Southern Copper Corp (SCCO) 2014 Q4 法說會逐字稿

Good morning, and welcome to the Southern Copper Corporation's fourth quarter 2014 results conference call. With us this morning we have Southern Copper Corporation's Mr. Raul Jacob, Vice President Finance and CFO, who will discuss the results of the company for the fourth 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 not to 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.

Now I will pass the call on to Mr. Raul Jacob.

Thank you very much, Hilda, and good morning to everyone. And welcome to Southern Copper fourth quarter 2014 earnings, as well as the year 2014 conference call. Participating with me in today's conference is Mr. Daniel Muniz, Grupo Mexico's CFO.

Before we go into the details of this past quarter and the year 2014, let me mention that in 2014 Southern Copper results show the initial impact of our aggressive organic growth program, which will significantly increase our production, improve our cash cost, and enhance our earnings. We believe that the investors' community will appreciate the company operating transformation much more clearly during 2015.

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

Focusing on the copper market, we think that the recent reduction in copper prices results from copper following oil for technical reasons not related to the copper market balance or fundamentals. We believe current relative softness in copper prices will start to change as we move on into the second quarter of 2015.

As we indicated in the past, we believe short term copper demand is consistently improving. For this year, we expect the US economy to keep pulling new copper demand. We also think we'll see higher demand coming from Western Europe.

In the case of China, growth will be somehow limited by its housing market slowdown. However, the Chinese electric grid plans to expand investments by 24% supports growth at about 4% for China's copper demand.

On the supply side, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap copper production. Some of them to note are the following.

Cochilco, the Chilean Copper Commission, has indicated they believe that at current price levels about 10% of the country's production is at risk. In 2014, Chile produced approximately 5.8 million metric tons of copper.

The government of Zambia has increased its royalty regime from approximately 6% to 20% of the sales value. Most of the copper producers operating in this country have indicated that this confiscatory taxation will jeopardize their production and exports. In 2014, Zambia is estimated to produce 577,000 tons of copper.

High quality scrap production, a substitute for refined copper, which is about 90% of Southern Copper's sales, will significantly reduce its contribution to the refined copper market. Scrap copper represented approximately 10% of the market of refined copper in 2014.

The current view on the 2015 copper market ranges in between a market imbalance and a market with a surplus, in some estimates as high as 300,000 tons. In the majority of these estimates, surplus expectations are significantly low or down from what we had a year ago for 2015.

Due to the noted factors as well as delays in projects and startups, technical programs, labor unrest, and other difficulties that are structural to the supply of copper, we believe that market will trend to balance as we move on through 2015.

We want to also emphasize that prices at current levels are not sufficient to promote the necessary future supply growth, thereby improving the strong long term fundamentals of our industry.

Looking at cooper production, copper represented 80% of our sales in the fourth quarter of 2014. Our mine production increased by 18,550 tons, or 11.2%, in the fourth quarter when you compare with the same period of 2013. That was mainly due to higher production at our Buenavista operations, which increased production by 16,900 tons.

On a yearly basis, copper represented 78% of our sales. And all-mine copper production of Southern Copper increased by 59,580 tons, or 9.7%. In total, Southern produced 677,000 metric tons, and that compares to 617,000 tons in 2013.

For this year, for 2015, improvements in operational practices and capital investments will reduce costs and increase the company's copper and molybdenum production. We plan to produce 782,300 tons of copper, which will set a new record of production for copper for Southern Copper.

For this guidance, we are considering that our Buenavista operation will produce 344,700 tons. Of those, about 163,000 will come from our new projects. The SX-EW Plant III will contribute with 102,000 tons, and the new concentrator at this same operation will add 61,000 tons of that total.

Regarding molybdenum, it represented 6.3% of our sales in the fourth quarter of 2014. Molybdenum production decreased by 138 tons, or 2.4%, in the fourth quarter when compared to the same period of 2013. And that was as a result of lower production at the La Caridad operation due to lower ore grades.

The lower La Caridad production of molybdenum was significantly offset by improvements in Buenavista. The Buenavista new moly plant increased its production by 50% in the same period.

The Cuajone operation in Peru increased its production by 36%. And these two increments in production somehow offset the reduction in production from La Caridad.

In 2014, Southern Copper produced 23,120 tons of molybdenum. This is 16.2% more than the 19,900 tons produced in 2013. And by the way, it is a record of production of molybdenum for the company.

Of the 2014 molybdenum production, the new plant at Buenavista contributed with more than 2,200 tons, which is a significant part of the improvement. For 2015, we expect to produce 21,500 tons of molybdenum, given the variance result of lower ore grades and recoveries at our operations.

In the case of silver, it represented 4.5% of our sales in the fourth quarter of 2014. Comparing the last quarter silver mine production with the fourth quarter of 2013, there is a decrease of 6.7%, mainly as a result of lower production at our IMMSA operations at Santa Eulalia that was affected by a flood, and Charcas, which had a technical problem.

The Charcas technical problem has been already solved and we expect to have Santa Eulalia back at full operation by June of this year. For 2015, we expect to produce 2.7 million ounces of silver, in line with 2014 production.

Zinc represented 4.3% of our sales in the fourth quarter of 2014. Production decreased 33% in the fourth quarter of last year when compared to the fourth quarter of 2013. That was mainly the result of the lower production at the Charcas and Santa Eulalia mines already discussed.

As we are solving these difficulties at our IMMSA unit, for 2015 we expect to increase our production of zinc to 86,200 tons. And this is an increase of about 20,000 tons when you compare that to 2014.

Looking at our financial results, for the fourth quarter of 2014 net sales were $64 million lower than net sales of the fourth quarter of 2013. Even though copper prices decreased by more than 7% in the last quarter, Southern Copper managed to increase its sales volume by 7.1%, almost offsetting the sales value impact of the lower copper price.

Regarding byproducts, we had higher sales of zinc, which increased its production or sales by 21% due to an increase in volume and price. We had the lower sales of molybdenum due to lower volume, but mostly prices and often sales adjustments.

In the case of silver, sales decreased a little bit, mainly as a reduction of prices of about 21%.

Our total operating cost and expenses increased by $27.4 million, or 3%, when compared to the fourth quarter of 2013. Main cost increments have been the environmental reclamation charge, purchased copper charges, and repair materials and operational contractors.

These and other cost increases were offset by exchange rate variance or translation difference, lower inventory consumption, lower workers participation, and depreciation.

At this point, it is important to note that Southern Copper cost of sales actually decreased by $12.5 million when comparing the fourth quarter of last year with the fourth quarter of 2013. Also, on a yearly basis, cost of sales decreased by $22.2 million.

These figures are quite remarkable when considering that the company actually increased its copper production by about 11.2% in the fourth quarter of 2014 and by 9.7% for the full year 2014.

EBITDA for the fourth quarter was $664 million. That is 45.1% margin, and that compares with $726.9 million, 47.3% margin, for the fourth quarter of 2013.

Looking at our cash cost per pound of copper before byproduct credits, it was $1.77 per pound in the fourth quarter of 2014. That compares with $1.96 per pound in the third quarter of 2014. That is a decrease of $0.183 reduction.

This 9.3% lower operating cash cost is the result of lower cost per pound from production costs and capitalized leachable material, which compensated for lower premiums and higher treatment and refining charges.

Southern Copper's operating cash cost, including the benefit of byproduct credits, was $1.09 per pound in the fourth quarter of 2014.

Regarding byproducts, we had a total credit of $272 million, or $0.68 per pound, in the fourth quarter. This figure is compared with a credit of $287 million, or $0.815 per pound, in the third quarter of 2014. Total credits have decreased for molybdenum, silver, and sulfuric acid, but increased for zinc and gold.

Net income attributable to SCC shareholders in the fourth quarter was $348 million, that is 23.7% of sales, or diluted earnings per share of $0.43. Net income for the full year of 2014 was $1.333 billion.

Looking at our expansion and capital projects, capital expenditures for the year 2014 were $1.5 billion from a budget of $2.3 billion. We had the smaller than expected capital expenditures because of the delay that we had in the Buenavista and Toquepala expansion programs.

In 2015, we will continue our investment program to increase copper production capacity by approximately 89% from our 2013 production level of 617,000 tons to 1,165,000 tons by the year 2018.

For 2015, the Board of Directors approved a capital expenditure program of $2.687 billion, which will mainly be spent in the following projects. We will conclude the expansion of the Buenavista mine, which will reach a production capacity of 488,000 tons of copper per year.

We will initiate the expansion of Toquepala, which will increase annual production capacity by 100,000 tons of copper and 3,100 tons of molybdenum. We will initiate the construction of the new greenfield project in Peru, Tia Maria, which will produce 120,000 tons of copper per year.

Let me now report on the progress made in each of our main projects. Focusing on the Mexican projects, in the case of the Buenavista projects we continued developing this $3.4 billion investment program, which is expected to increase production capacity as mentioned. We will almost go to 500,000 tons of capacity with an investment, as I said, of $3.4 billion.

The mine expansion, to date we have received 61 400-ton capacity trucks, seven shovels, and eight drills that are required for the mine expansion. That had an investment $510.8 million. All the equipment is already in operation.

The new copper molybdenum concentrator has an annual production capacity of 188,000 tons of copper and 2,600 tons of molybdenum. The project will also produce 2.3 million ounces of silver and 21,000 ounces of gold per year.

The project has 92.2% progress with an investment of $978.5 million out of the approval capital budget of $1.383 billion. The project is expected to be completed in the third quarter of this year. All major equipment is on site and has been installed.

Regarding the SX-EW III Plant, performance testing for this facility was successfully completed and technical full capacity has been achieved in accordance with the designed flow rate of the plant. Estimated annual production for the plant is 120,000 tons of copper cathodes.

The original capital budget of $444 million was adjusted to accommodate additional final investments of $80.5 million. The total revised cost is $524.5 million.

Focusing on the Peruvian projects, on the Toquepala unit, through December of last year, the end of the year, we have invested a total of $346 million in Toquepala projects.

On December 17, 2014, we received the governmental approval of the environmental impact assessment for the Toquepala concentrator expansion, which will allow us to continue developing this important project. The Toquepala concentrator expansion will increase annual production as mentioned, by 100,000 tons of copper and 3,100 tons of molybdenum at a total capital cost of approximately $1.2 billion.

On the Cuajone unit in Peru, through December 31st of 2014 we have invested $40.6 million of a budget of $45 million on the high pressure grinding rolls project, HPGR, which will produce a more finely crushed material.

The engineering and purchase of equipment has been completed, and the project has reached 99% completion. The project is expected to generate cost savings, improve copper recovery, and reduce power consumption in the crushing process.

We are already seeing the benefits of these projects in our current operations. And through December of last year, the implementation of the high pressure grinding rolls project and the variable cutoff ore grade implemented in 2013 have produced an estimated additional production of 23,500 tons of copper plus the mentioned cost savings that I indicated.

The project to improve slope stability at the south area of the Cuajone mine will remove approximately 148 million tons of waste material. This project will improve mine design without reducing current production level.

The mine equipment acquired includes one shovel, five 400-ton 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 a reduction in average ore grade.

As of December 31st of last year, 14 million tons of waste material has been removed and activities will continue for four additional years. As of December of last year, we have invested $67.7 million in this project.

Regarding the Tia Maria project, we received the approval of the environmental impact assessment in August of 2014, and we are now working on the construction permit.

Tia Maria, when completed, will represent an investment of approximately $1.4 billion to produce 120,000 tons of copper cathodes per year. This project will use state of the art technology with the highest international environmental standards.

We expect it 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 of Peru.

In addition, the company intends to implement the social responsibility programs in Arequipa that are similar to those established in the communities near our other Peruvian operations.

Regarding dividends, as you know, it is the company 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 quarterly dividend are also considered for the dividend discussion.

Accordingly, as disclosed to the market on January 29th of this year, the Board of Directors authorized a cash dividend of $0.10 per share of common stock payable on March 3 of this year to shareholders of record at the close of business on February 17.

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

Thank you. (Operator instructions.) Wilfredo Ortiz, Deutsche Bank.

Yes. Good morning, everyone, just a quick question. On the share repurchase program that you announced, this is in addition to the existing program that was in place that, I take it, there was still some amount remaining. Is that correct?

That's correct. We increased the program that the company established in 2008. This is a continuation of that effort. The Board approved a $1 billion extension on that program.

This is a program similar to the ones that some other companies carry. It's aimed to defend the share price. And we are considering currently that our share needs some backup, and that's what we are doing.

Great. And then on the CapEx guidance, the Board -- that approved $2.7 billion, is that what you are planning to spend in 2015, or is that 2015, 2016? Because I believe the prior guidance was $1.8 billion for 2015 and about $1.1 billion for 2016. So, I just wanted to get more clarity on the timing on the expenditures of the $2.7 billion approved.

Yes. So, Wilfredo, it's just for the year 2015. And the reason for that is that we were expecting to spend $2.3 billion in 2014. Then we didn't do that. We spent $1.5 billion, about $800 million less.

So, this year's budget is considering an increase due to a catch-up that we need to do in our Toquepala and Buenavista projects, as well as the initiation of the Tia Maria project.

Now that you mention 2016, we are expecting to spend $1.180 billion, and then for 2017 about $450 million.

Got it. Thank you. And if I may, as far as the production guidance, I know you mentioned for 2015. Could you just repeat that, and what would be the expectation on 2016, given that you ended up 2014 delivering more than what you were expecting based on the last guidance provided?

Yes. Our production for 2015 is expected to be 782,000 tons; for 2016 910,000 tons; for 2017 1,100,000 tons; and 2018 1,170,000 tons.

Great. Thank you so much.

You are welcome.

Thiago Lofiego, Merrill Lynch.

Hi, Raul. This is Thiago. Thank you for the questions. My first question is just to recap on Toquepala and Tia Maria. So, you said you're already starting works on Tia Maria at this point. For Toquepala, the licenses are final, right? So, nothing else needs to be done with the communities, nothing of this sort? And when do you think the works should start? That's the first question.

Okay, I think that I need to clarify. I need to clarify that in the case of Tia Maria we don't have the final construction permit yet. We are expecting to receive it by the end of this quarter.

And in the case of Toquepala, we obtained the approval of the environmental impact assessment last December. And we're also expecting to have the approval for construction on the first quarter.

We have with us Mr. Oscar Gonzalez, our company CEO. Would you like to comment on that?

We are expecting to have the permits for both the projects in the following month, if it's possible. That is inside the first quarter. And then we are going to start the construction in both projects.

We plan to start first in Tia Maria and then just some weeks after in the Toquepala in order to expend the CapEx that was mentioned a moment ago.

Thank you very, Oscar. And if you could just -- if that materializes and you obtain the final licenses within the next month, you should be able to start up in the mid of 2017. Would you think it's two years to develop the projects, more or less?

Yes, it's about 20 to 24 months each project.

Okay, that's perfect, Rocha. Thank you, Raul.

You are welcome.

Leonardo Correa, BTG Pactual.

Yes. Hello, everyone. Good morning and good afternoon. Sorry to insist on the CapEx numbers still, but just wondering if there was any inflation component to that CapEx, or it's just simply a rollover of CapEx that was not spent in 2014.

And still on the same topic regarding Buenavista, after the leakage, I mean, I know that you were reassessing all the CapEx and those studies are probably still underway. So, just wanted to get a sense with you if anything has -- more concrete in terms of CapEx increase has already been decided on the company. So, that's the first question.

And the second one is on cash cost. I mean, we saw pretty good cost control during the quarter, so just wanted to get a sense of you on where cash cost evolution could go, especially now with these, I mean, potentially lower oil prices for longer, just if you can provide maybe some sensitivity on the impact from oil and where you see the evolution of cash cost going forward. Thank you very much. That's it.

Okay. Thank you. Well, on the CapEx, I think that we have -- we are doing basically -- well, actually, at this point in time, not many companies are moving forward with projects as aggressive as we are.

So, we are seeing not the capital goods inflation. We are not seeing the opposite, though. But, we believe that we have a more stable price environment for capital goods at this point. In the case of Buenavista, we have rescheduled investments that should have been done in 2014.

We are not considering an increase in investments other than doing some protective expenditures in order to control any possible environmental events for the future. Other than that, we are pretty much holding to the same figures as we had last year.

About cash cost, we had some cash cost improvement in this quarter. Basically they came from several things, but fuel was one of them. We are expecting savings due to exchange rate as well as the fuel components. We are estimating that about a 1% variance in the cost of oil represents for us about $3.7 million in either savings or more expenses, given our diesel and some other fuels consumption at this point.

For the future, we are looking at a lower cash cost for our operations. And let me mention something on this. Let me do some more color. What we are expecting is our cash cost before credits, that is the division of what is called in the industry C1 by the total pounds of copper before credits, to decrease about $0.20 in the next few years as we move on and improve our production profile with the new projects.

On the byproduct credits, we are doing also an expansion of our production for these byproduct credits, but not on the same proportion. So, given the same byproduct prices, the share on a per pound basis of the credits will be slightly lower in the next few years.

For the total cash cost that has the credits embedded in it, we are expecting a reduction in cash cost of about $0.10 from the current level, say to about $0.95 or a little bit less than that in the future.

Okay. Thank you very much, Raul.

You are welcome.

Rodolfo De Angele, J.P. Morgan.

Hi. Good morning or good afternoon. Just one follow up question now. So, the sheer CapEx is going higher, catching up from what wasn't implemented last year. The new buyback program is in place. So, my question to you is how should we think about your balance sheet in terms of leverage and the potential for dividends, especially in 2015? Thanks.

Okay. Thank you very much for your question, Rodolfo. And let me clarify first that our share buyback program is an extension of the one that was approved in 2008. We just -- the Board just approved an extension on that program. This is what we have been doing for a while, really.

Regarding our balance sheet, as you know we have a relatively conservative balance sheet in terms of debt. So, there is some room for financing if we need to ask for any future loans or other financing possibilities.

On dividends, well, we have a policy in any case that this is up to the Board. I think that a good indication on how the company or the Board addresses this matter is our track record. Currently we are very flexible.

We have reduced a little bit our dividend payout, from about $0.12 that we had been paying through 2014, to $0.10. This is reflecting the aggressive growth that we are doing in our capital program, as well as the need for the company to be cautious on funds administration for the future.

Okay. Thank you very much.

You are welcome.

Mitesh Thakkar, FBR Capital Markets.

Good afternoon, gentlemen. Raul, my first question is just kind of a follow up on the previous one. How much is the net authorization remaining on the share repurchase including this extension?

Well, the extension we just approved is a $1 billion extension.

Okay. So, the net remaining is $1 billion. There is nothing carried forward from the previous one?

No, it's already completed.

Okay. Second is, given the weakness in the copper prices, you would think that there could be some producers who might be looking to sell some assets. You guys are in a much better shape from a balance sheet perspective. How would you evaluate any potential acquisitions, and do you think it could get a priority against your share buyback program and/or dividend growth?

Well, in general we do review these opportunities to acquire assets, particularly in a price environment as the one that we have right now that we believe is not showing the fundamentals of the copper market.

So, we look at the opportunities and we study them. And if there is one that we believe will create value for our shareholders, we will certainly present it to our Board and ask for their approval for going ahead with it.

Any geographical preference, or is it on a case by case basis?

It's mainly on a case by case basis. But, I will say that the Americas is where we feel very comfortable in operating, even though we may look into some other opportunities if they are particularly -- we believe that they are important for value creation to our shareholders.

Okay, perfect. Thank you very much, guys, and good luck.

You are welcome. Thank you.

Santiago Perez, Credit Suisse.

Hi, Raul. Hi, Oscar. Thanks a lot for your time. I have two questions also related to CapEx. The first one is what drove the 20% increase in SX-EW and Buenavista?

And the second one is if you could please break down the number, that $2.7 billion for 2015, between projects it would be very helpful. Thank you.

Yes. Let me address on the -- well, mainly there were different things. But, broadly speaking, we have to capitalize the initial fills. That are the materials that you put in the project once you finish the facilities. This is something that was not considered in the initial budget because we believed that that was going to be charged to cost, and it hasn't been the case.

Then there were some extra expenses in some pipe systems that will create some efficiencies on the plant operation. That was about $31 million of the total $80 million that has been -- increased the budget. The initial fills that I just mentioned were about $20 million, and then some additional civil works that were considered to improve the design and the operation of the plant. Those are the three major components that explain the difference.

Now, on the question regarding the split on the budget for 2015, as I said, for this year we're expecting to spend $80 million on the new SX-EW III. The new concentrator will require about $290 million, the cable leaks $215 million, and other projects $265 million. In total, $850 million in Buenavista.

The Toquepala expansion will require $450 million, Tia Maria $660 million, maintenance CapEx about $350 million, and then we have some other projects from different initiatives, minor ones that total the remaining difference to the $2.687 billion approved by our Board.

Perfect, Raul. Thanks so much. And under the current -- or better said, under which corporate price assumptions are you assessing this CapEx in order to see -- do you plan to finance it with your own cash, or will you probably be looking to tapping the debt market? I mean, your leverage is pretty low, so how do you see yourselves financing this?

We think that our cash flow will provide an important source of revenues for the company. As we move on into the year, we are expecting -- as I said, we're expecting prices to improve.

We believe that these better prices should help our cash flow, but we are all the time monitoring the markets. And if there is a sense that we can do a reasonable finance for these projects, we will consider that as well. At this point, we are looking at debt plus our own cash flow generation.

Perfect. Thanks, Raul.

You are welcome.

Matthew Korn, Barclays.

Hello. Thanks for taking my question. I wanted to ask about the SX-EW III plant. First, you stated you've reached full capacity. Just wanted to confirm, is everything there resolved post the river spill? Are all the leaching ponds tied to the facility in service as expected?

And second, can you help me understand, given that full capacity is stated as 120,000 tons, why is the expected lift at 102,000? Is that just practicality of operating rates, or is there something else I'm not considering? Thanks.

Yes. Thank you very much for your question, Matthew. Well, there are two things here. Regarding the spill, we are still waiting for the authorities to let us operate the facility that was related to this event in 2014.

So, as long as we don't have that approval, which we are expecting for mid 2015, we can't operate that area of the mine where we will obtain very good ore, or PLS grade. That is the material that is processed by this plant.

So, we are filling the plant with some other PLS, or pregnant liquid solution, that we have in our operations, but not with the same grade. And that's why we have -- we are reducing our production to 109,000 tons for this facility in -- I'm sorry, 102,000 tons for this facility. That's basically it.

Great. Thanks, Raul.

You are welcome.

Alfonso Salazar, Scotiabank.

Hi, Raul. Thank you for the call, and just one follow up on CapEx. I don't know if you can repeat the numbers, your estimates for 2017 and 2018, and confirm if you have a new smelter project included in these numbers or not.

No, let me -- we have no smelter project in our current pipeline of projects. That is not considered in the figures that I am going to mention now.

For this year, it's $2.687 billion. For 2016, it's $1.180 billion. For 2017, $450 million. And for 2018, $328 million.

Excellent. Thank you. And just one follow up on Tia Maria. There have been some protests taking place. So, I don't know how you are seeing this, your concern about this increasing. What's your feeling about this situation?

We think that this is not a problem. We are seeing some very minor and not popular individuals protesting against the project. But, most of the population in the area is favoring the project and expecting to receive the benefits of these type of investments in their lives.

Okay, great. Thank you very much.

You are welcome.

Daniel Rohr, Morningstar.

Hey, thanks for taking my question. Did I hear correctly that you expect cost before credits to decrease by $0.20 in the next few years? And if so, what sort of assumptions does that make about oil prices and exchange rates?

Okay. Yes, you are right. That's what I said. And we are expecting prices to be at about the average for last year. That's about $80.00 per barrel, roughly speaking. And on the exchange rates, again, the average for Mexico and Peru last year.

Currently we have slightly lower oil prices and slightly higher exchange rates in both Mexico and Peru. So, we should have an additional benefit this year -- compared to this year. But, for the future, we believe it's going to be about $0.20.

Right. Thanks. And then, just hearing your revised CapEx outlook for 2017 and 2018 and comparing that to my notes from the third quarter call, am I right that there was a pretty significant reduction to the 2017 and 2018 figures?

No, it was clearly a correction in the figures. And you can review it in the transcript, because we had a project that was not approved by the Board in last quarter's call information. So, the numbers are in line with what I have said regarding this current forecast.

Okay. Thank you.

You are welcome.

Garrett Nelson, BB&T Capital Markets.

Hi. Another question on the balance sheet. It looks like your total debt to EBITDA ratio is about 1.5 times, which is very solid especially relative to many of your peers. Are you comfortable with higher ratios going forward though if copper prices do not rebound or even more lower? And is there a maximum leverage ratio the company aims to stay below or maybe a range that Southern Copper aims to stay within?

Yes. Actually, we do have a very solid balance sheet and we want to maintain it as it is. However, if we need to accommodate some more debt for reasons as the one that you mentioned, we will have a concern about this debt to EBITDA ratio goes over 2.5.

So, right now it's about 1.5. We don't think that -- we think that that's very comfortable, but we still have some more room to increase it if it is necessary.

Okay. Thank you. And then, your quarterly interest expense has been trending lower over the past few quarters, and it looks like maybe you've been capitalizing a greater percentage of your interest expense. Is that right? And if so, it looks like your interest expense was $26.5 million in the fourth quarter. Is that a good quarterly run rate number to use for 2015?

Well, we are reducing our -- you are right in your question. One is that we have to -- we are capitalizing a portion of our interest because the loans were taken to develop these projects, and that's what we are doing.

Our total capital -- or sorry, our total expense of interest is pretty much constant since all of our debt is in dollars and at fixed interest rates at this point. But, we are reducing what is charged to our P&L because of this interest capitalization.

As we increase our capital expenditures, we will increase interest capitalization as well. So, there is no -- this is not like a fixed number, and it depends on how quick are we advancing in our projects.

In the 2015 capital budget, we are considering the final payment for some of the investments that we have been doing through these last few years. That's why you have over 90% of advance in the Buenavista project and not as much money spent in the projects. You sort of keep a portion of your budget for a final payment once you are sure that the plant is operating as designed or even better if possible, obviously.

So, we are capitalizing interest. You are right on that. And this is going to be a trend as long as we develop these CapEx programs.

Okay, that's very helpful. And then, it looks like your tax rate was quite a bit lower in the fourth quarter. Why was that? And maybe some guidance for what tax rate we should be expecting for 2015.

Well, we had -- at the end of the year we had some adjustments in our tax position, mainly on the deferred taxes. That's why we have a reduction in our effective tax rate in the fourth quarter.

But, for the full year, we should expect an effective tax rate between 38% and 39%. This tax rate includes not only the income tax, but some taxes that are related to operating income such as the royalties approved in Mexico and Peru.

Okay. Thank you very much.

You are welcome.

John Tumazos, John Tumazos Very Independent Research.

Thank you very much, and congratulations on your good production and costs and cash flow. At the $2.7 billion CapEx budget for calendar 2015 and approximately the fourth quarter copper price of $3.00 and related cost dynamics, would you expect that the debt balance would go up approximately $1 billion before dividends or stock buybacks?

Well, at this point we are looking at the copper market. And as I mentioned, we expect it to be better off as we move on into 2015. And we also are monitoring how are we spending our $2.7 billion CapEx budget for the year.

On that base, if there is a need to approach the financial market, we will consider that. But, at this point this is all what I can say about that.

I agree that the copper market should get better, which was why I used the $3.00 benchmark and not the January average. When you say approach the capital market, are you referring to debt or equity?

Most likely debt.

Thank you.

You are welcome.

Isidro Arrieta, Santander Bank.

Thank you. My question has already been answered.

Alex Hacking, Citi.

Hi, Raul. My question was mostly answered. But, just to confirm, you said that your maximum net debt/EBITDA that you would be -- well, that the level that you're looking at would be like 2.5. Is that correct?

No, I said the debt to EBITDA, not net debt. Debt to EBITDA. It's debt to EBITDA, yes. You have to subtract the cash that we have.

Okay. So, you would be looking at total debt to EBITDA at 2.5?

That's correct, at the most. Currently we are at about 1.5 at the most. That would be a benchmark for us that we don't want to pass because it will create some problems with our credit ratings.

But, as you know, Alex, we are very conservative in how do we handle our finance. So, this is like a benchmark that we don't want to pass, not a goal, to say it so.

Okay. Are there any covenants linked to that?

No.

Okay. I mean, the only reason I ask is that the net debt right -- the total debt right now is $4.2 billion, something like this.

Yes.

And the EBITDA -- I mean, I know we all expect the copper price to recover. But, the EBITDA at the current copper price I would say is probably less than $2 billion. So, if the copper price has not recovered by the end of the year, we're getting very close to those levels, never mind $2 billion point-something of CapEx, buybacks, and dividends.

Well, don't forget that we are adding a little bit north of 100,000 tons of new copper production this year. That should take care of -- and that is going to get into our system at a very low cost because it's going to be mostly variable cost.

So, it will be actually -- our EBITDA, we are expecting it to increase through 2015. You see what happened in this past quarter. It almost cancelled the variance that we had in prices. At least at the net earnings level, we were better off even with these prices than what we were last quarter, the quarter before that.

Yes, okay. It's clear. I mean, I know you guys have always been very conservative historically. And my concern is just if the copper price does not recover as we are expecting. But, thank you for the clarification.

You are welcome.

Alex Mackey, MFS.

Hi. Thanks, Raul. Most of my questions have been answered. But, I do wonder whether there is a particular cash balance that you really need to have on the balance sheet at all times to keep your operations running the way you'd like to.

Well, it varies depending on the operation. But, let's say that with about $500 million we are fine. We can operate with much less than that, but that's a number that allows us to maintain a reasonable flow of not only our operations but our capital projects and our maintenance CapEx with no problems.

Okay. And then, over the course of the year, 2015, how should we think about the ramping of the $2.7 billion CapEx plan?

At the beginning of the year, usually you have -- you don't go as fast as, let's say, the fourth quarter. So, it slows when -- these are new projects. And keep in mind that we are putting on track Tia Maria and Toquepala in 2015.

So, these two projects should spend more money as we move on into the fourth quarter of the year, while Buenavista will be spending money in a continuous flow because they are already approaching to the end of this project. So, all in and out, we should expect about a balance or a slight increase on the third and fourth quarter.

Okay, that's helpful. Thank you, Raul.

You are welcome.

Andrew Creedon, Sun Life Investment.

Hi. My question was answered. Thank you.

Mr. Jacob, at this moment we show no further questions. I would like to turn the meeting back over to you for any final remarks.

Thank you very much, Hilda. Well, with this we conclude our conference call for Southern Copper's fourth quarter and 2014 year results.

We certainly appreciate your participation and hope to have you back with us when we report the first quarter of 2015. Thank you very much and have a very nice day.

Ladies and gentlemen, this concludes today's conference. We thank you for your participation. You may now disconnect.