full year 2003 however, production was 2.85 million ounces of gold and new historical record and a 25% increase compared to 2002.

It is important to refer that in this conference call, talking about the end of the year results we with all these results we have been able to increase our reserves in all of our operating mines. In Orcopampa, we have increased our gold reserves to 539,000 ounces, 77% higher than the same period of 2002. In the case of Uchucchacua, we have increased our reserves by 33% from 48.7 million ounces to 64.6 million ounces. The same applies for Antapiti.

In Yanacocha, the fourth quarter 2003 gold production decreased 4% to 667, 000 ounces compared with the same period of 2002, while total 2003 production increased 75% to 2,851,000 ounces of gold from 2,285,000, 585, 84 ounces in 2002. These results were due to an increase of 18% in the Greek of gold and gold recoveries. In terms of our net income, this quarter when having to that net income was $76.1 million representing an increase of 55% compared to the fourth quarter of 2002. However due to our provision for market to market value variation of $93.6 million in equivalent with IAS 39 for derivative instrument net income reported in the fourth quarter of 2003 was $15.9 million. Earnings per share without considering the provision for multi market value variation in the fourth quarter of 2003 was 60 cents a dollar per AVS or share. As you know today, one share is equivalent to one AVS.

For the year 2003, the accumulated earnings per share was a $1.23 per AVS or per share. Earnings per share configuring provisions for multi market valuation variations in the fourth quarter of 2003 were 12 cents a dollars per share for the year 2003 accumulated earnings per share were 38 cents per share of AVS.

We will refer and I have, we have with us Fernandes Pa (ph), if we need to clarify any of these hedging operations. In terms of explorations, we also have Mr. Cesar Vidal with us that can expand on our explorations for the year that may I just refer that when have been two of the total expenditures in exploration activities in 2003, were of $10.8 million in addition 6.4 million was invested by our partners in different partnerships. Highlights during the year included continuing positive results in La Zanja, Marcapunta, Poracota projects. Other interests in precious metals prospect at adding are (inaudible).

In terms of some of our project development in December 2003, the Paton (ph) tunnel at the Uchucchacua mine connected with the level 4120 of the carbon mine. This tunnel, 4.5 kms long has a capacity of 1 cubic meter per sector and the main objectives is how to drain and to improve the ventilation of the mine. As a result, additional energy will be generated by the Paton hydroelectric plant. This will mean an annual savings of $1 million as a collateral effect the construction of this tunnel will mediate us to make some explorations and discover 4 mineralized structures which will be explored this year

At Orcopampa during the first quarter of 2004, the new sanitation (ph) plant should start operation in fact it started operations a couple of days ago. These will permit an increase of the gold recovery by about 10% reduce sales expenses by producing bars instead of gold concentrate. Finally, (inaudible) feasibility study has been completed, has been started and the objective is to start operations still in the 2nd semester of 2005 which will require an investment in the order of $35 million. Yesterday, we had our board meeting and during this meeting, the board of directors decided to approve the annual report in the financial statement for the year ended December 31 2003, approved the proposed cost dividend payment of 16 cents per share and to appoint external auditors for the 2004 period. With this, may I turn this presentation to, so that you can ask any questions that you may have.

Thank you very much. [OPERATOR INSTRUCTIONS] The first question today will come from Jeff Stanley with Nesbitt Burns.

Good morning. And a couple of questions relating to you forward conversion. You converted about two thirds of that cotton cold book to forwards. I am wondering if you can detail whether they are spot the thirds or whether they are fixed forwards and what kind of flexibility do you have in terms of your delivery schedule going forward. Secondly can you give us an indication of whether that re-structuring is likely to have significant impact on the nature of the market going forward, whether it will have a higher delta or lower, whether that changes at all and can you give us an indication of the overall cost of the conversion or whether there was a cash consideration associated with that or whether that is factored into the future delivery process?

I think yes. Let me pass to Carlos, before let me just tell you that all our share holders meeting will take, we will held our share holders meeting on March 26 here in Lima and of course all of you are most welcome to attend. Let me pass to Carlos.

Thank you for the question, and before going into details, I would like to explain the concepts we have handled. First of all, we had two set of problem with derivative instrument, one is the counting procedures. According to Peruvian US GAAP, we have to account there instruments reporting and including into income statement, the marked market variations which introduces a very high volatility unlike of predictability in our financial statements.

So, that's why, we decided to convert into future sales and normal sales. By doing so we are going to fix the market volume we accounted as of the end of December, which is the date we converted 67% of our work derivative instrument contract into fusion sales. By doing so, we are going mortise the values we had as a metal market that today we call the deferred revenue and we accounted as a far of our reliability.

The second problem was the income tax, according to Peruvian income tax law, when you, when a company does a derivative instrument, you have two different transactions when selling, and you sell your ultra material. Your account on report these transactions at the market price and the derivatives instrumental result is just again for a law that you have to import as on offshore transaction. And offshore transactions improve must be considered for income taxes when making profit. But when you make losses you cannot be that. At that would cost 35.6% so difussal to the company.

While converting these derivative instrument contracts in two official sales or normal sale, we are going to account only one transaction which is they actual sale the invoice their custom policy for export and everything will be accounted and reported at the fifth prices of our hedge. That means tremendous saving will making losses for this hedge. Regarding the precise question you made, you are having the possibilities being contracts linked to our production, we have the flexibility to borrow on to control several positions, when matured.

A securely the forward market to market well it has been very explained. We are not going report for these new contract valuations or the market. We are going to just report the final but will not have any impact in our income statement. And finally, the cost of conversion, a worth nothing, because its just a change in the terms and the structure of the conquered but our will commitment is exactly the same, the same amount of ounces for the same time at the same price.

OK. That's very good with respect to the second question on the metal market and is really two issue there. I understand that you've restructured the book and vast majority over presumably two-thirds now of the change in market to market will not go through the P&L. But they will still be a metal market owner, and I m wondering if you can report it and help that mark to market has changed over the nature of that metal market you know the deltron (ph) how that change relative to where it was before? You know, I understand that one go through the P&L and can you just give a feel for what portion of those contracts that have been converted are flexible? What percentages are fixed forward and what percentages are spotted deferred?

Let me pass to Fernandes, who is in charge of our hedge specifically.

Thank you. Well basically, the amount of market of our deliveries transactions want these serve for what we had in the past. Because it has only been a re conversion from the reverses typical sales agreement. Obviously, just we will keep on reporting the overall metal market of the HMB but you will be in an outside notes within our financials. What we have said is that the two phase of the total mark to market one core against the financials.

(inaudible)

Yes, well our metal market at the end of the year 2003 came up $301 million negative.

OK good and the percentage of the (inaudible)?

Well we don't have as party third as such but we obviously we see depending on our maturities and our delivery schedule to postpone to extremes.

OK (inaudible) further.

We faced the rates.

OK, great. Thank you very much.

Next is Manuel Salazar with Santander.

Yes, good morning gentlemen and congratulations on the reports. I just have a quick question on Yanacocha volumes for the fourth quarter 2003. They were down compared to the previous quarter and the previous year and I was just wondering what the reason was for this and what can we expect going forward?

Yanacocha had a target production of 2,850,000 ounces and this what has been achieved. Essentially, the third quarter of 2003 was an exceptional quarter and we were heading for a specific amount of production. You see in these mines when you produced a lot more, you reduce your research and we want to have a very elderly operation in the Yanacocha. We want to have research for many, many years. We do expect to have research for many years and that is the only reason why we decided to go for the target production as of the end of the year. Going forward, I think, we can expect slight increases in Yanacocha. You have to bear in mind that a mine cannot grow at a rate of 30% per year as Yanacocha has been growing for the last 10 years. We have to be as careful and we are looking more for profitability rather than to number of ounces.

OK. So, just to be clear, this was a conscious decision on your part and its I mean, there is no problems like you hidden an area with a lower grade or something like that just you decided not to exceed the target?

It was conscious decision and it was what part of the mind plan.

OK, perfect. Thank you.

John Bridges with JP Morgan is next.

Good morning. everybody. I am intrigued by the cash flow that slightly becoming out of the Yanacocha over next few years. I just wondered if you had other projects that you were looking at to spend some of that on rather than just $30 million in to the Lozanka (ph). What is the status of Sangagariah (ph). That big zing project is probably economic again now.

Well, John. First, let me refer to Yanacocha again. I think, this question of reaching our target production has immediately operation to get us to date the number of aspects essentially the mechanical problems. You see we have a new fleet, or a large fleet, fleet of large truck and that requires maintenance and we have put all the operation up to speed and I think, we can look forward to a very good year for Yanacocha. In terms of San Gregario part of El Brokal company. As you know, we have working essentially on Marcapunta, which is the corporate goal arsenic deposits were we have had good results. In the case of San Gregario, we have not done much during the year because we had some community problems that when developing the reserves and the resources that Marcapunta will have starting to think that we may develop both Marcapunta and San Gregario at some point in time. It will be underground at this point in time. But we do hope that we will reach that (inaudible) with the weaker community, which is the difficult one to (inaudible). Essentially we have been concentrated in Marcapunta. If I may ask since that we ran to give us some insights on the exploration that Marcapunta during the year I think it would help.

Good morning, John.

Good morning, (inaudible).

I'm in Las Vegas signing all your projects. So we don't have to -

Have you told your wife?

Sure, and she knows it's enormous competition and now jokes apart. I think I, San Gregario you will have to wait not just for an agreement for an community. But also for a mind plan. We do have high weight phones at plus 10% zinc that are not shown or the current statement of resources 68, 69 millions on the 8% zinc which has been calculated with a cut off of 5%. So there are higher great wing forces there that we may want to develop by underground metals. But we're all geared up for Marcapunta now and decline of Marcapunta is going to start in the next 3 or 4 weeks I hope. The general management of Rocale (ph) is working hard to get all the permissions in place. The environmental impact study has been completed and the power line is being finalized. The decline of Marcapunta will start some time as I said in the next month or so and we will reach in access that top part of these oxide goals and our cynical comparable sulfide deposits. We intend during the year to the San Gregario is the resource and bring it to our resource level. We also would like to bring full samples obstacle to keep in metallurgy and at the same will exploring other targets in that mountain.

OK, so pass you question for Carlos and what sort of Capital spending program have you got for this year.

Basically, what we have (inaudible). I think in the order of $45 million plus exploration budget, which is a board of $10 million. So, its about $55 million.

Could you split up that 45 million CAPEX for us.

Yes we have in Uchucchacua. Yes, well we have translation plans in for savings old dealings. We close to $10 million in Orcopampa and finalized our declination of the affiliates for this Asian plant. We have a replacement of certain equipment in Antapiti, as well we have to expand and in Ishuinca (ph) $0.5 in Brocal order what to Marcapunta to demand $2.3 million, in Conelua (ph) we have to build a power line for $7.5 million from a (inaudible) to provide power not only to Orcopampa but also for Sheila and Paula (ph) for operations and expression we have to check in there. We will invest $2.3 million in certain facilities as a warehouse building for the company and Sheila and Paula will spend $1 million basically in equipment and exploration.

OK, excellent. Thanks a lot and congratulations on the results.

Thank you.

That's for Bedford Ellinghouse, with Bear Stearns has our next question.

Good morning. I have of couple of questions. The first one is on the long-term management conversation program. Is this a one-time question and my second question is a follow up on Yanacocha. If you have any idea or guidance on cash crops for Yanacocha in Q1. Thank you.

I didn't get the last part but any way in the long term compensation we need a sort march to market again. It is a percent value of all the so-called front-end options that we have granted to a number of people within the management of Yanacocha. What we are accounting for is the whole amount, until the year 2012, so it is not a cash item at this point of time and we believe that it may be stored some what administrative expenses but we believe it is a good instrument to give incentives to our management and I believe that most of the ones are already receiving the benefits of this are very happy with it. May I ask you again the question on Yanacocha?

Yeah, You get an idea of what you think as (inaudible) will be a Yanacocha in 2004

Well certainly Yanacocha with the deepening of the open seat in the haulage cost and we believe at this point, that the long-term cash cost for Yanacocha would be more in the order of $135 to $140 per (inaudible)

OK. Thank you

Next we turn to Tony (ph) UBS securities

Good morning, couple of questions and comment, I start with the balance sheet. It looks like in the fourth quarter of 2003, the starting cash balance is not equal, the ending cash balance at the end of the third quarter, was that mainly due to the increase in time deposits.

Yes, I would like, which is exactly the point when a conference in -- the financial statements of cash flow instead of reporting, there is a cash of the beginning of the period, they consider $14 million as a increase in investment types or alternate state of deposit. But the (inaudible) is right.

OK. In terms of the long term offices compensation, if you are assuming that one of the insure share price does not move all over 2004, what you are saying is that this figure will effectively be zero for the year.

Yes.

OK, another question why did you only basically neutralized two thirds of your derivatives position to physical sales, why not the whole portion?

Basically, because there were some, that were not prepared to do this restructuring we did it with the ones that were prepared to do it with us and that were accepted, mainly let me pass it over to Fernandes

Yes, we were able to achieve the year two thirds of the re compression view in 2003. Moving forward and obviously taking in to configuration up coming or new progression that we might have directly at when (inaudible) will end up probably or possibly restructuring the remaining one third.

OK. Looking at the differences between the two hedge blocks, from the one you had previously to the one now it looks like you are better of as long as the gold price is higher than 385 per ounces, Is that of the reflection of your bullish view on the gold price.

Not really, the hedge full what we are now showing this only, it's the reality moving forward once again of the physical at sales from one hand and derivative obsession and obviously the (inaudible) of commitment. Its basically showing that the same as in the past, I would tend to say that it is in lower level that we have higher level of production and that we will end of being better of with the mix of what we have now committed through the physical deliveries.

Let me add that we are in accordance with the industry we are, yes we are bullish on the gold price and as we help to reduce in what ever we can our hedge book that is the reason why we have bought back some of our positions. Yes we are bullish on the gold price and seems that the trend is accompanying the industry as a holder.

And just, I guess one final comment. You have indicated that the earning for the quarter on a clean basis or a non-recurring basis will be closer to 60 cents, although you had a number of these negative items higher expectation, higher long term compensation. If I do a top down analysis of your earnings for the quarter, I get a number of earnings before tax minorities of about $58 million, if I take care all the derivative impact and asset impairment charges. If I apply a, lets say 35.5% tax rate, which is would be normal for prove and that includes workers compensation, deduct 3 million for the minority expense. I get a number that's probably close to about 27 cents per share or per ADS in earnings. Can you perhaps comment on the discrepancy and why you choose to use 60 cents as kind of a clean number for the result.

Actually you have part reason because there two ways to analyze that. One is the way that we did starting from our financial statements and trained to re estate the impact of certain measures or decision we made. Second, possibly these are other alternatives the way you did. But due to that you cannot consider any income tax because the company in year 2003 didn't pay or didn't is not affected to income tax due to carry or loss it.

OK. You are keeping that in mind, I mean if I just use the 58 million, which is clean of all these derivative transactions and I assume zero tax and zero worker compensation. I still only get a number closer to 44 cents a share. So it's still well below your -- the 60 cents you have indicated. So in order to get your 60 cents you actually have to have a positive tax effect, which I would argue as non-recurring, would you agree?

Yes your right.

OK. Thanks very much.

Our next question will come from Alberdo Riyaz (ph) with (inaudible).

Yes. Good morning gentleman. I got a couple of questions, the first one on the hedge book. You committed $10 million to buy back or you know to purchase some gold grows on some positions. How much more capital are you going to be committing in terms of cash in order to continue to close down positions throughout 2004.

Well basically we don't think to continue buy and back positions where do we - they do this and for domestic decision because those were basically followed the lowest position we had. And with the due in year 2004 and 2005, when we believe the price of gold would be the highest in cycle. If I may add to that, we will be looking at the market on opportunistic basis if they're any -- as I may retreat any opportunity there are now.

OK. Follow up question with regards to the administrating cost, it was a significant increase obviously because of the share price, appreciation rights that you have given and the managers. There is an increase of around $20 million from last year and then when we look at the results one of in two round, excluding the royalty that you get from Yanacocha and excluding equitying that comes from Yanacocha which is because of your investment in Yanacocha. It seems that the operating income that when generated was $16 million. So it is a little bit strange to see that you know over half of the profits generated by the company went as administrative compensation. My question is given by the share price, if you could explain a little bit better how does these managers compensation is calculated? Is it the average share price of every quarter, you see that at quarter end and given that there has been a small correction in the share price of (inaudible). Are we going to see a negative impact in terms of administrative cost, but we see a quarter in which administrative cost are, as are negative because the share prices come down?

Yeah you are absolutely right Alberdo. The point is that we make a depreciation that denote face full. The forum is at 10 years forum. Five years despite initial years the officers are granted for part of this options they have and these options will mature from the year 6 to year 10. We cultivate the variation of the stock, the price of the stock. On basis of the price of the stock, monthly and quarterly or yearly. We are for delay. For sure if the price of the stock goes down we will have an income within quotes from these that strengthen, so we are subject to these volatility as well.

OK. And may be a final question to Cesar there was a lot of optimism -- couple of months ago with regard to the sort of (inaudible)

Sure Alberdo. Good morning. I am still very optimistic and you have perceived the optimism right a few months ago but none of that has diminished. In fact we have just completed our last round of gritting in January, and we have identified that principle range which we call that Fathima range and two main mantles (inaudible) concentration, with average rate in the order of 10 or 11 rounds per ton and individual interest exception go up to ounce or 1.5 ounce per ton. So this is gritting on a large basis say basis every 100 Mts. And it is encouraging enough to prompt us, to start the under ground exploration and development of the Fathima range as early as possible this year. We have completed our environmental assessment and we have requested for permission to use explosive dynamites and we are upgrading the roads, which is the major undertaking because you will benefit not just for Yanacocha. Property development but also the intervening product property which is 100 % ours and just to keep you updated on the personal enthusiasm and the company (inaudible) we just begin some franchise and finding additional structures with indications of high rate gold. So you are going to see for a Yanacocha, most likely as a strongest exploration efforts this year. I am not trying to diminish my current homework (inaudible) is in the process of being constructed in the next 18 months or acceleration will continue and be part of that, the main task is construction and Marcapunta will take full charge on the development of the ground. So Yanacocha is going to be a strongest exploration project in year 2004 for us.

What's the width of the Fathima range finally?

Fathima range varies from 2 meters to 50 meters and we have free intersect and few trenches on surface. But the great are you know quite good, any thing from 8 gm to 48 gm in individual interest explore. You are going to see 2 levels in the Fathima range, 4,700 mt and 4,800 metres above sea level. Well keep your fingers crossed.

I will. Thank you.

At this time we have no further question in the queue but I would like to remind the audience, [operators instruction]. We have Jennies Woodsman (ph) with GSO and Associates.

Yes good morning. Sorry came late for the conference call. There is over lapping in another conference earlier, your compare it but she mention that we have seen lot of stuff in the presses well in the politics of the mining industry and fiscal regime in the Peru. Could you just summaries what changes are being expected in Peru and if any one can be implemented towards mining?

Well as an indicator of Chile in Peru, there is some discussion on the possibility of applying 3% royalty on mining as a tax. Seems that this will continue with the discussion. We are fighting back of course as the mining industry and we hope that it will not pass. The price of metal is certainly helping to the tax situation of Peru in terms of the Government getting more money from the mining sector and this will help, I think the image of the mining sector and that will hopefully not get to the 3% royalty. In addition to that of course we have had some political changes. Peru is not an exception of lack of leadership and --but things are stable, inflation is under control, less then 2%, the exchange rate as you know, we do not run any exchange risks because the Peruvian economy is mostly dollarised. The fiscal deficit is more or less under control and the mass economic figures of Peru are essentially very good compared to the rest the Latin America. Growth rate is expected to be in the order of 3.5% to 4% for 2004 and that again the political situation is not the best and hopefully we will succeed to have a stable country.

OK. Some make from royalty, is that a Government platform or is that a opposition platform and given the intricacies of the Government and the legislation, did you see any thing to happen this year at the earliest or is it going to be like may be the a year or two before any thing can be implemented?

I think it will be a year or two if any. If these initiatives come essentially from parliament from left wing Congressmen, essentially they believe that this will help to distribute some of the income to the regions. We believe that this would be a de sensitive to mining in Peru will reduce our competitiveness compared to all other countries and that is a sort of fight back that we are giving to this politicians.

Thanks for that summary.

Mr. Woodsman anything further?

No. Thank you for the summary.

And John Bridges with JP Morgan has a follow up.

Good morning Roque again. Looking at your numbers, the best metal production has been down recently obviously because price metal prices over the last few years have been week. Are there plans to bring that back in the phase of these better metal prices or was it more reflection of weakness at some of those mines that produce more of the lead and zinc.

Well most of our lead, zinc production terms from Brocal participation and some Uchucchacua. Certainly, these will help that indicated Uchucchacua is a very marginal production, the our zinc production is essentially silver production and silver is doing very well. We are very excited about the price of silver and will help a lot to Uchucchacua. Brockal will also benefit from this and the exploration that we are doing in are referred to that earlier and the Marcapunta, copper seems to have a bright future and we will continue with our policy of concentrating in mining, specifically in precious metals but in miming to make money and these metals can be an important addition to our precious metals portfolio.

Could you remind just what you are selling at Uchucchacua used to be a concentrate and then you saw the producing doria(ph).

No we are producing concentrated Uchucchacua. There we are expecting to stand with the innovation of the paintings on an initial stage. This is what Carlos referred to as a part of our topics. An that will, help to increase the recovery at Uchucchacua. It is more of a metallurgical aspects and then on our second stage we expect to process all the tail links that have been stored for the last 120 or 30 years. So we do expect to produce much more of some more silver from our Uchucchacua operations with the new sanitation plant that we expect to finalize in the course of the year.

What is the capacity of that and when do you expect this tailings increment flows to start coming through?

Well, the cost. I don't know the capacity for all the tailings. So, its essentially for the same amount that we are possessing which is about 2200 (inaudible) and the initial calculation estimate of the CAPEX for this is in the order of $9 million and we expect to process not only the tailings but also the old tailings that we have stored for all these years. So essentially, for the whole production all the remaining of the floatation process.

You finally, the new tailings will increase however recall our silver produced in 1.5 million ounces per year.

Well, so, you are talking about 15 million ounces for the year forward.

15, one, five.

of silver?

No, no the normal production comes is 10 million ounces.

Not (inaudible).

(inaudible). Yeah, well the total production will be close to 15.

Yes, thanks.

OK, thank you.

And now from Jack with UPSC Investments will have a follow up.

Sorry, am I in line here?.

Yes.

OK. Just a few quick questions to - I guess your expectations for those earlier CAPEX next couple of years production levels, tonnage that sort of break down.

The technical and economical session done so far for15, 000 tons per day operation all can fit with a fibulation that is going to be variable from 0.4 to 1, great in the order of 1 gram plus or minus 0.2. Average weight 1 gram and a total production over a 100, 000 ounces a year for 5 years. That is all I can predict now and given the amount of results we have generated. The CAPEX as mentioned by Roque before is $35 million, which will be stagnant during the rest of this year and a half of next year. And we expect to produce at our cash costa year of $140 around.

OK, so it will start up in the end of 2005?

Mid 2005. The second half of 2005. Yes.

OK, thank you very much.

[OPERATOR INSTRUCTIONS]. Next is Obretto (ph) from (inaudible)

Yes may I have a follow up question? You are talking about copper. There was no update on the Pamapa Vedre project and if you could give us an update of what is that project right now. And is the restructuring, the pursuing same between Group of Mexico and Southern Peru opportunities perhaps increased your participation on that project.

Well, we concerned not to speculate on opportunities for the restructuring of other companies is what we make. Essentially we are working, we have hired a first class personal Nickle Amalia was the former minister of mines, that is working with us in the Pamapa Vedre project essentially in the evening with the local communities. Local communities has become an important aspect if you want to develop a project. We have had some very, very positive reactions.

We do expect to have a - if you want a social license in by midyear, we are working on that. It is a little stage that we are going to be successful as we expect that the symptoms are very good and we are working very hard on the Pamapa Vedre project. Let me just ask to that - that is - an important event has been that gold fields has take over Ferro Corona which is not far away Santa Votoy (ph), this will help certainly the whole situation over the area over (inaudible) and certainly (inaudible). You think we develop correctly I think mining will have a opportunity in all this area.

OK. May be a follow up question to Cesar. Cesar, you mentioned that Marcapunta may go into reserve at the end of this year. How ever there is serious metallurgical complication with arsenic. How confident are you that you are going to be able to result the metallurgical problem this year?

Well, the decline is meant to open up the reported for in field drilling and bore sampling. Trial mining you want may want to call that, that is basically to upgrade our assurance on continuity grade and the metallurgy. The second round of metallurgical fast work for Sulfide will be starting in the next month. We are expecting a proposal from our consultant and what had been done last year was enough to prove that the non-arsenal part of Marcapunta, the chalkosite (ph) portion, which is only a small fraction, in close to 10 million tones with 2% copper. A leaches well on a heat and also makes good saltation concentrate. However the book of the resource which is the arsenal copper the energize still has to have a green light from our metallurgical consultant. So we will be working hard on that. There is number of technical options but we have to look into that and there is a risk involved and we will be doing everything possible to not just bring the ore to surface but solves the metallurgical problem for the energize portion.

So when you were talking about reserve upgrade perhaps this year, were you referring to the chalkosite portion only and which one of the two are developed a project of this size, if it's only chalkosite?

Not only I mean, that is the easy part of the job but we are aiming for the entire deposit and we have working with Dr. Drisinger from UBC and Verkunver (ph) who is an expert in leaching of copper, low grade copper concentrate. So we will keep you informed, the moment we can only speak for generating results for chalkosite.

OK and the arsenal copper, what kind of metallurgical process are you evaluating in order to save that potentially from something viable?

We know we can produce low grade copper concentrate from 12, 15% copper with high recovery plus 90% and of course that will also bring the total of 50% of the gold in to perspective. These low rate copper concentrates don't have a market because of the arsenic indent. So we are trying to take that onto various leaching option, bio leaching or auto cleaving, ambient temperature I mean low temperature leaching, but that is basic metallurgical research and as for as acceleration programs for this year.

All right. Thank you.

At this time, there are no further question. I'll now turn the conference back over to Roque Benavides for closing remarks.

Well, again thank you for only support we are receiving from the investment in the community. We will continue working ahead as we have done for the last 50 years as you know we were celebrating our 50th anniversary last year and we are starting our second 50 years, and we expect to deliver value to all of you and again thank you for support and look forward to seeing you in the future. Thank you.

And that concludes today's conference call. Thank you very much for joining us. You may now disconnect.