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Edited Transcript of GMEXICOB.MX earnings conference call or presentation 24-Oct-19 6:00pm GMT

Q3 2019 Grupo Mexico SAB de CV Earnings Call

Mexico City, D.F. Nov 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Grupo Mexico SAB de CV earnings conference call or presentation Thursday, October 24, 2019 at 6:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Fernando López Guerra

Grupo México, S.A.B. de C.V. - Director of Administration & Finance of Transportation Division

* Francisco Zinser Gonzalez

Grupo México, S.A.B. de C.V. - MD of Infrastructure Division

* Marlene Finny de la Torre

Grupo México, S.A.B. de C.V. - Director of Administration & Finance

* Oscar González Rocha

Grupo México, S.A.B. de C.V. - Director

* Xavier Garcia de Quevedo Topete

Grupo México, S.A.B. de C.V. - Director of Finance & Administration and VP of Board of Directors

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Conference Call Participants

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* Alfonso Salazar

Scotiabank Global Banking and Markets, Research Division - Director of Metals and Mining

* Carlos De Alba

Morgan Stanley, Research Division - Equity Analyst

* John Charles Tumazos

John Tumazos Very Independent Research, LLC - President and CEO

* Rodrigo Garcilazo Carreon

GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Head of Research of Andean Region

* Thiago K. Lofiego

Banco Bradesco BBI S.A., Research Division - Director & Head of the LatAm Pulp & Paper and Metals & Mining Equity Research

* Timna Beth Tanners

BofA Merrill Lynch, Research Division - MD

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Presentation

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Operator [1]

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Good afternoon. Thank you for holding, and welcome to Grupo México's third quarter earnings conference call. With us this afternoon is our Vice President, Mr. Xavier Garcia de Quevedo; Mr. Fernando López Guerra; Mr. Oscar González; Ms. Marlene Finny; Mr. Francisco Zinser and other executives who will discuss the financial performance of the company during the quarter, giving you a summary of the latest news and address any questions you might have at the end of the call.

Before we begin, I would like to remind you that 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 not to place undue reliance on these forward-looking statements. Grupo México 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.

(Operator Instructions) Now I will pass the call onto Ms. Marlene Finny.

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Marlene Finny de la Torre, Grupo México, S.A.B. de C.V. - Director of Administration & Finance [2]

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Hi. Good afternoon, everybody. I and the company and the top executives from our main division want to thank you for your time during today's Grupo México third quarter earnings conference call.

For today's conference, we will be following the presentation that can be downloaded from our website or by accessing the webcast. If you did access the webcast, we please ask you to put your camera off and your microphone off as well.

So to get started, Slide #3 shows the program we will be following. I will begin by giving Grupo México's financial highlights. Then Mr. Xavier de Quevedo will comment on the mining economic environment and the Mining Division main highlights, followed by Mr. Fernando Guerrero (sic) [Fernando Guerra] who will detail the financial results and main events of the Transportation Division. And finally, Francisco Zinser will explain the relevant events of our Infrastructure Division. After this, the call will be open for questions and answers.

So we are very happy to share with you this quarter's results as even with lower copper prices during the quarter, we were able to deliver strong numbers.

Moving onto Slide 5. Grupo México's consolidated sales reached $2.8 billion during the quarter. This is 8% higher than the last year -- the third quarter of last year, and this is in spite of lower copper prices that fell 5%. And zinc prices were also lower, 7.5%. EBITDA for the quarter totaled $1.25 billion, almost 8% higher year-over-year. We will go into this financial highlights later on the next slide. So this was just a quick overview.

We are also pleased to share with you that in commitment to our shareholders, we have been able to maintain our dividend for 6 quarters now on a row. The company's Board has approved a quarterly dividend of MXN 0.80 per share. This represents a dividend yield of 7 point -- of 6.7%, sorry. This is one of the highest and a very strong dividend yield.

In addition to this, it is important to mention that during the quarter, we issued 2 debt [emissions] for 2 of our divisions, so to carry on with our intensive investment plan in Mexico and for Transportation Division in the U.S. as well. One was at the Minera Mexico level, in which we issued $1 billion nonsecured bond. This is for 30 years with a yield 4.5%. This is to invest in 3 of our Mexican growth projects, Buenavista Zinc, El Pilar and Pilares. We will go into these projects later on in the presentation.

For the Transportation Division, it was a debt permission in the local market for roughly $390 million, so MXN 7.8 billion. The transaction was to refinance the debt with a better -- with better rate conditions and to improve our debt payment schedule.

In both transactions, the demand exceeded our expectations, with Minera Mexico almost 4.3x (sic) [4.6x] the demand and the Transportation division almost 3x. With this, we show our commitment to continue investing in Mexico and to contribute to its economic growth and development. So we were very pleased with these transactions during this quarter.

In the Mining Division, as we have done in the past quarters, we have reaffirmed our position as the lowest cash cost copper producer in the industry with $1.06 per pound during this quarter and with the largest copper reserves worldwide and an interesting organic growth pipeline. I think we are the only or one of the only copper-producing companies with such a strong pipeline of projects going forward.

Production during the quarter reached 286,000 (sic) [286,335] tons of copper. This means an increase of 12.6%, mainly driven by the improvement in all of our operations in Mexico, Peru and the U.S.

Focusing on the main financial highlights on production numbers. We are on Slide #6. As I mentioned, sales reached $2.8 billion despite the decrease of 5% in copper prices. This was offset by the production increase of 12.6% of copper. Operating revenues totaled $883 million during the same quarter, an increase of 4.4%. EBITDA, $1.25 billion with a margin of 44.7%.

Investments during this quarter were almost $300 million. As you know, due to the change in mining project schedule, we will be adjusting the time line for capital expenditures, and we will comment on this later on the presentation.

Moving onto Slide #7. I will comment on the Group's main highlights.

In the Mining Division, well, we already went into the details of the issuance at the Minera Mexico level. So this is one of the highlights during the quarter.

After that, I want to also highlight that after 11 years of strikes, we are proud to say that we have a major renovation of the San Martin operations. And we have produced 3,000 (sic) [3,205] tons of zinc, 717 is the tons of copper and 64 ounces of silver during 2019. This is just the beginning. We are starting and you will see a full production coming on by next year.

Also, the new molyb plant in Toquepala started operations during the quarter, and we expect it to add 4,000 tons of additional molybdenum production when operating at full capacity. We will have been able to increase our molyb production by 40% during this year.

In the Transportation Division, we happily announce our investment of $70 million in our Manzanillo and Altamira ports and the energy infrastructure for critical facilities to increase market share. And on the other hand, with confidence in Mexico's growth and development, a historical CapEx plan totaling $466 million was approved for 2020. We will further comment on the projects for this CapEx further on the presentation once we go into the Transportation Division in detail.

In the Infrastructure Division, the first new wind farm will have an installed capacity of 168 megawatts of clean energy for various industries. We expect this wind farm to come into operation by 2021.

On the new business line in the Infrastructure Division, which is fuel storage terminals and facilities, we will have a combined capacity of more than 1 million barrels. Also the Silao Bypass was inaugurated during the quarter, and we expect it to reduce up to 20 minutes of travel time from León to Guanajuato.

Moving onto Slide #8. This is an important part for our business. The sustainable development is at the core of our business model. Therefore, over the last 2 years, we have invested over $120 million in social, health care and security projects. We remain firmly committed to continue with this environment we will be in for the communities in which we operate and in the places in which we operate because this is the basis for the responsible progress of all of our businesses and projects.

We are happy to announce that the company now has in the Dr. Vagón, that we have been mentioning in past quarters and you probably know, we'll now have Dr. Vagón Quirófano that has operating rooms for minor procedures. So this is the new part. And we -- that will compliment all of our services at El Tren de la Salud and at Dr. Vagón.

Continuing into Slide #9, going more into Grupo México balance sheet, which remains very solid. This shows the strong capital structure that generates value. We have a net debt-to-EBITDA ratio of 1.4, with 82% of our debt in dollars and 18% in pesos, where 96% of our debt has a fixed rate at a very comfortable payment schedule with competitive cost of capital that has been improved with our 2 issuances on this during the quarter in the Minera and the Transportation Division.

With this, in Page #10, we can see the debt maturity profile that has been improved. And now we have the new bond on Minera Mexico until 2050, so this is a new one, and also the improvement in the Transportation Division that we -- that the debt permission were for 4 and 10 years. So now you can see up to 2039.

So with that, I think we're finished with the main highlights at Grupo México. And I'll pass the call to Mr. Xavier Garcia de Quevedo, who will comment on the Mining Division.

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Xavier Garcia de Quevedo Topete, Grupo México, S.A.B. de C.V. - Director of Finance & Administration and VP of Board of Directors [3]

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Thank you, Marlene. Financial highlights of the quarter are shown on the Slide #12. Sales reached $2 billion -- $2.08 billion, which translates into an 8.4% quarterly increase despite the decline in copper and zinc prices. EBITDA was $885 million at 65% (sic) [6.5%] growth versus 3 quarter '18.

Copper production reached 286,000 (sic) [286,335] tons during the third quarter, a 12.6% yearly increase, given the rise in our Toquepala, Buenavista and Mission mines. In Mexico, production increased 3.9% compared to the third quarter of 2018. And in Peru, the Toquepala expansion supported the 26.2% increase. In the U.S., we achieved a 12.9% increase in our Mission operation in Arizona. Investment in the Mining Division totaled $195 million during this quarter.

Moving into Slide 13 to the copper market outlook for the quarter. LME copper prices decreased from an average of $2.77 per pound in the third quarter of 2018 to $2.63 per pound, minus 5.1%. We see a fair physical market for copper, but we believe the fall in prices is now reflecting a slowdown of the world economy, strongly related with Brexit and the escalation of trade protectionism between the United States, Europe and China. We believe a clear path of solution to this event is necessary for a recovery in copper prices.

Considering third quarter '19 data, we are now adjusting our view on the refined copper demand growth to 0.9%, previously 2% in 2019, with positive growth in the U.S., 0.5%; and Asia, with China demanding 2.5%, previously our estimate was 3.5%, of more refined copper than the previous year.

On the supply side, during the year, the market has had several production losses, including labor strikes, heavy rains in Chile and Peru and technical problems. As a reference, Wood Mackenzie consider that today, the industry has lost about 481,000 tons of copper production. The recent slowdown in refined copper demand has reduced out market deficit due to approximately 100,000 tons for the year.

Now moving onto Slide #14, which show our projects update. Beginning in the Toquepala expansion project that had an investment budget of $1.3 billion and will raise annual copper production to 285,000 tons. It is already operating at full capacity since the last quarter and will produce 52% more than in the year 2018.

In the San Martin mine, we have allocated an investment budget of $87 million to restart the operation. The concentrator restarted operations last May, and we expected a total annual production of 9,889 tons of zinc, 2,384 tons of copper and 1.9 million ounces of silver for this year.

On the other hand, in ASARCO, we remain focused on improving human capital with the purpose of recovering a sustainable operation. We are committed to change their current working condition. On October 13, [indiscernible] workers' union, represented by United Steelworkers, initiated a strike despite the offer of higher wage and ongoing training to increase their skill and knowledge. As a result of the workers' decision to go on a strike, we have decided to temporarily close the concentrators and the smelter in Hayden and the refinery in Amarillo, Texas due to a lack of needed conditions for an adequate and profitable operation.

We reiterate our commitment to our long story of boosting economic development in the states of Arizona and Texas, through competitive labor and community engagement.

Moving onto Slide #15. We focus on Tia Maria. As you know, the project has a total investment budget of $1.4 billion, of which about $300 million have been spent already, and will an annual production of 120,000 of SX/EW copper per year. We have committed to the communities our project will not affect its activities as it will use 100% desalinated water for its operations. In the same way, it will allow the creation of approximately 9,000 jobs. The quality of life will continue improving due to our social programs in education, health care and productive development.

I would like to go through the timeline for the recent events of Tia Maria. We received the construction license on July 8. This permit was obtained after completing a review process, complying with all established regulatory requirements and addressing all observations raised. On July 15, 2019, anti-mining groups held a violent demonstration that affected overall economic activities in the Islay province. These actions were followed by the filing of 3 complaints supported by groups and opposed the Tia Maria project before the Mining Board, which is the Peruvian administrative authority responsible for resolving lawsuits and claims.

The Mining Board suspended the construction permit on August 8, 2019, until a decision is reached regarding the claims. We are responsible for informing the context of the controversies that have arisen around Tia Maria. And we must be clear on the fact that there are opposition groups whose goal is to stop its construction.

The opponents of the project are 3 groups: one, an environmentalist group who oppose this project even though they have been informed that the company holds the highest international standards on environmental issues. Tia Maria will only use, as I mentioned, 100% desalinated water. There will be 100% (sic) [0%] emissions into the atmosphere and there will be no combustion. And there will be no dust dispension as there is a dome to store the ore. Moreover, Tia Maria is located in the La Joya desert, 11 kilometers away from where the industrial plants will be, and it will have no negative effects on the Tambo valley. With the above information, we declared that the arguments presented by these environmentalist groups are completely unfounded.

Second opponent group is the agricultural businessmen, who are concerned about the start of operation of the project as this will pressure the cost of labor in the region since mining pays much higher salary than farming given its specialized character. Thus, they fear that they will be affected because of them joining the workforce of our operation and causing a decline in their own operation.

Number three opponent group is the political, who, given the circumstances of the current parties in Peru, have taken advantage of the situation to generate political capital, entering into controversy with our project.

We hope that the agreement with these 3 groups will be solved and we continue with the project, which will have a very positive impact in growth, in investment and the well-being of the Arequipa region. We firmly believe that these lawsuits have no grounds. And thus, we expect a favorable decision on this matter, and once again, declare our commitment to continue to work to achieve the well-being of the local population. We also reiterate our commitment to delay construction of the project until a common ground have been established, in coordination with the government, to hold a dialogue with the neighboring communities to discuss any concerns and provide guarantees to achieve greater social support for the project.

Now moving onto Slide 16, so with production of short-term growth profile and more projects on the pipeline. I have first like to mention Pilares, an open pit mine with an annual production capacity of 35,000 tons of copper. Now this is only 10 kilometers away from the pit of La Caridad. The high ore grade mineral will be transported to feed the main crushers of the La Caridad concentrator by truck, improving the average ore grade significantly. Pilares has 0.78% copper grade versus 0.34% of La Caridad. The investment budget for Pilares is $159 million, and we expect it to begin operation during the second half of 2021.

The Buenavista Zinc project in Sonora, that be operating by 2022. It will bring 80,000 tons of zinc and 20,000 tons of copper, doubling the group's zinc production capacity to 160,000 tons with an investment of $413 million.

Finally, El Pilar, with an investment of $259 million, will produce 35,000 tons of copper and will synergize with our Buenavista SX/EW operations.

These translates into more than 200,000 additional tons of copper during the next 4 years, showing our attractive organic growth profile. Our projects are low capital-intensive and improve our overall cost structure to continue adding value and improving efficiency.

I will now pass it to Fernando, and he'll comment on the Transportation Division. Thank you.

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Fernando López Guerra, Grupo México, S.A.B. de C.V. - Director of Administration & Finance of Transportation Division [4]

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Thank you, Xavier. We're moving on the Transportation Division on Slide 18. I will go through the financial highlights for the third quarter of '19. Total revenues reached $643 million, which translated into a 6.4% increase versus 2018, mainly driven by the industrial, agricultural and automotive segments. Transported volumes were 3% higher than in third quarter '18 in tons kilometer, and 481,900 cars were hauled.

I'm glad to announce that during the third quarter '19, GMXT achieved $277 million in EBITDA, 4.7% higher than in the third quarter '18 and 8.3% year-over-year. Net profit decreased by 14.7% due to the recognition of a loss by our affiliate, Ferrocarril Terminal del Valle de México, in which GMXT has an ownership share, and due to an exchange rate gain in 2018 due to the revaluation of the peso when converting U.S.-denominated debt.

On Slide 19. Our operating metrics show a solid improvement and stability. There were some external challenges that impacted volumes that I would like to mention: the Hurricane Dorian that struck Florida forced us to close our operations for 6 days, impacting overall volume; lower volume of steel and mineral movements due to a client facing financial problems; decreasing international coal prices affected volume in the energy segment. Also, there were some financial challenges during the quarter: recognition of a loss by our affiliate, Ferrocarril Terminal del Valle de México; onetime cost associated with fleet contracts and labor reductions.

I am happy to announce our success in issuing a stock certificate to reduce financing cost: cost of capital reduction by replacing 2 banking institution loans with the stock certificates; MXN 7.8 billion pesos in 2 tranches, a fixed 10-year certificate with an 8.17% yield and a 4-year floating certificate with an 8.34% yield, oversubscription of 2.2x with 65 positions from a diversified investor base.

Also it is worth mentioning that we reiterate our commitment to continue to invest in infrastructure, which provide a positive impact on the competitiveness of supply chains that we serve. The Board authorized a new record investment plan for 2020, totaling $466 million in multiple expansions and efficiency projects, which will enable us to maintain growth, improve our service levels to customers and to continue to improve our productivity indicators.

On Slide 20, we can see several segments that show increased revenue during the quarter, led by the industrial segment, explained by higher exports of finished goods exports to U.S., increased imports of paper waste and increased beer exports. In the agricultural segment, we had a strong increase of local crops movements and a slight decrease in imports. In energy, we had a strong increase in volume and pricing of imported refined products which offset reduction of coal volumes.

I would like to mention that for 2019, we expect volume growth of 2% to 3%, revenue increase up to -- from 7% to 10%, an increase of 120 to 150 basis points in operating ratio. We expect main growth drivers to be automotive and industrial segments.

On Slide 21, we can say that we have been able to implement PSR successfully in the railroad -- in part of our railway with more density. And we have identified savings of around MXN 1,500 million on an annual basis. This is due to the reduction of train starts, fuel efficiency improvement, a decrease of system car fleet and a reduction of active locomotive fleet.

On Slide #22, we are reiterating our commitment to continue to invest in infrastructure, having a positive impact on the Mexican supply chains. This is why the Board authorized a new record investment plan for 2020 worth MXN 9.34 billion pesos in different expansions and efficiency projects, which enable us to continue rolling and improving our services as well as to keep raising our productivity indicators.

Now I will turn the conference to Francisco, who will comment in the Infrastructure Division.

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Francisco Zinser Gonzalez, Grupo México, S.A.B. de C.V. - MD of Infrastructure Division [5]

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Thank you very much, Fernando. Good afternoon, everyone. Starting with the financial highlights of Infrastructure Division on Slide #24. During 3Q 2019, net revenues totaled USD 148 million, a decrease of 5% (sic) [4.5%] compared to the previous year and EBITDA of $74 million, which translates into an 8.5% higher than in 3Q 2018 and an EBITDA margin over the sales of 49.8%. Year-to-date EBITDA for the Infrastructure Division totaled $207 million, with a margin of 48.1%, 54 basis points higher than in the first 9 months of 2018.

Net income reached $20 million, and year-to-date, showed a 30.1% year-over-year increase, reaching USD 44 million.

Moving onto Slide #25. During this quarter, we generated 931,207 megawatts hours versus 1,116,360 megawatts in the same period of last year. This translates into a 17% decrease due to lower market conditions. However, EBITDA for the same period remained flat.

During this quarter, the Salamanca-León highway revenues reached almost $190 million, which is 3% higher than the previous year. And traffic totaled 2,580 (sic) [20,580] units, staying in line with the third quarter of 2018.

PEMSA, our oil and gas division, ended the quarter with 6 oil rigs in operation and an efficiency of over 98%. Sales were up 23% compared to the third quarter of 2018, reaching $44 million and an EBITDA of $22.7 million, which is an increase of 22% versus the previous year.

As Marlene commented before, we have announced 2 new fuel storage terminals in Monterrey and in Guadalajara that will have a combined capacity of 1.3 million barrels, representing between 9 to 16 days of the demand in these regions. They are expected to begin operations during the second half of 2021. These terminals are part of our larger CapEx plan of up to $1 billion to build and operate other terminals across the country.

Also, we reaffirm the investment budget of $550 million for the acquisition of 2 new wind farms, which will be able to supply 100% clean energy to different industries. They will have a combined capacity of approximately 370 megawatts. We have signed the first one, which will generate 168 megawatts and which will come into operation by 2021.

Finally, we happily state that we inaugurated section 2 of our Silao Bypass during this last quarter. This will bring a reliable and state-of-the-art pathway to the region, reducing travel time from León to Guanajuato by up to 20 minutes.

I will now pass the word to Marlene to give some final remarks.

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Marlene Finny de la Torre, Grupo México, S.A.B. de C.V. - Director of Administration & Finance [6]

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Thank you so much, Francisco, Fernando and Xavier. I think this quarter proved our commitment with sustainable growth and continuous growth as well in all of our divisions with the new projects that we have started, such as Francisco was mentioning, the Silao Bypass, and the new projects to come in Toquepala as well in the Mining Division and the new projects to come with the new wind farms, 100% clean energy and our projects in Mexico, Buenavista Zinc, El Pilar and Pilares, which, combined together, will add up roughly 90,000 tons of copper and will more than double our zinc production. So these 3 projects as well in the Mining Division has an important cost component and which will improve our cost structure, each in particular.

So we are very excited with everything that has come to an end with Toquepala and Silao and other new projects to come. For this, and with the full trust in our operations growth and Mexico's growth, the Board approves an investment plan of $14 billion over the next 5 years in different projects throughout all of our 3 divisions, as we were mentioning before, with more than $6.4 billion invested in Mexico and another more than $6 billion invested in Peru, which proves our commitment to continuously generate value in the places in which we operate and we develop new businesses.

So with that, I would like to thank you again, everybody, for joining us today in this conference call. We now are open for all your questions. And hope to see you or to hear you next time in the first -- when we give the full year numbers on January.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question will come from the line of Carlos De Alba from Morgan Stanley.

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Carlos De Alba, Morgan Stanley, Research Division - Equity Analyst [2]

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So first question, if you could please share the outlook for ASARCO production as well as cost before byproducts given the current situation where the Hayden smelter and concentrator has stopped as well as the refinery in Amarillo.

And then maybe for you, Marlene, could you maybe explain to me, and maybe to the audience as well, why the company saw a need for Minera Mexico to issue debt? When I looked at the cash balance of Grupo México at the end of the second quarter, it was around $1.4 billion. And in our numbers, even if I'm very conservative, the company is going to generate cash on operations of, say, at the very least, $3 billion per year. And Capex for the group doesn't get above or significantly above $2.5 billion. So why the need to lever up the balance sheet more at this point?

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Marlene Finny de la Torre, Grupo México, S.A.B. de C.V. - Director of Administration & Finance [3]

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Sure, Carlos. And thank you for your questions. I'll answer the first one, and then Mr. Xavier and Mr. Oscar will answer the one from ASARCO. So going into the debt certificates, we decided to do this at Minera Mexico and to raise this $1 billion debt at Minera Mexico, first of all, because we have these 3 projects that will need roughly $1,800 billion -- almost $1,900 billion of investments for these 3 projects. And as you know, in addition to that, we have other big projects to come such as Michiquillay, Los Chancas, El Arco that are still in our pipeline. This is like those 3 projects I was mentioning before, Buenavista Zinc, El Pilar Pilares, the ones in Mexico. These are like our short-term projects, and then we have the next or the second wave of big investments with the other 3 projects in our pipeline, El Arco, Michiquillay and Los Chancas. Tia Maria is also in the short-term or medium-term investment plan. So for those reasons and because we might accelerate or we might -- if we see the favorable conditions, we might do some of the projects before or after. We thought it was a good time. We saw a good opportunity in the market. And with that, we secured the growth for Minera Mexico. So it made sense for us. In addition to that, Minera Mexico has no debt at all, so it improves the capital structure of Minera Mexico.

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Xavier Garcia de Quevedo Topete, Grupo México, S.A.B. de C.V. - Director of Finance & Administration and VP of Board of Directors [4]

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Okay. Carlos, I will answer the ASARCO question. There's, in ASARCO, about 340 workers didn't strike and didn't come into the picket line. With this, we will be able, let's say, to produce in this third quarter half of the copper we were planning, which is around 18,000 tons.

If we go to the operations. And we will operate in Silver Bell mine In the Silver Bell, very few people strike. And with this, we will be able to operate at 100% capacity, the mine and SX/EW operation. We estimate an operating -- cash cost of $1.85 per pound.

In addition, we have also sufficient workers that will be able to operate in the south concentrator. If we used to have $1.07 per pound of copper, we believe that our exporting rate production of this concentrate, probably our estimate -- our cash cost will be 210 -- $2.10 per pound.

In Ray, we will operate just the SX/EW. We are not going to mine. We have inventory. And we believe that our cash cost will be around $1.80. Okay?

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Oscar González Rocha, Grupo México, S.A.B. de C.V. - Director [5]

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And Carlos, the south mill will be operating at full capacity with (inaudible) at the end of the month. And we're going to be at 80% capacity in the north mill towards the end of November. So Mission would be operating at 100% towards the end of the year. And then we expect to start operation in our Ray mill at the beginning of next year. Probably at the end of this year, a few days that should be operational and in January.

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Carlos De Alba, Morgan Stanley, Research Division - Equity Analyst [6]

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Okay. So on a consolidated basis, do you see the cash cost of ASARCO around what levels before (inaudible)?

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Oscar González Rocha, Grupo México, S.A.B. de C.V. - Director [7]

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We are still -- the strike started last Monday, in the early morning of Monday, and we're still doing the analysis of the cost. I guess Xavier explained to you the cost by site, but we don't have a cost because --

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Carlos De Alba, Morgan Stanley, Research Division - Equity Analyst [8]

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A consolidated one?

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Oscar González Rocha, Grupo México, S.A.B. de C.V. - Director [9]

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Yes. A consolidated one. We think in the next few weeks, we'll have something. And maybe we can share that with the general public.

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Operator [10]

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And our next question will come from the line of Thiago Lofiego from Bradesco BBI.

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Thiago K. Lofiego, Banco Bradesco BBI S.A., Research Division - Director & Head of the LatAm Pulp & Paper and Metals & Mining Equity Research [11]

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(technical difficulty)

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Marlene Finny de la Torre, Grupo México, S.A.B. de C.V. - Director of Administration & Finance [12]

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Thiago, we cannot hear you.

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Operator [13]

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And our next question will come from the line of John Tumazos from John Tumazos Very Independent Research.

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John Charles Tumazos, John Tumazos Very Independent Research, LLC - President and CEO [14]

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Could you explain the onetime charges in the Transportation Division? You used abbreviations or words I didn't understand. I think maybe some insurance claims got rejected or a subsidiary had a loss. Could you just explain those a little bit more?

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Fernando López Guerra, Grupo México, S.A.B. de C.V. - Director of Administration & Finance of Transportation Division [15]

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Yes. That's exactly what we've got, a reduction in our provision for claims to be recovered. That is one of them. The other one is fleet contracts that we renegotiated. And we have some extra costs during the quarter. And the other one was labor reduction. As a result of our labor reduction, then we'll pay some severances. And that was basically the -- who -- the drivers for the onetime cost increase during the quarter.

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Operator [16]

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(Operator Instructions) Our next question comes from the line of Timna Tanners from Bank of America.

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Timna Beth Tanners, BofA Merrill Lynch, Research Division - MD [17]

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I wanted to see if you wouldn't mind elaborating a little bit more on some of the changes in the CapEx outlook that were mentioned earlier today on the Southern Copper call. I just wanted to make sure I understood what the changes are, the -- it looks like things are just being pushed out in terms of, obviously, Tia Maria, but even beyond that. And I was wondering if you wouldn't mind elaborating a little bit more on the drivers of that and the change, please?

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Marlene Finny de la Torre, Grupo México, S.A.B. de C.V. - Director of Administration & Finance [18]

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Sure. And thank you, Timna. I think the main change comes from Tia Maria, right? [Raul] will also elaborate more on your questions.

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Unidentified Company Representative, [19]

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Yes. Well, as you, well, mentioned, Marlene, the main change is related to the Tia Maria postponement for reasons that are known. But generally speaking, we have also adjusted our view on the projects that we are going to undertake in the next few years, where we believe that we need -- we don't need to spend as much CapEx as was expected before. I mentioned in the call for Southern Copper our view on CapEx for the next few years, and I'll mention it again now. For next year -- for the rest of 2019, we expect to close the year with $846 million in capital expenditures; for 2020, $1.4 billion; for 2021, $1.6 million; 2022, $2.9 billion; 2023, $3.4 billion.

And basically, we have rescheduled a little bit the development of our projects. The most significant ones are, as you know, the 3 that has been mentioned from Minera Mexico. And in Mexico also, we have El Arco. And in Peru, we have Tia Maria, where we have rescheduled a significant amount of money from 2020 to 2021 and '22. Michiquillay is still in line, expected to initiate operations by 2026. Los Chancas is expected to initiate operations also in 2026. And the CapEx haven't -- we haven't increased the budget. It's just a rescheduling of the expenditures that we are forecasting for these projects.

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Marlene Finny de la Torre, Grupo México, S.A.B. de C.V. - Director of Administration & Finance [20]

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I was going to give you the guidance of CapEx for the whole Grupo México, if that makes sense for you.

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Timna Beth Tanners, BofA Merrill Lynch, Research Division - MD [21]

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Yes. That would be great. No, I just want to understand though -- that would be fantastic. But Tia Maria alone doesn't explain the big change. So you're just saying that in addition to pushing out Tia Maria, there's probably some extent of delays for the Michiquillay and Los Chancas projects as well? Is that the -- gets you the full amount?

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Unidentified Company Representative, [22]

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That's fair. And also, for some of other projects that we have, in the case of El Arco, we have still a little bit our Capex in that as well.

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Marlene Finny de la Torre, Grupo México, S.A.B. de C.V. - Director of Administration & Finance [23]

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And on the Grupo México side, the guidance of Capex for next year 2020 will be around $2.6 billion; for 2021, $2.5 billion; for 2022, $3.5 billion; and 2023, $3.9 billion. These include the 3 divisions, what [Raul] just mentioned, plus El Alarco, plus our project in Spain, Aznalcóllar, and then Transportation and the Infrastructure Divisions.

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Operator [24]

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And our next question will come from the line of Alfonso Salazar from Scotiabank.

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Alfonso Salazar, Scotiabank Global Banking and Markets, Research Division - Director of Metals and Mining [25]

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I just have a quick question. I remember that on July 29, president of Mexico said that he wants -- he proposed to establish a negotiation table with the former union. I don't know if there is any update on this or what has happened since then or what are the topics to negotiate. If you can give some color on this.

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Marlene Finny de la Torre, Grupo México, S.A.B. de C.V. - Director of Administration & Finance [26]

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Sure. Just give us a second, Alfonso.

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Alfonso Salazar, Scotiabank Global Banking and Markets, Research Division - Director of Metals and Mining [27]

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Sure.

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Oscar González Rocha, Grupo México, S.A.B. de C.V. - Director [28]

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Alfonso, negotiation with whom?

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Alfonso Salazar, Scotiabank Global Banking and Markets, Research Division - Director of Metals and Mining [29]

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With the former union. That's what the president said on July 29 in the morning conference.

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Marlene Finny de la Torre, Grupo México, S.A.B. de C.V. - Director of Administration & Finance [30]

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Yes. Alfonso --

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Oscar González Rocha, Grupo México, S.A.B. de C.V. - Director [31]

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Are you talking about the Minera Mexico former union?

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Alfonso Salazar, Scotiabank Global Banking and Markets, Research Division - Director of Metals and Mining [32]

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That's right. Yes.

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Oscar González Rocha, Grupo México, S.A.B. de C.V. - Director [33]

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Okay. So on the one that we had before, would you like to comment on that, Marlene or Xavier?

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Marlene Finny de la Torre, Grupo México, S.A.B. de C.V. - Director of Administration & Finance [34]

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Yes. We can comment that we have been [indiscernible]. There's nothing new to reveal. I don't know, Oscar, because you have been closer to that, if we you have further information. But what we can say is that there's nothing new to give you a -- or nothing to reveal yet.

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Alfonso Salazar, Scotiabank Global Banking and Markets, Research Division - Director of Metals and Mining [35]

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Nothing to report at this time regarding the negotiations

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Marlene Finny de la Torre, Grupo México, S.A.B. de C.V. - Director of Administration & Finance [36]

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No. Maybe Oscar can give you a closer look. But we continue to do our work. We are -- we continue to talk and to look for a good resolution for all of the involved. But there's nothing to report as of now.

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Operator [37]

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And our next question will come from the line of Thiago Lofiego from Bradesco BBI.

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Thiago K. Lofiego, Banco Bradesco BBI S.A., Research Division - Director & Head of the LatAm Pulp & Paper and Metals & Mining Equity Research [38]

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Can you hear me now?

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Marlene Finny de la Torre, Grupo México, S.A.B. de C.V. - Director of Administration & Finance [39]

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Yes, Thiago. Now we can hear you.

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Thiago K. Lofiego, Banco Bradesco BBI S.A., Research Division - Director & Head of the LatAm Pulp & Paper and Metals & Mining Equity Research [40]

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Okay. Great. Now I'm not sure if my question was already there, but just on Tia Maria, if the project continues to be delayed. And I'm looking at your portfolio of projects, they are more, I would say, longer-term oriented like the big projects, right? So if it's the case that Tia Maria continues to be delayed, would you consider raising your dividends again in 2020? Or that's not in consideration at this point?

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Unidentified Company Representative, [41]

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I think that we have to -- well, we'll analyze circumstances whenever we have more clarity on this matter. Okay? But generally speaking, the company have had the practice of not hoarding cash and whatever is perceived by our Board after a careful review of the company cash position, cash generation and payments or either loans or CapEx that the company have to undertake. Usually the Board has approved a dividend. That dividend is very flexible. As we have shown in the past, and as I've mentioned a few minutes ago, we're certainly not considering leaving cash inside the company -- in the company build, but basically distribute it whenever it's considered that it's cash to be available for shareholders.

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Thiago K. Lofiego, Banco Bradesco BBI S.A., Research Division - Director & Head of the LatAm Pulp & Paper and Metals & Mining Equity Research [42]

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Okay. [Raul], just on this question, still. The -- if again, in the scenario that Tia Maria continues the way it is, what's -- or at what point would you guys to take the decision to just keep it on hold and then also go on for other larger scale projects like you have in your portfolio? I'm sorry, I'm not sure if you already answered that question. But...

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Unidentified Company Representative, [43]

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No. But let me comment on that. Basically, we are pursuing different projects at different stages at this point. So we have Tia Maria, which is ready to go, in our view. But we have to still do some more work with the local population and in coordination with the government as we have expressed in our press release. That's the one that is ready to go now technically speaking. Besides that, the other projects have -- are at different stages. In the case -- and it was mentioned already in the presentation. In the case of Los Chancas, we are pursuing the environmental impact assessment. In the case of Michiquillay, we're doing technical work as well as some social work at this point, and so on. In the case of El Arco, we're doing some other activities. And in the other projects that has been mentioned for Minera Mexico, we have different stages for each of them.

We are budgeting funds to pursue these projects simultaneously. That doesn't mean that we are going to do all of them at the same time, but they will be maturing in a way that we can have a scale of capital expenditures and having the projects getting into production in a timely basis.

As we have done in the case of the last 2 big projects that we have developed in the last few years, the Buena Vista second concentrator and the SX/EW plant plus -- or on top of this, Toquepala second concentrator. So basically, it's a -- we are pursuing all of them, and we're scaling them as they are moving forward. We certainly would like to move on with Tia Maria. The sooner, the better. But we understand that we have to have a proper social environment in order to move on with it.

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Thiago K. Lofiego, Banco Bradesco BBI S.A., Research Division - Director & Head of the LatAm Pulp & Paper and Metals & Mining Equity Research [44]

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Got it. If I may, just one last question on Infrastructure Division. Are you guys still envisaging any M&A on toll roads? Or this is no longer in the cards? And thank you, [Raul], with answers anyway.

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Marlene Finny de la Torre, Grupo México, S.A.B. de C.V. - Director of Administration & Finance [45]

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Sure. I'll let Francisco answer this one.

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Francisco Zinser Gonzalez, Grupo México, S.A.B. de C.V. - MD of Infrastructure Division [46]

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Thiago, so we are -- as we've spoken before, we have the operation of the León-Salamanca. That's 21 kilometers. We just opened the second tranche of the Silao Bypass a few weeks ago. And we are still in the process of enumerating the right-of-way and the construction of the first tranche. And we are constantly evaluating potential opportunity in the market. We do not have anything, at this point in time, relevant to report, but we are constantly evaluating potential opportunities that make this division grow.

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Operator [47]

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And I'm not showing any further questions at this time. I would like to turn the call back to the speakers for further remarks.

Actually, we have one question from Rodrigo Garcilazo from GPM.

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Rodrigo Garcilazo Carreon, GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Head of Research of Andean Region [48]

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This is Rodrigo. A couple of questions. First, it's an easy one, the copper volumes guidance for next year continuing the operational adjustments you just mentioned for ASARCO. Could you mention on that for the next year copper volumes? And the second question is, any plans to raise debt to [finance] the fuel terminals -- the construction of the fuel terminals anytime soon?

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Marlene Finny de la Torre, Grupo México, S.A.B. de C.V. - Director of Administration & Finance [49]

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Sure, Rodrigo. Our guidance for next year in terms of the copper production, it might get a slight adjustment from ASARCO, but as of now what we have is 1,146,000 tons, including copper in ASARCO.

And then I'll let Francisco give you further details on the financing of the terminals.

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Francisco Zinser Gonzalez, Grupo México, S.A.B. de C.V. - MD of Infrastructure Division [50]

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Thank you, Marlene. So Rodrigo, to answer your question, the way we are approaching our terminal, a new division business, is on different stages. As you know, and as we reported, the first stage is the 2 new terminals in a Guadalajara and Monterrey. These are terminals that have -- where we have already signed a JV agreement and where we have a long-term commercial agreement with a top-rated refinery company in the U.S. on the long term. So we have been having different talks with different financial institutions to see how we then raise debt for these projects. And because these are U.S.-denominated double-digit IRR projects, we feel confident that we will be able to raise probably somewhere between 2/3 to 70% of the capital expenditure by debt. We still do not something completely finalized even though we have made a lot of progress on this regard. And that's the plan that we have for now.

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Operator [51]

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Thank you. And I'm not showing any further questions at this time. I'd like to turn the call back to the speakers for any closing remarks.

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Marlene Finny de la Torre, Grupo México, S.A.B. de C.V. - Director of Administration & Finance [52]

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Thank you so much for joining us. And let us know if you need anything else. Thank you.

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Operator [53]

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