Southern Copper Corp (SCCO) 2008 Q2 法說會逐字稿

Good morning and welcome to the Southern Copper Corporation second-quarter 2008 results conference call. With us this morning we have Southern Copper Corporation, Mr. Genaro Guerrero, Chief Financial Officer; and Mr. Raul Jacob, Head of Investor Relations, who will discuss the results of the Company for the first quarter and answer any questions that you might have.

The information discussed on today's call may include forward-looking statements regarding the Company's results and prospects which are subject to risks and uncertainties. Actual results may differ materially, and the Company cautions not to place undue reliance on these forward-looking statements. Southern Copper Corporation undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All results are expressed in full US GAAP. Now I will pass the call onto Mr. Raul Jacob.

Thank you very much, Jennifer, and thank everyone again for joining us for the second quarter 2008 Southern Copper earnings conference call. Participating in today's conference are Mr. Oscar Gonzalez Rocha, the Company's CEO; and Genaro Guerrero, Southern Copper's CFO. Mr. Guerrero will now lead the conference.

Good morning, everyone, and thanks again for participating in our conference. Today I will comment about prices, production, financial results, labor situation, our stock split, expansion projects, and also I will comment about dividends for this quarter. After that we will open the session for questions.

Let's just start now with copper prices. We continue having a positive trend on copper prices. The London Metal Exchange second quarter of 2008 average copper price was $3.83 per pound, higher 10% than the $3.47 per pound average for the same quarter of 2007 and 8% higher than the first quarter of 2008. Our view regarding copper market is still being very strong. Even though there are some signs of demand softness coming from the major developed economies and a temporary Chinese de-stocking, we think that this will not mean a [downward] in copper prices for the remaining of 2008 or significant correction in 2009.

On the contrary, we concur with the concept of a high probability of high copper prices in 2009 due to the rebound in Chinese demand and moderate response from the supply side.

I would like to open my comments about production mentioning that, even though second quarter '08 is showing a decreasing copper production mainly due to the operating stoppages in some of our Mexican mining operations, the rest of our mining activities are working in a regular basis. The total material move at the mines is above the mining plans for 2008, and this situation would permit the mining operations to get more exposed reserves and continue rational production.

Southern Copper's second quarter 2008 copper production was 117,000 metric tons, lower 26% than the second quarter of 2007 and 8% lower than the first quarter '08. The reduction of 14,900 copper tons in production quarter to quarter was mainly the result of the following. First, the Cananea stoppage that had decreased the production by around 35,100 tons comparing second quarter '08 with second quarter '07. The Toquepala production in Peru decreased by 13% or 5500 tons, to due to lower minor grade of 0.6% in 2008 versus 0.75% in second quarter '07.

These ore grade reductions result from the change in mining plans derived from the new reserves of Toquepala announcing in 2006. This production decrease was partially offset by higher recovery and higher SX/EW production at this operation.

In respect to La Caridad production, was 3100 tons lower or 10% less than last year. Also due to lower grade at this operation, the second quarter '08 copper grade was 0.38% per mind ton. This figure compares with a 0.42% per mine ton for the second quarter '07.

In this year, Minera Mexico copper production declined by 1600 tons, due to the strike at San Martin and Taxco operations. The lower production from dimension operation has been partially offset by an increase in Cuajone's production of 10% or 4400 tons, which have improved ore grade and recovery in the second quarter of 2008.

Regarding our copper smelting production, I am pleased to report that Peruvian Ilo smelter operation is running at a smelting rate of 36% higher than last year's second quarter.

Now, excluding the possible positive effect of Cananea production in the second half of 2008, we expect copper production to be approximately 245,000 for such half of the year.

Now let's talk about molybdenum. Molybdenum prices were $32.76 per pound for the second quarter '08, 8% higher than the second quarter '07. Molybdenum maintains its level of production quarter to quarter at 3900 tons. For the first quarter '08, molybdenum production increased by 3.5% as a result of higher recovery in La Caridad mine and better ore grade at Toquepala mine.

Southern Copper will produce a little bit more than 60,000 tons -- 16,000 tons of molybdenum in 2008.

About zinc, it is the only metal that is not showing a positive price trend in 2008. Zinc price in the second quarter '08 averaged $0.96 per pound, 42% lower than the second quarter '07. Mine seam production changed from 33,400 tons in the second quarter '07 to 27,600 tons in the second quarter '08. This 17% decrease in production is the result of the stoppages in San Martin and Taxco mines.

Refined zinc production shows 28% improved quarter to quarter, consequence of one-month delay on our yearly program maintenance that is moved from July to August of this year.

In terms of sulfuric acid production, our Company is an integrated producer. Southern Copper manufactures sulfuric acid as a byproduct out of its smelting operations. The Company consumes internally about 18% of its sulfuric acid production from the existing SX/EW copper production. The remaining production is sold in either long-term contracts or at [stored] market conditions. During the second quarter '08 the Company produced 434,000 tons of sulfuric acid, and for the first half of 2008 the production was 871,000 tons.

Now let's go into the financial results. Net sales for the second quarter were $1.462 billion. This figure compares with $1.826 billion in second quarter '08 and $1.499 billion in the first quarter 2008. Net sales have been affected by lower volume sales, partially offset by higher prices for certain of our products. As of June 30, 2008, we held copper derivatives contracts to protect around 88,000 tons of copper production for the period July-December 2008. These contracts are mainly zero cost collars average floor prices of $3.40 per pound of copper and average ceiling prices of $4.23 per pound of copper.

In the first six months of 2008 we have had gains of 8.6 million of this copper from these derivatives transactions, which were included in net sales.

In respect of our operating cost, the total for the second quarter '08 was $669 million. This figure compares with a cost of $681 million in second quarter 2007 or $634 million in the first quarter of 2008. Cost of sales in the second quarter '08 was $550 million, $12 million lower compared with the same period of 2007. That was $562 million. This change basically is due to the following variances -- fuel, power and cost increased by $31 million in Southern Copper. These variances results from higher fuel and power cost by approximately $36 million in the Peruvian operations, $8 million in La Caridad and $3 million in rest of the Mexican operations, in MMI. These cost increases were partially offset by $60 million reduction in fuel and power costs at Cananea. Workers profit-sharing decreased by $27 million, mainly as a consequence of the Cananea strike. Sales expenses decreased by $10 million due to lower freight expenses, and this is because in 2007 we sold a greater quantity of copper in concentrates, from which increased our shipping cost during that period.

We had a favorable exchange rate balance of $2 million, mainly from the Peruvian currency depreciation. Royalty payments decreased by $1 million in Mexico due to the strikes, and other Cananea-related costs decreased by $30 million. However, these costs were partially offset by strike-related expenses, such as $11 million on severance payments and $16 million in Cananea fixed costs.

As you know, our industry is under significant cost pressures. Costs have not decreased as expected due to these factors, and this is a major concern for us. As reported in our press release, the Company is taking several actions to reduce or contain operating costs. Among them, we are looking at different options to reduce our long-term electricity cost in both Mexico and Peru. In Mexico the companies have already in a power purchase agreement with an independent power producer who would build and operate a coal-fired 600 megawatts power generation plant in Mexico to supply our facilities and accommodate future demand from our Mexican projects.

In Peru, there is a good opportunity to obtain power generated from gas at a very affordable cost through the development of the Camisea gas deposit. The Company is currently evaluating different options to secure additional power required by the expansion programs conducted in this country.

The Company cash cost per pound of copper produced in the second quarter '08 before by products revenues was $1.85 per pound, $0.53 higher than the $1.32 per pound for the same period of 2007 and $0.34 higher than the $1.51 per pound in the first quarter of 2008.

Including the benefit of the byproducts revenues, the Company cash cost was $[0.031] per pound in the second quarter of 2008. This figure compares with a negative cash cost of $0.29 per pound for the same period of 2007. As I mentioned, our Company is experiencing significant cost pressures in fuel, power, steel and spare parts cost. We believe that our cost control approach to operations and equality of our assets will maintain our Company as one of the most competitive copper producers during this inflationary process.

EBITDA for the second quarter of 2008 was $877 million, equivalent to 60% of the sales. This figure compares with an EBITDA of $1.179 billion, or 65% of net sales for the same period of 2007.

The net income for the second quarter '08 was $549 million, 24% lower than the $726 million achieved in the same period of 2007. Earnings per share after the 3-to-1 split amounted to $0.62 per fully diluted share, compared to $0.82 per fully diluted share for the second quarter of 2008.

About the labor situation, I have to say that the strike in Cananea continued during the second quarter of 2008. The federal and the state government together with the Company are making all efforts to resume operations in order to get a positive labor relation with the workers, as it is the case in our Peruvian operations and other units of Minera Mexico.

Just confirming the stock split, on June 19, 2008, we declared a 3-for-1 split of Company common stock. On July 10, 2008, common shareholders of record at the close of business of June 30, 2008 received two additional shares of common stock for every share owned.

Also I would like to review our expansion and capital project. As indicated in our press release during the second quarter '08, we continued our efforts on the $2.1 billion investment planned at our Peruvian operations. Capital expenditures including exploration totaled $139.9 million for the second quarter '08, and we plan to expend approximately $480 million on capital projects and our exploration project in 2008.

Investment in Tia Maria project is underway. As of June 2008, we have committed $540 million in purchase orders and contracts for the acquisition of major equipment, including $389 million committed at a fixed price. The Toquepala/Cuajone expansion projects are also underway. For the Toquepala project we have committed $56.1 million to purchase equipment, and we have signed a contract for the feasibility study, basic detailed engineering and procurement support. The environmental impact assessment is also underway.

In the case of Cuajone project, we have committed $31.6 million to purchase equipment. We have signed the contract for feasibility study, the engineering and procurement process and the environmental impact assessment is also underway. We plan to invest approximately $1.2 billion in Los Chancas project, a copper-molybdenum property in the southern part of Peru. This is in addition to the $2.1 billion presently announced for our Peruvian projects. This project would increase our annual copper production by 18,000 tons by year 2013.

With respect to El Arco, a copper deposit located in Mexico's Baja, California Peninsula, a feasibility study has been initiated, and we expect to receive its results by the end of this year. We're currently estimating an investment of $1.8 billion to produce approximately 190,000 metric tons of copper by year.

And the Angangueo project, a polymetallic deposit with precious in the Mexican state of Michoacan is also progressing. A pre-feasibility study is in process to determine the optimal size of the underground mine and concentrator operations.

Finally, in relation with payment of dividends, I would like to remind that it is the Company policy to review at each Board meeting the capital investment plan, cash resources and expected future cash flow generation from operations in order to determine the appropriate quarterly dividend. Accordingly, the Company will evaluate the payment of our quarterly dividend at the Board meeting scheduled for this July 31.

At this point we cannot provide guidance until the Board meeting happens.

Well, thank you very much for your attention. And now we would like to open up the floor for questions. Thank you for your attention.

(OPERATOR INSTRUCTIONS). Victoria Santaella, Santander.

Genaro, good morning. I have a couple of questions. The first one is, if you can give us a more clear view of perspective of what can we expect with the Cananea strike. Is there a date that we should be looking for? Is there a time line? Is there something that we can start thinking about as a possible solution here?

And the second one, if you kindly go over again the cash cost without including byproducts for copper for the second quarter.

About Cananea, I would say that it's very, very difficult to determine a date where we're going to find a resolution for this issue. We have very good expectations, and -- in terms that this problem can be resolved before the end of the year. But it's very difficult to determine a date. As I said, what we're doing is to put all the efforts necessary with the government and with the union in order to try to, well, to define a solution and resume operations as soon as possible.

In terms of cash cost, I will pass the question to Raul Jacob, who is going to give you a little bit more detail on that matter.

On the cash cost, what was informed a few minutes ago was that the before byproduct cash cost for the Company has been $1.85 for the second quarter. That number compares with $1.32 during the second quarter of 2007 and with $1.51 for the first quarter of 2008. I'd like to remind you and our audience that in the second quarter of 2007 we had in full capacity the production of the Cananea mine, and this is something that certainly, besides the cost inflation that has been discussed, influenced our cash cost for the second quarter of 2008.

Carlos de Alba, Morgan Stanley.

Just following up on the Cananea issue, what are the alternatives that you could have to solve the issue? It has been an impasse. I am under the impression that it has become a political --

We are losing you a little bit. Could you speak a little bit up?

Is this better now?

Yes.

What are the alternatives that you have to solve Cananea? If you could comment on those, besides the date, what are the alternatives? I think that would be very important for the audience to see what are the choices or the avenues that you may have to solve this situation. That would be my question number one.

Question number two is, given all the cost pressure that the industry is facing, where would you put the top of -- the highest cost [decile] in terms of dollars per pound? What would be the marginal cost, as you see it?

Well, in terms of the alternatives that we have in the Cananea strike, I would say that the Company's idea and the basic alternative that the Company is taking in consideration is to terminate all the workers as we made in the past with -- in front of these kind of issues, and rehire all the workers again with a new labor agreement. That would be the alternative that the Company is looking for. Now, in relation with your second question, I will pass the question to Raul.

I think that fuel and power, but power specifically, it's the one cost that is increasing at a very high rate in the last few months, whereas you have seen in our press release we are taking some actions in order to reduce power costs long-term. We are also focusing on some other actions to reduce other costs. Let me give you an example on that. In Peru we have an internal production of scrap of about 10,000 tons per year and we have made some arrangement with some of our grinding media suppliers to use that stainless steel that comes from scrap from our own operations due to replacement of equipment or trucks that are replaced. That material is being basically sold back to us at a much lower cost, as you may imagine. These kind of ideas plus the fact of increasing the number of hours that our tires are lasting now -- we almost doubled them from, say, two years ago -- other kinds of actions that we are taking to contain or to control costs.

And you have some other concerns that I'd like you to explain doubled that, please.

Felipe Hirai, Merrill Lynch.

I just have two other questions. The first one is regarding other strikes in Peru. We're hearing all the time on the headlines news of potential strikes in Peru. So if you could just tell us what's the situation there or the risks of a significant strike in the country? And also, concerning the issue of the costs, if you could give us a breakdown between energy, labor or fuel or other spare parts or other materials in your costs?

I will pass this question to Mr. Gonzalez Rocha, who is going to give you some information about the Peruvian situation.

About the possibility of a strike, again, I will mention that we already sent a letter to the Minister of Labor in Peru mentioning that we are ready lost, from November 2007 to July 5 of this year 11,000 man days because the people of the National Federation of Mining in Peru make this week or two weeks strike since November. And for that reason, in the last strike that they made, national strike for mining, we started sending about 300 letters of investigation to that number of workers. And at the end we sent 17 termination letters, 10 for Cuajone and seven for Ilo, trying to stop this kind of the illegal strikes or illegal paralyzation of work.

We're going to have a meeting with the minister and the unions again the fifth of August, trying to mention to them that we are not going to replace or to put to work again any of the 17 that we are ready laid off. Of course, it's going to be a difficult position, and maybe they will try, the unions, to make a paralyzation again. We think that the workers in both areas, Ilo and Cuajone, and including Toquepala, that they didn't paralyze the last time that the Federation made the strike, the national strike, then we think that they are not going to support the unions. But let's wait until the meeting of the fifth, and we don't think that we will have any problem like we didn't have in the past because of lack of production because we have contractors and different workers that we have in our list during that time, plus the work of our supervisors.

Then, like you see in all these 11,000 man days that we lose, we don't lose any pounds or any ton of production. Then we don't think that will be a problem at least in Peru, because of this reason.

Oscar Cabrera, Goldman Sachs.

The question has to do with your sulfuric acid. The sulfuric acid prices on the spot market has gone up substantially, and from what you indicated earlier on, you were long sulfuric acid, if I got that correctly. Your requirements are met with about 20% of your production. Can you speak about the type of contracts you have? And, are you long sulfuric acid both in Mexico and in Peru?

Yes. Well, first of all, yes, we are long in sulfuric acid production in both Peru and Mexico. And as I mentioned, we have long-term contracts where we have some fixed prices, but we have another production that is going to the market in the spot prices. You are right; the prices of sulfuric acid have been increased substantially. Now we are seeing prices around $400 a ton. And in addition to that, or I can say about that, that sulfuric acid as a byproduct has become a very important income component in the Company.

Could you just give us an indication at least of what's the nature of the long-term contract? Like how much of your production is contracted long-term? And, we can figure out the spot market.

Then also, I'll just finish up with a second question and pass it on. You talked about your costs and the cost pressures you're seeing, which is fair enough on a per-pound basis. But can you comment on the cost per ton of ore mined? Because I've got to believe that you are producing less copper, but it would be good to hear what are you guys to seeing on the per ton basis, just to establish with the cost inflation in the system is.

Well, on a per ton basis, Oscar, we are not having such a high inflation cost as the one that you're seeing on a per-pound basis -- per ton of material moved, I mean, rather than per pound of copper. On per ton, what we're seeing is obviously higher diesel number two cost at the mines, and obviously higher stainless-steel or steel costs at all of our operations in general terms.

But we don't have the same kind of inflation on a per pound basis because of the fact of the Cananea strike, one; and, second, the fact that our operations are producing on the first half of the year a little bit less than last year, the operations that are not on strike, obviously.

On the sulfuric acid question?

On the sulfuric acid question, I would say that 70% is long-term contracts and 30% is going in the spot basis. But these long-term contracts are going to expire soon, and then we will be in a position in order to, well, to put this amount of or this tonnage of sulfuric acid contracts with the new prices. We think that the market is still going to continue being short in the supply of sulfuric acid, and we're going to continue seeing a very high level of sulfuric acid prices.

Just in terms of the dollar or cost per ton basis, so the increase that you are seeing is, what, 5%, 10%?

The increases in dollars per ton of what? Sorry.

Of ore mined.

It's about 20%, what we're seeing on cost per ton of material moved at the mines, Oscar.

Silvio Micheloto, Deutsche Bank.

His, this is Jorge Beristain, actually, with Deutsche Bank. I understand that the dividend question was addressed earlier. But I was also wondering if conceptually you could talk about your dividend policy going forward in the face of larger or growing CapEx, the fact that currently the Cananea mine is off-line. Would you be willing to increase Southern Copper's leverage in order to maintain dividends at the rate you've been posting for the last few quarters, or would you make adjustments to the dividend?

Yes, well, of course, as I mentioned, the policy is going to be -- or the decision is going to be in the Board of Directors. But we think that with cash generation that we are continue having -- as a matter of fact, at this point of time we are sitting at around $1.4 billion of cash as of today and our debt is around $1.3 billion, total debt. Then we are still having a negative debt or a positive balance between debt and cash, and we think that for short-term capital investments, that can be financed with our own cash generation. And in the long-term, we have all the balance sheet in the Company in order to go to the market and write some credit.

We don't think that the dividend policy would be affected, but again, we cannot speculate in that matter. And we need to wait until the Board of Directors decides in that respect.

But you feel comfortable, given that the business has strong fundamentals, that credit -- raising credit would not be an issue if you chose to increase leverage?

Yes, we feel comfortable with that.

Rodolfo de Angele, JP Morgan.

My question is related to the Cananea strikes. I'm just wondering what measures are you taking to optimize smelting and refining assets. Are you buying third-party concentrates(inaudible) for instance? Could you give us any color on that?

Yes. In order to maintain the Caridad smelting capacity and efficiency, we are buying some concentrates. Basically, we're bringing those concentrates from United States operations, and with that we are trying to maintain, as I said, efficiency on the Caridad smelter that, as you know, is possessing all the Caridad concentrates and all the Cananea concentrates when the regular operations are in place.

Do you have any reference as to the volumes, what to expect, anything that you could provide to us?

I don't have the tonnage or the volume of concentrate that we have purchased because, as a matter, we have been purchasing during this year and we have plans to get a little bit more for the second half. I would say that it's around 100,000 tons of concentrates, not copper containing (inaudible) tons of concentrates.

Terence Ortslan, TSO & Associates.

I'm trying to mobile this is sulfuric acid, which is a very lucrative market, as you described yourself. Now, 70% long-term, 30% short-term -- I guess the first question is, are you going to keep that ratio after the year end? And typically -- correct me if I'm wrong, but towards the new year, the contracts get renewed each year. Typically, they are three-year contracts, but every year the price is negotiated. So it's going to be 30/70 continuing, are you going to spot more? And what is the long-term market now that you envisage you'll be able to get for the very lucrative market? I have a question later on on the copper price.

Well, for sulfuric acid I would say that what we are going to try to do is to enjoy the current copper prices. We're trying to jump from long-term to a spot market. As I mentioned, our view is that the copper price, that the sulfuric acid price, is going to continue being in high levels, and that is the rationale of our -- that would be the rationale of our decision.

The long-term market or the contract market now is, what, about $50, $60, I assume, as you are getting it now, from the previous contract?

Yes. That is more or less the answer.

At the long-term market next year, I've seen numbers almost like $100 to $120. Is that what we're talking about in terms of guidance here? Because that's a very different number. It's a very good number for you.

How much, you said?

$100 to $120 long-term market.

Well, we think that it would be higher than that.

For a long-term market? Total contract market?

Yes.

Well, that's great. So can you make the assumption, then, to model for us to understand that next year's entire volume will be 70% in this contract market and 30% in the spot market with the new prices?

No, I don't think so. As I mentioned, that relation is going to change as a result of the current situation in the sulfuric acid price. I don't have an accurate idea how would be the percentages, but I'm convinced that that is going to change for next year.

Well, let's say 50-50 spot and contract, maybe something like that? Right?

Well, we don't know.

That is up to you?

That's what you have to think about.

Okay, alright. Obviously, with the capital expenditure program that you have -- and it's a struggle for every company who goes through and has analysts who go through as well, trying to use a leading copper price for us to figure out our reserves or economics and everything else. Now, the pick optimization and all works on the [NSR] basis, I understand; we appreciate that.

For this $2.1 billion, and going forward, what adjustments are you making to the price assumptions as you go on? And I get from other companies the feedback; I'd like to see what your assumptions are.

Well, you may understand, we don't disclose our long-term view on copper prices with that detail. For our reserves, we have been using $1.20 for computing our reserve base with that. This Company has the highest reserve base of the industry that it's traded publicly. So I'm sorry, but in this case you have to use your own judgment to see on a long-term copper price.

Both the competitors move to $1.60, $1.65 $1.80. You're not thinking of moving that direction?

(multiple speakers) not on reserves.

Leonardo Correa, Credit Suisse.

My only question is regarding your guidance on volumes. I think I missed the part during the beginning of the call where you gave the guidance. But can you please, if possible, repeat the numbers for copper, moly, zinc and silver, please, for 2008 and 2009, if possible?

In terms of copper, our guidance for the second half of the year, around 245,000 tons of copper. For molybdenum, 16,000 metric tons of molybdenum. And for zinc, around 103,000 metric tons of zinc for the total of 2008.

Do you have any guidance on the numbers for 2009 yet?

No, not yet. We don't have any guidance at this point of time for 2009.

Carlos de Alba, Morgan Stanley.

If the current plan of offering [LOE] retirement packages to the workers at Cananea doesn't work, what other alternative do you have? Or there is none?

And then, on the cost front, where do you see the margin of costs of production? Because obviously, the diesel (inaudible) diesel prices are affecting the open pit mines tremendously. But then the sulfuric acid and power costs are affecting the (inaudible) production worldwide. So what do you see if you had that number, the margin of cost of production (inaudible)?

Let me -- this is Raul Jacob. I'm going to answer the second question because it was the question that we couldn't answer before.

Obviously, fuel prices are hitting significantly mining operations. We don't know yet about the total effect on the margin of cost for the industry. But if you take our case where we operate in a country where we have some kind of subsidies to oil, and our cash costs have gone almost $0.30 from the first quarter to the second one. So if that's what happens when you have certain control on fuel prices, you may imagine what is happening in some other operations as well.

On the sulfuric acid, that basically affects the most SX/EW production because that's the one that is intensive of sulfuric acid. Well, we're talking about a material that used to be -- pay at about $50 or less than that per ton, a year or so ago. And now, on the spot, it's at about $400 per ton. So the effect of that on marginal cost at SX/EW operations is going to be very important if you are not long in sulfuric acid, as Southern is.

Obviously, this will also effect -- the sulfuric acid price will also affect all the projects that are being developed or think about developing that has a significant consumption of sulfuric acid as an input for copper production.

In respect of the Cananea matter, well, I would say that we have some legal alternatives. But those legal alternatives are not in our hands in order to be -- or in order to use them to find a resolution of the problem. And we cannot speculate in one of these alternatives, or legal alternatives, is going to work.

Then I would insist that the Company, that the alternative that the Company is taking, as you know, it's first of all offering to the workers the severance package. And we have a very good expectation in terms that this package is going to be taken by them. And then I would return to my first comment about that, that that would be the solution that the Company expects to have, is to work and to find a positive and better labor agreement in which the Company can work with a benefit for all the parties, the Company and the workers.

Rodolfo de Angele, JP Morgan.

Could you give us any guidance in terms of what to expect on the cost side for the next quarters?

Well, that is a little bit difficult question, Rodolfo, being in this very volatile market. We have seen the oil prices, the gas prices and the energy prices going up and down. While it's clearly that the power we have been facing huge increases in energy, in energy costs. In some cases, or in the case of Peru, we are facing increases of more than 50% per kilowatt-hour as well as the fuel and the cost of steel.

Then it's very difficult to give you a guidance, but -- in this kind of inflationary environment.

Oscar Cabrera, Goldman Sachs.

You mentioned you bought about 100,000 tons of concentrate to fit into the Caridad smelter. Was that over the first half? And are you expecting to have something similar? Is that included in your outlook for the second half?

Well, that is for the whole year, Oscar. That's our estimation. I don't have exactly the number that we're planning to buy in concentrates for this year. That is a roughly number, but that is for the whole year, as I said.

The answer on (technical difficulty) Oscar, it's also conditioned to the commercial terms that we get on the concentrate that we want to buy. As you know, concentrate market is very strong right now.

That's fair enough, Raul and Genaro, thank you very much. Of the outlook that you're providing for the second half, does that include concentrate bought from third parties?

Yes, sure.

Rodrigo Heredia, Ixe Broker House.

Earlier in the conference you talked about the restocking of China, and you said something like, you are expecting this for 2009. Can you give us some more color on that, of -- if you see the possibility that this happened in this year or maybe in which quarter of the next year?

Well, what is clear is that the Chinese copper consuming industries are still growing at a very strong pace, and they are not demanding the copper that they should. That's why we drive as copper producers that there is a de-stocking of copper inventories in China.

When will they come back to the market, is something that we don't know at this point. But as long as they are growing at 10% on GDP and that transforms in a higher demand for copper then 10% coming from China, we understand that they are coming back to the market at a certain point in time, which we don't know. I'd like to mention that we don't have direct sales to China. So in this case, we can't put more color on there.

Anthony Young, Dahlman Rose.

On the guidance that you guys have provided, that 245,000 tons, is there any contribution from Cananea associated with that?

No. No, we're not including Cananea in our guidance.

And then just on your capital costs, the $2.1 billion, I realize that you guys have locked in part of that. You talked about locking in some of the equipment you've purchased for one of the projects, about $498 million, I believe. How often do you guys review the capital costs, as far as the rest that you guys are going to have to spend, given all the cost pressures in the industry? Is there a chance that the $2.1 billion heads higher?

Well, it depends on the maturity on the projects, Anthony. In the case of Tia Maria, which has a budget of $934 million, we already committed over $500 million in purchase orders that fix about $300 million of the total budget. Then we have some contracts that may be affected by our cost increases. At the same time, you have to keep in mind that these kind of projects always consider a contingency effect that, among other things, wants to accommodate for some cost inflation in capital goods.

On the other projects, the Toquepala and Cuajone expansion and the metallurgical facilities in Peru expansions, we are currently [developed] a feasibility study. And at the end of these feasibility studies, we will know with more -- more clearly the kind of capital costs that these expansions will have. Our numbers for those expansions are as of 2007. And, as you have seen, we are taking [substantive] action to buy in advance equipment, so that allow us to fix the costs of major capital equipment required for these projects.

So, the $2.1 billion does include the contingency, then?

It does. It does include contingencies.

We have no further questions in queue, sir.

Well, then, thank you very much for joining us, and we hope that you join us for the next quarter conference call. Thank you for your participation.

This concludes today's conference call. You may now disconnect.