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Southern Copper Corporation (NYSE:SCCO)

Q3 2013 Earnings Call

October 28, 2013 1:00 PM ET

Executives

Raul Jacob - CFO, VP - Finance

Oscar Gonzalez Rocha - President, CEO, Director

Daniel Muniz – CFO of Grupo Mexico

Analysts

Carlos de Alba - Morgan Stanley

Thiago Lofiego - Bank of America

Santiago Pérez-Teuffer - Credit Suisse

Alex Hacking - Citigroup

Garrett Nelson - BB&T Capital Markets

John Tumazos - Very Independent Research

Alfonso Salazar - Scotiabank

Operator

Good morning, and welcome to Southern Copper Corporation's third quarter and nine months 2013 results conference call. With us this morning, we have Southern Copper Corporation's Mr. Raul Jacob, Vice President, Finance and CFO who will discuss the results of the company for the third quarter and nine months 2013, as well as answer any questions that you might have.

The information discussed on today's call may include forward-looking statements regarding the company's results and prospects, which are subject to risks and uncertainties. Actual result 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 statements, whether as a result of new information, future events or otherwise. Our results are expressed in full U.S. GAAP.

I will now pass the call on to Mr. Raul Jacob. You may begin.

Raul Jacob

Thank you very much, Darrel and good morning everyone and welcome to Southern Copper's third quarter 2013 earnings conference call. Participating in today's conference call are Mr. Oscar Gonzalez Rocha, Southern Copper's CEO and Mr. Daniel Muniz, Grupo Mexico's CFO.

In today's conference call, we will begin with an update of our review in the metal markets. We will then talk about Southern Copper's key results related to production, sales, operating costs, financial results, expansion projects and capital expenditure program. After that, we will open the session for questions.

Focusing on the copper market. Regarding the copper market, during the past quarter, we have seen the strong fundamentals of this market coming back again to support copper prices. Inventories of the three major warehouses, the London Metal Exchange, Comex and Shanghai decreased by 24% during the quarter. On top of this, we have seen China's refined copper imports in September increase by 32% month-on-month to about 350,000 tons or 18% year-on-year, clearly indicating to us the end of their destocking process.

Even though the U.S. represents today only about 8% of the world demand for refined copper, the ongoing recovery of its economy is key to copper demand, since the U.S. is the most important secondary copper consumer, affecting copper demand in other economies. On the supply side, despite some evidence of a possible market oversupply for the coming year, we think that several structural factors such as labor stoppages, 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 would benefit of it through its strong investment program of organic growth, aimed at increasing production from its current capacity to 1.2 million tons by 2017.

Looking into our production of copper for the third quarter. Production decreased by 5,286 tons or 3.4% in the third quarter of this year compared to the third quarter of 2012, due to a lower production at the Buenavista mine caused by a temporary flood disruption. That disruption has been resolved, but we had also some problems with the ore grade and recovery at our Toquepala mine.

The lower production levels of these operations were partially offset by higher production at the Cuajone mine, mainly due to higher recovery. Due to the lower production during the last quarter at the Buenavista operation particularly, for 2013, we are reducing our current production guidance to 630,000 tons of copper. Of these, approximately 610,000 tons will come from our mines and 20,000 tons from third-party copper concentrates.

Focusing on molybdenum production. It increased by 285 tons or 6.4% in the third quarter when compared with the same quarter of 2012. It was due to higher production of the Peruvian operations where we saw the Cuajone operation increase by 17.3% its molybdenum production and the Toquepala, 17.9%. This better production at the Peruvian operation has been also reinforced by the initial production of the of the Buenavista molybdenum plant, it started operations in the past quarter.

This molybdenum plant for the Buenavista concentrator started commercial production, as I said, this past quarter with 107 tons of molybdenum produced. The plant is expected to have an average annual production of 2,000 tons of molybdenum. For the year, we plan to produce 19,000 tons of molybdenum, 4% more than our 2012 production, including approximately 500 tons from the Buenavista new molybdenum plant.

Regarding silver. Silver production increased by 0.7% in the third quarter of 2013 when compared to the same quarter of last year. This was mainly the result of higher production at IMMSA that was partially offset by lower production at the Toquepala, Buenavista and Caridad mines. Refined production increased by 6.2% in the third quarter to 3.6 million ounces from 3.4 million ounces in the third quarter of 2012.

Zinc production increased by 14.9% in the third quarter of 2013 when compared to the same quarter of 2012, mainly as a result of higher ore grade and recovery, as well as the full effect of the production recovery at the Santa Eulalia mine after the flooding problems of prior years were resolved.

Focusing on our financial results. For the third quarter of 2013, sales were $1.4 billion, $167.9 million lower than sales of the third quarter of 2012, that's minus 11% of sales. Copper sales volume decreased by 2% and price decreased by 8.3%.

Regarding by-products. We had higher sales volume of zinc, 32.5% of more zinc volume sales and molybdenum, that increased 5.5%. That partially offset lower silver sales volumes and lower prices for all three of these by-products.

Focusing on operating cost. Our total operating cost and expenses decreased by $301 million or 27.2% when compared to the third quarter of 2012. The main cost reduction was in legal fees related to the AMC damage award. That were $316.2 million a year ago. This was an one-time event that affected last year.

Other cost decreases includes lower purchases of copper from third-party, lower leachable material inventory consumption and lower workers' participation. These cost reductions were partially offset mainly by higher inventory consumption, higher energy cost and of these variances explain the remaining differences.

Looking at the EBITDA of the company. The EBITDA for the third quarter was $684.1 million. That is 49.4% margin compared with $532.6 million or 34.3% margin for the third quarter of 2012.

Focusing on cash cost. Our operating cash cost per pound of copper before by-product credits was $1.79 per pound in the third quarter of this year. This figure compares to $2.05 per pound in the second quarter of 2013. There has been a reduction of $0.26 in our cash cost, quarter-over-quarter. This 12.8% decrease in operating cash cost reflects the combined effect of an 8% reduction in production cost and a 5% increase in copper production, mainly from our Peruvian operations.

Southern Copper operating cash cost, including the benefit of by-product credits, was $0.98 per pound in the third quarter of 2013. This cash cost was $0.11 lower than the cash cost of $1.09 for the second quarter of 2013. That is a 10.1% reduction in cash cost.

Regarding by-products. We had a total credit of $269 million or $0.81 per pound in the third quarter of 2013. These figures compare with a credit of $304 million or $0.96 per pound in the second quarter of 2013. Increased molybdenum sales volume have been offset by lesser volumes for silver and zinc and lower market prices for by-products. With the exemption of zinc, that increases its price by 1.2%. Molybdenum by-product prices have decreased between the third quarter and the second quarter. In the case of molybdenum, a reduction of 13.3%, for silver, 7.4% and for gold, 6.1%.

Net income attributable to SCC shareholders in the third quarter was $344.2 million. That is 24.9% of sales. Per share, that's $0.41 per share.

Focusing on our expansion and capital projects. The current status of our major capital expenditure projects are as follows. For the Buenavista project, we have continued the development of our $3.1 billion investment program of this unit, which is expected to increase production of copper by approximately 175%, as well as an increase in our molybdenum production. That's for the year 2017.

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 2,600 tons capacity. The project also 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 September 30 of this year, we have 56.4% progress with an investment of $442.9 million. The project is expected to be completed in the first half of 2015 and we are currently in the process of installing first two of six mills acquired for the project.

Regarding the equipment acquisition for mine operations. Through September 30, we have to spend $464 million of our total budget of $504.8 million on these mine equipments. And we have received 55 of 56 trucks, five of seven shovels and the eight drills required. The SX-EW III project is moving forward with an overall progress of 72.2% at September 30 of the year.

The total capital budget of the project is $444 million of which we have spent $284.7 million through September 30 of the year. The project production capacity is 120,000 tons of copper cathodes per year and it is expected to start operating in the first half of 2014.

On January 2013, the board of directors approved a total budget of $240 million for the construction of Quebalix IV project, which is expected to crush up to 60 million tons of mineral per year, improving the SX-EW copper production by increasing recovery and reducing hauling costs, as well as processing time. The project is expected to be completed in the first half of 2015. The remaining projects to complete the $3.1 billion budget program includes several investments in infrastructure and other facilities at Buenavista.

Regarding our Toquepala project. Through September 30, we have spent a total of $269.5 million on Toquepala projects. These projects include the construction of a new in-pit crusher and conveyor belt system to replace current mine rail haulage, which we expect will reduce annual operating cost by approximately $5.5 million per year.

Regarding Toquepala expansion, which is expected to increase average annual production by 100,000 tons of copper and 3,100 tons of molybdenum, we continued negotiations with local communities and authorities as part of the process to obtain project approval.

On June 26 of this year, we signed an agreement with the National Water Authority, local authority and the Candarave Board of Water Users for a hydrogeologic study of the Locumba river basin in order to improve the water utilization in the province.

For Cuajone project. Through September of this year, we have spent $145 million of a total budget of $157 million on two projects to increase productivity through technological improvements in this unit.

The variable cut-off ore grade project and the high pressure grinding rolls project, or HPGR by its initials. Actual production is showing the results of the variable cut-off ore grade project which was completed at a cost of $112 million. The high pressure grinding rolls project, which will produce a more finely crushed material, is expected to start operations during the fourth quarter 2013 and we believe will improve copper production and generate cost savings by reducing power consumption in the crushing process.

The total project budget is $45 million, of which we have spent $33 million through the end of the third quarter. We expect that both projects will be at full capacity by the end of 2013, completing the additional 22,000 tons of copper and 700 tons of molybdenum in annual production.

The project to improve slope stability at the south area of the Cuajone mine will remove approximately 148 million tons of waste material in order to improve the mine design without reducing our actual production level. The mine equipment to be acquired includes one shovel, five trucks, one 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, while maintaining current production levels. As of September of this year, we have spent $22.4 million of a total budget of $65.1 million.

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 all our financial needs in order to determine the appropriate quarterly dividend. Accordingly, as disclosed to the market on October 17, the Board of Directors authorized a cash dividend of $0.12 per share of common stock payable on November 21 of this year to shareholders of record at the close of business on November 7.

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

Question-and-Answer Session

Operator

(Operator Instructions). We have a question from Carlos de Alba. Mr. de Alba, you may go ahead with your question.

Carlos de Alba - Morgan Stanley

Thank you very much, Raul. First question. Could you comment about the outlook for copper production beyond 2013? What you said for 2014 and 2015? Can you also comment on molybdenum volumes for those years? That will be great. That will be my first question.

Raul Jacob

Okay, Carlos. Considering our own production for 2014, we are expecting to produce 650,000 tons of copper, for 2015, 859,000 tons of copper. On moly, next year, we expect to produce the 20,300 tons of molybdenum. That number should increase in 2015 to 22,800 tons when we have the combined effect of the new molybdenum plant that we just put in commercial operation and the new one that we are building for the new concentrator in Buenavista. The figures for 2014 are currently under review for a more refined adjustment for our annual plan of 2014.

Carlos de Alba - Morgan Stanley

And do these include Toquepala? And, I guess, they do not include Tia Maria. Right?

Raul Jacob

That's correct.

Carlos de Alba - Morgan Stanley

Okay, then do you have any guidance or outlook for cash cost?

Raul Jacob

Well, we indicated at the beginning of the year that we were expecting our cash cost to decrease through the year and the most important effect of that should happen in the second half of 2013. In the third quarter, we have seen some of that already kicking in. We expect this to be at current prices, obviously. Stronger during the fourth quarter. Since we will have some of the benefit of the new molybdenum production of the Buenavista plant as well as some of the additional production coming from the Buenavista recovery as well as high-pressure grinding rolls project in Cuajone that will increase production a little bit in the fourth quarter. So all included, that should improve our cash cost for the fourth quarter.

For the next few years, we are expecting our cash cost to be trending at current prices and costs towards $0.90 in the long-term. Obviously this will be very significantly depending on fuel prices, power prices, et cetera. But at current prices, that's what we have as an estimate.

Carlos de Alba - Morgan Stanley

And do you have a number for the estimate before by-products?

Raul Jacob

Yes. About $1.50.

Carlos de Alba - Morgan Stanley

$1.50. All right. And my last question, sir.

Raul Jacob

Carlos, long-term that means that we finish with all the projects. We are considering even on these, the contribution of Tia Maria, Toquepala, the Buenavista investment, et cetera.

Carlos de Alba - Morgan Stanley

All right. Thank you, Raul. Just final question. I don't know who may be able to answer these in the call, but we continue to see the company buying back shares. So I wonder if you can comment about what is the strategy of the company or of the parent company towards this continuous purchase in the open market that we are seeing?

Daniel Muniz

Thank you, Carlos, for the question. There is really no strategy from the parent company here. We have been seeing a lot of volatility recently in the copper markets and in the markets in general and Southern Copper's share price has been no exception. So we have decided to present to the board an increase in our program to buyback, but we haven't bought any relevant size of share in the year. We have that numbers around here but anybody can comment on for the year, for the full year, but I think that's it, Carlos.

Carlos de Alba - Morgan Stanley

All right. Thank you,

Raul Jacob

Thank you. We don't have anything else to add to what Daniel said.

Operator

Okay, and our next question comes from Thiago Lofiego. You may go ahead.

Thiago Lofiego - Bank of America

Hi. Thank you for the questions. I have two questions. The first one. In the press release, we noticed there was slight change in your prediction guidance for Buenavista from 488,000 tons to 495,000 tons and the delivery date by 2016 delivery versus 2015 previously. So is there any specific reasons for this change? Could you just provide an update on where it is coming from?

Second question about the buyback. Could you give us some color on - sorry, yes. No, you just, - just about the Toquepala expansion. How is the licensing process evolving and how confident are you with the second half '16 sort of date?

Raul Jacob

Okay. I answer on the first question. We have increased a little bit expected production for years 2016 and 2017 from Buenavista. The company has to review the ore grades, recoveries and given the current plans, we think that we will increase the expected production in those years for Buenavista. That's the reason for the change, Thiago.

For your second questions, regarding the news on the Toquepala licensing, I am going to ask Mr. Oscar Gonzalez to address that topic.

Oscar Gonzalez Rocha

Yes. About the expansion of Toquepala, we are planning to have the public hearing that was suspended one year ago, maybe in December or in January and that will give us the possibility, because we already have all the engineering, it will give the possibility to start construction at the beginning of the first quarter of the next year after we have the public hearing and 30 more days for the approval of the environmental impact study that the Minister of Mines has since two years ago or year and a half ago with them. If that is the case, we will take us two years for the construction and that means that we will be ready in 2016 to start production in that expansion.

Thiago Lofiego - Bank of America

Okay, great. Thank you, guys/

Operator

Our next question comes from Santiago Pérez-Teuffer. You may go ahead with your question.

Santiago Pérez-Teuffer - Credit Suisse

Hi. Good morning, Oscar, Daniel and Raul. Thanks so much for your time. I wanted to ask if you can give some color as you just did with Toquepala, the same sort that you give with Tia Maria? And also you could comment on Caridad Pilares, if there is anything new there or what should we expect from that project? Thank you.

Oscar Gonzalez Rocha

About Toquepala, I just mentioned that we would plan it to be -

Raul Jacob

No, Maria (inaudible).

Oscar Gonzalez Rocha

Tia Maria? Okay, Tia Maria. We already gave the first workshop and we are planning to have the second workshop at the end of this week and the public hearing is scheduled for December. If that is the case, we already have to the engineering for Tia Maria and we expect to start construction in the first quarter of next year and that is again two years for construction. Then in year 2016, we will be ready to have this first production in Tia Maria, if everything goes like I was mentioned and we have the approval of the communities over Tia Maria.

Santiago Pérez-Teuffer - Credit Suisse

Perfect. Thanks, Oscar. And is there any comment on La Caridad Pilares?

Oscar Gonzalez Rocha

I think that right now is not programming to be ready in the near future. I think that we are going to wait until we finish the investment in Buenavista project in order to do something in the Pilares project.

Santiago Pérez-Teuffer - Credit Suisse

Okay, perfect. Thanks. And Raul, just to clarify. The guidance that you gave for your own copper production for 2014? Is it 650?

Raul Jacob

Yes. It is 650. We may adjust a little. Okay.

Santiago Pérez-Teuffer - Credit Suisse

Okay, so I imagine an increase from Buenavista project coming into the pipeline would be around how much?

Raul Jacob

Well, Buenavista will be at full capacity next year. That's about between 180,000 and 200,000 tons. Then you have all the other operations plus the new production that we are expecting from the high pressure grinding rolls project in Cuajone. I like to mention that this is basically our own production that we are considering here.

Santiago Pérez-Teuffer - Credit Suisse

Perfect. Thank you. So from the SX-EW next year in Buenavista, you are expecting how much production from that project?

Raul Jacob

About 50,000 tons for the year.

Santiago Pérez-Teuffer - Credit Suisse

Perfect. Thanks so much, Raul. Thanks, Oscar.

Raul Jacob

You are welcome.

Oscar Gonzalez Rocha

Thanks.

Operator

Our next question comes from Juan López. You may ask your question. And Mr. López, you are online with a question. You may ask your question.

Raul Jacob

Well, let's move on to the next question.

Operator

Okay. Our next question is from Alex Hacking. You may ask your question.

Alex Hacking - Citigroup

Hi. Good morning or good afternoon, Raul and everybody. My question is about Quellaveco. You have expressed some interest, maybe, in partnering with Anglo American on this project. Could you discuss your thought process there, given that you already have a lot of organic opportunities for expansion? Then any update on the process and how it's going? Thanks.

Raul Jacob

Well, we don't have any new news. On this matter, Alex, we have no additional news from what has been indicated to the market a month or so ago. We think that there will be some synergies if we do this projects together. However, as I said, no, we haven't had any talks or anything like that related to this project as of now.

Oscar Gonzalez Rocha

Adding to this, Alex, I think that the Peruvian government is the one, mainly the Minister of Mines interesting that to talk with Quellaveco trying to expedite the investment in this project because already it has 20 years in the council, Anglo American and they really do not in during that time. And I think that the Minister of Mines is going to try to talk with Mr. Cutifani, the CEO of Anglo American, trying to seek how they can have that project going. And if, during that time, they are interested to talk again with us because we talked with them two or three years ago trying to make a joint venture but for some reason, we never agreed on the conditions but we are open to talk again.

Alex Hacking - Citigroup

Okay, it's clear. And would it be safe to say that your interest in Quellaveco would be increased if Mexico proceeds with the proposal for mining royalties?

Oscar Gonzalez Rocha

I think that we will not relate that between one thing and the other. Of course, our investment in Buenavista are important and if we need to do something in Quellaveco, maybe we will need to do which some participation of the banks, if that is the case.

Alex Hacking - Citigroup

Okay, it's clear. Thank you.

Operator

Our next question comes from Garrett Nelson. Mr. Nelson, you may ask the question.

Garrett Nelson - BB&T Capital Markets

Thank you. On the $2 billion share repurchase authorization, I was wondering how much availability remains on that? It looks like you repurchased about $59 million in stock in Q3 and then about $65 million in the second quarter.

Oscar Gonzalez Rocha

What is the exact there? I mean, 2013, we purchased about 25 million shares for a full amount of $158.7 million. That's the correct number. That’s for 2013.

Garrett Nelson - BB&T Capital Markets

Okay. Thanks. Then, I am not sure if you gave updated capital expenditure guidance for 2014 and 2015. Has that changed at all?

Raul Jacob

Not significantly. For this year, we are keeping our expectation of spending about $1.6 billion. For next year, we are maintaining our guidance of $2.3 billion in CapEx.

Garrett Nelson - BB&T Capital Markets

Okay. Then $1.4 billion in 2015, I think, was the prior year's guidance.

Raul Jacob

Yes. That's correct there. We are keeping that guidance as well. We will do a full review of them for the first call of the year in January.

Garrett Nelson - BB&T Capital Markets

Okay. Thank you.

Operator

Our next question comes from John Tumazos. You may ask your question.

John Tumazos - Very Independent Research

Thank you. Could you explain a little more the high pressure grinding rolls project at Cuajone for $45 million? Come other copper mining companies or gold mining companies spent much, much bigger amounts of money on high pressure grinding rolls. Has the cost of that kind of machines fallen? Do you build it yourselves? That you get used equipment? Maybe you find a steel mill with good flat-rolled sheet rolls, instead of going to the mining engineering company? Is it just for a little bit of Cuajone or maybe and you are maybe pebbles or hard ore or something that some companies spend five or 10 times more than you spend for this. You seem very splendid in the small amount of the capital.

Raul Jacob

Well, this part, let me, just to illustrate that we are all in as well. The project consists in passing a portion, about a one-third of the ore that is processed at the Cuajone concentrator through rolls that basically fracture the mineral before going into the grinding part of the process. By doing that, we expect to increase production by increasing the throughput of the concentrator, as well as increasing the recovery of the concentrator.

Basically we are working with the top leader in the technology of this process that have already made from some applications of this technology in some other copper mines. So we are very confident that the project will be very successful for the company. As I said, we are currently doing the testing of this facility and expecting it to be at full capacity through the fourth quarter of this year.

John Tumazos - Very Independent Research

Who is the contractor or supplier?

Raul Jacob

It's Polysius.

John Tumazos - Very Independent Research

Thank you.

Operator

Our next question comes from Mullally Marino [ph]. You may ask your question.

Unidentified Analyst

Hi. Good morning. Hello. My question regarding, first Tia Maria. The first workshop, how do you how do you deal with the result? According to local media, there was some arrest by a group that was opposing to the project, I believe, but if you can comment more on that.

And about your production guidance, sorry, for next year, I believe in the last conference call it was around 700,000 and now you are talking about 650,000. I don't know what is the change about?

Raul Jacob

Well, let me address the last one. What I mentioned was our own production, excluding third-party's copper processing on that, Lally [ph].

Unidentified Analyst

Okay. Thank you.

Raul Jacob

On the Tia Maria, basically we conducted the first workshop. The meeting was calm. People in the meeting made several questions after the presentations of the company officers that were there. However, on the outside, there was a group of anti-mining groups protesting and the police had to intervene at certain point. There was no disruption of the meeting of the workshop. So that's why it was approved and we are expecting to have better conditions for the next workshop. As it was mentioned before, it's scheduled for this week.

Unidentified Analyst

Okay. Thank you, Raul.

Raul Jacob

You are welcome.

Operator

Our next question comes from Alfonso Salazar. You may ask your question.

Alfonso Salazar - Scotiabank

Hi. Thank you. Just wanted to see if you can give us an update on the (inaudible) project and other projects that you have in Mexico in the pipeline, especially in Permian and El Arco?

Raul Jacob

Well, in the case of both, in Permian and El Arco, the company has been conducting investments to prepare these two projects for the future. Currently, they are not in our current pipeline of growth for the company, and they will be considered, looking at the circumstances of operations in Mexico, vis-à-vis what the company could do in some other countries as well.

Alfonso Salazar - Scotiabank

And the same for El Arco?

Raul Jacob

Yes, I meant that for both projects. For both we are doing some investments on engineering, land exploitation, et cetera but they are still on the preparation side of our pipeline. They are not board approved.

Alfonso Salazar - Scotiabank

Okay. Thank you.

Operator

(Operator Instructions). We have a question from Alexandro Buqueda [ph]. You may ask your question.

Unidentified Analyst

Yes. Hello, sorry. Given the statement from Group Mexico this morning, where they suggested that they might have to redirect almost $5 billion of investment commitment over the next three years, if the new royalty was approved. How does that affect your capital allocation decisions for Mexico? And have you considered the options? If there are a cost for discontinuing the expansion of Buenavista or, I guess, how materially it could that affect your capital allocation going forward?

Raul Jacob

Daniel. Go ahead.

Daniel Muniz

No, I think it is important to bear in mind that when we are looking at the year, the tax law has not been approved yet. However, we do believe that, and that Southern Copper has options, as you know. We have Peru growing. We have Mexico growing. We will continue to carry on with the Cananea project to complete that growth that Raul commented on and we are still committed on that and we believe we are on time and on budget and we will deliver that growth. However, if there is a tax [ph], we will have to reassess and sit down at the board level to make some more sense. I mean it is a very good thing that Southern Copper has visibility in two different countries but this isn’t what we are trying to convey here. It was just regarding the other projects, like El Arco and (inaudible), the projects that we said that are not really in the pipeline, those are the projects that will be just reanalyzing how they look or would look with a different backdrop.

Unidentified Analyst

Okay, but if you were to sort of discontinue or put Buenavista on hold, is there a holding cost associated with that?

Daniel Muniz

No, but I definitely wanted to make sure that the message is clear. We are not putting Buenavista on hold. We are going to run Buenavista and we are already investing on and its already on the way. So we are going to finish on that expansion and then for the other projects, like El Salado, and lastly Angangueo, all the other projects. As you know we have the largest reserves in the world. We have probably the best pipeline of growth, but so we do have it here in Mexico and we do in Peru and we have been analyzing all the processes in South America too.

Unidentified Analyst

Okay. Thank you.

Daniel Muniz

Thank you.

Operator

Our next question comes from Alex Hacking. You may ask your question.

Alex Hacking - Citigroup

Hi, Raul. Sorry, just one follow-up question. I just wanted to double check on the guidance for next year and compare it with the previous guidance. I think you said 650,000 tons of copper next year from own production. The last forecast I saw was 725,000 tons next year but that will be including third-party sales. I guess, would you be expecting to sell about 20,000 tons of third-party material again next year?

Raul Jacob

Well, Alex, let me start by what I had said. The 650,000 tons are related to the company production to be sold. Okay? That does not include third-party's copper concentrates. Between the forecast that you indicated and the current one, there are there are two things that has adjusted the figure for 2014. The start-up of the Pilares project.

That has been suffering some delay, as well as the SX-EW production that we are expecting for the first year of the SX-EW plant in Buenavista. Now, we are currently looking into these expected forecasts for 2014, and it may be adjusted, and I believe it could be upward for next year. But at this point this is what we have.

Alex Hacking - Citigroup

Well, thank you.

Raul Jacob

You are welcome.

Operator

(Operator Instructions) We have no further questions at this time.

Raul Jacob

Well, thank you very much. With this, we are concluding our conference call for the third quarter. We certainly appreciate your participation and expect to have you back with us when we report the fourth quarter and annual reports of Southern Copper in January of next year. Thank you very much and have a nice day.

Operator

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

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