Southern Copper Corp (SCCO) 2015 Q3 法說會逐字稿

Good morning, and welcome to Southern Copper Corporation's third quarter and 9 months 2015 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 third quarter and 9 months 2015, as well as answer any questions that you might have.

The information discussed on today's calls may include forward-looking statements regarding the Company's results and prospects, which are subject to risk 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 a full US GAAP.

Now, I will pass the call on to your host, Mr. Raul Jacob. Mr. Jacob, you may begin.

Thank you very much, Bianca, and good morning to everyone, and welcome to Southern Copper's third quarter 2015 earnings conference call. Participating with me in today's conference call is Mr. Daniel Muniz, Southern Copper's Board Member.

In 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.

Before we go ahead with our view of the market, let me emphasize that Southern Copper is very well-positioned to take advantage of the current market conditions. As I will report, the Company has increased its copper sales by 11% year-to-date, adding very low-cost copper pounds to its total cash cost. On top of this, we have a strong balance sheet and a relaxed debt payment schedule, with no principal payments due until 2020.

So, during this low-price environment, we're making our Company much more cost-competitive while maintaining a very solid financial condition. Having said this, let me focus on the copper market, the core of our business. We maintain our long-term confidence in the positive fundamentals of the copper market.

During this year, demand has been affected by macroeconomic headwinds and concerns about the Chinese economy's copper consumption. As you know, China is the world major copper consumer, with about 46% of ore consumption estimated for 2015.

We believe China's demand for copper will increase 3% this year. For 2016, we think it will increase its [goal mark] to about 4%, driven by the recovery of the Chinese housing market and the national grid investment program. Let me mention that 4% of additional copper demand from China is approximately 400,000 tons of additional demand.

On the longer-term view, let me emphasize that China is an emerging market, and as such, the middle classes are hungry for housing, cars, appliances, et cetera. So, we believe we will see in the future a strong copper market coming from this country, as it will evolve towards a consumption-driven economy.

Regarding the developed economy -- that is, the US, Europe and Japan -- with about 30% of worldwide refined copper demand, growth has been on track through 2015 at about 2% in average. In summary, regarding demand, even though we're facing at present some macroeconomic headwinds, we're very optimistic about the future.

Looking at the supply picture, we have [note] production cut announcements, for a total of 520,000 tons in the last quarter. And we should expect some more production cut if this price environment persist.

I want to emphasize that this is a new factor that, by itself, will significantly vary the market trend towards a copper deficit.

On a more structural view, as we have expressed in the past, we believe that supply will be affected in the coming quarters from delay in project start-ups, technical problems, labor unrest, excess government taxation, and other difficulties. We also want to emphasize that copper prices at current levels are not sufficient to promote the necessary future supply growth, thereby improving the strong long-term fundamentals of our industry.

Focusing on Southern Copper's copper production in the third quarter, it increased by 9.4% to 179,892 tons from 164,468 tons in the third quarter of last year. This increase was the result of higher production at all our units, led by the Buenavista copper production increase of 20.5%.

At this point we are adjusting our production guidance. Our current estimate for 2015 copper production is 757,300 tons, which is approximately 75,000 tons higher than last year's production of 682,600 tons. As previously reported, with this production increase we will set a new production record for Southern Copper.

Looking at molybdenum production, it represented -- molybdenum represented 3.4% of our sales in the third quarter of 2015. The molybdenum production decreased by 4.7% to 5,739 tons in the third quarter of 2015, from 6,024 tons in the third quarter of last year, mainly due to lower production at our Buenavista molybdenum plant as a result of lower water availability. This difficulty has been solved. This negative result was partially offset by higher production at the Peruvian operations due to higher grades.

For 2015, we expect to produce 23,100 tons of molybdenum, increasing our initial guidance of 21,500 tons by 1,600 tons.

Silver represented 4.8% of our sales in the third quarter, and it is currently our main by-product. Mine silver production increased by 12% in the third quarter of 2015, mainly as the result of higher production at our Mexican operations.

In the case of zinc, it represented 3.9% of our sales in the third quarter of 2015. Zinc production increased by 22.4% to 16,297 tons in the first quarter of 2015, from the number at the third quarter, which was 13,318 tons.

Basically, it was the result of the higher production of our IMMSA facilities. Refined zinc production was 21,459 tons in the third quarter of this year; that is, 28.6% higher than the similar quarter of 2014.

Going into our financial results, for the third quarter of 2015 sales were $1.1 billion; that is, $341 million lower than the sales for the third quarter of 2014, a reduction of 23.1%. There was a shift, even though our volume increased for copper by 5.5%, due to the low-price scenario.

Regarding by-products, we have higher sales of zinc that increased by 6.5% due to an increasing volume of 29.2%, that compensated for lower prices of minus 20% in the case of zinc.

Molybdenum sales decreased by 67.9% due to lower prices, and that decreased by 64.4%, [and] volume that decreased by 6.5%.

In the case of silver, sales decreased by 24.9%, mainly driven by prices.

Our total operating costs and expenses decreased by $80.8 million, or 8.7%, when compared to the third quarter of 2014. The main cost reductions have been in environmental remediation, that decreased by $40.5 million; energy; workers' participation; and diesel and fuel, as well as labor.

Our EBITDA for the third quarter was $421.2 million; that is, a 37.2% margin, compared with $687.5 million, or a 46.6% margin for the third quarter of 2014.

Looking to our operating cash cost, the cash cost per pound of copper before by-product credits was $1.58 per pound in the third quarter of 2015. That compares with $1.67 per pound in the second quarter of 2015, a $0.092 decrease. This decrease in operating cash cost was the result of lower cost per pound from production cost.

Southern Copper operating cash cost, including the benefit of by-product credit, was $1.07 per pound in the third quarter of 2015. This cash cost was $0.059 lower than the cash cost of $1.12 that we had in the second quarter of this same year.

Regarding by-products, we had a total credit of $200 million, or $0.515 per pound, in the third quarter of 2015. These figures compare with a credit of $211 million, or $0.547 per pound, in the second quarter of this year.

Total credit has increased for zinc by 13.8%; sulfuric acid, by 3%; and decreased for molybdenum, 39.5%; silver, 3%; and gold, 0.2%. With the exception of molybdenum, all other by-product production volumes have increased between the third quarter of this year and the second quarter of this year. Zinc increased its volume by 16.6%, gold by 12%, sulfuric acid by 7.4%, and silver by 3%.

Regarding prices, however, all by-products have decreased, yielding a lower by-product to the Company.

Net income attributable to Southern Copper shareholders in the third quarter of this year was $98.4 million; that is, 8.7% of sales, or diluted earnings per share of $0.12.

This decrease was mainly due to lower metal prices, as well as to a $51.4 million deferred tax adjustment recorded in the third quarter of this year, that was related to a filing of the 2014 tax return. Excluding this one-time adjustment, net earnings would have been $149.8 million.

Expansion and capital projects. Capital investments, including the $100.4 million for El Pilar acquisition, were $946.3 million for the 9 months of 2015; that is, 14.6% lower than in the same period of 2014, and represented 140.1% of our net income. We continue moving forward with our investment program to increase copper production capacity by approximately 90% from our 2013 production level of 617,000 tons to 1,165,000 tons by 2018.

For our Mexican projects, and specifically the Buenavista operation projects, we continue developing our $3.5 billion investment program at this unit, which is expected to increase its copper production by approximately 180%, as well as molybdenum production by 42%.

Regarding the mine expansion, to date we have received 61 400-ton capacity trucks, 7 shovels, and 8 drills required for the mine expansion, with an investment of $510.9 million. All these assets are currently in operation.

The new copper-molybdenum concentrator of Buenavista 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 new concentrator -- it's in its ramping-up phase, and 3 out of the 6 mills are currently in operation. We're pleased to mention that the tonnage processed by the mills has exceed their design capacity. The initial results of this facility is encouraging, with better-than-expected recovery and concentrate grade.

In September we will obtain the first copper concentrate lot, and due to the promising initial results we expect to gather increased production until the plant reaches full capacity by the first quarter of next year. The project has a 99% progress with an investment of $1.1 billion out of the approved capital budget of $1.4 billion.

The SX/EW III plant, also in Buenavista, received in July the approval for the initiation of activities in the Tinajas 2 leaching pad. This will allow the Company to achieve the designed annual production capacity of 120,000 tons of low-cost copper cathodes by the first quarter of 2016. As of September of this year, we have invested $522.4 million in this project.

The Quebalix IV, which is a facility for crushing, conveying and spreading the leachable ore of the Buenavista mine -- it's also moving forward very nicely. This project's main objective is to reduce processing time, as well as mining and hauling costs. It will also increase production by improving SX/EW copper recovery. It has a crushing and conveyor capacity of 80 million tons per year, and it is expected to be completed by the second quarter of 2016.

The project has a 78% progress, with an investment of $197 million out of the approved capital budget of $340 million. The remaining projects to complete the $3.5-billion budgeted program, including important investment in infrastructure, such as power lines and substations, water supply, tailings dams, mine equipment shops, internal roads, et cetera, with a global progress of 70%.

Regarding the Peruvian projects, and specifically on the Toquepala projects, through September 30 of this year we have invested $372.3 million in the Toquepala projects. On April of this year the construction permit for the Toquepala expansion project was approved, allowing us to continue its development.

Once in operation, the Toquepala expansion will increase annual production capacity by 100,000 tons of copper, from 135,000 tons estimated in 2015 up to 235,000 tons by 2018. And it will also increase annual molybdenum production of the Company by 3,100 tons, at an estimated capital cost for the whole project of Toquepala of $1.2 billion.

This investment is estimated to generate 2,200 jobs during the construction phase, and 300 additional full-time jobs once finished. These new jobs will add -- the 300 will add to the current 1,500 permanent employees at Toquepala. The project is expected to be completed by the fourth quarter of 2017.

Our Board approved a project to improve the crushing process at Toquepala with installation of a High Pressure Grinding Roll, or HPGR, system, which will act as a quaternary crusher.

The main objective is to ensure that the concentrator will operate at its maximum capacity of 60,000 tons per day, even with an increase of the ore material hardness index. Additionally, recoveries will be improved with a better ore crushing.

During the third quarter of this year we finalized commercial discussions with the selected vendor of the equipment, and initiated the project engineering and procurement. Once engineering is sufficiently advanced, we will start construction and plant assembly.

The budget for this project is $40 million, and we have invested $5.4 million as of September of 2015. It is expected to be completed by the first quarter of 2017.

Focusing on the Cuajone projects, the project to improve slope stability of 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 levels.

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 this project is finished. Besides preparing the mine for the future, this investment will avoid a reduction in average ore grade.

As of September of this year, 38.5 million tons of waste material has been removed, and this activity will continue through the end of 2018.

At the closing of the third quarter, we have invested $67.7 million in this project.

The in-pit crushing and conveyor project in Cuajone consists of installing a primary crusher at this mine with a conveyor system for moving the ore to the concentrator. The project aims to optimize the hauling process by replacing rail haulage, thereby reducing operating and maintenance costs as well as the environmental impact of the Cuajone mine.

The crusher will have a processing capacity of 43.8 million tons per year. We're completing the detailed engineering. The main components, including the crusher and the overland belt, have been already acquired, and we have started their installation.

As of September of this year, we have invested $65.8 million in this project, out of the approved capital budget of $165.5 million. The project is expected to be completed by the second quarter of 2017.

On the Tia Maria project, where we have received the approval for the Tia Maria Environmental Impact Assessment, we're still waiting for the issuance of the project's construction permit. This permit has been delayed pending the resolution of certain differences with community groups. The Peruvian Government has recommended a dialog roundtable for the resolution of these differences.

The Company has established a [multifacet] encounter plan to explain the merits of the Tia Maria project. A national media campaign was launched in May, and after it, the Company conducted a door-to-door campaign in the neighboring district of Cocachacra.

This campaign had the purpose of explaining the relevant environmental topics of the project that concern the local community, as the anti-mining groups have wrongfully confused the community with respect to the project's water source and consumption, as well as to the alleged emissions into the atmosphere.

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 SX/EW technology with the highest international environmental standards. SX/EW facilities are the most environmentally friendly in the industry, as they do not require the smelting process, and consequently no emissions into the atmospheres are released.

The project will use only sea water, transporting this more than 25 kilometers, which is about 15.5 miles, and up to 1,000 meters, or 3,300 feet, above the sea level, constructing a desal plant with an investment of $95 million. The Company, with that, will warranty that the Tambo river water resources will be used solely for farming and human consumption, and not for the project.

We expect the Tia Maria project to generate 3,500 jobs during the construction phase. When in operation, Tia Maria will directly employ 600 workers, and indirectly another 2,000 workers.

Through its expected 20-year life, the project-related services will create significant business opportunities in the Arequipa region. Tia Maria has complied with all existing requirements and regulations, and therefore the Company trust that it will soon receive from the government authorities the construction licenses and permits required in order to begin construction of this project.

Dividend announcement. Regarding dividends, as you know, it is the Company policy to review at each Board Meeting cash resources, expected cash flow generation from operations, capital investment plans, and other financial needs, in order to determine the appropriate quarterly investment -- dividend.

Accordingly, as disclosed to the market on October 22, the Board of Directors authorized a cash dividend of $0.04 per share of common stock, payable on November 24 to shareholders of record at the close of business on November 10.

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

Thank you, Mr. Jacob. (Operator Instructions). Thiago Lofiego, Bank of America.

I have two questions. First one on the Tia Maria project. You already commented a little bit on it, but if you could give us a little bit more color on how the dialog with the communities is progressing, and if it's reasonable to expect the construction permits this year already.

And the second question would be on your production volumes. We were looking for a better -- a higher increase, quarter on quarter, due to the Buenavista facility's ramp-up. So, if you could give us some color on where production levels are, at both Buenavista's SX/EW and concentrator facilities, that would be very helpful. Thank you.

Okay, Thiago. On the Tia Maria -- well, we have -- as I mentioned, we have been conducting these door-to-door campaign, and we have launched several initiatives that are designed for the whole Tambo Valley.

And the reception that we have received has been very positive. About 90% of all the houses -- all the doors, to say, that we knock -- opened -- were open, and received the Company personnel, and we had conversation on the merits of the project. And I think that this has been very helpful.

Our goal is to obtain the construction permit for Tia Maria between the rest of the year, or in the first quarter of next year. That's what we want to do.

In the case of the production for Buenavista, as it was mentioned, we adjust a little bit our estimate for production in the case of the new facilities, basically.

For the new concentrator, we're expecting production of about [29,500,000] tons for this year. A little of that was obtained on the third quarter; the rest, about 25,000 tons, should be obtained in the fourth quarter. We're -- as I say, we're very optimistic about the initial development of the plant ramping up, and we think that this is going to be an excellent project for the Company.

In the case of the SX/EW III, the SX/EW III has been operating full speed, at full capacity, but with a lower PLS or pregnant liquid solution grade in this year, due to the shutdown of the areas where we have the richest areas.

Now, we receive an authorization to initiate activities on Tinajas 2 in July, and that -- it's one of the areas where the richest material is for this plant to operate. So, we're moving forward, preparing these areas to production, and we're expecting that that will allow us to increase the total production of the SX/EW III to its expected copper capacity.

Thank you, Raul. I guess, just to complement, I mean, was there any specific negative factors during the quarter that prevented you from producing more than what you produced?

My question is, because of the fact that you are ramping up a couple of facilities, and again, your volumes were flattish quarter on quarter in terms of production. So, I'm just trying to figure out if there was any specific negative factor preventing production to increase further in the quarter.

No, not in that sense, Thiago. We had a good production profile. Actually, we look at our plan -- our facilities -- the whole operations, to say -- so, are all, this year, in very good shape. Toquepala; the Buenavista facilities; the first -- the concentrator number one of Buenavista; the Caridad operations. All of them are doing very well.

What has been a setback was, as I mentioned, the lower PLS that we have been introducing into the new SX/EW III in Buenavista; lower grade, in other words, of copper. And in the case of the new concentrator, a slight delay in the ramping-up process. That did not make us to produce as much as expected in our initial plans.

Okay. Perfect. Thank you, Raul.

Carlos de Alba, Morgan Stanley.

So, the -- I have several questions. The first two are related to growth projects. And the first one is, we saw a very [little] increase in the CapEx disbursed at Toquepala quarter on quarter -- only around $1,120 million. So, if you could comment as to why that is the case -- why is it taking very longer than I expected to pick up the pace in Toquepala.

And also, in Tia Maria, would the Company consider, given the current prices of copper and the market expectations for deficits in 2017 and 2018, to perhaps cancel Tia Maria and just -- or sell it, and just focus on the other (inaudible) the Company has?

And then there are a couple of other questions. One is regarding tax expenses. They were significantly higher this year than we have seen in recent quarters. So, if you can comment on that, that would be great.

And finally, the Company has continued to buy back its own shares, and at some point, though, the benefit of -- as you have said, creating the value to shareholders by buying back in shares will not outpay the potential negatives of a very reduced flow. So, what is the Company's view on this balance, I guess, and what are the Company's plans going forward? Thank you.

Okay. Thank you very much for your questions, Carlos. Focusing on the Toquepala project capital expenditure, the first part of the project is focused on discussions with the different vendors of equipment, issuing the initial purchase orders for equipment; some downpayments go with that, but most of them has been done in October.

So, you're not seeing much action in the third quarter, because we were more in the design step of final acquisition of equipment, or selecting the company that will do the engineering for certain parts of the project, et cetera. So, that explains why we haven't spent as much as you may expect, in order to go ahead with the Toquepala project. That's basically it.

In the case of Tia Maria, you mentioned that we are considering either canceling the project or selling it. No, we're not. We think that this is an excellent project, and we want to go ahead with it.

We think that our work with the local community and the authorities is giving some positive results, and we are -- as I say, we're expecting to get the construction permit for Tia Maria either before the year-end or in the first quarter of 2016.

On the tax expense, of the tax charge, actually, to our results, we had an adjustment related to the final tax return that the Company prepares, of $50 million. US GAAP requires us to register this in the quarter that you do have that information.

In our case, we had a reduction in foreign tax credits related to the different price environment in which we're operating now. And that was basically it. It -- we have a difference between the provision of last year and tax return, we have to catch up non-cash adjustment.

And finally, on the buyback, basically we're following a program that was established at the beginning of this year. We don't think that current liquidity for the stock is (technical difficulty) and the existing stock in the market is reasonable for the stock to reflect the Company value.

But to give you an idea, Carlos, the ADTV is about $40 million a day.

[Dictation], Daniel, or --

Wilfredo Ortiz, Deutsche Bank.

I just wanted to see if you could give us an update on the production profile expected between now and 2018, as you've previously provided, and also on the CapEx. And also, if you could caveat that as far as Tia Maria getting approved by April or so of next year. And if that doesn't happen and it gets pushed out later, how could that profile potentially -- and CapEx -- be changed?

Okay, Wilfredo. Let me focus first on the time -- on the production profile. While I mentioned that, for this year, we're expecting 756,000 tons of copper, for next year, with the full -- the SX/EW III plus the new concentrator in Buenavista at full speed, we're expecting to produce a little bit more than 900,000 tons of copper -- actually, it's 909,000 tons. For 2017, 1,020,000 tons of copper. For 2018, 1,160,000 tons of copper.

On the CapEx for the year, we're expecting $1.4 billion at this point. For 2016, we're still looking into the numbers. Actually, what we have not expend this year will be spread through the next 3 to -- 2 to 3 years. So, I'll think on that one, and let me report on that in January.

Got it. And as far as the projects that are -- obviously, the Peruvian projects that are still in the works, or in the beginning phases if you will, is there a -- the potential that the overall CapEx could end up being a lot lower considering current market conditions and perhaps your bargaining power?

We do see in the market, as you well pointed out, a situation where we have some advantage as buyers of equipment. We are expecting that to eventually materialize in lower expenses.

But at this point it's a little bit early to do an adjustment in our budget for the projects. But basically, it's the Toquepala project. Because, as you know, the Buenavista projects are pretty much at the end of them. We are pretty much at the end of the Buenavista projects.

But in the case of Toquepala, it may happens; however, we don't want to report anything on that at this point because we have -- we are still -- we're in the initial stage of the project development.

Great. And one more, if I may. On the $1.4 billion CapEx for 2015, that's excluding El Pilar, or including El Pilar?

That includes El Pilar.

Okay. Thank you.

Matthew Korn, Barclays Capital.

Thanks for taking my questions. So, a couple, if I could. First, what kind of operating cost level would you expect to achieve next quarter, and really into next year, assuming that production schedule progresses as you intend, and energy prices follow roughly according to the futures?

And then, second, with the copper price remaining weak, as you pointed out, we've seen some major producers making cuts in their expected output. I'm wondering what your view is, as you're a low-cost producer, if there's some point where, at a price that's still above your current cash cost level, you yourself would review your current operating level, or even your project schedule, in order to offer some kind of support to the market balance? Thanks very much.

Thank you very much for your questions, Matthew. Let me start by the last question. I don't think that we will consider either stopping our operations or stopping our CapEx program. The Company has been developing this strategy of being -- of looking for low-cost operations, funding projects that will reinforce that characteristic. And we prepare for the bad times as well.

In this case, as you know, we issue $2 billion in bonds at the beginning of this year. This cash available, plus the cash from our operations, will allow us to keep moving forward through our projects.

Generally speaking, I don't think that the Company is considering either stopping operations or shutting down projects due to current market prices. That is out of the question for us. It will have to be a very -- really, very bad price environment, for us to consider that. Most likely, shutdowns of operations will precede that, and correct the price environment.

And do you -- would you -- okay. On the operating costs -- well, for the fourth quarter, we will have -- we will certainly have the benefit of additional low-cost units coming from our new concentrator. That should improve our cash cost before by-product credit.

As I mentioned, in the third quarter it was $1.58 per pound. We're expecting that to decrease in the fourth quarter. At this point I think that it will be premature to mention a specific figure.

For next year we're expecting to be operating, before credit, at about $1.54 per pound. The bad news is that lower prices for our by-products, particularly molybdenum, will affect us. So, we're expecting a reduction in cash costs; but not as aggressive as it will be if we had normalized by-product credit.

Thanks very much, Raul.

Marcos Assumpcao, Itau [BBVA].

First question here, on the buyback again, just to explore a little bit better that. Is there a level in which the Company needs to make a tender offer if the free float gets reduced even further?

And, second question, is there also a level in which minorities are forced to be squeezed out of the Company, or to sell -- forced to sell, if the Company reached a certain amount of a stake in -- if the controlling shareholder reaches a certain stake in the Company?

And my -- just one followup question here. You mentioned about by-product credits. Could you please send us your -- tell us your view regarding the moly prices going forward, which seem a very deep contraction in moly prices recently. Do you think that this is sustainable, going forward?

The -- let me go ahead with your last question. On the moly price, I think that it's difficult that this price holds for a long period of time. And having say that, the reason for this is that about half of the industry, in the case of molybdenum, it's with cash cost in the range of $10 per pound. And the price is about half of that.

We don't know how long this price scenario will remain. We do know that additional supply is coming to the molybdenum market from new operations. So, that is a reason -- that, plus the weakness of the molybdenum demand -- a portion -- significant portion of the molybdenum demand is related to the oil drilling industry. And as you may imagine, not much activity on that industry nowadays.

On the first question, basically, we don't think that at this point we have to worry about any concerns about the float of the Company. We do know that there are certain -- at certain point, you have to -- you take -- the Company have some options open. But we are not considering those at this point.

Okay. And just a followup here, Raul, just to [stress/stretch] the scenario here. You mentioned that in the moly industry, a big part of the industry is losing money at current price levels. Why do you think it could be different in the copper industry?

Like, I've seen -- and not only in the moly industry, but if you take a look on the coal industry, also in the nickel industry, nearly 40%, 50% of the industry's losing money when compared to the current prices and cash costs of the producers. Why do you think in the copper industry it's a little bit different?

Well, at this point, I think that in the case of molybdenum there are certain characteristics on the market. First is that, for us, I'd say 50% of the market has a cash cost of about $10, or higher than that. That -- those are molybdenum producers.

In the case of the copper companies as -- such as Southern, that produce molybdenum as a by-product, we're still making a profit selling molybdenum at $4.50. So, we don't have an incentive to shut down production.

In the case of the copper industry, focusing specifically in our market, I think that we have seen some reaction to low prices. The discipline of our -- of the companies in our industry is responding to the low-price scenario that we're in today.

Okay. Thank you very much.

Ivano Westin, Credit Suisse.

Thanks for the questions. First point, on your production guidance that you mentioned, I just want to confirm that El Pilar volume is already included there. And what is the estimated ramping-up of El Pilar specifically?

On second point, your Toquepala High Pressure Grinding Roll. It's clear you have the Board approval. You [warranty] or guarantee that you're going to have 60,000-per-day production, and I understand that this is even the increase in the ore material hardness index, that you need additional CapEx.

So, I just wonder whether you foresee any risk of facing a similar issue in other operations, where you could end up being forced to move ahead with additional CapEx which is not planned at this stage.

And last question, if I may, on your reserves. I just wondered what sort of copper price you?d expect to use when you update it by your [annual] next time, and whether you can forecast any sort of positive outcome based on your drilling company. Thank you.

Just hold on a sec, please. Thank you for your questions. Okay. On El Pilar, the -- El Pilar production is included in our forecast.

We're very -- being very conservative on this prospect at this point. We have made -- the rationale for acquiring the deposit was that we were going to construct a plant where the deposit is, and this SX/EW plant, and operate it at a cash cost of about $1.60 per pound.

We are looking, and currently moving forward with the plan, to optimize this investment design that we have at this point. That may vary -- different things. I mean, it may vary the scale of the project. It may vary the investment -- reducing it, we believe. And so, we are currently about to start the study on opportunities that could be addressed in order to optimize El Pilar project.

In the case of the Toquepala High Pressure Grinding Rolls, this is a technology that has been used in the cement industry for many years and was absorbed by some hard rock index operations worldwide. We have one of these facilities operating in the Cuajone mine, with excellent results.

And after we saw the results, and see the opportunity that this will bring to our facilities, of having the plants being used at optimal level, we decided to acquire a similar equipment for the Toquepala operation.

I don't think that -- we talk about the four operations -- the four open-pit operations that Southern Copper has. I think that that's basically it. The rock hardness index in the Mexican operations of Buenavista or Caridad are not a problem. So, with this, I think we will be finishing for the current operations.

And finally, on the reserves, you were asking on the price that we should, or would, consider for when we do the reserve computation for the 10-K. Well, we basically two reserves estimates. One is using the 2-year average. That number will certainly be lower than what we have been using in the last year. But those reserves are presented at -- as a request from the authorities.

In the case of Southern Copper, we're using $2.90 as our current reserve base for the Corporation. I don't think that that number will change. We believe that the copper market should recover in a couple of more years, and we'll see some of that recovery in 2017. And we will be ready to go ahead with new production coming from the investments that we're doing nowadays in our operations.

Okay. Clear. Thank you very much. Just one point -- is there any possible positive outcome from the drilling company in terms of increasing your reserves?

For El Pilar, or general?

In general.

Well, in some of our operations we haven't reached the final, or the end of the deposit. And that could provide some more reserves. But at this point we're not foreseeing something like that.

That's very clear. Thank you very much.

Alfonso Salazar, Scotiabank.

I have two questions. The first is regarding the situation at the IMMSA mines, Santa Eulalia, and Charcas. And if you can help us to quantify the impact on zinc and silver production for the rest of the year and in 2016, if any.

And the second one is regarding -- well, I'm trying to understand if we should expect more share buybacks going forward. You also mentioned that you are interested in some -- doing some M&A activity. So, just trying to see what to think. What is your strategy here? And how you will balance these two things. Thank you.

You're welcome. Well, we're expecting to initiate production in San Martin and Taxco eventually. At this point, we have the Santa Eulalia mine not operating due to a fault. We're pretty much finishing the repair works for avoiding this kind of events in the future. So, we're expecting to have better zinc production next year.

This year, our goal is about 64,000 tons of zinc produced from our facilities. That number should increase next year, since we will add the Santa Eulalia mine to our operations.

On the M&A activity, well, we basically acquired El Pilar on -- in July of this year. And as I mentioned in the last call, we are looking for some other opportunities, but there is not -- nothing significant to report on that at this point, Alfonso.

Okay. Thank you. And regarding the share buybacks, shall we expect you to continue if the price stays where it is?

Well, that's always an option to the committee that reviews this -- the share buyback. It's something that I don't like to -- I don't want to comment on this.

Okay. Fair enough. Thank you.

Sasha Bukacheva, BMO.

My first question relates to the buybacks. Do you know if there are any float restrictions for continued listing requirements? In other words, if you continue with the buybacks, it -- could that be potentially an issue?

We don't think that we're there yet, Sasha. And if there is a matter on that, we'll put that on the consideration of the Company Board.

Okay. But -- so, do you know if -- is there sort of a set threshold? Is it, like, 10%? 15%? Do you know if there is that, sort of like, formal threshold?

Threshold for what?

There is not.

For the -- yes. Minimum free float.

There is no minimum free float. At the moment the average daily trading volume is more than $40 million. We don't see a big issue there, given the size of the Company.

Okay. That's good to know. Thank you. And then, apologies if I missed it, but it looks like you're $270 million under budget at Buenavista, considering the project is 99% completed. So, is that just a matter of -- is that just a function of cash versus accruals, or has there been capital reductions?

No, it's the first point that you mentioned. We have some final payments that are due once the equipment is performing as indicated by the vendor. So, that's why you don't have all the money out at the same time as the project has progressed.

Okay. Fair enough. So, nothing to get excited about, then.

And then my last question is, have you actually launched the moly plant at the new concentrator? And what do you expect in terms of moly production for next year?

Okay. Yes. The --

For Buenavista.

Yes. The -- okay. The moly plant in -- we have two -- we have one moly plant operating in Buenavista currently. Has a capacity of 2,000 tons per year. This year it hasn't produced as much as expected because of a water -- a lack of water at certain part of the year. That was a problem that was already solved, and the plant is operating normally now.

For the new concentrator, we will also have a molybdenum plant design. We haven't finished the construction of this plant at this point. It will be finished through the first quarter of next year. The capacity of that plant is 2,600 tons per year.

Right. So, if you expect to finish construction in Q1, then I guess most of the next year will be a ramp-up. So, what would be a reasonable, then, to include? 50% capacity? So, like 1,300 tons, or what do you -- ?

I would say that about 50% makes sense. Because we'll be finishing it by the end of the first quarter, then ramping up through the second quarter, and moving at full speed on the second half of the year. That will make sense.

Okay. Fair enough. Thank you very much. That's it for me.

Guillermo Estrada, GBM.

Most of the questions I have, have already been answered. But could you provide the molybdenum volumes evolution from here on until 2018?

And my second question comes from the environmental remediation costs. Have they continued during this quarter? What should we expect from these costs? And could you give us any guidance about this -- environmental remediation costs? Thank you very much.

Yes. On the molybdenum production forecast, for next year we're expecting to be at about the same production level that we have for this year. I mentioned 23,000 tons for 2015. It's going to be the same next year. We're having a change in some ore grades for molybdenum next year -- lower ore grades. So, the estimated production will be around the same. It will be maintained by -- for 2017, and then picking up in 2018 to 28,600 tons. I'm sorry. Could you repeat your second question please?

Sure. My second question is from the environmental remediation costs from the Buenavista spill. So, what should we expect in the coming quarters? Could you give any guidance?

Well, we are basically finishing this remediation process. And, as such, charges to our results will be very reduced. As you see, what we had this quarter was $7 million. I don't expect that much to be spent on the next -- on this fourth quarter.

Okay. Thank you very much.

Andreas Bokkenheuser, UBS.

Just two quick questions from me, one a clarification. The long-term or medium-term production guidance you gave, 1.16 million tons by 2018 -- did that include Tia Maria or not?

And the second question --

It does.

It does. Okay. So, I should look at -- the jump we're seeing in production from 2017 to 2018 would be largely Tia Maria, then, and to some extent Toquepala? Is that right?

I would say that the leap in 2018 will be mainly Toquepala, because Toquepala will be finished by the end of 2017, or the fourth quarter. Then ramping-up will start on the fourth quarter of 2017 and we will move forward into 2018 with the project, we believe at a certain point in the first quarter of 2018 at full speed.

In the case of Tia Maria, it will initiate operations in 2018. So, a portion of the increase will be related to Tia Maria.

Okay. Understood. That's very clear. And just secondly, I know you said you didn't want to give CapEx guidance yet beyond 2016. But just in terms of direction, in regards to the US dollar strengthening, the peso weakening, are you seeing a bit of downward pressure -- any savings there on the CapEx from a weaker currency? Thank you.

Oh, yes. Thank you very much for your question, Andreas. Certainly. All civil works, labor cost, are lower. And that is benefiting our capital budget as well. As I mentioned, we believe that it is premature at this point to mention any savings in our budgets. But we do know that we are in a buyer's market in terms of equipment and construction works in both Mexico and Peru.

That's very clear. Thank you very much.

John Tumazos, John Tumazos Very Independent Research.

There are some small copper companies that do not operate their molybdenum circuits this year, as copper prices fell below $6 or $7, or further. Molybdenum prices fell, excuse me. Is there a molybdenum price where you would not operate your molybdenum circuits?

I think -- thank you for your question, John. I think that it will be very difficult for us to stop operating, because our -- again, our cash cost, also molybdenum, is -- it's very low.

So, even -- as I say, even at these very low prices of $4.50 for molybdenum, per molybdenum pound, we're making a profit -- an operating profit on our molybdenum production. And that's why we are considering building a new molybdenum plant for our new Buenavista concentrator.

Thank you.

We have no further questions at this time.

Thank you very much, Bianca. And, well, with this we conclude our conference call for Southern Copper third quarter of 2015 and the 9 months' results.

We certainly appreciate your participation and hope to have you back when -- with us when we report the fourth quarter of this year and the full-year 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.