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Southern Copper earmarks US$100mn for Tía María for 2016

Bnamericas Published: Tuesday, February 16, 2016

Southern Copper, the largest producer of the metal in Peru and Mexico, has allocated US$100mn in capex this year for its beleaguered US$1.4bn Tía María copper project in a bid to start construction, a senior official said.

The company, which has been held up by environmental protests since 2011, expects the government to issue a construction permit this year, CFO Raúl Jacob said. Tía María, where the company has already spent US$356mn, is expected to produce 120,000t/y copper.

Southern been has working on community relations in the El Tambo valley near Tía María in Arequipa region since environmental protests last year left four dead and 300 injured and led to dozens of arrests, forcing the government to declare the area to be in a state of emergency.

The project is part of the company's US$1.58bn in 2016 capex, which has been trimmed from earlier projections of US$2.3bn as Southern strives to conserve its cash position, which currently stands at US$900mn, Jacob said. The company expects to invest US$1.62bn next year and US$1.24bn in 2018, he said.

Southern plans to reduce third party copper concentrates purchases to 30,000t and spend less on its US$3bn share buyback program this year, while delaying the startup of its $1.2bn Toquepala expansion to early 2018. Southern, which raised US$2bn in a bond sale last year, does not plan to tap debt markets this year, however.

"In this existing price environment, we have to take care of the company's cash, considering our aggressive investment program," Jacob said on a conference call to discuss financial results. "We are concerned about the company."

A US$3.5bn expansion at the company's Buenavista mine in Mexico is running "smoothly," with all six mills operating and expected to reach installed capacity in the second quarter, he said. Upgrades will enable the company to cut cash costs to US$1.05/lb this year from US$1.12/lb in 2015, Jacob said.

Southern could use facilities at either Buenavista or its Caridad mine to treat production from its El Pilar copper project in Sonora, Mexico, acquired for $100mn in July 2015, he said.

COPPER MARKET

Southern Copper, which has already sold most of this year's copper production, does not see the copper market being affected by excessive supply and has seen improved rates for refined copper since last year, Jacob said.

"We see a copper market on good terms. We don't see any surprises," Jacob said. "We believe we will see a recovery in the copper market."

Profit plunged 44.8% to US$736mn in 2015 on a 12.8% decline in sales to US$5.05bn, the $100mn acquisition of the El Pilar copper project in Sonora, Mexico, and a US$45mn environmental clean-up, the Phoenix, Arizona-based company reported on February 10.

The company is counting on Tía María and expansions in Peru and Mexico to help boost annual copper output to 1.15Mt by 2018. The company expects to produce 903,000t copper this year and 943,500Mt in 2017.

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