Southern Copper Corp (SCCO) 2012 Q2 法說會逐字稿

Good morning, and welcome to Southern Comfort -- Copper Corporation's second quarter and first six months 2012 results conference call. With us this morning we have Southern Copper Corporation Mr. Raul Jacob, CFO of Peruvian Operations and Investor Relations of Southern Copper who will discuss the results of the Company and for the second quarter and the first six months of 2012 as well as 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 do 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. Please go ahead, sir.

Thank you very much, Michelle, and good morning to 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 Mr. Daniel Muniz, Grupo Mexico's CFO. In today's conference call, we will begin with an update of our review of the metal markets. We will then talk about Southern Copper's key results related to production, sales, operating costs, financial results, expansion projects and capital spending program. After that, we will open the session for questions.

Focusing on the metal markets and prices of the metal that Southern Copper produce, during the first half of 2012, metal markets continued to be driven by negative macroeconomic events that affected consumer expectations. The most important ones were being Europe's debt crisis, particularly the problems in Spain and Italy, and the possibility of a slowdown of the Chinese economy. Even though we believe copper from the [mountains] are sound for 2012, the [mine] has been repeatedly negatively influenced by the macro outlook for Europe and China. At present, we perceive a difference in the situations of the Asian markets and the developed markets. In China, several sources point to a growth in demand of approximately 7% to 8% for this year, and that is for copper, which should give support to the market of copper in the next few months.

In the United States and Europe, although demand is weak, inventories are extremely tight and we see them increasing to more normal levels over the next 12 months, particularly in the United States. Demand from emerging economies are also growing, and this is somewhat offsetting the weaker consumption in the European and United States markets. [CR view] currently estimates that there will be a total refined copper demand growth of 3.5% for 2012. If we consider global copper demand of about 19.3 million tons per year, this will represent approximately 675,000 tons of additional refined copper demand. On the supply side, production has under performed badly in 2012 due to labor unrest, power shortages, weather conditions and [four great declines]. All of these events are still continuing, constraining supply and maintaining a tightness in the copper market. Currently, CR view estimates our supply growth of less than 0.5% -- less than 1% for the year 2012.

Focusing on the Company production, in the second quarter of 2012, copper mine production increased by 10% to 160,595 tons, which compared to [146,000 tons and 240] in the second quarter of 2011. This increase was a result of higher production at our Cuajone operation that increased its production by 31% compared to last year. La Caridad lost 13% and Buenavista lost 5%. All of them have better ore grade and recoveries in this past quarter. Regarding molybdenum production, it increased by 4% in the second quarter of 2012 when compared to the same period of last year. Again, Cuajone production was 43% higher, La Caridad 10% higher, and the result was mainly -- this was mainly the result of higher grade on recoveries.

Regarding silver, silver mine production increased by 10% in the second quarter, principally as a result of higher production at our Cuajone and Buenavista operations, as well as La Caridad. Refined silver increased by 9% to 3.5 million ounces, and that figure compares to 3.2 million ounces in the second quarter of 2011.

Focusing on our financial results, for the second quarter of this year, sales were $1.7 billion, 8% lower than the $1.8 billion we had in the second quarter of 2011. As a result of improved operating performance, we were able to offset some of the effect of lower metal prices in the second quarter of 2012, vis-à-vis the second quarter of 2011, with increases in sales volume. Copper change volume increased by 7%, silver by 25%, molybdenum by 2% and zinc remains equal. These increments in volumes sold -- partial sold, partially offset the lower prices for copper. For instance, copper prices decreased by 14%, molybdenum prices by 17%, silver by 23% and zinc by 15% in the second quarter.

Going into operating costs, our total operating costs and expenses have decreased from $833 million in the first quarter of this year of 2012 to $784 million in the second quarter of this year, a reduction of $49 million, or 6% in operating costs. Lower energy costs, lower workers participation and lower inventory consumption were the main reasons for these cost reductions, and they were partially offset by the cost of third-party copper and other cost variances.

EBITDA for the second quarter was $972 million with a margin of 58.6%. Our operating cash cost per pound of copper before [the cost] of trades was less $1.71 per pound in the second quarter of 2012. This compares with $1.82 per pound in the first quarter. The $0.11 per pound decrease in operating cash costs results from the already mentioned cost savings. Southern Copper operating cash cost, including the benefit of byproduct credit was $0.59 per pound. Regarding byproducts, we had a total credit of $388 million, or $1.11 per pound in the second quarter of this year. These figures compare with the current rate of $424 million, or $1.30 per pound in the first quarter of 2012. The lower byproduct credit results from a reduction in byproduct prices, partially offset by higher sales volume in molybdenum, silver -- and silver when compared to the first quarter.

Net income attributable to (inaudible) holders in the second quarter of 2012 was $563.5 million, or diluted earnings per share of $0.66. In the year 2012 -- before the year 2012, our Board of Directors approved a $1.5 billion capital expenditure program which are being used with our projects in Mexico and Peru, as well as for maintenance and replacement capital. The projects for Buenavista are composed by our Quebalix project and molybdenum plant and new SXEW plant and an expansion of our Buenavista mining -- conventional mining facilities. The Quebalix project overall progress, it's at 98%, and this facility will begin operating in September of this year. Through June 30, 2012 we have invested $71 million of the $77 million budget. This investment consists of a crushing, conveying and spreading system that improves that SXEW copper production by increasing recovery and reducing the required time to extract copper from mineral. In the case of the molybdenum plant, the construction of the plant, it's at a level of 48% of progress. The project has a budget of $38 million and is expected to begin operations in the first quarter of 2013. It will produce two --

Ladies and gentlemen, this is the conference operator. Today's conference is having a few technical difficulties. We will commence shortly. Thank you for your patience.

Ladies and gentlemen, my apologies for this interruption. We are experiencing some technical problems with the carrier of the conference call. Let me recap starting by expansion and capital projects.

As I said, the Board of Directors approved a $1.5 billion capital expenditure program for 2012, which are being used for our project in Mexico and Peru as well as our maintenance and replacement capital. Regarding the Buenavista projects, the Quebalix projects, overall progress is 98% and this facility will begin operation in September of this year. Through June 30, we have invested $71 million of the $77 million budget. This investment consists of a crushing, conveying and spreading system that includes the SXEW copper production by increasing recovery and reducing the required time to extract copper from mineral. The construction of our molybdenum plant for the current concentrator in Buenavista is at 48% progress. The project has a budget of $38 million and is expected to begin operations in the first quarter of 2013. It will produce 2,000 tons of molybdenum contained in concentrate.

The SXEW III plant is also at the Buenavista mine, is moving forward. Plant equipment from Tia Maria is to increase the annual plant capacity from 88,000 tons to 120,000 tons. Basic engineering was multiplied by the supplier to include the construction of an additional conveyor line. Overall progress of the project at the end of June is 31%. The new plant should begin operating in the first half of 2014 and have a total budget cost of $444 million. The Buenavista mine and expansion project includes mine equipment acquisition and a new concentrator with an estimated annual production capacity of 188,000 tons of copper and 2,600 tons of molybdenum. This project has a capital budget a $1.4 billion, and it is expected to be in operation by the first half of 2015.

Regarding mine equipment, through June 30 of this year, we have committed $307 million in purchase orders for the acquisition of 5 shovels, 41 trucks, drills and other mine equipment. Basic engineering for the new concentrator is completed. Indicating engineering and equipment acquisition are moving forward as scheduled. The bidding process for the steel construction and moving equipment has conducted. Overall, progress of the project on June 30 is 22%.

The Angangueo project, which is a zinc polymetallic deposit in Michoacan, Mexico. It is moving forward and is scheduled to develop this underground mine. It has an estimated investment of $131 million. In Angangueo, we have the potential annual production of 10,400 tons of copper, 9,700 tons of zinc and 3,900 tons of lead. The project is scheduled to being operated -- to begin production in the first half of 2015.

Through June 30, we have spent $212 million in the Toquepala project that the Company is undertaking. These expenditures include a new crusher and a conveyor belt system to replace rate hauling and other costs which will allow for future savings. Subject to obtaining the appropriate permits, the Toquepala expansion is scheduled to start production in the first quarter of 2014. This project will increase our production by 100,000 tons of copper and 3,100 tons of molybdenum. For Cuajone, as of June 30, 2012, the Company had to spend $113 million on two projects related to this unit. The variable cap for rate project and the high pressure grinding rolls project. Current production is showing the initial benefits of variable cap project which will be at full capacity with the high pressure grinding rolls by the third quarter of 2013. These two projects together should have an average of 22,000 tons of copper contained and 700 tons of molybdenum to Cuajone and on production.

Regarding the Tia Maria project, we continue to work on a new environmental impact assessment that will address resin [gore] and guidance on these studies in order to reach an agreement that is fair and totally satisfactory to all parties. For the Tantahuatay investment, the Company has is a joint venture with Buenaventura, we started production on this project in August of 2011. And in the first month of this year, 2012, the mine has produced 66,700 ounces of gold and 418,000 ounces of silver. And the six months of the year 2012, we have recognized $24.7 million in earnings per our share of the net income of these mines. 1,000 copper share of this investment is 44.2%.

Regarding dividends, as you know, as 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 26, the Board of Directors authorized a cash dividend of $0.22 per share -- 24, excuse me, $0.24 per share of common stock payable on August 28 to shareholders of record at the close of business on August 15. So with this in mind, ladies and gentlemen, thank you very much for joining us, and we would like to open up the phone for questions.

(Operator Instructions)

Carlos de Alba, Morgan Stanley.

Thank you very much. I would like to ask three questions. The first one is on the sustainability of the lower cost that we saw in the second quarter. Clearly a very good performance that underpinned the results. But you mentioned reduced work participation and reduced energy costs as the main pillars of the decline. Can you comment a little bit about what you are seeing in the third quarter and to what extent these reductions are sustainable?

The second question is regarding the dividend policy. We have seen dividends being part share buybacks, part cash and an increase or full cash dividend of around $0.50-something per share and now a decline to around $0.25, $0.24 per share. Could you comment, what is the Company's policy and what can we expect going forward as you accelerate the CapEx deployment? And then finally, could you talk a little bit about the reasons behind the six month delay in on the Buenavista SXEW III projects and the Angangueo project? And also, I noticed that the CapEx for these two projects did not increase, despite the delays. So, if you can clarify why that was the case, I would appreciate that. Thank you.

Okay Carlos, let me comment first on the cost. Basically, we have better cash costs in the second quarter, due to the response in ore grates and recoveries of our operations of Cuajone, Buenavista and La Caridad. We believe that we will sustain the current levels of production for the rest of the year for these three operations, and that is on the production side of the cost. As obviously we produce more copper, our cash costs decreases [somehow].

Regarding prices, what we are seeing is that energy and fuel are helping us a little bit cost wise. Cost reductions, driven by energy, were about $6 million in the second quarter. In the case of workers participation, we have a reduction in this quarter when compared to the prior one. But as the Company faces higher prices, obviously that figure may change. The reason why workers participation has decreased is mainly the result of the lower earnings before taxes. Regarding the dividend question, I'll -- we'd appreciate if Daniel Muniz would make a comment on that.

Sure, Carlos, thank you. As you know, we don't have a dividend policy written in stone. What we do --

Excuse me, this is the operator. We are experiencing technical difficulty. Our speakers line has dropped. Please wait for a moment and we will reconnect.

Carlos, we are still on the line. Let me focus on your third question while we wait for Daniel to reconnect. Basically, on the Buenavista, SXEW III plants, I will ask Mr. Gonzales to comment on the equipment delay in the postponement of the startup of the investment.

Yes, the problem might vary that the delivery of the equipment that we are buying for this project of the expansion of the concentrator of the Buenavista mine is delaying. And for that reason, we are extending the termination of the project in order to reach operations. And in Angangueo, there's -- the only one other that you mentioned, we are starting a little late for some problems that we had with government of the state in Michoacan, I we hope that we can resolve that and recover the time in order to be at the beginning of the 2015 year.

Great. Thank you very much Mr. Gonzales.

Just to clarify, if I may. On the Buenavista, I was talking about the SXEW III project, that's -- and I think you mentioned the concentrator.

Okay, the SXEW plant, we are using the equipment that Tia Maria buy for that project, and we are trending that to Buenavista, and I hope that they will receive it on time and starting the installation. And that will be really not having any delay. I don't know which dates you have before, but it's in the beginning of 2014, the start of the operations.

All right, and Angangueo will sign in the first half of 2015, correct?

Exactly.

All right. Thank you.

Marcos Assumpcao, Itau BBVA.

Good afternoon, everybody. The first question is regarding the Quebalix project in Buenavista which is going to be starting third quarter. What could be the benefits that this project brings in terms of potentially a little bit of higher production because of the increasing recovery? Or a little bit of a lower cost? What will we see in terms of benefits of this project starting up in the second half of this year?

Marcos, how are you? Well, the Quebalix is a facility that allow us to explore the tax for the SXEW plant in a better way. By reducing the size of the rocks to the crusher and then spreading them more orderly through the conveyor belt system, what we get is two benefits. The first one is that we increase the recovery of the contained copper in the SXEW -- in the oxides and mature process for the SXEW plant. In our case, that recovery increases, broadly speaking, from about 50% to 70%. The second benefit comes from the time that we have to -- for getting this material or this copper recuperated. Using 50% of Quebalix, your recovery rate will take about five years in order to recuperate all of the metal that it contains -- or most of the metal that is contained in ore. With the Quebalix, that figure reduces to three years. So, those two benefits are part of what we are expecting from the Quebalix. This project is tied to the SXEW III partially. That will also benefit our current SXEW operations in (inaudible).

Felipe Hirai, Merrill Lynch, Brazil.

Hi, Raul, let me ask some questions. My first question is regarding CapEx. You maintained a guidance for this year for $1.5 billion, but yesterday we are seeing CapEx running well below this level. What should we expect for the second half? Do you still think it is achievable to get to this $1.5 billion? And also is it possible if you could provide some kind of guidance for next year, it would be great. That is my first question, thank you.

Okay Felipe, regarding the budget, our current view is that we will accelerate our capital spending through the year, so we believe that in the second half, we will have much more CapEx expenses. At this point we have not changed our view on the CapEx for 2012. For the remaining and the future years, what we have to schedule at this point, and this is certainly -- will be reviewed at year end and at the beginning of next year, we are expecting to spend about $1.6 billion in 2013 to accommodate the projects that we discussed in this conference call.

Thank you, and if I may, a second quick question, could you provide an update on your current hedge positions? If any are done?

Very simple. We have no hedge positions at this point.

That's great. Thank you very much.

Leondro Cappa, Deutsche Bank.

Hi, thank you very much. So, until last quarter you used to provide an estimate for the top of the Tia Maria project on your earnings release, but now there's no estimate provided. Do you still believe it is feasible to the degree by 2015? Could you detail a little bit more on the project timeline? That is my first question. Thank you.

Hold on a sec please, Leon. Leondro, Tia Maria is scheduled to start up at the beginning of 2015. We arrived to that figure assuming a certain timeline for getting the appropriate permits that we need to get after finishing our environmental -- the new environment impact assessment that the company is preparing.

And the delivery of the new plant that we will need to buy, because we mentioned that the plant that we by for Tia Maria was sent into Buenavista, no?

Okay, sure. And just one more question. So, what is the annual production you expect for the success of the Tantahuatay mine to reach? And how much do expect it to contribute for your overall earnings?

Well, for the year, Tantahuatay is currently scheduled to produce about 120 -- 118,000 ounces of gold and 565,000 ounces of silver. Depending on prices, that should convert into an additional benefit for the Company. At current prices, the contribution per month is a little bit ahead of $3.5 million. So, in six months, that will be about $21 million of additional contribution.

Thank you very much.

Leonardo Correa, Barclays Capital.

Hi, good morning, everyone. Good afternoon. My first question, Raul, is regarding the business environment in Peru. If you can share with us your latest thoughts on what can change and how the miners have been involved with all the projects that are expected in the region? Especially now the recent cabinet changes that we saw. So, if you could just give us an update on what is happening and how potentially more confident you are with the recent changes that Humala has been adopting.

And in my second question is regarding -- still regarding CapEx and projects. The understanding here that we had is that the Angangueo project was reduced in size in terms of its future copper production. So maybe if you could walk us through on why exactly you downgraded future expectations, that will also help us a lot. And maybe finally, if you can go back to Carlos' question on dividends. That would also be helpful for us. Thank you very much.

Okay. Your first question was about -- we couldn't -- I couldn't understand well what you said. That you want us to do a comment on the current operating circumstances for our mining company in Peru, due to the recent change in cabinet. Is that right?

That's correct, Raul. Just basically, and evaluation of what the recent political changes and how that could potentially impact the business confidence in mining activity and gross projects, et cetera.

Well, currently, the mining and energy minister is the same in the new cabinet, so we are expecting the same policies to hold, or no changes, in other words. So, in that, we're not seeing any variances. The government is trying to help companies to go ahead with their projects, and that is the case for us as well. And your second question I'm sorry? We could not get you well through the phone, but I understand that you referred to why the change in production in Angangueo? Is that your question?

Yes we were working with a number which was closer to 30,000, 40,000 tons, and now the recent number is closer to 10,000 tons. So anyways, we could be missing something, but I thought that was a big bit of a reduction and drop from Angangueo.

I'm sorry Leonardo, but we can't copy you well.

Yes, was there any -- what I'm asking is, was there any change in the Angangueo project in terms of future output of copper?

No. This thing here is that between the prior quarter and this one, and that could be a source of confusion for what I certainly would like to apologize, if that is the case. It is that in the prior quarter, we had the clear idea of how much concentrate was the Angangueo mine going to produce. While indeed for the quarter we have to find the figures that we have for production, that is why we are indicating the intimated production for the metals of Angangueo. The metal content. In other words, on the prior quarter, the report indicated about 36,000 tons of copper concentrate. Now, we have a much clearer view on that, and that is why we have to put the contained copper, which is 10,400 tons of copper, 9,700 tons of zinc and 3,900 tons of lead. Is Daniel Muniz back on the call?

Yes, I am. Thank you, Raul, I apologize, there have been a lot of technical difficulties today, but I will be happy to take the dividend question. Can you hear me?

Go ahead please.

Yes, good, thank you. As I was trying to explain, Carlos, and I figured that you could listen, we don't have a dividend policy written in stone at Southern Copper. But however, we have been trying to maintain a steady track record throughout the years. At this time, the way the board has decided to reduce the payout ratio based on the CapEx that Raul has just explained and not only based on estimations, but also based on our competitive elements for those expenditures. We have a $1.5 billion 2012 CapEx budget, and we have committed for certainly more.

So, we looked at the copper environment and the drop in all the metal prices in the macro environment, and our board decided that it was prudent to decrease the payout ratio and to decrease dividend pay -- the dividend paid. We are committed to fulfilling and completing our projects, and that is the rationale of our prudence this quarter. Whether we are going to keep on with this payout ratio going forward, I am sorry, I am not able to tell. We really debate it every quarter. We will look at it next quarter, but we do -- or our board and the Company has a commitment to really deliver these projects. So we are working on it, and that is the answer.

Mandeep Singh, JPMorgan

Hi all, congrats on the results and thanks for taking my question. My question is related to your copper production that saw a strong recovery in your own mine production and the run rate has now reached above the 2012 guidance. The first part is, was the improvement in grades and recoveries as expected, or was a better than what you were earlier expecting? And what do you expect for production for the rest of the year? And if you could please comment on the impact that it has, if at all, on your production guidance of 640,000 tons and the mix between your own production and the third-party concentrates.

And my second question is related to your CapEx. I understand that you are maintaining your CapEx budget of $1.5 billion for the year. But if you could just elaborate a little bit on the projects, where we will see accelerated CapEx in the second half? Thank you.

Okay. Let me start by the production guidance. We are maintaining our guidance for the year, which is 640,800 of copper. However, we are reducing the share of third-parties copper on this total number from 30,800 that we indicated at the beginning of this year to 21,300, that is our current forecast for third-parties copper. Regarding capital, we are expecting that usually -- capital budgets usually are lower at the beginning of the year when the budget start being developed. Because let's say on the first quarter, you basically put the purchase orders, have to do some advanced statements. But they are not as important as the ones that you have to do when you start getting the equipment that you already put the purchase order for. That is why we are expecting to have much more expenses on the second half of the year than on the first part.

For what is the maintenance CapEx? Now, in the case of the projects, we have been working through 2011 very hard in defining the projects, defining the basic in detail engineering. And now we are in the process of purchasing the equipment. As part of the process, the Company, as we indicated throughout the call, it transferred the SXEW plant of Tia Maria to [Winalista]. And also through the purchase orders on several mining equipment that was mentioned in the call. We will start getting that equipment in the second half of 2012 and as a consequence, our CapEx will increase accordingly.

Thank you.

Garrett Nelson, BB&T Capital Markets

Hi, guys. You have outlined the progress of each individual group project, but is there any change your longer-term copper production and CapEx forecast through 2016 from the previous numbers you have published? Or can we assume that prior guidance is still intact?

Yes, there is a little change in the guidance due to the delay of the SXEW plant to start up from that. And also, we are considering now the Angangueo project with some production that was not sent here at the beginning of the year. But they are minor changes, basically, for our guidance. For next year, we are expecting to have about 654,000 tons of copper. For 2014, that will be 712,000 tons. For 2015, 996,000 tons and for 2016, 1.1 million tons of copper. That is our current view on the Company's increasing production.

Great, thank you. That is very helpful. And then as you mentioned, the equity income recognized from the 44% interest in the Tantahuatay mine added $0.02 or $0.03 to earnings for the quarter. Can you help us with how to think about the gold and silver production and cost at that mine going forward? I'm just trying to get a better sense of what your equity income might look like in Q3, Q4 and into next year?

Well, for Tantahuatay, we really gave guidance on production for the year. It is about 118,000 tons of copper and 650,000 tons (sic) on silver -- I'm sorry (multiple speakers). That would be great, but I am so sorry that I cannot be the case. I meant ounces, I'm so sorry to everybody. So, let me repeat it again. It is 119,000 ounces of gold and 650,000 ounces of silver. That is for the year. At current prices, that should be about $3.5 million per month, and that is basically what is coming to our P&L. Besides this, the Company in is getting back some stockholders loan that the joint venture did, and that will certainly help our cash flow as well. But the numbers are in the range of what I mentioned regarding the profits and stuff.

Got it, thank you.

[Juan Lopez, GBM].

Hi, good morning. Thank you for the conference call. Most of my questions have been already answered, but I have a question that may not be -- can be right now, but I have -- I would like to know, regarding the two power plants the Grupo Mexico is planning to build, how would this be related to Southern Copper mining production if the Company will pay the market prices with some cross benefit are to be expected?

Thank you for the question. Well, (multiple speakers) Thanks you. As you know, Juan, the power plants are being built by Grupo, Mexico, but of course the off taker and the idea is to lower the electricity consumption costs for Minera, Mexico. As we know, Minera, Mexico has -- in Mexico, electricity costs are very high compared to the US and sometimes higher than Peru. So, the idea is we are working on it. The plans well not be ready now, they are being worked on. And they're being built as you know by Siemens on the front of the infrastructure division of Grupo Mexico, and the idea is definitely for Southern Copper to save costs. We have not concluded in independent engineers modeling, et cetera. We will give you exact details when we have them.

All right, thank you very much.

Rene Kleyweg, Renaissance Capital.

Good morning, gentlemen. Just two things. One, if you could provide us a bit of an update on the timing of permits. We talk about Tia Maria just in terms of when internal expectations are and what the next big bench, big time critical events are on those. And then just, I guess one for Daniel. You have got this extremely attractive financing it place of 5%. But because of the cash balance you are running, your interest on your net cash balance is effectively nearly 10%. You just cut your dividend and yet we're only talking about $1 billion or so in cash, which is not really sufficient to do anything in terms of any major acquisitions. So, I'm just trying to understand the dynamics at work.

I appreciate that CapEx spend is going up in the second half of the year, but operating cash flow will cover that. So, just trying to get better feel of how we should be thinking about it over the next two or three years. And what is the point of keeping that cash balance on the balance sheet when it is not really sufficient to make any sort of significant acquisitions?

(Multiple speakers) In the first question about Toquepala and Tia Maria, we expect that that will be the beginning of the year 2015 if we have all of the approvals of the environmental impact story in both of the projects and start production maybe in the Tia Maria the middle of 2015. And in the case of Toquepala expansion, either at the end of 2014 or beginning of 2015.

So, it was more in terms of the permitting, the timeframe on the permitting as opposed to the production? Apologies.

The permits?

Rene, we have to comply with federal permits in order to go ahead with the expansion. But usually you have to -- the first thing that you have to do is you have to present your environmental impact assessment. In the case of the Toquepala expansion we already did that. We already did some workshops that we have to do with local communities. And there is a one-time workshop which is the most important one. That is with the authorities participating in it and local communities represented. That one, we had it in September of 2011. And was -- even though it was a Pacific meeting with no problems at all, due to the fact that about 80 kilometers away from where we were having the meeting, we had some social unrest.

Due to that fact, authorities decided not to go ahead with the environmental impact assessment approval. The Company has been in talks with local communities and with the regional government of Tacna in order to clarify the benefits of the project for the region. And we think that we are moving forward in these talks. But what we need to do is to have that last meeting happen and after that, we will start the construction. We're assuming that we will get to some solution on this by year end.

In the case of Tia Maria, we are currently doing the environmental impact assessment. After that, we will present it to authorities, and then there is a process of first the authority and has, legally speaking, 30 days to answer back to the Company. Usually takes a little bit long. We're assuming some cushion for that. And also, we should get some questions or concerns from the local communities. T

hat has a defined timeframe, and we are really answer most of the questions in the task process for Tia Maria. So, we believe that we should not have that many questions and concerns from local communities, because we already tackled those in task. However, there could be the case that there are some questions. Assuming certain timeframes for each of these steps, we arrived to about the first quarter of 2015 as the startup moment for the Tia Maria project. And then the ramping up will take the project to be at full capacity by late 2015.

And so with Tia Maria, you are assuming EIA by the first quarter of next year? Or is it more second, first half of next year?

Well, at the beginning of next year it will be definitely the approval of the environmental impact story.

Thank you.

(Operator Instructions)

(Multiple speakers) There is another question that I ask Daniel if you could comment on that, please.

I'm sorry Mr. Plata's line has been dropped again.

Sorry for the inconvenience.

That's all right, Raul, we will catch up at some other point on that. Thank you.

(Operator Instructions)

Jamie Nicholson, Credit Suisse.

Hi, hello, thanks for the call. This is Luciano Costa cost on behalf of Jamie Nicholson. I just wanted to ask, the $1.3 billion budget for 2013 in CapEx, do you think you will need to finance that in the debt market or most of it from cash flow? If you could just comment and provide some color on that, that would be great. Thanks.

At this point we have no specific plans of tucking on the debt market. So, the answer would be our own cash flow. Okay, thank you very much.

Santiago Perez.

(Inaudible) Thank you for your time and your questions. You have answered most of my questions, so I only have one remaining. Would you be able to give us a timeframe or more of a hedge or execution plan regarding schedule production for the rest of this year and the following one of 2013 please? Thanks.

Santiago, I'm sorry but we could not copy you well.

Okay, no worry I just wanted to know if you have any execution -- hedge execution plan for production for this year or the following? It would be great if you could shed some light on that.

For this year, I think we already mentioned that we are still holding the forecast of [640,048], and for next year, 650,000.

No, sorry, Raul, maybe you did not hear me. I meant hedges schedule. Are you planning to hedge any part of the production?

Hedge?

Hedge, yes.

No, at this point, we have no hedge. We don't have any hedge position and we are not considering doing anything like that at this point, Santiago.

Perfect, thanks a lot, congratulations on the results.

I have no further questions, thank you. I turn the call back over to presenters for closing remarks.

Well, with this we conclude our conference call for the second quarter. We certainly appreciate your participation, and we expect to have you back with us when we report the third quarter results. Thank you very much and again, let me apologize for all of the technical inconvenience that we have had through the call.

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