Southern Copper Corp (SCCO) 2014 Q2 法說會逐字稿

Good afternoon, and welcome to the Southern Copper Corporation's Second Quarter 2014 Results Conference Call. With us this morning we have Southern Copper Corporation's Mr. Victor Pedraglio, Financial Planning Manger, who will discuss the results of the Company for the second quarter of 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 any forward-looking statements, 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. Victor Pedraglio. Please go ahead.

Thank you very much, [Baquida], and good morning, everyone, and welcome to Southern Copper Corporation's Second 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 will 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, and expansion projects and capital expenditure program. After that, we will open the sessions for questions.

Regarding the copper market, during the second quarter of 2014 we have seen relative softness in copper prices, which have decreased by about 4% when compared to the first quarter of the year.

Simultaneously, however, we have been seeing the copper market's future fundamentals improving positively. As of July 23, 2014, inventories at the three major warehouses -- that is, LME, COMEX, and Shanghai -- have decreased by 221,000 tons, or 46%, from their position at the beginning of 2014.

As we have indicated in the past, we believe copper demand is improving. It's improving due in large part to the synchronized economic recovery of 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 recent Chinese strategic reserve purchases, as well as an expected copper demand rebound of this country for the second half of this year, will support global copper demand growth in 2014.

On the supply side, we think that several (inaudible) factors, such as scarcity, delays in project startups, technical problems, labor unrest, and other difficulties will continue to affect supply from new projects and existing operations as well as scrap production. As a consequence of these factors, we think there is now a small probability of a surplus market for 2014.

Regarding our copper production, copper represented 75% of our sales in second quarter of 2014. Our mine production increased by 17,872 tons, or 12.1%, in the second quarter compared with the second quarter of 2013 due to higher production at all our open-pit operations.

Regarding molybdenum, it represented 12% of our sales in the second quarter of 2014. Molybdenum production increased by 1,329 tons, or 30%, in the second quarter of 2014 from the second quarter of 2013, mainly as a result of the new Buenavista molybdenum plant, which adds 807 tons; and better production at all our operations, particularly Toquepala -- plus 29%, and Cuajone, plus 21%.

Regarding silver, this represented 4.8% of our sales in the second quarter of 2014. Comparing the second quarter 2014 silver mine production with the same period of the previous year, there is a decrease of 5% as a result of lower production at [Insa] -- it's been 30% less -- and La Caridad, 2% less -- which were partially offset by higher production at Buenavista, plus 39%, Cuajone, plus 33%, and Toquepala, plus 13%.

With regards to zinc production, it represented 3.5% of our sales in the second quarter of 2014. Production decreased 39% in the second quarter of 2014 from the second quarter of 2013, mainly as a result of lower production at Charcas and Santa Eulalia mines.

Now we'll go to financial results. For the second quarter of 2014, sales were $1.49 billion. That is $77.2 million higher than sales of the second quarter of 2013; 5.5% increase.

Copper sales volume increased by 6.9% and value increased by 2.2% in a scenario of lower prices. Prices went down by 4.9%.

Regarding byproducts, we have higher sales of molybdenum, plus 94.6%, due to an increase in volume and price.

And higher sales of zinc, plus 2.8%, due to higher prices, which compensated for a reduction of volume.

In the case of silver, sales decreased by 27.7%.

Operating costs. Our total operating costs and expenses increased by $46.4 million, or 5.5%, when compared to the second quarter of 2013. The main cost increments were spare parts, tires, and reagents and explosives -- $31.5 million. Depreciation, $22.6 million; diesel and fuel, $21.3 million; exploration, $10.5 million; sales expenses, $8.4 million; water, $6.5 million; operations contractors, $6 million; translation difference, $2.6 million. Mining royalties, energy, and other factors.

These cost increments were offset by lower inventory consumption that accounted for $24.3 million; purchased copper, $24.1 million; leachable material, $8.6 million; labor costs, workers participation, and selling, general, and administration.

EBITDA for the second quarter of 2014 was $707.6 million -- that's a 47.6% margin -- compared with $776.8 million, 48% margin, for the second quarter of 2013.

Operating cash costs per pound of copper before byproduct credits was $1.98 per pound in the second quarter of 2014, compared with $1.87 per pound in the first quarter of this year, an $0.11 increase. This 5.9% increase in operating cash costs is the result of the already-mentioned cost increments.

Southern Copper's operating cash costs, including the benefit of byproduct credits, was $0.92 per pound in the second quarter of 2014.

Regarding byproducts, we had a total credit of $374 million, or $1.06 per pound, in the second quarter of 2014. These figures compare with a credit of $297 million, or $0.85 per pound, in the first quarter of 2014.

Total credits have increased for molybdenum 50.7%; gold, 41%; silver, 24.9%; and sulfuric acid, 3.9% -- having decreased only for lead, minus 3.5%; and zinc, minus 1.9%.

Net income attributable to SCC shareholders in the second quarter of 2014 was $337.3 million. That is 22.7% of sales, or diluted earnings per share of $0.40.

Regarding expansion and capital projects, capital expenditures were $375.6 million for the second quarter of this year. That is 16% higher than the first quarter and represented 111.4% of net income. We continue moving forward with our capital expansion program, which could increase copper production capacity by approximately 87%, from 630,000 tons last year to 1,175,000 tons by 2015.

Regarding Mexican projects, in Buenavista we continue developing our $3.4 billion investment program at this unit, which is expected to increase its copper production capacity by approximately 175%, as well as the molybdenum production by 4,600 tons per year.

The new copper-molybdenum concentrator has an annual production capacity of 188,000 tons of copper and 2,600 pounds of molybdenum. The project will additionally produce 2.3 million ounces of silver and 21,000 ounces of gold per year. The project has an 80.7% progress, with an investment of $772.2 million out of the approved capital budget of $1.383.6 billion and it's expected to be completed in the first half of 2015. All major equipment is on site and over 70% has been installed.

To date, we have received 61 400-tons capacity trucks, seven shovels and eight drills required for the Buenavista mine expansion, with an investment of $510.8 million. The first copper cathodes at our SXEW III plant was produced in June. The first of three [solvent] extraction trains started operations as well as 50% of our electro winning plant. Full capacity is expected to be reached by the end of the third quarter of 2014. We have daily production of 330 pounds of copper cathodes. That is 120,000 tons per year.

The capital budget for this project is $444 million, of which 99% have been invested.

The Quebalix IV, a crushing, conveying, and spreading system for leachable ore, will increase production by improving SXEW copper recovery, reducing processing time and holding costs. It has a crushing and conveying capacity of 80 million tons per year and these are expected to be completed in the fourth quarter of 2015. The project has (inaudible) 7.6% progress with an investment of $70.2 million out of the approved capital budget of $340 million.

After a bidding process, the mobile [stacking] conveyor and the overland conveyor contracts are under execution.

The remaining projects to complete the $3.4 billion budgeted program include investments in infrastructure such as power lines and substations, water supply, [painting plants], mine equipment shops, internal roads, and (inaudible).

Regarding Peruvian projects, in Toquepala, through June 30, 2014, we have spent a total of $309.8 million on Toquepala projects. On July 1, 2014, we received the comments from governmental authorities and other stakeholders who related to the environmental impact assessment study of the Toquepala concentrator expansion. We expect to answer these questions during the third quarter of this year and receive the EIA approval by year end and continue developing this project.

The Toquepala concentrator expansion will increase our operation capacity by 100,000 tons of copper and 3,100 tons of molybdenum.

Regarding Cuajone projects, through June 30, 2014, we have spent $38.3 million of a budget of $45 million on the HPGR project -- that's the high-pressure grinder roll project -- which will produce a more finely crushed material. This project continues in the ramping-up stage and we expect to reach full capacity during the third quarter of 2014. The project will generate cost savings, improved copper recovery, and reduced power consumption in the crushing process.

Through June 2014, implementation of the HPGR project and the (inaudible) of [ore grade] project implemented in 2013 has produced incremental production of approximately 13,000 tons of copper. When fully operational, we expect (inaudible) incremental copper production of 22,000 tons.

The project to improve slope stability at the south area of the Cuajone mine to remove approximately approximately 148 million tons of waste material over a thee-year period. This project will improve mine design without reducing current production levels. The mine equipment acquired include one shovel, five 400-pound capacity trucks, one drill, and auxiliary equipment, which will be reallocated to our mine operations once the project is finished. Besides preparing the mine for the future, this investment will avoid the reduction in average ore grade. At June 30, 2014, we have spent $62 million of a total budget of $65.1 million.

Regarding the Tia Maria project, we have responded to the comments raised by the governmental authorities and stakeholders and are waiting for the final approval of our environmental impact assessment study during the third quarter of this year. Once received, we will be able to move forward with this important project.

This project will represent an investment of approximately $1.4 billon and will produce 120,000 tons of copper cathodes using state-of-the-art technology and will be compliant with the highest international environmental and sustainable development standards. The project is currently expected to generate 3,500 jobs during the construction phase. When in operation, Tia Maria will directly employ 600 workers and indirectly another 2,000. Through its expected 20 years of life, the project-related services will create significant business opportunities in the Arequipa region. In addition, the Company intends to implement social responsibility programs in the Arequipa region similar to those established in the communities near its other operations in Peru.

Regarding dividends, as you know it is the Company's policy to review at each board meeting cash resources and expected future cash flow generation from operations, the capital investment plan, and other financial needs in order to determine the appropriate quarterly dividend. Accordingly, at the close of the markets on July 24, 2014, the Board of Directors authorized a cash dividend of $0.12 per share of common stock, payable on August 28, 2014, to shareholders of record at the close of business on August 15, 2014.

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

(Operator Instructions) Carlos de Alba.

Yes, good morning Oscar, Victor, and Daniel. First question is regarding the cash cost of copper before byproducts. We have seen some volatility in recent quarters and it may increase about 6% quarter over quarter. Could you comment, perhaps Victor or Oscar, on how you see this trend going forward? Clearly that remains very low, but it does affect the cash generation and margins of the Company.

And the second question is if you can comment a little bit more on the status of the Tia Maria project. I remember the Company was expecting to receive final approval during the summer. So if you can give us an update of what is happening exactly, where the project is at right now. And provided that you receive final approval in the coming months, what else will be pending before you can start production construction and when that will be? Thank you.

Thank you very much, Carlos. Regarding cash costs, I think that's been mentioned. It has incremented due to higher prices on the main components. Now, looking forward, due to the fact that the newest SXEW III in Buenavista will start full production shortly, and that adds low-cost copper, we expect that it will improve our cash costs before the byproducts.

Do you have any level, Victor, where costs could be after they ramp up?

Well, what we will expect is that the effect of the new SXEW III production will mean that our cash costs before byproducts will come down. I mean, if this lower trend will be, we assume.

Okay.

And about Tia Maria, we are expecting to receive either at the end of this week, by Friday, the official approval because it's (inaudible) to the nation because of the independence days of Peru. The president already mentioned something about Tia Maria, but we don't have the official paper. And we are expecting that either Friday or next Monday we will have the official approval.

Then what is going to happen after that -- we are going to try to get the construction license -- that is a normal procedure that we need to comply. For that, we are already studying the possibility to have water for construction because that request, in order to get the approval of the construction license. And as soon as we have that, we will ask for proposals in order to move the starting of the excavation of the pit in order to get all the waste material out, and for that we are trying to get a contractor because we are not going to have the mining equipment delivery on time to do it by ourselves at the beginning.

And at the same time, we are requesting the purchase order for the main equipment that is including the SXEW plan. We already have eight proposals and we are waiting to study that and decide just what is going to be the best one, and that will be a [long-sum] proposal in order that includes the engineering, the supply, and the construction supervising in order to do all the plan similar to the one that we sold to Buenavista Cananea plant that is already in operation. That is what we get for a start and also requesting because we already have the equipment for the conveyor system going from the mine to the (inaudible) plant. We will need to get the purchase order of the new [cloak] shell because we transfer that cloak shell to the expansion of Toquepala.

Okay, and if indeed the Company gets the permit late this week or early next week, and assuming that everything else goes well, when can the Company start construction of the project and when would it be ready?

I think that we can start by the end of the year or beginning of next year, and that is going to take between 20 to 24 months, all depends on the delivery of the major equipments.

All right, perfect; thank you.

That means that we are going to be ready for production definitely by the beginning of 2017.

Thiago Lofiego.

Hi, thank you. I have two questions. First on the CapEx numbers for 2014 and 2015. If you look at the first half number, you spent $660 million versus your official [pledges] for the year at $2.4. So I just want to direct -- if you could give us more color on how the evolution of the CapEx should be from here on? Should we expect a lower spending this year versus your official budget?

And then, additional CapEx for next year? So how should we see that evolving? If you could just outline the numbers for 2014 and 2015.

And then, the second question is on costs regarding the Buenavista project. Could you give us more color on what's the average cost for the new facilities and should they contribute to dilute costs going forward? So what's the cost advantage of these new facilities as they ramp up?

Thanks a lot, Thiago. Your first question regarding CapEx. Well, at this point we are rescheduling approximately $200 million of our 2014 capital budget and increasing the Tia Maria budget to $1.4 billion. For the remaining years, our CapEx expenses will be as follows -- for this year, $2.1 billion; for 2015, $1.5 billion; for 2016, $950 million; for 2017, $950 million; and for 2018, $350 million. So in that sense, it's the -- yes, we are doing some rescheduling of our CapEx from 2014 to 2015.

Having said that, if we consider what we have already spent plus what we have already committed, we reach around 60% of our guidelines.

Now, regarding costs, the reason why Buenavista SXEW III and the new concentrator will improve our cash costs before byproducts is because both projects will add low-cost production, reaching operation is low cost. And also, the expansion of the concentrator adds more material which has a lower cost because they were a (inaudible) brownfield expansion. There are some costs which you don't need to incur again because they are already embedded in Buenavista's operation.

Let me add about the Buenavista SXEW plan. If we are going to produce 120,000 tons by the end of this year or beginning of next year at around $0.40 cost, then definitely we are going to improve our cash costs for the rest of the Company. Because it's about 20% more production at low cost. That is the reason that we expect that will be lower than the $0.92 that we have right now.

Okay, that's very clear. Thank you, guys.

You're welcome.

Santiago Perez Teuffer.

Hi, Carlos, Daniel, and Victor. Thanks a lot for your time and congratulations on these results. My first question is related to zinc. Could you please elaborate on what happened in Charcas and in Santa Eulalia?

And what do you expect for zinc for this year and the next one, please?

Okay. Hi, Santiago; thanks a lot for your questions. What happened is that in Charcas an accident which happened by the end of the first quarter affected production temporarily. That has already been solved.

And then, there had been a flood in Santa Eulalia. And Santa Eulalia expects to be recovered by the fourth quarter.

Now, with those effects we expect, for this year, to produce 82,000 tons of zinc from our mines. That is a change from our prior forecast of 95,200 tons.

Perfect; thanks a lot, Victor. And basically, can you give us some light on how much CapEx has been spent in Tia Maria or in relation with Tia Maria?

Yes. Well, in relation with Tia Maria, it has already been invested around $345 million.

Perfect; that's very helpful. Thanks a lot, and congratulations on the first bounce from (inaudible).

Thank you very much, Santiago.

Leonardo Correa.

Hi, everyone; thank you. My first question is regarding the tax rate. Looking at the numbers, the tax rate came out at around 40% in the quarter. I understand that the Mexican royalties have been inflating the tax numbers a little bit, but just wanted to get a sense from you on the trend going forward -- if we should see these level as sustainable or we should revert to something around 35%, 36% as an effective tax rate. That's my first question.

The second one -- if you can please just refresh on the copper production target for 2014 and 2015, please.

And finally, if I may, just a very quick detail here. I think, looking back at the first quarter conference call, I wasn't sure exactly if you were talking about Toquepala, the brownfield expansion, at 110,000 tons. Now you're moving back to the target of 100,000 tons. So I'm just wanting to clarify if I had maybe misunderstood back then or it actually has reduced the production target for Toquepala at around 100,000 tons. Thank you.

Well, thanks very much for your questions, Leonardo. First, the (inaudible) tax rates. You're right, it's around 40% and we would expect it to be maintained.

Then, on our production guidelines, let me get the numbers because we have changed slightly our -- our guideline for 2014 and 2015 remains at 672,000 tons for this year and 840,000 tons for next year.

But due to the fact that we are now considering that the ramping-up of Tia Maria and Toquepala expansion would be late 2016 -- I mean, on the last quarter. Then we have lowered our production guidelines for that year. For 2016, we are expecting now a production guideline of 995,000 tons.

And about Toquepala production, it's supposed to be 100,000 tons. Maybe in the first quarter we mentioned 110,000 tons but it was a mistake because since the beginning our production was 100,000 tons for Toquepala expansion and 120 tons 000 for Tia Maria new project.

Thank you, Oscar. Thank you very much, people. Thanks.

You're welcome.

Marcelo Aguiar.

Hi, guys; thank you for the opportunity. Two questions. First, on the costs that you guys expect to have at Tia Maria and Toquepala. Can you elaborate a little bit -- or level off cash costs before byproducts -- would you expect on those operations when it's fully operational by 2017?

And the second question will be more looking to the longer term. CapEx. I mean, you mentioned about $350 million in 2019 [sic]. Does that level of investment -- is that what you see as the normalized? And this level of investment already includes in CapEx to avoid the question or you don't expect any CapEx on that front for several decades?

Okay; thanks, Marcelo. First, regarding cash costs. We don't disclose cash costs by operation, but let me mention that in case of Tia Maria and Toquepala expansion, the figure is going to be very similar to what we have explained a few moments ago regarding Buenavista. This is because Tia Maria is a copper oxide leaching operation. It's low-cost. I mean, the cost is below $1 a pound. So that that adds an important low-cost production to the equation.

And then, in the case of Toquepala expansion, in a similar manner to what is going to happen in Buenavista expansion, you get an added production and you have already incurred some costs because it's a brownfield operation, which you don't need to incur again. So the additional production from either Toquepala's expansion and Buenavista expansion comes at a lower cost than current production at both sites.

Wilfredo Ortiz.

Yes; good afternoon, everyone. Just wanted to get a little bit more clarity as far as Tia Maria is increasing the CapEx budget -- what is really triggering that?

And then as far as all the other projects, is there room for the CapEx to creep up or do you feel fairly comfortable with the current levels?

And then secondly, as far as the Buenavista concentrator expansion for next year, how should we see the progression of the quarterly production for the Company as a whole? Because the ramp-up is in the first half but essentially, how should we see that production on a quarterly basis for 2015 with your target levels?

About the Tia Maria, the reason is that the price that we have or the costs that we have for the project, that was for the year 2010-2011 -- close to $1 billion. The reason that we are estimating $1.4 billion at this time in 2014 is because we think that all the equipments are getting higher prices. And because the construction companies are quoting with higher prices, too, mainly here in Peru. And that is the reason that we are estimating $1.4 billion. We hope that we can get it for less but right now really the story that we realized from the beginning is giving us that $1.4 billion.

And is there a level of contingency embedded in this $1.4 billion? And if so, how much is that level?

Yes, we have about $70 million contingency. We hope that we will not use it but that is what we can (inaudible) story.

Okay, thank you.

And Wilfredo, regarding your question on Buenavista, what we expect is to have the ramping-up by the end of the first half of next year, which would mean that by the second half, then we should start getting the expected production.

But the ramp would be gradual, or would it be fairly quick? How should we kind of envision that quarter-over-quarter progression in the second half?

Usually there it's gradually to ramp up, so we should think around the most of the second quarter of next year, and maybe even the first month of the third quarter of next year.

Okay.

Alex Hacking.

Hi; thank you for taking my question. My question is on the Toquepala expansion. The feedback that you received -- was there anything in that that was sort of material or problematic? I know in the past that some of the local communities there have been asking for use of desalinated water and things like that. So I guess overall, are you comfortable with the EIA process on Toquepala and how it's proceeding?

Yes, we already have some agreements with the [Candarare] area and the Jorge Basadre, and we are already answering the observations of questions that the Minister of Mines transferred to us at the beginning of this month. And we expect to finish that by the 20th of September because they gave us 60 working days for answering that. And we hope that we can do it in shorter time. Soon we'll hear back.

We are going to be in the same timing that Tia Maria, in order to get the working license and will be faster the startup because it's an expansion inside our own lands and we don't have any problems with water or the construction license.

Then we expect that maybe at the beginning of next year, we can start construction at the same time that Tia Maria for the expansion of Toquepala.

Okay, thank you. And given that Tia Maria probably is starting up some time like beginning of 2017, the $1.2 million's on target. I mean, I think in the beginning of the call you talked about that being at capacity for 2015. But I think that was a mistake. That $1.2 million's on target -- like, 2018 seems like a realistic time frame for that, right? If the two Peruvian projects are ramping up during 2017. Thanks.

What we are considering for Tia Maria and also for Toquepala expansion is ramping up on the last quarter of 2016. That's why we have diminished our production guideline for that year. But we are still considering that for 2015, we would be with both projects at full production.

Sorry, what year (inaudible - multiple speakers) production?

Victor Pedraglio: 2017.

No, sorry; for 2017. I mean, for the last quarter of 2016, we would have both projects on the ramping-up stages. And then in 2017, we would have the full benefit of both of them -- Tia Maria and Toquepala expansion.

Okay, thank you.

You're welcome.

Sasha Bukacheva.

Yes, thank you, Operator. Victor and everyone, thank you so much for providing this update. I had a question. Since you are now contemplating using [contra cures] for pre-ship at Tia Maria, is that a part of your $1.4 billion CapEx, or might that be a cost in addition to that?

No, that's included on the CapEx and yes, we are exploring the -- most likely the project will go with that. We would not build our own desalination plant but we would contract the services for the desalination water on site.

Okay. And then, what's the rough amount that you've assigned to it to complete the pre-ship as well as install the -- or, sorry, utilize their desal plant. How much of that is in the $1.4 billion?

I'm sorry, but we don't give detailed information, but want to ensure that it's included on the $1.4 billion.

Okay, and then on the high level, to the extent that you can provide, what's the breakdown between the mine equipment versus the plant equipment in that $1.4 billion number?

I think around $400 million for the mine equipment and the desalinization plant -- the first quarter we have two years ago was about $70 million. We answered your question?

Yes. So then, I would say, would you then say, $600 million to $800 million is for the plant but there is another $70 million contingency in there?

(inaudible - multiple speakers) hello?

Yes, sorry. So then I'm just looking -- so I'm taking $1.4 billion and taking out $400 million for the mining equipment and then $70 million for the desal plant, and then $70 million contingency. So I would -- for the SXEW circuit construction I would assign about $600 million to $800 million?

Yes, it sounds reasonable; yes.

Okay.

Yes, we are talking about $1.4 million and we are talking about what, 120,000 tons production, then really we are having a cost per ton of 120,000, no?

Yes, right; okay. And then, just to move around here. When do you expect Cuajone push-back to be completed? The current waste removal program?

Okay, the waste removal in Cuajone is in process. Now, that's an ongoing process which went on at least for this year. You're talking about the improvement of the slope?

The slope stability, yes, exactly.

Okay. Well, that's an ongoing process for the whole of this year. It should be finished by the first quarter of next year.

Okay, thank you very much. And just on the production guidance, because there were a few numbers going around. So the guidance for this year is still 670,000 tons?

Yes, for this year it's 672,000 tons. For next year, it's 840,000 tons. And then for 2016, due to the delay on Tia Maria and Toquepala expansion, we have lowered from our previous guideline and the new guideline is 995,000 tons.

Okay. And then for 2017, we're still at 1.2 million.

Yes, from 2017 and 2018, we are on 1,175,000.

Okay. Okay, got it. Thank you very much. That's it for me; thank you.

You're welcome, Sasha.

Alfonso Salazar.

Thank you. Just have one clarification on the Tia Maria CapEx, please. Is this $345 million that you already spent included in the $1.4 billion? Or is it (inaudible)?

No, it is included on the $1.4 billion. So I mean $1.4 billion is the cost of the whole project, of which we have already invested $350 billion. Sorry, $345 billion.

Okay, thank you. And then, I see that you have signed two energy contracts in Peru. And I think this is starting in 2017, once the Enersur contract ends. So I don't know if you can talk about what you expect in terms of cost reductions in energy after that?

Well, as you are aware, our current power purchase agreement has the price of energy with a major component of coal. Now, that is going to change with the new power purchase contracts, which have been signed, and they will go into effect in April 2017. At that time, we will have a significant reduction on our power cost, which (inaudible) will be -- which should be around 35% to 40%. That's what we expect.

Okay, thank you.

Rodrigo Garcilazo.

Hello, everyone. Just a couple of questions. The first one regarding energy in Peru. Are you actively looking for new contracts to support expansions currently or are you even considering to develop a new project there in Peru?

And the second question is, as you know, Humala announced several measures to boost the economy in the (inaudible) space. Anything in particular in this program to facilitate your expansions in any form? That's it.

Thanks a lot, Rodrigo. First, regarding energy, the two power purchase agreements we have just signed are -- well, each one of them is for 120 megawatts. They add up to 240, and that's our -- the expected energy requirement for our current operations. Once we get approval for our expansion projects, which [you may sense] Tia Maria will require around 72, 75 megawatts. And Toquepala expansion were a little less. Once we get approval from them, then we would actively seek for ensuring that additional energy. But currently, the two power purchase agreements we have already signed are for 240 megawatts, which is what we expect will be required by our current operations from 2017 onwards.

But we already have the compromise from Kallpa to supply at the same price that the first 120 megawatts for the first project that will be underway. That means Tia Maria, definitely, I think will be the first one. Then the 75 or 72 megawatts are going to be at the same price that the contract that we already signed with Kallpa for the 120 megawatts. And that is about 40% lower than the prices that we are getting right now from Enersur.

Regarding your second question, Rodrigo, this measure to reactivate the Peruvian economy starts by (inaudible) to congress -- we have to take a good look at them and see if we could take advantage of some of them for our projects. The first advantage we'd see is this intention of streamlining the environmental impact assessment studies approval process, which is something that's very good for us.

Thank you very much. That's very, very useful. Thanks.

You're welcome, Rodrigo.

Santiago Perez Teuffer.

Hi, Victor. Thanks for the follow-up. I wanted to follow up on the desalination process. If I heard correctly, you are not going to do it yourself. So I wanted to ask, how much OpEx will need at Tia Maria, around how much OpEx?

And also, how many of this service already exists or would your provider need to develop it while you develop the project? Thank you.

Okay. [We've got] in Tia Maria the desalination plant. We are exploring the possibility, as you say, of having somebody else build the desalination plant and supply us the water at Tia Maria. That reduces the CapEx for the project and then increases marginally the operational costs. Now, it should increase the cost around $0.05 or $0.08 more per pound. (inaudible - multiple speakers) That's one thing what (inaudible) look at right now.

That's perfect. And does anybody else already lease this service, or will this service need to be developed as you develop the project or does it already exist?

Well, not yet. I mean, there is not a desalination plant which we could use right now in the area.

Perfect; thanks a lot.

You're welcome, Santiago.

Carlos de Alba.

Yes. (Inaudible) was also about clarification on the desalination plant. Can you comment just why the decision of not building your own plant? I mean, what changed? It's only about $70 million to $100 million in CapEx. Why did you change your mind?

No, we are not changing our mind. We are going to get the proposals for operation and supply at Tia Maria for some price and if that price is good, we will take it. But at the same time, they are going to supply the cost for supply the plant and will be operated by us. If any of the two alternatives, we will chose the best. (inaudible - multiple speakers)

No, just to finish (inaudible). We have not decided either to build or to get what -- we are exploring both alternatives and as Mr. Gonzalez Rocha just said, we will choose whatever is best for the project.

All right. So I expect that the CapEx of the desalination plant is not included, then, in the $1.4 billion estimate?

It is included. But we have -- the last time. We will choose to get the approval of supply by (inaudible) cost and that will be in the OpEx, then we will lose the $70 million from the CapEx $1.4 billion.

Okay. Thank you very much.

Rodrigo Garcilazo.

Hello. I've got one more question regarding energy. I wonder if there has been any change in your projections for energy demand in Mexico coming from the Buenavista expansion.

That is supplied by -- well, (inaudible) plants that are built in Caridad.

Right now, we have one of the plants which is (inaudible) generated 240 megawatts for our operations. And then the second plant has already been completed. It has an output of 265 megawatts and it's on the final commission stage.

And those 500 megawatts will be sufficient to cover all your operations in Mexico?

Yes, that is correct. They will cover our current and expansion in Mexico.

Okay. And I believe that the second plant that you mentioned is already finished and start commissioning right now. But the energy that will be [sourced] will be used for the Buenavista concentrator, right? So what will happen in the next six months that you already have the plant already built, already commissioning, but the concentrator will be ready only by next year. What will happen in the next six months with the plant and that energy?

Well, any excess energy production from those plants on top of what we need will be sold to the Federal Mexican Energy Commission.

And you have all the permits to sell already that energy? Because I remember that in the first plant, there was, like, some permit missing that doesn't allow you to actually sell the energy. Are we set with all that? (inaudible - multiple speakers) Okay, sorry.

I understand that that's still an ongoing process. We sell to the energy or to (inaudible) other prices.

Okay, perfect; thank you.

You're welcome.

Thank you. And Victor, we have no additional questions at this time.

Okay. Thanks a lot, Baquida. Well, with this we conclude our conference call for SCC Second Quarter 2014 results. We certainly appreciate your participation and hope to have you back with us when we report the third quarter 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; you may now disconnect.