Southern Copper Corp (SCCO) 2010 Q4 法說會逐字稿

Good morning and welcome to Southern Copper Corporation's fourth-quarter 2010 results conference call. With us this morning we have Southern Copper Corporation's Mr. Raul Jacob, Manager of Financial Planning and Investor Relations, who will discuss the results of the company for the fourth 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 will pass the call on to Mr. Raul Jacob.

Thank you very much, Steve, and good morning everyone, and welcome to Southern Copper's fourth-quarter 2010 earnings conference call. Participating in today's conference is Mr. Oscar Gonzalez Rocha, Southern Copper's CEO. On today's conference call we will begin with an updated view on metal market. We will then talk about Southern Copper's key results related to production, sales, operating costs, financial results and capital spending. After that, we will open the session for questions.

During the year 2010 we saw a significant recovery in the prices of all of our products. We believe the fundamental drivers for these better prices has been twofold -- the stronger physical consumption of the emerging economies and the recovery of consumption, at a slower rate, though, from the mix -- from the developed economies. In addition to these two factors, [to reap] the influence of financial investments that is putting some pressure on several metal prices.

Focusing on copper, we maintain our positive outlook for this metal in 2011. On the demand side, it is expected that worldwide demand growth in the range of 4% to 5% for the year that will not be matched by new copper production estimated to grow between 1% and 2%. Considering current market trends, most analysts believe the market is heading toward a 400,000 to 600,000 ton deficit in 2011. That should bring support for high market price.

However, even though we believe there are very strong market fundamentals for copper, we also think that the investor community is overlooking the following current developments. Current inventory levels do not reflect our market size and [type], as prices may suggest. As of February 2 -- that is yesterday -- the combined inventories of the London Metal Exchange, Comex and Shanghai warehouses were at 594,500 tons, metric tons -- that is about five -- 55,700 tons higher, or 10% more, than the 538,000 -- 800 -- that we have at the end of September. That is, as of September 30, 2010.

The second element is that there is a strong price volatility in metal market, particularly in copper. As an example, during December, copper prices varied over $0.54 between its peak and valley. And for the last three months, the difference between peaks and valleys has averaged $0.37. So there is a very strong volatility as well as inventories that are growing. At current price levels, we believe that there is a strong incentive for scrap copper production and substitution which would put downward pressure on prices in the future.

We believe the market is currently anticipating a very strong copper scarcity, but this has to be verified by reality. In other words, higher physical consumption has to come from the main consumer, such as China, Europe and the US. We do believe that we are in an excellent moment for copper prices as I said at the beginning of this part, but we also think that the copper market price may be overreacting to an expectation.

Considering the current market circumstances and the indicated volatility, the Company decided to take some price protection through the use of swap and zero cost collars. We will come back to this point later on during the conference call.

Let me focus on molybdenum now -- as you know Southern Copper's main [backdrop]. In the year 2010, this metal represented 13% of Company sales. And we are currently seeing a soft recovery in molybdenum consumption. For the year 2011, we're expecting a relatively balanced market for this metal.

Going in to our production and starting by copper, let me first say that the Company decided to change the name of the Cananea operating unit. Now it is called Buenavista del Cobre. This change is to better reflect the start-up of a new era for this asset. So from now on, we will call this operation Buenavista instead of Cananea.

Focusing on copper production, the Company's copper mine production in the fourth quarter increased by 3.5% to 130,553 tons. That is compared to one hundred thousand twenty six -- I'm sorry, 126,087 tons for the fourth quarter of 2009. This increase was mainly the result of 15,700 tons of SXEW copper production coming from our Buenavista mine.

The Toquepala mine production also increased to 37,446 tons. That is compared to 35,166 tons in the fourth quarter of last year of 2009 due to higher ore grades and recoveries. These increases in production were partially offset by lower production at the Cuajone and Caridad operations, which reduced their production by 24% and 6% respectively due to lower ore grades.

Speaking about the repairs at the Buenavista unit, as we have previously reported to the market, the Company has aggressively initiated a construction and ramp-up of Buenavista. Through December 31, 2010, we have spent $70.9 million on repairs. Of those, $35 million were capitalized and $35.9 million were charged to operating costs during 2010.

For 2011, we expect to spend $43.1 million to complete the repairs of these operations. We're maintaining the estimated cost of the repairs at approximately $114 million. An undetermined portion of these total expenditures should be recovered from insurance.

As we previously disclosed to the market, the SXEW production of Buenavista reached full capacity, and it is that -- that happened in the fourth quarter of 2010. At the beginning of this year, the Company partially started the concentrator plan. Currently Buenavista is running at 70% of capacity, and we expect to reach full capacity by the end of this quarter.

For 2011, we expect to increase the Company's production level by 26%, producing 630,000 tons of copper. Of that, approximately 3% will be from third-party [coffers].

For molybdenum production, as indicated in our press release in 2010, we will reach a new molybdenum production record of 20,500 tons, 10% percent higher than the 18,687 tons produced in 2009. The fourth-quarter molybdenum production increased also by 4%.

During the year 2011 we will have a reduction of molybdenum production due to a temporary reduction in our Peruvian operations' ore grade. This ore grade decrease will be partially offset by higher production expected from our Mexican unit of La Caridad.

Our 2011 guide for molybdenum production is 17,000 tons for the year.

Going into our financial results and specifically on sales, focusing on Southern Copper financial performance, the fourth quarter of 2010 sales were $1.5 billion, 32% higher than the $1.1 billion we had in the fourth quarter of 2009. The full-year 2010 sales were $5.1 billion, 38% higher than the $3.7 billion of 2009. These increases were mainly the result of higher metal prices as well as higher molybdenum sales volumes.

When compared to the fourth quarter of '09, copper sales volume increased by 9%. Molybdenum volume sold also increased by 3%, while silver volume decreased by 26% and zinc volume saw a decrease by 9%.

As we reported to the market, the Company entered into copper hedge contracts to reduce price volatility and protect sales value. Such contracts are currently hedging approximately 28% of 2011 copper production at an average price of $4.00 per pound, equally spread through the year. The Company has also hedged approximately 31% of 2011 copper production using the zero-cost collars with an average floor price of $3.02 per pound and an average cap price of $4.84 per pound.

For 2012, approximately 2% of this year's copper production is price-protected through zero-cost collars with an average floor price of $3.50 per pound and an average cap price of $5.01 per pound.

Our operating costs -- total operating costs and expenses have increased 7% or $40 million when compared to the fourth quarter of 2009. We did have some cost inflation during this past quarter, particularly in fuel, power and labor. However, the most important additional cost was related to the ramping up of our low-cost operation of Buenavista at a total cost of $30 million in the fourth quarter of 2010.

As a result of the mentioned sales and operating cost variances, EBITDA for the fourth quarter of 2010 was $927 million or 62% of sales. This figure was 51% higher than the $616 million of EBITDA for the fourth quarter of 2009.

Southern Copper operating cash costs, including the benefit of by-product trade, was $0.232 per pound in the fourth quarter of 2010. This cash cost was $0.09 lower than the $0.325 per pound cash costs for the fourth quarter of 2009 and $0.06 lower than the $0.287 of cash costs we had in the third quarter. The Company fourth-quarter 2010 operating cash costs per pound before by-product credit was $1.53 per pound, $0.17 higher than the operating cash cost of $1.36 per pound for the fourth quarter of 2009.

The cash cost increment of $0.17 before credit is mainly attributable to the recurring cost of Buenavista and cost inflation, net of favorable -- of the favorable effect of higher production.

Regarding by-products, we had a total credit increment of $0.26. Of those, molybdenum credit explained $0.29 in the fourth quarter when compared to the fourth quarter of 2009 due to higher price and volume produced.

As a result of the better market prices and efficiency gains, net income attributable to Southern Copper shareholders in the fourth quarter of 2010 was $492 million for diluted earnings per share of $0.58. This figure compares with net-net earnings for the fourth quarter of 2009 of $363 million, or diluted earnings per share of $0.43. So we had $0.36 increase in earnings per-share and net earnings quarter-on-quarter.

Going into our expansion in capital projects, on January 27 of 2011, the Board of Directors reviewed its five-year capital program, approving a capital budget for the period 2011 to 2016. We expect as part of this program to expend $1.7 billion in 2011, of which $900 million will be invested in Mexico and $800 million in Peru.

At the end of 2010, we have to spend $70 million in the mines and plant [risk -- we have listed some] of the Buenavista property, as I already mentioned. And we expect to spend $43.1 million for this purpose in 2011.

Regarding the SXEW III project, in our Buenavista operation, it is moving forward. Our review of the basic engineering was concluded in December of 2010. We have started the detailed engineering in January. And when completed, we will begin the acquisition of major equipment and construction of the plant and new infrastructure.

Regarding the Quebalix III project, we have almost completed the acquisition of the project equipment, and will begin construction of the crusher building and the conveying and spreading systems for leachable ore. The Quebalix -- it's an equipment that is used for producing the ore that is processed at the SXEW plant.

The Pilares project which is close to La Caridad mine is being evaluated as well. As of December of last year, 13,700 meters of drilling has been performed, access roads developed and metallurgical testing and preliminary mine planning has begun.

The social programs for the Buenavista community are also underway. The local hospital has been reconstructed. Two new water wells as well as a street paving program for the community has been completed. And the town library has been provided with modern technology to improve reference search capabilities. We're glad to report that this initiative has received a warm welcome from the local community. For 2011 the company plans to invest $12 million for the benefit of local communities.

In reference to the Toquepala concentrator expansion, we are reevaluating an increase in the project's milling capacity to improve the estimated additional copper production to 120,000 tons per year. As a result of this review, the Environmental Impact Assessment is expected to be presented during the second quarter of 2011.

Regarding the Tia Maria, we're glad to report very positive news about the project. During the third quarter, additional information for the project, including the use of seawater, was submitted to the Peruvian government. And on December 1st, the Ministry of Energy and Mines approved a new communications plan to obtain the consent of the Environmental Impact Assessment from the local communities. The communication plan already completed by the Company considered the following activities -- media advertising regarding the project in local newspapers; as well as local TV and radio programs; the opening of three information offices in the communities that will be mostly impacted by the project; and four, informative meetings with local community members.

On February 1st, the company filed a report with the Peruvian government indicating the full completion of this program. Now we have to wait until March 3 for any observations from local community members or other stakeholders. If everything goes well, we expect to receive the Environmental Impact Assessment and approval by the end of April, and construction work are scheduled to begin in the second quarter of this year and copper production by the fourth quarter of 2012.

On July 22, 2010 the Company received a nonbinding proposal from its parent company, Americas Mining Corporation, offering to effect an all-stock business combination of Southern Copper and AMC, the parent company of Asarco. As proposed, all stockholders of Southern Copper would receive 1.237 common shares of AMC in exchange for each share of Southern Copper. As part of this process, the stock of Americas Mining Corporation, AMC, will be registered and listed on the New York and Mexico and Lima Stock exchanges. Once completed, the Southern Copper shares would be deleted from the exchange.

On August 10, 2010, the Company formed a special committee of independent directors to evaluate AMC's proposal. The special committee has engaged independent legal, financial and mining advisors to assist in this transaction and help in the evaluation of the proposal. There is no specific deadline for this process.

Regarding dividends, as you know, it is the Company's policy to review at each board meeting the capital investment plan, cash resources and expected future cash flow generation from operations in order to determine the appropriate quarterly dividends. Accordingly, at this close to the market on January 27, 2011, the Board of Directors authorized a dividend of $0.58 per share. This dividend will be paid on March 1, 2011 to shareholders of record at the close of business on February 15, 2011.

With this in mind, ladies and gentlemen, thank you very much for joining us today, and we would like to open up the phone.

(Operator Instructions) Renato Antunes, Barclays Capital.

Good afternoon, hi Raul, good afternoon, everyone. Thanks for taking my question. My question is related to your hedging strategy. You gave us a little more of color. I just wanted to understand the rationale, and if there is any targeted or maximum levels that you intend to achieve for hedging your 2011 production? I mean is it fair for us to assume that as long as prices remain at current levels -- is it fair to assume you will keep increasing the hedges that you have already?

Renato, Renato, I can't copy you now. Could you start again, please. I'm sorry about that.

Sure, no worries. My question relates to your hedges. I just wanted to get a bit more of color on the rationale and hear from you if there is any targeted or maximum levels that you intend to achieve for hedging in 2011. Is it fair for us to assume that as long as copper prices remain at current levels of $4.50 per pound -- is it fair to assume that you will keep increasing your hedges? That's the first question.

Well the rationale is, as I explained when we mentioned about the market view, we think that there is very strong volatility and the market is anticipating significant scarcity in copper. Regarding the volume level, we already report what we have. We have nothing else to mention about that, due to the kind of [stability] the company is following regarding hedges.

Okay, thanks. And if you allow me to ask a second question, just related to your costs, you obviously had a very positive performance through this quarter. You just mentioned the $0.23 per pound of cash cost including by-products. I just wanted to get a sense of how are your views going forward? I mean, we will probably continue to see pressures for fuel and labor. On the other hand, Buenavista should offset this as it is lower cost. How do you expect cash costs -- level over 2011? Thanks.

Okay. Well, for 2011, we have a forecast of cash costs of $0.45 per pound. And let me explain you how this is composed. Our cash costs before -- so with no consideration of by-product credits at all, it is expected to be at $1.50. That would include some cost inflation that we'll have on labor, on fuel and currency -- local currencies' appreciation.

When you subtract to that our forecast for by-products, the number reduces to $0.45. And again, let me explain you what happened here. As I mentioned, we have reduced the outlook of production for molybdenum from [each year] about over 20,000 tons to 17,000 tons for 2011. So we have a reduction of about 15% in our production of molybdenum that will be pretty much compensated by price increases in molybdenum and also in some other by-products.

So the total dollar amount of the credits is estimated to be approximately the same. But we will divide these credits by about 26% more pounds of copper. And that's why we have a reduction in our -- I'm sorry, an increase in our cash costs when compared to the fourth quarter that goes from -- goes to $0.45, as I said.

Felipe Hirai, Merrill Lynch.

Hi, good afternoon, everyone. Raul, could you just repeat again the numbers for the cash costs? So from what you got here, it is $1.50 before the by-product credits and $0.45 after the byproduct credits? Is that right?

Yes, that's correct. It is $1.50 before by-product credits; $0.45 after by-product credits. The reason is that on a per-pound basis we will have less credit to share.

Okay, great. And can you just give us some guidance of how much you expect to produce of copper and then moly in 2011?

Yes. For copper it will be 630,000 tons; for molybdenum, 17,000 tons.

This already includes the ramp-up of Buenavista, right?

That's correct.

Okay, and just one last question Raul. Could you just comment a little bit on Asarco -- if you could give us a little bit more color on what is going on? When do you expect that you -- the committee to decide on the recommendation of the deal with Asarco? Thank you.

Well, this question has to be posed to Grupo Mexico's personnel, Felipe. But what we can say about what is happening, or what is going on in the process, is that the committee has already hired their advisors. And they have been working, visiting our operations and doing their own studies regarding the transaction. And even though there is no timeframe for -- and there is no timeframe for them to complete their work. So that is all that we can report at this point.

Okay, great Raul. Thank you.

Victoria Santaella, Santander.

Hi, how are you, this is Victoria. Can you comment a little bit on the risk of royalties in Peru, especially now there's a lot of noise coming from the ground for the elections and for the rest of the year? And also, if you could tell us a little bit about demand; how are you seeing it right now? How easy is it to place your orders given the pricing scenario in the world?

Okay, let me focus first on any royalty talks. Well, in Peru, we're running on an election period right now. So as part of the talks, several candidates have mentioned that they may consider changing the royalties regime that the mining companies are having now. Nothing specific has been said about that. We have to wait until the campaign ends.

Let me mention also that on the other hand, the mining society has indicated that about $41 billion in projects are ready to go in the next 10 years. So the next Peruvian president will have to wait the affect of these positive investments vis-a-vis charging more to mining companies. So at the end of the day, you see the current administration that is finishing -- they had also a talk about, for instance, windfall profit taxes for mining companies during the campaign. Once they were in office, they thought about it and then promoted or decided to promote investment rather than charging more taxes to mining companies.

So all in all, I think that whatever you heard now will be, we think, later on when the winner of elections are in the government. I'm sorry, can you refresh me on your second question?

Yes, the second one is if you can give us some color from your marketing department -- how easy is it to place orders now that the copper prices are in peak levels?

I'm sorry, but --

Sales volumes -- how are they doing with extremely high prices?

Well, we have firm contracts for most of our production. And as such, we are delivering, full-year, our copper shipments. Regarding the -- whatever is sold at market, at open market, usually we don't disclose this information to the market, Victoria. And the reason for that is the commercial strategy that the company follows. I'm sorry that I can't answer on that.

Okay, well thank you so much, Raul.

Rene Kleyweg, UBS Warburg.

Good morning, gentlemen. Just on -- there are a couple of references in the press release about -- they're talking about a concentrator expansion. And it sounds like there's a bit more upside there in terms of your review of the 125,000-ton expansion. Could you give us a little bit of color on, one, where that -- how much upside there is to that? And secondly, if we look at the CapEx guidance for 2011, it is higher than we have previously seen, but the 2010 numbers have come in a bit lower than expected. Is this basically delayed CapEx from 2010 slipping into 2011? And what kind of inflationary cost pressure are you seeing on the CapEx program? Thank you.

First, on the Toquepala concentrator expansion, basically the Company -- it's [visiting] the project because we have identified some options that may help to reduce the CapEx cost per ton of additional production and increase the final production that these [definitely may impact]. So in that sense we want to -- we are doing now our review, an extensive review of the project, and feel we can't have an expansion that is sustainable in terms of what I said. We're looking basically at the economics of this and the technical possibilities.

On the total capital budget, yes, we -- as you well mentioned, Rene, we didn't expend as much as we wanted to in 2010. And it was basically due to the slowdown in the Tia Maria project. Tia Maria has been not spending additional -- not committing additional expenditures in 2010 for most of the year. Now we want to catch up on that. And we also have a much more clear landscape regarding our Mexican investments in Buenavista now that the operation is back approaching to full capacity by the end of the quarter.

So when you see these two elements, we already see a much more promising possibility for growing on Buenavista than what we have, say, at the beginning of 2010. And also we believe that the step that we have achieved on the Tia Maria project is important. And it's a matter of time that we have -- the goal for this investment to move forward.

Just to clarify on the Toquepala concentrator, is that basically additional grinding capacity you're looking at in terms of before it enters the mill?

I'm sorry, could you say it again please?

Are you looking at additional grinding capacity at the concentrator? Is it a primary -- is it grinding capacity before the material, and just the concentrators -- is what you're looking at?

It's a whole thing. It is grinding capacity as well as mining capacity. Would you like to comment on that, Mr. Gonzalez?

Yes. Really, it's a change in the engineering. And then we are doing a different location for the plan at the beginning. And that is going to improve the production, because we're going to do everything by gravity. And not only the production, the cost of production will be reduced, too. And that is the reason that we are thinking that instead of 100,000, it can be 120,000 or 125,000. But mainly it's a change in the engineering that we foresee when we were looking with the engineering companies how we can improve that.

Thank you very much.

Venkat Nandyal, BMO Capital Markets.

Actually, it is Dave Radclyffe here from BMO. My question is sort of following on from the last one in terms of changes to the CapEx profile. And maybe how your thoughts might have changed in terms of developing the current profile? And maybe just expand on maybe some upside to the current projects in terms of the expansion potential? But also, could you maybe just update us on your thoughts on some of the previously -- the longer-term projects such as El Arco and Los Chancas?

Yes, regarding El Arco, we have been -- we are moving forward with all the programs for this project. It is not part of our current development program in the sense that we're expecting to have production on it between 2011 and 2015. It is expected to be after that in terms of production. We have been -- we are allocating in 2011 money for buying land and doing more studies regarding El Arco. And we think it's a very promising deposit, very interesting. But at this point, as I said, we're still working on preparing this investment for the future.

It is part of our long-term outlook for the company. But it is after 2015 that we're expecting production from them. In the case of Los Chancas, we're expecting to have the feasibility study for Los Chancas by the end of the first half of the year. With that, we will have more clarity regarding the investment side and an appropriate timing for the project.

Okay, thank you very much.

Rodrigo Barros, Deutsche Bank.

Good morning gentlemen. I have two questions. First, regarding dividends, how, if you can, clarify to us if the assumption that all cash you generate after CapEx would still be distributed as dividends? And my second question is also regarding cash cost. How the ramp-up of Cananea, now Buenavista, would impact the average cash cost in terms of -- the cash cost as it is? And also including the by-products? Thanks very much.

Okay, regarding dividends, Rodrigo, I'm sorry, but it is a matter that -- it's a Board decision. And as I explained, when we discuss the dividend -- approve dividend for this quarter, each quarter meeting, the Board reviews the Company's cash position, the market circumstances, any future payments of loans or capital expenditures that the company has committed, and on that basis, approves a dividend. What they will do in the future, it is hard to say. However, our practice has been to pay a dividend of at least 50% of net earnings. And as you know, we have gone much higher than that in different circumstances, particularly when prices are high, as they are today.

And your next question was about the CapEx for the Buenavista expansion? Is that --

Actually, how the cash cost -- how it would evolve now that we have a major -- we have Buenavista running at full capacity from the second quarter onwards. How that affects the average cash cost for the company?

Okay. Buenavista has a very competitive cash cost. In the past, we have close to $0.80 per pound. We expect to be lower when we start operating it at full capacity. And [I mean I do need to] emphasize in the past two years ago, okay. So we have -- we're assuming some cost inflation that will influence these operations -- that we believe that it will remain as a very competitive operation as well.

In terms of by-products, it doesn't have much. We want to add to the Buenavista property [a molybdenum line] that should produce about 2000 metric tons of molybdenum per year. That is part of our capital project for Buenavista. And that will certainly help to reduce cash costs to afford a future on these operations.

And when should the moly plant be operational, Raul?

Well, we have it scheduled for the end of 2012 to start operating.

Okay, thank you very much.

Dan Rohr, MorningStar.

Hi, Raul, thanks for taking my question. I had, actually, a couple, the first pertaining to capitalist expenditures, and the second pertaining to hedges. On the capital expenditure front, I think you guys had previously indicated $1 billion in CapEx anticipated for 2012. But in light of the revision to the 2011 number, is that $1 billion number for 2012 still good?

No, actually, it has increased also to $1.7 billion for 2012. For the next 5 years -- this is including 2011 -- this is what we have forecast, this year and next year, $1.7 billion. For 2013, that number should decrease to $950 million; for 2014, $700 million and for 2015 $560 million. With that, we will finish the current program of additional or expansion of production investments. And, well, this is basically contemplating what we're doing now.

Okay. And so what would you expect a sustaining CapEx number to be, once all of these projects are completed?

It will vary between $200 million and $300 million. By the way, sustaining capital is included in the numbers that I just mentioned.

Excellent, excellent. And then my second question concerned hedging. I think you had previously indicated in the third-quarter call that you had hedged about 58% of the fourth-quarter production. So I was curious what the realized price for copper sales in the fourth quarter might have been, or was, after taking into account the hedges you had in place relative to the -- I think it was $3.92 that we averaged on the LME?

Yes, the total effect on hedges was $0.13 per pound of copper on the realized price.

Okay, thank you very much.

Rene Kleyweg.

Just following on, actually, from the previous question on the hedging loss. Is that booked against net realized revenues? Or where do you include the hedging losses?

Hedges are registered as part of sales.

And just following up on the earlier question on the CapEx, given that you have just gone through your CapEx budget for the next five years, what kind of cost inflation are you seeing in terms of the CapEx side as opposed to the OpEx side?

Actually, Rene, not that much. Because of -- I mean, other than certain things that you may expect that will go up, such as tires, that are quite dependent on fuel prices -- but several of the companies that provide these major equipment, they've expanded their operations between 2005 and 2007. So when we got into the economic crisis of 2008, they were having significant spare capacity. And we're still using that new capacity that they built up. So I think that in that sense we're not saying the kind of capital inflation that we saw, say, in 2005 or '06 at this point.

Thank you. And one last question if I may. Just on the hedging, has there been any additional hedging done in the first quarter, or since the year-end, sorry?

No, we are reporting the current position in our press release. That is where we are right now.

Thank you very much.

Rodrigo Heredia, IXE.

Hi, good morning, everyone. I'm sorry if I missed the explanation, but what are the reasons behind the reduction in the moly production for this year? I mean, from 20-something to 17.

Hello, Rodrigo, how are you? Basically, the Peruvian operations, particularly the Toquepala mine, it's having a temporary decrease in ore grade. And that is affecting the molybdenum recovery as well as the ore grade for molybdenum. We have a partial recovery of the Cuajone production for moly. But it's not enough to reduce what we're seeing on the Toquepala side. So as I said, all in, the Peruvian operations are decreasing their contribution to our molybdenum production for the year.

Okay, thank you so much.

[Dan Richmond].

Good morning. Thank you. My question relates to the decrease in tons smelted and rod production, which I presume is at La Caridad, or at least the rod is. Is this decrease in smelting and rod production due to the labor problems you had at La Caridad? Or is it demand-drive with respect to rod?

Thank you very much for your question, Mr. Richmond. Let me mention, in general, in terms of -- for our metallurgical facilities, we had a 14% decrease in annual production at ILO during the fourth quarter due to technical problems at the smelters, [accident and oxygen] plants. This facility is operating right now, at this capacity, about 95% of it. And we are solving this problem through the second quarter of 2011.

In the case of La Caridad, in the fourth quarter -- actually at the end of the third quarter, but it went into the fourth quarter -- we had some disruptions due to blockage to access roads and other interferences caused by a group of terminated employees and outside agitators.

Mexican authorities established order and secured access roads to our conflicts in Mexico. And activities at our Mexican metallurgical facilities were normalized shortly after that. So it was a one-time thing that happened in the fourth quarter in the case of the Mexican operations, and in the case of the Peruvian ones, some technical problems that have been pretty much solved already, even though we will have to address some repairs regarding our metallurgical facilities in the second quarter.

Now, this is not related at all with our sales, where we have already sold all the copper that we will produce in 2011. We have our contracting [we take], so there is no relationship between the commercial side of our operations and the disruptions in smelting that I just mentioned.

Thank you.

Renato Antunes.

Hi Raul, thank you for taking another question. Just really quickly, out of this 630,000 tons that you expect for copper production in 2011, how much of that is coming from Buenavista if you may disclose this breakdown? Thanks.

Well, Buenavista will be operating as expected. And we are not -- we're coming back to our -- what has been our policy and practice here, Renato, of providing just a total outlook for production. And the reason for that is that our operations have some flexibility, and we want to use it. So Buenavista will be providing as much as expected, operating at full capacity. As you know, Buenavista's full capacity should produce 180,000 tons per year. And we are operating it at that path, or at that level, by the end of this first quarter.

Thanks.

(Operator Instructions) Dan Richmond.

This relates to your open hedges. I assume you mark those to market at the end of every month. Is that correct?

We're not disclosing that there.

But you do mark those to market?

The strategy that we follow for that is something that we need to maintain undisclosed.

I understand, thank you.

[Chelsea Gansco], MacQuarie

Hi. Just one quick question; I think I just missed the number. For 2010 what was the cash cost per pound, excluding the credit?

$1.53.

And in 2009?

$1.36. I don't have the number with me.

It was $1.36.

Okay, great, thank you.

And there appears to be no further questions at this time. I will turn it back over.

Okay, thank you very much, ladies and gentlemen, for joining this conference call. And we will expect to have you with us at the end of the first quarter of this year. Thank you very much again.

Ladies and gentlemen this concludes today's conference call. You may now disconnect.