Good morning, and welcome to the Southern Copper Corporation's Second Quarter 2017 Results Conference call. With us this morning, we have Southern Copper Corporation's Mr. Raul Jacob, Vice President, Finance, Treasurer and CFO, who will discuss the results of the Company for the second quarter 2017, as well as answer any questions that you may have. The information discussed on today's call may include forward-looking statements regarding the Company's results and prospects, which are subject to risks and uncertainties. Actual results may differ materially and the company cautions not to 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 like to pass the call onto to Mr. Raul Jacob.

Thank you very much, Elda, and good morning to everyone, and welcome to Southern Copper second quarter 2017 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 cost, financial results and expansion projects. After that, we will open the session for questions. Now let's focus on the copper market, the core of our business. According to the World Bank, the world economy is accelerating as a result of the recovery of manufacturing and international trade with very good international financial conditions. For 2017, we are expecting refined copper demand to grow at about 2%. We are currently seeing a recovery in copper prices, which has gone over the $2.80 per pound mark this week. We believe this price improvement is a result of the strong growth registered in China, coupled with the lack of response from copper producers. Regarding China, its industrial production increased by 7.6% in June year-on-year and exports by 11.3%, supporting the second quarter GDP growth of 6.9%. This is very important, since as you know, China is the world's major copper consumer. Looking at the supply side, we expect weak supply growth as a result of the consistent decline in investments that several companies have had in recent years due to a five-year period of decline in prices. On top of this, labor unrest, excess government taxation and technical difficulties are affecting production. As a result of these factors, we expect copper growth in the range of 1% per year in 2017 and 2018, creating conditions for a copper market deficit after 2018 and that will give very strong support to higher copper price. So let me now focus on Southern Copper's production…

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from Felipe Hirai from Bank of America-Merrill Lynch.

Hi. Good morning, everyone. So I have two questions. The first one is related to production. Raul, if you could just tell us a little bit if you changed your production guidance for the next few years? So you mentioned the production for this year but we're just curious to see if there is any changes in the other years? And my second question is related to Tia Maria. Now that you're closer to the plant project development, if you could share with us what's your view on the recent developments there? Thanks a lot.

Thank you very much for your questions, Felipe. On the first one, our production guidance, basically keeping it where it has been but there are certain adjustments and I'm going to provide you our current forecast. For this year, as I say, we're expecting slightly less production than what we believed. At the beginning of the year, it was about 900,000 tons. Now we adjust that to 890,000 tons. For next year, we're expecting 986,000 tons. That's for 2018. For 2019, 1,030,000 tons. For 2020, 1.2 million tons of copper, and for 2021, again 1.2 million tons of copper. We have add to our forecast the two projects that I mentioned in the presentation, the Pilares, which will add about 36,000 of copper per year and the Buenavista Zinc project, which has some contribution in terms of copper tons, as I mentioned, about 20,000 tons of copper. So those two and some other minor changes in our production guidance are made the totals that I mentioned. On Tia Maria, basically we have received an extension on the environmental impact assessments lately. That's a two-year extension. We are currently doing work with local communities. I think we are doing very good progress in this regard. There is nothing else to report at this point but that's how we are seeing the circumstances of the Tia Maria project as of now.

Okay. Thanks a lot, Raul.

You're welcome.

The next question comes from Thiago Lofiego from Bradesco BBI.

Hi. I have two questions, Raul. Just back to Tia Maria, is there any theoretical timeline by which you may decide to postpone the Tia Maria project and replace it with another project from your growth portfolio? And the second question is, if you could comment on whether there is more energy cost reduction prospects in the Peruvian operations, given the recent initiatives there? Thank you.

Yes. Well, thank you for your question, Thiago. The answer to - if we are considering a deadline for canceling the Tia Maria project is, no. We will persist. We think that this is a very good project. We believe that the environmental impact of it is minimal and we are explaining these to the local communities and we hope that we will put back on track this project at certain point in time in the near future. Regarding energy cost of the Peruvian operations, well, we have new contracts that were put in place by mid-April of this past quarter. We have seen very positive - energy cost has decreased by about 40%. Our initial estimates were 30%, but the Peruvian energy market is somehow slow, so that it help us in getting even lower tariff than what we anticipated.

Thank you, Raul.

You're welcome.

The next question comes from Carlos De Alba from Morgan Stanley.

Hello, Raul. I just wanted to ask the following. Can you give us an update on the cost front, it was a little bit higher than we were expecting and maybe that had to do with some of the lower grades in some of the copper mines that you mentioned. So if you could give us an updated outlook or guidance, if you have one, on cash cost per pound, before by-product - before the benefit of by-products? And also if you could comment on what trends - what are the main trends that you see, if any, in terms of ore grades and recoveries in your different operations? And then finally, if I may, do you have a figure in mind for third-party concentrate purchases this year? That will also be helpful. Thank you very much.

Okay. On the cost front, it's resulting - the higher cost that we are reporting, it's resulting from several sources. One of them is that we have a slightly less production than what we anticipated at our new Buenavista SX-EW plant. This is related to the ore or the content of copper in the PLS [ph] is equivalent of the ore for SX-EW plants and we're currently looking into ways to solve this problem. We believe that there are very good possibilities of coming back to where we were expecting this productions from the SX-EW facilities to come back. So that is something that I think we will solve through this quarter, and report better production for the rest of the year, which is what we are implying in our annual forecast. The other production matter that we have is regarding the Cuajone operation, where ore grade and milling has been lower than what we expect. For the ore, it's going to improve in the second half of this year, not as high as last year, but a good one though, better than what we had in the second quarter for sure, and the milling capacity will come back to its full potential through the third and fourth quarter. So we are expecting a bounce back in Cuajone production during the rest of the year - for the rest of the year. Regarding cost, well, I reported an improvement in energy cost in Peru but basically what we have was a mix of things, as you will know that current fuel prices are higher than what they were a year ago and that is something that is creating some cost pressure for us. Also we had an increase in local cost through exchange rate appreciations, particularly the Mexican operations, where the Mexican peso appreciated vis-à-vis the U.S. dollar. And even though we had some other cost-reductions, I've already mentioned the energy one. We had more leachable materials that has been capitalized. That is pulling an inventory for later on consumption and lower purchase copper. And as we - as you may imagine, being large in copper concentrate at the Mexican operations, we will need to buy copper for those operations but we do have to acquire some material for the Ilo smelter in Peru. And this is something that is good news in the sense that the Ilo smelting and refining facilities are doing very well. That's why they are requiring a fee that exceeds the production of our own mines, but obviously we will like that to be replaced by our own materials. I believe that for the rest of the year, we may be consuming about the same that we have consumed for the first part of 2017, so about, I think this year, 14,885 tons of third-parties concentrate. That's more or less what we are expecting to consume in the second half of 2017 at the Peruvian operations.

Thank you, Raul. Could you just remind us, what you're expecting in terms of cash cost per pound after the benefit of by-product?

Yes, I forgot to comment on that. Well, for this year we are increasing our forecast for cash cost and it's a mix of things. We were expecting a much higher credit per pound, which we don't believe we will obtain it. It's - currently we're expecting a cash cost after by-product credits of $0.84 and that's basically what we have. Of these will be composed of $1.51 as cash cost before any credits and $0.59 of credit. That's $0.92.

Thank you, Raul.

You're welcome.

Our next question comes from Renan Criscio from Credit Suisse.

Hi, Raul. Thanks for the questions. First question is if you can provide an updated CapEx guidance, considering the project that you mentioned, sort of Pilares and the Buenavista concentrator? And also I noticed you didn't mention the El Arco specifically, so if you can provide an update on that project and what's the status there? That would be very helpful. Thank you.

Thank you very much for your question, Renan. Well, this is - the CapEx guidance - we have looked into CapEx for the next few years and there are some changes. We have accelerated the projects that I mentioned and we have report about them in the press release, at least the zinc concentrator at Buenavista and the Pilares project in La Caridad. And we have looking to some other projects and shift them a little bit over time. That's the case of El Arco. Even though we're developing this project as we speak, where we still feel that we need to do some more work on it and that is affecting somehow our view - our long-term view on CapEx. So our current forecast is the following. For this year, we are expecting to spend $1.2 billion in capital. That includes maintenance CapEx for about $400 million. For next year, it's $1.7 billion. For 2019, $1.5 billion. For 2020, $1 billion of CapEx. That's where we had a big chunk for El Arco. Our prior forecast was $1.9 billion. So we're putting that a little bit further down in time. For 2021, our current forecast is $500 million. That again has changed. In the last - in the first quarter, we reported $1.1 billion. Basically what we are doing is postponing slightly CapEx investments for El Arco. That is currently our view on the CapEx for Southern Copper.

Great. Thank you very much.

You're welcome.

Thank you. Our next question comes from Marcos Assumpção from Itau. Marcos Assumpção: Hi. Good afternoon, everyone. First question is regarding Pilares. If you could comment - if there is any possibility of expanding this project in the future? It seems to be a very good CapEx return relation - ratio, sorry. And also, if you have excess capacity at the La Caridad concentrator, so you'll be using that through the Pilares project as well? And the second question is regarding the recent change in the regulation in Peru allowing for further sulfur dioxide emissions. Do you believe that that opens room for investments in smelting and refining in Peru in the future? Thank you.

Okay. Thank you very much, Marcos, for your question on Pilares. Let me give you some background on the project. This is a project that we acquired since, say, about 10 years ago. It's an existing - it was an existing operation, an underground mine. We want to develop this as an open-pit operation at this point. And it has - we believe that we can provide 15,000 tons of mineral with an ore grade of 0.78% - I mean, 15,000 tons per day of mineral with an ore grade of 0.78% in average that will be sent to our Caridad concentrator. In Caridad, then we will redesign our mining plants to move 15,000 tons of Caridad material and put in place of that, the Pilares material with a higher ore grade. So the Caridad concentrator, just by replacing mineral from Pilares - minerals from Caridad by Pilares will be producing these 36,000 tons that we mentioned of additional production in Pilares. There is another possibility that - but at this point we are not looking into that, which is building a new process in line at the Caridad concentrator. So we have the Pilares material as well as the Caridad material being processed at the same time. At this point, we are not doing that where we have - the Board has authorized us to provide the mineral to the concentrator doing the investments that are required in order to do an open-pit operation of Pilares and that's basically what we have. For the sulfur dioxide emissions standards that has been adjusted and let me comment on that. The prior standard was unachievable. Simply put, there was no technical solution that could provide an efficient capture of that sulfur dioxide limit. What the government has done is putting the country back on track with the Americas. The U.S. standard, the Canada standard, the Mexican, Colombian and Chilean standard are about 250 parts of sulfur dioxide per cubic meter of air. So with this, Peru is aligning with the Americas and becoming competitive. The Company has some plans for smelting and refining growth but at this point we are looking and starting this as an option. So far there are no decisions and nothing to report other than we are studying this and seeing if we have with the new standard a good opportunity to develop our smelting and refining operations in Peru. Marcos Assumpção: Perfect. Raul, if I may, just a follow-up question here, on your capital allocation. How do you compare, like if you have available cash in the future, the difference between doing buybacks or paying dividends, what is your preferred option, in which conditions? Thank you.

Well, it's actually a question up to the Board, Marcos, but let me comment on that. Well, the company has a track record on dividends that I think that should be studied very carefully by the shareholders or interested parties because it shows the commitment that the company has to return cash to shareholders. If that will be done through purchase of shares or dividends, it's a matter that it's up to the Board, and in that regard, I can't make a comment on them, we have about this. Marcos Assumpção: All right, thank you very much, Raul.

You're welcome.

The next question comes from Alfonso Salazar from Scotiabank.

Hello, Raul. How are you? I have two follow-up questions. The first one is on cash cost. If you can give us some cash cost estimates after and before by-products for the coming years, not only for 2017, and also if you already have the benefit in Peru of lower energy and we saw an increase in the average cash cost? Can you give us a breakdown of what is happening in Mexico and in Peru in terms of cash cost and what are the drivers that will move this to different cash cost down in coming years? Just trying to understand what's the driver in each country. And then the second question is, I'm intrigued on what is delaying the El Arco project? Well, what are you seeing there? I was - my understanding is that it was a very good project and that you will try to move as fast as possible with it. So if you can comment on this two? Thank you.

Okay. Thank you for your questions, Alfonso. Let me start with the cash cost guidance. Our expectation is, as I say, for this year, $0.92; for next year, $0.80; 2019, $0.85; 2020, $0.81; and 2021, $0.75. That's everything else the same. Okay. So I guess that when we were there, prices of different materials as well as our by-products will be different, so cash costs will be hopefully better if prices of our by-products and productions are much better than what we are reporting now. In the case of El Arco, basically we - I concur with your view. It's an excellent project. We are moving forward with it. But we have to do some more work at this point where we are considering certain acquisition of properties and certain studies. And the timeline for moving forward with the project has shifted a little bit on time. Talking about the difference between the Mexican and the Peruvian costs, well, we have an impact on cost at the Mexican operations, mainly through the peso appreciation and fuel. Those are the two major components that has been - have increased in the last quarter for the Mexican operations. In the case of the Peruvian operations, we have the benefit of lower energy cost. Also we are affected by higher fuel prices. No major shift in exchange rate that made us - the cost relatively stable down there. But again, we had the fuel affected both sides - of both operations. I think that over time, we will tend to control factors that can be controlled obviously. On prices, we cannot do much. We can do on consumption or shifting from, say, energy generated by fuels towards energy generated by electricity, which is less expensive than, say, a kilowatt hour generated by fuel is obviously much more expensive than the same generated by - from the electrical grid, which is much more efficient in both Mexico and Peru.

Okay. Thank you.

You're welcome.

The next question comes from Novid Rassouli from Cowen & Company.

Hi Raul. Just a quick question from me. Earlier in the year, we saw a high level of scrap in the market, which some had argued helped to depress prices. I just wanted to see - or I guess, not let prices rally as much as they could. I just wanted to see if you can give us an update of what you're seeing on the scrap side, and if maybe some of that tightening of the scrap market has may be potentially helped the recent rally that we've seen here in copper prices? Thank you.

Thank you for your question, Novid. I think that, no, we don't see - we were expecting and we are expecting some more scrap coming up at these prices but we haven't seen a significant change on that regard at this point. As you know, it's in the news that there is a possible ban on scrap imports from the Chinese authorities. We think that even though, it's something that will have some impact on the copper market, it won't be a long-term impact on the copper supply because that scrap will be channeled through different markets and at the end of the year what creates real long-term pressure on prices is a deficit in the market or trend to a deficit. So no, we are not seeing, at this point, significant activity coming from the scrap - from scrap into the copper market.

Okay. Thank you. And the recent move in copper prices, what do you think is the most important driver of what were you seeing? Then that's it from me. Thanks, Raul.

Well, we think that the driver is economic growth, particularly from China. In the last couple of days these possible ban of the Chinese operator has been one of the reasons mentioned. As I say, we don't think that that is a long-term factor. We are in this business for a long-term, for the long haul. So we are looking to much more - worry about the long-term impact on the market than short-term things. We believe that the copper market was coming into a better price environment in 2017 and we're basically seeing that happening, which is very good news for us.

Our next question comes from John Tumazos from John Tumazos Independent Research

Thank you very much. Could you explain the zinc mineralization at Buenavista? Is it [indiscernible]? How do we have so many blessings from god? Second, the Tacna Project. Is the mill at the port rather than a public mine?

Could you repeat your last question please, John?

On the Tacna Mill Project in Peru, do you call it Tacna because the mill is at the port rather than up at the mine in the mountains?

Well, let me start by the second one. We don't have a mill in - I mean, we don't have a mine in Tacna, which is Toquepala mine and we are doing a mill expansion at the highlands, where the Toquepala mine is. I'm not sure if I'm understanding you well, John?

Maybe I don't know the geography of Peru perfectly. When you call it a Tacna, I thought it was at the city in the port. Excuse me [indiscernible].

No, no problem. It's a 150 kilometers away from the coast. Tacna is at the center of the region, while our operation of Toquepala is a little bit higher than that. Okay. Well, we have been doing some drilling - into your first question regarding the zinc concentrator, we have been doing some work, some drilling work at our Buenavista property. And as part of that we identify, a few years ago, a zinc deposit in Buenavista but we had to be sure of the quality of this deposit. It's a sulfur deposit that we want to develop. It has some copper in it, but the way to treat it is just different than the copper that we have been producing from the Buenavista deposit. In this case, we have to consider that if we don't process this zinc, we will have to store it and the storage may decrease or reduce the possibility for recovering all the zinc that's in this deposit. So that's why we are committed to this new concentrator, zinc concentrator in Buenavista.

Thank you very much.

You're welcome.

The next question comes from Jon Brandt from HSBC.

Hi. Good morning, Raul. So just to return to the Buenavista Zinc operation or project. Could you give us a little bit more details on that? Is that project actually Board approved? What are the cash costs look like? How long will it take to actually build? What do the grades look like on the copper side? And then secondly, you mentioned your expectation is for a copper deficit post-2018. I think with Freeport's - on Freeport's conference call, management was mentioning $4 per pounds copper prices not out of the realm of possibility. I'm wondering what your views are? How high - where do you see prices going in 2019 or 2020? I realize it's a difficult question but would you share his views that we could see significantly higher copper prices from where we are today? Thanks.

Sure. Okay. So let me start with your last question. It's really simple. We are not in the business of forecasting copper prices. So we want to control cost. We want to be efficient. We think that our cash costs allow us to move through the whole copper price cycle. Obviously when prices are high and if they are, say, $4, you will see the difference in this corporation in terms of its cost structure, its capacity of generating cash. And as I say before, if you look at our track record in terms of dividends, that will be very clear what the Board thinks about the Company holding cash. Focusing on your second - or your first question on the zinc concentrator. The project has a CapEx of $413 million that will be invested through three years. There is slight investment in the fourth year, but three years is the most significant chunk. This year, we are expecting to invest $62 million. Next year, 2018, will be $177 million. 2019, $144 million. In 2020, where we will initiate production, it will be $29 million. So it's a - that's the CapEx profile. We will have - we want to build 20,000 tons per day concentrator with an expected life of 15 years for the project. The zinc concentrator and the project will incur in any extra mining cost that are related to the project. We are expecting to have a very good recovery in the range of 70% and we have made several reviews into the flexibility of the project is very solid, very resilient. And finally, the product will be zinc concentrators. As you most likely know, the company is long in refining zinc capacity. So very likely result of this project is that the new concentrate production will go to our own zinc refinery to produce refined zinc. That will allow us to capture obviously some other by-products. As we mentioned that the concentrate has some copper, so we are expecting to have some copper production as well as the zinc and silver that will come with the concentrate.

Okay. Thank you.

You're welcome.

And that was the last question that we had in queue. I would like to turn the call back over to you for any other remarks.

Yes. Thank you very much, Elda. Well, with this we are concluding our conference call for the second quarter for Southern Copper. Thank you very much. We certainly appreciate your participation. We hope to have you back with us when we report the third quarter of 2017. Again thank you very much, and have a very good day today.

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