Southern Copper Corp (SCCO) 2006 Q1 法說會逐字稿

Thank you for holding, and welcome to your conference call today with your chairperson, Mr. Eduardo Gonzalez. At this time, I'd like to remind participants that this call is being recorded for playback purposes and transcription. Your lines will be in listen-only mode. Mr. Gonzalez, I'll turn the call over to you.

Thank you very much Carrie, and thank you very much ladies and gentlemen for joining us this morning. The format that we're going to follow today is similar to that of other quarters. We will be comparing quarter-to-quarter results, and when I say quarter-to-quarter, I mean fourth quarter of '05 with first quarter of '06, and when I say year-on-year, it means first quarter of '06 compared to the first quarter of last year. In all instances, of course, we will discuss our results in full US GAAP. And let me begin first by discussing our mine production during the first quarter of '06. We had a total mine production of 160,500 metric tons and that compares quarter-to-quarter as an 11% or an 11.4% decline. That decline is mainly due for one, a partial stoppage or an illegal stoppage at the La Caridad mine, and the difference is due to lower ore grades or I should say temporarily lower ore grades at both the Cuajone and Toquepala mines during the first quarter of '06. We expect these ore grades to recover during the second quarter of this year and leading on to the rest of the year. When we compare that mine production to the first quarter of last year, that is year-on-year, we show generally a flat mine production, a slight decline of 0.7%, and the reason for that again are the La Caridad mine strike.

As for copper sales volume sold, we registered a total amount in the first quarter of 151,000 metric tons, and represents a 22% decline in sales volume when we compare that to the last quarter and represents a 7.3% decline when compared to last year. The reason for the quarter to quarter decline is mentioned primarily because of the strike at La Caridad and the lower mine production, but also a considerable amount of copper that is still in the pipeline equivalent to 11,600 metric tons of production, 5,000 of which stayed at the ports of Ilo, because of a strike that the port had there for a few days, that has been resolved and copper is moving along. And the difference is finished product that is copper raw that was on its way to the United States, and we were not able to register that as sales. So, when we compare that number of 151,000 metric tons to last year's number of 163,000 metric tons of copper sold, that's a 7.3% decline. However, we should take into consideration that 11,600 metric tons that is in the pipeline and should be sold in the second quarter immediately and should recover in terms of sales volumes during the second quarter and other quarters.

In terms of molybdenum sold, on a quarter-to-quarter basis, we have roughly a 1% decline, and when we compare that to the first quarter of last year, we have about a 16% decline. The difference on quarter to quarter is really null. It's about flat. But when we compare it to the first quarter of last year, we show a considerable decline in molybdenum production sold, and that is due as expected to lower molybdenum ore grades at all three of our mines and somewhat, of course, due to the legal stoppage at La Caridad mine. With these numbers and production figures, we of course registered still better numbers than the first quarter of last year and somewhat about the same as the fourth quarter of last year and this is primarily due when compared to the first quarter of last year, obviously, to a considerable increase in metals prices. For instance, year-on-year, copper showed roughly a 53% increase, that is copper prices, zinc prices showed a 70% increase, silver showed a 38 -- almost 39% increase, gold a 29 or almost 30% increase, and molybdenum was the only product that showed a decline of almost 27% year-on-year.

But, all of the other metals prices were more than sufficient to mitigate the impact of the lower molybdenum prices and lower production in molybdenum, and therefore we registered much better results in the first quarter of this year compared to last year. Compared to or quarter-to-quarter, we all showed pretty much a flat performance and that is due to also a decline in molybdenum prices of about 23%, largely mitigated by other metals prices increase, mainly copper, with an increase of 11%, zinc 37%, silver 20, and gold 14%. With these production figures and metals prices, what we show on a quarter-to-quarter basis is an increase in sales -- a slight decline in sales of almost 5%. Also, this was largely mitigated quarter-to-quarter by lower production costs, thereby we showed an EBITDA number, which is basically equivalent to the fourth quarter of last year, and of course a significant decline in -- a significant increase compared to the first quarter of last year. Again, EBITDA flat quarter-to-quarter and year-on-year, we show a 30% increase in EBITDA. EBITDA margin remained approximately the same compared to the fourth quarter of last year registering 61% and compares to the 58% that we registered during the fourth quarter of last year and better than the 55% registered during the first quarter of last year.

In terms of net income, we show a considerable increase from the first quarter of last year. Total net income amounted to approximately $421 million compared to $298 million last year, that's a considerable increase of 41% and amounts to approximately $2.86 per share. On the other hand, when we compare that same figure on a quarter-to-quarter basis, net income remains practically flat, increasing a little bit over $1 million, that is a 0.3% increase, and again on an earnings per share basis, we show a flat figure quarter-to-quarter of $2.86. Total capital expenditures during the first quarter amounted to $143 million, registering a 43% increase compared to the first quarter of last year and a slight decline compared to the fourth quarter of last year. The increase compared to the first quarter of last year is primarily due to our continuation or continuing expenditures in the Ilo smelter modernization program, which should be up and running and fully completed by October of this year and several of the and so on are already under operation. I should also mention that we have accumulated considerable amount of free cash flow throughout the last few months. We had a total cash position at the end of the first quarter of well over $700 million. We consider that at this stage a dividend of $2.75 per share is a prudent number to pay out as a dividend distribution to shareholders as we believe that over time we will easily make up that difference in order to continue our expansion program. We are currently reviewing several important projects, including Tia Maria in Peru, Los Chancas in Peru. Mainly, these are larger scale projects. Each one of which could include production of 50,000 metric tons and the other as much as 150,000 metric tons of additional copper production. We are currently completing pre-feasibility analysis in each one of these projects and hope to complete these analysis by the end of this year or early next year at which time we will make a decision whether we go ahead with these projects or not, but as things look today, it is practically obvious that we will at such time.

With this in mind ladies and gentlemen, let me open up the forum for questions and answers, and we thank you very much for joining us today.

[OPERATOR INSTRUCTIONS] Jorge Beristain, Deutsche Bank.

Hi, it's Jorge Beristain from Deutsche Bank. Just had two questions. One is, if you could just quantify at the current rate if the -- assuming the La Caridad strike continues, how much that will actually impact throughput in the second quarter if we would assume say a worst-case scenario that the strike would not resolve for the full quarter? I understand Caridad is about 20% of your overall production, but I understand you can mitigate some of that from concentrate from La Cananea. So, that's my first question.

Okay. Regarding the first question, you are almost correct. La Caridad represents about 17% of our total mine production. So, you could expect that from our regular run rate of 165,000 or 170,000 metric tons of copper mine production under normal circumstances, you simply subtract 17% away from that and you will get your number if Caridad remains in the illegal stoppage. And I should underline that this is an illegal stoppage and not a strike. And that's essentially the impact of the mine.

Okay. And then it will not be mitigated then in anyway by using excess you can trade from Cananea or other mine?

While we can certainly buy from third parties, but there is little we can do within the mines in terms of all of the -- some increasing ore grades at one mine or the other. It is really going to be at this as if we do not acquire concentrates from third parties, we will suffer about 17% decline from run rate mine production.

And my second question was just related to the capitalized stripping costs, if you could explain that issue again and also, are we to expect a more normal ratio now or a normal depreciation charge of roughly $50 million per quarter going forward as a result of the change in the capitalized stripping cost?

Let me explain how that works. We have a total amount on the balance sheet accumulated over time of a little bit over $400 million of capitalized stripping. Now, this number in accordance to GAAP is basically taken out of the balance sheet and taken against retained earnings or stockholders' equity. Now I should add that, not the entire 400 million or so is taken as a hit on retained earnings because as we put that number and reverse it and put it into our cost of goods sold that means we also have a considerable tax benefit. So, the net impact on retained earnings was roughly a little bit over $300 million, $317 million was the exact figure that we hit against retained earnings. For the future, you could expect that our costs on a quarterly basis will increase by approximately $25 million. This has already been shown in the first quarter numbers as opposed to the 50 you mentioned and this is because of certain tax benefits and so on. But again, the number should be about $25 million in increased cost. This is generally a wash in terms of -- free cash flow was not a slight benefit since our cost increase, we do get the tax benefit of that. So, a slight increase in free cash flow, not significant and these are generally the changes.

Raphael Biderman, Banc of America.

From BBVA Bancomer. Eduardo, congratulations for the results. My question regards, there was a news on Reformer saying that you guys are analyzing acquisitions and one of them could be Phelps Dodge. I know these are speculative questions, but if you could, you have already mentioned that you might use the share to make acquisition. Could you just walk us through giving some light on the size of acquisitions you are seeking, what is the type of assets you are looking for? And secondly you mentioned that you are planning investments in Peru, Tia Maria in August, how does this political situation in Peru impact your investments this season in the region and how you see the political scenario impacting this year?

Let me respond to your first question and before I continue on that aspect I should say that we generally follow a no comment policy, but we can generally tell you of course some of our thinking. We have always -- and I think we have always been pretty straightforward in saying that we are continually in discussions with several companies and several opportunities out there. It is our responsibility of course as management to seek the best possible alternative for our shareholders. Now, within this situation, the consideration is very simple. We have been thinking acquisitions, we have been thinking our own expansions, and we have been thinking seriously, an outright sale of Southern Copper. Now, when we say a sale, it doesn't mean that we will just give the company away. We would only exchange our current shares for shares of another company if there is a very considerable premium for our shareholders there, we would consider it, then let's say remain as a partner to the new entity. If it's a very large company we could remain with 20%, 30% whatever the number may result. Of course, with us locking in that premium and remaining as partners of the new entity. These are considerations. We have been again in discussions with several companies over time. This is nothing new, but I should also underline that there is absolutely nothing imminent. These discussions are ongoing and there is absolutely no certainty that any of these things will materialize into anything serious. Of course, in the future, if we do see an opportunity or we find any sort of agreement, this will immediately be informed or disclosed to the market. But, this is generally the considerations and yes, we would consider a dilution, so to speak, below 50% in Southern Copper if we get the proper premiums and get the proper returns for our shareholders in terms of locking those in. And in terms of Tia Maria, I will pass the word over to Oscar Gonzalez Rocha. He is the President and Chief Executive Officer of Southern Copper. Oscar?

Yes. About Tia Maria, like Eduardo mentioned before, we are in the process of finishing the exploration drilling and we will start in the month of the June, the feasibility story and by the end of the year, we shall finish that and within that then we will know the political situation of the country depending on the elections in the end of May and the start of the new government at the end of July. Our purpose is to continue doing investment in Peru, but we will need to check the political situation at the end of the year or at beginning of next year, when we will need to decide if the feasibility story is okay, we will start construction if everything work that way.

There is just one follow-up, one for Oscar, Eduardo. Oscar, do you think -- is it possible that made declarations in the past of nationalization of mining, in line of what Evo Morales is doing in Bolivia, now he has changed his speech. Do you know if it's possible legally for him to pursue a strategy like that? Do you guys consider these as eventual risk or real risk or not?

We are not considered that like a risk because definitely one thing is, when they are income paying and promising a lot of things to the population in order to get both and some NLCs when they are in, like, President and still he will need to win in order to do anything and we don't think that it is legal to do the nationalization.

Okay. But, Eduardo, when you -- so, I just want to be pretty sure of what you said, a very big statement. When you say that, if I understood correctly, one option that you consider is of having less than 50% of Southern Copper, then you mean Southern Copper is the merged entity of the operations in Peru and in Mexico, did I understood it correctly?

Yes, you did. And let me re-emphasize that as management, that is our responsibility always to seek to maximize the shareholder value and stakeholder value within this company. And that means diluting the primary shareholder, because it makes sense in terms of premiums and so on, it is our obligation to consider that.

But you would lose the control or you -- if you have like 30% you could -- you accept having at 40% in case you have like considerable voting powers, even we've all said is 50%, would that be the case more or less, would you -- I mean would you open the control?

I can't give you any details. All I can say is that we are willing or more than willing to consider a dilution of Grupo Mexico's ownership of 75% to be low 50%, if the premiums are there. If -- of course it makes strategic sense and if there is risk mitigation in terms of diversifying into other countries, diversifying labor risk, and so on, all of these things are considerations.

Daniel Altman, Bear Stearns.

Congratulations. Two questions, first of all, in terms of the 1Q results, again we seem to have this issue of when we try to multiply out the volumes and the prices, we get to a pretty large residual amount, I wonder if you can -- to the extent you can breakdown the revenue between copper more than in silver, etcetera. And then the second question is, I was just listening to the Phelps Dodge conference call, and they are, I guess, about 25% hedged to the copper price for this year. I am wondering if that's something that PCU is considering doing or has already done looking forward?

Let me respond to your first question. Copper sales volume as a percentage of our total sales has increased, and this is of course due to less molybdenum produced and of course the decline in molybdenum prices as opposed to exactly the opposite in copper. For copper, volumes have generally over time slightly increased except for that compared to the fourth quarter, but the price of copper has increased considerably. Right now, the total participation of copper within our revenues is approximately 68%. The rest is mainly molybdenum with about 22%, and then we have zinc, which would follow with perhaps about 6%, and then it breaks down into the other smaller metals, gold, silver, lead, and so on. This relationship again has changed in terms of -- for the benefit of copper. As to your second question, on an annualized basis, right now during the next four months, we have obtained hedges. We have sold basically all of the production over the next four months at an average copper price of above $2.80. After that we really have less than 8% of the production sold and leading up to the fourth quarter we have zero of the production sold. So, generally, these are the hedges over production that we have sold for the next four months.

So, this is reflecting results from April through to June?

Yes. When I say four months, it is April into July, mainly. And a little bit of sales that we have done in the month of August as well. Generally, what our risk management department being prudent is that with these very high metals prices and so on, it was prudent to walk in a considerably higher EBITDA than the company has ever had in its history. With these prices that we have locked in, in the second quarter, it is pretty much a certainty that EBITDA will be considerably above $800 million for instance. So, these are some of the benefits that we have already locked in for our shareholders.

And in terms of volumes, obviously, your volumes are constrained right now because of the strike. Did you hedge kind of a full production quarter or did you hedge a strike-affected quarter in terms of volumes?

A full production quarter.

So you maybe over-hedged then for the quarter?

Well, no, because we did accumulate some inventories, almost 12,000 metric tons and so on, and we expect to acquire in such case copper from third party in certain contracts that we may pull out at certain times. So, we are not short, so to speak.

Polina Kurdyavko, BlueBay Asset Management.

Hi gentlemen. I had two questions. The first one was on the illegal stoppage, as you would call it, in one of your mines in the Caridad. Could you give us a little bit more clarity as to where we stand with that at the moment? You mentioned in the press release that you are working with the Mexican authorities to resolve this illegal stoppage. Is there any indication in terms of timing or what the next step would be, and what are your expectations of resolution of the strike? Thank you.

This is a situation that unfortunately has become highly politicized between a campaign and parties and Presidential campaigns and so on. And on the other hand, there is a considerable inter-union dispute going on that unfortunately has brought us into this -- into the center piece of this situation, for instance at the stoppage, or illegal stoppage at La Caridad. And what is going on is that -- I will try to specifically put this in perspective. The old labor union leader was basically expelled by the union. The government, the federal government recognized this or took note of it. A new labor union leader came in; this was about two and a half months ago or three months ago. The new labor union leader is not recognized by some of the union members and these are generally a minority of union members that are asking the federal government and companies to recognize the old labor union leader. So, this huge fight is taking place and the old labor union leader who is outside of Mexico right now because he has basically been charged with several corruption charges and so. He is directing some of his people to block the entrances, in this case for instance of La Caridad mine. So, there are several miners that are blocking the entrances to La Caridad and not letting the vast majority of the workers that do want to get back to work to come in and work. In the meantime, of course, this is a difficult situation because there is really nothing you can do and enter labor dispute other than sit by and wait for the federal authorities, state authorities and so on to act and of course we knew what is illegal, which is people blocking the entrance of a house or a mine or a company. It is hard to say at this time unfortunately how long this strike may last. But we do hope and are confident that the authorities will act hopefully soon and we can go on with our work and our business.

And also on your previous -- on one of the questions, which were asked earlier on potential cooperation through merger/acquisition with other international partners, do you need to get any legal regulatory approval from Peru in order to change your ownership structure?

No, this is a US company. You will recall that this a company in Delaware that operates in Peru through a branch and through a subsidiary in Mexico, but this is full US company listed in the New York Stock Exchange, not with an ADR, it's a US company again. So, essentially other than of course local regulations and so on that we must always respect, but foresee absolutely no hurdles in such events. Mind you that these events are by no means imminent, as I mentioned. But having said that, no, we don't foresee any particular issues either within Mexico, the US or Peru.

[John Warwick, Bradford & Morses].

I'm sorry, I don't have a question at this time.

Jamie Nicholson, Credit Suisse.

Just regarding your CapEx budget for the year, I know you are still defining some projects, but do you have a current CapEx plan? If so, how much and what's divided between Mexico and Peru?

The total CapEx budget is approximately $450 million for full-year 2006, that is of course prior to any approval that the Board and management may recommend to the Board regarding Tia Maria, Los Chancas, and new projects. But excluding these potential expansion targets, which I just mentioned, the budget is 450. It is approximately divided up 65% into Peru -- about 65% into Peru and the difference into Mexico. Peru is a little bit more right now because we are still completing the Ilo smelter modernization. We still have over $120 million to expense -- to spend in terms of completing that project. And in Mexico, we have the expansion of the FXEW plant in Cananea, which is in basic engineering as we speak. And there are of course acquisitions of new equipments and so on. But these are the major projects which is going on into approved capital expenditures budget.

Okay. And then how much debt do you have at Minero Mexico at this point?

There is no particular debt at Minero Mexico other than the Yankee bonds. We have two Yankee bonds, one that expires in 2008, that is about two years from now April of 2008 and that is approximately $160 million right now. We also have at Minero Mexico a Yankee bond, the 2025 Yankee bond in the amount of $125 million. This is debt that Minero Mexico or the Mexican division had prior to us acquiring that division. So, those bonds remained as part of the debt of the Mexican division. All of the rest of the bonds that we have in [Solon] are at the Southern Copper level.

And you don't anticipate buying back anymore -- did you buy back a little bit of the Minero Mexico bonds in the quarter to reduce debt to 160.

Yes. We opportunistically sometimes do buy and we bought a few during the first quarter of this year. If I recall correctly it was approximately $8 million that we bought and opportunistically we do pick some of these up, but only if it makes sense from the buying point of view of course.

Okay. And just one last question regarding your cash production cost. What -- I guess, the accounting change and the increase in your operating cost to 122 as you reported, that's mostly non-cash, what's your cash production cost?

Let me mention that the 122 is a cash cost and that is before any byproduct credits from the sales of zinc, silver, moly, so on and so forth. And the reason we make that figure public is because it is very confusing to follow the net cash breakeven cost because, of course, of variations in byproduct prices and volumes and so on and so forth. The increase to $1.22 is partially due as you well pointed out to us no longer capitalizing, stripping it now goes in the -- directly to cost of goods sold. But, also I should mention that as metals price increase, we also pay considerable amount of additional workers' profit sharing. And this goes into the cost of goods sold line. This is also an impact in that level. And certainly, we having experienced increases in electricity and in fuel charges across the board and we are of course no exception as the entire world, I should say, is experiencing the same. So, these are the effects. All of these effects that have increased costs have been entirely mitigated, of course, by higher metal prices and higher byproduct credits.

Okay. Do you still publish the after byproduct offset cost?

Yes. We then make the figure, I don't believe it's in our press release, but the figure is in the 10-Qs, disclosed in 10-Qs. I believe that first quarter was about $0.27 positive compared to a negative cash cost in the first quarter of last year minus 16 in the last quarter of year. The difference there is molybdenum showed a $0.40 decline in terms of byproduct credit per pound of copper. That is due mainly to price and somewhat to less volume. So, most of the increase on a net basis from the minus 16 to the positive 27 is due primarily to that change in molybdenum by-product credit.

Jorge Beristain.

Hi. follow-up because I do believe that what you are talking about now, this potential of selling down your control stake in Southern Copper is, in my view, new news. I just wanted to understand is there something that has changed in management's mind or the owner's mind specifically G. Mexico in the past few months in terms of some of these things that you mentioned maybe having more of a diversification of country risk, labor risk, things like this. Is the owner changing their mind towards having their exit in one copper basket at this point?

No, there is absolutely no change from the past except perhaps the world has changed in certain situations and it is -- it maybe more convenient at this stage to be larger to diversify risk further into different countries and to of course increase returns to shareholders by capturing considerable synergies. But, there is really no change from the past. We have always been open to such circumstances except again the world has changed and some times it may be less expensive outright to do this than to go buy in a net present value situation and we have continually or consistently mentioned in prior conference calls that we view the world in net present value per share. What yields the highest net present value per share for our shareholders is what our Board of Directors and of course management will recommend to pursue.

Okay. And theoretically if you were to sell a majority control, does this involve forcibly also making the same offer to the minority shareholders, I would assume under US law there would be tagalongs and I just would like to understand if theoretically if this company was to be sold, it's the entire company would have to be sold or if you could actually just sell a small portion of it?

We can never even contemplate it. The minority shareholders is a different group. You are talking to Southern Copper management here and we consider our company one. I don't know if that's clear but it includes every single shareholder to whom we are responsible to, will they have 100 shares or millions of shares.

Right. I mean, I will give you an example. G. Mexico owns 75%, if tomorrow they wanted to swap a 30 percentage point stake of that for shares over a large global mining company, would the rest of the G. Mexico -- Southern Copper shareholders be equal on those same terms? Will they be offered the same kind of package, or could they remain as a distinct free float of PCU and not be affected by that kind of share swap?

Let me reemphasize that. We make no distinction between the major shareholders and the small shareholders. We are not negotiating different packages here. It is one shareholder, includes every single one of 147.2 million shares that we currently have outstanding, that's 100% of the shares of Southern. Everyone gets the exact same treatment in our management's mind.

Edmo Chagas, UBS.

Good morning. My question is a follow-up on your cost comments and in fact that this chipping you had in the first quarter results. Looking to the remainder of 2006, what kind of cost evolution you expect given the cost pressures that you have seen so far?

We've seen about the same cost pressures. There is really no change. I mean, we obviously know the natural ones, which are gas, diesel, fuel, gasoline and electricity, which has been the main component. On a second basis, we have seen cost pressures of course in steel ball for the mills and reagents and so on, but this is pretty much the same. There is no change from last year, although the huge increases have generally flattened with the exception of electricity and diesel fuel. But all of the rest have generally -- let's say, the slope is not as inclined today as it was back in the first and second quarter of last year.

Okay. But do you expect that this month end, it is likely to flatten out in the coming quarters or to come down given that you will restart production in La Caridad after the [strike closure]?

No, we expect things to remain about the same as they are right now. It is very hard to foretell if they are going to continue to increase, but generally speaking what we see is that if some of these costs increase, we also see copper and other metals increase as well, which largely mitigates or entirely mitigates these impacts. That's been our experience thus far.

[Leap Sherari], Merrill Lynch.

I have two questions. First one is a follow up on hedge. I just would like to understand if I got this correctly. Are you fully hedged in your copper production or your copper is sold for the second quarter?

Yes, we have sold our copper production for approximately over the next four months, as we mentioned that the price is a little bit above $2.80.

Okay, $2.80. And my second question is, if you could give us an estimate of your production going forward for the next years in terms of grades, do you expects grades lower, and you also think to account for this expense that you are expecting, how much can be expected from copper production going forward?

Well, Excluding any expansions, some of which are currently underway and some of which may be, of course, approved in the future, such as Tia Maria and Los Chancas, we should expect slight increases in production, ore grades at three of our four mines should increase within the next few months and years. That includes Cananea, it includes Cuajone and Toquepala. And you will notice that I excluded La Caridad, La Caridad is the only mine that in general we are experiencing decreasing ore grades of copper. So, generally speaking, on a flat basis, you should expect mine production to inch upwards going forward, excluding of course the expansion of Cananea, and so on and so forth.

I show no other questions in the queue at this time. [OPERATOR INSTRUCTIONS]. Raphael, Banc of America.

Eduardo, Raphael again from BBVA. Could you give us an update on the expansion projects of -- in Mexico of La Caridad and La Cananea? If there is, how they are evolving? But remember when there was the merger of both, one of the benefits of the merger Miner0 Mexico and Southern was to unlock the expansion, but then show up La Caridad and La Cananea. Could you give us some color on that?

Well, obviously, there have been several changes since then for the -- some for the good and some for not so good. For instance, we have of course now approved and are currently underway in an expansion in Cananea of an SX-EW plant in the amount of 33,000 metric tons per annum. We are reviewing an expansion of the concentrated plant, this has not been approved yet, because we are looking at the best way and quickly moving into pre-feasibility and feasibility analysis. And we have been reviewing other projects as well. But this is going to take some time for us to finish, with proper drilling and the proper analysis and then we can approve these projects as we mentioned, Los Chancas, and Tia Maria. Let me also emphasize that the labor situation has not been the best in the last few months. It has put let's say it is sort of a damper in the short-term in terms of aggressive expansions in Northern Mexico, and this is part of the benefit of being a global company that we can easily switch between, let's say, a project in Mexico to a project in Peru and vice versa depending on how we view the current environment and so on. At this stage again, without being too blunt, these are the considerations we are taking into account. There are some expansions going on, particularly in Cananea as I mentioned, but we are reviewing other possibilities. I think, it is safe to say that the next project that should or may go ahead are perhaps Tia Maria first and then Los Chancas and then we will consider the rest, as things look like now.

Like Cananea do you have any dates on when it would come on stream?

We don't have a specific date yet, and part of the reason for that is that equipment and so on is not as easy to get as it was a few years back. Generally speaking, a plant of this size we could build and start operations in 24 months. Nowadays this may actually take a little longer due to the scarcity of equipment and so on in the industry. It could take as much as three years. We don't know yet and of course we are in discussions with several of the suppliers and we will be able to give you better timings once all of the engineering phase is completed, which as I mentioned is currently underway. But we are also considering a potential expansion of the Ilo smelter and refinery, which we have a lot of the equipment already in place and that could be a huge benefit to our shareholders. There are several alternatives right now.

Alberto Arias, Goldman Sachs.

Hi, Eduardo, it's Alberto Arias how are you? I have a question regarding this potential transaction that you are talking about. Up to the previous conference call, Southern Copper was talking about a potential acquisition, and it seems that the level of discussion is in shift to selling of a stake of the company or controlling stake. Typically companies are not buyers and sellers at the same time. Should we interpret this shift as a view that perhaps we are past this -- at the peak of the cycle and should we in disregard completely any potential acquisition from Southern Copper as a consequence of this new approach?

No, I don't think you should disregard acquisitions at all. And I think Alberto I encourage you to look at the playbacks or listen to the playbacks in other quarters. We have said that we are willing to acquire the companies and so on and so forth considering certain circumstances. But we also always said that we look at things in a present value basis and the use what yields the best value, we will pursue, whether that meant acquisitions, whether that meant our own expansions or something else and I think we were very clear about that, no change from the past, in that sense. We will do what yields the most value for our company. Acquisitions has by no means been disregarded at this stage. We are reviewing both of these possibilities and we will continue to do so, again what next [acquisitions] we will pursue. And in terms of -- when people say sale, I'd like to emphasize that we are not talking just selling and leaving. This is an exchange of shares where we are seeking to remain as part of a partnership with a new entity where we might be minority shareholders, of course, but wouldn't generally matter because we would be a more efficient, bigger company that have captured a premium and still have intense returns for our shareholders with less risk. But, that's basically it, Alberto.

At this time, Mr. Gonzalez, there are no further questions in queue.

Thank you very much ladies and gentlemen for joining us today and we hope to see you in next quarter conference call.