Good morning and welcome to the Southern Copper Corporation Fourth Quarter and Year 2017 Results Conference call. Please note that this conference is being recorded. 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 fourth quarter and year 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 pass the call onto to Mr. Raul Jacob.

Thank you very much, Elda and good morning to everyone and welcome to Southern Copper’s fourth quarter and full year 2017 earnings conference call. Participating with me in today’s conference call are Mr. Oscar González Rocha, Southern Copper’s CEO and a board member and Mr. Daniel Muñiz, Executive Vice President and also a board member of our corporation. In today’s call, we will begin with an update on our view of the copper market. We then will review Southern Copper’s key results related to production, sales, operating cost, financial result 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. During the last quarter, the copper price increased significantly from an average of $2.40 per pound in the fourth quarter of 2016 to $3.09, that is a 29% increase per pound in the last quarter and up to an average of 3.21 per pound in January of this year 2018. We believe this price improvement is a result of the synchronized economic growth recovery of the major economies. As a result, the ore economy is accelerating its growth to an expected 3.9% in 2018. China, the world’s largest copper consumer, with over 45% of the demand is expected to continue its healthy growth, in line with estimated 6.8% GDP increase in 2017. For global refined copper demand in 2018, we expect growth of about 2.1%. Let me point out that two percentage points of ore demand growth are approximately 500,000 tons of new copper demand. Regarding copper supply, we expect a weak response as a result of the consistent decline in investments that several companies have had in recent years. In addition, labor unrest, excess government taxation and technical difficulties are further affecting production. As a…

[Operator Instructions] We have our first question from [indiscernible].

So my first question is related to the tax impacts that we saw this quarter related to the tax reform in the US with some credits being written off, which led to some non-cash impacts in the P&L. I just wanted to get some color from you on what to expect going forward, if there are any additional impacts that you envision that we should see in the coming quarters and whether there is any alteration for your expected effective tax rate going forward resulting from this tax reform? And secondly regarding the Michiquillay project in Peru, if you could comment as well on what are the latest developments regarding the auction of that project and whether this is an asset that you're still interested in? That would be very helpful.

On the tax adjustment, we have looked through the matter and did an adjustment that includes the tax adjustment, to adjust or to align our tax position with the new tax regulations in the US. At this point, we don't see a further adjustment regarding this tax reform, however, I like to mention that the SEC and the PCAOB which are the main agencies that record on the accounting, US GAAP accounting have given the companies this year to study the matter and if necessary do the proper adjustments. At this point, we don't see that happening. In our case, it is very straightforward the kind of adjustment that we have to do and we already include them in our fourth quarter. Having said that, we’re looking in to all the details. As you know, some parts of the tax reform are not fully understandable for the companies. So we don't think that we will have another one, but it may be the case if we see something that we didn't consider. Oscar González Rocha: Yeah. And if I may Raul, I’ll interject. I mean basically, the reporting is good for us and there are two things very good happening. One is the alternative and minimum tax is no longer on the form of law. So it doesn’t exist anymore nor dividends in the United States that we received from foreign operations. So those two things are very good for the company. However, as you know we pay taxes locally where we mainly operate that is Mexico and Peru, but I mean, just wanted to comment, that this is the reform and it’s good for US businesses. And regarding GTI, I mean, we are certainly looking at it. We think it would be a good project. We've done some drilling, we’ve done some due diligence up in the North part of the Peru and we feel it’s one of the last projects out there. So we are looking at it and I mean analyzing whether we should submit a bid by the 20th of February and what would that be based on the public bid rules that the government has issued, I mean, as soon as we have more information, we will be happy to convey that to you.

The next question comes from Arthur Suelotto from Bradesco BBI.

My first question is regarding Tia Maria. I saw that related to your forecast for the receipt of the reconstruction permits, it was initially on the first quarter of 2018. Now, you have updated for the first half of 2018. I was just wondering if you could provide us with some details regarding the deposits for this postponement and if you have some kind of deadline to start considering, stop the evolution of Tia Maria and shifting your attention to the evolution of any other projects in the pipeline, maybe any of the other projects that you have on the pipeline. That will be my first question. And then the second one is with regard to cash costs. We saw from the evolution regarding cash cost at the byproduct. And we had in 2018, the start of Toquepala expansion and also have broader mineralization in the Buenavista and Cuajone operations. I was just wondering if you could provide us with some guidance regarding the cash cost evolution for 2018 and maybe towards the other upcoming years. That will be my two questions.

Okay. Thank you very much for your questions, Arthur. Regarding Tia Maria, we’re very positive with the project. We believe that and we have the data that support this, we believe that the company has made very good progress in this social work at Islay province and that is certainly helping the company to consider getting the construction permit during the first part of this year. This is our current outlook on the project and we are, as I mentioned before, working with the Peruvian authorities as well as the population of the Tambo Valley to improve the relationship that we have and to see that project moving forward. The major concerns of the population has been the use of water from the Río Tambo which we have explained that we are -- we will build desalination plant that will make -- not necessary – no need for us to take any water from the Tambo river. And the second point is that the impact that the mine may have on the valley, which we are explaining, it will be practically negligible. Regarding the other projects that you mentioned, El Arco and Los Chancas, for El Arco, we are expecting it to get into operation by 2025. That will add to our production pipeline about 245,000 tons of copper. In the case of Peru, we have another project that should be up and running by 2025, which is Los Chancas. This has a lower expected production than El Arco, but it is important though, it's 180,000 tons of copper. On the cash cost, where we are expecting it to adjust downward as we initiate our new operation of -- the operation of the new Toquepala concentrator, which as I mentioned should be up and running by the end of the second quarter, June, but will cover the full second half of the year. Our expectation for cash cost this year is to be at about $0.89 through the year and we’re expecting it to decrease by about $0.10 in the next three years. This is obviously considering all the costs of materials, such as fuel et cetera at the level that they are today. And as we know that most likely will not be the case. I’m not saying that they will be the fuel prices or some other will be higher, it may be lower, but we don't know where they're going to be in two years. At this point, given the prices that we have, this is our expectation.

The next question comes from Petr Grishchenko from Barclays.

Some of them were asked, but if I can touch a little bit on your credit ratings. Have you guys had a conversation with the rating agencies about potential upgrades, given how much your metrics improved over the past call it 12 months. And I guess as it relates to this, as you develop project – more projects in Peru, do you believe the market could reprice the bonds and sort of spread through Peru.

Regarding the credit rating agencies, we’re in constant contact with them. Their view on both the copper market and the company is very positive and that certainly may bring an improvement in credit ratings in the future, but at this point, we have nothing to report on that regard.

The next question comes from Karel Luketic from Bank of America.

My first question is in terms of copper production guidance. You mentioned the number that is below what you had mentioned in the last conference call. If I’m not mistaken, the number is around 40,000 tons lower than the previous guidance. Just understand is that because of Tia Maria being a bit postponed in terms of the project pipeline for the coming years and what impact this year is more importantly and also if you could get update us the ramp up expected in terms of volumes for 2019, 20 and so on and so forth, if possible that would be great.

Your second part was the ramp up of production.

Of production for the coming years and by the way I meant Toquepala.

Okay. The production guidance for 2018 has been adjusted, as you mentioned, slightly lower due to lower expected production at the Toquepala new concentrator. We were considering initiating the first loads of mineral to the concentrator in the second quarter, at the beginning of the second quarter and we have adjust that and some other much smaller production changes in our guidance for 2018. For the next year, let me give you our production guidance. I say that this year, we’re expecting 931,000 tons of copper. For 2019, we should pass 1 million tons of copper, 1,015,000. For 2020, 1,065,000 tons of copper, 2021, 1.2 million tons of copper. That should hold for 2022 and 23.

Okay. And that includes Tia Maria’s of 2021.

Yes. That includes Tia Maria, which will kick in, in well with small volume in 2020, about 30,000 tons and then at full speed, 120,000 tons in 2021.

And if I may a second follow-up on that in terms of CapEx expected for 2018, 19 and 20 also for us to be able to incorporate in our models here would be great.

For the year, our current budget for CapEx is $1.7 billion. For 2019, $1.8 billion. 2020, $1.9 billion. 2021, $1.7 billion and 2022, $2 billion. In 2021 and 2022, we will be spending some money on El Arco and Los Chancas, both in – well, El Arco is in Mexico and Los Chancas is in Peru. This together our $1.5 billion in 2022 and $2.7 billion in 2023.

The next question comes from Andreas Bokkenheuser from UBS.

Just two quick questions from me. We are starting to see sustaining CapEx kind of climbing across the industry globally, possibly because of higher oil prices, higher energy costs, so on and so forth. Are you seeing a similar lift to your sustaining CapEx at this point in time and what are you kind of expecting over the next couple of years here? That's the first question. And the second question obviously, you've been talking about this before as well your purchases of the third-party concentrate. You've been mentioning that that's going to come down as you basically ramp up more asset volumes. Is that still the case and could you give a timing on when you expect your third-party purchases of the concentrate to start declining. Those are my question.

For a sustained CapEx, we are -- well if you expand your operations, you may expect that after a few quarters, your sustained capital expenditures should increase. That's what we're seeing and this is what we believe is more our case than seeing them being pressured by fuel prices or some other materials higher cost. Obviously, at certain point in time, we may see those elements kicking in, but at this point, we’re considering slightly increasing our maintenance CapEx due to as I said, having new facilities will eventually -- they will require proper maintenance and the company. One of the key characteristics of us is being very low cost producer and one of ways to achieve that is having your equipment in very good shape, which is what we do. On the question on third party’s copper, well as I mentioned, we broke a record in the Peruvian operations this year at the smelting and refining facilities. This record was the result of certainly the management efforts that the company did on this as well as the new environmental standards that the Peruvian government issued in 2016 and that has been very helpful as well. So last year, we had to buy more copper for the Peruvian operations because we didn't have the Toquepala expansion in production yet. For 2018, for the second part of the year, we’re expecting to be long in concentrates, both in Mexico and Peru. At this point, we’re long and concentrating in Mexico. We’re selling a portion of the new concentrator of Buenavista production to, as concentrate copper to the market. And in the case of Peru, the first half of the year, we will be a little bit short of copper concentrates. We’re considering buying some and for the second part of the year, we should be with plenty supply of concentrates to our smelting operations and facilities.

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

How would the balance of concentrate and smelting in Mexico move in the coming years? Would you still consider investing potentially in a new smelter in the country or you think that there is maybe room to increase the capacity of the current operations so that you remain relatively balanced there. Can you increase the capacity of the existing smelter?

Well, we're looking at several options for our smelting facilities and some of them are considering the buildup of a new smelter or expanding the Peruvian facilities. Those are the projects that were entertaining at this point. Regarding the current smelter, let me pass this concern to Mr. González Rocha. If you could common if there is a possibility of expanding the Caridad smelter. Oscar González Rocha: No. We're not thinking right now in expanding the Caridad smelter. What we have in mind is expanding Ilo smelter and Ilo refinery or we’re building a new smelter in the port for the concentrator of Buenavista and cover the second concentrator that we are right now selling to.

Let me add to that Carlos that at this point, our current forecast of CapEx that I mentioned before does not include a new smelter or expansion of the Peruvian facilities.

And just a clarification, in 2023, if I understood correctly, the guidance for copper is 1.2 million tons, but in the press release, it is mentioned that the company may reach 1.5 million tons. Why would be the gap between the guidance that you just provided and the 1.5 mentioned in the press release? It may be one or two projects, but it would help if you could clarify.

Yes. That will be El Arco and Los Chancas. Both are expected to initiate production by 2025. With those two, which are compound 450,000 tons, we may pass the 1.5 million tons by then.

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

So you mentioned that you expect supply growth of 1% in 2018, yielding a copper market deficit in ’18. I was wondering if you could give an estimate of maybe the size of the deficit you're expecting as well as the level of disruptions that you're building into that 1% supply growth maybe, relative to last year.

Well basically, we’re expecting a deficit in the range of 150,000 tons for this year, for 2018. We’re expecting particularly on the labor side of the business, 2018 seems as a complicated year for several corporations. So that we think will affect the copper supply this year.

And are you expecting more disruption in ’18 than what we saw in ’17?

We have the idea of certain disruptions that may not be considered at this point due to labor negotiations that may increase a little bit what we’re seeing.

And then my second question, could you comment on the scrap supply in the market now relative to the beginning of 2017. I remember kind of going into SASCO, we saw big influx in scrap flows last year and they kept prices from really truly rallying. I was wondering if you guys could comment on how the market is looking for scrap now relative to the beginning of ‘17.

Well, there has been some move, particularly from the Chinese government to not allowing certain kinds of the scrap getting into the Chinese market. That was started first with scrap number three, if I remember correctly and then they add some other scrap qualities to this list. That is certainly helping the refined copper market where we have a significant participation with our own production and we see this as a positive event. We believe that the Chinese are becoming very serious about a controlled environment of controlling their smelting and refining facilities as you I'm sure that you do know. There has been some shut downs at certain smelters in order to do environmental works or environmental investments. So all of this is certainly giving some more support to copper prices this year and producing the deficit that I mentioned.

The next question comes from Renan Criscio from Credit Suisse.

Just a follow-up question on our costs. You made clearly downtrend on cash cost after the byproducts, but can you provide your guidance for the cash cost before byproducts, you had a slight increase on a sequential basis to the $1.5 per pound. I understand that you had a short strike in Peru that might have impacted that, but can you elaborate more if we can see the cash cost declining to the level we saw in third quarter already in the first quarter of 2018 or how can we see that that costs evolving moving forward?

For 2018, I see two different parts regarding cash cost. The first part of the year, let's say, up to June will be -- cash cost will be in line with what we have reported plus or minus any variances on byproduct prices or major cost elements such as fuel. As I said, $1.50, which is what we have in the fourth quarter may be our best estimate for the first half of this year. After that, we will initiate the production of our Toquepala concentrator. The concentrator will increase very low cost production our pipeline of copper. And that should happen and effect on our total cash cost before. At this point, we’re expecting as I’d say, a drop of about $0.10 in cash cost for 2018 that will come from basically, I'm sorry, by 2020, a drop in $0.10 and will come most likely from the investments that we're doing them on them, the Toquepala expansion.

The next question comes from Alex Hacking from Citi.

The first question, have you increased the – it seems like you have increased the scope at El Arco and Los Chancas. I think when you introduced those projects last year, they were combined $300,000 tons. Now, it seems a little bit over 400,000 tons. I guess what's changed over the last 12 months to increase the scope there.

The scope in the case of Las Chancas has improved and that allow us to give a better forecast for that product specifically.

And then on El Arco, can you maybe discuss the community relations there and potential environmental opposition to the projects, like, how difficult do you think that the permitting process will be there.

Well, we are at the exploration stage right now of the project. We have been doing some work regarding the land acquisition and some other investments that we have to do in order to have a rising rate for the project to develop. At this point, we have not much to report regarding any social unrest related to the project and we expect to have strong community work that should make us explain the local communities that the project, it be would be very positive for their development as a community as well as for Mexico as a country and the state obviously. Daniel Muñiz: And let me just add, I mean, both of those projects at the coastal community, I mean community rejections that speak to the project, both El Arco and Los Chancas we believe are very optimistic and they are willing and want this project to be developed, both of them. In El Arco, the challenge has been mainly electricity, i.e., infrastructure and Los Chancas, we are in next stages moving forward to environmental impact. But given what we have seen in other projects, including Michiquillay which was part of a conference call today, where there is our position to the project in Cajamarca, these two projects are totally opposite. The government and the populations there want the project to happen from just the way. Of course, our long term project we have in the pipeline, many years further down the road, as Raul just pointed out, we are still in predevelopment stages but just that that’s pretty much the way we look at it.

Let me add to what Daniel said that Los Chancas is located in the region, which there is also Las Bambas. Poverty has decreased to half of what it was before Las Bambas and the locals are certainly appreciating the impact that this kind of project has from the living standard. So I think in that regard, that is very positive.

And then just one more on Tia Maria, if I may, I guess is there anything specific that the government is waiting for or looking for in order to grant the construction license. I mean the environmental license, it comes with a social life emphasis, best I understand how this works now in Peru. So I guess what's causing the delay on getting the construction license and what's going to change or what needs to happen over the next six months that you believe that you will get that construction license?

At this point Alex, I rather not comment on the details. We believe that we have been doing very good project that the project is now endorsed by most of the people at the Islay province, which is the one that combines all the areas of influence of the project and we're working with the government to get the final permit for construction. So let me maintain our answer where I just mentioned.

The next question comes from Alfonso Salazar from Scotiabank.

I have a follow up on the El Arco and Los Chancas projects, and the first question I have is if you – these two projects have already been approved by the board. The second is, if you have some CapEx estimate for the two projects or each of that two projects that you can share with us. And the third is, regarding the size as I was saying, it seems that the two projects are now higher – larger in size. I was checking the 10-K and El Arco, you mention a production of 190,000 tons in your last 10-K. And it’s correct, you mentioned 245,000 tons of copper and for Los Chancas 180, but I don't see what was the previous guidance for this project, if you can share that with us as well? That could be useful.

In the case of Los Chancas, it was about 110,000 tons of copper production. And we -- as part of the new tariffs, which are related to a feasibility study of Los Chancas, we increased that figure to what I just reported. In the case of [Technical Difficulty] this change that we had in this project between our 10-K for last year, for 2016 and the current view. On CapEx, which is I believe your concern, the total CapEx for both. For El Arco, our current CapEx is $2.9 billion in total and for Los Chancas, it’s also $2.9 billion. In the case of Los Chancas, it has very strong byproducts, particularly molybdenum, which is very interesting for us and that allow the project to have very good cash cost when you look at the details.

Has it been approved by the board anyway?

Yes. It has been approved to have it in our outlook for the long term. As we move on through 2008, we expect these numbers to be much more firmer. Going forward, a confirmation will confirm our fourth quarter. At this point, it’s part of our outlook and that has been approved by the board. Daniel Muñiz: And that’s typically how we work. So just to add on that. I mean, we conceptually approve a project and then we approve every year at the board level, we bought it and the let's say builders plan or to do steps for that particular project and then we review the next year and next year and like that and try to prioritize and make the best allocation of the use of capital for that particular year and that’s how we kind of build the pipeline just to be a little more clear on how our approvals work.

We have a question from John Tumazos from John Tumazos Investment.

Thank you. Could you give us an update on El Pilar, which project?

Yes. This project is El Pilar, it’s a project that has an estimated copper capacity -- copper production capacity of 35,000 tons. We have been looking into the details of the investment. Basically, we have improved our view on the reserve base of the project and obviously that may also bring in some adjustments in the capital budgets for this project. At this point, we're expecting to spend in El Pilar $256 million and it should be up and running by 2021.

Is this included in your forecast?

Yes. Daniel Muñiz: The confusion between the project is, John, because of one is El Pilar and the other one is Pilares. They’re both in Sonora, but the El Pilar is a project that we acquired from our Canadian company, which was in chapter 7 of the equivalent in Canada. And have a 32% rate of return and it has a great expectation. It’s just that that particular one, we’re concluding the exploration and the engineering. But yeah, it’s a great project.

The next question comes from [indiscernible].

I just have a couple of questions. Maybe can you share with us maybe the EBITDA guidance for 2018 and the second one will be on labor negotiation, if you can expect something in for Southern Copper this year in Peru or in Mexico. And the last one will be on the strategy, the long term strategy with tax reform in the US, the tax impact you add in the fourth quarter. It’s implied some changes in terms of strategy in the long-term.

Well, our view on EBITDA using depends on obviously it’s contingent to the copper price that we use, that let's say that we're concerned with and we assume $3 per pound. Today, as you know, it's about $3.20. Our guidance will be for an EBITDA of about $3.9 billion at $3 per pound. If we consider a price closer to the current one, which is $3.25, our guidance will increase to $4.4 billion of EBITDA. So, we’re very positive on copper prices through 2018. So, my personal view is that we may see our EBITDA being closer to 4.4 than the 3.9. And your second question was –

On labor negotiation and we saw strike in Peru in November December of 20 days, just to know if you’re currently renegotiating some contracts either in Mexico or in Peru.

For Peru, we will have labor negotiations by the third and fourth quarters of this year. We believe that they will be maintained and taken on a constructive basis with no strikes actually that's our view. But let me say that last year we had some labor stoppages in Peru, all of them illegal. They were declared illegal by the authorities, but we managed with our production plan, with our emergency plan for production when we have these kind of situations, we manage to maintain our sales, actually to increase them and to break production record at the Ilo facilities in Peru. On labor negotiations in Mexico, we have each year some talks to either look at the perks or the salaries and we see no -- we don't expect any difficulties in Mexico, both in Mexican and Peru, but in Peru, we will have some talks.

And the last question comes from Mr. Carlos De Alba from Morgan Stanley.

Yes. Do you have any more specific guidance on how you see the evolution of the cash cost per year, maybe and after byproducts, that would be helpful if you have it? Daniel Muñiz: Yes. We’re expecting it to decrease by about $0.10 by 2018 on before, I mean, this is the cash cost before credits. Okay. So we are about 150, which would be above 140 in average by 2019. That will remain up to 2021, when we have the kicking of the Tia Maria project with 120,000 tons of new production, very low cost new production. With that, we’re expecting a further decrease in cash cost of about $0.05. Well, having the same byproducts or better byproducts production in the case of zinc, we will improve our credit in the next few years. For this year, we’re expecting credits to be range as we reported about sixty $0.65 per pound. And for 2019, slightly lower than that and then our credits will pick up when we have the new think concentrator in operation that would bring in much more think and superior product. In molybdenum, we will improve our production due to the Toquepala second concentrator new production. And then further down in time when we have the initiation production of projects, we did disclose certainly our cash costs. So we are expecting it to be now with the decrease in cash cost of about $0.10 between 2018 and 19. And then further an additional decrease in 2021, 22.

And then my final question is, if there is any further delays in Tia Maria and or other CapEx projects, would the company think about increasing the payout and achieve more dividends to shareholders, given that that is already quite strong. Daniel Muñiz: Sure. I mean the way I -- and we’ve talked about it many times, the way we look at dividends of the board is, analyze what’s the future cash flow generations the will be used a lot and as you remember back in 2011, the peak of the market, so to speak, we paid 100% payout ratio in dividend. So yeah, we believe that I’m in a good balance in terms of CapEx and development projects and dividend page, right, at some point within buybacks which you could equate to dividends, but yea, that’s the way we look at it, every single board, yeah. And we, as you know, try to maintain a healthy track record and if things are panned, the profit is kind of increasing always kind of like following the cycle of the commodity.

And then 150 in 2012 was because of the lawsuit that Southern Copper won against Grupo Mexico, but would you consider going back to around 90% which is what you had in 2010 or 2011 or that would be a real stretch. Daniel Muñiz: Sure. I was referring more, I mean, that was a one off, that was a litigation. I was referring more on the 2011, 2010 which as far as I remember, it was almost 100% payout. You said 90, but we have the data in front of you. Yes absolutely. I mean that's the way we look at dividends than our cash flow generation.

And at this moment, we show no further questions. I would like to turn the call back over to you for any final remarks.

Thank you very much Elda. Well with this, we conclude our conference call for Southern Copper’s fourth quarter and full year 2017 results. We certainly appreciate your participation and hope to have you back with us when we report the first quarter of 2018. Thank you very much and have a very good day.

Thank you. This concludes today’s conference call. We thank you for participating. You may now disconnect.