Southern Copper Corporation

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 copper sales in 2014.

On the supply side, despite some evidence of a possible market oversupply for the coming -- for this year, for 2014, we think that several structural factors such as labor stoppages after recent strikes in Chile, excessive taxation or governmental intervention as we're seeing in Indonesia, technical problems, scrap shortages and other issues are affecting and will continue to affect copper supply, offsetting the net impact of additional production coming from new projects and expansions. Southern Copper believes that it is positioned to take advantage of the strong fundamentals of the copper market.

Our company will benefit from it through its aggressive investment program of organic growth, aimed at increasing production from current capacity to approximately 1.2 million tons by 2017.

of Toquepala, that increased 6.5% its production when you compare the fourth quarter of 2013 with the same period of 2012; Caridad, that increased for the same period by 3.6%; and Cuajone, by a little more than 3%, in the 3 cases due to higher recovery. For the year 2014, we're expecting to produce and sell 672,400 tons of copper from our mines.

We don't expect to process copper concentrates from third parties in 2014. As we have reported, the newest SXEW III plant at Buenavista will start operations during the second quarter of this year, and we expect it to produce 53,400 tons of copper during 2014.

Regarding molybdenum, it represented 7% of our sales in 2013. Molybdenum production increased by 1,322 tons, or 29% in the fourth quarter of 2013 from the fourth quarter of 2012.

That was due to higher production at the Peruvian operations. In this case, Toquepala increased its production of molybdenum by 63.2%, Cuajone by 23.6% and La Caridad also -- our Mexican operation of La Caridad by 9% in the last quarter.

In 2013, annual molybdenum production includes a new record mark of 11,742 tons at our La Caridad mine and 359 tons from the first production of the new molybdenum plant at Buenavista.

For the year 2014, we plan to produce 21,500 tons of molybdenum, 7.6% more than our 2013 production and a new company record for 2014. Silver represented 7% of our sales in 2013.

Silver mine production increased by 260,000 ounces when we compare the fourth quarter of 2013 with the fourth quarter of 2012. That is an 8% increase in production of silver.

This was the result of higher production at the Peruvian operations, Buenavista and IMMSA. Refined silver production increased by 5.5% in the fourth quarter of 2013 to 3.6 million ounces from 3.4 million ounces in the fourth quarter of 2012.

For 2014, we expect to produce and sell 16.3 million ounces of silver.

Zinc represented 3.4% of our sales in 2013. Production increased by 2.4% in the fourth quarter of 2013 when compared to the same period of the prior year.

This was mainly the result of higher ore grades and recoveries, as well as full production recovery at the Santa Eulalia mine after the flooding problems of prior years were resolved. For 2014, we expect to produce 95,200 tons of zinc from our mines.

Looking at our financial results for the fourth quarter, sales were $1.5 billion, $115.9 million lower than sales of the fourth quarter of 2012. Copper sales volume increased by 4.4%, but value decreased by 5.5% due to lower copper prices at about -- of about 10% lower than in the same -- the comparison period.

Regarding byproducts, we had higher sales volume of molybdenum, a significant 30% increase in volume of molybdenum, and silver sales also increased their volumes by 7.2%. That partially compensated for lower prices for both.

Regarding zinc, volume decreased by 2.4% and price by 2.2%.

Our total operating cost and expenses increased by $80 million -- $80.8 million or 10% when compared to the fourth quarter of 2012. The main cost increments were due to higher inventory consumption that increased by $71.7 million; depreciation, $21.3 million; fuel cost, $14 million; and labor cost, $11 million.

These cost increments were offset by lower purchased copper and other cost variances.

The EBITDA for the fourth quarter of 2013 was $723.9 million, a 47.2% margin, and that compares with $894.4 million, or 54.2% for the fourth quarter of 2012.

Cash cost. Operating cash cost per pound of copper before byproduct credits was $1.90 per pound in the fourth quarter of 2013.

This compares with $1.79 per pound in the third quarter of 2013, an $0.11 increase. This 6.3% increase in operating cash cost is the result of the already mentioned cost increments.

Southern Copper's operating cash cost including the benefit of by-product credits was $1 per pound in the fourth quarter of 2013.

Regarding byproducts, we had a total credit of $329 million or $0.90 per pound in the fourth quarter of last year. These figures compare with the credit of $269 million, or $0.81 per pound in the third quarter of 2013.

Total credit has increased for molybdenum by 49%; in the case of silver, by 25%; zinc, 9%; and lead, 1%. Having decreased only for sulfuric acid by 11%.

Net income attributable to SCC shareholders in the fourth quarter of 2013 was $406.2 million, that is 26.5% of sales, or diluted earnings per share of $0.48 per share.

Looking into our expansion in capital projects. Capital expenditures in 2013 reached a new record of $1.7 billion, that was about $650 million higher than the prior record set in 2012 and represents 105.2% of net income.

Our growth program to develop the full-production potential of Southern Copper is in full steam. For 2014, we plan to invest $2.3 billion in capital projects, an increase of $600 million over 2013 spending and 142% of last year's net income.

As we have previously reported, our investment program aims to increase copper production capacity by approximately 87% from 630,000 tons to 1.2 million tons by the year 2017.

Looking at the projects in Mexico, the projects for Buenavista, we're continuing the development of these projects that have a total budget of $3.4 billion at this unit. By 2015, we expect to increase Buenavista's total production capacity from 180,000 tons to 488,000 tons, a 171% increase.

As part of the expansion program, we will initiate in the second quarter of this year the production of our 120,000-ton capacity SXEW III plant.

Also in 2014, will be the first year of full production at our 2,000-capacity molybdenum plant at this unit. The new concentrator with molybdenum circuit project includes a concentrator with an estimated annual production capacity of 188,000 tons of copper and a second molybdenum plant with a 200 -- 2,600 ton capacity.

In addition, the project is expected to produce annually 2.3 million ounces of silver and 21,000 ounces of gold. The total capital budget of the project is $1,383.6 million.

And through December 31 of last year, it has a 62.9% progress with an investment of $544.9 million. The project is expected to be completed in the first half of 2015.

4 of the 6 mills required for the project has been installed and we're currently in the process of installing the remaining 2.

Regarding the mine equipment and position for Buenavista expansion, through December 31 of last year, we have spent $481.7 million of a total budget of $504.8 million and have received 60 of 61 trucks, 7 shovels and 8 drills required for the project.

The SXEW III project is moving forward to completion with an overall progress of 81.6% at December 31 of 2013. The total capital budget of the project is $444 million, of which, we have spent $373.6 million through December of last year.

The project production capacity, as I said, is 120,000 tons, and we expect it to start operating actually at the beginning of the second quarter of this year.

The Quebalix IV project has had a change in scope. As it was previously reported, this project will improve the SXEW copper production by increasing recovery and reducing hauling -- cooling cost, as well as processing time.

Recently, the company has analyzed the Quebalix IV project crushing capacity and found that by increasing it from 40 million to 80 million tons of material processed per year, we will eliminate the need for an additional Quebalix facility in the future and operate at the lower unit cost.

In January of this year, the board approved the described change in scope, increasing the total capacity budget of the project by $100 million to $340 million. The project is expected to be completed in the first half of 2015.

The remaining project is to complete the $3.4 billion budget program for Buenavista, including important investments in infrastructure, land acquisition and other facilities.

Regarding the Peruvian projects. In the Tia Maria project in the fourth quarter, we successfully held the 2 workshops and public hearing required as part of the approval process for the project's new environmental impact assessment.

We expect to receive approval of the environmental impact assessment by the end of the second quarter of 2014. Considering this time line, the Tia Maria project is expected to start up production late in 2016.

The project capacity is 120,000 tons of copper per year. We're currently working in harmony with local communities and with the government authorities to expedite the completion of this important project.

We're hopeful that this is the beginning of many positive new developments in Peru that will benefit the country, our company and the nearby communities.

Regarding the Toquepala expansion project, we continue progressing favorably after having reached agreements with local communities. This project has an estimated cost of $1,050 million and is expected to increase annual production of Toquepala by 100,000 tons of copper and 3,100 tons of molybdenum.

Regarding the Cuajone project, through December 31 of last year, we have spent $146 million of our total budget of $150 million on 2 projects to increase productivity through technological improvements in this unit. One of the projects is the Variable Cut-off Ore Grade project and the other one, the High Pressure Grinding Rolls project, or HPGR project by its initials.

Our Cuajone production increment of 6.2% in the 2013 shows the results of the Variable Cut-off Ore Grade project, which was completed in the first quarter of 2013 at the cost of $112 million. The High Pressure Grinding Rolls projects, which will produce a more finely crushed material is currently in the ramping up stage, and we expect to reach full capacity during the first quarter of 2014.

The project will generate cost savings by improving copper recovery and reducing power consumption in the crushing process. The total project budget is $45 million of which we have spent $34 million as of December 31 of last year.

We expect that both projects will be at full capacity by the first half of 2014.

The project to improve slope stability at the south area of the Cuajone mine. We removed approximately 148 million tons of waste material in order to improve the mine design without reducing our actual production level.

The mine equipment acquired includes 1 shovel, 5 trucks, 1 drill and auxiliary equipment. Besides preparing the mine for the future, this investment will avoid a reduction in average ore grade between 2014 and 2018.

At December of last year, we have spent $59.4 million of a total budget of $65.1 million.

Dividend announcement. Regarding dividends, as you know, it is the company policy to review at each board meeting cash resources and expected future cash flow generation from operations, the capital investment plan and the other financial needs in order to determine the appropriate quarterly dividend.

Accordingly, as disclosed to the market on January 30, 2014, the Board of Directors authorized a cash dividend of $0.12 per share of common stock, payable on March 4 of this year to shareholders of record at the close of business on February 18 of 2014.

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.