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Edited Transcript of SCCO earnings conference call or presentation 24-Oct-19 2:00pm GMT

Q3 2019 Southern Copper Corp Earnings Call

PHOENIX Oct 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Southern Copper Corp earnings conference call or presentation Thursday, October 24, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Raul Jacob Ruisanchez

Southern Copper Corporation - VP of Finance, Treasurer & CFO

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Conference Call Participants

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* Jens Spiess

Morgan Stanley, Research Division - Research Associate

* John Charles Tumazos

John Tumazos Very Independent Research, LLC - President and CEO

* Jonathan L. Brandt

HSBC, Research Division - Head of LatAm Cement, Construction & Real Estate Equity Research Team

* 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 morning, and welcome to Southern Copper Corporation's Third Quarter 2019 Results Conference Call. With us this morning, we have Southern Copper Corporation, Mr. Raul Jacob, Vice President, Finance, Treasurer and CFO, who will discuss the results of the company for the third quarter 2019 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 on to Raul Jacob.

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Raul Jacob Ruisanchez, Southern Copper Corporation - VP of Finance, Treasurer & CFO [2]

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Thank you very much, Victor, and good morning to everyone, and welcome to Southern Copper's Third Quarter 2019 Earnings Conference Call. In today's call, we will begin with an update on our view of the copper market. We will then review Southern Copper's key results related to production, sales, operating costs, financial results and expansion projects. After that, we will open the session for questions.

Now let us focus on the copper market, the core of our business. During the third quarter of 2019, the London Metal Exchange copper price decreased by about 5.1% from an average of $2.77 per pound in the third quarter of 2018, down to $2.63 this past quarter. Even though we see a [therapeutical] market for copper, we believe the falling prices is now reflecting a slowdown of the world economy, strongly related to Brexit and the escalation of trade protectionism between the U.S., Europe and China. We believe a clear path of solution to this event is necessary for a recovery in copper prices. Considering the third quarter data, we're now adjusting our view of the refined copper demand growth to 0.9% for refined copper worldwide.

In 2019, with the positive growth in the U.S., we have the U.S. and Asia growing, China particularly demanding 2.5% of more refined copper than in 2018. On the supply side, at the beginning of 2019, the market had several production losses related to labor strikes, heavy rains in Chile and Peru and technical problems. As a reference, some analysts considers that today, the industry has over 481,000 tons of production losses. However, the recent slowdown in refined copper demand is changing the -- our market balance view. We previously indicated that we were expecting a significant deficit in this year, now we have reduced that view to a deficit in the range of 100,000 tons for the year. This is 100,000 tons for a market that has a size of a little bit more of 24 million tons of refined copper consumed and produced per year.

So let's now focus on Southern Copper production for the past quarters. On copper, copper represented 79.5% of our sales in the third quarter of this year. Total production increased 12.7% to 252,380 tons in the third quarter of 2019 compared to the same period of last year. This was principally due to higher production at the Toquepala mine, which increased its production by 55.5% as a result of additional copper production of 27,435 tons from the successful start-up of the new concentrator at Toquepala.

In Mexico, copper production increased by 4.1% when compared to the third quarter of 2018 due to operating improvements at our Buenavista SX-EW plants. These plants increased their production 18.8%, and also by improvements at the concentrator 2 in Buenavista, which increased its production by 2.9%. On top of that, we had higher production at our IMMSA operation that results from the restoration of the San Martin mine operations.

The new Toquepala concentrator reached full capacity at the end of the second quarter of this year. Additionally, as part of this expansion, we initiated production in the new molybdenum plant in April. We expect this operation to produce -- the Toquepala operation to produce 257,000 tons of copper and 6,500 tons of molybdenum this year with a very competitive cash costs.

For 2019, the new Toquepala concentrator is adding 102,000 tons to our annual copper production, allowing us to reach 991,000 tons of annual copper production for the whole corporation. This state-of-the-art unit will bring us to a new production record with even lower cash cost per ton of copper. Considering this year's average prices for our main products for 2019, we expect our cash cost to set at about $0.82 per pound, a reduction of 6% from last year's cash cost of $0.87. This -- it is obvious we enforce Southern Copper's leadership as a low-cost producer.

Looking at our molybdenum production. Molybdenum is now our main byproduct. Molybdenum represented 8.4 of the company sales value in the third quarter of this year, and it's currently, as I said, our main byproduct. Molybdenum prices averaged $11.76 per pound in the quarter, which compares to $11.74 for the same period of 2018. This is basically the same price level.

Molybdenum mined production increased by 23.8% in the third quarter of 2019, principally due to higher production at our Toquepala mine. Toquepala increased its molybdenum production by 91.3% as a result of the new molybdenum plant that initiated production in April of this year. We also had higher production at our Buenavista molybdenum operation, which increased by 20.2% its production as a result of higher grades. In 2019, we expect to produce 25,500 tons of molybdenum. That is a 16% improvement with 2.5 -- 2,500 tons coming from the molybdenum plant of the new Toquepala concentrator.

For silver, it represented 4.8% of our sales value in the past quarter with an average price of $16.98 per ounce in the quarter, a 13.8% increase from last year's same period. Mined silver production increased by 27.4% in the third quarter of 2019, mainly as a result of higher production at our IMMSA operations, which increased production of silver by 47.4% due to restored production at the San Martin mine. In addition, there was higher production at the Toquepala mine, which also increased silver production, in this case, by 57.8%. This was the result of additional production of -- well, that's 57% -- it's 57.8% of Toquepala silver additional production, it's 397,000 tons. This was the result from the new concentrator operations. And also, we have higher production at the Buenavista mine that offset production at La Caridad. Refined silver production decreased by 4% in the first quarter due to lower production at the Ilo and Caridad refineries and the IMMSA one. But in the case of IMMSA, it's the result of lower purchases from third parties now that we're adding more of our own material to the IMMSA's facilities -- refining facilities.

For 2019, we expect to produce 19.7 million ounces of silver, an increase of 14% or 2.4 million ounces when compared to last year. This is mainly resulting from the important contribution of the San Martin mine that has 1.3 million tons -- million ounces of silver expected; for Santa Barbara, that has 0.3 million ounces; and Toquepala, 0.8 million ounces for -- of silver in this location.

Zinc represented 3.1% of our sales value in the third quarter of this year, with an average price of $1.06 per pound in the quarter. This price decreased by 7.8% when compared to the third quarter of last year.

Zinc mine production decreased by 1.2% to 17,259 tons in the third quarter compared with the third quarter of 2018 due to lower production at the Charcas, Santa Eulalia and Santa Barbara mines, mainly due to lower grades. These, with these reductions have been mentioned in mines, offset the 2,072 tons of production of zinc coming from the San Martin mine. Refined zinc production also decreased by 6.1% in the third quarter due to lower purchases from third parties.

As you know, in August of last year, the company resumed control of the San Martin mines. As the San Martin facilities deteriorated during 11 years of illegal stoppage, we began a major renovation to restore operations with an estimated capital budget of $87 million for that. At September 30 this year, the plan is in progress with total expenditures totaling $70.2 million. The company began production in the second quarter of the year and restored production at full capacity at the end of the third quarter of 2019, this past quarter. For this year, we expect to produce 77,500 tons of zinc, which is an increase of 9.5% compared to last year, with a significant contribution of 10,600 tons coming from the San Martin mine.

Looking to our financial results for the third quarter of 2019, sales were $1,859.5 million. That's $135.8 million higher than sales for the third quarter of last year or a 7.9% increase. Copper sales volume increased by 15.1% and value by 6.2%. And in a scenario of lower prices, as I mentioned, LME, London Metal Exchange, copper prices decreased by 5.1% quarter-on-quarter.

Regarding our main byproducts, we had higher sales of molybdenum of 13.7% due to higher volumes. As I mentioned, volume has been significantly increased by higher production at Buenavista and Toquepala, and volume of sales increased by 22.3%. And prices slightly better in this past quarter. In the case of silver, we had higher sales of 23.6% due to both higher volume, volume increased by 11.9%, and better prices that increased 13.8%. In the case of zinc, we have lower sales of zinc as -- that's a combination of slightly lower volume and lower prices of zinc.

Our total operating cost and expenses increased by $118.7 million or 11.6% when compared to the third quarter of 2018, while our copper production increased by 12.7%. The main cost increments have been depreciation, lower capitalized leachable material, repair materials, operation contractors and services. These cost increments were partially reduced by lower inventory consumptions. In the case of our EBITDA, the adjusted EBITDA of the corporation for the third quarter was $907.7 million. This is a 48.8% margin and compares with $868.1 million or a 50.4% margin for the third quarter of last year.

Operating cash cost per ton of copper before byproduct credits was $1.50 per pound in the third quarter of 2019. That is $0.057 higher than the value for the second quarter of this year. This 3.9% increase in operating cash cost is a result of higher cost per pound from production cost by 4.4% and administrative expenses. Southern Copper operating cash cost including the benefit of byproduct credits was $0.824 per pound in the third quarter of 2019. This cash cost was $0.019 higher than the cash cost of $0.805 per pound for the second quarter of this year.

Regarding byproducts, we had a total credits of $366.3 million or $0.678 per pound in the third quarter of this year. These figures represent a 6% increase when compared with the credit of $352.5 million or $0.64 per pound that we had in the second quarter of 2019. Total credits have increased for molybdenum, 1.3%; for silver, 21.1%; and gold, 24.5%; and decreased for zinc by 19.5%; and sulfuric acid by 3.7%. Net income attributable to SCC shareholders in the third quarter of this year was $389.6 million. That is 21% of sales margin or diluted earnings per share of $0.50 per share.

Capital expenditures. You know Southern Copper's investment philosophy is not based on the outlook of copper prices, but on the quality of the assets that we operate and develop. Throughout the years, our strong financial discipline has consistently allowed us to invest on a continuous basis in our superior asset portfolio. Capital investments for the 9 months of this year were $536.1 million. For this year, we expect to invest $846.2 million. These investments are in line with our growth program, which aims to reach annual production of 1.5 million tons of copper by 2020.

Currently, for the Peruvian operations, we have a portfolio of $2.8 billion of approved projects in Peru, of which $1.6 billion have been already invested. Considering the Michiquillay $2.5 billion project and Los Chancas, a $2.8 billion project, our total investment program in Peru increases to $8.1 billion. For the Toquepala expansion project located in the Tacna region in Peru, this is, as you know, a $1.3 billion project that includes a new state-of-the-art concentrator that has increased Toquepala's annual copper production to reach 257,000 tons this year, 2019. This is a 51% production increase for the Toquepala operation when compared to last year. As of September 30 of this year, we have invested $1,297 million in this expansion. The construction of the project was completed and production initiated in the fourth quarter of 2018. As I mentioned, full production was reached in the second quarter of 2019.

For Tia Maria in Arequipa, July 8 of this year, we received the construction permit for this 120,000 ton annual SX-EW copper greenfield project with a capital budget of $1.4 billion. This permit was obtained after completing an exhaustive review process of environmental and social matters, complying with all established regulatory requirements and addressing all observations raised.

On July 15 of this year, anti-mining groups staged a violent demonstration affecting economic as well as other activities in the Islay Province. These actions were followed by the filing of 3 complaints, sponsored by groups opposing the Tia Maria project. These complaints were filed before the Mining Council, which is the Peruvian administrative authority responsible to decide on these complaints. The Mining Council temporarily suspended the construction permit on August 8 of this year until a decision is reached on the complaints. We believe it is our responsibility to communicate the context of the controversies around the Tia Maria project and we must be clear that there are opposition groups whose purpose is to stop the construction of this project. A group of opponents are claiming environmental reasons for that. The company has made assurances that the highest international environmental quality standards will be used. As the company has explained several times, Tia Maria will use 100% of desalinized water, that is no water sources will take -- will be taken from the nearby Rio Tambo or from other sources. There will be no tailings given the kind of process that will reduce and minimal gas emissions to the atmosphere as there will be very limited combustion. Dust releases will be covered by a dome that will be used to store minerals.

In addition, Tia Maria is located in the desert of Arequipa and the industrial plants of the project will be 11 kilometers away from the Tambo valley with no negative effect on it. Considering this information, we strongly believe the arguments of this group have no merit.

Another group of opponents are agricultural businessmen that are concerned with the operation of the project because they believe it will increase labor costs in the region as mining companies pay higher salaries than agricultural ones. They fear that their operations may be affected by the demand of labor of our project. However, evidence suggests that due to their specialization, mining workers' wages scales do not affect salaries of agricultural activities. This has been broadly demonstrated in other Peruvian communities. Some of them very near, very close to where Tia Maria is, and consequently, these concerns for us have no substance.

A third group of opposition is politically driven, trying to take advantage of the current situation to enhance its political status by entering in the controversy over the project.

We expect the differences with these 3 groups will be resolved in the near future and we will continue with this project, which will have a very positive impact on growth, investment and the well-being of the Arequipa region. We express our commitment to continue working for progress with the local population. We also reiterate our commitment to delay the construction of Tia Maria until it has established, in close coordination with the government, a common ground for dialogue with neighboring communities to address any concerns and provide guarantees to achieve more social support for the project.

For our Mexican projects, we have 3 that are reporting in this -- for this quarter. The first one is the Buenavista zinc concentrator. This project is located in the Sonora region or in the Sonora state in Mexico and it's located within the Buenavista facility and includes the development of a new concentrator to produce approximately 80,000 tons of zinc and 20,000 tons of copper per year. Currently, we have completed the basic engineering. Environmental studies are in process. The project's budget is $413 million, and we expect to initiate operations in the third quarter of 2022. When completed, this new facility will double the company's zinc production capacity and will provide 490 direct jobs and 1,470 indirect jobs.

The Pilares project in the Sonora state is located 6 kilometers from La Caridad, our Caridad operations. This project consists of an open pit mine operation with an annual production capacity of 35,000 tons of copper in concentrates. The ore will be transported from the pit to the primary crusher of the La Caridad copper concentrator via a new 25-meter wide off-road facility for mining trucks. Environmental permits have been obtained and additional land is being acquired. This project will significantly improve the overall mineral ore grade, combining the 0.78% expected from Pilares with the 0.34% from La Caridad. The budget for Pilares is $159 million, and we expect to start production during the second half of 2021.

El Pilar is a new project that we -- it's a project we're adding to our pipeline in Mexico. It's a project located in the Sonora state. This low-capital intensity copper greenfield project is strategically located in Sonora, Mexico, approximately 45 kilometers from our Buenavista mine. Its copper oxide mineralization contains estimated proven and probable reserves of 325 million tons of ore with an average copper grade of 0.287%. El Pilar will operate as a conventional open pit mine and copper cathodes will be produced using the highly cost-efficient and environmentally friendly SX-EW technology. The budget for El Pilar is $310 million, and we expect it to start production during 2023.

As you know, on September of this year, specifically on the 26th, our subsidiary, Minera Mexico, issued $1 billion of fixed-rate senior unsecured notes. This debt is due in 2050 and has an annual interest rate coupon of 4.5%.

During our marketing effort, we held meetings with investors in 4 cities worldwide and received 154 purchase orders from high-quality institutional investors. We received orders for $3.7 billion, a demand of 3.7x times the offering. The SX-EW total debt has the longest schedule of amortization in the mining industry, which is approximately 20 years. This demonstrates our commitment to maintain a strong financial position without significant short-term due dates. It is important to highlight that the proceeds will provide the company with additional liquidity to finance our Mexican expansion projects already discussed.

Regarding dividends, as you know, it is the company policy to review at each board meeting the company cash resources position, expected cash flow generation from operations, capital investment plans and other financial needs in order to return the appropriate quarterly dividends. Accordingly, as announced to the market on October 17, the Board of Directors authorized a cash dividend of $0.40 per share of common stock payable on November 21. This is for shareholders of record at the close of business on November 7 of this year.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question will come from the line of Jon Brandt from HSBC.

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Jonathan L. Brandt, HSBC, Research Division - Head of LatAm Cement, Construction & Real Estate Equity Research Team [2]

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Firstly, I wanted to ask you about your expansion projects. So I understand that you're not necessarily basing these projects on copper prices but the quality of the assets. And it's pretty clear how you get to the 1.1 million tons of production, but then that jumped to 1.5 million tons by 2026. I'm just wondering -- I guess a couple of things. First, is there anything that could slow those projects? I mean a lot of them tend to be in Peru, where there's a lot of, I guess, anti-mining protests at the moment not only with Southern Copper, but also just kind of generally throughout the industry. So is there anything that could maybe slowdown that time line?

And then secondly, on Tia Maria, I'm just wondering how long the Mining Council can actually put this project on hold. Is there a time line to when they can actually have to make a decision? If it is canceled or it is given a go-ahead, what then happens to your other Peru projects? Would you continue with those? Or would you slow down investment there?

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Raul Jacob Ruisanchez, Southern Copper Corporation - VP of Finance, Treasurer & CFO [3]

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Okay. Thank you very much for your questions, Jon. Let me start by the last one on the Tia Maria. The Mining Council after -- it's conducted a -- I haven't mentioned this, but there was a hearing conducted by the Mining Council this past October 7. We presented our case. We believe that we have very solid arguments that should be -- our construction permit should be confirmed. That's our company position and that's what we're expecting. After the hearing, the Mining Council has a 15-day -- 15-working-day frame to issue its verdict to say so. So that's -- we're expecting that before the end of this month, that should be, well, between now and the end of next week if we adjust to that time frame.

In the case of the growth, they jumped from 1.1 million tons to 1.6, actually by 2026, million tons. It's coming basically from the 3 projects that we have in Peru: Tia Maria, which we're expecting to produce by start 2026, 124,000 tons; Los Chancas, that should add 153,000 tons by that same year; and Michiquillay, which will be initiated production in this year, that's our expectation, with 238,000 tons of copper in that year. So that's how we get from 1.1 million tons of capacity to 1.5 million by 2026.

Then we have in next year, 2027, we -- our current plan is to initiate El Arco production at full capacity that year, 2027, adding 240,000 tons of copper to our production pipeline.

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Jonathan L. Brandt, HSBC, Research Division - Head of LatAm Cement, Construction & Real Estate Equity Research Team [4]

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So that -- it makes sense. I mean just a quick follow-up. If the macro environment doesn't cooperate, and I know that these projects make sense at even lower copper prices, but could these time lines slip a little bit if the copper price continues to fall or the macro environment doesn't cooperate? Or are you committed to these time lines? I'm just trying to think of external factors that could influence the timing of these projects.

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Raul Jacob Ruisanchez, Southern Copper Corporation - VP of Finance, Treasurer & CFO [5]

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Yes. Well, these projects have very good fundamentals, generally speaking, at copper prices that are on the low side of the rack. We have a very good double-digit returns in the -- our estimate. So the copper market obviously we have to follow it, and we have to be sure that it's a project -- to move on with the project at a specific time. And these are projects that are ahead in times over 5 years now. So we will be monitoring the market as we keep developing the technical and permitting aspects of these projects as well. So it's more a quality answer that we would have considering not only the project's fundamentals, but also the other conditions that are expected at that time. For now, this is our plan, and we're quite committed to address it. We're doing all we can to move on with these projects.

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Operator [6]

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And our next question will come from the line of Timna Tanners from Bank of America.

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Timna Beth Tanners, BofA Merrill Lynch, Research Division - MD [7]

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Just wanted to follow up with a similar line of questioning. But given the smaller CapEx than was initially expected and the aggressive CapEx numbers going forward, how does that change the time line, the fact that CapEx is lighter than the $1.8 billion that was initially expected for 2019? And how do you think about prioritizing where you're investing within that CapEx and balancing that with the dividend?

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Raul Jacob Ruisanchez, Southern Copper Corporation - VP of Finance, Treasurer & CFO [8]

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Okay. Thank you for your question, Timna. Well, we're adjusting our capital budget as we move on through time and the different project demands. In this case, we were expecting, as we mentioned at the beginning of the year, to initiate the Tia Maria project this year and we had a budget of $300 million that obviously won't be spent as much as we believe at the beginning of this year on this project, and that has made us to move a little bit our CapEx forecast at this point.

As we indicated in our press release and now at the call, we're moving forward as well with the developing of 3 projects in Mexico that have a total budget of about $900 million. I mentioned them already. It's in our -- they are in our press release. Those projects are moving forward very, very nicely, and we're happy to report on their developments in the next few quarters. And that's basically what we're seeing at this point. Copper will be adjusted. And as you know, the company has a policy that reduce CapEx and financial needs as well as generation of cash by our operations. And on the base of that, we have a definition on the -- I mean the Board established a dividend to pay. So it depends on several conditions that are very carefully reviewed at each board meeting and we will decide on that basis.

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Timna Beth Tanners, BofA Merrill Lynch, Research Division - MD [9]

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Okay. I wanted to follow up with something that Jon said on Peru. And I wanted to see if you could talk a little bit more broadly about Peru risk. So how would you characterize what's happening lately? Is it a broader issue in the Peruvian market and more mining risk that we should be cognizant of? Or do you think that it's maybe like project-specific? And how would you characterize the risk as we head into next year's potential elections as well?

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Raul Jacob Ruisanchez, Southern Copper Corporation - VP of Finance, Treasurer & CFO [10]

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We don't have -- so far, we haven't seen any changes in the risk in the Peruvian operations. No significant initiative has been -- it's been under discussion or something that may affect us. We believe that we're facing basically the same kind of circumstances that were -- the ones that we had at the beginning of this year.

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Timna Beth Tanners, BofA Merrill Lynch, Research Division - MD [11]

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So you don't think there's a broader Peruvian risk issue? You think it's just specific to Tia Maria, particularly?

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Raul Jacob Ruisanchez, Southern Copper Corporation - VP of Finance, Treasurer & CFO [12]

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No. We don't think so.

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Operator [13]

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And our next question comes from the line of Jens Spiess from Morgan Stanley.

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Jens Spiess, Morgan Stanley, Research Division - Research Associate [14]

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Yes. So G Mexico announced the CapEx guidance for -- of $3.15 billion for 2020. Could you maybe tell us how much will come from Southern Copper of that? And also, if you could give us a conservative estimate if you were to exclude the projects that are still facing uncertainty regarding permitting and execution. And then on cash costs, cash costs for byproducts were $1.50 per pound this quarter. And concerning that the issues at the SX-EW at Buenavista and the ramp-up of the expansion at Toquepala basically concluded, how do you see cash costs evolving from here? And where do you see pockets of opportunity to decrease cash costs any further? And lastly, could you maybe comment on the potential outcomes from the decision of the Mining Council? I mean besides the cancellation or approval of the construction permit, are there any other potential outcomes you envisioned?

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Raul Jacob Ruisanchez, Southern Copper Corporation - VP of Finance, Treasurer & CFO [15]

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Okay. Thank you very much for your questions, Jens. Okay. Let me start with the CapEx guidance. Well, I mentioned already that our current forecast for the year is $146 million for this year, 2019. For next year, we're expecting to spend $1,450 million; for 2021, $1.6 billion; 2022, $2.9 billion; 2023, $3.4 billion; 2024, $3.1 billion. And as you know, we will be developing several projects at that time. Just to mention some of them. Well, we have the Buenavista zinc operation, El Pilar, Pilares, the 3 -- these 3 projects. They are the ones that are in our press release. But on top of that, in our current plan, we have El Arco, which we'll be spending heavily after [2019, 2021] and some other projects at our Mexican as well as Peruvian operations. In the case of Peru, where we -- I mentioned already Michiquillay and Los Chancas.

Okay. On the second point, well, the project that we have been delaying very consistently is Tia Maria, and you are quite aware of that, the reasons for that. But other than that, our other projects, Los Chancas and Michiquillay, are moving forward under -- in scale, and we are basically developing the technical aspects and working on the -- with the social groups that are close by, the communities in order to get the projects moving forward. We have no -- we're not reporting any difficulties with these other projects.

On cash costs, well, for this year, as I said, we're expecting a cash cost of $0.82. We're expecting a further reduction in our current cash cost, and $0.82 for the year. For 2020, about the same level. 2021 should be decreasing to $0.80; 2018 -- 2022, $0.84. And then in 2023, when we have -- we have an ore grade -- significant ore grade improvement in our Buenavista as well as Toquepala operations, we're expecting a reduction close to $0.70, and that should remain there up to 2024.

Well, obviously we're currently, and all the time, looking for better ways to improve our cash cost. We are doing different -- taking and incorporating different new technologies that are available. Let me comment on some of them.

One of the -- one that we have been implementing in our operations, it's replacing certain areas of truck haulage by conveyor belt haulage. This -- by this, we're replacing a much more expensive way of moving the material by the conveyors. It's not only much more cost-efficient to do that, but also saves us in the long term on CapEx because we are not requiring to buy as many trucks as we were expecting before doing this type of projects.

And there are different opportunities that we're analyzing most of the time. As you know, our assets have a very good quality, and we want to remain that -- maintain that characteristic. And we do that, incorporating technology that we have proof has been working very well in the industry. That's our main criteria.

On the potential outcome of the Mining Council decision, well, it's -- we are waiting for their decision. We -- as we mentioned, we believe that our position is very solid. It's been tested already several times through different claims in the past. We have claims against the environmental impact assessment that were not sustained. We have -- they have no merit, and we expect that, in this case, we should receive a positive decision from the Mining Council.

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Jens Spiess, Morgan Stanley, Research Division - Research Associate [16]

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Okay. The quick -- another quick question. Maybe any thoughts on potential M&A, given your current cash balance?

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Raul Jacob Ruisanchez, Southern Copper Corporation - VP of Finance, Treasurer & CFO [17]

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Not at this point. There is nothing in the pipeline. Obviously, if there is an opportunity, we'll -- the responsible thing for us as management is to study it and do a recommendation to our Board on that basis.

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Operator [18]

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(Operator Instructions) Our next question comes from the line of John Tumazos from Very Independent Research.

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John Charles Tumazos, John Tumazos Very Independent Research, LLC - President and CEO [19]

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Many of these environmental and political groups have no honor, honesty, truth, et cetera, and many of the indigenous people do not speak Spanish or read or write. In Peru, do you communicate in the indigenous languages, Quechua, whatever the people speak. And do you have communications initiatives for people who don't read or write, such as -- I don't know if they have TV channels in the indigenous languages or radio shows or -- but unfortunately, some of my friends at mining companies go to the capital and speak to a mining minister who went to Harvard or Yale and speaks perfect English. But in the mines, the people are illiterate, different. Just explain to me your communications programs for illiterate people who might fall prey to blatant lies.

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Raul Jacob Ruisanchez, Southern Copper Corporation - VP of Finance, Treasurer & CFO [20]

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Okay. Let me first say that you express some opinions that we don't necessarily share. The way that we touch base with the communities that we have to work with is using an approach that is very respectful on their customs, the language that they speak and the uses that they have for different activities. One of the very important things that we want to share with them is that we don't have -- that we are there to provide opportunities for development and a better being in the future for the communities that are close to our operations. That could be in the way of forming new companies that will provide services or goods to our operations or being part of the labor for what -- we have different programs. Currently, for instance, we're implementing in the Tambo Valley our project -- our program Forging the Future, which is a scholarship program for [joint] men and women to have training in certain skills that are required for mining operations such as welding, heavy equipment, machinery driving, et cetera. These -- the first group of scholarships were in Mollendo, which is a nearby city of Tia Maria. We have 60 students, 23 of them graduated at the end of the program, and we are expecting to have these people available when we initiate the projects so we can have their participation in our operations. One of the best things that we are promoting is the well-being and progress of the nearby communities. I'd like to point out now that our -- the regions of Toquepala and -- sorry, the regions of Moquegua and Tacna where we have our operations of Cuajone and Toquepala, are in the top 5 regions of the country of Peru in terms of human development. They are very close to the Lima -- to Lima, which is the Peruvian capital and Arequipa, which is the second city of the country.

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John Charles Tumazos, John Tumazos Very Independent Research, LLC - President and CEO [21]

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Excuse my perhaps ignorance, but I see pictures on the Inca Kola blog or other publications of huge crowds of protests. How do the people develop such hostility when you do such good works?

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Raul Jacob Ruisanchez, Southern Copper Corporation - VP of Finance, Treasurer & CFO [22]

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Well, we already mentioned that we believe that there are certain groups that are opposing, and very specifically, the Tia Maria project for different reasons. In the case of the other projects, we have no opposition on the one that you just mentioned.

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Operator [23]

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And we have a follow-up from Jon Brandt from HSBC.

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Jonathan L. Brandt, HSBC, Research Division - Head of LatAm Cement, Construction & Real Estate Equity Research Team [24]

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I wanted to touch base on Tia Maria, given the decision looks like it's coming by the end of October. Could you just walk us through sort of the 2 decisions, right? So if they give you the go-ahead, what does the timing look like, the ramp-up? Would you expect to start construction right away? Or I know you were originally willing to delay construction until the communities were more comfortable with your plans. So if you could talk a little bit about, one, that path. And then secondly, if they decide not to give you the go-ahead, what then are your options? Would you -- the project effectively killed? Or are there some other things that you could do to get approval?

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Raul Jacob Ruisanchez, Southern Copper Corporation - VP of Finance, Treasurer & CFO [25]

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Okay. Thank you. Thank you very much for your question, Jon. In the case of Tia Maria, as we expressed, we're expecting to have a good -- a solid relationship with the local communities in order to move on with the project. At this point, we don't want to set a specific date for that. We believe that the project should be up and running by 2024. So before that, we obviously have to -- we have to have all the construction and all the relation with the communities in order. This is a long-term relationship. So we want to start this on a good ground, on a positive ground in order to have a reasonable and a good operation in Tia Maria as well.

In terms of the decision that we're expecting, we don't want to speculate on what if we don't get the permit confirmed. We believe that, as I say, our reasons are very solid, and we expect to have the confirmation on our construction permit. If that doesn't happen, we will analyze the circumstances and make a decision at that time.

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Operator [26]

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And I'm not showing any further questions at this time. I'd like to turn it back over to speakers for any further or closing remarks.

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Raul Jacob Ruisanchez, Southern Copper Corporation - VP of Finance, Treasurer & CFO [27]

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Thank you very much, Victor. Well, with this, we conclude our conference call for Southern Copper's third quarter 2019 results. We certainly appreciate your participation. I hope to have you back with us when we report the year 2019 and the fourth quarter of this year. Thank you very much, and have a very nice day.

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Operator [28]

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