Welcome to the Southern Copper Corporation's First Quarter 2015 Results Conference Call. With us this morning, we have our Southern Copper Corporation Mr. Raul Jacob, Vice President Finance and CFO, who will discuss the results of the company for the first quarter 2015 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 U.S. GAAP. Now, I turn the call over to Mr. Raul Jacob.

Thank you very much, Silvia and good morning to everyone. And welcome to Southern Copper's first quarter 2015 earnings conference call. Participating with me in today's conference call is Mr. Daniel Muniz, Grupo Mexico's CFO. 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. Regarding the copper market, as we indicated in the past, we believe short-term copper demand is consistently improving. For this year, we expect the U.S. and Western Europe will pull copper demand worldwide. In the case of Europe, higher demand will come from export-oriented industries favored by the weak euro. For China, we expect total copper consumption growth to be at about 4%, driven by the automotive industry and electric grid plans to expand investments. However, these positive developments will be limit by the Chinese housing market slowdown. On the supply side, as we have expressed in the past, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap production. We note a significant reduction and expected surplus for the market in 2015. A year ago, the expectation for 2015 was a surplus in the range of 500,000 to 700,000 tons. In the last call, we indicated an expected market surplus for 2015 of approximately 300,000 tons. This figure has now decreased to a marketing slight deficit or with a small surplus of about 200,000 tons, a minor figure when refined copper demand is expected to be over 22 million tons for the year. Due to the noted factors as well as delays in project…

[Operator Instructions]. And the first question comes from Thiago Lofiego from Merrill Lynch.

I have two questions, one regarding Tia Maria. Now that you've received the approval for Toquepala, when do you expect to receive the approval and start the works for Tia Maria? And second question is on Toquepala specifically. Would you be able to share with us some data, like operating cost, that you expect per ton at the Toquepala project? And what's your return threshold for this project, or maybe disclose what kind of copper price you use -- you assume to calculate your threshold return for this project. And then lastly, if you could mention what the -- how it works with the Buenavista concentrator evolving and when the startup for that part of the project is expected. Thank you.

I couldn't get your last question, Thiago.

The Buenavista concentrator, how is it evolving? When is the startup expected?

Okay. On Tia Maria, we're expecting through this quarter talks between the government and the local communities regarding the development of the valley, the Tambo Valley, which is the one that is closest to the project. We think that, if these talks are successful, we should receive the construction permit after a while when these talks finish. A timeline on that is very difficult to provide at this point. For now, we're expecting them to start probably this week, the talks. And later on, after they finish, we should receive the construction permit if everything goes okay. On the Toquepala project, we don't disclose the cash cost per operating unit. However, Toquepala, it's a very profitable project. We evaluated about a year ago using 250 per copper pound and return was one of the highest for a project of this size. As I said, it has about 100,000 tons of copper that will get into our production pipeline mostly at variable cost plus an addition to our byproduct production of 3100 tons of molybdenum. Now, you want to compare or to form a cash cost for that. Well, you have to think about the molybdenum prices that are relatively low at this point in time. Regarding the Buenavista concentrator, we have mentioned that it should be finished by the third quarter of this year. Most of the equipment is already assembled or finishing assembly. We will start doing initial tests of some of the parts in the plant during this quarter. And by the next quarter, we should start charting portion or all the facility with material and test how it works.

And the next question comes from Santiago Perez Teuffer from Credit Suisse.

I wanted to ask you on the CapEx evolution from here until 2018 with this reshuffling of Peruvian projects and also if you can give us the production estimate you have for these years.

Yes, well, we're keeping the same forecast that we indicated in the last call. Basically, on production, for copper, our goal for this year is 782,000 tons. Next year, we're expecting to produce 909,000 tons; in 2017, 1,100,000 tons; in 2018, 1,165,000 tons; and that's basically it on copper. On CapEx, our current budget, it's $2.7 billion for 2015, $1.2 billion for 2016, $430 million for 2017 and $330 million for 2018. In this CapEx, we're including about -- there is, but it's between $350 million and $400 million for maintenance CapEx.

And I just follow up on that. In 2017, you reach 1,100K tons. In this one, are you assuming the Tia Maria contributes for half of the year here? Thank you.

Yes, Tia Maria, it's assumed to provide some production in this forecast. We're expecting it to be at full speed in 2017. That may vary if current talks with the local communities take a little bit longer than what we're considering. But, at this point, we don't want to change our view on production or CapEx since we don't have the proper clarity on specifically the Tia Maria project.

And our next question comes from Carlos de Alba from Morgan Stanley.

My question has to do, first, with OpEx or cash per cost guidance, if you can -- it was a very good quarter and if you can comment as to the expectations for the remaining of the year or the average for 2015 and beyond, that would be very useful. And second question and I understand it's sensitive, but can you comment as to what exactly are the issues in Tia Maria? To be honest, I'm not very sure that it is environmental concerns that are at the core of the problem. And therefore, it is to me difficult to see what the solution could be one year before the federal elections in Peru. So, if you can give us some light as to what do you believe or do you understand is the issue affecting Tia Maria, that would also be very helpful. Thank you very much.

Okay. Let me answer first the cash cost question. For this year, we reported for the first quarter $1.66 per pound of copper before any credits. For the rest of the year, we expect to have an improvement on this figure due to the additional low-cost units that we will input into our system coming from the SX-EW III and the new concentrator. Particularly on the second half of the year, we should have the positive contribution of the new concentrator. That could make our cash costs before byproduct credits decreasing slightly to $1.60. That's our view on the cash cost before byproduct credits. In the case of the byproduct credits, it's much more difficult to do a forecast on that because we have always the fact of prices. And as you have seen, we have decreased our -- or they have decreased a little bit between these quarters and the past one as well as last year. So, we would rather focus on the cash cost before any credits. And as I said, we're expecting $1.60 for the year. On the Tia Maria question, it's -- the groups that are opposing the project are indicating that the project will have an environmental impact on their Tambo Valley. We don't agree with that. We -- in the past, the project has -- there was a concern on the use of water that the project will have. We solved this concern by changing the project scope, including desalinized water for the project. That removed the major concern of the agricultures or the farmers in the Tambo Valley. Now, there are some anti-mining groups that are opposing the project. And their main concern is the impact of the mine operation on their fields. As you know, SX-EW technology, it's one of the most environmentally friendly that are available for mining. It has no effluence, no smokes, no liquid effluence going out of the plant. And the mine, it's as any other open-pit mine that has a very limit impact on the surrounding areas. So, we don't think that this concern has a base, but that's what the anti-mining groups are claiming regarding the Tia Maria project.

And our next question comes from Matthew Korn from Barclays.

Outside of the issues around Tia Maria, as you just discussed, how would you put -- how is water availability in general for your existing operations in Peru? I've been reading that Lima is turning to old Incan aqueducts to try and stabilize its own water supply. Is there any risk around the operations Toquepala or Cuajone? And then for the Toquepala expansion, how much of the additional water usage that you'll need, is that being recycled from the tailings dams if what I've been reading is correct, or is there -- are there other means by which you'll get the water?

Okay. Our operations of Toquepala and Cuajone in Peru are with no problems water related. We're using our licenses of water and we're under the total top of the license. In the case of the -- in particular, on the Toquepala expansion, we don't have to worry about additional water, fresh water, for the project because we will be increasing the water recovery. And by doing that, we'll get the additional water required for the new concentrator of Toquepala.

Okay. And following up on that same theme, you mentioned a little bit in the release around the water well situation around Buenavista. Is that -- that's an issue with the old unit teams, or are those wells backed up and operating? Are there any lingering issues there? Are they difficult to secure? What's the current there?

I think that, on that regard, it's explained in our press release, but basically, what we have, it's a group of individuals related to the labor union that used to operate in Buenavista -- they are not anymore in Buenavista -- that -- to cover the wells that they made us to use some other water resources that we have the authority to use. And that was basically it. As of now, we don't have any other concerns about that. I'm not sure if -- Daniel, would you like to comment on that?

Sure. Just for the sake of completeness, this, of course, is totally legal. Thus, the wells are outside the mine premises. They're far away from the mine premises. We consume around 25 million cubic meters per year. And we have other sources of water that we have been using. So, that has not been really an issue now. Of course, we're asking the authorities that filing the legal complaints against these guys because it's not really the river people. It's mostly the union, as Raul just pointed out, or the old union, which has nothing to do with us, which has taken advantage of that topic. And as we pointed out in our press release, we're positive that this was take care for the government. Unfortunately, it is election time of the year. And this June, there's going to be elections in Sonora State. That just increases a little bit of the noise out there. But, you can see from our results productions are steady. And we carry on with the work of the completion of the SX-EW III dam and all the emergency dams that we're building after the spill in August. So, that's pretty much what we have to report on that. I don't know if that's clear.

Our next question comes from Leonardo Correa from BTG Pactual.

My first question is regarding your cash returns. Just taking a look at where copper prices currently are and you still maintain your CapEx guidance above $2 billion for 2015. So, just when we run some numbers here, looking at consensus, perhaps you would be running on negative free cash flow generation. Again, it all depends on copper prices and CapEx. But, that seems to be a possible scenario. So, just wanted to get a sense on where the company stands in terms of covering cash returns. We've been seeing a buyback underway. And we've also been seeing some dividends. So, just want to get a sense of if the company would use leverage as a means to pay a dividend or continue buying back stock. That's my first question. The second one, regarding M&A, still on -- coming back to the topic of debt issuance, you guys clearly had a very successful issuance of $2 billion. You're preparing a bit more a war chest for growth. So, just wanted to get a sense on how exactly you would be pursuing growth, especially with some of the issues in Peru, which seem to be a bit more complicated by the day at Tia Maria. Just wanted to get an idea if you would be looking at M&A as an alternative, so given that you mentioned that also as a use of proceeds in your debt issuance. So, those are the questions. Thank you.

Okay. Let me focus first on the cash flow generation because, on the first quarter, as was shown in our press release, we generated about $283 million in cash. Let me say first that our first quarter usually has a much higher requirement for cash from our operations. In other words, we generate less cash than the rest of the quarters and even the same prices of metals, due to the fact that we have to do a final payment of taxes in the countries where we operate as well as the profit sharing that we pay, specifically the Peruvian operations in the first quarter of the year. So, generally speaking, we're expecting for the second quarter our cash from operations to be higher than the $283 million that we reported. And the reason for that is that we will not have to do these payments, first. And secondly, we're seeing an improvement in copper prices. The average copper price for last quarter was $2.66 per pound. Copper price now today is $2.77 per pound. That is a much higher copper price, about 5% higher. So, we're expecting a better cash generation from the rest of the year. Now, regarding the buyback and M&A activity, I'll pass the call to Daniel Muniz to -- for answer I guess.

Thanks, Raul. Just real quick, just to put it in perspective, starting off with dividends, we've cut down the dividend to $0.12 per share since the 2013 second quarter. That was the Board's prudent way of acknowledging the price environment that we're looking at and vis-a-vis cash generation. In terms of M&A, the way we look at it is, of course, with low prices, we think there might be opportunities out there. And it's the time to be opportunistic about it. But, as you know, we have a very strong portfolio of assets. We have a very strong growth of brownfields out there, being Tia Maria the only greenfield, very -- it's very hard for any particular M&A or transformational M&A to compete with the returns and the risk-reward that we can look at this project. And that's the way we look at M&A normally. Having said that, there might be small projects that would not be transformational that might pop up somewhere out there, given this price environment, again, the struggles that junior minings have been going through. And that's why we've been looking at other alternatives. And that's what we meant in our press release when we said using this debt new issuance for opportunistically in an M&A environment. And it was more focused on small projects that might be out there and with a good time to acquire. And then just going back to buybacks, the way we've looked at buybacks and it's pretty similar about the way we look at dividends, is we debate it quarter by quarter at the Board level. And we've been participating actively in the market. We think the low-price environment, the accident and the circumstances around investors around the world the way they're looking at commodity companies now was not recognizing the true value of the company nor the growth of it. So, that's why the Board decided to accelerate the buyback. We just had a Board of Directors last week. And we've been -- the Board has decided at Southern Copper that the buybacks are going to slow down a bit for the time being. And as you could probably picture, the debt issuance is not for buybacks, not for dividends either. And a good example of it was the $0.10 per share consistent with the previous practices that was accreted in the last Board. So, I think that can cover the whole topic, but I don't know if you have additional questions.

Next question comes from Marcos Assumpcao from Itau BBA.

First question on the CapEx for 2015, if you could comment how much -- out of the $2.7 billion, how much is expected for Tia Maria? And a second question on prices, you mentioned that the current prices are not incentivizing new projects. So, what would be the level that you believe that would be incentivizing new projects? And if you also could share with us, what copper price did you consider in your budget for 2015? Thank you.

Marcos, on the Tia Maria CapEx for 2015, we're considering $664 million.

Perfect.

On prices, what we mean regarding long-term prices is that you do need the price that offer a good return to the shareholders of the companies where these projects -- to the Boards of the companies that hold these projects. Generally speaking, the new greenfield projects will have to have a price in the range of $3.50 per pound in order to move forward. That's an estimate that we have come to a conclusion that it's about that level, looking at some internal estimates as well as looking at what some other very serious market analysts have concluded. So, in order to have the copper that will meet demand in the next few years, we need a price that is much, much higher than where we are today. Regarding our budget, we usually do an analysis on prices. And for this year, we're considering $3.11 as the copper price for our budget.

All right. So, very similar to last year's level.

Yes.

Okay. So, you definitely expect a recovery in prices in the second half of the year.

That's what we're expecting, yes.

Okay. Just to confirm, when did you conclude the budget?

Well, we usually finish in the fourth quarter and then submit it to the Board in our first part of the year, in this case in January.

Our following question comes from Alex Hacking from Citi.

Two questions, just coming back to the M&A question, one thing that has sort of been publicly discussed is the idea that you could partner on Quellaveco. Given all the problems at Tia Maria, is there any update there on your kind of discussions with Anglo-American? And then second is kind of a technical question. We can see now that the free float of the company is below 14%. You mentioned that you're going to slow the buyback. But, you spent more money buying back [indiscernible] the amount of shares that you could continue to buy. Thanks.

Let me say that, on the last one, we do follow certain guidelines on how many shares you can buy on a daily basis. And that's basically -- regarding the float, the current program we don't think will affect the technical float that is required by the authorities. And we're not concerned about that. And your first question, please, could you repeat it, Quellaveco?

Yes, it was the Quellaveco.

You mentioned on the Quellaveco, yes. At this point, we have no talks or any discussions with the Quellaveco -- regarding the Quellaveco asset. So, that's basically where we're.

Yes, let me step in there, Raul, for a while, just for the sake of clarity. And in Quellaveco, after -- there has been a lot of press. [Indiscernible] the asset is between our two open-pit mines in Peru, between Toquepala and Cuajone. It's a great asset. Anglo has been making a lot of announcements about their streamlining of their portfolio of assets throughout their businesses. And I guess we'll always be interested in listening what's going on there. But, that's really it. That's what has happened in the past. There is nothing more than that and nothing more to report to be honest.

John Tumazos, John Tumazos Very Independent Research.

I want to congratulate you on your last few weeks no one's afraid of China very large Hog Bay issues bonds to build mines in Peru. It would seem like you should buy smaller companies or weaker companies that can't raise money as well as you high-cost debt neighbor just north Shreveport Macmoran debt these days. Are you worried about the bond rating agencies? I hear all these bond questions buyback stock dividends finance you should be aggressive.

I think we as I said in the introduction to this call, we believe that our very successful bond issue was certainly affecting the key characteristics strong balance sheet we also think as was expressed by our Board Member Daniel Muniz that the company is looking for opportunities to buy assets and certainly the -- we think that we have a good opportunity in this kind of market for assets that are interesting and as long as they fit with our characteristics of being low cost and areas of the world where we're interesting. We're not concerned credit ratings at this point through the year one of the key ratios that we look at total gross debt to EBITDA decrease as we move on into 2015 yearly basis a little bit more than 2.3 times total debt to EBITDA we're expecting it to be lower as we move on into the year. Just as a reference as a long-term ratio 2.5 times total debt to EBITDA. And we're quite comfortable to where we're now the trade rating agencies have confirmed our trade rate standing and this is something is certainly well received by us.

And as you know, John, the EBITDA is going to increase dramatically once this projects start producing, I mean given the production growth given that Raul just pointed out the ratios are going to go below 2.2 or 2.3 currently where we’re, and three it's around the rating agency have indicated that would have issue. But thank you for the questions and thank you for the complements.

And our next question comes from Alfonso Salazar from Scotiabank.

Most of the questions I’ve have already been answered, can you tell us -- I saw the copper shipments were low compared to production and I think it was the same in the past quarter. So if you could tell us how you see current demand for copper or if there is anything affecting the sales and also if you can tell something about the progress in early-stage projects you have some which have something about some gold project in Chile recently, so if you’ve some comment as well on that project as well. Thank you.

Currently we’re seeing a fine market for us, as I’ve mentioned several times in the past our company produce refined copper and currently at these price levels what we're seeing is reduction of one of the refined copper supplies which is a scrap copper, scrap copper has decreased significantly in the market. That give us -- that open up the door for us with our high-quality [indiscernible] it's a trade internationally with a premium. That premium is on top of the copper market price, it's a very favorable deal for us and in the worst time -- let me say this about the company material. In the worst time of the financial crisis in 2009 physical consumption of refined copper dropped by about 7% worldwide. We didn't have any cancelation sales in that year, that means that the market appreciated our copper on top of some other options that are available for refined copper. And your second question was please?

Yes related to the early-stage projects you’ve, if you’ve some comments and how are they evolving or anything to report at this time?

Well, we do have some other projects available for the company. Once we finish with this investment program we will focus on developing some other copper and zinc initiatives that the company has. We have mentioned in other calls the [indiscernible] project in Mexico, we're currently working on developing, seen some options for bringing infrastructure that is required for Alarko [ph]. We also have Los Chankas project in Peru, those two are greenfield projects. Besides those two, we have the possibility of an expansion Cuajone operations, that’s something that we’re looking at as well as increasing SXEW production by treating more oxides at the Cuajone mine. Besides these initiatives the company has some other zinc projects that are in our pipeline. And they will create a second opportunity for more additional growth coming from Southern Copper.

And the next question comes from Sebastian Cruz from Kallpa Securities.

My question is around [indiscernible] expansion, when is it going [indiscernible]?

Well we have already the construction permit, through this quarter we will initiate the bidding process of the [indiscernible] expansion. Some of the works are already underway and through the third and fourth quarter I will say most on the fourth quarter we will start doing some civil works as well as receiving equipment, so that’s the heart or the most intensive part of the expansion will start.

And our next question comes from Marlene Finny from GMB.

Most of my questions have already being answered but I just have one more concern, we have seen in the local revenues that the national indefinite strike was approved and is planned for May 18th. Could you give us more color on this matter and do you think this would or could affect the production for the year? Thank you.

Thank you very much for your question, Marlene, but the straight answer is we don’t think that they will affect our production. In the past we have had these calls for national strike in Peru. Generally speaking not all the unions these kind of calls in our operations we usually don't participate -- our unions don't participate on the strike and besides that if by any change one of the seven unions does participate or will participate on this national strike, we have an emergency program that allow us to maintain mineral production as well as SXEW operations while on strike and that has made us not to lose any production three-day strike or anything like that in the past.

And the next question comes from [indiscernible].

Why would you have a low effect tax rate in the fourth quarter and first quarter of 2015 and what can we expect for this year or the other year considering that there is a new tax in realty in Mexico?

Yes, well, we had a lower-than-our-trend effective tax rate in the first quarter. And the reason for that is tied to the dividend forecast that we do on a yearly basis from our Buenavista which is a subsidiary of Southern Copper usually you pay a tax on top of the remittances from Buenavista as a subsidiary. Currently, we're having relatively conservative given the [indiscernible] that they are involved in a very aggressive growth program, we’re considering a relatively low dividend remittance from Buenavista to our Southern Copper holding corporation. So basically that’s what explains the difference in the tax rate.

And our next question from Lucas Pipes from Brean Capital.

My question would be on the copper macro side, do you’ve sense of what of percentage copper production is uneconomical at current prices?

Well, there are -- on the highest detail of the cash cost curve most of the companies should be operating under -- with a price a little bit higher than their cash cost but under profitability. Let me elaborate a little bit. They're covering operating cost but not generating enough cash to pay for maintenance CapEx, etcetera. So, that's the belief at this point. If copper prices were to drop from where they are, which we don't believe that that is going to happen, we should see some shutdowns for many of these small operations make sense to have their facilities up and running because they get a net in resources and a positive net in resources after cost.

So, there's some portion of the global supply curve that is generating kind income statement profit but on a total cash flow basis they're not returning cash and what percentage of total supply falls into that category.

Let me say first that I disagree what you said P&L basis, they are on a loss. So on the percentage it varies significantly from one quarter to another. We don't have a visibility at this point on the cost structure of those kind of units under significant pressure.

And we have no further questions at this time.

Okay. Well, with this concludes our conference call for today. We certainly appreciate your participation and hope to have you back with us when we report the second quarter of 2015. Thank you very much and have a nice day today. Bye, bye.

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