Southern Copper Corp (SCCO) 2016 Q2 法說會逐字稿

Good morning and welcome to Southern Copper Corporation's second-quarter and six months 2016 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 second-quarter and six months 2016, as well as answer any questions that you might have.

The information discussed on today's call may include forward-looking statements regarding the Company's results and prospects, which are subject to risks and uncertainties. Actual results may differ materially, and the Company cautions to not place undue reliance on these forward-looking statements. Southern Copper Corporation undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All results are expressed in full US GAAP.

Now I will pass the call to Mr. Raul Jacob. You may begin.

Thank you very much, Richard. Good morning to everyone and welcome to Southern Copper Corporation's Second Quarter 2016 Earnings Conference Call. Participating with me in today's conference are Mr. Oscar Gonzalez Rocha, Southern Copper's CEO and Board member, and Mr. Daniel Muniz, Executive Vice President of Southern Copper and also Board member.

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

Now let me focus on the copper market, the core of our business. During the past quarter, regarding copper, we have seen some improvement in its prices, mainly attributable to recovery of consumption in China and some demand from North America.

We see the refined copper market, where we do most of our business, in relative balance due to the following. Demand is growing at about 2.5% worldwide, this alone will absorb approximately 500,000 tons of copper. Additional production will be significantly offset by production cuts, lower production due to operation closures and cuts are currently estimated at approximately 850,000 tons.

In addition to these production cuts, we believe that expected supply will be reduced in the coming quarters from delays in project startups, technical problems, labor unrest, excess government taxation, and other difficulties. We think that all of these elements will significantly offset new production coming to the market as a result of past investments.

Let me focus now on Southern Copper's production for the past quarter. Copper mine production increased by 26.1% in the second quarter of this year to 225,842 tons from 179,085 tons in the second quarter of last year. This is the result of a 78% increase in production at the Buenavista mine in Sonora, Mexico. This operation increased production by 49,362 tons. With this quarter's production, we reached a new Company record of 447,503 tons for the first half of this year.

The remaining production changes include positive variances at La Caridad that were partially offset by a reduction at the Cuajone and Toquepala operations. At this point, we're increasing our guidance for the year, expecting copper production of 913,500 tons for 2016, an increase of 170,500 tons when compared to last year's production and a new Company record for Southern Copper.

Molybdenum represented 6.1% of the Company sales in the second quarter of this year and is currently our first by-product. Molybdenum production decreased by 7.9% to 5,305 tons in the second quarter of 2016 from 5,759 tons in the second quarter of last year. This was principally due to lower production at the Peruvian operations as a result of lower [ore] grades and recoveries. The Mexican molybdenum operations increased their volumes partially offsetting the lower volume from the Peruvian mines. For 2016, we expect to produce 22,800 tons of molybdenum.

Silver represented 5.2% of our sales in the second quarter of 2016. Mined silver production increased by 27.5% in the second quarter, when compared to the same period of 2015. This was mainly as a result of higher production at our Buenavista mine that increased its production by almost 160% and the IMMSA mine that increased its silver production by 25%.

Regarding zinc, it represented 4.3% of our sales in the second quarter of this year. Mined zinc production was 19,994 tons in the second quarter of 2016, 43% higher than the same period of 2015. This was due to the solution of last year's problems at the Charcas and Santa Eulalia mines.

Looking at our financial results for the second quarter of 2016, where sales were $1.3 billion, $47.9 million lower than sales of the second quarter of last year or 3.5% less. Copper sales volume increased by 19.2% in this quarter, but value decreased by 8.9% in the scenario of lower prices.

Regarding by-products, when compared to the second quarter of last year, we had higher sales of molybdenum by 28%, due to significant negative price adjustment that affected moly sales in 2015, not this quarter; this quarter we have a normal quarter regarding that. In 2016 silver sales -- in the second quarter, silver sales increased by 28.7% due to higher volume, 25.8% increase in volume of sales of silver and prices that increased slightly by about 3%. Zinc sales decreased by 2.6% due to lower prices that decreased by 13% that were partially offset by higher volume of 15.3% in zinc sales.

Regarding operating cost, as we mentioned before, our copper production increased by 26%, when compared to the second quarter of 2015. However, our total operating costs and expenses increased only by 8% or $70.2 million, when compared to the second quarter of last year. So we increased production by 26% and our cost increased only by 8%.

The main cost increments have been in depreciation, leachable material, repair materials, energy, sales expenses and other expenses. These cost increases or increments were partially compensated by lower [purchase] of copper, diesel and fuel costs and other materials. EBITDA for 2016 was $555.4 million that is a 41.6% margin compared with $637.4 million or a 46.1% margin for the second quarter of 2015.

Cash cost, operating cash cost per pound of copper before by-product credits was $1.41 per pound in the second quarter of 2016. The same as in the first quarter of this year, the main variances result -- within the cost were in higher treatment and refining charges, resulting from the Buenavista concentrate copper sales and lower premiums that were offset by lower administrative expenses which decreased by 12.7% and lower leachable material that decreased by 37%.

Southern Copper operating cash cost including the benefit of by-product credits was $0.907 per pound in the second quarter of this year. This cash cost was $0.074 lower than the cash cost of $0.981 that we had in the first quarter of this year, that is at 7.5% lower cash cost. Regarding by-products, we had a total credit of $249 million or $0.507 per pound in the second quarter. These amounts compared with the credit of $203 million or $0.425 per pound in the first quarter of 2016.

Total credits have increased for all by-products. For molybdenum 47.1%, for zinc 23.2%, for silver 19.1% et cetera. Net income attributable to SCC shareholders in the second quarter was $221.9 million that is 16.6% of sales or diluted earnings per share of $0.29. Capital investments were $564.9 million for the first half of this year that is 6.6% higher than the first half of 2015. This represented 138.8% of net income.

In 2016, we continue with the development of our investment program to increase copper production capacity by 90% from our 2013 production level of 617,000 tons to 1.2 million tons. Regarding our Mexican projects, the Buenavista project in the Sonora state that has a budget of $3.5 billion in which the Company has already invested $3.2 billion.

Excluding the almost completed Quebalix IV project and some infrastructure facilities, all the other facilities of this program are currently operating and we are expecting to increase production by 200,000 tons to produce 460,000 tons of copper in 2016 and 500,000 tons in 2017. We also expect to increase our Buenavista molybdenum production to a capacity of 4,600 tons per year. The Buenavista program is being finished on time and under budget.

The new copper-molybdenum concentrator, this facility 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 has completed its ramping-up phase with its six mills already in operation. In September of last year, we obtained the first copper concentrate lot and the plant is now running at 105% of its design capacity.

The Quebalix IV, which is a facility for crushing, conveying and spreading of leachable ore, it's a project that has a main objective to reduce the processing time as well as mining and hauling cost for leachable material. This facility will also increase production by improving the SX-EW copper recovery. It has a crushing and conveying capacity of 80 million tons per year, and is expected to be completed in the third quarter of 2016.

As of June of this year, the project has 98% progress, almost finished with an investment of $248.4 million out of the approved budget of $340 million. The remaining projects to complete the $3.5 billion budget program includes investment in infrastructure which are power lines and substations, water supply, tailings dam, mine equipment shops, internal roads et cetera.

Focusing on the Peruvian projects. The Toquepala expansion project which is in the Tacna region in Peru. This is a project that includes a new state-of-the-art concentrator, which will increase annual production capacity by 100,000 tons of copper to 235,000 tons in 2018. It will also increase molybdenum production by 3,100 tons at an estimated capital cost of $1.2 billion for the whole facility. Through June 30, 2016 we have invested $431.1 million in the project. The project is expected to be completed by the second quarter of 2018.

The Toquepala high-pressure grinding roll system is a project that has a main objective to ensure that our existing concentrator will operate at its maximum milling capacity of 60,000 tons per day, even with the expected increase of the ore material hardness index. Additionally, recoveries will be improved and production enhanced with a better ore crushing. The budget for this project is $40 million and we have invested $11.7 million as of June of this year. It is expected to be completed in the fourth quarter of 2017.

The Cuajone's heavy mineral management optimizing project which is in the Moquegua region of Peru. This is a project that consists of installing a primary crusher at the Cuajone mine pit 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. The main components, including the crusher and the overland belt, has been acquired and we have started excavations and civil work. As of June of this year, we have invested $102.2 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 next year.

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 plan and other financial needs in order to determine the appropriate quarterly dividend. Accordingly, as disclosed to the market on July 21, the Board of Directors authorized a cash dividend of $0.05 per share of the common stock, payable on August 25 to shareholders of record at the close of business on August 11 of this year.

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

(Operator Instructions). Mr. Leonardo Correa, BTG.

My first question on leverage Raul, we're seeing your net debt to EBITDA potentially creep up to three times. Looking at how conservative the balance sheet has been over the cycle, I just want to get an impression from your side on what would be the upper limit tolerance here and potentially would you be looking at some measures to reduce leverage like asset sales or cutting CapEx and potentially reducing the dividend.

The second question on -- this is more of a longer-term question, but just on your long-term volume target for copper, which is currently at 1.2 million tons, the question is how long can you sustain those levels before having to invest in replacement projects? Those are the questions, thank you very much.

Mr. Jacob, your line is open. If your line is muted, please unmute.

Regarding leverage, we have issued $2 billion in bonds last year and we are basically using the money that was received from the bond issue. We believe that the future -- the generation of cash of this investments, which has been even better than our initial expectations as we have reported in cash cost and regarding the way that the Buenavista operation is performing now a days will let us to have a reasonable cash position in order to maintain the Company on a sound base, and we are not concerned regarding the current level of total debt to EBITDA. We think it's in the parameters that we expected when we did one issue.

Felipe Hirai, Bank of America.

I have a couple of questions here. The first one is the usual. So, what you expect in terms of CapEx this year because you seem that you're trailing behind your guidance for the full year? And now the second question is related to Tia Maria project. So if there is any update on that front or actually if you could give us a broader view on what's going on in the Peruvian market after the election of (inaudible), if you think that the environment for the development of new projects could improve, and if that could positively impact Tia Maria? Thank you.

Let me focus on the first point on the CapEx. Basically we are maintaining the CapEx that we are seeing for our projects. The spending is not necessarily as expected. We are expecting much lower CapEx expenses than our initial forecast for the year. At this point, we are decreasing our view on CapEx for 2016 to a lower number. Currently we believe that we will spend $1.4 billion in capital for 2016. For next year it will be $1.9 billion, 2018, $1.3 billion, then it drops to $700 million and then to $400 million. That's for the next few years. Regarding the Tia Maria, would you like to comment Gonzalez?

Yes, about the Tia Maria, we are waiting that the new government will -- took place, that will be next Thursday, then after that, request a meeting with the authorities in order to see how they plan it to share this project with the local authorities and with the regional government in order that we can proceed as soon as they will share a dialogue table in order to reach an agreement with the people of the (inaudible).

Let me add to what Mr. Gonzalez said that we're very positive regarding our expectations on the new administration. We believe that they understand our business well, and they will take very positive actions in order to improve the development of mining in Peru in general and particularly regarding our projects in Peru as well.

Ivano Westin, Credit Suisse.

Hi, Raul, Oscar and Daniel, thanks for the call and the questions. The first one is on your production guidance. Appreciate if you could provide an [updated] guidance for your five years plan from 2016 until 2020, in terms of your annual total copper production? The second point, you've got a couple of expansions, you've got a Buenavista expansion kicking in, you've got the Toquepala new concentrator, so within all these expansions, what is your expected additional reduction on your current cash cost before and after by-product for next year?

Okay, thank you very much for your questions. Regarding production, our current view on copper production is as follows. For this year as I mentioned, 913,500 tons, for 2017, 926,000 tons, for 2018, 1.061 million tons, same figure for 2019, and 2020, 1.2 million tons. Regarding cash cost, as we are moving forward with these expansions and these new projects, we will see an improvement in our cash cost as long as the prices of the commodities is that we consume whole, as you know oil prices may be different in the future, much higher for instance, and that certainly will affect our cash cost as well as some other variables that are usually impacting cost. But our current view for cash cost considers for this year, basically the same cash cost that we mentioned to the market, about $0.91 per pound.

For next year, when we have much more production and some more production of silver and molybdenum, we are expecting $0.84, for 2018, $0.82 cents, and then $0.80 for 2019 and 2020.

Carlos de Alba, Morgan Stanley.

Just quick question on these cash costs after by-products that you mentioned. Could you -- do you have the forecast before by-products or alternatively what is the moly price and silver price used to calculate the after by-product numbers? And then any updates on El Pilar and also in the guidance that you provided for production, when do you expect Tia Maria to start -- to come into operation?

Regarding cash cost, before by-products, for this year we're expecting $1.41, which is what we have in the first half of the year. Next year, where we have a much more copper production, that number should decrease to $1.33, for 2018 where we will have portion of the Toquepala expansion $1.28, $1.29 for 2019 and that will hold for 2020 as well.

In 2020, and this is addressing your second question Carlos, we will have the major contribution for the Tia Maria project. It will start producing little bit in 2019, but 2020 will be pretty much of full production year for Tia Maria.

And anything on El Pilar?

Yes. For El Pilar, we are considering production coming in the years 2018 and on. A little bit more than 35,000 tons per year.

Mr. Alfonso Salazar, Scotiabank.

One follow-up in the cash cost, if you can tell us what is the exchange rate for the Mexican peso on the [Peruvian sold] that you use for these costs? And also I agree that the new government seems more favorable to mining investments, but also for metal refinery, if I'm correct, I think you have an old project to expand Ilo refinery, long ago before the changes in the environmental legislation. Can you remind us what was the plan back then and if you think it makes sense to rethink about an expansion to the refinery?

Yes, regarding the exchange rate that we're using, we are considering basically this year's market for exchange rates, they're both in Mexico and Peru. The average through the year is more or less what we're considering. And regarding the plans that we had in the past for doing an expansion in our smelter and refinery IIo, let me turn to Oscar Gonzalez to answer that.

Yes. We are exploring the possibility to do the expansion and revising what we have in the past for the expansion of the smelter and the refinery. The refinery will go to 280,000 tons, that is the capacity now, to 320,000 tons, and the smelter, we plan it to use 80% of the production of Toquepala mine, when will be approved, is the case, because (inaudible) will say that it is better to do that expansion -- a small expansion in Ilo.

And do you think it makes sense to -- because of lot of concentrates in the country, to thinking in further expansions later on?

You mean on the smelter?

Yes, of Ilo, the smelter and the refinery, to give added value to the concentrates from Peru, which have been increasing with Cerro Verde expansion and Toromocho and Las Bambas, and all these new mines.

They are thinking in building a smelter in Matarani port for -- smelt the concentrate from Las Bambas and Cerro Verde. They are talking to do a young venture between the two companies in order to explore the possibility to build a smelter in Matarani port for their concentrates.

But you don't have plans at this time to expand that for the -- I mean, you're planning more than anything for the Toquepala expansion, right? For your own needs?

Exactly, because we cannot do an expansion more than our production of Toquepala, because if we need to do something else for the other companies, we will need to build a new smelter and we are not talking about that right now.

Let me add Alfonso that we do believe that these current [air] standards are economically unfeasible, and we are expecting a correction when that -- from the new government. That's our expectation.

Sasha Bukacheva, BMO Capital Markets.

Raul, couple of questions actually. Number one, noticed that Buenavista concentrator has been running above design, which is encouraging. How sustainable do you think that is, and also is there an opportunity to further increase production there on the (inaudible) inefficiencies?

Well, we think that the milling capacity -- as I mentioned before, we have six mills. They are operating slightly over what we expected as a design capacity. Our engineers has worked on changing the processes slightly to improve the milling potential of this facility, and it's working. So we're happy about that. There is a possible expansion for the future of this facility to increase the milling capacity to 120,000 tons per day, which is -- but, right now we have no current plans in that regard, it's just a possibility that will be reviewed after we finish this investment program and when we are sure that our operations are running smoothly.

So, in the absence of an expansion, are you to able to quantify potential production benefit just on (inaudible) and optimization of the capacity that you already have? So could we see you like an extra 20,000 tons, like an extra 30,000 tons or is there a number that might be attainable?

At this point, we don't have nothing to comment on that Sasha. It's -- we want to operate this facility, which is brand new and it's doing certainly very well at its full potential. After we stabilize the operation we may consider some growth, but at this point this is what we are focusing on is running the facilities as best as we can.

Okay. And my second question was on -- sorry.

Sasha, let me add, let me chime in, of course this is regarding the concentrator, and you asked about the concentrator, but regarding the new SX-EW facility, what we call number 3, it is currently running at a rate of 100,000 tons and it's designed for 120,000 tons, once we increase the grade of the POS, that will yield an additional 20,000 tons. So that is the potential and that we're having a bottleneck so to speak. Based on the tons that have been redesigned after the reported accident two years ago. So there you have --

And so with that incremental 20,000 tons be in the guidance you provided or might that be in addition to it?

I mean, now we have the breakdown of the guidance, but I think it should be included, correct?

It's included in the guidance for next year, Sasha.

My second question was, because you were installing high pressure grinding rolls at Toquepala, roughly around the same time as the concentrator. So you're guiding to an incremental -- to production at the mine increasing to 235,000 tons in 2018. So, presumably that includes the benefit of the high pressure grinding rolls. In the event that the installation of the high pressure grinding rolls is delayed, what sort of production impact might we see in 2018 at Toquepala?

Sasha, we don't plan to do things the wrong way, it's -- what we are planning is to finish this facility, which is the second one that we're constructing at our Peruvian operations, and there is a third one that we're building for the new concentrator as well. So, this is an equipment that we have been running in Cuajone, and we are running it very well actually. And we are building the same equipment in Toquepala in order to stabilize the milling capacity of the current concentrator.

The hardness of the rocks in the Peruvian operations, it's making us to consider this as a new facility. As you know, the capital cost is not -- it's important, but it's not that high if you consider what that expansion may cost and so we're doing this considering that the times that we're assuming are fine in terms of letting us finish on time and accordingly to our forecast.

Guillermo Estrada, GBM.

Well, I have a question regarding Toquepala's expansion. Now you expect that the project will be completed by the second quarter of 2018, meaning that production will start by the third quarter, right? So if you could share the copper volumes evolution for this project starting in 2018, it will be very helpful, thanks.

Yes. It's about 80,000 tons that will be contributed by the project in 2018.

[Thiago Lofiego, Bradesco BBI].

I have a question regarding moly production. So we've seen a solid jump on copper production over 20% year-on-year, while moly was the only by-product that actually declined. And I know you mentioned this was due to the ore grade, but I just want to understand a trend, going forward, if we can expect a great recover and if we can forecast moly production to increase, as you increase your copper production over time with the new projects.

Well, this year's molybdenum production has been affected by lower ore grades at the Toquepala and Cuajone mines. When we do the mining plan for our operations, we focus on obtaining on the most efficient way the copper that is in our deposits. Molybdenum comes as a by-product and usually the ore grade varies significantly over time. We're expecting the molybdenum production to increase accordingly with the investments that we're doing and we believe that we should see better production, as I said for Toquepala we're expecting to increase our production by 3,100 tons, when we have the new concentrator up and running. And in the case of Buenavista, we're looking at how the ore grades are going to behave for molybdenum in the next few years. Currently, we're making an assumption that is relatively conservative regarding these and as a consequence, our molybdenum production should be increasing by about 2000 tons once we finish the Toquepala concentrator -- the new concentrator and by another 2000 tons when we have the Buenavista concentrator molybdenum plant finished.

(Inaudible).

My question relates to potential bond issuance, given that most of the proceeds from the last issuance where you stopped and you're running negative free cash flows? Thank you.

Well, we don't feel that we need to go into the debt markets at this point. We are obviously analyzing -- if market prices have their trends -- have a change in their trend, we will consider some other actions, but at this point we are reviewing how the operations are generating cash and we are expecting to use that cash in order to move on with our projects. Please keep in mind that we pretty much are done with the Buenavista investments and we are focusing on the Toquepala concentrator at this point. In the case of Tia Maria, we're spending some money, but it is basically for social work. So, basically what we have to develop at this point is the Toquepala expansion project.

John Tumazo, John Tumazo's Very Independent Research.

We saw that there were share buybacks in the March quarter, but not in the June quarter. Could you talk a little bit about your goals between share buybacks or increasing dividends as the CapEx is completed in Mexico and getting further along in Peru and the $6 billion debt level and just give us a flavor for whether paying down the debt is more important than buying stock or increasing dividends? They are all God's good work of course.

(multiple speakers) but I understand that the question is, how do we decide on increasing bond buybacks and dividend. I think the (inaudible) track record and that's what we've been trying to do in the past, as you know, even in the worst of time after of course (inaudible) we tried to be consistent in our dividend policies. We've been paying dividends and buying back shares. We haven't bought shares this quarter as you pointed out. We did a little bit of buybacks in the first quarter and we maintained the dividend, so to speak.

Of course, we have the Toquepala expansion in front of us. We are hoping to have Tia Maria (inaudible) as Mr. Gonazlez Rocha pointed out with the new administration. So we will try to be prudent in concerting our cash balance, so to speak, take advantage of this project and not to be in the middle of the road and that's why we as a Board has decided to cut down or maintain a minimum dividend and cut the buyback shares.

(inaudible), Deutsche Bank.

Two things, really, sort of following up on what's been touched on by a couple of others. In terms of how you think, specifically on signing off Tia Maria and given where debt levels are, whether there's a required copper pricing outlook for you to sign off on the project.? And then secondly, the $1.4 billion CapEx guidance for Tia Maria, what room is there for that number to come down in the current environment?

Regarding the second question, we think that the budget may be adjusted downward. We haven't done that, we will see as we move on overtime. Regarding the funding of Tia Maria, we believe that the cash -- even at these prices, the cash that we are generating will be enough to go ahead and finish the Tia Maria project and the Toquepala project, which are the ones that we're developing at this point. As I said, Buenavista projects are almost finished. So in that regard, we don't have to worry much on the Buenavista expenses for CapEx. Buenavista, it's the flipside. It's generating cash from the Corporation. We're having the ramping up of this concentrator number two for Buenavista this year. It will be at full speed for the full year in 2017. Also, as Daniel Muniz mentioned, we're expecting an increase in our SX-EW production for the new SX-EW III plant in Buenavista. So these two facilities will be contributing significantly to the production profile of the Company at a very competitive cost, which is already reflecting in our cash cost.

Marcos Assumpcao, Itau.

Three quick questions here. First one, if you could comment a bit on the reasons behind the strong moly price rebound in the quarter. And if you think these prices are sustainable. Second question, out of the $1.9 billion CapEx for 2017, how much is coming from Tia Maria, and the last one also on Tia Maria, if for any reason the Tia Maria CapEx is delayed again, would you reconsider being more active on the buyback program already in 2017?

On molybdenum, basically -- well the molybdenum market has been in deficit in the last three quarters, that's our recollection of it. However, there is plenty of molybdenum inventories out there. So the market is absorbing these inventories, and on top of that, we have news on some important producers that have shut down their operations, particularly in China.

So these two things are certainly helping our -- the molybdenum market. We think that as long as we have this situation, we will be -- we will have some support of prices where they are now, not necessarily much higher than that. But at the same time, we believe that a significant portion of the market is not making money, but actually losing cash at the current price level for molybdenum. So we're expecting prices to remain where they are, or improve slightly over the next few quarters.

On the Tia Maria budget for 2017, we're budgeting $375 million for that. So, that's our budget. And could you Marcos, tell me your last question again please?

Yes, so, if by any reason your Tia Maria project is delayed or the CapEx is delayed again, and you don't have to disburse much money in 2017. So, overall CapEx will be lower, would you be reconsidering being more active on the buyback program because if CapEx is below $1.5 billion, you'll probably be generating a lot of free cash flow?

At that point, of course if that happens -- we would then be returning the cash to our shareholders, it would be prudent to keep on doing that -- at that point it is the Board to decide whether it's dividends or buybacks or whatever.

[Mary Luiz Camargo, BlueBay].

I had a question along the new issue side as well. I was just wondering what is the minimum cash you need to run the business and just thinking about the CapEx guidance that you have and if we run your EBITDA figures around flat copper prices, but reflect the volume growth -- it looks like you would be utilizing the full cash balance almost for this CapEx. And in that case, can you give us an idea, what is the minimum cash balance, so we can gauge whether you think -- when you would start thinking about being more cautious on the liquidity side? Thank you.

Yes, well, we could be running our business with cash position between $150 million and $200 million, that's basically it.

And in the Metals and Mining Conference earlier this year, you mentioned that there would not be -- you wouldn't plan to have any issue this year, but is this still the case or your perceptions have changed as the second quarter and a little bit of the third quarter is playing out?

I think the position is now becoming -- we've been seeing after the Brexit of course, rate going lower of steel. I mean not probably lowest, probably the lowest in 10 years has been [$1.31], I guess. I mean (inaudible) [$1.50] so to speak. There is a lot of CapEx that we could delay if we wanted to, we had a discussion at the Board last week, whether it was prudent to issue or not again. I think most of the Board were kind of confident with the cash position and the way that the Company's cash generation look for this year and next year. So, I mean I think it's an open thing still out there. I mean the conclusion of this meeting was -- I mean, let's not do that. We might if needed, we could have a revolver or something else. But, I mean of course very attractive rates out there, very interesting market, and I mean a lot of influence from the investors, kind of like reverse enquiries that we've received. So I mean -- it might be a good idea I think after the summer and after the European holidays so to speak to think about if it's prudent to do a smaller or more smaller issue to ensure that we can complete Toquepala and once we have a little bit of light, so to speak from new Peruvian government regarding Tia Maria.

Mandeep Manihani, JP Morgan.

My first question is -- for the first six months of 2016, you saw copper production of 457,000 tons, but sales were 433,000 tons. Was there a special reason for sales to be about 5% below production, and if we should see some catch-up by sales in the second half? Secondly, I'm not sure if you've already given this, but do you have any moly production guidance for this year and the coming years? And finally, can you just remind us what was the year for the start-up of the El Pilar mine?

Let me start by the last question on El Pilar. We're expecting it to start operations by 2018. On your first question regarding, why we haven't sold all that we produced in the first half. It's because of the nature of our production now. Most of the new production is coming from Buenavista. It's in the form of copper concentrates and the way to handle this material takes a little bit longer in order to sale than refined copper. So that explains why we haven't sold all the copper that we produced in the first half of the year. That should adjust once we find an optimum inventory of copper concentrates in transit through the next few quarters.

But for now that's what is happening, it's the nature of the Company. We still have about 80% of our business under refined copper market, but the news is that it used to be less than 5%, is now 20%, which is copper concentrate sales.

Regarding Molybdenum, we gave an indication on what we expect for the year. We mentioned that we want to produce 22,800 tons of molybdenum in 2016. For next year, we're expecting the new molybdenum plant in Buenavista to -- that has a capacity of 2,000 tons to be in operation and that should improve our production profile. And for Toquepala it will be -- once we initiate operations in that new plant, new concentrator, that has a capacity of molybdenum for 3,100 tons. At this point, I don't have the current forecast for molybdenum production at hand.

Jean-Baptiste Bruny, BBVA.

Just a couple of questions. The first one is in Grupo Mexico community, it says that you reorganize a mining division and you get some saving from that. I just want to get more color in term of many millions that it represents? And the last question is on the -- you're also saying that you've basically finalized the commercial program for the Buenavista, the concentrator number two, with better condition than the benchmark. Just if you can give us some color on this as well? Thank you much.

Thank you. Let me just make sure that I understand your question regarding the Grupo Mexico earnings release. I mean that refering to the administrative expenses reduction, is that correct?

That's basically you're saying that you reorganize a mining division and you get some saving --

Sure. Let me explain what we're doing there. We've implemented [SAP] for the whole Company. We've setup a new corporate area so to speak in order to avoid having three directors in every single country. You have US, Peru, Mexico and now Spain. So, we're going to have a smaller overhead in terms of management and move most of our people to the operations as opposed to having many in headquarters. In (inaudible) of course there is a Southern Copper's Conference Call (inaudible) we've done a lot of different things and that's why it's been the Grupo Mexico earnings release and not so much in the Southern Copper. Although Southern Copper has all the [folks] in doing a lot of this kind of work to optimize cost and to be more efficient. And we've set up a shared services center in Alamos, Sonora, which is in the northern part of Mexico, very close to where our mines of Buenavista and Caridad are. Although (inaudible) that initiative and the second question was on the commercial program for the Buenavista, you said that you concluded, a better condition than the benchmark.

Sure. I mean, we -- of course, this is one of the first plant in Grupo Mexico's and Southern Copper's history that we've had the challenge of selling so much concentrate. And this of course is due to the fact that the new concentrator at Buenavista, there is [75] increased production that we've reported here is being sold as concentrate. So we've been selling concentrate, you know the benchmark it set every year and we've been able to sell our concentrates at lower TCRC that what was benchmarked at the beginning of the year by the industry. So, that was the comment referring to.

At this time, I see we have no further questions. I'd like to turn the call back over to Mr. Jacob for any closing comments.

With this, we are concluding our conference call for Southern Copper Second Quarter 2016 Results. We certainly appreciate your participation, and hope to have you back with us when we report the third quarter of this year. Thank you very much and have a very nice day.

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