Southern Copper Corp (SCCO) 2008 Q3 法說會逐字稿

Good morning, and welcome to Southern Copper Corporation's third-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 third 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 to not place undue reliance on these forward-looking statements. Southern Copper Corporation undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. All results are expressed in full US GAAP. Now I'll pass the call on to Mr. Raul Jacob.

Thank you very much, Amanda, and thank, everyone, again, for joining us for the third-quarter 2008 Southern Copper results 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.

Thank you, Raul. Good morning, everyone, and thanks again to be participating in our third-quarter '08 conference call. Today, I will comment about Southern Copper developments for production, operating costs, financial results, and the status on our expansion projects. After that, we will open a session for questions.

As we all know, due to the severe crisis that is affecting the world financial markets, the basic metal markets are suffering serious price decreases. The economic weakness in US and Europe and concerns about a slower growth in China have weakened the corporate demand for the remaining 2008 and 2009. As a consequence, we think that a lower price environment will prevail for the rest of 2008 and possibly in 2009. However, we are positive about the underlying fundamentals of the copper market.

The credit crunch crisis and the curtailment of high-cost operations are two new factors to add to the [structural unperform] of copper supply. Nothing has changed regarding decreasing ore grades, labor unrest, energy and water shortages. All of these factors have been causing lower production levels than expected across the mining industry since 2004. Giving consideration to the strong long-term fundamentals of the copper market, we think that as long as demand recovers, so will prices, and Southern Copper will be ready to take advantage of this new cycle.

[Bare with me] third quarter of 2008 average copper price was $3.48 per pound, lower by 1% than the $3.50 per pound average for the same quarter of 2007 and 9% lower than the second quarter of 2008. Southern Copper's third-quarter '08 copper production was 118.7 thousand tons, lower 13% than the third-quarter of 2007, but 3% higher than the second quarter 2008. The reduction of 18.2 thousand tons of copper in production quarter to quarter was mainly the result of the Cananea and San Martin and Taxco operation stoppages that have decreased the production by 13.2 thousand tons, comparing third quarter '08 with third quarter '07.

Also, the Toquepala production decreased by 18% or 8.4 thousand tons due to lower mine ore grade of 0.6% in 2008 compared to 0.77% in third quarter '07. This ore grade reduction is part of the Company's long-term mining plan. It should be mentioned that Toquepala SX/EW production increased by 700 tons due to higher leachable material ore grade and recovery.

La Caridad production decreased by 200 tons due to minor variances in ore grade and recovery when compared to third quarter 2007. On the other hand, these production decreases have been partially offset by higher Cuajone production of 3.5 thousand tons, an 8% increase, due to higher recovery at this operation.

Regarding our copper smelting production, I would like to report that the Company finished in August the first major maintenance in the Ilo smelter. We expect Ilo smelting grade per month to increase from 90,000 tons to over 100,000 tons. We expect copper production to be approximately 120,000 for the full quarter '08 and 484,000 tons for the full year.

Molybdenum prices were $33.27 per pound for the third quarter 2008, 6% higher than the third quarter 2007. Molybdenum production increased by 3% quarter to quarter to 4.5 thousand tons as a result of higher ore grade and recovery at La Caridad and better recovery at Cuajone. Southern Copper will produce a little bit more than 16.5 thousand tons of molybdenum in 2008.

Regarding zinc prices, in the third quarter '08, average $0.80 per pound, 45% lower than the third quarter '07. Mine zinc production decreased by 2.4 thousand tons in the third quarter '08 to 26.9 thousand tons. This 8% production reduction is the result of the stoppages in San Martin and Taxco mines. Refined zinc production shows a 20% reduction quarter over quarter as a consequence of timing in program maintenance from second quarter '08 in August of this year.

Southern Copper produced sulfuric acid as a byproduct out of [its] smelting operations. The Company consumes internally about 18% of its sulfuric acid production in its owns SX/EW corporate production. The remaining production is sold in either long-term contracts or at a spot market. During the third quarter '08, the Company produced 354,000 tons of sulfuric acid.

Net sales for the third quarter were $1,440 million. This figure compares with $1,606 million in the third quarter '07 and $1,462 million in the second quarter '08. Net sales has been affected by lower volume, sales, partially offset by higher volume and prices for molybdenum and higher prices in precious metals.

The total operating costs for third quarter '08 was $764 million. This figure compares with a cost of $673 million in the second quarter 2007 or $669 million in the second quarter of 2008.

The cost of sales in the third quarter of 2008 was $646 million, $86 million higher than the third quarter of 2007.

The cost increase is explained by the following variances. Fuel and power costs increased by $55 million due to higher prices on these items on the cost. Purchase of copper concentrates from third parties to be treated at Caridad smelters increased by $37 million. Labor costs increased by $6 million, lower leaching material capitalization credit of $6 million at Cananea. Another material and cost increases of $12 million.

These cost increases were partially offset by the following. Workers' profit-sharing decreased by $10 million. And we have a favorable exchange rate variance of $20 million for both Mexican and Peruvian currency depreciation.

Despite the reported cost increases, we now are seeing some cost reductions in our power and fuel costs. Also, currently, higher exchange rate, particularly in Mexico, will offset local cost increases.

In terms of EBITDA for the third quarter of 2008, was $784 million, equivalent to 54% of sales. This figure compares with an EBITDA of $1 billion or 63% of net sales for the same period of 2007. The Company cash cost per pound of copper produced in the third quarter '08 before byproducts revenues was $2.03 per pound, $0.52 higher than the $1.51 per pound for the same period of 2007 and $0.18 higher than the $1.85 per pound in the second quarter of 2008.

Including the benefit of byproducts revenues, the Company cash cost was $0.18 per pound in the third quarter of 2008. These figures compares with a negative cash cost of $0.17 per pound for the same period of 2007.

We believe that our Company is well-prepared to face the current difficult circumstances. Our cash position, even though affected by cost increases in recent years, is one of the most competitive in the industry. Our ore reserves base and project pipeline will enhance this cash cost position by adding low-cost copper units to our current production base in the upcoming years.

Net income for third quarter 2008 was $480 million, 34% lower than the $628 million achieved in the same period of 2008 -- of 2007. Earnings per share amounted $0.47 per fully diluted share compared to $0.71 per fully diluted share for the third quarter of 2007.

A significant strength of the Company is its cash position. As of September 30, 2008, it's in excess of $1.1 billion. These funds will continue supporting our operational needs, as well as our capital expenditure program in process. In order to protect the Company's cash investment, the risk and cash management committee, comprised of members of senior management, has agreed to maintain the Company funds in low-risk and quality financial instruments with financially solvent institutions.

As of September 30, 2008, we held corporate derivative contracts to protect 30,000 tons of copper production for the period October/December 2008. These contracts are zero cost collars with average floor prices of $3.40 per pound of copper and average ceiling prices of $4.23 per pound of copper. In third quarter '08, we have gains of $54 million on these derivative programs.

In addition to copper derivatives, we hold exchange rate derivatives to protect about 30% of our Mexican peso denominated costs. In the first nine months of 2008, we recorded a gain of $2.1 million on these exchange rate transactions and we have an unrealized loss of $14.8 million in the [opposite] positions as of September 30th of 2008.

About Southern Copper Corporation capital projects, under the new economic environment, a detailed review of capital projects will be undertaken to target reduction in costs for all of our projects.

In respect of Tia Maria, as of September 30, 2008, we had to spend $79 million as part of the $580 million committed in purchases orders and contracts for this project. After the approval of Tia Maria's environmental impact study, expected by the first quarter of 2009, the Company would begin the civil works corresponding to this project.

The Toquepala expansion project is moving forward as expected. We had to spend $5 million as part of the $87 million committed in the purchase of two 73 cubic yard shovels, two mine drills and [7320] tons trucks. We continue with the feasibility study, the basic and detailed engineering and procurement support. The environmental impact assessment should be completed by November 2009.

Regarding our copper deposit projects at El Arco and Los Chancas, and the underground pulling at [Talac] mining [Langangale], the Company will continue to evaluate these projects, taking into account the changes in the financial and economic conditions.

With respect to labor matters, the Company continued to take the steps pursuing a positive resolution of the work stoppages at Cananea and San Martin. Based upon a recent ruling related to Cananea's strike by a federal court which was favorable to the Company, it is suspected that the labor judicial authorities will declare the strike illegal. If a favorable ruling is reached, the next step would be to regain control of the property and the operations and we believe that once in control of the operations, food production can be ramped up in approximately three months.

Finally, regarding dividends, I would like to remind that it is the Company's policy to review at each board meeting the capital investment plan, the cash resources and expected future cash flow generation from operations in order to better [mind the upper] pay a quarterly dividend. Accordingly, the Company will evaluate the payment of a quarterly dividend at the Board meeting scheduled for October 30. At this point, we cannot provide guidance until the Board happens.

Well, thank you very much for your attention, ladies and gentlemen, and now we would like to open up the forum for questions. Thank you.

(Operator Instructions). Felipe Hirai, Merrill Lynch.

Good morning, everyone. Thanks for doing this call. So I have two questions here. First, one is regarding the costs. We saw a significant increase in your cost restructuring this quarter. What's your expectations for the next few quarters? Where is this cash cost going? And the second is regarding your projects. You're saying that you might have to delay or review your projects and maybe try to reduce some cost there. I just wonder if you could give us some more details on what's your expectations for these [type] of the projects and also for any potential declining costs. Thank you.

Raul is going to give you a little bit more detail on the cash cost and our guidance for the last quarter.

Hello, Felipe. The third-quarter operating cost has been affected by two major factors. The first one is the cost increase in fuel and power, and as Genaro reported, it's $55 million for the third quarter when compared to same period of last year. And basically, we had an increase in power and fuel costs at the Peruvian operations due to the fill up of the gas pipeline that has increased the power cost in Peru significantly.

This is a short term event. It should be finished by mid 2009, but during between now and 2009, we will have a more hydropower production in Peru that would reduce the energy costs for the country. So we think that for the third quarter, we had a high power cost, but that shouldn't be the case in the future. Yes, also, oil prices, as you know, are coming down and that is going to help us, obviously, in the future.

The second important event was the purchases of copper concentrates for Caridad, the smelter of Caridad, that increase our cash position by $37 million. It has to be taken into consideration that we do this obtaining a profit in the processing this third-party concentrate.

Other than that, we believe that we will see some cost reductions in the fourth quarter, but so far we can't give you any guidance on what we expect because it's a matter of talks in some cases with our vendors and suppliers.

So Raul, just on your last point, do you have any idea of how the purchase of copper concentrates are going to be for the next few quarters?

Well, this is the season of the year where most of the contracts are being negotiated or finished, so we have no definite numbers at this point that we can comment on.

But Felipe, complementing that answer from Raul, I can tell you that probably it's going to be around 12,000 tons of copper contained and most of that is going to be in the form of [toll] instead of purchase. Then we have that alternative as well.

Okay, thank you. And regarding the CapEx, any expectations for delays or reduction in the cost?

Delays in CapEx, you said?

Yes, any, because of -- in one site, you mentioned in your press release that --

No, I don't think that delays are going to happen. As we mentioned, we have all the financial restructuring in order to face all the capital expenses that are on process.

And what is important to consider is that we're going to review all of our projects in order to try to look for savings. And that is what -- how the Company is going to -- is trying to do in front of these new financial conditions.

Felipe, let me add that in the past copper cycles, capital expenditures, when we passed from high prices to a lower part of the copper price cycle, capital expenditures in total decreased in some cases between 40% to 50% for the whole industry. So we think that the times where you have the trouble to get capital equipment, it's going to be passed in the next few months. Considering that, the Company's is evaluating the capital cost of all the projects and will try to obtain cost reductions on the budgets for these projects.

Great. Thank you.

Jorge Beristain, Deutsche Bank.

In your introductory remarks quoted some volume guidance for the fourth quarter or the full year for copper and molybdenum. Could I just get those key guidances again for your year-end December results in terms of copper sales volume?

Yes, of course. We expect that production for the last quarter of the year around 120,000 tons of copper.

Sorry. I had a phone ringing. Could you repeat that again?

Yes, 120,000 tons of copper is what we are expecting to use (multiple speakers) quarter.

Okay, and for molybdenum?

And for molybdenum, we will produce 16.5 thousand tons for the whole 2008.

Okay, so that implies a fairly low fourth quarter of around 3500 tons?

3500 for the quarter?

Yes. Sorry, that's 4500. So it would be in line then with what you did in the third.

Yes, it's 4500.

Yes, okay. And could you also comment a little bit about what you're seeing in the sulfuric acid market. And obviously, prices have come down, but could you quantify if these contracts have already been sold forward for some of the sulfuric acid, if you would expect to still see very high prices into the fourth quarter?

Yes, Jorge, what we're seeing is that the market is still very strong. It's not as strong as say six months ago. We're currently negotiating our contracts, but we expect to have much better prices than in 2008 for next year.

Could you quantify roughly what level you'd be looking at year on year?

No, I'm sorry that I can't say that right now because this is part of the talk that we're having.

Okay. And could you also update us on your credit situation, just running us through what are your working capital lines? What kind of commercial paper facilities -- do you have any credit facilities that exist but have not been drawn down? Just walk us through your big headline credit numbers?

Well, our debt position is some Yankee bonds that are very long-term in maturity. Let me see if we have some information, some breakdown here. Our total debt, long-term debt, is $1.2 billion. And -- go ahead.

Jorge, what we're going to obtain in the next four years is $10 million for a Mitsui loan that we took a few years ago. Then, in 2015, we will have the payment of $200 million for bonds issued that we did in '05. And after that, our debts are very long-term. One, the Yankee bonds that Genaro just mentioned for 2028 and $1 billion bond issued that we did in 2005 that matures in 2035. At this point, we don't have any credit lines.

We don't have any commercial paper or any short-term clients that we are using for working capital.

Okay, so would you be looking in this environment to establish credit lines, short-term credit lines?

Well, there's a possibility. If we need it for our projects, we have been in contact with all the agencies to finance products that are coming from US, from Japan, from Germany. We also have -- we have been maintaining conversations with agencies from those countries in order to try to maintain an open window if we need to finance the equipment that we are importing from those places.

Okay, thank you.

Carlos de Alba, Morgan Stanley.

Yes, could you give us, please, a sensitivity on the FX from the Mexican operations as well as the Peruvian operations, either on EBITDA or on earnings, that would be great.

Carlos, we don't have that sensitivity at hand right now, but I can comment that local currency expenses represent 40% of our total expenditures in both Mexico and Peru. That will give you an idea of how can we adjust for variances in exchange rate will affect our EBITDA.

Thank you. And is there any timing on the Cananea situation, labor situation, that you can comment upon? And when would you expect to hear from the labor authorities in Mexico in terms of hopefully final resolution on the strike?

Sure. In September, actually on September 4, the Company, as I mentioned, received a favorable ruling with regards to the Cananea strike. And as I mentioned, based on this decision, we expect that shortly before the end of year, the labor judicial authorities will make a resolution in this respect, declaring the strike illegal.

However, there is not a specific date?

No, there is not any specific date, of course.

So basically if you get a positive resolution by the end of the year, and then it takes about three months to ramp up, we could expect that by the second quarter you would be at full capacity if everything goes well?

Yes, that is our expectation, and the three months is the period of time that we consider as a ramp-up and that, of course, will start running as soon as we get control of the operations again.

Thank you very much, Raul and Genaro.

Oscar Cabrera, Goldman Sachs.

Good morning, gentlemen. The first question has to do with your CapEx. Can you just remind us what the level of expenditures that you expect with Tia Maria and the Toquepala expansion over the next two, three years, just based on what you spent so far?

Yes, Oscar. It is Oscar Gonzalez. And what we're expecting right now, like was mentioned by Genaro, our commitment for Tia Maria is in the order of $570 million. Right now we already paid $79 million of that. And we expected that by the end of 2010, we will spend around $1 billion that is the cost of that project. And in Toquepala, we think that right now, we have waiting for the possibility a story from this Company Hatch from Canada that is doing this in Santiago, Chile. And we think that the cost is going to be higher of what we had before of a little more than $640 million. Then we will need, like was mentioned, [whoever wait] with that extra cost if the Toquepala, depending on the prices of the copper, will need to go out [the same as here] or we will need to revise that in order. We already have purchased in all the mining equipment that we are going to receive it next year and pay it next year. And with that, we will start moving all the materials because that mine has a ratio of 7, is going to have a ratio of to 1 for ore, then we will need to use that equipment. And we're buying our equipment from Komatsu and from Caterpillar.

Then, again, Toquepala is going to -- if everything continues like we expected -- is going to be finished by the end of 2010 or the first quarter of 2011, the new concentrator of 40,000 tons.

Okay. Thank you, Mr. Gonzales.

The next question has to do with cost and your flexibility to reduce cost. You just commented on the effect of the exchange, but can you give us a sense of the amount of diesel that your operations consume, first? And secondly, most mining companies, I believe you included, have been mining below reserve grades. Have you thought about increasing your head grades for the next three to four quarters or one year? Or are you going to wait and see what the copper prices do before you take those measures?

Oscar, regarding head grades, we're not doing any changes on that. But let me remind you that our cash cost is currently $0.20 per pound, which is very low. And we think that we have one of the most competitive cost positions in the industry.

We have some cost flexibility in the sense of some cost items that are automatically reducing its weight in our costs as we have a reduction in price, let me comment on two of them.

One of them is the profit-sharing, which represents roughly 9% of our profit before taxes. And obviously, as prices are going down, so will the profit-sharing charge to cost of sales.

The second one is the royalty payments that we do -- that are related to copper prices in Peru and represent about 1% of total sales and will be decreasing its importance as prices are reducing as well.

On diesel, we are consuming -- I don't have right now the figure of our annual diesel consumption. We believe that both of our operations in Peru and Mexico have been affected by diesel prices in the past, and we will start to recover some cost savings on this matter.

Where we are seeing the first effects of fuel cost reduction is in the, what is called bunker soil, which is basically diesel number 6. And on this one, we are seeing some important cost reductions for the year. And for the quarter, specifically.

Okay. Thanks, Raul. If we just circle back to that, $0.20 per pound, but what were the molybdenum prices and sulfuric acid byproducts that you got at that cost?

What was the molybdenum decrease?

Molybdenum we have in the press release, but sulfuric acid prices that you had (multiple speakers)

Sulfuric acid prices for the quarter was an average $140 per ton.

And the molybdenum price during the third quarter was $33.20 per pound.

Oscar, I would like to add that we are expecting our sulfuric acid prices to be higher for 2009 than what they are right now.

And this is just on the expectation or because of the lag in your long-term contracts?

Well, it's a combination of that. And also, the sulfuric acid prices are not regulated commodity. And then it's the price is different depends on the region and where you are selling and depends on the conditions that you are making the contracts. And the volatility as well, it has been affected, this product.

That's fair enough, but I mean these prices have fallen from like $400 a ton to less than half. So I'm assuming that the long-term contract nature of your contract will benefit the Company.

If I can just add one more question. In terms of your zinc operations, zinc prices have fallen quite dramatically. Are there any plans to curtail zinc production? Or do you guys plan to maintain the San Luis Potosi refinery going near capacity?

Not at this point of time. We are going to maintain our production plan. We think that -- well even that the zinc, it has been a little bit more affected probably even before the financial situation that we are currently living. The zinc also has been having an effect on all these situations.

But as of the rest of the metals, we think that the fundamentals are going to be recovered and as a result of that, we would like to maintain our production in the zinc half.

Oscar, please keep in mind that zinc comes along with the silver, lead, and copper as well. That's an underground process from our IMSA unit. And IMSA, so far, it's a profitable operation. We don't think that zinc production will be affected even though at these prices.

Okay. Thanks very much.

Rodolfo de Angele, JPMorgan.

My question was just answered, so thanks.

Alonso Aramburu, Santander.

A couple of questions. First, if you can comment on what you are seeing on the moly market these days, in the last couple of weeks as far as what price levels you're seeing. And second, if you can give us a sense of what your mix of sales of copper are off of spot versus contracts?

Molybdenum has been slightly affected by the current economic environment. We are seeing reductions of prices. They are around $27 per pound as we speak.

And on the second question was regarding our copper sales. Most of them are on frame contracts, not at spot market, but using spot prices as a reference.

Okay.

You understand (multiple speakers)?

Yes. So that's basically close to 100%; it's like that, or --?

Yes, it's close to 100%; all of our contracts are based on a yearly basis. In terms of volume and in terms of price, we use the average for the month.

Perfect. Thank you very much.

Jordi Dominguez, HSBC.

My question is, could you please give a slightly clearer breakdown on the mine costs per mine, as far as costs before byproducts?

I'm sorry, Jordi, but we don't disclose our cost by operation. We do that by segment and you can find that information in our 10-K and Qs.

Okay, that's all my questions. Thank you.

Jamie Nicholson, Credit Suisse.

Thanks. Just a follow-up on CapEx. How much are you spending in the fourth quarter? And do you have a budget or a range for your CapEx for 2009?

For 2009, we don't have a figure right now. We're working on that. And obviously we are going to review very carefully all the budgets in light of the new economic circumstances. For the fourth quarter of 2008?

Well, the same thing I would say, Raul. We are reviewing all of our capital expenditure programs. But even that, I would say that we have [spent] until the third quarter, 142 -- up to September 30th, we [haven't] spent $340 million.

Do you expect fourth quarter to be --?

Let me clarify this, Jamie. We are going to spend about $150 million in the fourth quarter.

Okay. And then do you have -- is your range for your budget in '09 -- I realize it is a fluid situation, but would it be within 20% or so of what you spent in '08? Or is there any guidance on that or should we just wait for next conference call to get more details there?

I think that we have to wait for the next conference call on this.

Okay, that's fine. And then just my next question is just on your strategy for derivatives. Do you plan to continue hedging some of your copper sales after December? Can you give us some guidance on what your derivative policy is regarding copper sales? Thanks.

At this moment, we don't have any guidance that we can disclose. Of course, as a policy of the Company, we always follow very close the expectations and the corporate markets and the metal markets. And if there is some opportunities, then we will decide or the committees will decide to make or to continue with a hedging program. But at this point of time, we don't have anything to disclose.

Okay. And then your hedges run out in December; you don't have anything in '09; is that correct?

That's correct.

Okay, great. Thanks very much.

Rodrigo Heredia, [BA NIX].

Good morning, everyone. A couple of questions. The first one is what are you planning to do with the FX relative position, with the Mexican peso, the [reordered] position?

Well, I would say that we're going to maintain the position. The term is not so long. It's less than one year. And we are maintaining a very long position in dollars than -- that has given us a natural hedge against more or more severe movements in the FX in terms of Mexican peso and [solvis] in Peru.

In Mexico.

Okay, and the next one could be -- how do you see -- I don't know if you have already or you are budgets in terms of corporate price for the next year. But can you give us your point of view of corporate prices for the next year?

Well, this is a very difficult question. At this point of time, the volatility is very, very high and I would say that the drivers during the last times have been the sentiments or the feelings more than the fundamentals, then we need to wait a little bit in order to try to -- or to try to get a more clear expectations about copper prices during 2009. And analysts are making very often adjustments, then it's difficult, given that, well we can say that -- or we think that the copper price is going to be in the neighborhood of $2.10, $2.20 per pound during 2009.

Okay. My last one will be how do you estimate the operation margin for the next year, given these increases in the costs and all that you already commented?

Well, at this point it is premature to comment on that. But as we explained, we believe that as long as we have Cananea back on track, we will be operating at a much lower cost that has to be considered in our 2009 expectations. And also, as long as fuel and power costs are decreasing, that will reflect in the lower operating costs for our current units.

Steel and petrochemicals products will also go down somehow. At this point we don't know how much, but we are optimistic about that and the fact that we will be operating at a lower cost than in 2009.

So the three quarters couldn't be an indicator of the full year, I mean the 2009?

It's difficult to say, but we can consider that we're going to be in that level of margin.

Okay, thank you.

Anne Riley, American Metal Market.

Hi, I wanted to ask some follow-up questions on the copper market. Specifically, you said you are going to be reviewing capital investments. You didn't mention whether you do actually have plans to cut projects or how about might go. So I'm wondering how low would copper prices have to fall before you're going to be faced with production halts?

Well, we have done our project evaluation with very conservative copper prices and by product prices, even lower than today's market prices. So at this point we feel very comfortable on all the projects and we're reviewing them as we move on. We think that circumstances have changed and that has to be reflected in the capital budgets of the projects and that's different than considering that at this point we should eliminate some of them from our list. They are all moving forward. We're looking at them under the current new circumstances, obviously, with a different point of view.

Okay. The second question, you mentioned making contracts at this point, talking to a number of other companies. It sounds like buyers are hesitant to make contract through next year just with the market volatility. Have you experienced any of that? Or have you had any difficulty making next year's contracts?

No, we're not experiencing any difficulty. We already got our negotiations for volumes for next year. And basically, we're finding a house for all of our production.

Okay. Great. Well those are all my questions. Thanks very much.

Dan Richmond, Private Investor.

Thank you and thank you for taking my questions. I have two. One relates to your income tax expense on your income statement, where I notice for the third quarter of 2008, your average tax rate is 37.3% of pre-tax income, whereas a year ago, it was 31.9%. And for the nine months of 2008, it's 33.2%. Could you shed some light on the big percentage increase in your provision for income taxes and give us some guidance as to what we should expect for a tax rate going forward?

Yes, sure. Well, basically, the effect that we're having in the tax rate is due to the FX situation in Mexico, basically. We got, at the end of September, $0.61 pesos per dollar devaluation and that is affecting the effective rate for September and August.

That is, as we maintain our loan position in dollars, then in Mexican GAAP, this is affecting our incomes and that is the reason that the tax rate is increasing for this period. And when we convert this Mexican GAAP into the US GAAP, the effect in income is eliminated, but we are still having the effect in taxes.

Thank you. My next question relates to your stock buyback program, where your press release as of yesterday, you had spent $158.8 million repurchasing 10.5 million shares. According to your cash flow statement, as of September 30th, you had spent $68.5 million on the stock buyback. Can I conclude then that so far during October, you spent $90.3 billion buying back stock?

Can you repeat your last part? We couldn't copy you well.

Yes, the press release was as of the date of this report. You had spent $158.8 million buying back stock. Looking at your statement of cash flows as of September 30th, you had spent $68.5 million. Can I then conclude that you spent $90 million so far in October buying back stock?

Yes, that is correct. Yes, we have been very actively in the repurchase of [SBCC] shares based on our $300 million program that was disclosed last quarter. But you are right. The difference is because we have been active in that respect.

At under $10 I think it's a good idea. Have you purchased any of these shares from Americas Mining?

No, no, we have been purchasing the shares from -- directly from the market.

Okay, then when I did the math with 10.5 million fewer shares outstanding, and Americas Mining shares remaining unchanged, the percentage ownership is approximately 76% as of yesterday, and your press release still says, on the last page, 75.1.

Well, Dan, these are not Grupo Mexico shares. These are Southern Copper [introductory] shares. So you can't attribute those shares to Grupo Mexico. They were for all the stockholders, not only Grupo.

No, I'm attributing them to Americas Mining. The percentage of shares remains unchanged and there's fewer shares outstanding, so the percentage ownership goes up. I just pass it along to you. You may consider that for your next press release.

Okay. Okay, thank you very much.

Carlos de Alba, Morgan Stanley.

Thank you. Just a follow-up question. Could you share with us your long-term assumptions for molybdenum and copper prices when you do the analysis of your projects?

Yes, Carlos, we have made our copper price evaluation -- I'm sorry, project evaluation based on a copper price of $1.50 per pound, and a molybdenum price of $12 per pound.

Okay. Thank you. And with these assumptions, what would be your cash cost?

Well, roughly in the range of $0.40 to $0.50 per pound, depending on the prices that you would assume for power, fuel, et cetera.

Thank you.

Thank you. At this time there are no further questions. (Operator Instructions). There are no further questions in queue at this time.

Okay, as we don't have any other questions, I would like to thank everyone for joining us in this conference call and I hope that you will join us for the next quarter. Thank you very much.

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