Southern Copper Corp (SCCO) 2011 Q2 法說會逐字稿

Good morning and welcome to the Southern Copper Corporation second-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 second quarter and answer any questions that you might have.

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

Southern Copper Corporation undertakes no obligation to publicly update or revise any forward-looking statement whether as a result of new information, future events or otherwise. All results are expressed in full US GAAP. Now I'll pass the call on to Mr. Raul Jacob.

Thank you very much, Beverly, and good morning, everyone, and welcome to Southern Copper's second-quarter earnings conference call. Participating in today's conference are Mr. Oscar Gonzalez Rocha, Southern Copper's CEO, and myself.

On today's conference call, we will begin with an update of our view on the metal markets. We will then talk about Southern Copper's key results related to production, sales, operating costs, financial results and capital spending programs. After that, we will open the session for questions.

Focusing on metal markets and prices, we think that metal markets have been affected by different macroeconomic events that are delaying the recovery of metal demand. The most important of them are the following.

The US macroeconomic problems reflected in the current debate to increase the US debt ceiling. Since the US economy is about 25% of the total world economy, any of its macro problems creates concerns in the rest of the wold.

The European debt crisis, Europe now repesents 28% of the world economy which affects the confidence of investors in the euro and the economic stability of this region. The Chinese and other emerging economies anti-inflationary programs which may reduce their respective growth.

The Japanese production disruption, the third largest economy in the world has also affected confidence in the economic recovery. We believe these worldwide macro concerns will influence the markets confidence and demand for metal during the next 12 months. On the positive side, we think the Japanese recovery is underway and this will help the world economy in metal demand in the second half of this year.

Regarding copper, our main product which represented 77% of SCC sales in the second quarter of the year, we maintain our positive outlook for these metal fundamentals during 2011. On the demand side, CRU estimated a 3.4% growth during the second quarter of this year.

This demand growth was not matched by new supply. New copper production grew by 1.4%, less than half of the required growth to balance the market. As a consequence, CRU estimated a market deficit of 200,000 tons for the second quarter and a similar figure for the recurring one.

For the rest of 2011, we believe that market fundamentals for copper will improve and we expect to have higher Asian demand coming from Japan and China. In the case of Japan which represents 5% of total copper demand, this will come from the recovery of its industrial capacity. For China, nowadays 39% of copper demand, the end of a long destocking period should increase Chinese fiscal demand in the next few months.

Regarding molybdenum, our main byproduct, in the second quarter of 2011 this metal represented 8% of company sales. We are currently seeing a soft recovery in global molybdenum production that has slightly reduced the average market price from $17.18 per pound in the first quarter of 2011 to $16.50, a 4% decrease in the second quarter. We think that this is a short-term event and still expect a relatively balanced market for this metal.

Regarding our copper production, the Company copper mine production in the second quarter of 2011 increase by 28.8% to 146,241 tons compared to 113,537 tons in the second quarter of 2010. This increase was mainly the result of 45,587 tons of copper production at our Buenavista mine formally known as Cananea that operated at full capacity in the second quarter.

The higher production of Buenavista was partially offset by expected lower production at our Peruvian and La Caridad operations. Comparing the past quarter with the first quarter of 2011, we had an increase in production of 22,048 tons or 17.8%.

For the second half of 2011, we expect an increase in ore grade at the Cuajone mine which will partially offset its lower production in the first half of this year which was basically due to the expected lower ore grades at the Cuajone operation project. [Rob cattles] and cathodes production increased by 62.7, 27.1% and 14.8% respectively in the second quarter of 2011 compared to the same period of 2010. [Rough] production increased due to higher demand, allowing the Company to gain copper premiums on top of the spot price.

Speaking about our Buenavista operation that has been in a ramping up process and has very aggressive expansion plans, as part of the new era in developing this operation; on June 6, 2011 the Confederation of Mexican Workers or CTM was granted the collective bargaining agreement for the Buenavista Union. The Company expects to work together with its employees and this worker union to develop the Buenavista property to its full potential.

After a review of required additional repairs for Buenavista, we are changing the estimated repair -- total repair cost from $114 million to $174 million. Of them we already spent $135.3 million.

The additional $38.7 million are related to major mechanical and electrical maintenance we perform through the rest of 2011. Approximately $27 million of the remaining expenses that I mentioned, $38.7 million, will be charged to operating cost and the balance will be capitalized.

Today, our workforce of approximately 4800 workers is operating the mine and plant as well as developing the aggressive growth program the Company has designed for this unit. This program is expected to increase Buenavista's production capacity from 180,000 tons of copper per year to over 450,000 tons per year, contributing to the well-being of the town of Cananea and the Sonora state through salaries, taxes and social programs.

Regarding molybdenum production, in the second quarter of this year, molybdenum production increased by 5.3% to 4502 tons compared to 4274 tons in the first quarter of 2011. This was due to the recovery of the Toquepala mine ore grade and recovery of metal in the production.

When compared to the second quarter of 2010 production, molybdenum production decreased by 18.3% or 1009 tons due to lower ore grade and recoveries at the Peruvian operations, particularly the Cuajone mine. Please keep in mind that 2011 was a molybdenum production record year.

Focusing on Southern Copper financial performance, the second quarter of 2011 sales were $1.8 billion, 54% higher than the $1.2 billion we had in the second quarter of 2010. This increase was mainly the result of higher metal prices as well as higher copper sales volumes which increased 30.2%.

When compared to the first quarter of this year with the exception of zinc, all metal sales volumes increased. Copper volumes increased by 16%, molybdenum and silver volumes by 7%, gold and minor byproducts for Southern Copper by 43%, lead by 6% and zinc volumes sold decreased by 3%.

Regarding copper hedging, swap contracts are hedging approximately 32% of the remaining 2011 copper production at an average price of $4.08 per pound. Zero costs collars are hedging approximately 30% of the remaining 2011 copper production with an average floor price of $3.02 per pound and an average cap price of $4.84 per pound.

The remaining 38% of copper production is unhedged and prices will fluctuate with the market copper price. With these hedges, the Company is benefiting from the current copper prices up to 68% of its total copper sales while obtaining insurance for the remainder of its production at an average of $4.08 per pound.

For 2012 the Company hedged approximately 13% of the first-quarter copper production through zero costs collars with an average floor price of $3.50 per pound and an average cap price of $5.18 per pound. Our total operating cost and expenses have decreased by 4% or $36.5 million when compared to the first quarter of 2011.

The most significant cost reduction was $204 million in purchased copper concentrate that was replaced by our own copper concentrates production mainly from Buenavista. We don't expect to require significant amounts of third-party copper concentrate in the near future.

Besides this significant cost reduction, we had some cost increases due to the higher production at Buenavista and cost inflation. The main cost increments were in fuel, power, labor, and workers participation.

Other costs and inventories variances account for the remaining difference. As a result of the previously mentioned sales and operating costs, EBITDA for the second quarter of 2011 was $1.1 billion. This figure was 78.8% higher than the $603 million in EBITDA that we have in the second quarter of 2010.

Southern Copper operating cash costs including the benefit of byproduct credits was $0.367 per pound in the second quarter of 2011. This cash cost compares to $0.243 of cash cost for the first quarter of this year.

The Company's second-quarter operating cash cost per pound of copper produced before byproduct credits was $1.67 per pound, the same cost as in the first quarter of 2011. The positive production increase from our Buenavista operation absorbed the cost inflation coming from higher energy and labor costs as well as exchange rate appreciation.

Regarding byproducts, we had a total credit of $409 million or $1.31 per pound in the second quarter of 2011. This figure compares with a credit of $379.5 million or $1.42 per pound in the first quarter of 2011.

We had $30.1 million or 8% increase byproduct revenues in the second quarter. However, when we divide the higher byproduct sales by the even higher copper production that we have of 313.1 million pounds of copper produced by our operations in the second quarter, this 18% increase in copper production results at the end in a reduction in the per pound credit of $0.11 per pound of copper.

As a result of the better market prices and higher copper volume from Buenavista, net income attributable to Southern Copper shareholders in the second quarter of this year was $658 million or diluted earnings per share of $0.78. This figure compares with net earnings for the second quarter of 2010 of $313.4 million or diluted earnings per share of $0.37, a [103%] increase.

Focusing on the Company expansion and capital products, the Company's capital expenditures in the second quarter of 2011 were $110.7 million. The Mexican projects, the crush and conveying and spreading system for the SX/EW production project at Buenavista is moving forward.

Construction of the crusher building and [early work] for conveyor platforms is advancing as scheduled. Overland conveyor and spreader installation will begin in August.

Regarding the SX/EW 3 plants at the Buenavista mine, [detail] engineering and acquisition of major equipment continues as planned. The Company has selected an engineering procurement, construction and management or EPCM contractor.

This SX/EW facility will produce 88,000 tons of copper per year with expected startup in the second quarter of 2013. The 2000 ton per year molybdenum circuit for the concentrator -- for the current concentrator of Buenavista, it's in the equipment purchasing stage under an EPCM contract.

The new concentrator with the milling capacity of 100,000 tons per day is in process as scheduled. The EPCM contract has been signed and flow sheets have been established.

The Company has received several supplier proposals for the main equipment which are being evaluated. As indicated before, the new concentrator would have an estimated handling capacity of 188,000 tons of copper and 2600 tons of molybdenum.

The required infrastructure for this project include power, water, roads, shops, laboratories, town sites etc. has been established in the master plan and is being developed as scheduled. The Pilares mine site, close to the La Caridad mine, is being evaluated. As of June 30, 2011, 16,500 meters of drilling has been taking place, access roads were developed and metallurgical testing and preliminary mine planning has begun.

Regarding the Peruvian projects; through June 30, 2011 we have to spend $128.2 million on the Toquepala expansion, mainly on mine equipment. The inclusion in the project of 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. As a result of this review, the environmental impact assessment is expected to be presented during the third quarter of 2011 with the project completion scheduled in the second half of 2013.

Through June 30 of this year, we have also spent $45.7 million in Cuajone expansion projects. The purchase of mine and ancillary equipment to support the work to optimize the Cuajone mine is in process. As part of the expansion plans, the project contemplates a variable cut-off grade methodology which will begin increasing copper and molybdenum production in the second half of 2011.

With respect to the Tia Maria project, the Company plans to readdress the project with the new government and is confident taht good investment conditions, stability, social inclusion and growth will prevail in Peru. The Tantahuatay project is located in Cajamarca in Northern Peru.

In 2010 we began development of this project to exploit its gold cap. The Tantahuatay project contains estimated resources of 27.1 million tons of mineralized material with an average silver content of 13 grams per ton and 0.89 grams of gold per ton of mineral.

We expect to start [the grade] gold production by the third quarter of 2011. The project is expected to have an annual production of 90,000 ounces of gold and and 425,000 ounces of silver for five years.

The Company has a 44.2% participation in this project and the remaining balance is owned by Compania de Minas Buenaventura and others. The Company's capital expenses during the first half of 2011 were $183.6 million.

For the current year we're now estimating capital expenses of approximately $700 million. The approved capital budget of $1.7 billion for 2011 has suffered a delay due to the suspension of the Tia Maria project and the mentioned change in the scope of the Toquepala mine expansion. Regarding the Mexican investments, we have already committed $477 million, a portion of which will be spent in 2011.

As you know, on July 22 of last year, 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 [SPCC]. 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 listed on the New York, Mexico and Lima stock exchanges. Once completed, SCC or Southern Copper shares will be de-listed from these exchanges.

On August 10 of last year, 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 proposals. There is no specific deadline for this process. Currently the independent directors special committee is still evaluating AMC proposal.

On July of this year, July 28, the Board of Directors authorized an increase in the share repurchase program from $500 million to $1 billion. The Board also confirmed the Company's acquisition of 4.6 million shares of its common shares at the cost of $148 million in June of 2011.

The average price paid per share was $32.32. The Company undertook this action to protect the share price considering the relatively low valuation of Southern Copper stock due to the recent share price and market volatility.

Regarding dividends, as you know, it is the Company 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 dividend.

Accordingly, as disclosed to the market on July 28, 2011, the Board of Directors authorized a dividend of $0.62 per share. This dividend will be paid on August 31 of this year to shareholders of record at the close of business on August 17, 2011.

Well, with this in mind, ladies and gentlemen, thank you very much for joining us and we will like to open up the forum for questions.

(Operator Instructions) Leonardo Correa, Barclays Capital.

My first question is related to the outlook for the mining industry in Peru. Just wanted to know how the taxation conversations with the government have been evolving, and also what are your views on the potential changes in the taxation of the country?

My second question is relating to the strike activity of the entire copper industry. We have been seeing recurrent strikes around the world impacting the major mines.

Could you please disclose how the relationship with your workers has been evolving and what type of steps are you taking to mitigate these risks? And also if you can more specifically give us color on the relationship at Buenavista, that would also be excellent. Thank you. Those are my two questions.

Thank you very much for your questions. Regarding talks with the Peruvian government, basically we think that the government will establish a taxation that will maintain the cost competitiveness of the mining industry in Peru. At this point, we have not much to report on this matter. The Mining Society of Peru has started talks with the government and we are expecting a positives results on that matter.

Regarding labor relations, in general terms we have currently one of the best work environments for our labor force being in all of our operations. For the Peruvian operations, we have a three-year labor contract. Actually one is a six-year contract, but it's in the middle of the period now. And the other one was signed last year, it is a three-year labor contract.

Regarding the Mexican operations, we have not much to report other than what we mentioned about the Buenavista union being formed and operated by CTM which is a union different than the one that we have for the La Caridad operations. We think this is a healthy measure for our Company to have different unions that are reasonable and respectful of all of the agreements that we have in general terms. And your third question, could you remind me what was it, please?

No, those were basically the issues. You addressed both issues.

One was regarding the potential taxation outcomes in Peru. The other one was regarding the labor and strikes around the world, how have you been protecting the Company from these issues.

Okay, thanks.

Carlos de Alba, Morgan Stanley.

I just wanted to see if you can give us an update on your volume guidance for corporate and molybdenum this year and next year and the level of confidence you have in the implementation of the growth projects you have mentioned. And second, you can also comment on the cost guidance or the cost outlook you have for your operations in terms of pounds per copper before the benefit of byproduct credits given all the cost pressures and inflation that we are seeing around the mining industry. That would be my two questions, thank you.

Okay, let me focus on the production guidance and cost and then I'll ask Mr. Gonzalez to comment on the project.

Regarding the guidance for 2011, we mentioned before that it was 630,000 tons of copper. Of those, about 5.7% of them will be copper from third parties.

Considering the current production trend and adjusted plans, we're maintaining our annual production guidance but increasing a little bit the total share of third-party's copper from the mentioned 5.7% to 7.7% as a result of lower than expected Cuajone production due to ore grades. This is something that will be -- will start to correct as we move on into the third and fourth quarter of this year.

So we're keeping our guidance and we are expecting some more tonnage coming from the Cuajone operation. As you all know, Buenavista is now operating at full capacity.

Regarding the molybdenum production, we're expecting to have a molybdenum volume of 17.5,000 tons in 2011. For the next years, what we are expecting is as we get into the develop of the projects, we are expecting to increase our production accordingly to the project startup. I will make a comment on that later on.

Regarding the cash cost before byproduct credits, basically we had a higher cost of inflation that somehow eliminated some of the savings that we achieved through the Buenavista operation. Overall we reduced our total cost by $36 million as we reported but we had a little bit of cost inflation.

Let me mention the main cost increments were in fuel. We had $12.1 million of higher costs when compared to the prior quarter, so the first quarter of 2011.

In power, we have $20 million of additional cost; labor, $6.3 million; workers [participation] is $6.6 million and other cost and inventory variances account for the remaining difference. Could you comment on the project, Mr. Gonzalez, please?

Yes, about the Mexican operation or Mexican projects, we have in Buenavista mainly the mine new concentrator 100,000 tons that you mentioned at the beginning. That is just in the studies of basic engineering and we are thinking that will be ready by the first quarter of 2015.

The SX/EW plants #3 and #4 are going to be together for 88,000 tons like was mentioned and that will be ready by 2013, the first semester of 2013. The [cave of lakes] for that, that is the conveyor system, will be ready maybe by the middle of 2012 in order to start the inventory in the areas that we are going to reach, in order to be prepared for the production when the plants will be ready.

The molybdenum plan for 2000 tons of moly will be ready in the fourth quarter of 2012. It's under engineering too.

And about La Caridad, the other mine, open pit mine in Mexico, Pilares will be maybe ready until the first or second semester of 2013 and we will have about 10,000 tons of molybdenum and 150,000 tons of copper that we will produce from Pilares and La Caridad together.

Other projects I think that will be ready too between 2012 and 2013, for the total investment of $3.7 billion that is already approved and that we are spending that, if we talk about the Peruvian projects, Toquepala mine expansion, we already presented the environmental impact study to the government in the month of July. We're expecting that they will revise that and give all the observation in order to answer that and be able to start the construction of the expansion that we already defined that will be 60,000 tons additionally of the 60,000 tons of milling capacity that we have and that will give us 100,000 tons of copper [fine copper].

We are expecting that that will be ready for the first semester of 2013. We are about more than 65% in terms of the engineering for that mine and ready for starting construction like I mentioned when we get the approval of the environmental authority and when we will have the public hearing with the communities. About Cuajone, we are in the [good grade] variable of the study and we are doing it with the company in the states, the engineering, in order to see if it is feasible to -- we're thinking that we can go to 105,000 tons or to 120,000 tons from the 85,000 that we are milling today in order that that will be ready by the first semester of 2014.

Tia Maria like was mentioned, we [already talked to] the government. We are expecting that maybe at the end of this month in the second part of this month we will talk with the minister of mines in order to see how we are going to proceed. We present all the observations that was presented to us to them, and we hope that we can use the same environmental impact study.

And if not, we will need to present a new one using like was mentioned the water from the sea with the desalinization plants and the plan -- the SX/EW plan is a closed circuit. We will not have any problem with the environmental issues that were mentioned by the community in the first part of this project that we cannot proceed like we expected.

All the rest is just maintenance and replacement of equipment and we have about $2.6 billion investment for all these projects that was mentioned. I hope that will answer your question, Carlos.

Thank you very much, Mr. Gonzalez. Just how realistic it is that Tia Maria can be -- can come back on schedule given that -- my understanding is that it wasn't necessarily the government who postponed the project. It was the community and the environmental study was presented and it addressed most of the environmental issues that the UN Commission had highlighted. So how realistic is is that the community will now accept Tia Maria when it didn't before?

Well, we are very optimistic and we think we answered all the questions that the community, the universities and the organism of the ONU was presented to us by the minister of mines. We hope that the government -- the new government will help us and together, we can convince the community in order to start the projects as soon as is possible, maybe before the end of the year.

Felipe Hiari, Bank of America Merrill Lynch.

Could you please confirm what's your production guidance for 2012 if you assume that you don't have any production coming from the new projects? Just wanted to estimate what could be the impact from the higher ore -- the recovering grades from Cuajone.

Okay, thank you very much for your question, Felipe. We consider our current guidance of 630,000 tons for 2011 and the recovery of the Cuajone operation for 2012, we're expecting production in the range of 660,000 tons of copper for 2012.

That would not include any acquisition of concentrates from third parties, Raul?

There is some included in that, about 20,000 tons. So our own production will be 640,000.

To that, you have to consider not only the recovery in the Cuajone ore grades that will increase or recuperate the production at that operation, but also that we will have a full year, a full capacity Cananea production. We are rescheduling the startup of the Toquepala expansion as was mentioned by Mr. Gonzalez to the first half of 2013. That changed a little bit our production profile for 2012.

Let me add to what I just said, that we're expecting to increase our production for 2013 to 850,000 tons of copper. That will include the startup of the Toquepala expansion as well as a portion of the Tia Maria production. And after that in 2014 and 2015, we will be over 1 million tons of production.

Okay, Raul, thank you for that. My second question is related to your cost.

So could you just explain to us what kind of cost inflation do you expect to have over the next few quarters? Or do you expect to see any kind of cost reduction because of -- if you have any like reduction in the acquisition of concentrates?

Well, as we replace our own third-party's copper concentrates by our own concentrates, that certainly reduces our operating cost. However, we're seeing some cost pressures coming from fuel, power and labor cost mainly.

In the case of fuel, obviously this is something that has eased a little bit considering recent trends on fuel prices. Regarding power, that also -- it's been influenced by lower fuel costs.

On labor and local purchases, what we are seeing in both Mexico and Peru, it's some local currency appreciation and that certainly increased our dollar cost. However, we believe that as we put in more production of our own, that we will have a marginally lower cost as our own average cost.

That will certainly improve the cost profile for the next year and for the rest of 2011. However, there are forces that are pressuring for higher cost and these are the ones that are tending to reduce operating costs. So all in, we expect to have a cost in the range of where we are or a little bit lower than this for the rest of the year.

Okay, Raul, if I may ask one final question, how should we think about the shareholders return for the next few quarters as you now have your -- you increased your buyback program but you're also paying dividends and you're also going to increase your investments for the next few years? So how can we think of this balance of paying dividends, doing buybacks and investing?

Well, regarding the buybacks, the Company decided to increase the buyback program considering that we were having -- a different special circumstance in the market.

On dividends as you know, this is a matter that is review and result at each quarter at the Board meeting, the Company has shown a practice of sending any free cash flow to shareholders. But obviously if we're going to increase our CapEx in the next few quarters, we will certainly have to review our cash position and that is something that will be discussed at the Board level.

Rodrigo Barros, Deutsche Bank.

Thanks so much for the call, a couple questions. First one on the share buyback increase that went up from $500 to $1 billion, I wonder -- how can I say -- in terms of speed -- I mean the stocks were selling off in terms of concerns on the US or -- I wonder if you can tell me anything more about how fast you want to implement these.

And my second question would be on Tia Maria again. We definitely -- at least we're hearing that the government wants to be more -- I would put this between quotes -- more friendly with the mining companies. At least that is the feedback we're getting.

I wonder in terms of redoing the environmental assets, redoing some engineering calculations, how long do you think it would take to redo the calculations? I think that to present a new program, we're talking about a one-year delay or less than that or more like two years delay? Thank you very much.

Thank you for your question. Would you like to comment on that Mr. Gonzalez?

Yes, about the Tia Maria like I mentioned, we think that we can get the project approved with the environmental impact study that we have already presented or with a new one by the end of this year. And the construction period that we expect in order to produce will be close to 18 a month.

That means that for the first semester of 2013, we will be in a position of producing the 120,000 tons that the plant can produce. That is our thinking and we hope that we can accomplish and we don't foresee any major problem within that.

We are already working with the community meanwhile the new government takes his position. And like I mentioned, at the end of this month in order that they will be ready for talk about this and that they are already with all of the implementation of the offices for the minister of mines, we will talk with them and see how that will be addressed by them and by us with the community in order that we can start the construction. Like I mentioned, we are ready to start the construction.

We have part of the equipment of the mines that right now we are using in Toquepala and Cuajone since some months ago. But that is easy to take back to Tia Maria.

Rodrigo, regarding your first question on the share buyback program, basically by its nature, we want to -- the intention of this is to support a reasonable price for our shares given the [deep implications] of the strategy that the Company wants to pursue in this, we can't comment any additional more details on that.

Thank you, Raul. If I may, just one more question. I think we discussed in the past the hedging strategy of the Company to a large extent was to guarantee cash flow for the ongoing operations for the CapEx.

Do you think that now that it's clear that CapEx will be much lower than expected in the year, you don't have to do additional hedging in the year? And following on the question, do you also think that when investment programs really start to occur that you will have to work with a higher hedging ratio than the 35% that you have right now?

I think that the same principle applies here, Rodrigo. I'm sorry we can't comment on the Company's strategy regarding hedging. As you know, the main principle here is to defend our revenues. This is always short-term and we are applying this strategy as we feel it is necessary.

Jamie Nicholson, Credit Suisse.

I have two questions. The first one relates to your outlook for CapEx.

You mentioned $700 million this year is your budget, and I know that your projects in Peru are still uncertain on the timing. But can you give us a sense of what you plan to spend -- at least what you know you will be spending in Mexico over the next several years, 2012 to 2015? And also how you plan to finance that if you feel that your cash generation is strong enough to finance your three- to five-year CapEx budget internally or if you expect to raise financing for that? That is my first question. Thanks.

Okay, thank you very much, Jamie. And regarding CapEx, as we indicated, we are reducing our budget for this year to $700 million. This is more like a forecasted budget. It's still what it is.

But that basically pushes 2012 [and on] some more capital expenditures since the total capital program for the next few years, the next four years and 2011, five years, it's $5.5 billion. So let me summarize what we're forecasting at this point.

Our total CapEx program for the year 2011 through 2015, it's $5.5 billion. And currently our forecast is as follows.

For 2011, $700 million; for 2012, $2.2 billion; for 2013, $1.3 billion; for 2014, 800 million; and for 2015, $500 million. And these figures include maintenance CapEx in the range of about $200 million per year.

That's very helpful. And that $2.2 billion expected next year, is that something you feel you can finance with your cash and internally generated cash flow or is there expectations to fund that with additional debt?

Well at this point, we're expecting to finance those expenditures with our cash position as well as the cash flow generation of the Company we will do in 2012.

Okay, great, thanks. And then my second question relates to the big increase in your working capital in the second quarter, and I understand that some of that was due to tax payments and worker profit-sharing.

But I also noticed there was an increase in inventories as well as it looks like a revision of your inventory figures from the prior period upwards. Is that -- can you elaborate a little bit on what related to your increase in inventories and in accounts receivable?

Was that just more related to your growth in production or do you expect that to stabilize at these levels? Any other comments on kind of your accounts receivable and inventories would be helpful.

Certainly, Jamie. Well, as you well pointed out, our working capital increased in the second quarter of this year. It was -- there was a draw in cash flow of $543.3 million due to working capital variances and those are -- break down as follows.

We had an accounts receivable increase of $132 million. Inventories grew by $68.4 million. Those two were directly related to the increase in production from Buenavista basically.

And I think that this is basically the initial inventory and supply that you need to have in order to operate at an appropriate level. So for the next few quarters, we don't expect this to happen again.

We believe that we have a reasonable inventory level and -- well, we have besides this -- a most important variance in working capital was something that is usually happening in the second quarter of the year. We had an increase in payments related to taxes and profit sharing.

Those two payments are usually due at the beginning of the second quarter of the year. We did that particularly on the profit-sharing which is paid once a year. We did that on the second quarter and that represented a significant reduction in cash flow.

Now on this matter, we will have a positive cash flow figure for these two variables since this is an annual payment for the rest of the year. So for the third and fourth quarter considering current prices and the production outlook that we mentioned, we should have a little bit of a positive variance in working capital regarding taxes and profit sharing. As I mentioned, they are paid once a year in the second quarter.

Great, thanks very much. That's very helpful color. Thank you.

Alex Hacking, Citibank.

I have a couple of follow-up questions. First one -- but both relate to CapEx actually. The first question is the $2.2 billion you're considering to spend next year, how much are you assuming from Tia Maria in that number?

And then a second question is regarding inflation in CapEx and how comfortable you are with the budgets. In the last few months we have seen projects that were conceived only two or three years ago with budgets up 30 to 40%, at Pascua Lama and so on. When was the last time you reviewed the budgets for your projects, your $5.5 billion to $6 billion and how comfortable are you with those CapEx estimates? Thanks.

For the Tia Maria budget for 2012, we are estimating a little bit north of $400 million. From cost inflation on capital goods, we are certainly seeing some of that as we have some pressure to develop the projects. I don't know if -- Mr. Gonzalez, would you like to comment on that?

Really in Tia Maria, we think that we will be maybe like you mentioned around $400 million or a little less than $400 million because we need to remind you that we already compromised and we already spent close to $400 million in that project. And if it's $1 billion, then the $400 million in 2012 will give us a remaining of $200 million for the 2013 beginning of the year like we mentioned that one we will have ready in the first semester the production for Tia Maria.

I think that that will give us the total amount of $1 billion and we think that that is the cost that we have by sure because we already have finished in the engineering by 98% and then we already [for construction at least] what is pending really and the delivery of the equipment that are already in some places of the -- where the fabricators are storage for us. I don't know if that answers the question or what.

Yes, if I could just follow up. I guess when were the budgets for the projects last reviewed? And are you planning to review the budgets anytime coming up? I guess I'm asking how likely is it that we find out that the CapEx budget is going to need to be raised?

At least for Tia Maria, we don't foresee like I mentioned any problem in any variance. In the Toquepala we have approved by the Board $600 million.

Maybe we will be a little higher according with some changes that will be in the location of the plant in order that -- improve the capacity from 40,000 to 60,000 more milling capacity. But I don't think that will be more than $150 million more in order to go from 600,000 to 750,000.

In the case of Cuajone, and continuing with Peruvian projects, we don't have a figure yet because we only have approval by the Board $300 million and we think that it is going to be more than that as soon as we finish the basic engineering and the decision to go to 120,000 milling capacity. It's still 105,000 that we have at the beginning for the $300 million.

Besides the Mexican projects, I think that the only one that is pending to find out the exact amount of investment is the new concentrator or 100,000 tons of milling capacity that is under the basic engineering. And we don't have still an exact figure, but the SX/EW plant, the moly plant with the amount that was mentioned by Raul, and we don't have any doubt that that will be that amount of investment for that project in the Buenavista unit.

Let me add that for several of our projects, we did put purchase orders a couple of years ago. In the case of Buenavista, some of the equipment was already purchased in 2006 and 2007.

So we basically fixed somehow the capital cost of those projects to some extent. As indicated by Mr. Gonzalez, the Buenavista new concentrator is the one that has the has no specific commitments from our suppliers. So on that one, we may have some cost inflation on the capital goods.

Thanks, it's very helpful.

Rene Kleyweg, UBS.

I think most things have been touched on and I jumped on the call a little bit late. So apologies for that if this was already covered in the introduction.

But could you just give us any -- could you quantify the amount of third-party concentrates that you treated in the second quarter or that were sold in the second quarter? And also in terms of hedging, the previous disclosure that you provided has been removed from the release. Could you give us an update on where you are with hedging? Thank you.

Yes, Rene, thank you very much for your questions. On hedging basically, we are maintaining our -- the same position that we indicated on the past quarter.

About 32% of our remaining 2011 production, it's hedged at the $4.08 per pound. 30% it's with the zero cost collar that goes from $3.02 per pound up to $4.84 per pound. So about 68% of the Company's sales are covered with some -- are basically enjoying the current market prices and the rest, 32%, is protected at $4.08 per pound.

And regarding the third-party's copper concentrates, we basically increased that figure from about 30,000 tons in the last quarter to 48,000 tons which is our current estimate for the rest of the year. So we are increasing about 18,000 tons our third-party's copper concentrates for 2011 in total.

But in terms of what was included in costs for the second quarter, do you have an indication of the impact of treating third-party's, what kind of volumes were involved in terms of second-quarter sales?

About 12,000 tons, Rene.

[Tim Jury], AIG.

Thanks for the informative call. I was also late getting on the call. Did you update on the status of the discussions with Americas Mining about the merger?

Well, just -- what we reported is that the special committee is still reviewing this matter. We think we should have some news during the third quarter but that basically is where we are now.

(Operator Instructions) Santiago (inaudible) GBM.

My question was also regarding the AMC transaction, if you could give us any more details on times or I don't know, where you're standing. But I think it was already answered, thanks.

Yes, we already answered that, Santiago.

Thank you for your time and congratulations on this great report.

Thank you very much.

Dan Richmond, private investor.

My question relates to the Buenavista labor contract. Can you disclose or will you in the 10-Q the significant terms, the length, whether there's any built-in wage increases and whether there is a no-strike clause as in your Peru contracts?

Well, the Mexican labor contracts are different than the Peruvian ones. I think in this case basically in Mexico, mandated by law you need to discuss salaries each two years.

And we are considering and we are including in our labor contract some productivity incentives and we expect them to work nice. They have worked for our Caridad operations in Mexico as well.

So we are basically very positive regarding these labor contracts. Also it's important that we have now an established union to deal with because that will certainly help the Company relations with the labor force of Buenavista.

Dan Stewart, Raymond James.

I am trying to write as quickly as possible but I missed with regard to your buyback how many shares you had purchased at this point and what your average cost was.

Thank you very much for your question, Dan, and let me focus on that. We purchased 4.6 million shares at a total cost of $148 million. That is an average price of $32.32 per share.

(Operator Instructions) There are no further questions at this time.

Well, with this, we finish our conference call for the second quarter and first half of 2011 results. We thank you very much all of you for participating in the call and we expect to have you on the next quarter or when we have news on the Company. Thank you very much for today.

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