Good morning and welcome to the Southern Copper Corporation’s First Quarter 2019 Results Conference Call. With us this morning, we have Southern Copper Corporation’s, Mr. Raul Jacob, Vice President of Finance, Treasurer and CFO, who will discuss the results of the company for the first quarter 2019 as well as answer any questions that you may 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’s undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All results are expressed in full U.S. GAAP. Now, I will pass the call on to Mr. Raul Jacob.

Thank you very much Victor, and good morning to everyone and welcome to Southern Copper's First Quarter of 2019 Earnings Conference Call. In today's call, we will begin with an update on our view of the copper market. We then will review Southern Copper's key results related to production, sales, operating cost, financial results, and expansion projects. After that, we will open the session for questions. Now let us focus on the copper market, the core of our business. During the first quarter of this year, the London Metal Exchange copper price decreased by about 10.8% from an average of $3.16 per pound that we had at the first quarter of 2018 down to $2.82 per pound. That's, as I said, a 10.8% decrease in prices. Even though we see a good physical market for copper, we believe that falling prices of the prior quarter reflected the sentiment of a possible slowdown of the world economy, concerns with Brexit, and an escalation of trade protectionism between the U.S. and China. We expect a recovery in copper prices in the coming months. We maintain our view of a total demand growth of 2.5% for refined copper in 2019. This will be driven by higher consumption in the U.S. and Asia, where China will demand about 3.5 percentage points more refined copper than last year. On the supply side, during the past quarter, we had production losses in Chile and Peru due to heavy rain, and that was estimated as a total loss of production of 165,000 tons of copper. Let me point out that, of this, Southern Copper lost 11,100 tons. As a consequence, we now expect a slight deficit for this year. Copper represented 80.7% of our sales in the first quarter of 2019. Copper production increased 11.6% in the…

[Operator Instructions] Our first question comes from the line of Arthur Suelotto from Bradesco BBI. You may begin.

Thank you. So the first question is regarding Tia Maria. It seems Southern Copper has successfully responded to the eviscerations from the Peruvian Ministry of Energy and Mines. I was wondering what are the next steps, if any, that have to be concluded in order to allow the project to receive its construction permits here in the first half of 2019. And then you also mentioned, Raul, that the CapEx for the first quarter was $170 million for Southern Copper. I just wonder if you can give us an update on the – what are you expecting for CapEx for 2019, 2020. And how much of this total CapEx should be spent on Tia Maria? That's my first question. And my second question is regarding cash cost per ton. You posted a reduction in cash cost per ton, both on a yearly and quarterly basis. But I was wondering how much you expect to reach – or how low can we reach in terms of cash cost per ton here in 2019 before byproduct and after byproducts for credits, considering now the additional volume from Toquepala and San Martin? That's it. Thank you.

Okay. Thank you very much for your questions, Arthur. It will certainly help me to explain some of the things that we're looking at right now. In the case of Tia Maria, in terms of legal, technical and environmental requirements, the company has complied with all of them. So that's what we – that's where we are. We're expecting, in that regard the issue of the construction permits. We understand and we have been working closely with the Peruvian government to create a good and proper social environment for the project to move on. So as part of this work, we are currently looking toward certain initiatives on our side and on the side of the government to improve a very positive social environment for the project. What we're seeing now is a very positive environment, but the government considers that we can do a little bit more on this, and we are focusing on that and expected to receive our construction permit as soon as possible, actually. We believe that the project will detonate a significant improvement in labor opportunities and certainly an increasing quality of life for the area, the Islay Province. As we have stated in several communications and through different advertising campaigns, the company has informed that we will be operating in the desert. That is at least 3 kilometers away from the Tambo valley. One of the closest mine will be 3 kilometers away from the Tambo valley. That’s quite a bit of a distance if you see some other operations worldwide and in Peru. Besides this, the plant will be located 11 kilometers away from the Tambo valley, which is also a guarantee, plus the measures that we’re taking to have a safe and environmentally careful operation that we will not affect the Tambo…

And our next question comes from the line of Andreas Bokkenheuser from UBS. You may begin.

Thank you very much and good morning everyone. Just a quick question from me. As you mentioned earlier and as you mentioned in your press release as well, we obviously saw a little bit of pressure on your operating cash flow from higher working capital requirements in relation to Toquepala. Can you just discuss a little bit more detail why was that? Why did working capital requirements go up? And did you – was there any like purchasing of third-party concentrate into Toquepala, anything of that nature? And more specifically, do you think it's temporary? Or do you think it's more permanent, this high working capital relating to Toquepala ramp-up? Thank you very much.

Thank you for your question, Andreas. The first one, well, cash flow had – we had some capital – working capital requirements that are kind of onetime in some of them, the matters that created these increasing in CapEx – in working capital, sorry. Well, we – as I said, we have sold more copper concentrates, particularly related to the new – to the smelter repair, maintenance that we do, as I said, each 2.5 years and – well, the new production of the Toquepala concentrator as well, so that affected the weight of treatment charge and refining charges in our cash cost. And also, we have more demand for funds for accounts receivable as we are selling concentrates, and they have usually sales terms longer than refined copper. Besides this, we had higher payments for 2018 that are paid at the end of the year. It's the catch-up for whatever is your final income tax bill with the Peruvian and Mexican government. So those two elements were also present in this quarter. In the case of the Mexican operations, we had – we pay in the first quarter rather than in the second quarter. That was what happened last year, so you have a big difference in cash – in operating capital – or working capital in that case.

Understood. Thank you very much. Appreciate the feedback.

You’re welcome.

And our next question comes from the line of Petr Grishchenko from Barclays. You may begin.

Hi, good morning and thanks for taking my questions. First, maybe can you elaborate a little bit on this leasing liability that came on this quarter? I’m just curious of the nature, and I’ve seen a lot of companies kind of reporting adjustments given IFRS 16. But I’m just curious if you can comment on your particular item.

Could you elaborate a little bit more, please, Petr, because I couldn’t get your concern.

Sorry. Sure. So I’m seeing the leasing – lease liabilities of $1 billion.

Okay, okay, okay. Well, we had a new accounting rule that has get in to effect in this year, 2019, that requires us to – us and all the companies to reflect your – the leases that you have. And basically, after studying the new norm, we realized that we have to reflect in both our – in our asset side as well as in our liability side the contracts that we have that are leases. In our case, our review indicated that we have leases that are operating leases. And that’s why if you see our balance sheet, you will see that the figures related on the asset side as well as the liability side are the same. And that’s basically it. It’s a reflection of a new accounting rule that we have to include in our financials, and that’s what we are doing here.

Okay. I guess as a follow-up, the – I guess the EBITDA comparison you’re showing year-over-year, I just want to make sure I understand it correctly. The first quarter 2019 obviously includes IFRS 16. But the comparison versus first quarter 2018, did you make an adjustment as well? Because clearly, the balance sheet does not show this adjustment. So I’m just wondering if the EBITDA figure for the 2019 includes add-back on leases while the last year does not.

No. We have chose to reflect this on an ongoing basis. But in both – but let me say that our EBITDA was not affected by this new rule.

Okay. Fair enough.

And the reason for that – Petr, the reason for that is that all the – after the review that the Special Committee inside the company did of this legislation and how – I’m sorry, this rule and how to apply it to our company, we concluded that all the leases that we have are operating leases. We don’t have any financial or capital lease. And consequently, we don’t have an impact in our cost position related to this new rule.

Got it. And did I hear it right? You mentioned the guidance of $2.9 billion CapEx for 2021 or 2020? I probably missed that but $2.9 billion.

No, no. Let me just – for 2020, it’s 2.1; and for 2021, it’s 2.9.

Got it. So, just in terms of cash flow management, do you expect to pay for CapEx with just higher production, higher EBITDA? Or you think that you will have to access some type of financing, either in the corporate market or – I'm just curious how you think of your capital allocation here.

Yes. Well, let me first comment on what we are considering here. It's all the projects that, as you know, that the company has for growth, getting from where we are now, about 1 million tons of production, up to 1.5 million tons by 2025. That's our current goal. And regarding financing or any debt structure for our growth, we are all the time looking at different possibilities. At this point, we are considering different options, but nothing has been decided so far regarding this.

Okay. So that issue is on the table to fund the CapEx?

Yes. There is a possibility, but it will be – it has to be confirmed internally.

Okay. Great. Thanks a lot and better luck guys.

Thank you very much.

Thank you. [Operator Instructions] Our next question comes from the line of Carlos De Lava from Morgan Stanley. You may begin.

Yes. Good morning. Thank you, Raul. Just – I wanted to explore the guidance of 1.5 million tons by 2015. How aggressive do you think that is? And could you walk us through the projects that are already approved by the board and should start to see a rapid increase in investments to get to the guidance for the next couple of years and so that you can hit that 2025? Because if I see the projects, Tia Maria, which, hopefully, you finally get the approval this year, it's only 120,000 tons, Then you have the – obviously, next year, the full production of Toquepala, which you will have this year. And then Pilares is really more just – you're replacing tons in La Caridad. So how do we get – how comfortable are you that we get to 2025 producing 1.7 million tons. Thank you.

Yes. Well, the projects that have been approved by the board are the ones that are – we are showing in our press release. On top of those, we have El Pilar, which is a 40,000-ton project for the company. We have El Arco. El Arco, it’s about 250,000 tons of copper. And we have Los Chancas in Peru, which is 150,000 tons of copper; and Michiquillay, which is 240,000 tons of copper. So that, plus our current production, will take us to the new production level that we want to get to.

Thank you. And do you have an estimated time for these projects to receive board approval? Or I guess is there a time for management to present the projects to the board and then an expected approval?

We are working on these projects simultaneously. Each of them has their maturity process. And in some cases, we're already initiating the Environmental Impact Assessment, as it is the case for Los Chancas. For us, the next project to go is Tia Maria. It's ready to go in our view. But we're understanding the – we understand the concerns that the government may have and expecting to receive the construction permit shortly and initiate the construction when appropriate. For the other projects, we're – as I said, we're, in some cases, at different stages. And they will be presented to the board when they are at the maturity level for board approval, which means that you have to have Environmental Impact Assessment and feasibility study.

Thank you, Raul.

And our next question comes from the line of Jon Brandt from HSBC. You may begin.

Hi, good morning, thanks for taking my questions. I first wanted to ask you, in this quarter, the reduction in third-party concentrates that you bought, is that just the function of the Ilo smelter and we should see that increase again in the second quarter? And then my second question is just related to the project pipeline you have. Is there a risk that this 2025 target that you're setting maybe gets missed a little bit? Just – I mean, a lot of the projects that you mentioned that aren't board approved I know are greenfield, requires a lot more infrastructure spending, etcetera. So I'm just trying to understand what sort of risk you see that it slips past 2025 either because it's greenfield. Or if you could talk maybe a little bit about the challenges or the risk around these projects? Does it – I mean, doesn't seem like it's a funding issue. Is it essentially an issue with governments and getting permits? Is it an issue on the labor and the expertise side? If you could speak a little bit about that, that would be great. Thank you. Raul Jacob

Sure. Thank you for your question. Regarding third-party concentrates, we are currently long in concentrates in both Mexico and Peru. The – obviously, we had some more sales of concentrates in the first quarter due to a repair of the Ilo smelter, but that is something that was a onetime thing that happens each 2.5 years, so it's a maintenance – a program maintenance. I think that we will be long in concentrates for now up to whenever we have a consideration for investments in some other facilities at the company. On the project pipeline, well, we are working with the assumption that we will be able to go ahead with these projects when they are mature. In some cases, we're buying land. In some other cases, we're initiating some technical studies that are required for in a specific project. In the case of Michiquillay, for instance, we received the asset last year in June, and we're currently working with the local communities to initiate our exploration program in this area, in Michiquillay. In El Arco, we have some other challenges that we're looking at and so on. So I mentioned already the Los Chancas Environmental Impact Assessment that is going on right now within a very good environment, by the way. So each project has its own challenges. You have to also look at the market and see how things evolve. We are very positive about where the copper market is going to be in the next few years. As I mentioned, we're – we have indications of a structural deficit in the next few years, and that is something that encouraged us to move on with these projects. The timing will depend on how fast we solve these challenges that we have different aspects of each of the projects.

Great. Thanks, Raul.

You’re welcome.

Thank you. And I'm showing no further questions at this time. I'd like to turn the call back to Raul for closing remarks.

Thank you very much. Well, thank you very much. Well, with this, we conclude our conference call for Southern Copper's first quarter of 2019 Results. We certainly appreciate your participation and hope to have you back with us when we report the second quarter of 2019. Thank you very much and have a very good day today.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.