Southern Copper Corp (SCCO) 2014 Q1 法說會逐字稿

Good morning and welcome to the Southern Copper Corporation First Quarter 2014 Results Conference Call. With us this morning, we have Southern Copper Corporation, Mr. Raul Jacob, Vice President Finance and CFO, who will discuss the results of the Company for the first quarter 2014, 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 to not place undue reliance on these forward-looking statements. Southern Copper Corporation undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All results are expressed in full US GAAP.

I'll now turn the call over to Mr. Raul Jacob. Please go ahead.

Thank you very much, Jan, and good morning, everyone, and welcome to Southern Copper's First Quarter 2014 Earnings Conference Call.

Participating with me in today's conference are Mr. Oscar Gonzalez Rocha, Southern Copper's CEO; and Mr. Daniel Muniz, Grupo Mexico's CFO.

In today's call, we begin with an update on our view in the copper market. We will then talk about Southern Copper's key results related to production, sales, operating costs, financial results, expansion projects and capital expenditure program. After that, we will open the session for questions.

Regarding the copper market, during the past quarter we have seen a softness in copper prices which have slightly decreased when compared to the fourth quarter of last year. We believe the copper market's positive fundamentals will prevail in the coming future. As of April 25 of this year, inventories of the three major warehouses -- that's the London Metal Exchange, COMEX and Shanghai -- have decreased by 146,000 pounds, or 29% from their position at the beginning of 2014. As we have indicated in the past, a current driver for the world economy is a synchronized growth expected for the US, Europe and Japan, which together represent about 54% of the [world GDP] and consume directly about 31% of the world's refined copper production.

Regarding the world's main copper consumer, China, we believe that its sustained recovery of the major economies, in conjunction with the Chinese (inaudible) rebound in the second quarter of this year, is consistently reducing the probability of an oversupply in 2014 of refined copper, our main product.

On the supply side, despite some evidence of a possible market oversupply for the coming quarters, we think that there are several (inaudible) factors, such as (inaudible) [scarcity], delays in project startups, technical problems, labor unrest and other that will continue to affect new project supply, (inaudible) production and existing operations. Southern Copper believes that it is positioned to take advantage of the strong fundamentals of the copper market and will benefit from our aggressive investment of organic growth aimed at the increasing production from current capacity to approximately 1.2 million pounds by 2017.

Regarding our production, on copper, it represented 78% of our sales in the first quarter of this year. Our mine production increased by 13,683 tons, or 9.2%, in this quarter -- the first one -- compared to the first quarter of 2013. That was due to highly throughput at the Buenavista, Cuajone and La Caridad mines and higher ore grades and better recoveries at the Toquepala, Cuajone and Buenavista operations.

Regarding molybdenum, it represented 9% of our sales in the first quarter of 2014. Molybdenum production increased by 754 tons, or 15.7%, in the first quarter from -- compared to the first quarter of last year, namely as a result of the new Buenavista molybdenum plant that adds 605 tons and better production at our Toquepala and Cuajone mines. Both of them increased production by -- in the case of Toquepala, by 43%, and for Cuajone, 33% increase of molybdenum production.

These positive results were partially offset by lower production from our La Caridad mine that decreased production by 14%.

Silver represented 4.7% of our sales in the first quarter of 2014. Comparing silver production in the past quarter with the same one of 2013, there is an increase of 271,000 ounces, or 8.6%, mainly as a result of higher production at the Cuajone operation due to higher mineral throughput that is related to our high-pressure grinding rolls project.

Zinc represented 3.9% of our sales in the first quarter of 2014. Production decreased 11.3% in this quarter when compared to the same period of 2013, mainly as a result of overproduction at the Charcas mine.

Focusing on our financial results, for the first quarter of 2014, sales were $1.3 billion, $268.6 million lower than sales for the first quarter of 2013. Copper sales value decreased by 16.1% due to lower volume that accounts for 4.2% of those 16.5% of decrease, and lower copper prices that (inaudible) 11.4 points -- percentage points. Regarding byproducts, we have higher sales volumes of molybdenum that increased sales by 13.1%, zinc that increased sales by 3.8%. Those two positive items partially compensated for lower prices for molybdenum, while the price of zinc was pretty much the same.

In the case of silver, sales decreased by 51.6% due to price that accounted for 31.9% and a temporary volume variance for an inventory build-up.

Our total operating costs and expenses decreased by $57.6 million, or 6.8%, when compared to the first quarter of 2013. The main cost reductions were due to lower inventory consumption, purchased copper, [translation] difference, leachable material, workers' participation and other. These cost reductions were offset by higher depreciation, diesel and fuel costs, and other production costs.

EBITDA for the first quarter of 2014 was $669.2 million. That's 49.4% margin.

Cash cost. Operating cash costs per pound of copper before byproduct credits was $1.87 per pound in the first quarter of 2014. That compares with $1.90 per pound in the fourth quarter of 2013, a $0.03 decrease. This 1.4% reduction in operating cash costs is the result of the already-mentioned cost reductions.

Southern Copper operating cash costs, including the benefit of byproduct credits, was $1.02 per pound in the first quarter of 2014.

Regarding byproducts, we had a total credit of $297 million, or $0.85 per pound of copper, in the first quarter of 2014. This amount compares with a credit of $329 million, or $0.90 per pound, in the fourth quarter of last year.

Total credits have decreased for silver by 32%; for gold by 22%; for sulfuric acid; 14%; and lead, 2%. They are stable for zinc and increased for molybdenum slightly.

Net income attributable to Southern Copper shareholders in the first quarter of 2014 was $323.4 million. That is 23.9% of sales. Diluted earnings per share were $0.39 per share.

Considering our expansion and capital projects, capital expenditures were $323.7 million for the first quarter of 2014. That's 2.2% higher than our expenses in the first quarter of last year and represented 100% of our net income. We continue with the development of our capital expansion program on time and on budget, and this aims to increase copper production capacity by approximately 87% from about 630,000 tons to 1.2 million tons by 2017.

Regarding our Buenavista project in Mexico, the construction of the 120,000-ton capacity SXEW III plant in Buenavista was completed in April of 2014 -- this month -- and we are currently in the ramping-up phase for the first of three solvent extraction trains that will start commercial production by June of 2014. We expect to have the plant at full capacity during the third quarter of 2014. As of March of this year, we have spent 92% of the total project budget of $444 million. The new copper molybdenum concentrator has an annual production capacity of 188,000 tons of copper and 2,300 tons of molybdenum. The project will additionally produce 2.3 million ounces of silver and 21,000 ounces of gold per year. The capital budget of the project is $1.4 billion and has a 71.5% progress with an investment of $654 million. The project is expected to be completed in the first half of 2015. Of our major equipment, 80% is currently on the site and 20% has been installed.

Regarding the mine equipment for the Buenavista expansion, to date we have invested $496 million and have received 61 trucks with the capacity of 400 tons each of them. In addition, we have received 7 shovels and 8 drills required for the mine expansion.

The Quebalix IV. This is a crushing, conveying and spreading system for leachable ore that improves SXEW copper production by increasing recovery and reducing hauling costs as well as processing time. The capital budget of the project is $340 million, of which $87 million has been spent. The project is expected to be completed in the third quarter of 2015.

The remaining projects to complete the $3.4 billion budget program include investment in infrastructure and other facilities at Buenavista.

Focusing on our projects in Peru, for Toquepala, through March 31 of this year, we have spent a total of $295.1 million on Toquepala project. This project includes the construction of a new crusher and conveyor belt system to replace current mine rail haulage, which will reduce annual operating costs. On April 16 of this year, we successfully held the public hearing required as a precondition for approval of the environmental impact assessment. We are now waiting for comments and questions from the government agencies and various stakeholders and expect to get the approval of the environmental impact assessment by the third quarter of 2014. This project will increase Toquepala's production by 110,000 tons when compared to current production and has an estimated budget of $1.050 billion.

Cuajone projects through March -- we have spent $34.6 million of the total budget of $45 million on the high-pressure grinding rolls project which will produce a more finely-crushed material. This project is currently in the ramping-up stage and we expect to reach full capacity during the second quarter of 2014. The project will generate cost savings by improving copper recovery and reducing power consumption in the crushing process. Current increasing production from Cuajone already has the first effect of this project ramping.

The project improves slope instability in the south area of the Cuajone mine. We removed approximately approximately 148 million tons of waste material over a 3-year period. The mine equipment acquired includes 1 shovel, 5 trucks, 1 drill and auxiliary equipment which will be reallocated to our mine operations once the waste material is removed. Besides preparing the mine for the future, this investment will avoid a reduction in average ore grade between this year and 2018. At March of this year, we have spent $60.6 million from a total budget of $65.1 million.

Regarding the Tia Maria project, we are in the process of responding to comments received at the end of January of 2014 from the authorities and stakeholders.

Dividends for this quarter will be reviewed at the board meeting that will meet on May 8, and a decision on the quarterly dividend payment will be addressed at that time.

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.

Thank you. We will now begin the question-and-answer session. (OPERATOR INSTRUCTIONS.) And we have Carlos de Alba from Morgan Stanley in line with a question. Please go ahead.

Yes. Good morning. Thank you very much. The first question is, Raul, can you help us understand why the copper shipments declined year on year despite increase in total production at your -- at all operations?

Yes. It's basically the result of what happened in the fourth quarter of 2013. We had major maintenance on our Caridad smelter. At that time, we sold a portion of our copper and concentrates to the open market, and now we're replenishing that material into our copper in process.

And so -- is there new guidance on copper production and shipments for the year or (inaudible) the same as (inaudible)?

No. The guidance remains the same because we did know about this event at the beginning of the year and when we issued our guidance for 2014. So it's already imbedded in our forecast for the year.

Alright. And the second question is on cash costs. They declined quarter on quarter, but this -- it was a small decline. How do you see costs going forward this year and next year before byproducts (inaudible)?

Yes. Yes. Well, actually you're right. It was a decline driven by improvements in efficiency and more production coming from Cuajone as well as Buenavista that is recovering capacity. For the rest of the year, I think that we will have a different -- two different moments. The first half of the year will more or less be about where we are now, but for the second part of the year, we will have the SXEW III project in operation, and that will provide us with much lower cash cost copper getting into our pipeline of production. We're expecting it to reduce cash cost by about $0.15 before any byproduct credits. Now --

(Inaudible). So this $0.15 is comparing, say, the second half of 2014 versus the first half of 2014?

Yes.

Okay.

So, for instance, now we are $1.87. We are expecting to be a little bit close to $1.70 --

Alright.

For the second half, okay?

Okay.

Now --

And how much production -- I'm sorry. Go ahead.

Now, SXEW plans don't have byproducts. There are no byproducts. So we don't have for the -- in our useful normal or more traditional concentrating process, you do have molybdenum, silver, etc. For SXEW copper production, they don't produce byproducts. They are much lower in cost but not producing any byproducts. So the amount of money that we're collecting at current prices from credits will be about the same given the current market prices for our byproducts. Then our cash cost overall will decrease slightly in the second half of the year. We're expecting it to be about $0.05 lower than where it is right now. That -- I want to stress that that's considering that current prices for byproducts and for materials remain the same. Obviously, if there is a significant change in our materials or our cost, etc., that will increase our cost and that's out of our control. What we do control is the amounts of consumption of [these] materials and we're focusing on optimizing them all the time. So with this explanation, I hope that I covered your concern, Carlos.

Yes. Very, very good. Thank you. Last question is, going forward, it seems that the Toquepala and Tia Maria are moving ahead in terms of the permitting process. If those two projects were approved and the CapEx started to increase or it started to materialize, would the company reduce the current dividend payments or what do you see in terms of dividends if these two projects are approved?

Daniel, would you like to comment on that?

Yes, Carlos. Well, thank you. First of all, we're very happy the way both of those projects have been evolving -- Tia Maria and Toquepala -- in terms of (inaudible) and everything. Of course, the projects as we have planned them in the past were going to be sequential and not simultaneous. Authorization seems to be moving forward in a simultaneous matter. However (inaudible), as you know, we've issued $3 billion in the past. We are (inaudible) on the copper products and we think we can do this project orderly with the cash flows and the current cash position. So we don't see an impact on dividends. Of course, you know that we don't have a dividend policy and the board reviews the dividend payment every quarter, but at this moment, we're not envisioning cutting any dividends whatsoever. We're just more happy that we can (inaudible) accelerate these projects and (inaudible) we'll give you the schedule of the construction. I don't know if you want to add something.

And -- Daniel, thank you for that. What -- could you remind us what are the guidelines of the dividend policy at Southern Copper?

We don't have a dividend policy at Southern Copper, Carlos. Nor in Southern Copper, nor in Grupo Mexico. We believe in a track record more than a policy, and of course, we're understanding that our board is sensitive as to the dividends expected by the market that we try to maintain track record, and you've seen even through the financial crisis we've maintained our dividend. And the view so far is you want me just to just make a recap within [$0.03 and $.12] per share in terms of dividends the last 3 payments. Prior to that, it was $0.20 and $0.24 during the quarters. So again, this will be discussed next meeting. We couldn't have the board meeting before this call and before the reports, so we're going to have it next Thursday.

Thank you very much.

Thank you.

Just a clarification. Our dividend is not tied to any payment or anything like that, and that's what Daniel meant. Our policy is that we review the dividend payout for the quarter each board meeting.

And the next question comes from Santiago Perez-Teuffer from Credit Suisse. Please go ahead.

Hi. Thanks (inaudible). Hi, Oscar, Daniel, Raul and team. My question is related to cost. At what -- it would be great if you could give us some color at what cash cost will Buenavista's SXEW arrive? And also, a comparison to the concentrator. And this would probably be easier product by product given the (inaudible) is not product by product. So how do you expect cash cost to shape up on the next two years? And also, Raul, I wanted to check quickly. Did you mention 110K tons for Toquepala copper production?

Yes. We -- that's what I said. On Toquepala -- 110,000 tons compared to where we are now. That's what we're expecting for Toquepala -- for the Toquepala expansion. Addressing your question on cash cost, I'm sorry to say that we don't disclose on the cash cost per operation. We're expecting our SXEW plant III at Buenavista to start at a much lower cost than the cost before any credits for Buenavista, and that's how we made the estimate that I shared with the audience for our last -- for a prior question.

Perfect. Thanks, Raul. And then as a follow-up, on the permits processing (inaudible), if you could give us just a brief description on where it is now for both -- and (inaudible) Toquepala (inaudible) -- but for both Toquepala and Tia Maria, and where you could face some pressure or if you believe that the tightest part of the process has been done.

Mr. Gonzalez Rocha will answer that question, Santiago.

Yes. About the expansion of Toquepala, we are waiting of the comments and questions from the government and from the [areas] of the communities that are involved in the project. That is supposed to be 30 days after the public hearing. That means that by the middle of May, we are going to receive from the Minister of Mines that questions. And we have 60 days to answer their questions or less, depending the amount of comments or questions. For -- in that way, we are going to be ready by the middle of July. With that, if the government doesn't have any more questions after writing our responses, then they will have 30 days to give us the approval of the environmental impact study that we presented to them some time ago. That means that we will then, in the second semester of this year, be preparing to do everything that we need for the construction permit and then do the (inaudible) for starting the construction by the end of the year. In the case of Tia Maria, it is about the same. We are going to respond all the questions by the middle of May because it is when we accomplish the 60 days that the Minister of Mines gives to us. Then they will revise that. And if everything is okay, then definitely by the end of June or beginning of July, we will have the approval if everything is correct. And we are going to do the same thing that -- with the expansion of Toquepala -- trying to get the construction permit. That is the next step. And after that, we will do the (inaudible) and all the requests for the equipment that we will need in Tia Maria because we sell our plant to Buenavista and we sell the mining equipment to Toquepala and Cuajone. Then we need to start again purchasing all of the equipment and start that by the fourth quarter of this year. Then definitely we will be in full construction in both projects by next year. And that will take us close to two years. For that reason -- is that we mentioned that by the beginning of '16 or the end of '15, we will be ready for -- start production.

Thanks, Oscar. This was very helpful. Thank you.

And our next question comes from Mitesh Thakkar from FBR Capital Management. Please go ahead.

Good morning, guys. My first question is just on the CapEx and production profile. Can you provide us an update for the years forward please?

Yes. It's pretty much -- it is the same that we provided at the beginning of the year. Then you start with production. We are expecting, for this year, 672,000 tons; for 2015, 840,000 tons; for 2016, 1,083,000 tons; and for 2017, 1,160,000 tons. For 2018, the (inaudible) will be the same as 2017 as the forecast. Regarding CapEx, for 2014, we're expecting to spend $2.3 billion; for 2015, $1.6 billion; for 2016, $900 million; 2017, $500 million; and then we will pay maintenance CapEx of about $350 million for 2018 and on. Obviously, if there are new projects, new initiatives that the company undertakes, these numbers will (inaudible). These forecasts will shift. But so far, this is our current plan.

Okay. Great. And when you look at the Quebalix IV project, it looks like it moved a little bit from first half of '15 to second half of '15. Any impact from that we should expect?

Could you repeat what project please, Mitesh?

The Quebalix IV.

Ah, the Quebalix.

Yes. [A little bit] more into the second half of '15 versus the first half of '15.

Yes. Yes. Actually, it was moved due to the change in scope that we did in the project, and we explained that on the last conference call.

Yes.

By increasing the capacity of these projects, we are basically eliminating the need of a new plan -- the new Quebalix -- (inaudible) Quebalix -- for this. So that (inaudible) a little bit our CapEx on the start-up of the project. Currently, the production profile that I mentioned considers the impact of this change in the budget and the scale.

Thank you very much, Raul.

You're welcome, Mitesh.

And Wilfredo Ortiz from Deutsche Bank is on line with a question. Please go ahead.

Yes. Good morning, everyone. I just wanted to ask a couple of questions. As far as the copper production for the year on a quarterly basis, given the different ramps that we're seeing from some of the projects, how should we see that evolution if, in the following quarters, we're not going to have continued inventory build? And my second question, as far as cash cost in reference to the figures that you have mentioned, do these include the potential benefits from the power plants that Grupo Mexico is ramping up and that eventually you should benefit of, or is that something that should lower some of these cash costs further more into 2015 onwards?

We are already considering the impact of those -- of the new power plants that Grupo is putting in place in our current budget. That specific matter on the (inaudible) plants, etc. will be touched at the Grupo Mexico's conference call. For the quarters through 2014, we're expecting to produce for the next quarter around the same copper production that we have now. That's for the second quarter. And then for the second half of the year, each quarter we're expecting to have about 185,000 tons per quarter of copper. That's with the benefit of the SXEW III plant of Buenavista.

Great. And one more question. As far as the new royalties from Mexico, I notice that they're being accounted in the overall income tax. So the effective tax rate has gone up vis-à-vis what you guys paid in 2013. Should the level of the effective tax rate this quarter be indicative of what Southern Copper will be paying on a going-forward basis? (Inaudible.)

Well, there are more than one effects. We're indicating the -- about $25 million on royalties that are being -- considering the tax -- the income tax payment for -- or provision for -- for the first quarter. At this point, that's basically it. For the next quarters, depending on the operating profit that we have -- or, to be more specific, of the EBITDA that our Mexican operations produce because the new royalties in Mexico are based on -- basically on EBITDA and a little bit on sales for precious metals [that are] silver, mainly for us.

Right. But the effect will continue to be in the income tax line despite the way that it's (inaudible).

Yes. Yes.

Therefore --

Yes. After --

The effective tax rate --

For accounting purposes, the New York royalty in Mexico -- it's included as part of our tax provision. In Peru, we have a portion of the royalties that are considered as part of cost of sales, and the portion that is related to operating profit is also considered as part of the income tax.

Great. Thank you very much.

You're welcome.

And we have Alex Hacking from Citi on the line with a question. Please go ahead.

Hi. Good morning. Thanks for taking my question. The first question I have is on Tia Maria. You got feedback from various stakeholders in the project. Was there anything in that feedback that makes you think you would have to make any of material changes to the scope or cost of the project, or was it all fairly basic things? Thanks.

Let me give you a more general comment because we receive comments from the stakeholders as well as governmental agencies. And in our view, we believe that we will be able to answer their concerns with no significant matters. And the environmental impact assessment should be approved. That's what we believe.

Okay. Got it. And then the second question -- let me see. Let me go back to operating cost, if it's okay. Can you remind us sort of how much expenses or costs that you're going to accrue by starting up the SXEW III this year? I guess at some point you'll have to start expensing things rather than capitalizing them. Is there any way to kind of quantify the sort of one-time start-up costs, as it were?

No. Well, the answer to that, Alex, is that you spend until you start the plant. Usually the -- what you will see -- what (inaudible) initial cost of parts -- initial stock of parts -- critical parts that you need for the plant -- are part of the capital investment. So it's mainly operating costs.

Alright. And then just one very quick question more, if I may. The CapEx in the first quarter was quite low -- 300-and-something million versus guidance of $2.3 billion. Was there -- could you kind of explain why it was so low and how we should -- if you were maintaining the $2.3-billion guidance, kind of like how we should expect it to ramp up for the rest of the year? Thanks.

Should be -- we should start increasing our CapEx through this quarter and the next two. Basically, that's -- there was a lack of spending at the beginning of the year due to board approvals and some internal work that we do. What we have reflected in our cash flow is what we're spending in CapEx, and usually there is a negotiation period with the company and the vendors of this equipment at the beginning of the year. So that's basically -- it's a timing matter. We are consistently -- we are maintaining so far (inaudible) our guidance on CapEx, and we address this matter later on in the year as we see how the projects are progressing.

That's clear. Thank you.

And we have Garrett Nelson from BB&T Capital Markets on line with a question. Please go ahead.

Hi, Raul. Could you remind us -- does your CapEx and production guidance include Tia Maria, or are tons from Tia Maria being included in the production guidance but the project spending not being included in the CapEx guidance?

No. Garrett, thank you for your question. Both production and CapEx are included in the guidance that I mentioned a while ago.

Okay. I just wanted clarification on that. Also, in the first quarter, your effective tax rate was a lot higher than normal. It looks like about 39%. Why was that and what should we be modeling for an effective tax rate in the final three quarters of 2014?

Okay. The main effect -- the main increase in CapEx -- I'm sorry -- in tax rate was related to the inclusion of the new Mexican royalties that we are provisioning in Mexico. That is not -- that will be -- it's new legislation and we're considering that as part of our current tax liability. For the next quarters, we -- well, it is always contingent on the -- how the company is doing in terms of profitability because it's related to EBITDA. For the next quarter, I can't tell you that it's going to be a 39% fix. It will vary depending on the EBITDA of the Mexican operations, as well as the operating profit of the Peruvian operations that are both the base for this kind of taxes.

Okay. So maybe something lower than the 39% but not as low as your normal 32% or so tax rate that you've had historically?

We could say so now, but as I say, it depends on the market prices, the production, etc. So there are several factors that will affect it, but that's a reasonable assumption -- what you just said.

Okay. Thank you.

And the next question comes from Sasha Bukacheva from BMO. Please go ahead.

Yes. Good morning. So just to clarify on Tia Maria, are you including any amounts for capital expenditures there this year, assuming the project goes ahead? Is that a part of your this year's 2.3 budget, and if so, how much are you including for it?

Yes. Thank you for your question, Sasha. About $80 million are considered for -- actually it's $81.4 million that we are considering for Tia Maria in 2014.

Okay. And so what's -- what does that capital get you? Does it get you site clearance or what sort of critical path items are you going to be able to pay for with this $80 million?

Well, basically we need to have the construction permit. So there are two particularly critical steps that we need to accomplish. The first one is the approval of the environmental impact assessment. That -- we expect to have it in this quarter -- the second quarter. Then we apply for a construction permit. That shouldn't be a problem, but it takes a while. And when we do have both of them, we will initiate the project spending -- initially, with purchase orders of equipment and bidding, and then the project will start construction, etc., etc. most likely on the fourth quarter of this year.

Okay. So this is basically early stages of EPCM. Okay. And then with respect to the rest of your capital spending ramp-up, do you have any kind of ranges as to where your budget is quarter over quarter for -- like I understand you obviously have more capital than $300 million this quarter, but do you have a sense of what the Q2, Q3 and Q4 numbers will look like?

Not at this point. We have the annual guidance and we are very comfortable with the budget and our means to accomplish the expenses through 2014. So we don't have to -- we're not following this as a matter of cash control because we believe that we can afford -- as long as we're under budget -- and the projects are all under budget -- we're find with the spending rate that the engineers in charge of them are putting to the projects.

Okay. Okay. So then what are some of the critical path items that you see this year to complete construction of the concentrator to have it [for] Buenavista -- to have it commissioned in the first half of next year? So what do you see as some of those key issues that need to happen this year?

Well, I think that we mentioned them in our press release. Basically, on the mining operations, we have received all the equipment -- pretty much all the equipment that is required for that. A significant amount of these equipments are already assembled and start operating or are operating already. As I say, there are 61 trucks, 400 tons each of them, 7 shovels and 8 drills. And these (inaudible) -- this equipment, as it's being assembled, it's put into operation to prepare the mine for sending the minerals to the new concentrator and to provide the leachable material for the new SXEW III plant. In the case of the concentrator, we already received all the 6 mills that we have for this facility, and we are assembling them. I believe that about 4 of them are already assembled. And we think that the process -- it's moving forward at a good pace. The [flotation] area of the concentrator is also progressing at a very well level, and we don't see at this point any reason to be concerned on a delay on the total concentrator project. I'm not sure if somebody -- Daniel, you may want to add something on this?

No [but] I guess -- we have all the permits. We've entered into all the contracts. We have all the engineering. The project is doing -- moving forward on time and budget, and we're very confident about this project. And you know it's one of the largest (inaudible) Mexico and it's on track.

Great. And can you just remind us -- are you doing this as a fixed price contract or is there any variability on any of the components?

Could you repeat your question?

Are your contracts for installation -- are those fixed price or would there be any -- could there be any variability for costs around that?

It is fixed for most of the [parts] and for most of the plants. You know there's a lot of infrastructure that needs to be built around a plant like this -- like water, (inaudible), etc. So -- but mostly for the plant, it's fixed.

Okay. And what's your timelines with respect to -- do you need -- can you just remind us -- do you need to add any (inaudible) capacity to accommodate that extra production capacity, or do you have excessive capacity at this point in time?

No. We are doing a new (inaudible) facility for this project, Sasha --

Okay.

And should be in time for the project to start.

Okay. Thank you very much. I have no further questions.

You're welcome. You're welcome.

Thank you.

And we have Alfonso Salazar from Scotiabank on line with a question. Please go ahead.

Yes. Thank you (inaudible). Yes, my question is a follow-up on the Toquepala expansion. I just want to understand what drives the increase in the copper production guidance. I remember it was 100,000 tons per year and now it's 110,000. And also, if you are moving as well in molybdenum production guidance.

No, we're maintaining the molybdenum production guidance, Alfonso. For the copper production, it's -- we have been reviewing our plans for this expansion, and we believe that at least some additional copper can be considered for the project at full capacity.

Without any change in the CapEx (inaudible)?

No changes in the CapEx but changes in the mining plants.

Okay. Great. Thank you.

You're welcome.

And we have John Tumazos on line with a question. Please go ahead.

John Tumazos from Very Independent Research. Thank you for taking my question. I'm looking at the description on your website of the Cuajone concentrator expansion for $658 million. It says the high-pressure grinding rolls were supposed to reach full capacity in the first quarter. Could you tell us how much of the capital went to the high-pressure grinding rolls? What attribute of the ore lends itself to high-pressure grinding rather than a SAG mill or a ball mill? And if, in fact, they're at full capacity now.

Okay. Let me start by the end. It's pretty much at full capacity at this point. The high-pressure grinding rolls is a facility that there are basically fractures in the mineral before it goes into the milling process. We -- generally speaking, we don't have SAG mills. We do have high-capacity mills, and this is a process that goes before the mineral goes into the milling part of the (inaudible) operation. Currently, about one-third of the mineral that goes into the Cuajone concentrator uses -- passes through the high-pressure grinding rolls.

And how much did these cost?

The capital cost for the project is $45 million. That's the budget. As of March, we have spent $34.6 million.

Excuse my curiosity, but some other companies -- Newmont at Boddington, Goldcorp at Penasquito -- spent much larger amounts for high-pressure grinding. Was there some special attribute of your grinding mills that permitted them to be lower-cost? Did you buy some used rolls maybe from a sheet steel rolling miller -- something very clever like that?

Well, no. It's just the proper size of the project for our operations. I'm not familiar to the other high-pressure grinding rolls projects in mining companies. I do know that it was -- this technology has been used for the cement industry. We are -- we have acquired all the equipment brand new, and it's -- as we usually do -- and it's operating at a very good level. Generally speaking, we are very keen about cost control. That applies to all of our activities -- not only our operations, but our CapEx. Obviously, we are dimensioning this project for the right size for the Cuajone operation.

Muy bien. Gracias.

(Inaudible.)

And the next question comes from Tony Rizzuto from Cowen and Company. Please go ahead.

Thank you very much and appreciate your stamina on this call, and thanks for taking my question. You gave some very helpful guidance on copper production and CapEx by year out through 2018, and I was hoping you could do the same for cash operating costs before byproduct credits please.

It's a little bit more difficult. We already provided guidance on what happens for 2014. For the next years, we're expecting that when the new concentrator of Buenavista gets into operation, as well as the projects that we discussed through the call -- that's the Tia Maria project and the Toquepala project -- we should have a lower cash cost. Long term, we believe that where cash cost could go down by about $0.10 when you compare it to current level. But now, that's -- as I always mention -- it's important to be -- to realize that that cash cost is resulting from several factors -- among them, cost of materials, different variances in technology, etc., etc. So it's hard to say what is going to be the cash cost in the future, but we believe that it's going to be lower when we have all of these projects in place.

Certainly more able to offset inflationary impacts as well.

That's what we expect -- that it will also help us to offset inflationary impacts because most of the projects are taking advantage of economies of scale so the company will enjoy benefit in their cost position. We do focus on managing cost because we can't deal with market prices. We are not -- we can't control them. What we do control -- it's our operating cost and that's why we focus on optimizing it for the company benefit and the shareholders' return.

Congratulations on moving forward the expanses. Thank you, Raul.

Thank you very much.

And our last question comes from Mandeep Manihani from JP Morgan. Please go ahead.

Hi. Thank you. Hi, Raul. My question is basically related to organic growth. Can you please comment on the Angangueo and the Pilares projects? (Inaudible) update in the press release? And secondly, beyond the current pipeline of projects, what is the company's focus -- if there is something you're currently (inaudible) or has there been any development towards El Arco and Los Chancos projects? Thank you.

Okay. Let me start by Angangueo and Pilares. In the case of Angangueo, the project is moving forward. We are looking at -- currently at the permitting part of the project. We have as a goal -- the project is scheduled for next year -- for the second half of next year. This is a zinc-silver operation with some copper. That's why we don't mention it in our copper guidance, but that's basically it. Regarding Pilares, Pilares is already -- it's already on hold. We're having talks with the local communities to -- related to some access land that is required for the project. As long as we don't solve this, we will not have the project back in our pipeline. Oh, regarding El Arco and Los Chancos, these projects are under development. We believe that they could be a good basis for future organic growth coming from the company, but at this point, we're not considering them as part of our current production profile.

And we have no further questions.

Okay. Well -- okay. With this, we conclude our conference call for the first quarter of 2014 results. We certainly appreciate your participation and hope to have you back with us when we report the second quarter of 2014 results. Thank you very much and have a nice day.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating and you may now disconnect.