Good morning, and welcome to Southern Copper Corporation's Fourth Quarter and Year 2013 Results Conference Call. With us this morning, we have Southern Copper Corp., Mr. Raúl Jacob, Vice President of Finance and CFO, who will discuss the results of the company for the fourth quarter and year 2013, 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 Corp. 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. I will now turn the call over to Mr. Raúl Jacob.

Thank you very much, Adriana, and good morning, everyone, and welcome to Southern Copper's fourth quarter earnings conference call. Participating with me in today's conference is Mr. Daniel Muñiz, CFO of Grupo Mexico. In today's call, we will begin with an update of our view on the metal markets. We will then talk about Southern Copper's key results related to production, sales, operating cost, financial results, expansion projects and capital expenditure program. After that, we will open the session for questions. Regarding the metal markets and prices, on the copper market, during the past quarter we have seen the strong fundamentals of this market coming back again to support copper prices. As of December 31 of last year, inventories at the 3 major warehouses, that is the London Metal Exchange, the COMEX market in the U.S. and the Shanghai Chinese market, have decreased by 427,300 tons, or 45% since their peak in June of 2013. These decreasing trends has continued during the month of January of 2014 with inventories of refined copper currently 6% lower than the 2013's close. We're optimistic about the current macroeconomic scenario. The IMF has consistently increased their growth forecast for the world economy, expecting a 3.7% increase in global GDP growth for 2014 and 3.9% for 2015. A driver for the world economy is the synchronized growth expected for the U.S., Europe and Japan, which together, represent about 54% of the world's GDP. These 3 major economies consume directly about 31% of the world's copper production and are an important driver of indirect demand for copper. We think that the sustained recovery of these major economies in conjunction with the year-to-year increase in Chinese copper imports of 6.5% will reduce the chance of an oversupply, particularly of refined copper that represents about 90% of our…

[Operator Instructions] And our first question comes from Santiago Perez from Crédit Suisse.

I have a couple of questions. My first one is related to your shares outstanding which have seen adequacy in the company shares outstanding and at the same time, Americas Mining Corporation has increased its stake in Southern Copper. Can you comment on this strategy you're doing? And the second one is related to your Toquepala concentrator project. For this expansion, I wanted to know if there is a need for a public hearing for this brownfield, and if so, do you have any time frame as to when do you plan to hold it?

Okay. Let me focus on your last question first. Regarding the Toquepala project, yes, we have -- the project is -- we have the environmental impact assessment finished and delivered to authorities in 2011. And as part of the environmental impact assessment process of approval, we have to have the final hearing. And so when we finish our talks with the local communities, we will ask for the final hearing. And after that, we will expect the approval of the environmental impact assessment after the government provide any observations or comments on this tally that they may have. On the second question, would you like to comment on that, please, Daniel?

Sure, sure. Well, I mean, I guess, Raúl, the point here is just as you would remember last quarter, the board approved a program to keep on carrying out buyback of shares. And of course, I mean, the increment of Americas Mining Company is a consequence of Southern Copper buying back shares. We've seen the share price for Southern Copper, I mean, it raised down, but we hadn't seen since the financial crisis. So Southern Copper's board has authorized to keep on conducting this buyback as the dividends have decreased. And just as prudently and opportunistically, whenever the share price is depressed. That's all.

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

Raúl and Daniel, I have just 2 questions. The first one is, could you confirm, Raúl, if your CapEx estimates include Tia Maria for the -- like the CapEx estimate for this year includes already Tia Maria? And how much for that break have you included there?

Yes, it does include Tia Maria, and we're considering about $80 million for Tia Maria in this year.

All right. And then, on -- what happened to the Buenavista CapEx? I noticed that from the press release that was published in the third quarter to the one published yesterday, it increased -- CapEx increased from $3.1 billion to $3.4 billion, and yet the increasing production declined from 175% to 170 -- sorry, from 175%, yes, to 171%. Was there any -- could you tell us what was changed in the last 3 months or so that prompted these revisions?

Yes. In the case of CapEx, as you will notice, we have increased the total budget for the project in Buenavista and the detail is as follows: we increased our infrastructure investments in Buenavista by about $150 million; we have included a budget for land acquisition; and for other -- and I mentioned already the change in scope for the Quebalix. In the case of the production variance, it's resulting from our current -- our newest production plants for Buenavista. It's slightly changed. We expect to maintain the production level as we have indicated in our press releases. But we are currently doing a small adjustment on that.

And that adjustment of production is due to lower grades?

It's more continuing on the mining plants. As you move on into the new part of the mine, you have better information that allow you to know what kind of production you may expect for the future. Also please, since this is a percentage, please keep in mind, Carlos, that we have been operating Buenavista over its capacity. The mine has capacity of 180,000 tons, about 125,000 tons coming from the conventional mining process of concentrators, melting, et cetera, and 55,000 tons coming from SXEW production. The last one, SXEW production has been very strong since we reopened Buenavista. And we are producing a little bit more than the mentioned 55,000 tons that I indicated of capacity of that SXEW plants. That is very encouraging as well for our new plant for the future, but currently, we have been a little bit more conservative in our expected goals for the project.

All right, very clear. And my last question is, if you can comment a little bit about the outlook for cost. We saw an increase in the fourth quarter, quarter-on-quarter. And I just wondered -- want to see if you have any trends that you can comment upon on your cost in the next coming quarters.

Yes. We indicated that we had higher labor costs, higher fuel and higher power costs. In the case of labor, I think that we, as you know, we closed a new 3-year labor program with our unions here in Peru. And as a result of that, they are entitled to certain adjustments in their salaries that are about 5% per year. In the case of our Mexican operations, we are increasing our works over there and that requires a little bit more of working hours, and that's also something that is reflecting on the labor cost. Regarding fuel, well, we are increasing fuel consumption a little bit as we have deeper or longer distances to drive with our trucks. I already mentioned that the company has received already 60 -- over 61 new trucks on the Buenavista operation that will do the stripping for the mine, preparing it for the expansions. By the way, that kind of expense is not capitalized, the pre-stripping that you do is by U.S. GAAP. You have to charge that into cost. And that is something that is affecting the operations of the company in general. For power, we believe that we will have a better power performance in 2014 since we are having the new power plant, Grupo Mexico supplying power at a more competitive cost than what we have been paying in the past for power. I think labor cost will be higher -- not higher, but at a level that we have seen for this past quarter. On fuel, depending -- it's contingent on what happens with international price of different fuels. And on power, we expect to have a controlled cost for 2014.

So is it safe to assume then that you see a rapidly flattish cash cost before by-products in 2014 versus 2013?

We expect it to increase a little bit. It's a different -- it's difficult to answer this, Carlos, and let me explain you why. We will have an increase in certain works that are related to our expansions and following U.S. accounting rules, we cannot capitalize them. We have to incur them as cost. That will increase cost. On the other hand, we will have the benefit of the initial production of the SXEW III of Buenavista. We are expecting to have low-cost production coming from this new operation through 2014. Regarding cash cost, I think that a view of it on the flattish side is most likely -- more likely to happen through 2014. We will certainly like to be it lower, but let's assume that for now.

And our next question comes from Marcos Assumpção from Itaú. Marcos Assumpção: First question is regarding the production guidance for the years ahead. You mentioned for 2014 around 670,000 tons, similar to the previous guidance that you were sending before to the market. Can we continue to assume, like for 2015, a number close to 850,000 tons and for 2016 already, a number above 1 million tons? That's my first question. And second question, if you could explain a little bit the calculation that you did to estimate the impact of the royalty increase in Mexico.

Okay. Let me focus on the production profile first. Let me say something on the forecast for 2014. Last time that we talked about this, we indicated that it was 650,000 tons on our own copper and 20,000 tons of third-party's copper. We have changed that. We believe that we will be able to produce all the copper from our own operations, and that will certainly improve the company return in 2014. So, well, you do have the number for 2014, 672,400 tons. For 2015, we're decreasing a little bit our forecast because of the delay that we're seeing in the Toquepala project. That is impacting our current forecast, reducing it from about 850,000 tons of copper for 2015 to about 840,000 tons for the same year. For 2016, we have a little bit more than 1 million tons, it's 1,060,000 -- I'm sorry, 1,080,000 tons. And for 2017, 1.2 million tons for production. On the Mexican taxes, basically, we -- now that the law was enacted, we have a much more better understanding on how it will be applied. We're currently -- the numbers that were provided at the press release basically indicate to our best judgment, how do we think this is going to impact the company. We want to have an estimate on the royalty charge that was based on that copper prices. We think it's more representative of what we're going to see through the next few quarters than the current prices. That's why we used 350.

So I was just going to add, I mean, we're doing as it is net of income tax, which of course, is deductible for purposes of the royalty. And bear in mind that this is only our mining operations, so it's the concentrators of the -- and the SXEW that are being taxed here. So that is how we come up to the -- with the number. Marcos Assumpção: Perfect, that's clear. And just a follow-up question here. If you can comment a little bit about the copper price in the market. If we're starting to see, like, high-cost producers starting to reduce capacity whenever we hit the level of below or close to the $7,000 per ton level, so if you really believe that this is a strong support for prices going forward?

Well, we think that we don't want to do a forecast on prices. Generally speaking, that is not our business. Our business is to produce copper at the most competitive cost and provide the return on that, on those investments to our shareholders. But we are seeing basically that demand is coming -- it's coming back at the developed economies. The developed economies indirectly are the most important copper consumers in the world. And directly, they have, let's say, about 31% of the world demand for refined copper. If you see the projects that are out there in the market, there are -- some of them coming into production in the next -- in this year and next year. After that, most of the analysts are indicating that we should expect a deficit in the copper market again. So we believe that the fundamentals of -- for copper are still very strong. And even though we may see some pressure in prices due to higher volumes, the reality in the physical market currently shows the opposite. As I mentioned, we are seeing a significant reduction in inventories that is certainly maintaining prices at a good level for us.

And our next question comes from Juan Lopez from BTG.

I have 2 questions. The first one is if you could detail, looking at the CapEx of Buenavista of $3.4 billion, it seems that there are $700 million that you mentioned of additional investment related to infrastructure and other works. If you could detail what percentage of completion you have and what the schedule for this CapEx.

Well, I did indicate it for each of the projects, Juan. Just to be sure, we have increased the budgets from $3.1 million to $3.4 million, that is $300 million of additional CapEx. As I've said, they are distributed between infrastructure, land acquisition and other facilities, mainly social facilities, as well. And $100 million on the Quebalix where we already had a budget of $240 million, and we increased it to $340 million. For the new concentrator, with the molybdenum circuit, the progress at the close of the year last year was 63%, that is an investment of $544.9 million. For the mine acquisition, we pretty much finished the project. We're waiting for one truck to be delivered and some final payments after we assemble the equipment and confirm that they are operating fine. On the SXEW III project, we have an 81.6% of completion on the total budget of $444 million. If you divide the number of dollars spent by the budget, usually, it deals a slightly different percentage than what we're reporting. And the reason for that is that what we're reporting is the general progress on the project that is computed by our engineers, and that number is not necessarily the same as the payout that you have incurred already on the project. On the Quebalix we are doing a change in scope, and this is affecting the project.

It was mainly because we sum up all the prices you mentioned and the percentage of completion, there are still $700 million in which you don't mention like a percentage of completion. So just, do you know?

Okay. Well, those are several projects there. They are different -- they have different speeds of advancement. Our goal is to have them finish when we deliver these package projects. Some of them are related to the SXEW operations, as the case of the Quebalix. Some of them are related to the new concentrator, and some of them are for social purposes in the Cananea town.

So you would say you're at 15% completion?

No, I don't have a percentage number to share with you right now.

Okay. Then the second question is related to the free cash flow. If we look at the investment activities, an inflow of $155 million is due to asset sales. Could you detail a little bit on that?

Could you repeat your question, please?

Yes. Looking at your free cash flow in investment activities, there's an inflow of $155 million related to the sale of assets or investments. I don't know if you could detail that a little bit.

Yes. Those are short-term investments when -- this is accounting basically, Juan. When you have -- when you acquire -- you do investments that are a little bit longer than 3 months, the U.S. GAAP accounting rules require us to raise under a short-term investments. And you can see our position on that at the balance sheet of the company. So it's activity related to that through the quarters.

Is that mining-related investments? Or it's just like treasury?

No, no, no, it's treasury. To say different, if you want to know how much cash the company has available, it's the cash and cash equivalents plus short-term investments. It's treasury, mainly.

Okay, I see. And the last one would be, if you can comment how -- what percentage of the cash cost can be related to these additional works you're doing for the investment and expansion?

That's hard to say right now. But basically, it's -- they are -- these are expenses that are for what we call the prestripping of these investments. In the case of Buenavista, we're opening up a little bit more the mines so we can handle more mineral in the future, that is an extra cost for the company. An easy way to understand this is to see the long-term stripping ratio for our operations and compare that to our current stripping ratio. The delta, it's basically what we're incurring on additional works to prepare the mine or to prepare the operation for the future.

Okay, I see. And how much CapEx you're considering for Toquepala this year?

We're considering about $140 million for Toquepala. Our expectation for both Toquepala and Tia Maria is that we will receive the permits through the first half of the year and start putting purchase orders on the -- at the beginning of the second half of this year and spending money in the fourth quarter. You usually have to pay some money in advance. That will be -- those are the budgets for these 2 projects.

And our next question comes from Mandeep Singh from JPMorgan.

I want to go back to the core production guidance of copper for 2014, about 670,000 tons. Could you please explain a little bit the breakdown of this? You mentioned that about 53,000 tons of that would be from Buenavista SXEW. And looking at your press release, the fourth quarter, you did an annual run rate of about 660,000 tons of copper from owned mines. And also, if you can comment if there is some benefit from Cuajone in terms of additional production that you're expecting in 2014.

Yes, thank you very much for your question, Mandeep. Well, basically, we will have a -- we will have some more production coming from Cuajone. But the main driver of our production will be Buenavista, with the new plant and the recovery of the current operations from the flood that we had last year and affected our production through 2014. So it's a combined result of having the concentrator and the SXEW plants that are currently in operation at Buenavista running at even a little bit higher on top of their design capacity. And the new -- the effect of the new SXEW III plant that we expect to start production at the beginning of the second quarter of this year.

Raúl, but just as a follow-up. If I just look at the recent production and add 53,000 tons from Buenavista SXEW and on top of that slight increase from Cuajone, it seems to me that 672,000 tons is a bit conservative. I mean, what I really wanted to ask was, are you really expecting the production from the current levels to go down from the existing operations?

Well, in the Toquepala operation, we're doing -- we're working on the walls of the deposit, and that usually has a lower ore grade than the expected ore grade for long term of the mine. That may affect a little bit the production of Toquepala in 2014. But the other operations will be basically as they are right now, in terms of their productivity. So when you consider that, the net effect is slightly lower than just the simple addition that you mentioned. And I understand that you're a very smart person by looking at these numbers. But basically, what we're doing is giving you the full estimate for the year. And one of our operations may have a little bit more lesser production. We expect it to be -- once we do the plan, we focus on improving the results of the plan through the years. So we expect to improve these results, but at this point, this is what we think it's going to be 2014.

And our next question comes from Mitesh Thakkar from FRB Capital Markets.

This is Mitesh, and that is FBR Capital. Can you give us some idea about how the CapEx changes as we look out from '14 to '15, '16 and maybe '17?

Yes, Mitesh. Well, we already mentioned that we're expecting to produce $2.3 billion by 2014. For 2015, that number will decrease to $1.6 billion. For 2016, $900 million. For 2017, $500 million.

And when you think about the sustained -- sorry, go ahead.

Go ahead, go ahead. No, no, go ahead.

So my follow-up was just the maintenance and the replacement CapEx once your capital investment cycle is over, how should we think about that?

A good proxy of our maintenance CapEx is our depreciation rate since we use the expected life, the actual expected life of the equipment for depreciation. In the budget, I mentioned already, we're considering about $350 million per year on maintenance CapEx. That is about our depreciation rate right now.

Okay, great. And just a follow-up on the cost question which was asked earlier. How much prestripping expense did you expense in 2013? And how much do you expect in '14, which was part of your cost?

Could you repeat your question, please?

Yes, there was a question before on the call regarding the details on the cost increase, and you mentioned that you expensed some additional prestripping required by the U.S. GAAP. So I was just curious, how much was that in 2013? And how should we think about 2014?

We are increasing it a little bit in 2014.

Any magnitude?

No, no. It's embedded in our current budgets. And as you -- one characteristic of mining operations, particularly open-pit mining operations is that as more time pass, mine operations incurring more costs because the distances are longer and the climbing done, the trucks have to do is higher. So that usually impacts long-term costs. On the other side, we do have the technology that helps us to contain those kind of cost increases. However, when you do an expansion, as we are doing now for Buenavista and some other operations, you do have to incur this different cost. This is not something that concerns us in terms of our current cost structure. We're expecting to have our cash cost to pretty much in line with what you have seen in the last quarter for the year 2014.

And our next question comes from Alex Hacking from Citi.

A couple of questions. First question, do you have any guidance on copper grades in 2014 compared with 2013 at the 4 main mines? And then second question, how should we think about the grade profile of Buenavista as you expand production and access new areas of the deposit?

Ore grades will pretty much hold to where they are in 2014 for the company. We are not seeing any ore grades decline in the next few years for the company. Ore grade, specifically for Buenavista, will be pretty much around where it is right now. But we're expecting to -- as -- when we go into the deeper part of the mine, that's where the better ore grades are. Last year, we couldn't do that because we had the flood that obstacle our operations at that part of the mine. But for 2014, we're expecting to come back to the best part of the mine, the mine where our mining plants indicate lowest to obtain a very good and very productive operation over there.

And our next question comes from Daniel Rohr from Morningstar.

Just one about costs, I guess, in the long term. So you all mentioned on the third quarter call that the company expects $1.50 cash cost in the long term. So provided that's still a reasonable target, hoping you could walk us through how we get from where we are today around $1.90 down to $1.50. Do we need to assume weaker local currencies or lower input cost? Or is that purely going to be from the benefit of the expansion projects and Tia Maria, as well as getting some of these expansion costs, including prestripping behind you?

Well, Daniel, thank you for your question. Let me point out that when we mentioned that last quarter, we indicated that at current -- at that time, costs for different prices for fuel, power, et cetera. So our expectation is that as we move on in time, we should have a lower cost per pound, including the by-product credits we indicated that we were expecting to reduce our cash cost by about $0.10 in the long term. That is the result of having the SXEW III at full capacity, as well as the new concentrator in Buenavista and the Tia Maria and Toquepala projects. At this point, we'd rather wait for the projects to be up and running and see how they perform in reality than to have more detail on this because as we move on in time, circumstances change and we are seeing some cost pressures that may not be there in the future or be even worst in some other times. So we gave this as an indication of how do we think these projects will perform long term. However, it's conditioned on several variables that may affect current costs. So I think our most prudent view on our side is to just to wait and see how these projects that are very profitable for the company kicking in terms of their resulting operations.

I understand that there's certainly a lot of variables at play here. When you threw out that $1.50, was that predicated under the assumption of flat prices for oil and explosives or some sort of deflation, I guess?

No, no, no deflation. No deflation but flattish view on different prices. At this point, to be quite honest, I don't remember that I said $1.50. I do remember that I said that we were expecting a reduction in cash cost of about $0.10 per pound.

And that latter figure is after by-product credits?

That was after by-product credits, yes.

And our next question comes from Andreas Bokkenheuser from UBS.

Just a quick follow-up question for me. Most other questions were asked already. On Toquepala, when and if you get the final sign-off to proceed, how long will you say it's going to take you to start getting production out of the new concentrator of 100,000 tons? What stage is the ramp up coming [indiscernible]?

Thank you for your question, Andreas. We're expecting to have operations starting in Toquepala in the first quarter of 2016. We had it in a portion of that in 2015. We have pushed it a little bit further in time.

Right. So that's predicated on you getting the approvals by the latter part of the second quarter of this year, is that correct?

Yes, that's correct. Yes, as I said, we expect to have the final goal for the project in the first half of this year, by the end of the second quarter. Considering this, the time line of the project will make us start operations in the first quarter of 2016.

And our next question comes John Tumazos from John Tumazos.

John Tumazos, Very Independent Research. Congratulations on your payment of $37 per share in dividends since 2002. If we were physically having a meeting, I would jump out of my chair and be clapping my hands and admiring you so much. Even though there were 5 years when the dividend was below $1, the average dividend has been $3 over those many years. Which years are the peak CapEx years? When should we expect the dividend to increase? And when the expansion program is over, how will you -- what is your target dividend payout?

Well, okay. Thank you very much for your questions, John. On the CapEx side, I already mentioned our current plans. As I'd said, this year, 2014, is peak in terms of CapEx in our plans. We expect to reduce capital expenditures for 2015, '16 and on. Regarding dividends, the company has -- our track record indicates has been very generous when there is free cash flow. At the end of the day, that's the question. What is going to be the dividend in the future? It's a question to our board. The board, as I said, has a policy that looks into the copper market, looks into the commitments that the company has, both in terms of capital projects, as well as debt payments that we may have. And with that in mind, the board approves a dividend. Last quarter, they approved a $0.12 per share dividend that was considered by the board to be appropriate, given the significant growth profile of the company at this point. What they are going to do in the future is something that I don't know and we would need to wait for them to review. If you want to see how the board has behaved in the past and you already -- I think that you already did that. That is a good indication of what might happen in the future. But as you know, what happened in the past is never a guidance of what will happen in the future.

If the production target is 80% more and the cash cost will be at least $0.10 a pound less, should we think that in 2017, when the expansion is running, the dividend should be 50% to 100% larger than before the capital program at the same copper prices?

I don't know what the board is going to do at that time, John.

But you can recommend to the board?

You can do many things, but in this case, I can't comment on that.

And our next question comes from Daniela Silvia [ph] from JPMorgan.

I just have a quick question regarding your 2014 CapEx plan. How much of the $2.3 billion do you expect to issue in debt and then in order to fund the CapEx? And how much cash on hand do you expect to spend?

Well, we don't -- thank you for your question, Daniela. And we don't expect to issue any debt at this point. We already did that in -- at the end of 2012, we issued $1.5 billion. If you see our current cash position, we are -- we have enough funds to support our growth program with cash, as well as cash from operations, and that's what we expect to do through 2014, using our cash position as well as cash from operations.

And our next question comes from Edder Castro from Kallpa SAB.

Raúl, I have 3 questions. The first is about Tia Maria, is how much of the $1.2 billion have been invested in the 2013? The second is about the floods in Buenavista, will this happen again this year? And the third question is about the percentage of interest that becomes capitalized interest per year.

Okay. On the Tia Maria project, we invest about $45 million in 2013, mainly paying some equipment that was acquired already and it's ready for the project. But not this -- new expenditures were not considered. Could you say your second question again, please?

Of course. Second question is about the possibility of floods in Buenavista for this year, too.

Well, we don't expect any. Now it was -- what happened -- this is what -- in a way, this was a consequence of what happened in Buenavista prior to that. During the strike years, we couldn't perform certain maintenance at the Buenavista facility. We're already doing that, so we don't expect any problems related with floods at the operation.

Okay. What about the percentage of the interest that are paid per year? How much of that interest -- of this annual interest become capitalized in there?

Well, it varies from year to year and it's continuing on the advancement that we do on the projects. So what you're seeing is basically that credits our actual interest payment. And then there is quite a detail on that in our 10-K. Well, with this, we will conclude our conference call for Southern Copper fourth quarter results. We certainly appreciate your participation and expect to have you back with us when we report the first quarter of 2014. Thank you very much, and have a nice day.

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