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Article by DailyStocks_admin    (12-29-08 05:51 AM)

The Daily Magic Formula Stock for 12/28/2008 is Southern Copper Corp. According to the Magic Formula Investing Web Site, the ebit yield is 23% and the EBIT ROIC is 50-75%.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


Dailystocks.com makes NO RECOMMENDATIONS whatsoever, and provides this for informational purpose only.

BUSINESS OVERVIEW

THE COMPANY

Southern Copper Corporation is one of the largest integrated copper producers in the world. We produce copper, molybdenum, zinc and silver. All of our mining, smelting and refining facilities are located in Peru and in Mexico and we conduct exploration activities in those countries and Chile. See “Review of Operations” for maps of our principal mines, smelting facilities and refineries. Our operations make us one of the largest mining companies in Peru and also in Mexico. We believe, based on our review of the major mining companies’ 2006 annual reports, that we are the largest publicly traded copper mining company in the world based on copper reserves. We were incorporated in Delaware in 1952 and have conducted copper mining operations since 1960. Since 1996, our common stock has been listed on both the New York Stock Exchange and the Lima Stock Exchange.

Our Peruvian copper operations involve mining, milling and flotation of copper ore to produce copper concentrates and molybdenum concentrates; the smelting of copper concentrates to produce anode and blister copper; and the refining of blister/anode copper to produce copper cathodes. As part of this production process, we also produce significant amounts of molybdenum and silver. We also produce refined copper using SX/EW technology. We operate the Toquepala and Cuajone mines high in the Andes mountains, approximately 984 kilometers southeast of the city of Lima, Peru. We also operate a smelter and refinery west of the Toquepala and Cuajone mines in the coastal city of Ilo, Peru.

Our Mexican operations are conducted through our subsidiary, Minera Mexico S.A. de C.V. (“Minera Mexico”), which we acquired on April 1, 2005. Minera Mexico engages principally in the mining and processing of copper, molybdenum, zinc, silver, gold and lead. Minera Mexico operates through subsidiaries that are grouped into three separate units. Mexicana de Cobre S.A. de C.V. (together with its subsidiaries, the “Mexcobre Unit”) operates La Caridad, an open-pit copper mine, a copper ore concentrator, a SX/EW plant, a smelter, refinery and a rod plant. Mexicana de Cananea S.A. de C.V. (together with its subsidiaries, the “Cananea Unit”) operates Cananea, an open-pit copper mine, which is located at the site of one of the world’s largest copper ore deposits, a copper concentrator and two SX/EW plants. Industrial Minera Mexico, S.A. de C.V. and Minerales Metalicos del Norte, S.A. (together with its subsidiaries, the “IMMSA Unit”) operate five underground mines that produce zinc, lead, copper, silver and gold, a coal mine and several industrial processing facilities for zinc and copper.

We utilize many up-to-date mining and processing methods, including global positioning systems and computerized mining operations. Our operations have a high level of vertical integration that allows us to manage the entire production process, from the mining of the ore to the production of refined copper and other products and most related transport and logistics functions, using our own facilities, employees and equipment.

The sales prices for our products are largely determined by market forces outside of our control. Our management, therefore, focuses on cost control and production enhancement to improve profitability. We achieve these goals through capital spending programs, exploration efforts and cost reduction programs. Our focus is on seeking to remain profitable during periods of low copper prices and maximizing results in periods of high copper prices. For additional information on the sale prices of the metals we produce, please see “Metal prices.”

Currency Information:

Unless stated otherwise, all our financial information is presented in US dollars and any reference herein to “U.S. dollars”, “dollars”, or “$” are to U.S. dollars; references to “S/.”, “nuevo sol” or “nuevos soles”, are to Peruvian nuevos soles; and references to “peso”, “pesos”, or “Ps.”, are to Mexican pesos.

Unit Information:

Unless otherwise noted, all tonnages are in metric tons. To convert to short tons, multiply by 1.102. All ounces are troy ounces. All distances are in kilometers. To convert to miles, multiply by 0.621. To convert hectares to acres, multiply by 2.47.

CAUTIONARY STATEMENT



Forward-looking statements in this report and in other Company statements include statements regarding expected commencement dates of mining or metal production operations, projected quantities of future metal production, anticipated production rates, operating efficiencies, costs and expenditures as well as projected demand or supply for the Company’s products. Actual results could differ materially depending upon factors including the risks and uncertainties relating to general U.S. and international economic and political conditions, the cyclical and volatile prices of copper, other commodities and supplies, including fuel and electricity, availability of materials, insurance coverage, equipment, required permits or approvals and financing, the occurrence of unusual weather or operating conditions, lower than expected ore grades, water and geological problems, the failure of equipment or processes to operate in accordance with specifications, failure to obtain financial assurance to meet closure and remediation obligations, labor relations, litigation and environmental risks, as well as political and economic risk associated with foreign operations. Results of operations are directly affected by metals prices on commodity exchanges, which can be volatile.


Additional business information follows:

COPPER BUSINESS

Copper is the world’s third most widely used metal and an important component in the world’s infrastructure. Copper has unique chemical and physical properties, including high electrical conductivity and resistance to corrosion, as well as excellent malleability and ductility that has made it a superior material for use in the electrical energy, telecommunications, building construction, transportation and industrial machinery businesses. Copper is also an important metal in non-electrical applications such as plumbing and roofing and, when alloyed with zinc to form brass, in many industrial and consumer applications.

Copper industry fundamentals, including copper demand, price levels and stocks, strengthened in late 2003 and copper prices have continued to improve through 2007 from the 15-year price lows set during 2002.

BUSINESS REPORTING SEGMENTS:



Company management views Southern Copper as having three operating segments and manages on the basis of these segments. The significant increase in the price of molybdenum in recent years has had an important impact on the Company’s earnings. Nevertheless, the Company continues to manage its operations on the basis of the three copper segments.



The three segments identified are groups of individual mines with similar economic characteristics, type of products, processes and support facilities, similar regulatory environments, similar employee bargaining contracts, and similar currency risks. In addition, each mine within the individual group earns revenues from similar type of customers for their products and services and each group incurs expenses independently, including commercial transactions between groups.



Intersegment sales are based on arms-length prices at the time of sale. These may not be reflective of actual prices realized by the Company due to various factors, including additional processing, timing of sales to outside customers and transportation cost. Added to the segment information is information regarding the Company’s molybdenum sales. The segments identified by the Company are:



1. Peruvian operations, which includes the Toquepala and Cuajone mine complexes and the smelting and refining plants, industrial railroad and port facilities which service both mines. Sales of its products are recorded as revenue of our Peruvian mines.



2. Mexican open pit operations, which includes La Caridad and Cananea mine complexes and the smelting and refining plants and support facilities which service both mines. Sales of its products are recorded as revenue of our Mexican mines.



3. Mexican underground mining operations, which includes five underground mines that produce zinc, copper, silver and gold, a coal mine, which produces coal and coke and several industrial processing facilities for zinc and copper. This group is identified as the IMMSA unit and sales of its products are recorded as revenue of the IMMSA unit.



Each of our segments reports independently to the Chief Operating Officer. The Chief Operating Officer of the Company focuses on operating income and on total assets as measures of performance to evaluate different segments and to make decisions to allocate resources to the reported segments. These are common measures in the mining industry.



Segment information is included under the captions “Overview-Metal production” and “Ore reserves.” More information on business segment and segment financial information is included in Note 20 of our Consolidated Combined Financial Statements.





CAPITAL EXPANSION PROGRAM



For a description of our Capital Expansion Program see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Capital Expansion Program.”





EXPLORATION ACTIVITIES



We are engaged in ongoing extensive exploration to locate additional ore bodies in Peru, Mexico and Chile. We invested $40.2 million on exploration programs in 2007, $22.7 million in 2006 and $24.4 million in 2005, and have budgeted $26.1 million for 2008.

Currently in Peru, we have direct control of 164,867 hectares of mineral rights. In Mexico, we hold 293,137 hectares of exploration concessions. We also hold 35,258 hectares of exploration concessions in Chile.



Peru



Tia Maria. The Tia Maria project, which includes the Tia Maria and the La Tapada deposits, is located in the department of Arequipa on the southern coast of Peru and is part of a copper porphyritic system.



We have completed feasibility studies in 2007 covering 36,232 meters of diamond drilling at Tia Maria and 73,085 meters at La Tapada. Estimated mineralized resources in Tia Maria show 193 million tons of mineralized material with 0.302% copper content. For La Tapada, the estimated mineralized resources show 445 million tons of mineralized material, with 0.434% copper content. The Company is conducting a bidding process for basic and detailed engineering as well as preparing to purchase major equipment and select construction management. The Company expects to invest $65 million in this project during 2008. When completed at the end of 2010, the new operating unit will produce 120,000 tons of copper cathodes per year.



Los Chancas. The Los Chancas project, located in the department of Apurimac in southern Peru, is a copper and molybdenum porphyry deposit. The exploration program and the final phase of the metallurgical testing were completed in early 2006. Pre-feasibility studies were completed in 2007. Estimated mineralized resources identified after the preliminary design of the pit are 355 million tons of mineralized material with a 0.62% copper content, 0.05% molybdenum and 0.039 grams of gold per ton. We expect to work on a feasibility study during 2008 which will include complementary studies and an additional drilling program in order to define the ore reserves of the deposit.



Tantahuatay. The Tantahuatay project is located in the department of Cajamarca in northern Peru. The exploration work is intended to evaluate the upper part of the deposit mainly for gold recovery. Work to date indicates 27.1 million tons of mineralized material, with an average silver content of 13.0 grams per ton and 0.89 grams of gold per ton. We have a 44.25% share in this project. We have started a feasibility study to evaluate the possibility of recovering gold mineral from the upper part of the deposit. We continue our efforts on dealing with social and environmental concerns of communities near the project.



Other Peruvian Prospects.



As part of the exploration program in 2007, we have drilled 14,352 meters in the southern region of Peru. Our 2008 program includes more intense copper exploration activities in the southern and northern parts of Peru, as well as gold exploration in Ayacucho, in the central part of Peru.



Mexico



In addition to exploratory drilling programs at existing mines, we are currently conducting exploration to locate mineral deposits at various other sites in Mexico. The following are some of the more significant exploration projects:



El Arco. The El Arco site is located in the state of Baja California in Mexico. Preliminary investigations of the El Arco site indicate a mineral deposit of 846 million tons of mineralized material with average copper grades of 0.51% and 0.14 grams of gold per ton, and 170 million tons of leach mineralized materials with average copper grades of 0.56%. In 2007, we have continued in the process of identifying water sources for a leaching operation, and have finished four tests holes that indicate sufficient water potential for leaching operations.



Angangueo. The Angangueo site is located in the state of Michoacán in Mexico. A mineral deposit of 13 million tons of mineralized material has been identified with diamond drilling. Testing indicates that the mineral deposit contains mineralized material containing 0.16 grams of gold and 262 grams of silver per ton, and is comprised of 0.79% lead, 0.97% copper and 3.5% zinc. During 2005, we received the approval for our environmental impact study and we are in the process of obtaining land use approval. During 2007, we have continued negotiating with the state of Michoacan to purchase various properties essential to the operation.



Buenavista. The Buenavista project site is located in the state of Sonora in Mexico, adjacent to the Cananea ore body. Drilling and metallurgical studies have shown that the site contains 36 million tons of mineralized material containing 29 grams of silver, 0.69% of copper and 3.3% of zinc per ton. A new “scoping level” study indicates that Buenavista may be an economical deposit. During 2007, 2,100 meters were drilled to upgrade the mineral resource and to acquire material for metallurgical testing. Results confirm the previous geologic interpretation of the mineralized areas.



Carbon Coahuila . In Coahuila, an intensive exploration program of diamond drilling has identified two additional areas, Esperanza with a potential for more than 30 million tons of “in place” mineralized coal and Guayacan with a potential for 15 million tons of “in place” mineralized coal, that could be used for a future coal-fired power plant. During 2007 along with 5,767 meters of drilling, 23 million tons of mineralized coal resources were identified at our Nueva Rosita No. 16 concession.



The Chalchihuites . The Chalchihuites project is located in the state of Zacatecas. It is a contact deposit with mixed oxides and sulfides of lead, copper, zinc and silver. A drilling program, in the late nineties, defined 16 million tons of mineralized material containing 95 grams of silver, 0.36% lead, 0.69% copper and 3.08% zinc per ton. Preliminary metallurgical testing indicates a leaching precipitating-flotation recovery process that can be applied to this ore. In 2007 we continued with the evaluation of the ore body and we expect to conclude the metallurgical testing of the project during 2008.



Sierra de Lobos . This project is located southwest of the city of Leon, Guanajuato. Our target is a copper and zinc deposit with grades between 0.5% and 1.0% copper and between 5% and 7% zinc including a small contribution of gold and silver. In 2007, 7,338 meters have been drilled. Results confirm the presence of copper and zinc mineralization, but an economic deposit has not yet been identified.



Chile



In Chile we have control of 35,258 hectares of mining rights, and are currently developing different exploration programs.



El Salado. The El Salado prospect, located in the Atacama Region, is being explored for copper-gold. Through 2007, 24,798 meters of diamond drilling were completed, 4,448 meters and 8,326 meters were drilled in 2007 and 2006, respectively. Likewise, in the Sierra Aspera, a copper-gold prospect, located in the north of Chile, 1,128 meters of diamond drilling was performed.

Other Chilean Prospects. There are other prospects such as Esperanza (copper-molybdenum), located in the Atacama region. During 2007, we completed 2,538 meters of diamond drilling. We are also continuing with the exploration of the Resguardo prospect (gold-copper) in the Tarapaca region and the Catanave prospect (gold-silver) in the Arica region.

PRINCIPAL PRODUCTS AND MARKETS

The principal uses of copper are in the building and construction industry, electrical and electronic products and, to a lesser extent, industrial machinery and equipment, consumer products and the automotive and transportation industries. Molybdenum is used to toughen alloy steels and soften tungsten alloy and is also used in fertilizers, dyes, enamels and reagents. Silver is used for photographic, electrical and electronic products and, to a lesser extent, brazing alloys and solder, jewelry, coinage, silverware and catalysts. Zinc is primarily used as a coating on iron and steel to protect against corrosion. It is also used to make die cast parts, in the manufacturing of batteries and in the form of sheets for architectural purposes.

Our marketing strategy and annual sales planning emphasize developing and maintaining long-term customer relationships, and thus acquiring annual or other long-term contracts for the sale of our products is a high priority. Approximately 90% of our metal production for the years 2007, 2006 and 2005, were sold under annual or longer-term contracts. Sales prices are determined based on prevailing commodity prices for the quotation period, generally being the month of, the month prior to or the months following the actual or contractual month of shipment or delivery, according to the terms of the contract.

We focus on the ultimate end-user customers as opposed to selling on the spot market or to trading companies. In addition, we devote significant marketing effort to diversifying our sales both by region and by customer base. We strive to provide superior customer service, including just-in-time deliveries of our products. Our ability to consistently fulfill customer demand is supported by our substantial production capacity.

For additional information on sales by segment, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Segment Sales Information.”

METALS PRICES

Prices for our products are principally a function of supply and demand and, except for molybdenum, are established on the Commodities Exchange, or COMEX, in New York and the London Metal Exchange or LME, the two most important metal exchanges in the world. Prices for our molybdenum products are established by reference to the publication Platt’s Metals Week. Our contract prices also reflect any negotiated premiums and the costs of freight and other factors. From time to time, we have entered into hedging transactions to provide partial protection against future decreases in the market price of metals and we may do so under certain market conditions. We have entered into copper swaps and collar contracts in 2007, 2006 and 2005 and into zinc swap contracts in 2006. At December 31, 2007 we did not have any copper or zinc swap contracts outstanding. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” For a further discussion of prices for our products, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Metal Prices.”


MANAGEMENT DISCUSSION FROM LATEST 10K

EXECUTIVE SUMMARY

This Management’s Discussion and Analysis of Financial Condition and Results of Operations relates to and should be read together with our Audited Consolidated Combined Financial Statements as of and for each of the years in the three-year period ended December 31, 2007. Effective April 1, 2005, Southern Copper Corporation acquired substantially all of the outstanding common stock of Minera Mexico. The acquisition was accounted for in a manner similar to a pooling of interests as it involved the reorganization of entities under common control. Under such accounting, the financial statements of SCC and Minera Mexico are combined on a historical cost basis for all the periods presented since they were under the indirect common control of Grupo Mexico during such periods. Therefore, unless otherwise noted, the discussion below of our financial condition and results of operations is for us, including our Minera Mexico subsidiary, on a consolidated or combined basis for all periods. Our combined financial results may not be indicative of the results of operations that actually would have been achieved had the acquisition of Minera Mexico taken place at the beginning of the periods presented and do not purport to be indicative of our future results.

This discussion contains forward-looking statements that are based on management’s current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in the forward-looking statements as a result of a number of factors. See “Cautionary Statements.”

OVERVIEW

Our business is primarily the production and sale of copper. In the process of producing copper, a number of valuable metallurgical by-products are recovered, such as molybdenum, zinc, silver, lead and gold, which we also produce and sell. Market forces outside of our control largely determine the sales prices for our products. Our management, therefore, focuses on copper production, cost control, production enhancement and maintaining a prudent capital structure to improve profitability. We believe we achieve these goals through capital spending programs, exploration efforts and cost reduction programs. Our aim is to remain profitable during periods of low copper prices and to maximize financial performance in periods of high copper prices.

A number of events and results highlight our Company’s 2007 year. Net sales were $6,085.7 million an 11.5% increase over 2006, additionally, net earnings were $2,216.4 million, an increase of 8.8% over 2006, both sales and net earnings are the highest in the Company history. These increases were achieved while three of our Mexican properties, Cananea, San Martin and Taxco, were on strike from July 30 through the end of the year. We estimate that these strikes cost the Company 178.4 million pounds of copper and 25.6 million pounds of zinc, and reduced 2007 operating income by $487.5 million. Since January 11, 2008 the Cananea mine is open and is preparing to gradually resume normal operations in the near future. The mine was reopened based on a ruling by the labor authorities who declared the strike illegal. Subsequently, the Cananea union obtained an injunction from a federal judge preventing the Company from firing workers who do not return to work immediately, the same judge did explicitly safeguard the rights of any worker who wished to return to work at the mine and the right of the Company to conduct operations in the ordinary course of business. The ruling declaring the illegality of the Cananea strike was challenged before a federal judge who upheld the union’s case on February 14, 2008. The Company will appeal this unfavorable ruling. The Company expects that it will take about three months to return to full production at Cananea.

Earnings and sales in 2007 increased because of higher average metal prices for most of our products, copper was 4.2% to 5.9% higher in 2007, depending on whether it was priced on the COMEX or LME market, the molybdenum price was 22.7% higher and silver was 16% higher. Of our other significant by-products only zinc prices were lower in 2007 and, in that case, by 1.3%. The Cananea strike resulted in a decrease in copper, zinc and silver sales volumes. However, during this year there was an increase in the volume of molybdenum sales. Molybdenum production and sales volume increased in 2007 due to higher grades at our Peruvian mines and from an increase in production from the La Caridad mine, which suffered strike losses in 2006. Another factor effecting the improvement in 2007 sales and net income was the impact of the derivative metal contracts which reduced net sales and operating income in 2006 by $276.1 million and increased net sales and operating income by $10.9 million in 2007.

During 2007 we announced a modification to our capital investment program to prioritize major investments in Peru. These investments include the Tia Maria SX/EW copper project in Arequipa, Peru, expansions of the Toquepala and Cuajone concentrators and the expansion of the smelter and refinery in Ilo, Peru. We estimate that these investments will have a capital cost of $2,108 million and increase our annual copper production by 270,000 tons in 2011. Feasibility studies indicate a resource of 638 million tons of mineralized material at Tia Maria with an average copper grade of 0.39%.

We discuss below several matters that our management believes are important to understand our results of operations and financial condition. These matters include (i) our “operating cash costs” as a measure of our performance, (ii) metals prices, (iii) our acquisition of Minera Mexico, (iv) our business segments and (v) the effects of inflation and other local currency issues.

Since our inception, we have principally maintained operations in Peru. However, in recent years, we have refocused our strategies to internationalize our business and broaden our market exposure. In 2003, we acquired exploration properties in Chile, which are being evaluated for potential exploitation and in 2005 we acquired Minera Mexico, with substantial mining operation in Mexico. Please see “Minera Mexico Acquisition.”

Operating Cash Costs

An overall benchmark used by us and a common industry metric to measure performance is operating cash costs per pound of copper produced. Operating cash cost is a non-GAAP measure that does not have a standardized meaning and may not be comparable to similarly titled measures provided by other companies. A reconciliation of our operating cash cost per pound to the cost of sales (including depreciation, amortization and depletion) as presented in the consolidated combined statement of earnings is presented under the subheading, “Non-GAAP Information Reconciliation,” below. We have defined operating cash cost per pound as cost of sales (including depreciation, amortization and depletion); plus selling, general and administrative charges, treatment and refining charges; less by-products revenue and sales premiums, depreciation, amortization and depletion, workers’ participation and other miscellaneous charges, including the Peruvian royalty charge and the change in inventory levels; divided by total pounds of copper produced and purchased by us. In our calculation of operating cash cost per pound of copper produced, we credit against our costs the revenues from the sale of by-products, principally molybdenum, zinc and silver and the premium over market price that we receive on copper sales. We account for the by-product revenue in this way because we consider our principal business to be the production and sale of copper. We believe that our Company is viewed by the investment community as a copper company, and is valued, in large part, by the investment community’s view of the copper market and our ability to produce copper at a reasonable cost. We also include copper sales premiums as a credit, as these amounts are in excess of published copper prices. The increase in recent years in the price of molybdenum, as well as increases in silver and zinc, has had a significant effect on our traditional calculation of cash cost and its comparability between periods. Accordingly, we present cash costs with and without crediting the by-product revenues against our costs.

We exclude from our calculation of operating cash cost depreciation, amortization and depletion, which are considered non-cash expenses. Exploration is considered a discretionary expenditure and is also excluded. Workers’ participation provisions are determined on the basis of pre-tax earnings and are also excluded. Additionally excluded from operating cash costs are items of a non-recurring nature, the royalty charge and in periods prior to 2006 the portion of our mine stripping costs that we capitalized.

The decrease in the cash costs per pound of copper produced and purchased (including by-product revenue) in 2007 is mainly attributable to higher market price and volume of molybdenum in 2007. The credit for molybdenum sales amounted to $0.849 per pound, $0.420 per pound and $0.617 per pound, in 2007, 2006 and 2005, respectively. The credit to the cost for zinc sales amounted to $0.337 per pound, $0.374 per pound and $0.126 per pound in 2007, 2006 and 2005, respectively. The credit to operating cash cost for the by-product revenue in 2007 reduced cash cost by $1.568 per pound, an increase in benefit of $0.444 per pound over 2006. The improved benefit is almost entirely due to molybdenum revenue, which accounted for $0.429 per pound of the improvement. The reason for the added benefit from molybdenum revenues in 2007 is attributable to both higher sales volume and higher sales price. Volumes improved because of better grades at our Peruvian mines and higher production, an increase of 8.1 million pounds from La Caridad in Mexico, which had significant strike activity in 2006. Molybdenum prices were 22.7% higher in 2007. The credit to operating cash cost in 2006 improved over 2005 by $0.145 per pound and was principally caused by improvements in the sales price of zinc and silver, reduced somewhat by a decrease in the sales price of molybdenum.

The cash cost without by-product revenue increased in 2007 principally as a result of the following factors, higher production cost (mainly power, water, labor and repair costs) which increased our cash cost by $0.158, higher freight and treatment charges due to the sale of concentrates which increased cost by $0.065 and also an increase of $0.031 in unit cost due to strikes at some of our Mexican operations. These increases were partially offset by a decrease in the purchase of outside metal, which reduced cost by $0.118. The cash cost without by-product revenue increased in 2006 as a result of cost increases. The increasingly higher copper prices in 2006 increased our computation of cash cost, as we include in our calculation the cost of purchased metal. The higher value and thus the higher cost of copper in 2006 increased our cash cost by $0.240 in 2006. Significant strike activity at some of our Mexican properties required us to purchase larger quantities of third party copper in 2006. Also the cost of fuel products, electricity and other supplies increased in 2006. Additionally, our operating cash costs increased in 2006 as a result of the EITF consensus, which we adopted on January 1, 2006 and is described below under “Critical Accounting Policies and Estimates-Capitalized Mine Stripping Costs.” If we had applied this consensus in 2005 our per pound operating cash cost would have increased by $0.023.

Metals Prices

The profitability of our operations is dependent on, and our financial performance is significantly affected by, the international market prices for the products we produce, especially for copper, molybdenum, zinc and silver. Metals prices historically have been subject to wide fluctuations and are affected by numerous factors beyond our control. These factors, which affect each commodity to varying degrees, include international economic and political conditions, levels of supply and demand, the availability and cost of substitutes, inventory levels maintained by producers and others and, to a lesser degree, inventory carrying costs and currency exchange rates. In addition, the market prices of certain metals have on occasion been subject to rapid short-term changes due to speculative activities.

Minera Mexico Acquisition

In April, 2005, we acquired Minera Mexico from a subsidiary of Grupo Mexico, our controlling stockholder. At the time of the acquisition Minera Mexico was the largest mining company in Mexico and the eleventh largest copper producer in the world on a stand-alone basis. We exchanged 67.2 million newly-issued shares of our common stock for the outstanding shares of Minera Mexico’s direct majority stockholder, and Minera Mexico became our 99.1% owned subsidiary. As a part of this transaction, on March 1, 2005, we paid a special transaction dividend of $100 million to all of our stockholders. Upon completion of the merger, Grupo Mexico increased its indirect beneficial ownership of our capital stock from approximately 54.2% to approximately 75.1%. In October 2005, in another transaction we acquired 6.4 million shares of Minera Mexico from Grupo Mexico for $30.3 million. This increased our holdings in Minera Mexico to 99.95%. With this acquisition, based on the then current data, we increased our total copper reserves by over 100% and increased our annual copper production by approximately 80%.

Business Segments

Company management views Southern Copper as having three operating segments and manages on the basis of these segments. The significant increase in the price of molybdenum over the past three years has had an important impact on the Company’s earnings. Nevertheless, the Company continues to manage its operations on the basis of three copper segments. These segments are our Peruvian operations, our Mexican open-pit operations and our Mexican underground operations, known as our IMMSA unit. Our Peruvian operations include the Toquepala and Cuajone mine complexes and the smelting and refining plants, industrial railroad and port facilities which service both mines. Our Mexican open-pit operations include La Caridad and Cananea mine complexes, the smelting and refining plants and support facilities which service both mines. Our IMMSA unit includes five underground mines that produce zinc, lead, copper, silver and gold, a coal mine, and several industrial processing facilities for zinc, copper and silver.

Segment information is included in our review of “Results of Operations” and also in Note 20 of our Consolidated Combined Financial Statements.

Inflation and Devaluation of the Peruvian Nuevo Sol and the Mexican Peso

Our functional currency is the U.S. dollar. Portions of our operating costs are denominated in Peruvian nuevos soles and Mexican pesos. Since our revenues are primarily denominated in U.S. dollars, when inflation/deflation in Peru or Mexico is not offset by a change in the exchange rate of the nuevo sol or the peso, respectively, to the dollar, our financial position, results of operations and cash flows could be adversely affected to the extent that the inflation/devaluation effects are passed onto us by our suppliers or reflected in our wage adjustments. In addition, the dollar value of our net monetary assets denominated in nuevos soles or pesos can be affected by devaluation of the nuevo sol or the peso, resulting in a remeasurement loss in our financial statements.

Capital Expansion Program

We made capital expenditures of $315.7 million, $455.8 million and $470.6 million in 2007, 2006 and 2005, respectively, and we expect to make capital expenditures, of approximately $530.0 million in 2008. In general, the capital expenditures and projects described below are intended to contribute to further vertical integration of our operations by increasing the capacity for production of refined metal products.

The Company expects to meet the cash requirements for these projects from cash on hand, internally generated funds and from additional external financing if required.

Ilo Smelter Modernization: This project was completed in January 2007 and has allowed our Company to increase sulfur capture over the 92% requirement established in our agreement with the Peruvian government. The new smelter maintains production at current levels. The nominal and design capacity for the new Isasmelt furnace was reached in less than 45 days; compared with other smelting furnaces using this technology, the start-up of the Ilo smelter was achieved in the shortest time. The average sulfur capture in 2007 was 95%. Performance tests are pending completion with the two major contractors. These are expected to be completed in the first quarter 2008. The facility is currently operating at full capacity and we expect to smelt 1.1 million tons of concentrates in 2008. The total cost of this project was $ 570.4 million.

Toquepala Leach Dump Project: This project at Toquepala, which includes a crushing, conveying and spreading system at the leach dumps, was completed by year end 2007. The conveying system is operating and has positioned 42.5 million tons of waste material to build the ramp and has placed 28.5 million tons of leachable material. Total expended on this project through December 31, 2007 was $80.7 million and it is estimated that $0.4 million will be needed to finalize this project.

Cananea SX/EW Plant: This project is intended to increase Cananea’s production of copper cathodes with a new SX/EW plant, (SX/EW III) with an annual capacity of 33,000 tons. The plant would produce copper cathodes of ASTM grade 1 or LME grade A. The project includes the installation of storage for deliverables required for operation of the plant and the installation of an emergency power plant and a fire protection system. Due to labor problem at Cananea in 2007, this project has been temporarily put on hold until we satisfactorily resolve these issues.

Gas Handling System: This project is intended to improve gas capture efficiency and reduce the sulfur dioxide emissions to the atmosphere by the converters and reactor at La Caridad copper smelter.

Cananea crusher and conveyors system for leach material: This project includes the installation of a crushing system and bands for leach material including a movable stacker with a capacity of 15 million tons of crushing material. We are currently in the third phase of the project. This phase includes 5,500 meters of band transporters and the construction of a 500 meters tunnel to move the material to the leaching area.

Other Expenditures:

Tailings disposal at Quebrada Honda: This project will increase the height of the existing Quebrada Honda Dam to impound future tailings from the Toquepala and Cuajone mills. The procurement of the main equipment, with long fabrication lead-time continues and part of the material has been received. Construction of the main civil works and some access roads for the main and lateral dams has been completed and our operations personnel are working on an additional access road. The first stage of this project will be under development until 2012. The total cost of this project is estimated to be $66.0 million, with $16.4 million expended through December 31, 2007.

The dam project at Huanaquera includes the construction of sedimentation, PLS and storm water retention dams for the Toquepala leaching facility. The project is at the administrative close out stage; all equipment was installed and is operative. Total spending on this project through December 31, 2007 was $36.6 million and it is estimated that $0.5 million will be needed to complete the project.

A pre-feasibility study for Los Chancas, a copper-molybdenum property in the southern part of Peru was completed and is being evaluated in order to determine our next steps for this project. Also, we are in the process of formulating the necessary program and timeframe to develop our Mexican properties at El Arco in Baja California and Angangueo in Michoacan.

Potential Projects:

We have a number of projects that we may develop in the future. We evaluate new projects on the basis of our long-term corporate objectives, expected return, environmental needs, required investment and estimated production, among other considerations. We have defined three “generations” of capital projects:

First generation: Projects that we are planning.

This generation includes the development of five projects in Peru (1) the Tia Maria SX/EW copper project, (2) the Toquepala concentrator expansion, (3) the Cuajone concentrator expansion, (4) the Ilo smelter expansion, and (5) the Ilo copper refinery expansion, with a total investment of $2,108 million. This investment would permit us to increase our copper production by 270,000 tons per year by 2011, which represents 39% of the current production level.

This new investment program replaces the investment program previously approved for our Mexican operations, which included a SX/EW III plant, concentrator expansion and molybdenum circuit at Cananea, the Buena Vista mine, the new Cananea concentrator, and the Guaymas smelter and refinery. These projects with a total investment of $2,256 million have been temporarily put on hold.

Feasibility studies for the Tia Maria project were finished with indicative resources of 638 million tons of mineralized material with an average copper grade of 0.39%. The Company is conducting a bidding process for basic and detailed engineering as well as preparing to purchase major equipment and select construction management. The Company expects to invest $65 million in this project during 2008. When completed at the end of 2010, the new operating unit will produce 120,000 tons of copper cathodes per year.

Second generation: Projects that are attractive but will require significant additional evaluation.

This generation includes three greenfield projects: El Arco, Angangueo and Los Chancas exploration properties. We believe that these properties could add 306,000 tons of annual copper production, in concentrate and SX/EW copper. The Company’s Board of Directors will be evaluating the investment in these projects in line with their expected returns, the metal market price performance and the operating and capital costs.

Third generation: This generation includes the Cananea, Sonora and Guaymas projects put on hold by our Board of Directors as result of the strikes in 2007 at some of our Mexican units: the Cananea SX/EW III, the Cananea concentrator expansion, the Cananea molybdenum circuit, the Buena Vista mine, the new Cananea concentrator, and the Guaymas smelter and refinery.

The above information about potential projects are estimates only. We cannot make any assurance that we will undertake any of these projects or that the information noted is accurate.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of financial condition and results of operations, as well as quantitative and qualitative disclosures about market risks, are based upon our consolidated combined financial statements, which have been prepared in accordance with U.S. GAAP. Preparation of these consolidated combined financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management makes its best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available to management. Areas where the nature of the estimate makes it reasonably possible that actual results could materially differ from amounts estimated include: ore reserves, revenue recognition, estimated mine stripping ratios, leachable material and related amortization, the estimated useful lives of fixed assets, asset retirement obligations, litigation and contingencies, valuation allowances for deferred tax assets, tax positions, fair value of financial instruments, and inventory obsolescence. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Ore Reserves : For purposes of our long-term planning, we use metal price assumptions of $1.20 per pound for copper and $9.0 per pound for molybdenum. Prior to 2007, we used $0.90 per pound and $5.00 per pound for copper and molybdenum, respectively. Metal prices over the last ten years and the continued positive outlook for these metals have led us to reappraise our view of prices. These prices are intended to approximate average prices over the long term. Ore reserves based on these prices are the basis for our internal planning, including the preparation of the mine plans for our mines. Our management uses these price assumptions, as it believes these prices reflect the full price cycle of the metals market.

However, pursuant to SEC guidance, the reserves information in this report is calculated using average metals prices over the most recent three years, except as otherwise stated. We refer to these three-year average metals prices as “current average prices.” Our current average prices for copper are calculated using prices quoted by COMEX, and our current average prices for molybdenum are calculated according to Platt’s Metals Week . Unless otherwise stated, reserves estimates in this report use $2.66 per pound for copper and $28.99 per pound for molybdenum, both current average prices as of December 31, 2007. The current average per pound prices for copper and molybdenum were $2.02 and $24.31, respectively, as of December 31, 2006 and $1.26 and $17.82, respectively, as of December 31, 2005.

Certain financial information is based on reserve estimates calculated on the basis of current average prices. This includes amortization of intangible assets and mine development, and for years prior to 2006 the amount of mine stripping that was capitalized and units of production amortization of capitalized mine stripping.

Leachable Material : At one of our Mexican mines, we capitalize the cost of materials with low copper content extracted during the mining process (leachable material), which is collected in leach dumps. The amortization of the capitalized cost is determined based on the depletion period of the leach dumps, which is estimated to be five years.

If we were to have expensed all capitalized leaching costs associated with this mining operation as incurred, net operating cost would have decreased by $10.1 million for the year 2007 and increased $19.3 million and $68.0 million for the years 2006, and 2005.

Asset Retirement Obligation : Our mining and exploration activities are subject to various laws and regulations governing the protection of the environment. Accounting for reclamation and remediation obligations requires management to make estimates unique to each mining operation of the future costs we will incur to complete the reclamation and remediation work required to comply with existing laws and regulations. These estimates are based in part on our inflation and credit rate assumptions. Actual costs incurred in future periods could differ from amounts estimated. Additionally, future changes to environmental laws and regulations could increase the extent of reclamation and remediation work required to be performed by us. Any such increases in future costs could materially impact the amounts charged to operations for reclamation and remediation.


MANAGEMENT DISCUSSION FOR LATEST QUARTER

EXECUTIVE OVERVIEW

Our business is primarily the production and sale of copper. In the process of producing copper, a number of valuable metallurgical by-products are recovered, such as molybdenum, zinc, silver, lead and gold, which we also produce and sell. Additionally, with the completion of the Ilo smelter modernization we are producing a substantial amount of sulfuric acid for sale to customers. Market forces outside of our control largely determine the sales prices for our products. Our management, therefore, focuses on copper production cost control, production enhancement and maintaining a prudent and conservative capital structure to improve profitability. We believe we achieve these goals through capital spending programs, exploration efforts and cost reduction programs. Our aim is to remain profitable during periods of low copper prices and to maximize financial performance in periods of high copper prices.

The third quarter of 2008 has been a turbulent period for the world’s economy; copper prices began to decline late in the third quarter and have continued the slide into the fourth quarter. Our strength has positioned us to face the challenge as world economic stability is sought. Our strengths lie in the quality of our productive assets, our low cost operations, our manageable low debt level and our short-term project pipeline. We believe that our strong financial position will permit us to continue with the development of our immediate capital investment projects which are expected to add 220,000 tons of copper by 2011 and which will be a source of value creation for our shareholders.

One of our strengths is the cash position, which at September 30, 2008 is in excess of $1.1 billion. These funds support our operational needs as well as our capital program. The Risk and Cash Management Committee, comprised of members of senior management, regularly reviews the safety of our cash position with particular emphasis on risk. We believe that our cash investments at September 30, 2008 are maintained in low risk and quality instruments with financially solvent institutions.

Our net earnings and earnings per share for the three months ended September 30, 2008 were $417.8 million and $0.47 per share and for the three months ended September 30, 2007 were $627.8 million and $0.71 per share. Net income and earnings per share for the nine months ended September 30, 2008 was $1,531.3 million and $1.73 per share and for the nine months ended September 30, 2007 were $1,905.5 million and $2.16 per share. The decrease in net earnings in both periods of 2008 was mainly due to the Cananea strike, which has reduced production volume in 2008 and lower copper and zinc prices, partially offset by the higher sales volume and prices of molybdenum.

Net earnings include gains of $54.2 million and $62.9 million in the third quarter and the nine month period of 2008, respectively, from our copper derivative program. Additionally, during the quarter we purchased 3.3 million shares of our common shares.

Mine copper production amounted to 261.6 million pounds in the third quarter 2008, a decrease of 40.1 million pounds compared with the third quarter 2007. The decrease in production is mainly due to the Cananea strike and to a lesser extent lower ore grade at Toquepala.

Molybdenum production increased by 3.5% to 10.0 million pounds and 27.3 million pounds in the third quarter and nine months of 2008, respectively, compared with 9.7 million pounds and 26.3 million pounds in the comparable 2007 periods. These increases were mainly due to higher ore grade and recovery at the La Caridad mine and higher recovery at the Cuajone mine.

Mine zinc production decreased 5.3 million pounds in the third quarter 2008, to 59.3 million pounds compared with 64.6 million pounds in the third quarter of 2007. This 8.3% decrease in production was due to the work stoppages at the San Martin and Taxco mines, which started on July 30, 2007 and continues to date.

During the third quarter 2008, the Cananea, San Martin and Taxco operations have continued on strike affecting our operations and results. We continue to take steps to reduce costs related to this work stoppage. Based upon a recent ruling relating to Cananea by a federal collegiate tribunal which was favorable to us, we expect that the labor judicial authorities will declare the strike illegal. If a favorable ruling is reached, the next step would be to regain control of the properties. We believe that once in control of the assets full production can be ramped up in approximately three months.

Capital expenditures totaled $134.2 million and $314.9 million for the third quarter and first nine months of 2008, respectively. Projected capital expenditure and exploration spending for the year 2008 approximate $450.0 million, and include investments in the Tia Maria greenfield project in Peru and the projects to expand capacity at Toquepala and Cuajone.

We discuss below several matters that we believe are important to understand our results of operations and financial condition. These matters include, (i) our “operating cash costs” as a measure of our performance, (ii) metal prices, (iii) business segments, (iv) the effect of inflation and other local currency issues, (v) our expansion and modernization program and environmental protection programs. This discussion should be read in conjunction with the management discussion and analysis of financial condition and results of operations at December 31, 2007 included in the Company’s 2007 annual report on Form 10-K.

Operating Cash Costs: An overall benchmark used by us and a common industry metric to measure performance is operating cash costs per pound of copper produced. Operating cash cost is a non-GAAP measure that does not have a standardized definition and may not be comparable to similarly titled measures provided by other companies. A reconciliation of our operating cash cost per pound to the cost of sales (exclusive of depreciation, amortization and depletion) as presented in the statement of earnings, is presented under the subheading “Non-GAAP Information Reconciliation,” below. We have defined operating cash cost per pound as cost of sales (exclusive of depreciation, amortization and depletion); plus selling, general and administrative charges, treatment and refining charges; less by-products revenue and sales premiums, workers’ participation and other miscellaneous charges, the mine royalty charges and the change in inventory levels; divided by total pounds of copper produced and purchased by us. In our calculation of operating cash cost per pound of copper produced, we credit against our costs the revenues from the sale of by-products, principally molybdenum, zinc and silver and the premiums over market price that we receive on copper sales. We account for the by-product revenues in this way because we consider our principal business to be the production and sale of copper. We believe that our Company is viewed by the investment community as a copper company, and is valued, in large part, by the investment community’s view of the copper market and our ability to produce copper at a reasonable cost. We also include copper sales premiums as a credit, as these amounts are in excess of published copper prices. The increase in recent years in the price of molybdenum has had a significant effect on our traditional calculation of cash cost and its comparability between periods. Accordingly, we present cash costs with and without crediting the by-products revenues against our costs.

We exclude from our calculation of operating cash cost depreciation, amortization and depletion, which are considered non-cash expenses. Exploration is considered a discretionary expenditure and is also excluded. Workers’ participation provisions are determined on the basis of pre-tax earnings and are also excluded. Additionally, excluded from operating cash cost are items of a non-recurring nature, the mine royalty charges and the regional development contribution made from Peruvian earnings.

Our cash cost, excluding by-product revenues, were higher by 56.7 cents per pound and 46.5 cents per pound in the third quarter and first nine months of 2008 than the comparable 2007 periods and is mainly due to higher power and fuel cost as well as the lower copper production at Cananea due to the ongoing strike.

Metal Prices . The profitability of our operations is dependent on, and our financial performance is significantly affected by, the international market prices for the products we produce, especially for copper, molybdenum, zinc and silver. Historically, metal prices have been subject to wide fluctuations and are affected by numerous factors beyond our control. These factors, which affect each commodity to varying degrees, include international economic and political conditions, levels of supply and demand, the availability and cost of substitutes, inventory levels maintained by producers and others and, to a lesser degree, inventory carrying costs and currency exchange rates. In addition, the market prices of certain metals have on occasion been subject to rapid short-term changes due to speculative activities.

We believe that the current economic downturn has significantly lowered the price of copper in recent months. The LME price per pound of copper averaged approximately $3.64 per pound in July and August and dropped to an average price of $3.17 per pound in September and decreased to $1.81 per pound at October 31, 2008. In addition, we have seen price decreases in these same periods for our other principal by-products. Further declines in price could occur as we go through this uncertain economic period.


Business segments

Our Company operates in a single industry, the copper industry. We operate our business in three segments. These segments are our Peruvian operations, our Mexican open-pit operations and our Mexican underground operations, known as our IMMSA unit. Our Peruvian operations include the Toquepala and Cuajone mine complexes and the smelting and refining plants, industrial railroad and port facilities which service both mines. Our Mexican open-pit operations include La Caridad and Cananea mine complexes, the smelting and refining plants and support facilities which service both mines. Our IMMSA unit includes five underground mines that produce zinc, lead, copper, silver and gold, a coal mine, and several industrial processing facilities for zinc, copper and silver.

Segment information is included in our review of “Results of Operations” and also in Note N of our condensed consolidated financial statements.

Inflation and Devaluation of the Peruvian Nuevo Sol and the Mexican Peso .

Our functional currency is the U.S. dollar. Portions of our operating costs are denominated in Peruvian nuevos soles and Mexican pesos. Since our revenues are primarily denominated in U.S. dollars, when inflation/deflation in Peru or Mexico is not offset by a change in the exchange rate of the nuevo sol or the peso, respectively, to the dollar, our financial position, results of operations and cash flows could be adversely affected to the extent that the inflation/devaluation effects are passed onto us by our suppliers or reflected in our wage adjustments. In addition, the dollar value of our net monetary assets denominated in nuevos soles or pesos can be affected by devaluation of the nuevo sol or the peso, resulting in a remeasurement loss in our financial statements.


CONF CALL


Raul Jacob - Head of Investor Relations

Thank you very much Lisa. This is Raul Jacob and thank you every one today for joining us for the first quarter 2008 Southern Copper earnings conference call. Participating in today's conference we have Mr. Genaro Guerrero and myself.

Mr. Guerrero will now lead the conference. Genaro

Genaro Guerrero Diaz Mercado - Chief Financial Officer, Vice President of Finance

Thank you. Good morning everyone. So our agenda for today is we are going to try to cover prices, production, sales volume, and then we are going to talk a little bit about our new reserves, and we are going to discuss our financial results and the labor situation in the company, the capital expenditures, dividends, and then we will be very glad to open up session of questions.

Then let us start with copper, we have continuing a positive trend on copper prices. The lumber metal exchange first quarter of 2008, average copper price was $3.54 per pound, jumped 10% from an average of $2.69 per pound for the same quarter of 2007, 9% higher than the fourth quarter of 2007.

The first quarter, copper market was characterized a strong demand and a weekly supply response. Even though we have seen a weak U.S. market, the demand grow from emerging economies lead by China and India gained a copper demand at its strong pace.

On the supply side, the forecast for 2008 capped our copper deficit due to the labor unrest, and power shortages in China [ph]. As long as we have extremely low inventories of copper in the market, we can expect these events to positively effect the short-term copper prices.

Southern's Copper first quarter 2008 copper production was ÂŁ182 million, lowered 25% than the first quarter of 2007, about 2% higher than the fourth quarter of '07. The reduction of 96 million copper pounds in production quarter-to-quarter was mainly the result of default the Caridad mine production decreases by 14% or around ÂŁ10 million due to a planned temporary declining ore grade. This we expect higher ore grades for second half of the year.

About Toquepala copper production, decreases first quarter '08 by 11% or around ÂŁ11 million, when compared with a first quarter of 2007, in accordance with our planned result ore grades.

At Cananea, there we continued... we have this stoppage at the Cananea production, compared first quarter '08 with first quarter '07 by ÂŁ77 million. This production increase have been partially offset by an increasing harness [ph] production of 6% which have improved great and recovery differs [Technical Difficulty].

Regarding our smelting and refining copper production, I am pleased to report that as a result of the Peruvian Ilo smelter operation at Group City [ph] production has increased by 70%, when comparing first quarter '08 with first quarter '07, and 19% when comparing to the fourth quarter '07. For refining production has increased 3% and 20% for the same periods.

Now talking about molybdenum. The molybdenum prices were $33.01 per pound for the first quarter '08, 28% higher than the first quarter '07 and 3% higher when compared to the fourth quarter '07. Comparing the first quarter '08 with the same period of 2007, molybdenum production increased from 8.1 million pounds to 8.7 million pounds, a 7% increase resulting from higher recoveries of our mines. The better molybdenum prices combined with the production increases attributed significantly to Southern Copper Corporation's profitability in the first quarter of 2008.

Talking about zinc, the zinc price in the first quarter of 2008 averaged $1.10 per pound, 30% lower than the first quarter 2007. Mine zinc production decreases from 71 million pounds in the first quarter '07 to 55 million pounds in the first quarter '08. This 23% decrease in production, it is the result of the distraction [ph] San Martin and Cananea [ph] mines. Southern's refined zinc production improved 19.1% [ph] in quarter-over-quarter. Our feet was reported to the market before. San Luis Potosi refinery respirations in October 2006 after an electrical fire that affected its capacity at the beginning of 2006.

Now going to the financial results. In relation to net sales, for the first quarter net sales were $1.5 billion. $145 million more than the same quarter 2007. This represent an increase of 10% over first quarter 2007. The improvement in the results of higher metal... the improvement is the result of higher metal prices and higher sales volume of molybdenum.

During first quarter of 2008, the company entered into corporate derivative contract to protect 395.6 million pounds for the period of March-December 2008. This corporate derivative contract cover approximately 30% of our planned 2008 production and were mainly zero cost collars with average floor prices of $3.40 and average ceiling prices of $4.23.

Talking about our new reserves. As we're disclosing our 10-K annual report, we want to note to the market that the company has increased their ore reserves. We use for purposes of internal mine... that we use for purposes of internal mine and operating plans. In prior years, Southern Copper has used some metal price assumption of $0.90 per pound of copper and $5 per pound of molybdenum for calculation of ore reserves quantities. Based on the latest economic and market developments, the company changed its long-term price assumption to $1.20 per pound for copper and $9 per pound of molybdenum. As a result the company recalculated its ore reserves and mine plans.

The new sulfide ore reserves as of December 31st, 2007 were 7,019.3 million tons with an average copper rate of 0.549% and the new leachable reserves were 4,988 million tons with an average copper grade of 0.212%. These reserves represent an increase in copper content of 28.7% when compared with our ore reserves as of December 31st, 2006.

Now let's talk about cost. Our operating cost and expenses, for the first quarter 2008 was $634 million. This figure compares with a cost of 571 million in the first quarter 2007 or 663 million in the fourth quarter of 2007. Cost of sales in the first quarter '08 increased by 54 million, when compared to the same period of 2007. The main variances are the following: $20 million of higher fuel power and labor cost, partially offset by lower cost due to the Cananea stoppage, 23 million exchange rate losses from currency appreciation in both Mexico and Peru, and higher mining royalties in Peru for around $5 million.

Now our depreciation, amortization and depletion was $8 million higher due to the capitalization of the Ilo Smelter Modernization project and higher amortization of leach material cost. Our cash cost... the company cash cost per pound of copper produced in the first quarter of '08, before subtracting by product revenues was $1.51 per pound, $0.28 higher than the $1.23 per pound for the same period of 2007, and $0.06 lower than the $1.57 per pound in the fourth quarter of 2007.

Including the benefits of the by products, the company cash cost was negative, $0.15 per pound, in the first quarter of 2008. This figure is comprised with a positive cash cost of $0.05 per pound for the same period of 2007. Talking about operating income and EBITDA, for the first quarter of 2008, EBITDA increased by $84 million to $945 million, equivalent of 63% of sales, compared to an EBITDA of $861 million. Also 62% of net sales for the same period of 2007.

Net sales increased by 10%, and operating cost and expenses by 11%, yielding an operating income increase of 10%. The company's operating income amounted to $865 million in the quarter, which compares favorably with last year first quarter operating income of $787 million, and with fourth quarter '07 operating income of $631 million.

The net income for the first quarter of '08 was $565 million, 2% higher than the $552 million achieved in the same period of 2007. Earnings per share amounted to $1.92 per fully diluted share, compared to $1.87 per fully diluted share for the first quarter of 2007.

Now about our labor situation, in the first quarter of 2008, as we informed during the last conference call Cananea is started dumping [ph] up its operations reaching at the end of the first quarter approximately 48% of its total capacity. But on April 10th, the mine enter in a labor stoppage that will strip production again. After assessing the situation, the Board of Directors of Mexicana de Cananea have decided to offer all employees a severance payment in accordance with bargain agreement and applicable law.

This is so far in order to award the employees with a significant severance payment that we allow them to choose the labor alternative that is the best for each of them. The company is committed to resume operations, once labor stability is reached to produce with efficiency and competitiveness.

Now our capital expenditures including exploration expenses amounted $58 million during the first quarter, a decrease of $33 million, when compared to the $91 million expended in the first quarter '07. The decrease is largely related to the completion of the Ilo Smelter Modernization in January 2007.

The company has an investment program that will increase total copper production by 270,000 tons by 2011. This 39% increase in production capacity will be achieved at a capital cost of $2.1 billion. As it previously announced, the program is focusing in now on a group of projects in Peru, and allow me to give you an update on this project. The most significant one is Tia Maria project located in Arequipa region of Peru, which is approximately 100 kilometers north of our Ilo facilities.

We are expecting completion date in the fourth quarter of 2010. This project will produce 120,000 tons of SX/EW copper cathodes per year for around 18 years. As part of the $934 million total capital budget for this project, during the first quarter of this year, the company has committed $388 million on equipment and engineering recruitment and construction management contracts. The main equipment acquired is 20 whole trucks, 240 tons capacity, two 6 cubic yard shovels, the auxiliary equipment photos [ph]. primary, secondary and tertiary crushers, 8.6 kilometers overland conveyers and the spreaders and reclaim systems.

Now regarding the expansions for the Toquepala and Cuajone mines, the company has signed agreements for major mine equipment and have complete technical and environmental studies which are expected to conclude by November 2009.

In parallel, we will continue with the engineering and procurement process. Also subject to the satisfactory resolution of social issues and the acquisition of the necessary governmental permits and subject to approval of our Board of Directors, Southern Copper Corporation plan to invest approximately $1.2 billion in the Los Chancas project, this project is a copper-molybdenum property in the Southern part of Peru. This is an addition to the $2.1 billion previously announced for our other Peruvian projects. We expect this project will increase our annual copper production by 80,000 tons by the year 2013.

Now about our payment of dividends, it is the company policy to review at each board meeting the capital investment plan, cash resources and expected future cash flow generation from operations. In order to determine the appropriate quarterly dividend. Accordingly, the company declare a quarterly dividend of $1.70 per common share to be paid on June 3rd, 2008 to common shareholders of record at the close of business on May 14, 2008.

Well with this I will conclude my comments and discussions and thank you very much for joining us and we will like to open up the forum for questions, thank you.


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