Southern Copper Corp (SCCO) 2010 Q3 法說會逐字稿

Good morning and welcome to Southern Copper Corporation's Third Quarter 2000 Results -- 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 for the third quarter and answer any questions that you might have.

The information discussed on today's call may be 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 reliances 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 on to Mr. Raul Jacob. Please go ahead, sir.

Thank you very much [Andrea] and good morning everyone and welcome to Southern Copper's Third Quarter 2010 Earnings Conference Call. Participating in today's conference call is Mr. Oscar Gonzales Rocha, Southern Copper's CEO.

On today's conference, we will begin with an updated view in the middle market. We will then talk about Southern Copper's most relevant results in production, sales, operating cost, financial results, capital spending program and finally about Americas Mining Corporation's proposed transaction development. After that, we will open the session for questions.

Focusing on the market and the prices for our main products, during the third quarter of 2010 we have seen a significant recovery in the prices of our products. We believe the drivers for these higher prices are two-fold -- the stronger physical consumption from the American economy and the possibility of a second consecutive easing from the US Federal Reserve.

Focusing on copper, on the demand side was we see that the red metal physical consumption has maintained its activity in the third quarter of 2010. According to CRU, for the first nine months of 2010, worldwide demand grew by about 10%, being led by Asian economies, which today hold 64% of the world demand.

As you know, the most important of this economies is China, representing today 38% of the world's total demand. In our view, demand in this country will remain robust for the rest of 2010 and 2011, due to its strong GDP growth. We believe the Chinese economic [outsourcing] are committed to proven monetary and fiscal policies to control inflation without sacrificing, significantly, growth.

For the US and Europe, we are also getting positive news that reflects that certainly, [at much lower rate, these] major economies are moving away from a recessionary environment. On the supply side, current production growth is not catching up with the demand performance. A clear sign of this is the continuing reduction in the combined copper inventories at the London Metal Exchange, COMEX and Shanghai warehouses.

At their latest peak in February this year, the sum of their combined inventories was 815,000 tons. As of yesterday, they were approximately 543,000 tons, a 33% reduction in seven months. We believe that these significant inventory reductions will support copper prices during the fourth quarter and in 2011, when we expect a market [investment].

For molybdenum -- as you know, it's Southern Copper's main byproduct in the third quarter this metal represented 12% of the Company's [debt.] We're currently seeing a soft recovery in the molybdenum consumption. For the rest of the year, this quarter, we're expecting a relatively balanced market for this metal.

Silver representing 7% of our sales in the third quarter of 2010. We think that silver prices will continue to have strong support in 2010, due to its use as a value shelter for inflation concerns. Zinc represented 3% of our sales in the past quarter. We believe this metal has very good long-term fundamentals due to its significant investor consumption. However, inventories are currently at that relatively high-level, which has affected zinc's pricing.

Copper production. The Company's copper mine production in the first quarter of this year increased by 4.1% to 125,193 tons compared to the 120,240 tons in the third quarter of 2009. This increase was mainly the result of 4,985 tons of SX/EW copper production at our Cananea mine, which is currently operating at 30% of capacity.

The Toquepala mine production also increased to 35,300 tons compared to 31,900 tons in the third quarter of 2009, due to higher ore grade and recovery. Copper mine production in the third quarter of this year also increased by 10% compared to the prior quarter -- that is the second quarter of 2010, because of higher production in all of our operations due to higher ore grade recoveries and [the mentioned] SX/EW copper production at our Cananea mine.

And now that we're speaking about Cananea, as we have previously reported to the market, after the termination of the labor relations with the National Mining Union by a Mexican Supreme Court decision, the Company has aggressively initiated a reconstruction and ramping up of Cananea. We expect to reach full production capacity by February of 2011.

Currently, we have hired 4,200 contractors and workers for a major reconstruction and ramping up of the mining and metallurgical operations, the construction of a new leaching plant that will be the third plant that this facility will have, and its Quebalix facility and the development of social, educational and recreation infrastructure that will benefit the communities close to this operation.

At this point, we're maintaining the estimated cost of the repairs of this mining unit at approximately $114 million. [An undetermined] portion of the total expenditures should be recovered by insurance. The Company will continue with the social, educational and cultural programs that it usually conducts in all its mining operations in conjunction with the local [community]. These programs were put on hold for Cananea due to a -- union labor disputes.

Regarding our metallurgical facility, we had 13% decrease in annual production in Ilo, due to a major maintenance of the smelter performed this past August. This kind of [deep] maintenance is scheduled every two years and affects approximately one month of copper smelting. The Ilo smelter maintenance affected refine production at this facility, reducing it by 24%.

Production at the La Caridad metallurgical complex was 41% lower than the third quarter of 2009, as operations were disrupted in the third quarter of 2010 due to blockages to access roads and other interferences caused by a group of terminated employees and outside agitators. However, by mid-October, Mexican authority established order by securing access roads to the complex.

Activities at our Mexico metallurgical operations returned to normal with full assistance of our workforce. As a result of the mentioned reasons, we had a reduction, also, in refined copper production of 30% in La Caridad. I'd like to point out that La Caridad mine operations were not affected whatsoever by this event. At this point, we are maintaining our copper production guidance for 2010 of 500,000 tons, including in this estimate 20,000 tons from Cananea.

Molybdenum, as you know, our main byproduct, had a record production in the second quarter of 2010, and -- but, for the third quarter, when you reach that production of 5,000 tons, 3.5% lower than the production of last year's of the same quarter. The lower molybdenum production was the result of lower production at the Cuajone mine in Peru, due to lower ore grade and recovery.

Partially offset by higher production at the Toquepala [unit] also in Peru. The La Caridad operations maintained its production level during the quarter. For the nine months of 2010, molybdenum production increased by 12% to 15,300 tons from the 13,600 tons that we have for nine -- the nine months of 2009. We're currently maintain our molybdenum-based guidance of 20,000 tons for the year 2010.

Zinc's refine production increased by 1% year-over-year. Zinc mine production, in the third quarter, decreased by 12% to 24,500 tons compared to the 27,800 tons in the third quarter of 2009. It was mainly the result of lower production at the Santa Eulalia mine because of unusually heavy rain that caused flooding in the area and hinder production.

The Company's working to correct this problem and expects to restore production by April of 2011. Santa Eulalia represents approximately 14% of the annual zinc production of Southern Copper. We are currently estimated zinc sales of 95,000 tons for the year 2010.

Silver refine production increased by 6% in the first quarter compared to the third quarter of 2009, mainly due to higher silver content in third-party material profits at our Ilo facilities. We're estimating 16 million ounces of silver sales for 2010.

Focusing on Southern Copper's financial performance, third quarter 2010 sales were $1.3 billion, 9.2% higher than the $1.2 billion that we have in the same quarter of 2009. Nine months 2010 sales were $3.7 billion, 41% higher than the $2 points -- billion that we have in the nine months of 2009. These increases were mainly the result of higher metal prices as well as higher molybdenum sales volumes for the nine months.

When compared with the third quarter 2010 sales volume, for copper it decreased by 5%. In the case of molybdenum, the volume decreased by 3%, for silver, 9%, and for zinc 22%.

Copper hedging. Even though we believe in a very strong market for the remaining of 2010 and 2011, we also think that copper prices have strongly reacted to two short-term events that created significant volatility. One is the high possibility of a second round of quantitative easing by the Federal Reserve, and the second event is the recent news regarding copper [ETS] that may require (inaudible).

Considering the strong volatility created by the [mentioned event], Southern Copper has undertaken five protection actions to secure a portion of our [DPA] at a reasonable good copper price. As a consequence, beginning on September 29th, we have been contracting copper hedging swaps and zero-cost collars.

For the fourth quarter of 2010, we have contract swaps at the fixed price of $3.60 per pound or 58% of our production. For the year 2011, we have copper swaps for 11% of our production, at an average price of $3.73 per pound. In addition, the Company has hedged approximately 16% of 2011 copper production through zero-cost collars, with an average floor price of $3 per pound and average cap price of $4.54 per pound.

Operating costs. Our operating costs and expenses have increased only 2% or $12 million when comparing it to third quarter of 2009, which is [same] that -- 2010 with the same period of 2009. The main variances that explain this $12 million increase are steel and power costs that increased by $10 million, labor cost, $2 million, other operating materials, $18 million, translation difference due to local exchange rate appreciation, $10 million, and lower third party's copper concentrate purchases, negative $33 million. Other operational cost variances explain the remaining difference.

As a result of the mentioned [phase] and operating cost variances, the EBITDA for the third quarter of this year was $626 million or 54% of sales. This year was 14% higher than the $592 million of EBITDA for the third quarter of 2009.

Southern Copper operating cash costs, including the benefit of byproduct trade, was $0.287 per pound in the third quarter of 2010. This cash cost was $0.17 higher than the $0.1105 per pound of cash costs for the third quarter of 2009. The $0.17 increase in cash costs was the result of lower byproduct credit, mainly molybdenum -- mainly from molybdenum.

The molybdenum credit decreased by $0.15 in the third quarter of 2010 when compared with the third quarter of 2009, due to lower price and volume produced. The Company's third quarter 2010 operating cash costs per pound of copper produced before byproduct credit was $1.45 per pound. This $1.45 is $0.13 lower than the operating cash cost of $1.56 that we have in the second quarter of 2010. So, we have reduced our cash costs between the second and the third quarter by $0.13 cents before byproduct credit. The reduction in cash cost is mainly attributable to the higher production reported in this quarter.

[Net variance]. The result of the better market prices [inefficient] to gain net income attributable to Southern Copper shareholders in the third quarter was $365 million or diluted earnings per share of $0.43. This [favor] compares with net earnings for the third quarter of 2009 of $312 million or diluted earnings per share of $0.37, a 17% [decrease].

As you'll recall, during the second quarter we announced approval of investment project in Mexico, totaling $3.8 billion that add to the already-approved investments in Peru totaling $1.8 billion. When completed, these projects will increase our production capacity by 600,000 tons of copper and 5,600 tons of molybdenum while maintaining Southern Copper's low cost [position].

Capital and exploration expenditures in the third quarter were $121.8 million. The third quarter amount includes $26 million for the Tia Maria project, $16 million for the Toquepala concentrator expansion, $16 million for the Cuajone concentrator expansion, and $46 million for our Mexican operations. Capital exploration and exploration expenditures in the nine months were $309 million.

The new SX/EW plant and the Quebalix projects, both at Cananea, has been restarted. The basic engineering for this SX/EW number three plant developed 2006, is being reviewed by ICA-Fluor, and it's expected to be completed by December 2010. We expect to start the detailed engineering early in 2011 and, when completed, we will begin the acquisition with major equipment and plant construction.

The total budget for this project is $118 million of which we have spent $1.9 million as of September of this year. Regarding the Quebalix -- and let me mention that Quebalix is a crushing, conveying and spreading system that makes much more efficient the production of the SX/EW plants.

The Quebalix plant have been almost completed in terms of the equipment acquisition, and we will begin construction of the crusher building. We expect to invest in this Quebalix facility $56 million, of which we have spent already $35 million as of September of this year.

In total, as of September, we have spent $115 million from the Toquepala concentrator expansion. The use of high-pressure grinding rolls and wet screening of the tertiary crushing stage was defined. Engineering for the project is under review, and the environmental impact assessment is expected to be presented by the end of the year 2010.

The Cuajone expansion project is also ongoing. As of September of this year, we have spent a total of $39 million in this project. We purchased mine and ancillary equipment to support the work to optimize the Cuajone mining plant, and this is part of the Cuajone expansion plant.

The project contemplates a variable cutoff methodology, which would increase the copper and molybdenum production by a total of 147,000 tons and -- for copper and 3,000 tons for molybdenum in the next 10 years.

Regarding Tia Maria, additional information for the project included the -- including the use of seawater, was submitted to the government. We expect the government's decision on the new actions required to obtain approval of the EIA, Environmental Impact Assessment, shortly. Construction works are scheduled to begin in the first quarter of 2011, and copper production by mid-2012.

The construction of the Tantahuatay gold project, a joint venture with Compania de Minas Buenaventura, has advanced, and is expected to start dore gold production by June of 2011. The project is expected to have an average annual production of 90,000 ounces of gold and about 426,000 ounces of silver for five years. Will require a total investment of $110 million. Considering Southern Copper's 44.25% interest in the project, we will have to invest in it approximately $49 million.

We already commented on Cananea works and the normalization of activities at the La Caridad metallurgical facility.

During the third quarter, the Company also reached a new three-year collective bargaining agreement with the three major unions at our Peruvian operations. This agreement includes, among other things, a 5% annual salary increase in local currency, a signing bonus of approximately $6,700 for each of the 2,000 unionized workers and, in addition, the agreement has a process that encourage productivity savings and includes also no-strike clauses.

Regarding the AMC's proposal to affect on all-stock business combination, on July 22, 2010, the Company received a non-binding proposal from its parent Company, Americas Mining Corporation, offering to affect on all-stock business combination of Southern Copper and AMC, the parent company of Asarco.

As proposed, all stockholders of Southern Copper will receive 1.237 common shares of AMC in exchange for each share of SCC. As part of this process, the stock of AMC will be registered and list on the New York, Mexico and Lima stock exchanges. Once completed, SCC shares will be delisted from the Exchange.

On August 10th of this year, the Company formed a special committee of independent directors to evaluate the AMC's proposal. The special committee has engaged independent legal and financial advisors to assist them in this transaction and help in the evaluation of this proposal. There is no specific deadline for this process.

Regarding the business, as you know, it is the policy Company to review, at each board meeting, the capital investment plan, cash resources, expected cash flow generation from operations and, after this review, determine an appropriate quarterly dividend.

Accordingly, as it's close to the market on October 27, the Board of Directors approve a dividend of $0.43 per share. This dividend will be paid from November 30th, 2010, to shareholders of record at the close of business on November 16, 2010.

With this in mind, ladies and gentlemen, thank you very much for joining us, and I'd like to open the phone for questions.

(Operator instructions.) Your first question comes from the line of Alex Hacking with Citigroup. Your line is open.

Hi. Good morning. Thank you for taking my call. My question is regarding the new hedging strategy. I wonder if you could give us a little bit more color on what is your thought process there. Is this related to these increase cap-x (multiple speakers) --?

Yes. Alex, thank you for your question. With that, we have Daniel Muniz, who's the CFO of Grupo Mexico, and he will explain or answer your concern.

Hello, Alex. Thanks for the question, Alex. I mean, we've been taking advantage of the high prices. (Inaudible) has been depreciating dramatically, based on what Raul just pointed out. We've seen prices keep on climbing although numbers keep on falling. And what we've done is try to ensure and take volatility out of the earnings for the next quarter and for a small percentage of the next production.

Regarding collars, that's [meant] mostly that we've (inaudible), and that -- what we've been trying to do the most. Although it was a swap, we thought that way we could really seize a good profit margin for the rest of the quarter of this year and for a little bit of -- [introduction] of next year.

That's really, as you know, in the past, what we've been doing [all through] 2006, 2007, 2008, 2009. The Company would not hedge any of its copper production based on the economic crisis and circumstances, but the busier -- we thought it was advisable and a good opportunity to take this [advise] that we saw in the market. So, we've been doing that in an opportunistic way and pretty much in consistency with what we've done in the past.

Okay, thanks. Can I just have a follow-up, if it's okay?

Sure.

The copper price was very good in 2007 and early 2008, and the Company didn't hedge then. And obviously, you have a very good balance sheet, bottom of the cost curve, no worries about cash flow, really, regardless of the copper price. So, I guess what's changed between today and two years ago when there was also a similarly very good copper price and opportunity to hedge at very high levels? Thanks.

Yes, Alex, I'm (inaudible). Actually, 2007 and 2008 we did hedge.

Oh (inaudible) --.

And we did use the same strategy that we use in there now, as opportunistically going to the market, sort of taking the peaks in the many cycles (inaudible) and quarter-over-quarter. And I mean, 2008 turned out to be a great hedge based on the economic crisis that we did, and 2010 wasn't that bad, either. So -- and so, we've been doing that consistently.

Thanks, Daniel. Sorry, I forgot about the hedges in '08. I guess I didn't have enough coffee this morning. Thank you.

Thank you.

Your next question comes from the line of Felipe Hirai with Merrill Lynch. Your line is open.

Hi. Good afternoon, everyone. Just to follow-up on the hedging, so can you just comment how your hedging for 2011, [unintelligible] speaking (inaudible) linearly distributed throughout the year? Or if they are concentrated in the first quarter? And also, if you could comment if -- what should we expect from your hedging policy going further? If we see copper prices hitting, like, $4 or $4.20 a pound, can we expect to see you being more active on your hedging? Thank you.

Thank you, Felipe. Well, I mean, first of all, we've done the whole calendar '11, 2011. That's the swap [that has the] collar that we've taken in Southern Copper. That's for the full year. As you know, the forward curve has been as flat as we could probably remember in the previous years. That is less backward dated that -- in the previous peaks of the market, if you will, in 2007, beginning in 2008. So, we've done cal '11 swap and collars.

Going forward, I mean, I think we've done what the Board had thought was advisable at this point and given this current prices. At this point, we're going to wait and see what the market does from now on. And as I was commenting being opportunistic policy, we'll just wait and see how this evolves and how our Risk Assessment Committee [leads], and we'll take it from there.

At this point, we feel that we've done -- that we've taken advantage of very high prices, almost historic high prices and that we've hedged the percentage that we were looking at.

And your next question comes from the line of Victoria Santaella with Santander. Your line is open.

Hi, Daniel and Raul. Congratulations on the strong results. And if you can give us a little bit more color of how is the labor situation, both in Cananea and La Caridad? We read that La Caridad is getting back to normal, but is there still policemen around there? How long are they're going to stay the (inaudible)? How is the spirit of the unions and things like that?

And the second follow-up question would be if you can give us some guidance in terms of volumes and costs for next year.

Okay, let's go ahead with the labor situation. Basically, in Cananea, I think that after a peak in turmoil at the town side, local authorities reinforced security in the town of Cananea. That has helped us quite significantly. We mentioned earlier that we have over 4,000 contactors and workers doing the repairs and working on the project that we have for the Cananea operation as well as the infrastructure creation.

I think that activities are becoming much normal now than what has been in the case in the last, say, year in Cananea. So, in that sense, the news are very positive, and we're also very positive on the ramping up of this operation as well.

In the case of Caridad, as we pointed out a few minutes ago, we had a disruption of operations by a blockage of road access, mainly, and again, the authorities were very responsive to our request and cleared the problem very quickly. So, right now, operations are normal. The smelter of Caridad is -- it's almost ready for re-initiated smelting, which is excellent. Excuse me.

And you had another question related --.

Let me just ask you that [unintelligible], Raul. But, regarding Cananea, we're seeing an incredible new environment there in terms of the people, the different -- [where you've taken] this. I mean, old businesses have the -- opened the town that -- they were opened to them before the strike. We've been investing in the cultural, educational and social centers, and people are -- and there's a -- and really transformational process going on there at Cananea, if you will.

And regarding Caridad, it seems just -- or like to mention that regardless of the blockages, as you know, we are full-integrated copper producer, so we were able to sell the concentrate and, as you know, the concentrates now have important (inaudible), so the Company would not have been -- be affected by that. That's it. And you were going to cover that cost, Raul. Go ahead.

No, I think that your next question is about --.

Yes, guidance for next year on volumes and cost, if there's any.

Well, let me tell you that we're currently reviewing our production plans for 2011, so I can't offer you more guidance of what we already mentioned, and that it's a number that may be adjusted due to the Cananea expectancy of production -- that we will know much more closer to year-end how much would that be in terms of its contribution.

So, I'm sorry about that, Victoria, but right now, we are sticking to our guidance of 650,000 tons for next year, which is what we mentioned before.

Thank you so much.

Sorry --?

Your --.

Thank you.

And your next question comes from the line of Rene Quayweg with UBS. Your line is open.

(Multiple speakers.)

Hi, Daniel. Hi, Raul. Couple things. One, [Cariaveco] is being presented to the [Anglo] Board before the end of the year. I was just curious if there was any possibility for you still to be able to get into that deal. It looks like they're going for their own dissemination operations in terms of addressing the water concerns.

And the operational logic of you being involved is obvious. Have you given up? Or do you think there's still a chance of participating?

Well, Rene, we are -- basically have no comments related to that. The [Cariaveco] is in their own efforts to get their water supply, and we certainly like the idea of having another mining Company operating in Peru. That will certainly help our industry in Peru, but that's basically it.

And then, just a -- if I may, on Tia Maria, I hope -- good to see that we're hopefully moving forward with the desalination operations, etc. Can you just talk a little bit about the timeframe from here? And is there a new series of public hearings that are required? Or is there going to be a speedier process in terms of --?

No, the -- we are expecting the -- from the government that they advise us on the new way to review the environmental impact assessment with the local communities. At this point, there are no hearings. We don't think that hearings will be the next step. We believe that most likely will be TV presentations and radio transmissions explaining the process and informing the local communities on that.

(Multiple speakers.)

After a period of that, which we will know shortly -- after a period of the new actions, these new actions that we will know shortly, we should receive the environmental impact assessment approval and start construction at the first quarter of 2011.

Thank you, gentlemen.

Your next question comes from the line of Renato Antunes with Barclays Capital. Your line is open.

Hello. Good afternoon, everybody. Thanks for taking my question. My question's related to your dividend policy going forward. (Multiple speakers.)

Renato, could you speak a little bit louder, please? We can't copy --.

Yes, sorry. Is it now?

That's better.

Hello? Yes, so, my question is related to your dividend policy going forward. I just wanted to give a sense of -- given that of -- given the (inaudible) [model of excellence] and the [huge cap-x spillover that] you guys are expecting over the next years, if it is fair to assume that payout duration should be slightly lower over the following years?

Well, I'm so sorry, but we heard your question cut, so we couldn't copy you well. But, if I understood what you're saying, you are asking about the dividend payments in the future, considering our capital expenditures program. Is that your concern?

Yes, that's -- exactly. Just wanted to get a sense if you can give us any color on that.

Well, basically, Renato, the Company has already issue the debt portion that we believe is necessary to have as a cash position for moving forward with the projects without affecting -- without being concerned on the short-term changes of the market.

So, we are -- we have secured the money for the startup of the projects and, as I explained in the conference call, the Board has the final word regarding dividend payments, and they usually look at the cash position of the Company, the cash flow generation and the -- any requests for payments of debt, which we don't have significantly (inaudible) until 2015.

And the capital expenditures that we're expecting on that days, a dividend, it's [agree]. I think that the practice of the Company has shown very extensively that we don't want to hoard any cash. That's one of the characteristics of the Company. So, on that basis, you can be -- take your own conclusions.

Thanks.

Your next question is a follow-up question from the line of Alex Hacking with Citigroup. Your line is open.

Thanks, guys. So, our follow-up question is regarding El Arco and Los Chancas. Given the $5 billion cap-x program you already have, where are these Greenfield projects going to slot in? And I guess can we get an update of what stage in the process those are at right now? Thanks.

Yes. In Los Chancas, we are (inaudible). And in order to start the basic engineering at the beginning of next year, then we will see -- we will go for implementation process or for a leaching process. That is one of the options that we have in that project.

And about El Arco, we are doing -- checking the engineering that we have, and we will see if we will continue with that project after the initiation of the cap-x in Cananea.

I guess just to follow-up on that, it is -- the Board has (inaudible) at this point the ramp-up and expansions in (inaudible) when you think about comparing it with El Arco. But, still, El Arco is a great [profit]. We're still moving forward, as Mr. Gonzales Rocha pointed out.

Let me add that, at this point, the $5.6 billion are not considering the major investments for El Arco or Chancas. Just study the actions that we're undertaking for having the projects ready to go when we think that they are appropriate to develop.

Thank you.

(Operator instructions.) Your next question comes from the line of Nick Ivanov with Prudential. Your line is open.

My question has been answered. Thank you.

Your next question comes from the line of Dan Richmond, a private investor. Your line is open.

Thank you. Good morning. My first question relates to the Peru signing bonus for the new contracts. I think you mentioned it was $6,700, averaging, per person with 2,000 people. That's in the neighborhood of $13 million. What is your accounting treatment for that bonus? Is that charged to expense in 3Q? Or are you amortizing that over the life of the contract?

Well, we will amortize it for the life of the contract in three years.

Okay. Thank you. That was number one. Now, on the cost of getting Cananea back in operation, I may have missed it. You estimate the cost at $114 million, and some of that would be covered by insurance? Is that correct?

That's correct.

Okay. Well, for 3Q, what has been your accounting treatment for the cost of getting Cananea back in operation? Is that being charged to repair expense? Or is that being capitalized or some combination thereof?

At this point, most of the cost has been capitalized. And that's how are we proceeding with expenditures related to the Cananea operation. Let me explain why we haven't capitalized 100%. And the reason is that they are some activities that qualify at maintenance of these operations, and they are not cap-x.

So, when we are repairing and replacing equipment, those goes to capital expenditures, which is most of what we are doing. We have a maintenance that has been -- couldn't -- that wasn't [performed] because of the -- they were -- a dispute that was certainly [spent]. But, it's a minor amount, and we're still holding the $114 million as a total cost minus a refund that we don't know at this point how much it's going to be.

Thank you. And one more question. You mentioned earlier that Cananea was running at 30% capacity, if I wrote down what you said correctly?

Yes, that is correct.

When you say a 30% capacity, are you referring to SX/EW capacity or total capacity?

Yes, from the total capacity of 180,000 tons of copper production per year, we're currently operating the two SX/EW plants that has a capacity of 55,000 tons combined. So, if you do the math, it will show that it is 30% of the total capacity.

Thank you. And are the SX/EW plants at -- running at full capacity now?

Yes, they are.

Thank you very much.

You're welcome.

And there are no further questions in the queue at this time. I turn the call back over to presenters for closing remarks.

Okay. Well, thank you very much, ladies and gentlemen, and we'll hope to see you or have you in our next conference call. Good day.

This concludes today's teleconference. You may now disconnect.