Southern Copper Corp (SCCO) 2010 Q1 法說會逐字稿

Good morning and welcome to Southern Copper Corporation first quarter 2010 results conference call. With us this morning we have Southern Copper Corporation -- Mr. Raul Jacob, Manager of Financial Planning and Investor Relations, who will discuss the results of the Company's 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 to not 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 pass the call on to Mr. Raul Jacob.

Thank you very much. Good morning, everyone, and welcome to Southern Copper's first quarter 2010 earnings conference call.

Today we will discuss our view on the metal markets as well as Southern Copper's production, sales, operating costs, financial results, and capital spending program. After that, we will open the session for questions.

During 2009, we saw continued recovery of metal prices particularly copper, molybdenum, silver, and zinc, which are the most important commodities produced by Southern Copper. These trends have been strengthening in the first quarter of 2010.

In the case of copper, prices increased by 110% from an average of $1.56 per pound in the first quarter of 2009 to $3.28 in the first quarter of 2010. For molybdenum, our main byproduct, prices went up by 80% from an average of $8.75 per pound in the first quarter of 2009 to $15.78 in the first quarter of this year, while silver and zinc prices increased by 34% and 96% respectively.

What these significant price increases indicate is that metal markets are recovering from the economic slowdown that affected them last year.

Looking at the copper market, we maintain our positive view on it, due to the following factors. Emerging economies' increasing consumption is a current driver of the market. We believe that this growth in demand, led by China, will give support to current copper prices for the rest of 2010.

According with Copper Research Unit or CRU, Asian economies are now 57% of the world's copper demand and these economies grew 18% in their copper consumption in the first quarter of 2010. As you know, most of the Asian countries are currently in a strong ongoing modernization process and have been increasing their copper demand at a steeper pace than their GDP growth.

The US and European economies are also maintaining copper consumption in 2010 as a result of the end of an inventory adjustment, as well as a modest restocking in some areas, particularly cable and wire. A reflection of this growth in demand is a 25% rod sales increase of our Mexican operations.

On the supply side, we expect production to recuperate pre-crisis activity levels as a result of higher mine copper production as well as scrap availability. However, grade depletion as well as significant production issues at certain [major] operations may offset new volume from ramp up operations.

For molybdenum, our first byproduct, who went up 16% of total sales in the first quarter of this year, we are seeing that demand has decreased significantly in 2009. Last year it decreased by 15%.

Currently, we are seeing consumption coming back to where it was before the economic crisis. For the rest of 2010 we expect a relatively balanced market at about $16 per pound for molybdenum.

In the case of silver, it represented 5% of our sales in the first quarter of 2010. We think that silver prices will have strong support in 2010, due to higher industrial demand as well as inflation concerns.

For zinc, that was also 5% of sales in the first quarter of the year, we are expecting the market to be balanced through the rest of 2010 at the current price level of about $1.00 per pound.

Looking at our production, for copper we are reporting a 9% decrease in copper from our mines when comparing the last quarter with the first quarter of 2009. The major reason for this reduction in production was a 16% drop in Cuajone ore grades that resulted in a decrease in copper production of 7,700 tons.

The remaining production decrease was caused by slightly lower ore grades and recovery at our Toquepala and La Caridad mines. The reduction in production as a consequence of lower ore grades is a temporary event. Thus we're not changing our current guidance of 500,000 tons of copper production for 2010.

This guidance assumes no Cananea production for the rest of the year.

Regarding our metallurgical facilities, we are glad to report a 25% increase in rod production due to higher sales in Mexico and the US. As mentioned before, this is a sound indication of the recovery of durable goods demand in the US and Mexican economies.

On March 16, 2010, as part of our remediation program to fully comply with the international standard for mining industry, the Company announced the closing of the San Luis Potosi copper smelter, which was in operation for almost 100 years. We believe more efficiency will be achieved by having La Caridad absorb the copper smelting of San Luis Potosi.

Our modern San Luis Potosi zinc refinery will not be affected by the smelter closing, and an expansion to double the capacity of our zinc refinery is currently under study.

Going forward, all the Company's mining and metallurgical activities in Mexico and Peru comply with the highest international environmental standards. Therefore the Company will apply for ISO-14000 certification as a ratification of its clean industry standard.

Regarding molybdenum, we had excellent production in the first quarter of this year, reaching 4,800 tons, a 17% increase when compared to the first quarter of 2009. This better moly production was the result of improved recoveries and higher ore grades at La Caridad and Toquepala operations.

The Company expects to produce and sell 19,000 tons of molybdenum this year.

Zinc mine and refined production slightly decreased by 3% and 1%, respectively, when compared with first quarter of 2009. The Company estimates zinc sales of 110,000 tons for the year 2010.

In the case of silver, silver mine production increased by 1% in the past quarter when compared to the first one of 2009. However, refined silver production increased by 45% for the quarter, due to higher production at the IMMSA and La Caridad precious metals plant. We estimate sales of 16.5 million ounces of silver in 2010.

Focusing on Southern Copper financial performance, net sales for the first quarter of 2010 were $1.2 billion, 96% higher than the $622 million in the first quarter of 2009. The main drivers for higher sales were the previously mentioned recovery in metal prices and the 18% increase in the volume of molybdenum sales.

Copper sales volume decreased by 3% in the first quarter of this year. Silver volume sold decreased by 13% due to a temporary variance not related to production. Zinc volume sold decreased by 5% when compared to the first quarter of 2009 volumes.

Our total operating costs and expenses have increased by $133 million when compared to the first quarter of 2009. The main variances are the following.

Fuel and power costs increased by $9 million. Exchange rate variances due to local currencies' appreciation increased by $10 million. Workers profit-sharing increased by $47 million. Royalties by $8 million. Third-party copper concentrate purchases by $35 million.

The important thing to note here is that, with the exception of energy and exchange rate adjustments, the major cost changes between the first quarter of 2010 and the first quarter of 2009 are clearly related to better metal prices that we had in the past quarter. That is the case for workers profit-sharing, royalties and third-party copper concentrate purchases, which are the main variances that explain the difference between these two quarters.

When comparing the first quarter of this year with the last one of 2009, you have a small variance in total operating costs (technical difficulty) expenses of $3.7 million. Less than 1% of a difference.

The main variances are the following -- power costs increased by $2 million. Lower labor costs decreased by $2 million, net of pension fund adjustments of $3 million that [isn't] included in our administrative expenditures. Workers participation increased by $6 million. And other costs and expenses reductions explain the remaining difference.

As a result of the mentioned sales and operating cost variances, the first quarter of 2010 EBITDA was $691 million or 57% of sales. This figure compares with $616 million in the fourth quarter of 2009 that was 54% of sales, and $226 million for the first quarter of 2009 that was 36% of EBITDA to sales.

Southern Copper operating and cash costs including the benefit of byproducts credit was negative or a credit of $0.15 per pound in the first quarter of 2010. This figure compares to a cash cost of $0.60 per pound for the first quarter of 2009. A $0.75 total variance.

The improvement in cash costs was the result of continuing operational efficiency and higher byproduct credit, principally from molybdenum. As indicated before, the molybdenum price increased by 80%, explaining that alone $0.66 in additional credit per pound of the total $0.70 positive or favorable variance.

The Company's first quarter cash costs per pound in this year in 2010 produced before byproduct credit was $1.50 per pound, higher than the $1.29 per pound of the first quarter of 2009. The $0.21 cash cost before byproduct variance is explained as follows.

The 90% temporary reduction in production that the Company had in the first quarter accounts for $0.13. $0.08 are explained by higher costs of energy as well as royalties.

On April 16, 2010, the Company issued $1.5 billion in fixed-rate senior unsecured notes. These $1.5 billion notes were issued in two tranches. $400 million due in 2020 at an annual interest rate of 5.375% and $1.1 billion due in 2040 at an annual interest rate of 6.75%.

The proceeds of these issues will be used to accelerate the Company's growth which will further strengthen our position as one of the industry's lowest-cost copper producers. We believe that Moody's recent upgrade of its corporate rating from Baa3 to Baa2 is a confirmation of the Company's financial strength, stability, and industry-leading position.

In evaluating the timing for addressing the international financial market, the Company considered that longer-date securities were available at historically low interest rates. In affirmation of the Company views, demand for the note was extremely strong with [order] nearly $9 billion roughly equally split between the 10- and 30-year notes.

During the marketing process, secondary trading levels for the Company's existing notes tightened considerably and pricing of the new notes came at effectively no new issue premium to its existing issuances.

As a result of the better market price, higher molybdenum volume sold and efficiency gains net earnings in the first quarter of 2010 were $383 million or diluted earnings per share of $0.45. This figure compares with net earnings for the first quarter of 2009 of $79 million or diluted earnings per share of $0.09. This is a 389% variance.

As previously announced, the Company is strongly committed to continuing its organic growth program and therefore the Board of Directors has approved an investment program of $2.8 billion for the next three years to develop new production capacity. This program is expected to increase annual production by 342,000 tons of copper and 6,600 tons of molybdenum and improve the Company's cost competitiveness and efficiency.

The Company intends to allocate approximately $1.8 billion to Peru and $1 billion to Mexico. From those, approximately $600 million and $200 million are intended to be invested in Peru and Mexico, respectively, in 2010.

The Company has expended approximately $305 million out of the $934 million approved budget for the Tia Maria project, out of which approximately $25.3 million was spent in the first quarter of 2010. The detailed engineering is in process and almost completed. Work on the project includes equipment fabrication and some early construction work such as access roads and platforms.

The second public hearing scheduled for April 19, 2010 was canceled due to social unrest in the Islay Province of Arequipa in Peru, where the Pan American Highway was disrupted by a large group of people opposing the development of any mining activity in the region. According to applicable law for public participation in Peru, the public hearing has to be substituted by the Ministry of Energy and Mines with other mechanisms of information to open the final rounds of public discussion for the Southern Copper environmental impact assessment for the Tia Maria project.

In this new phase, Southern Copper will participate as required by the Ministry of Energy and Mines to further inform the citizens of Islay Province of the value of the project, the benefits that we will bring to the region and to them. This process will take the next 90 days; and only after such period the Ministry of Energy and Mines will be in a position to approve the environmental impact assessment.

Construction will begin as soon as we receive the environmental impact assessment approval, which is expected not before the third quarter of 2010.

Let me be a little bit more specific on the next steps in this process. They are the following. A special commission coordinated by the Ministry of Environment and with the participation of the Ministry of Agriculture, the Presidents of their different regions and other local authorities, as well as Southern Copper personnel has been formed last week to review the Tia Maria environmental impact assessment.

This group will conclude its work in 90 days with a report to the Ministry of Energy and Mines regarding the environmental impact assessment of the project. At that point, we expect the local communities and the regional authorities to be fully informed of the important benefits of the Tia Maria project and the environmental impact study, as a consequence also approve.

As indicated previously, the investment will be $934 million to produce 120,000 tons of copper cathode using state-of-the-art technology which will comply with the highest international environmental and sustainable development standards. The project is expected to generate 4,000 jobs during the construction phase.

When in operation, Tia Maria will directly employ 600 workers and indirectly another 3,500. Through its expected 18 years of life, the project's required services will create significant opportunities for small and medium businesses' growth in the region.

In addition to this plant, the Company will develop social responsibility programs in the Arequipa region, similar to those already established in the communities near its Peruvian operations of Toquepala, Cuajone and Ilo. On top of these initiatives, the mining voluntary contribution program is estimated to be approximately $5 million per year to be expensed in Arequipa and could be immediately applied to the development of the communities near Tia Maria.

To obtain the necessary water supply for the Tia Maria project, the Company has offered to build the Paltiture dam with an increased capacity of 40 million cubic meters of water that currently drains to the Pacific Ocean. The Company will only use 7 million cubic meters per year of this dam. The remaining additional 33 million cubic meters will be available for the benefit of the Tambo Valley agriculture community and the Islay population.

As part of its contribution to local communities, the Company will improve the telecommunications facilities in the Tambo Valley with better services for cell phones, television and Internet.

Moving on to other projects, as of March 31, 2010 the Company has expended $97.6 million on the Toquepala concentrator expansion. Detailed engineering was awarded and work started in December of 2009. One 320-ton truck and two drilling machines and a second 73 cubic yard shovel were put in operation. The pushback substation expansion was also completed and is currently in operation.

The environmental impact study is still being conducted and is expected to be completed in the second quarter of this year.

Regarding the Cuajone mine and concentrator expansion, the purchase of mine or other equipment is in the bidding process. As of March of this year, combined commitments totaled $15 million and expenditures incurred were $22 million.

The Cuajone expansion project also includes the installation at the concentrator of high-pressure grinding rolls, a technology that we believe will increase the milling capacity of [our put-through]. For this project, the scope of work and technical specification for main equipment was completed and basic engineering started.

The El Arco project in Mexico is a world-class copper deposit in the central part of the Baja California peninsula with estimated mineralized material of over 1 billion tons with an ore grade of 0.51% and 14 grams of gold per ton. This project is expected to produce 190,000 tons of copper and 105,000 ounces of gold annually.

The Company continues to invest in land acquisition required for the project. The project feasibility study with a cost of $15 million was recently finished.

The Company has also initiated a project for the construction of a gas fired power plant in its La Caridad metallurgical complex in Mexico with an initial capital budget of $250 million. The nominal capacity of this plant will be 250 MW. The generated power will replace electricity sourced from the Mexican governmental agency Comision Federal de Electricidad.

In addition to these projects, we have recently finished a prefeasibility study for the expansion of the La Caridad concentrator. This expansion will offset the effect of declining ore grades and increasing rock hardness at the La Caridad mine.

The prefeasibility study shows that milling capacity of this plant could increase gradually from 90,000 tons of mineral milled per day to 120,000 tons per day.

On March 16, the Company put in operation a sewage treatment plant at San Luis Potosi in Mexico. This $6.6 million plant uses a state-of-the-art technology to treat 1.6 million cubic meter of sewage water per year that will be consumed by our facilities, thus reducing clean water consumption from the San Luis Potosi potable water grid.

On February 11 of this year, a Mexican federal court ruled in favor of Southern Copper in the Cananea case. As a consequence, all existing labor contracts were terminated. A workers appeal was dismissed on April 21 of the year by the Mexican Supreme Court. At this point all legal instances are finished in this process. We expect to regain access to the installation in accordance with the law.

The Company is ready to resume operations at Cananea with a new labor contract, which we believe will increase productivity and competitiveness for these operations.

The end of the labor struggle at Cananea could also make possible Southern Copper investments of about $3.8 billion to expand Cananea production from 180,000 tons of copper to 460,000 tons of copper per year and 5,400 tons of molybdenum, as well as the development of the Pilares mine site, also in the Mexican state of Sonora.

This project includes the generation of its own power requirement at a very competitive cost and will generate approximately 9,000 new jobs during the project construction phase and bring significant economic benefit to the people of Cananea. Such investments were on hold until now due to the union activity.

Regarding dividends, as you know, it is a Company policy to review at each Board meeting the capital investment, capital plan, cash resources, and expected future cash flow generation from operations in order to determine the appropriate quarterly dividend.

Accordingly, on April 22 of this year, the Board of Directors authorized a dividend of $0.45 per share. This dividend will be paid on May 25 of the year to shareholders of record at the close of business on May 12, 2010.

With this in mind, ladies and gentlemen, we would like to open the floor for questions.

(Operator Instructions). Carlos de Alba from Morgan Stanley.

Good morning. My first question would be in terms of Tia Maria. What would be the worst case scenario in this project?

And second, what do you expect to be the operating cash cost of Tia Maria? And also, if you can talk -- when are you going to get to the point of no return in El Arco?

Clearly the preliminary studies have been -- or the [factability] study has been concluded. When do you expect to bring this project to the Board and a decision will be made on this? Thank you very much.

Let me focus first on the Tia Maria scenario. Typically we have the -- where we are now is that a technical commission has been formed to discuss our environmental impact study. Objections to the study will be put on the table and the Company will answer those objections.

At the end of the 90 day process, there is a different way of putting the previous process on this project. We will have a report issued by this committee to Ministry of Energy and Mines; that will be one of the elements that the Ministry has to take into consideration before approving the environmental impact assessment of Southern Copper for the Tia Maria project.

The main issue is its water. And on that, the Company has offered to build the Paltiture dam. As a possible -- another option, there is the possibility of using seawater, desalinize and pump to Tia Maria seawater. Tia Maria is about 26 km away from the coast and at about 1,000 meters high. So water will be pumped from the ocean to about 1,000 meters on sea level and 26 km away.

Regarding cash cost, the project has cash cost of about $0.70 per pound. That number could vary. We are focusing on getting power at a lower cost than what we assumed for the project and that is an important driver for the total unit cost at Tia Maria. But at this point this is what we have as cash cost.

And that $0.77 is with or without byproducts?

I'm sorry. I couldn't copy what you said.

Yes. The $0.77 per pound would be before or after byproducts?

$0.70. Seven zero cents per pound. No byproducts. This is an SX-EW plant and has no byproducts in its copper production.

(multiple speakers). Go ahead, sorry.

In the case of El Arco, as we indicated, we finished the feasibility study. The product is moving forward at a good pace. The Company is also securing some of the resources that we need to be going ahead with the project. (multiple speakers)

As you know, Carlos, the El Arco is not in the three-year plan currently. But I mean we have been moving forward with the analysis of land acquisitions. And it is something that we do have in mind. It is a great deposit, but it is not in the three-year plan now.

So I guess in terms of Mexican investments, we are focusing on the plant generation, on the Caridad expansion, and mainly on the restart of Cananea. I don't know if you want to add to that, though.

Thank you.

Victoria Santaella from Santander.

Raul, good morning, and Daniel. I would like if you can elaborate a little bit more on the cash cost before the byproduct?

And if you can repeat if it was correct to say that the cash cost of this quarter was $1.60? And what are your perspectives in terms of costs throughout the year as we are seeing a lot of pressure there?

And last but not least, if you can be a little bit more I would say specific on Cananea? I mean one of the biggest questions is do we have a date, a frame or when is this going to finish? Thank you.

Thank you Victoria. Raul, if you like I will take the Cananea one and you can go ahead on the cost. (multiple speakers)

Okay. I'll take the cash cost. Okay.

Victoria, on Cananea, as you know, they have dismissed the last appeal. We believe there weren't any grounds to make that last appeal to the Supreme Court in Mexico. And they dismissed that. So the Supreme Court has dismissed as well, second time, the last appeal they had. And so we are really just waiting on the application of the law.

I mean, as you know we have the decision where we've concluded the individual relationships with every employee in the collective bargaining agreement. So we are entering into a new collective bargaining agreement with a different union, and just awaiting enforcement of the decision in order to take control of the assets and begin the ramp-up. (multiple speakers)

But when you say we are waiting for their enforcement of this, is there a time frame? Has the government mentioned to you something? Are they going to give, I don't know, a notification for the people who have taken over the mine? How long can you wait?

Sure. Let me just -- one thing to bear in mind that it's important that everybody has clear, is that there aren't any other pending legal or administrative matters. It is just a matter of enforcement. Unfortunately, in terms of timing, we cannot give you an exact date. We are hoping that that is very soon and we are just waiting on that enforcement.

We believe the government is working towards the enforcement of this decision and we are just I guess kind of like on hold until we have [testimonies] from them.

Okay. Thank you, Daniel.

Just one other thing lastly in terms of Cananea. As you know, and Raul has commented in the conference, we have not budgeted any production for this year nor our numbers or any kind of a budget have production or any other matter relating to Cananea. So we will be looking at only windfall or upside if you like if we would start this year.

Thanks.

Thank you. Raul, do you want to comment on the cost?

Certainly. Let me explain to you what we see in terms of operating costs.

When we compare the first quarter of this year with the fourth quarter of 2009, pretty much we didn't have this much of cost pressure. So currently for us, evidence does not support what you've said, Victoria, in terms of we are having some cost inflation as we move on.

The only exception to these is fuel and power; that has increased, obviously. But the cost pressures that we are seeing are basically related to somehow the better metal prices that we're seeing. Workers' participation or profit-sharing has increased. Royalties, also driven by higher metal prices, have increased. Copper concentrate purchases that we pay at market prices with some discounts, with some credit regarding some discounts, are also increased. Those three are related to the new or the better metal prices.

In terms of cash cost, what we have seen is our cash cost per pound went from $1.29 at the first quarter of 2009 to $1.50 before byproduct credit. There is a $0.21 cash cost increase in that and it is explained mainly by two major changes.

The first one is a drop of about 9% in production that the Company has had in the first quarter of this year and that alone is $0.13 of the cost increase. Because we basically mill the same kind of minerals, move the same materials to our operations, and we incur more or less the same costs just to produce less copper. So that alone is $0.13 of $0.21.

And then we have $0.08 that are explained by the higher cost of energy -- energy, by this I mean fuel and power -- as well as royalties. The other costs like profit-sharing are not included as part of the cash cost.

So those are two major elements that explain the increase in cost per pound. From those two we believe that the $0.13 related to production will be offset in the next few months. So that's how we see this cash cost right now.

Thank you very much.

Just lastly I would -- just to point out that in the fourth quarter '09 the cash cost without byproducts was $1.55 and the cash cost for this quarter without byproducts as well is $1.50. So that (multiple speakers) give you an explanation of the comparison on the year over year. I just wanted to put it in the quarter-over-quarter figures out there for you guys.

Jorge Beristain.

My question was just again circling back on the Tia Maria project and the issue about the water. I just wanted to understand if this offer to build the 40 million cubic dam and allow the community to use 33 million cubic of that water, if that is something that is new or if that was in your original environmental impact study.

And secondly, you mentioned the possibility of pumping up the seawater those 26 km. Could you qualify what that could add to the project cost if you chose to go that route instead of doing the dam, as I understand that could be an option?

Yes. This has been an option that the Company has considered. I mean, the dam was an option that was also considered as part of the project. And from the very beginning, we talked about that as one of the possibilities. For us the best one is one that is not accepted by the agriculture farmers that are close by the Tia Maria project, which is pumping water from the Valley, that is the Cocachacra Valley.

So that one has been ruled out, I think, in practical terms by the farmers.

Then we have two other options. The Paltiture dam, that has a cost of approximately $8 million and it would not have any extra operating cost for the Company. The other option of pumping seawater has a CapEx cost of about $50 million and it will increase our operating costs by about $0.04 per pound.

So that is, 50 as in 5, 0?

Yes.

And that's, sorry, $0.07 per pound?

No. $0.04 per pound.

Sorry. $0.04 per pound.

So 50 -- so one of the alternatives, the dam, the Paltiture dam is $8 million, no increase in operating costs. The second, which used to be the third option, is pumping water from the sea. That has a CapEx cost of $50 million and will increase cash costs by $0.04 from say $0.70 to $0.74.

Got it. And sorry just to follow up on Victoria's earlier question again just related to Cananea. Daniel, I think, had intoned that you are simply waiting on the government at this point to enforce the law. Is there anything on your Company side that you can do before then?

In other words what are the next steps here? Because it does seem that we are just kind of at a stalemate. Are you able or willing to send in equipment and miners at this time to repair the facility? Are you waiting for the government to secure the facility entry for you? What is the next step?

Well, two things. That's a great question and thanks for the opportunity to clarify. The Company has been working as well to help out and expedite the enforcement of this. How?

First we offered severance to employees when we were not required to. And given the -- if you like the outcome of the legal battle, we have won that and we were not required to pay severance. We have offered severance voluntarily as an incentive in order to return the assets.

Second, we have made a lot of compromises if you like and thus what I was just describing here of benefits to the region, etc., in terms of investments for the wellbeing of the region. The whole region not only of miners, but also as you know these kind of cities, the economic future depends on the mine.

So we have been doing that.

And other than that, I mean an important decision, which was only finally dismissed until August 21 -- I'm sorry, April 21. So that was just, a week and a half or so ago. So we are expecting the government to employ that.

No, we cannot send miners now to the mine. The mine is still being blocked, the entrance by some of the -- all the union guys. And that's what we are hoping the government to really enforce.

I don't know. Is that clear?

Sure but when you're saying hoping, I mean concretely what is the next step? Have you received any indication from the government that they have the willingness to enforce the entry to the mine?

Oh absolutely.

I think the decision was dismissed on the 21 April. I think they are -- I mean it's just like any other decision by the court. I mean it would be not enforcing something that's totally in our legal right. I mean they are blocking illegally now and there are no further legal remedies or appeals.

So the mine is being blocked illegally and I mean, yes, we understand the government is taking action.

And of course I cannot tell you an exact date or anything like that which are not in our control. But it will be exactly as if they were blocking the entrance to a house.

Right, but if they were doing that, wouldn't the homeowner petition the government to enforce the law? I mean, that is what I'm kind of getting at. I mean you guys are asking for this and you are simply waiting on the government's response?

I'm not sure what is your question. I mean we have the judgment in our favor. We are working with the government, but enforcement of decisions of this kind with force can only be made by the government.

Okay. Thank you.

Alejandro Luciano from Credit Suisse.

Good morning. Thanks a lot for the call. I just -- a couple quick questions on Cananea. Can you comment on some news articles stating that some of the union workers have set up explosives around the Cananea mine?

And secondly if you can talk about that $3.8 billion number. What is the timing on that? How many years would that take to ramp up to the 460,000 and what are the financing requirements if any for that? Thanks.

Sure. First thing, explosives. I mean, probably this is a group of very few employees of miners, or ex-workers of the mine, acclimated to the old union that lost the legal battle. They are obviously making a lot of arguments and threats and what have you.

We see no merit to it. And I think that that should not happen in any case.

In terms of the $3.8 billion, well, that did -- I mean, as you know around 60% of the reserves of Southern Copper are located at Cananea. So here's one of the, if not the, largest reserves we have. This is a mine that we acquired from the government and that we have been making more efficient year by year.

There is a lot of potential and this $3.8 billion was just a way to quantify the potential of that mine. We are not doing that now. If you like -- I mean, that's not either -- just as El Arco isn't part of the three-year plan that the Board has approved.

And it is just the camp that it would be deployed advantage time in the way the compromises that the Company can make in the future in order to make a lot better atmosphere for the region in the Sonora region, and that is how the $3.8 billion come up. And that includes a molybdenum plant. That includes another SX/EW facility. That includes a new concentrator.

It is just what we called the greater Cananea if you like. And this is the way that we see the future for that mine, but that's not near term. It is in the longer term.

And the facility will need no financings now contemplated. As you know we have raised $1.5 billion in April and while that is just building the liquidity crucial to taking advantage of the right timing of the market in order to be able to implement all our CapEx needs.

But we are prioritizing our $2.8 billion CapEx program which was approved in January.

Thanks and just a quick follow-up. So basically, there is no evidence that workers have actually put explosives in the mine? And then my second question is, are there still individual appeals or individual suits by the workers, not as a union, but as individuals?

First, no confirmation or no evidence of any kind of explosives. And second no. No, all the decisions have been awarded to our favor, if you like. So there is no legal pending issue there.

All right. Thank you very much.

Let me add to what Daniel just said, that the Company will continue to monitor in the international markets, depending on how the markets evolve. So mobilization will be done regarding capital expenditures and also that the Company will be very prudent in terms of how do we finance any new projects?

At this point we are focusing on our three-year program that you know. It's the $2.8 billion program that made us to look for some financing related to the projects in that package.

(Operator Instructions). Nick Ivanov from Prudential.

My question has been answered. Thank you.

There are no further questions at this time. I'll turn the call back over to the presenters.

So with this, ladies and gentlemen, we certainly thank you for being with us today. And we will expect you for the next conference call where we will report the second quarter results of the year. Thank you very much for being with us today.

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