Southern Copper Corp (SCCO) 2011 Q1 法說會逐字稿

Good morning and welcome to the Southern Copper Corporation's first-quarter 2011 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 first quarter and answer any questions that you may have.

The following information discussed on today's call may include forward-looking statements regarding the Company's results and prospects, which are subject to risks and uncertainties. Actual results may differ materially and the Company cautions not to place undue reliance on these forward-looking statements.

Southern Copper Corporation undertakes no obligation to publicly update or revise any forward-looking 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 over to Mr. Raul Jacob.

Thank you very much, Michelle, and good morning everyone and welcome to Southern Copper's first-quarter 2011 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 update of our view on metal markets. 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.

Let me focus first on the copper market. We maintain our positive outlook for the market fundamentals of this metal. On the demand side a worldwide growth in the range of 4% to 5% for 2011 is expected. These will be not be matched by new copper production, estimated to grow by 3% in 2011.

At the end of last year several analysts believed the market was getting towards a deficit of 400,000 to 600,000 tons that should sustain copper prices in the range of $4.50 to $5 per pound. As reported to the market then, we believe that those price levels will imply an acute scarcity of physical material that we were not seeing at the end of the fourth quarter of 2010, and we still don't see.

At this point we believe the market is adequately supplied, considering inventory levels of the Shanghai, London Metal Exchange and COMEX warehouses' off-warehouse material, and the contribution of the scrap copper, a product that appears when prices are attractive.

Scrap copper is estimated by CRU to grow by 200,000 tons in 2011 to a total of 3.1 million tons in the current year, with China being its main consumer. Over the remainder of 2011 we believe copper prices will average $4.15 for the year.

As you know, SCC's main by-product is molybdenum. In the first quarter of this year this metal represented 9% of Company sales. We are currently seeing a soft recovery in the molybdenum consumption. For the year 2011 we are expecting a relatively balanced market for this metal, with prices at about $16 per ton.

Let me go now into copper production. Before we begin the analysis of this quarter's production, let me remind you that last year the Company changed the name of the Cananea operating unit to Buenavista del Cobre. So please keep in mind that we mention the Buenavista operation, we refer to the unit informally known as Cananea.

The Company's copper mine production in the first quarter of 2011 increased by 13.7% to 124,000 tons and compared to 109,000 tons we produced in the first quarter of 2010.

This increase was mainly the result of 27,600 tons of copper production at our Buenavista mine that was partially offset by expected lower production at our Peruvian and La Caridad operations.

It should be pointed out that I mentioned the Cananea production of 27,600 tons, and at full capacity Buenavista should produce about 45,000 tons per quarter.

As previously reported, the SX-EW production of Buenavista reached full capacity in the last quarter -- in the fourth quarter of 2010. Currently beside the SX-EW plant, all crushing, milling, and flotation circuits of the concentrator are running at full capacity at the Buenavista operation, and we are now optimizing the copper recovery circuit to reach full production. We expect to finish this process during April and increase the Buenavista concentrator recovery to full production in the second quarter of this year.

For the second half of 2011 we expect significant increasing ore grade at the Cuajone mine, which will offset the lower production of the first quarter of this year which was due to expected lower grades.

Our prior guidance for 2011 was a total production of 630,000 tons of copper, with 3% of it being copper from third-parties or purchased copper. The current plan is to maintain this forecast, but consider an increase in the purchased copper to 5.7% for the year.

Regarding the ramping up of Buenavista and the cost of the repairs, through March 31, 2011, we have to spent $112.6 million on repairs. Of these, $54.4 million were capitalized and $58.2 million were charged to operating cost, both in 2010 and 2011. During the first quarter of this year we charged $22.3 million to operating costs. We are maintaining the estimated cost of the repairs at approximately $114 million.

Regarding molybdenum production, in the first quarter molybdenum production decreased by 10.1% to 4,274 tons compared to 4,753 tons in the first quarter of last year to expected lower ore grades, primarily at the Cuajone operation.

Focusing on Southern Copper financial performance, the first quarter 2011 sales were $1.6 billion, 31% higher than the $1.2 billion we had in the first quarter of last year. This increase was mainly a result of higher metal prices, as well as higher copper sales volumes, which increased 12%.

When compared to the first quarter of last year molybdenum volumes sold decreased by 10%, silver volumes sold decreased by 10%, zinc volumes sold decreased by 4%.

Swap contracts are hedging approximately 32% of the remaining 2011 copper production at an average price of $4.08 per pound. And fewer cost collars are hedging approximately 30% of 2011 copper production, with an average floor price of $3.02, and an average cap price of $4.84 per pound. The remaining 38% is unhedged, and prices will continue to fluctuate with the market copper price.

With these hedges the Company is benefiting from the current copper prices up to 68% of its volume, while obtaining insurance for the remainder of its production at $4.08 per pound in average.

For 2011 the Company hedges approximately 13% of copper production through zero cost collars with an average floor price of $3.50 per pound and an average cap price of $5.18 per pound.

Focusing on operating costs, our total operating costs and expenses has increased 29.7% or $192.4 million when compared to the fourth quarter of 2010. The most important additional cost was $215 million in purchased copper concentrates. These higher costs results from approximately 30,000 tons of purchased concentrate charged to cost balanced our smelting capacity with our current production rate, and to replace purchased copper in process by Buenavista material at our Mexican smelting operations.

Purchased copper should decrease its weight in the future, as we increase copper production from the Buenavista and Cuajone mine. Besides these costs, we have some cost inflation during the past (technical difficulty).

Excuse me, it will be just one moment while we -- we're having some technical difficulties. Please hold the line.

Okay, my excuse is that we were cut from the line. I am returning to where I was in operating costs. As I said, most of the cost increase in the first quarter of the year has been related to purchased copper concentrate that was -- we had a variance of $215 million in that matter, mainly to balance our production -- our smelting rate with our production -- our current production.

Beside these costs, we had some cost inflation during the past quarter, particularly in fuel and power, and costs related to the Buenavista ramping up that I indicated was $22.3 million.

As a result of the previously mentioned sales and operating costs, EBITDA for the first quarter was $842 million. This figure was 22% higher than the $692 million of EBITDA for the first quarter of 2000 (sic - see press release).

Speaking about cash cost, Southern Copper operating cash costs, including the benefit of by-product credits was $0.243 per pound in the first quarter of this year. These cash costs was widely higher than the $0.231 of cash costs for the fourth quarter of 2010.

The Company's first-quarter operating cash cost per pound of copper produced before by-product credit was $1.67 per pound, $0.14 higher than the operating cash cost of $1.53 per pound that we had in the fourth quarter of 2010.

The cash cost increase of $0.14 before credit is mainly attributable to the repair cost of Buenavista that represents about $0.08 per pound of copper, and cost inflation, $0.06. Considering the lower production costs of the Buenavista operation, we expect cash costs before by-product credit to increase in the second half of this year.

Regarding by-product, we had a total credit per pound of $1.42 per pound of copper in the first quarter. This year compares to a credit of $1.30 per pound in the fourth quarter of 2010. The $0.12 of higher credit was mainly due to higher prices of sulphuric acid, zinc, silver and the third-party purchased copper net contribution.

Net earnings, as a result of the better market prices and higher copper volumes from Buenavista, our net income attributable -- our net income was $478 million or diluted earnings per share of $0.563. This figure compares with net earnings for the first quarter of 2010 of $383 million or diluted earnings per share of $0.451, a 25% increase.

Expansion on capital projects. Since we had some recent developments affecting the Tia Maria project let me start right explaining the project's successes and the Company's position regarding certain (inaudible).

Starting on March 23, a small group opposing mining activities in the Islay region conducted violent acts with groundless and completely false allegations that the Tia Maria project will use agricultural water and will cause pollution in the region. These activists have been conducting disruptions, which included national highway blockages, damage to public and private property and attacks on police forces.

Specifically, the activists blocked the high traffic highway between the port of Matarani and Arequipa, located 50 kilometers away from the Tia Maria project. These blockages have nothing to do in any way with the construction of our project. In essence, the activists are using the Tia Maria project as an excuse to impede investment and to cause problems to the State, companies and the local communities.

The Company has repeatedly stated that the water to be used in the project will be transported from the ocean through a 30 kilometer long pipe line, after its desalinization. All tests and analysis for the operation of the project has been conducted with sea water, which makes the falseness of the activists' arguments all the more apparent.

With respect to the activists' pollution argument, the Company has also repeatedly provided evidence that the project complies with the most strict and cumbersome environmental standards.

In light of the activists' disruptions, the Peruvian Government has suspended the Tia Maria project. The Company will let a prudent time elapse because of the current political situation in Peru, although in the near future we would provide the authorities with every single piece of information requested by the Ministry of Energy and Mines in respect to environmental impact assessment.

The Company is confident that with this information any concerns the authorities may have will be answered, as the Company has always complied with the highest environmental standards.

This type of SX-EW leaching facility has been widely developed in Peru and other countries. And it has been proven that they comply 100% with environmental regulations and do not pollute the air, the soil or the water of the nearby land.

The Tia Maria project comprises an investment of approximately $1 billion, generating 4,000 jobs during the construction phase and 4,100 direct and indirect permanent jobs. The estimated annual production of the project is 120,000 tons of copper cathodes, all obtained through a leaching process, which is considered worldwide as the most environmental friendly production method.

The project would significantly increase Peruvian exports and generate important contributions to the Peruvian economy through income taxes and mining royalties, as well as payroll taxes, custom duties, mining rights and other levies.

In addition, the Company plans to invest in social responsibility programs in the Arequipa region similar to those established in the communities nearby the current Peruvian operations of Toquepala, Cuajone and Ilo.

The Company is confident that the Peruvian Government will provide the legal stability that allows for economic development of mining investments and favorable legal and economic conditions for the growth and development of Peru.

As of March, 31, 2011 the Company has expensed $434.7 million in Tia Maria. The total budget to complete the project is $601 million, of which $324 million were budgeted for.

Moving to other capital investments, the Company's capital expenditures for the first quarter of 2011 were $73 million. Regarding our expansion projects in Buenavista, we are working at full speed to deliver the planned 88,000 tons of additional copper to our leaching plant number three and number four. It will come into production during the second half of 2013. We are also constructing their corresponding thrashing and conveyances.

Additionally, we are working on the molybdenum recovery plan with a capacity of 2,000 tons per year, which we anticipate we will begin production in the fourth quarter of 2012.

We are also concluding the detailed engineering studies for the Buenavista new concentrator, which will allow us to increase an additional 188,000 tons of copper by the end of 2015.

Currently there are more than 4,200 employees and contractors working in Cananea in the Sonora state for the development of these projects. The estimated investments for these projects is $2.6 billion over the following four years.

The social programs for the Buenavista community are also underway. The Company reconstructed the state of Sonora medical clinic, two new water wells, and it's repaving program that has been completed, and the town library, which the most modern technology to improve reference search capabilities have been (inaudible). In 2011 the Company continued investing for the benefit of local communities.

The Pilares mine site, close to the La Caridad mine, is being evaluated. As of March of this year, 13,700 meters of drilling has been performed, access roads were developed and metallurgical testing and preliminary mine planning has begun.

Regarding the Toquepala expansion, through March 31, 2011, we have to spend $124 million on these projects, mainly in mine equipment. The use of high pressure grinding rolls and wet screening at the tertiary crushing stage is expected to reduce operating cost.

The scope of the project is currently under review as we are evaluating an increase in milling capacity of 60,000 tons per day from the 40,000 tons per day originally planned.

The Cuajone expansion project has a total capital budget of $301 million, of which we have expensed $43.1 million through March of this year. Increased production from these expansion project will begin in the second half of 2011.

The Tantahuatay project is located in Cajamarca in Northern Peru. In 2010, we began development of this project to exploit the gold cap. Tantahuatay contains estimated resources of 20.1 million tons of mineralized material, with an average silver content of 13 grams per ton and 0.89 grams of gold per ton. We expect to start dore production -- gold production by July 2011.

The project is expected to have an annual production of 90,000 ounces of gold and 425,000 ounces of silver for five years. The Company has a 44.25% participation in this project.

Regarding the AMC, the proposal to effect an all-stock business combination, as we reported previously on July 22 of that year, the Company received a nonbinding proposal from its current 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 the 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 listed on New York, Mexico and Lima stock exchanges. Once completed, SCC shares will be delisted from the exchanges.

On August 10 of last year, the Company formed a special committee of independent directors to evaluate the AMC 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.

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

Accordingly, as disclosed to the market, on April 13, 2011, the Board of Directors authorized a dividend of $0.56 per share. This dividend will be paid on May 18, 2011, to shareholders of record at the close of business on May 4.

Well, we think, ladies and gentlemen, we have finished the presentation for the conference call. Thank you very much for joining us today. I would like to open up the phone for questions.

(Operator Instructions). [Leonardo Correa], Barclays Capital.

My first question is regarding the political environment in Peru. What are expectations on the potential changes for the mining industry going forward under a more lefist regime, if that really occurs?

My second question would be regarding also the other expansion plans that you have in Peru, Toquepala and Cuajone?

Leonardo, we can't copy you, I am sorry. Could you speak a little bit louder, because we cannot copy you?

Sure, I will try. The line was very bad all around, but let me try. So first of all my question is regarding the political environment in Peru. What are your expectations on the changes for the mining industry under potentially a leftist regime in Peru? So just highlight maybe some of your updated expectations over the political environment in Peru. That is my first question.

The second question is also regarding Peru. On your Toquepala and Cuajone projects, if you have changed any of your plans regarding those projects. And how do you expect these projects evolving going forward, especially in an environment with a new government potentially, and also with all the social unrest caused by the mining industry?

Okay, the first question is regarding the future mining taxation in Peru. The second one refers to the projects of -- expansions of Toquepala and Cuajone in Peru and the current plans regarding the current political environment. Is that a fair summary of your questions?

That's right. That's correct. Perfect.

Well, regarding taxation, we are currently -- this is related to the political campaign that is going on right now in Peru. What we have seen is that at the time of the campaign several statements are made regarding mining taxation that are -- when the winner takes office, so usually it is revised, and a different position came out.

At this point we have two candidates that are mentioning that some increases in taxation for mining activities are likely in the future. But we will wait to see what happens with the elections and what the candidates are doing when in office.

Regarding the Company plans for the Toquepala and Cuajone expansions, I will ask Mr. Oscar Gonzalez to comment on those.

Yes, about the Toquepala project, we are going to continue doing the detailed engineering and the preparation of the environmental impact study to be presented at the end of May.

And in Cuajone we already buy the mining equipment in order to start doing the extra [stripping] that we will need in order to prepare the mineral to double the capacity of the Toquepala project. That is going from 60,000 that we are milling today to 120,000 -- will be a new plan of 60,000 tons per day.

In the Cuajone expansion we already spend $43 million in equipment for the mine too, although in the stripping that we need to do a change in the variable cutoff grade in order that we will have better grades in the second part of the year. Because like was explained, we have low grades in Cuajone in the order of 0.5, and then we will need to return to 0.6 or 0.7 in the last four months of this year in order to recover the production that we didn't have this first quarter.

We hope that the government or the companies (inaudible) and the government will provide the legal stability and the economic conditions in order that we can continue with that two projects. And, of course, we are going to present a reconciliation of the decision about the projecting of the environmental impact study of Tia Maria as soon as we are ready next week. I hope that will answer your question.

Yes, it does. Thank you.

Victoria Santaella, Santander.

Raul, can you elaborate a little bit more in are the risks of revising your expansion plans if Humala wins the election? I know it sounds a little bit repetitive, but it was not clear if Southern Copper will be revising the growth. And if it is possible to talk about it at this point in time.

I am talking about the operation of the Company. Is there any risk that for next year, 2012, we might see delays on the other projects' expansion? I'm not talking about Tia Maria, but the other projects that you previously have been discussing?

Regarding your first question, as we indicated by our CEO, we are expecting the next government to provide the proper conditions to develop our projects and to develop mining industry improve. That is our current position. On this we are not making any more comments about the political circumstances. We think that Peru should promote economic growth as well as mining industry as part of an important contributor of this growth.

About the expansions for next year, well, we are always reviewing our mining -- our expansion plans in light of different circumstances, and that is an ongoing task. We are not changing our plans at this point. So we are -- basically our project pipeline had been closed to the market and (inaudible).

David Radclyffe, BMO.

Just another question on Tia Maria. Just from a different angle here, if you eventually had to abandon the project if the political landscape, as you were talking about, didn't improve, maybe could you just recap for us how much of the $435 million that you invested so far you could actually potentially recoup?

Then a second question would be on the Asarco combination. I know you said that you can't provide an update in terms of a deadline, but I do understand that (inaudible) Mexico was actually targeting completion by midyear. So I was just wondering if there is any update or if there's anything new that has emerged that is holding the process up? Thank you.

Thank you very much, David, and let me direct to your first question regarding the Tia Maria project. Of the amount invested most of it is equipment, either mining equipment or plant equipment for leaching as well as (inaudible) refinery that can be eventually transferred to other projects that the Company has. So on that matter, most of the $435 million that has been invested in Tia Maria will be easily reallocated to other Company projects.

And your second question was regarding the transaction with Asarco. For that matter, the group led by independent directors was conformed (inaudible), and they are doing their work. They already hired legal, as well as financial and mining advisors. I understand that they are moving forward to come to ending their review, but they have no specific deadline to finish their work. So that is what we can report on this point on this matter.

Let me add a little bit about the equipment of Tia Maria. Yes, we have about $400 million investment, and that is mainly about $90 million in equipment for the mine that we are already using part of that equipment in Toquepala and Cuajone for the stripping. And we hope that in case that we cannot get the Tia Maria project undergoing, we are going to insist with the government and the new government in August as soon as he will take place.

Then we have the opportunity to use part of the equipment that belongs to the SX-EW plant that is at about $84 million in our two projects of the SX-EW plants in Buenavista, because they are two -- the [LV 3] and the [LV 4] that will be 88,000 tons. And the plan in Tia Maria is for 120,000 will be a little higher, but we have a lot of solutions in Buenavista in order to reach the 120,000 in the near future.

And in the case of the equipment for crushing and conveying, we can use in Toquepala expansion the primary crusher, part of the conveyor, and the secondary tertiary equipment in order to be used there.

Then, of course we're going to have pending in that case about $40 million of engineering that are almost complete -- and some of it a small amount. But mainly we will have about $350 million of equipment used in different areas of Mexico and Peru.

Felipe Hirai, Merrill Lynch.

I thank you, but our question has been answered already.

Jamie Nicholson, Credit Suisse.

Thanks for the call. What is your CapEx budget this year by quarter? Given that you spend only $73 million in the first quarter, I'm wondering when you will be ramping up your CapEx, and if you adjusted the budget downward, given the Tia Maria delay? That is my first question.

This is our budget for expansions. For the second quarter we have budgeted about $121 million. For the third quarter -- sorry, I made a mistake. This is related to the Peruvian operations. For the whole year our total budget is $808 million for the Peruvian operations, and $867 million for the Mexican operation.

We usually don't spend this on an even basis. On the first quarter of the year I explained we spent $73 million in total. We will be increasing our expenditures as we move on through the year. For the full year we have a budget of $324 million for Tia Maria. That budget will probably change because we are expecting some delays on the project at this point.

For the rest of the year we will be spending -- increasing our expenditures at the Mexican operations as well as the Peruvian operations the third and fourth quarter of year. At this point I don't have revised forecast of our CapEx per quarter for 2011.

Okay, so it sounds like you are keeping the same CapEx budget that you mentioned last quarter for this year, but that it may be revised over the course of the year if Tia Maria continues to be delayed, is that correct?

That is a fair statement.

Do you still plan to fund this CapEx out of cash flow or do you have any financing plans?

At this point we don't have specific financial plans for increasing our debt. Last year, as you recall, we issued $1.5 billion (technical difficulty) basically waiting to be spent for the project.

Okay, and then -- thank you. I notice that around 37% of your EBITDA last year came from Mexico. And given the growth that you are seeing in Buenavista, and given the comment that you made about it being a very low-cost mine, do you have a forecast or an expectation for what your EBITDA contribution from Mexico will be this year and next?

It looks like you could get close to 45% of your total EBITDA, given the production growth out of Buenavista. Is that somewhere in the range of what you are seeing for the breakdown between Mexico and Peru?

We think that -- it is always -- it is not only copper that we are talking about. We have also (technical difficulty). At this point we are expecting a relative balance between the contribution of Mexico and Peru for 2011. As Buenavista recovers we will have more contribution from the Mexican operations into our EBITDA. At this point for the forecast for the year it is a relatively balanced contribution.

Okay, and then one final question. Going forward just on this point about the uncertainties in the tax regime in Peru, do you expect that should those uncertainties remain, or you are unsatisfied with the pact that you would allocate more of your investment into Peru and focus -- excuse me -- into Mexico, and focus your growth in Mexico rather than Peru, given the uncertainties regarding the political and tax regime there?

I think that this is something that we will be deciding very quickly as soon as we have a new administration in Peru. And on that basis we will have a review on our plans if necessary, if not, we will continue with them.

Thank you very much.

Alfonso Salazar, Morgan Stanley.

Thank you very much for the call. My question is regarding color on cost increases in the quarter. I think it is going to be very useful if you can give us a breakdown on what is due to Buenaventura and may be something is due to lower ore grades or cost inflation. I don't know if you can share with us that information. Thank you.

Could you repeat your question, please?

Sure. My question is regarding if you can give us some color on cost increases within the quarter? It would be very useful if you can give us a breakdown on what is due to Buenaventura or some preparation expenses or some lower ore grades affecting your costs.

Thank you very much for the question, because it allows us to explain what has happened in the first quarter. I am sure that many of you (technical difficulty) concern about increasing the cost of operating costs and expenses. As I reported, it increased 29.7% or about $192 million in the first quarter when you compare that to the prior one -- to the fourth quarter of 2010.

The most important additional cost was about $215 million of purchased copper concentrate. Let me explain you why we had these additional costs, and the reason for these is twofold.

One is that we had a smelting capacity that is much higher that our production rate in the first quarter. We had much more capacity to smelt copper concentrate than what we had in total production. And in this case the production that we require, or the additional production that we require, is the Buenavista production and the Cuajone production.

We indicated already that Cuajone will have in the first half of the year a lower ore grade than it is trending ore grade long-term due to a change in -- or to the delay on the investment for the [IHCER] and the Cuajone (inaudible) kind of grade.

So that is one of the things. We had to buy some copper concentrate to fill in the copper level our smelter -- our smelter to fill. Which, by the way, has been operating at a very good rate during the first quarter in both Mexico and Peru.

The second reason is that we have replaced purchased copper concentrate as a part of our coppering process in our operations due to the new production of our ore copper concentrate. So the second effect, it also has also affected our costs in the first quarter of 2011.

Besides this we have some cost inflation. Fuel cost increased by $7 million in the quarter when compared to the fourth quarter. So quarter to the prior quarter our costs increased $10 million. And costs related to the Buenavista ramping up, the repairs and everything, what we have charged also was $22.3 million.

So when you add all these you have a cost increase in total, as I said, of $192 million. We have some positive (inaudible) obviously, and a cash cost increase before credit of $0.14 as was reported.

Thank you very much.

Rodrigo Barros, Deutsche Bank.

Thanks for the call. I have a couple of questions. First, if you could give us more color on how much copper concentrate you should buy in 2011 and 2012, if possible, for your [extra] smelter capacity.

My second question is on the ore grades budget for Cuajone. Since -- I mean, we are running at 0.5 and then by the end of the year we should be 0.7, as you mentioned in the call. What should we expect for 2012 in terms of ore grades? Is the deteriorating grades also a trend or maybe you have some stabilization? Thank you very much.

Thank you very much for the question. Let me start by the last one. The Cuajone operation ore grade will increase because of the project which most important benefits will show up on the second half of it where it started to show up, to be precise, on the second half of the year.

That is a variable cost -- a variable ore grade project that we have been implementing in Cuajone. And that will increase the ore grade was mentioned from 0.5 to 0.7 for the rest of the year. And in total for the next 10 years the Cuajone operation will increase by this project and another one, which can be a [leap] HPGR are far high pressure gravity wells, and the operation it will increase its production by about 22,000 tons per year. That is something that will certainly flow into 2012 as well.

I'm sorry, what is your first question?

If you could give us some guidance on how much copper concentrate you should buy 2011 and 2012?

Concentrate purchases. Thank you. For the first quarter we bought about 30,000 tons of copper from third-parties -- copper concentrate from third-parties. That copper [continues]. For the rest of the year we are expecting to buy another 8,000 tons, most of them in the second quarter of this year as Buenavista is ramping up. This is still not at full capacity until May. From there on we believe that we will be balanced between our smelting and concentrate productions and capacity.

I would like also to mention that this is not only the result of lower production, it is actually the result of higher smelting capacity and the (inaudible) operations. That year we finished by annual maintenance of our Ilo smelter, that increased its smelting capacity by about 10%.Aand that is why we are having much more demand from third-party concentrate.

As we have more normal production coming from Buenavista and Cuajone that will fill in and replacing purchased copper. Aand certainly the cost of that material -- of our own material is much lower than the cost of purchased copper.

: Great. So I will call you later to get more details on this. But thank you very much for the answers.

Sergio Matsumoto, Santander Investment.

I want to ask a question about tax stabilization agreements that you have with the Peruvian government. On this are they still current? Aand if so, when do they expire. That is the question. And what types of taxes are covered in this agreement? Are they both for corporate tax and royalties? Lastly, would the government need to revoke them if they want to introduce new taxes and royalties?

Regarding tax and stability agreements, we had one related to our Toquepala SX-EW plant that expired already. So at this point we have no tax stability contracts that are holding.

Your second question was -- I'm sorry that I --.

That's okay.

I don't have the [retention]. I am very sorry about that.

It is about what type of taxes are covered in those agreements, whether they are both taxes and royalties?

We are paying the usual Peruvian taxes, which are royalty taxes about -- that goes from 1% two 3% of sales. TheCcompany average, to give you an idea, because there are certain deductions that we can apply to that. The company average, it is about 2% of sales after you have take in the effect after deductions.

Corporate tax and Peru is 30%. And we have a dividend tax on top of that, which is 3% of profit before taxes. And there is profiteering, which is 8% of profit before taxes. That is basically what we pay in taxes.

: The last question is I just want to get an idea of how much protection you may have with these agreements, if the new government wants to introduce a new tax or royalty?

We don't have any current agreement. We are complying with laws that has to be approved by Congress. And let me mention this because it is important for all of you to know. The next Congress, which has already been elected, will not have a majority. They will have several minorities. None of the candidates that are on the runoff are having more than 30% of Congress. Actually they had less than 30%.

In order to change taxes you have to pass a law. So if you want to have, say, a new income tax that has to be approved by Congress. And Congress has been very reluctant to approve taxes -- new taxes in the past. We have to see how the new Congress will react to that, but at this point that is [our view] to tax.

(Operator Instructions). Rodrigo Heredia, IXE.

Thank you for the call. Taking into account all that you said about the increase in the cost of sales in this quarter, can we expect that the EBITDA margin could increase for the end of this year, because in the first quarter the margin is something around 52.6% versus an average of the last year of 56.1%. So I think that if you reduce the third-parties copper concentrate purchases and the weight of the fixed cost in Buenavista could be lower, you could show an increase in the EBITDA margin. Is that right?

Thank you very much for your question. Let me mention that at these prices if we keep replacing the copper concentrate from third-party by our own concentrate production, which has a much lowe cost, that would certainly increase our EBITDA margin looking forward, or moving into the second half of this year.

So I basically confer with what you said in the sense that we will increase -- we could increase our EBITDA margin as long as we have these prices and we have much more of our own production coming into the market.

As I mentioned, our guidance for the year -- it is maintained at this point. We are not buying as much -- as many copper concentrate in the rest of the year, because we had at one time effect which was replacing the copper in process at our operations that was purchased copper in the first quarter. That would not happen again in this year. That is our plan, that we don't expect it to happen the rest of the year. So we will be using much more of our own copper concentrate and less of the purchased copper.

As I mentioned, we are expecting to buy about 8,000 tons of additional copper from concentrate -- from third-party concentrate. That is a much lower number than what we processed on the first quarter, which was 30,000 tons of copper concentrate.

Okay, thank you and one more. You just said that in the case that Tia Maria couldn't go farther, the equipment could be used in other projects, Toquepala, Cuajone, or even Buenavista.

My question is if this is the scenario, and you use the SX-EW plant that you already bought, if you use it in Buenavista this could generate on a faster starting operations in Buenavista for this -- for these projects or the outlook would remain at the same time in 2013.

I think at this point we are indicating that the outlook is for 2013. If we have to change, or if we have to pull out from Tia Maria new equipment we will have to review how it fits in our plan. And it is possible that we'll accelerate a little bit our projects, but this is very speculative at this point.

Okay, thank you so much.

Mr. Jacob, I have no further questions at this time. I turn the call back over to you.

Okay, well, thank you very much to all of you for attending our conference call. And we expect to see you on the next quarter conference call for the second-quarter 2011 results. Thank you very much.

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