Welcome to the Southern Copper Corporation's Second Quarter 2015 Results Conference Call. With us this morning, we have Southern Copper Corporation, Mr. Raul Jacob, Vice President of Finance and CFO, who will discuss the results of the company for the second 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 will pass the call onto to Mr. Raul Jacob.

Thank you very much, Chris and good morning to everyone. And welcome to Southern Copper's second quarter 2015 earnings conference call. 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. Let me focus on the copper market. As we approach to the first half of the year, we maintain our long-term confidence in the positive fundamentals of this market. Looking at demand, we're expecting worldwide copper demand growth of about 3% for the year. That is new demand for refined copper of approximately 700,000 tons. The main drivers are a 4% demand growth in China, a continuation of demand recovery from export European industries and a stable U.S. copper demand in line with the American DVP increment. For the second and third quarters of 2015, demand has been affected by some macroeconomic headwinds. Those headwinds such as the Greek crisis or the dollar has created a view on the speculative segment of demand for basic metals. However, we believe this affect has peaked and we should see the market recovery shortly. 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. Among these factors, we want to emphasize delays in project startups, technical problems, labor unrest, excess government taxation and other difficulties. As an example, in the last week, four major copper producers have announced production estimate reductions due to project delays, strikes and cost control. Current long-term estimate by the most prestigious market analysts indicated a…

[Operator Instructions]. And our first question comes from Carlos de Alba from Morgan Stanley. Your line is open. Please go ahead.

First question is regarding cost. With the pressure that we have seen recently in copper prices, is the company doing any specific initiatives to reduce cost? And if so, could you comment what are those and then perhaps some target? And also overall, how do you see cost, Raul, moving in the second half of the year and then into 2016 with where we have seen in oil as well as the ramp up of the new projects? And then the second question has to do with the free float of Southern Copper. We have continued to see the stock -- the company buying back its own shares, but the free float is only around 13.8% now. So could you tell us what is the strategy there and at some point, the share buyback which certainly create value for shareholders may turn negative because use of the float. So could you please also elaborate on that? Thank you.

Let me comment on the cost adjustment that you're seeing on the company and the initiatives that we're taking. Well, as you all know, we're seeing, as we're not seeing a good market for our products in terms of prices, we do have as well some adjustments in our costs. I mentioned already some savings that we're getting in fuel and power and some other expenditures, some of them related to -- directly to better prices, some of them related to exchange rate depreciation in the Mexican peso as well as the Peruvian sol. But besides these adjustments that are the result of market conditions, we're doing our own to improve productivity in our facilities. Let me mention a couple things. In our Buenavista concentrator number one which is the old Buenavista concentrator that has been operating for many years, we have been improving the whole system in order to yield a little bit more than 10,000 tons of additional copper production in this year and we expect to maintain that on the next few years. That is one practical example of what we're doing, because basically this new production comes at variable cost. It does help us to reduce the impact of the fixed cost in our operation and this is an important adjustment that we're seeing. I mentioned also that the Mexican government authorized the company -- the Mexican authorities authorized the company to operate impact. This is important for us because will deal the liquid solution that we use for copper production at the SX-EW III plant and the other plants I and II, at a much higher ore grade. Currently, we're using -- we're getting 1 gram per liter. Within operation, we're expecting to get 1.4 grams per liter which will certainly allow us to increase…

And our next question comes from Wilfredo Ortiz from Deutsche Bank. Your line is open. Please go ahead.

Just very quickly on given the level of investments you've done so far for the year versus what was budgeted for 2015, could you give us a better sense as to where these levels could be? Ie, some of it rolling over into 2016, 2017, perhaps, given the delays at Tia Maria. And secondly, given the current environment and valuations, should we expect further transactions like the one that you just concluded with El Pilar that perhaps might bridge the gap until Tia Maria is successfully executed?

Okay, let me first mention our guidance on capital expenditures for this year as well as next year's. For this year, as I mentioned, we're expecting to spend $1.5 billion total, for next year, about $2 billion. For 2017, $1 billion; 2018, $500 million; and 2019, $360 million. Regarding your second concern, Wilfredo and thank you very much for your questions, I think that our first goal is to move forward with Tia Maria. We have mentioned that and several times, we're certainly waiting for the efforts that are being done at this point to have a positive return or turnout for the company. And that's what we're doing in that specific case. Besides that, the company, as I mentioned, has a vocation for copper as well as improving its production pipeline through different options. We already mentioned one that has been acquired recently and we believe that this is something that may happen over time in the next few years. But on that, it's a matter of seeing the opportunities that are in the market, comparing them, evaluating them responsibly. And if there is a good fit with our operations, we will present this to our Board for a decision.

And our next question comes from Ivano Westin from Credit Suisse. Your line is open. Please go ahead.

The first one is just to on Tia Maria. I realize that you have done a great again to obtaining a license. You have guaranteed that water resource will be used for farming and human consumption. You already have a dialogue roundtable that you mentioned earlier in the call. I just wanted to get a sense whether there is any specific pipeline on this dialogue that you can disclose, first understand whether or when you can get this license. I'm just trying to get a sense whether it could be on this approval? Also, the second question would be on this El Pilar project, if you could comment when you expect to reach these cash cost $1.6 per pound, when you expect to reach that. Thank you.

Sure. On Tia Maria, we certainly would not like to make any additional comments on what you have seen in the press release for keeping this process moving forward as expressed. So I'm sorry for not adding any new more color on this. Regarding El Pilar, it, as I said, takes $1.6 cash cost estimated to be in operation by 2018 with a capacity or a production of about 35,000 tons of copper per year. That is refined copper.

And our next question comes from Leonardo Correa from BTG Pactual. Your line is open. Please go ahead.

I have a couple of questions here. My first question is regarding still on the CapEx side, CapEx and volumes. We've been seeing some consistent levels of CapEx which are below guidance and below general expectation. Just wanted to get your sense, Raul, if this by any chance would also potentially roll over some of your production targets and copper growth throughout the medium term. So just want to get a sense on how these CapEx delays could potentially also impact your production targets? I'm not sure I missed it but if you can also repeat the guidance on volumes growth in copper prior year that would also help us a lot. My second question, Raul, moving back to a topic which we haven't really spoken about during the past quarters on hedging and use of derivatives. We've been seeing quite weak copper prices, probably well below expectations, general expectations in the industry. Just wanted to get your sense on whether now would be a time to reconsider the use of derivatives to potentially protect from further downside in copper prices? That's it. Thank you.

Let me focus first on the copper volume. As I said, we're not changing our guidance for 2015 of 782,000 tons for the year. We do have an adjustment on next year's production given the time lag that we're getting in our capital investments. For next year, we're considering 910,000 tons of production, for 2017, 1 million tons and 2018, 1.2 million tons. That will be all the projects, including Tia Maria at full speed and not including El Pilar. Regarding the second point on hedging, well, basically we have done hedging activities in the past as an opportunistic situation. When we see this location in the market, we act on that front. In our case, given the fact that we have a very low cash cost, the lowest among the companies of this size at the copper industry, we consider that hedging has to be opportunistic in its nature and not necessarily as a defensive action. That's basically it for now. I don't think that we're considering doing a hedge at this point, but that may change if market conditions vary.

And our next question comes from Thiago from Merrill Lynch. Your line is open. Please go ahead.

So just one question on Toquepala, Raul, if you could comment if there are any standing authorizations at all for the project to be executed. And how much are you going to spend specifically in Toquepala this year and in the next couple of years? Thank you.

Sure. There is no pending authorization on Toquepala and our budget for this year is $311 million. For next year, $601 million; 2017, $256 million and with that we'll be finishing the project, the expansion project and then we'll have the maintenance capital investments for Toquepala.

And our next question comes from Matthew Korn from Barclays. Your line is open. Please go ahead.

Raul, I would like to know your thoughts. What do you think we need to see in order to get a lift in the copper price over the rest of the year? It seems like disruptions start to bite a little bit more lately, Codelco and their strike, the Zambia Power issues. I think Ok Tedi is down. Antofagasta has reduced their output. Do we need visible inventories to really take a down or something else? What would be the best signs you think that we should look for to anticipate the copper demand over the rest of the year? Thanks.

Well, we don't do a forecast on copper prices. Even though we're in the business of controlling copper cost, not in the business of forecasting copper prices. Having said that, we're expecting the second half of the year, a combination of more activity on the demand side, particularly on the Chinese demand and this trend on supply underperformance to be hold or even deepen a little bit due to the current price environment. This price environment, I think we will start seeing some major maintenances in copper producing facilities or shut downs. That is something that we're expecting for now and if this holds for 2016 as well. That should help to rebalance the market, but as I said at the beginning of the call, we believe that during the second quarter, all the macroeconomic headwinds have been -- have affected the speculative segment of the demand and that has been -- most of the impact has already been absorbed. So we believe that that portion of the demand will not be a negative matter in this second half of 2015.

And our next question comes from Rodrigo Garcilazo. Your line is open. Please go ahead.

I have a couple questions. First one is regarding, in this report in the cash flow statement, specifically in the investment activities, you reported just a of short-term investments of $490 million during the quarter. Could you specify what those short-term investments were? That's the first question.

It's very simple, this is a Treasury investment that is over 90 days. U.S. GAAP rules indicate that if we have the investments that are over 90 days for Treasury, we have to report them as short-term investments. Actually, in our view it's a portion of cash that is available but we have invested given the fact that we're not expecting to use it in the short-term for a longer period of time or given certain market conditions that may be advisable to do that. That's basically it.

So they were taken out of the cash for the quarter, but they are still in your hands, right?

Yes, that's correct.

And the second question is regarding the El Pilar project. I know it's too early to assess, but could you comment what type of synergies through this project have with Buenavista being so close to El Pilar's project. And another question regarding the possible acquisition is the Anglo-American have continued regarding . Thank you.

Okay, let me start by your last question on [indiscernible] we have nothing to report. This is where we have been in the prior call as well. On the El Pilar, what kind of synergies, well, let me say first that the fact that this is a copper oxide project, that it's very close to our Buenavista operations, have several synergies. Let me mention that for instance, certain shop works can be performed at our Buenavista operations and this will certainly preclude us to do certain type of investments that if it were a standalone operation, you will have to do it anyway. But besides that, we have a smelter relatively close that we can transport material with through pipelines to El Pilar and do the leaching part of the process over there. A return by using another pipeline system to our SX-EW operations in Buenavista. Besides that, we think that we can't -- we're considering if we need to build a plant in El Pilar or otherwise we can improve the plants that we have currently in our other Sonora facilities to obtain some estimated savings on that. The $300 million that we indicated for development considers the project as a standalone facility and we believe that the synergies that we will acquire through a detailed study of this new asset will allow us to capture some better numbers than the $300 million that I had mentioned.

And our next question comes from Alfonso Salazar from Scotiabank. Your line is open. Please go ahead.

And my question is also regarding the El Pilar and I think you [indiscernible]. But if you can show us asset El Pilar at the low cost, I think there is also a potential for reducing the cash cost for the mine, for the $1.60 that you presented, right? That's my first question. And the second is if you can give us an update on the new in Mexico and the other products in Mexico that you were saying El Pilar is one in , but also anything to report at this time and at this point. Thank you.

Okay, on El Pilar, $1.60 is the cash cost on our conservative basis because we're assuming the construction of a new plant over there and we're not including the benefits that we expect to obtain through a detailed review of the property and drilling program that we're about to initiate in El Pilar. And I think that we should see -- I'm expecting a lower cash cost when this facility operates. Now, that's contingent, as you will know, of what kind of cost we'll face in 2018 regarding fuel, et cetera, et cetera which is something we don't know what will be the cost of these materials at that time. On the other projects, [indiscernible] as you mentioned it, we're still working in unlocking this project so we can move forward with it. But at this point, there is not much to report.

And our next question comes from John Tumazos from John Tumazos Very Independent Research. Your line is open. Please go ahead.

In making future acquisitions your growth, will you stick to the established regions where you operate in Southern Peru, Northern Mexico and Southern Arizona or will you look more broadly? There are other companies with more complicated business structures, First Quantum, the copper division of Glencore, Freeport McMoRan. Do you want to stay simple or will you tolerate a little bit of complexity as you grow?

Let me first clarify that Southern Copper does not have producing operations in Arizona. We're based in the U.S., as you know we don't have any operations in Arizona at this point. But generally speaking, the company has a vocation for the Americas and obviously, the characteristics that an asset required to be acquired by Southern Copper is that it has, as we mentioned several times, a good profile in terms of cash cost, in terms of being something that will enhance and be accretive for the company as we believe El Pilar is for Southern. And in that basis, when we see an opportunity, the responsible thing that we do is to review it, to see if there is potential and a good fit for us and in that regard we move forward to talk with whoever is considering a sale in order to get the best deal possible for our shareholders. That's what we do. Now, El Pilar is in Mexico but that doesn't preclude us from acting in some other countries as well as some other areas of Mexico too.

Thank you. Our next question comes from Alex Hacking with Citi. Your line is open. Please go ahead.

So please, if this question's been asked already then I apologize. One, can you give us an update on CapEx guidance this year given how far below budget it is? And two, with all the new concentrates coming in, in Mexico, you're obviously not going to have enough smelting refining capacity inside the company. How is the thought process evolving or are there any timelines? Or how are you thinking about the potential of adding more smelting refining capacity in Mexico to deal with the additional concentrates from Buenavista? Thanks.

Okay, Alex, basically we're considering $1.5 billion of capital expenditures for this year. I mentioned already the other years. I'll pass through them very quickly. It's $2 billion for 2016; $1 billion for 2017; $500 million in 2018; and $360 million in 2019. That's the CapEx forecast at this point. Regarding some other investments, we're currently analyzing several actions in this matter. We don't think that comment on some of the ways that we're undertaking at this point make sense unless we have a firm commitment. In the case of El Pilar, for instance, we have a quite firm commitment where we acquired the property and we have a development plan for it. Regarding smelting and some other investments, I think that we will comment on them as we update our -- when they are approved by our Board and we're thinking about moving forward with them.

Thank you. Our next question comes from Ricardo Miranda from LarrainVial. Your line is open. Please go ahead.

Well, I have three of them because a lot of them have been answered yet already. First of all, CapEx you mentioned that you're going to spend $1 billion to $5 billion during this year. How much of this maintenance CapEx? And second, I have read that there is a in your Peruvian operations for the next month with the and if you are having now problems or issues that are effecting you current operations? And third, what is this $10.5 million related to environmental ? Is it related to the for -- we thought last year? Thank you very much.

Okay, on maintenance expenses, the company is currently spending about between $350 million and $400 million per year. That's embedded in our $1.5 billion capital budget. On our current operations, we have no issues at all. Our operations are normal. We're currently initiating talks with the unions in Peru for a new long-term contract, labor contract. We have signed five of them in the last 20 years. So I don't think that this will -- and with no strikes in the last as well. So I don't think that this will create a problem for the company. We do have to talks -- to initiated talks now in August and they will continue until we reach an agreement. And your -- I'm sorry, I couldn't, I missed your last question. Could you repeat it please?

[Operator Instructions]. And Ricardo, you line is open.

Okay, perfect. And about the $10.5 million that you had spent in an account of environmental, is this related to the spill in Sonora?

Yes, the simple answer is yes, it is. We believe that we're pretty much finished with this process and we expect not to have any significant charges on this matter in this quarter as well as the next one.

And our last question comes from Mandeep Singh from JPMorgan. Your line is open. Please go ahead.

Just a follow-up on your acquisition strategy, so we thought El Pilar is a small acquisition and it's a project though. So any future transaction should we expect the similar to apply for any target? Or would you be more open a larger target or acquisition of operating mines? Thank you.

We at this point, are looking at certain assets. The size of these assets is different. In this case, El Pilar has been the one that came out the first but we're considering some other options. At this point, I think that this is it. We're expecting to get some other acquisitions hopefully before the year-end, but this is not anything of a big size. It's more in the range of what we mentioned for El Pilar.

Thank you. We have no further questions at this time. I will now turn the call over to Mr. Jacob for closing remarks.

Thank you very much, Chris and well, with this, we conclude our conference call for this second quarter and the first half of the year 2015. Certainly appreciate your participation. Hope to have you back with us when we report the third quarter of 2015. Thank you very much and have a nice day today.

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