Good morning, and welcome to Southern Copper Corporation's Fourth Quarter 2019 Results Conference Call. With us this morning, we have Southern Copper Corporation, Mr. Raul Jacob, Vice President of Finance, Treasurer and CFO, who will discuss the results of the company for the fourth quarter 2019 as well as answer any questions that you might have. 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 statements, whether as a result of new information, future events or otherwise. All results are expressed in full U.S. GAAP. Now I'll pass the call on to Mr. Raul Jacob.

Thank you very much, Victor, and good morning to everyone, and welcome to Southern Copper's Fourth Quarter of 2019 and Full Year Earnings Conference Call. Participating with me in today's conference are Mr. Oscar González Rocha, Southern Copper's CEO and Board member. 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. Let me -- before we get into the details of this call, let me say that 2019 was a remarkable year for Southern Copper. We reached a new record on copper production and sales as a result of additional production coming from the new Toquepala concentrator and our Buenavista unit. With the successful ramping up of our new Toquepala concentrator, we have completed the first stage of our growth projects, which allow us to obtain new annual production records for copper, molybdenum and silver. On top of this, we believe that our low cash costs will provide required operational strength and liquidity to continue with our growth program in Mexico and Peru, aiming to achieve 1.5 million tons of copper by the year 2028. In addition to these excellent operational news, we received in 2019 the financial market recognition of our leadership position as one of the industry's best low-cost copper producers, obtaining excellent terms for our Minera Mexico 30-year bond offering issued in September of last year. Our company reaffirms its commitment to continue focusing on generating long-term value for our shareholders with our expansion projects and cost reduction efforts. We also expressed our commitment to all our stakeholders and to concentrate on working for the development of the local communities, regions and…

[Operator Instructions] And our first question will come from the line of Alfonso Salazar from Scotiabank.

I have a couple of questions, the first one is regarding the cost. We saw an increase in the cash cost in the quarter.

Alfonso, could you -- Alfonso, I can't copy you well. Could you get closer to the microphone, please?

Can you hear me better now?

Better. So much better. Yes.

Yes. Okay. So the first question is regarding cost. We saw an increase in the cash cost in the fourth quarter. So just want to know what is behind that, and if you can provide some guidance for the future years regarding cash costs. The second question is, if you can give an update on the growth opportunities. We saw that you delayed the 1.5 million-ton copper production target by 2 years. So if you can explain what is behind that delay. And the third question is the local situation for the San Martin mine because it's not clear what's going on with the Supreme Court ruling. So if you can clarify what's going on there.

Certainly. Thank you very much, Alfonso. Okay. On the cash cost, so we had an unusual fourth quarter in terms of cost and cash cost specifically that we believe it's an -- just an event. It's just something that we have some extra costs for certain repairs that usually are spread through the year, and we had to address them at the end of -- or during the fourth quarter. That created an increase in our cash costs for the quarter. Our current expectation for the next year is to have cash cost even lower than what we have in full for 2019. Currently, our view is to have cash cost for next year of $0.81 per pound that will be formed as follows. The cost before any credits will be $1.52. That's pretty much in line with what we had in 2019, but we will have much more credits than what we had in this year of about $0.71 per pound. That will, when you do the subtraction, leaves you with $0.81 per pound of copper. We are still working on how can we support and maintain this cash cost for the following years. We had a reduction in ore grades for molybdenum in 2021. Even though we will be producing much more zinc in 2021, we're expecting to have a higher cash cost in the range of $0.90 for that year. And well, as you heard, we have -- we are postponing slightly the start-up of the projects that we are undertaking right now and that will certainly influence the cash costs for the long term. For now, for 2020, as I say, it's expected $0.21, about $0.90 for 2021. And then depending on when the new projects will get in, we'll be having a better view on cash costs. So question number two, update of growth opportunities. Well, basically, why the delay on the projects, particularly to reach the 1.5 million ton goal that we have right now? And we have done, through 2019, a major overview on our projects and established -- given the advancement that we have in some of them and the news that we're getting from the test and studies that we're doing, we updated the view. And as a result, basically, we are moving a little bit our goal for 1.5 million tons, from 2026, which was our first goal or the past goal, to 2028. In terms of the legal situation in the San Martin mine, we're currently very confident that the company will prevail. The news that we have are relatively positive, and we are expecting it to be in operation at full capacity as it is getting now. So we have nothing important to report in this regard.

And our next question will come from the line of Jon Brandt from HSBC.

Firstly, I just wanted to follow up on the growth projects. Could you maybe expand a little bit on that answer? Was this the result of sort of 1 project, 2 projects? Was it the geology? Was it the expectation that maybe it's a little harder to get equipment financing? If you could just sort of expand on what actually led to the delay. And then the second question, I just wanted to ask you about the impact of the coronavirus and what you're seeing with demand these days. And maybe, conversely, if there's any risk to your supply chain from raw materials or equipment or something like that, how much of your costs actually come from China that's a risk to your own supply chain?

Okay, okay. On the growth projects, well, basically, it's not like a finance or some other kind of reason. It's how are we progressing on the projects. We have made a review on how are we expecting them to evolve in the next few years. Generally speaking, let me say that we have not adjust any budgets for the projects at this point. It's more like a timing thing, I should say not finance-driven or anything like that. It's just more like a normal event that usually make the projects to slow down a little bit. Now looking into the coronavirus. Well, we already mentioned that we believe that -- well, we hope that it will be contained, that the damage that it may create to the Chinese as well as the world economy will be limited. So far, on the commercial side of our operations, we have not -- we haven't had any impact related to the project. Our shipments, even the ones from China, are moving forward as scheduled. And we are, in that regard, tranquil. Regarding the supply chain impact, we haven't had any so far. As you know, our operations both are in Mexico and Peru, and we have not experienced any trouble in any of these countries and nothing related to our parts from China. In some cases, our suppliers are bringing in the parts that we require and some other materials from different sources. Obviously, that may take a little bit longer, but nothing specifically has affected us. Our inventories are sufficient to cover our operations at this point, and we have nothing to report regarding delays or anything like that, neither on the commercial side, as I say, nor at the supply chain for the corporation.

And our next question will come from the line of Carlos De Alba from Morgan Stanley.

I would like to ask you to further go into the cost trends before by-products, if possible, for 2021 and beyond. And then if you could maybe give us an update on the production outlook for the next few years as well as CapEx budgets. And then, finally, I would appreciate some color on Tia Maria. Because, clearly, the company has done all the efforts on each part, and you have received both environmental and construction permit. However, maybe frustratingly, we saw the federal administration a few weeks ago said that they don't see the conditions for the project to begin before the current mandate, and that is, I think, mid next year. So could you tell us exactly how do you see the situation around Tia Maria? And what is the company doing right now? And when do we think construction could begin?

Certainly. Thank you for your questions, Carlos. Okay. Before by-product credits, we're expecting our cash cost to be in the range of $1.50, a little bit more than that. For 2020, it's $1.52. 2021, it's $1.54. 2022, we are assuming $1.69, and the reason for that is a reduction in our production coming from our copper operations. I'll give you the production profile in a minute.

So Raul, did you say $1.59 or $1.69?

$1.69 for 2022. For 2023, it's $1.56. And then coming back to [ 2024 ] to $1.52. So it's -- we have a variance in copper production in 2022 that -- a reduction actually in copper production that -- at this point, that's the plan or that's the forecast. I should say that that's the forecast. We're working on different ways to solve this, but I'll give you now my -- the forecast that we have for production. For 2020, we're expecting to produce 998, 400 tons of copper; 2021, 986,500 tons; 2022, 950,100 tons; and then in 2023, where we have the beginning of operations of El Pilar and Buenavista zinc, we are expecting to have 1,066,900 tons of copper. So as you can see, Carlos, we had a bounce-back or a much higher cash cost before any credits in 2022 as a result of a reduction in production related to ore grades, particularly at the Cuajone and Caridad operations. We're working to control that by increasing the by-products contribution. For this year, for 2022, we're increasing our zinc production to about 191,000 tons of zinc for that year and trying to maintain the molybdenum production as well as the silver one. In silver, we're increasing our production to 24.4 million ounces on that year. So a combination of higher by-products production, plus some review on our mining plans for the copper operations should allow us to improve this forecast, but that's what we have at this point. Now on the -- well, production, I already mentioned that. On CapEx, as a result of the review I just gave a few minutes ago, we are adjusting our capital budgets. We're decreasing them for the next 5 years. We're not changing the budget for the project. It's just a rescheduling…

And our next question will come from the line of Thiago Ojea from Goldman Sachs.

How -- if you can just explain -- and I'm sorry, it's still not clear for me, why are you rescheduling the projects? It's a matter of capital allocation? You're concerned with your CapEx budget, that's why you're reducing? Or you think that it's postponed, which you -- I don't know, the market demand is still not 100% clear? And the second question regarding ASARCO. If you can give a status on the strike there, it would help us.

Okay. On the ASARCO, you should ask that on the Grupo Mexico's call. I'm sorry about that, Thiago, but...

Sorry. My fault, my fault.

No problem. Don't worry. On the project, it's just as I say. It's a matter of looking at the current advancement on the projects. It's not related to any other driver. Obviously, the concerns that we have from the global economy on both demand and supply of copper are one of the reasons why we're thinking about what are we going to do for -- if things get worse. But in this case, the driver has been the completion level of these projects. As we mentioned when we did the bond issue last year, we were going to focus on the Mexican projects at the Sonora state in Mexico. And we're doing that. We're doing very good progress with these 2 projects. They have a total cost of about $1 billion in total, and they will be contributing to our production in the next 2 to 3 years. So we're focused on that. On the other projects that are greenfield and by nature, much more difficult to move forward with them, we are looking at how things are evolving. And as a result of that, we did a rescheduling of the project. If we see opportunities to accelerate them, be sure that we will take them. It's not -- we're not constrained by our financial capabilities or for some other reasons like supply chain or stuff like that for this project. It's more like the view or the company view on how things are evolving and how are we -- how and when are we arriving to having these greenfield projects, which are, as I say, a little bit more difficult by nature than the brownfield expansion arriving to production.

If I can follow up quickly. How do you see the current debt level at the company, the net debt? Do you feel that now with a lower CapEx requirement for the next few years, maybe dividends could be higher? Or could you have buybacks?

I think that that's up to the Board of Southern Copper to decide when we have the Board meetings. As you know, the Board had a discussion on the dividends to set. It's been -- if you see the track records, the Board usually make a decision to give to our shareholder any cash that is perceived extra cash. So I don't see us holding cash for the future, if that's one concern. And currently, on debt level, well, we feel comfortable to where we are. We have -- we -- as I mentioned, we raised $1 billion through a bond from our Minera Mexico unit in 2019, this third quarter of 2019. And we feel that we're having a reasonable debt level at this point, including the upcoming payment of $400 million that we have to do in 2020 in April.

And our next question comes from the line of Rodrigo Garcilazo from GBM.

I have a couple of questions. Just to clarify the point you just mentioned, does the slowdown in the pace of the project development could arrive into a higher dividend going forward considering the big cash flow you are now generating? That's the first one. And the second is, in Peru, does the new congress composition after the elections in January provide a better environment forward to develop big mining projects in Peru? Or the situation does not change at all after this new congress composition?

Okay. Thank you very much for your questions, Rodrigo. On the -- well, it's hard to predict how are we going to -- how the company is going to decide on dividends, the Board, in this case, if we don't have a clear view on the copper market. So it's -- it depends on how things are evolving in the next few months. We'll see how the Board is responding to the cash position that the company has or we have in that -- at that time. Regarding the new congress, we're very pleased with the election results. We think that the new congress will be a source of progress for Peru, and we believe that it will be positive for the general environment. Now having said that, it's the congress that has a relatively short life because it will end in July of 2021 when new elections and a new person and new congress take over the current presidency as well as congress members.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Raul Jacob for further closing remarks.

Thank you very much, Victor. And well, with this, we conclude our conference call for the SCC Fourth Quarter and Full Year 2019 Results. We certainly appreciate your participation and hope to have you back with us when we report the first quarter of 2020. Thank you very much, and have a nice day.

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