Oct 31, 2014
Executives
Raul Jacob - Chief Financial Officer Oscar Gonzalez Rocha - Chief Executive Officer Daniel Muñiz - Grupo Mexico's CFO and Southern Copper Board Member
Analysts
Santiago Pérez-Teuffer - Credit Suisse Thiago Lofiego - Merrill Lynch Carlos De Alba - Morgan Stanley Wilfredo Ortiz - Deutsche Bank Andre Pinheiro - Itau BBA Marcelo Aguiar - Goldman Sachs Mitesh Thakkar - FBR Mandeep Singh - J.P. Morgan Alfonso Salazar - Scotiabank Sasha Bukacheva - BMO Capital Markets Alex Hacking - Citi Marlene Finny - GBM Marcos Assumpcao - Itau Andreas Bokkenheuser - UBS Carlos de Alba - Morgan Stanley
Operator
Welcome to the Southern Copper Corporation Third Quarter 2014 Earnings Results Conference Call. My name is Richard, and I will be your operator for today’s call.
At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.
Please note, that this conference is being recorded. I will now turn the call over to Mr.
Raul Jacob. Mr.
Jacob, your may begin.
Raul Jacob
Thank you very much, Richard. Good morning, everyone.
And welcome to Southern Copper third quarter 2014 earnings conference call. Participating with me in today’s conference are Mr.
Oscar Gonzalez Rocha, Southern Copper CEO; and Mr. Daniel Muñiz, Grupo Mexico CFO and Southern Copper Board Member.
In today's call, we will begin with an update on our view on the copper market. We will then talk about Southern Copper's key results related to production, sales, operating cost, financial results, expansion projects and capital expenditure program.
After that, we will open the session for questions. Regarding the copper market, we maintain our view of this market for 2014.
We see relatively softness in copper prices during the rest of 2014 and next year. However, we do believe that prices at the current level are not sufficient to promote the necessary future supply growth, thereby improving the strong long-term fundamentals of our industry.
As we have indicated in the past, we believe short-term copper demand is consistently improving due in large part to the economic recovery of the U.S. some of the major European economies, Japan and China.
On the supply side, we think that several structural factors such as scrap scarcity, delays in project startup, technical problems, labor unrest and other difficulties will continue to affect supply for new projects and existing operations, as well as scrap production. As a consequence of these factors, we think that instead of a market with a surplus between 300,000 and 400,000 tons of copper, the conventional wisdom at the beginning of the year, we are looking now to balance or one with a small deficit in 2014.
Looking into Southern Copper’s copper production, it represented 80% of our sales in the third quarter of 2014. Our mine production increased by 9,475 tons or 6.1% in the third quarter, compared to the same period of 2013.
This was due to higher production at La Caridad and Buenavista operations. On August 6th of this year an accidental spill of approximately 40,000 cubic meters of copper sulfate solution occurred at a leaching pond that was under construction and located 10 kilometers away from the Buenavista mine.
The accident was caused by a rock collapse that affected the system’s pumping station and by a construction defect in the seal of a pipe in the leaching system containment dam, a part of the new SXEW III plant. This solution reached the Bacanuchi River, a branch of the Sonora River.
We commissioned more than 1,210 people to attend the local communities work on the cleanup of the 250 kilometers of the Bacanuchi and Sonora riverbeds, which has been successfully completed. We established a 2 billion peso, which is approximately $150 million as a trust fund to support remedial actions and provide compensation for those affected by this accident.
A technical committee was created to manage the funds, comprised of representatives from the federal government, the company and specialists assisted by a team of environmental experts. The authorities have determined that all the wells for agriculture and domestic use that were preventively closed can be reopen it because of official water test results comply with all applicable norms and regulations.
Even though our Toquepala, Cuajone and La Caridad units are obtaining better production results than our 2014 plan, this unfortunate event will reduce our Buenavista for the year. We now expect to produce and sale 658,000 tons of copper -- of our own copper into 2014 instead of the initial guidance that we have for this year of 672,000 tons previously planned.
Regarding molybdenum, it represented 8% of our sales in the third quarter of 2014. Molybdenum production increased by 1,278 tons or 27% in the third quarter when compared to the same period of last year, mainly as a result of the Toquepala and the Toquepala operation that provides 740 tons of those mentioned that’s 65% increase, Buenavista 321 tons which is a 300% increase in molybdenum production at Buenavista and Cuajone 192 tons or 22%.
For 2014, we are increasing our molybdenum guidance to produce 23,400 tons of molybdenum, 18% more than our 2013 production. In this case, we are increasing our guidance from 21,500 tons that was our initial plan to the mentioned 23,400 tons of molybdenum production.
Regarding silver, it represented 4.9% of our sales in the third quarter of 2014. Comparing the last quarter silver mine production with the third quarter of 2013, there is a decrease of 12% as a result of lower production at IMMSA operations of Santa Eulalia that has been affected by a [flood] (ph) and Charcas which has effecting a problem that has been already solved.
Buenavista production also decreased by 10,000 -- 10%, I am sorry, 10%, and Toquepala by 6%. Higher production at the La Caridad plus 12% and Cuajone plus 5%, partially offset these results.
Regarding zinc, it was -- it represented 2.8% of our sales in the third quarter of 2014. Zinc production has decreased 47% in the third quarter of 2014, when compared to the same period of last year, mainly as a result of lower production at the Charcas and Santa Eulalia mines.
Focusing on financial results, for the third quarter of 2014, net sales were $1.05 billion, $90 million higher than the net sales of the third quarter of 2013. Copper sales value increased by 6.7% due to higher volume, it was 9.2% higher in volume and copper price decreased by 1.2% following the London Metal Exchange quotes.
Regarding by-products, we have higher sales of molybdenum, plus 52.6%, due to an increasing volume of 27.5% and a price increase of 34.8%. Zinc sales decreased by 13.2%.
Our operating costs and expenses increased by $126.6 million or 15.8%, when compared to the third quarter of 2013. The main cost increments including environmental reclamation charge of $37.2 million, was related to the -- that is related to the accidental spill.
Higher inventory consumption, higher sales expenses and depreciation, plus some additional cost in fuel and power created higher cost variances that were offset by lower purchase copper and exchange rate depreciation. Our EBITDA for the third quarter was $675.7 million.
That is a 45.8% margin and compares with $686.8 million, a 49.6% margin for the third quarter of last year. Regarding cash -- the cash cost, our operating cash cost per pound of copper before by-product credits was $1.96 per pound in the third quarter of this year.
That figure compares with $1.97 per pound in the second quarter of 2014, which is about $1.06 decrease. This decreasing operating cash cost is a result of lower cost per pound due to capitalized leachable material, higher premiums, which compensated for higher cost per pound from treatment and refining charges, administrative cost and the already mentioned production cost variances.
Southern Copper’s operating cash cost including the benefit of by-product credit was $1.14 per pound in the third quarter of 2014. Regarding by-products.
We have a total credit $287 million or $0.82 per pound in the third quarter of 2014. These amounts compared with the credit of $364 million or $1.03 per pound in the second quarter of the same year 2014.
Total credits have decreased for our most important by-products, in the case of molybdenum by 33.2%, in the case of zinc by 20.4%, sulfuric acid by 10.2% and silver by 3%. Net income attributable to Southern Copper shareholders in the third quarter of 2014 was $324.3 million or 22% of sales, that is $0.39 of diluted earnings per share.
Looking at our expansion and capital projects. Capital expenditures were $411.6 million in the third quarter of this year, 9.6% higher than our CapEx expenses in the second quarter and represented 127% of net income.
For the nine months of 2014, CapEx were $1.1 billion, which in addition to approximately $600 million already committed will allow us to reach 74% of our budget of $2.3 billion for this year. We continue moving forward with our capital expansion program, which aims to increase copper production capacity by approximately 87% from its 2013 level to 1.2 million tons by 2017.
Looking at the Buenavista project, we are developing this $3.4 billion investment program and we expect to increase production capacity at Buenavista by 175% and molybdenum production by 42%. Regarding the mine expansion, today we have received sixty-one 400-tons capacity trucks, seven shovels and eight drills required for the mine expansion.
That comprised an investment of $510.8 million. All of this equipment is currency assembled and in operation.
The new copper molybdenum concentrated has an annual production capacity of 188,000 tons of copper and 2,600 tons of molybdenum. The project will additionally produce 2.3 million ounces of silver and 21,000 ounces of gold per year.
This project has a progress of 86.4% with an investment of $882.6 million, that is out of the approved budget of $1,383.6 million. The project is expected to be completed in the third quarter of 2015 and all the major equipment is already on site and has been installed.
Regarding the SXEW III plant, we continue to ramp up production since the first copper cathode was produced last June. All three solvent extraction trains are in operation, and we recently initiated operation of the second half of our electro winning plant.
Estimated annual production for the plant is 120,000 tons of copper cathodes, that’s refined copper. We expect to reach full capacity by the end of fourth quarter, this quarter.
The capital budget of $444 million has been invested. Focusing on our Peruvian projects and in this case on the Toquepala unit; through September 30 of this year, we have invested a total of $324.9 million in Toquepala project.
On September 25 of this year, we answered the questions and comments received from authorities and other stakeholders related to the Environmental Impact Assessment of the Toquepala concentrator expansion. We expect to receive the government approval of the Environmental Impact Study in the last quarter of this year, which will allow us to continue developing this important project.
The Toquepala concentrator expansion will increase annual production capacity by 100,000 tons of copper and 3,100 tons of molybdenum at a total capital cost of approximately $1.2 billion. To Cuajone projects; through September 30 of this year, we have invested and committed $39.2 million of a budget of $45 million on the high-pressure grinding rolls project, which will produce a more finely crushed material.
This project continues in the ramping up stage and we expect to reach full capacity during this quarter. The project is expected to generate cost savings, improve copper recovery and reduce power consumption in the crushing process.
Through September of this year, implementation of the high-pressure grinding roll project and the variable cut-off ore grade project, implemented last year in 2013, have produced an estimated incremental production of 18,000 tons of copper. The project to improve slope stability at the south area of the Cuajone mine will remove approximately 148 million tons of waste material.
This project will improve mine design without reducing current production level. The mine equipment acquired includes one shovel, five 400-ton capacity trucks, one drill and auxiliary equipment which will be reallocated to our other mine operations once the project is finished.
Besides preparing the mine for the future, this investment will avoid a reduction in average ore grade. As of September of this year, 7 million tons of waste material has been removed and activities will continue for another 4.5 additional years.
We have invested already $67 million in this project. Regarding Tia Maria; on August 1st of this year we received the final approval of our Environmental Impact Assessment.
We expect to be granted the authorization to move forward with the construction phase before the end of the year and begin construction in the first quarter of 2015. The project will represent an investment of approximately $1.4 billion to produce 120,000 tons of copper cathodes per year using a state-of-the-art technology with the highest international environmental standards.
The project is currently expected to generate 3,500 jobs during the construction phase. When in operation, that is on the first quarter of 2017, Tia Maria will directly employ 600 workers and indirectly another 2,000.
Through its expected twenty-years of life, the project related services would create significant business opportunities in the Arequipa region. In addition, the company intends to implement social responsibility programs in this region similar to those established in the communities near its other Peruvian operations Regarding these events, as you know it is the company’s policy to review at each Board meeting cash resources and expected future cash flow generation from operations, the capital investment plan and other financial needs in order to determine the appropriate quarterly dividends.
Accordingly as disclosed to the market on October 23 of this year, the Board of Directors authorized a cash dividend of $0.12 per share of common stock payable on November 25 to shareholders of record at the close of business on November 11. With this in mind, ladies and gentlemen, thank you very much for joining us and we would like to open up the forum for questions.
Operator
(Operator Instructions) Our first question on line comes from Santiago Pérez-Teuffer from Credit Suisse. Please go ahead.
Santiago Pérez-Teuffer - Credit Suisse
Thanks a lot for taking our questions. I have a couple of questions if I may.
The first one is related to the cash impact of the trust fund of the Buenavista spill. How much of the $37 million have been spent now and how much do you estimate that it will be in total?
And how much was this actually cash impact for Southern Copper?
Raul Jacob
Okay. $37 million at the end of September, closing of the quarter, we had $5.5 million that we’ve spend already.
And as of the first half of October, an equivalent of $13.9 million, those $13.9 million includes the $5.5 million that I just mentioned.
Santiago Pérez-Teuffer - Credit Suisse
Perfect. And then, Raul, as a follow-up, did the spill affect the concentrator project, and in terms of profitability and also could you give us some color as to how much copper production are you estimating for 2015 and ‘16 with these delays and the little bit of delays in Toquepala?
Thank you.
Raul Jacob
Yes. Okay, on the production, we’re expecting to produce as I mentioned for 2014, 658,000 tons.
For next year, we’re adjusting our guidance. Previously we indicated that we will be producing 840,000 tons.
We’re reducing that to 758,000 tons for next year. Now let me emphasize that these numbers are still under review.
We may have -- I believe it’s a better plan when we have -- when we start 2015. And Santiago, I forgot your other point was…
Santiago Pérez-Teuffer - Credit Suisse
Did the spill affect at all the concentrator project, more in profitability terms than in time?
Raul Jacob
No, there is no impact. Other than the time lag that we just mentioned, we think that the concentrator, which is a facility that has been built in a different area of the construction that we have in Mexico.
It’s not been affected by these events.
Santiago Pérez-Teuffer - Credit Suisse
Great. Thanks.
And just one more, can you comment on your buyback strategy? Is there any buyback yield that you're aiming to reach?
And are there possibilities that you could cancel the shares that you bought during the year?
Raul Jacob
Actually, for the nature of our buyback programs have to be -- the key elements have to be not disclosed, so we cannot comment on that.
Santiago Pérez-Teuffer - Credit Suisse
Okay. Thanks, Raul.
Raul Jacob
You’re welcome.
Operator
Our next question on line comes from Thiago Lofiego from Merrill Lynch. Please go ahead.
Thiago Lofiego - Merrill Lynch
Thank you, guys. I have a couple of questions.
The first one on the Tia Maria and Toquepala projects and the related timing of approvals. Is there any chance we see approvals delaying, meaning that we could only see those approvals coming in next year?
So just wanted to understand what the risks here are. And also what's the timing difference once you gather the permissions between Toquepala and Tia Maria?
The second question is regarding the CapEx for these projects. Do you see any chance of upward revisions or should we pretty much work with the numbers you've been mentioning?
And if you could confirm those numbers, that would be great. Thank you.
Raul Jacob
Okay. First question is then if we see any possibility of a delay in Toquepala and Tia Maria and second question?
Thiago Lofiego - Merrill Lynch
On approvals, yeah.
Raul Jacob
The CapEx budgets for these two projects, I’ll ask Mr. Oscar Gonzalez to answer it.
Oscar Gonzalez Rocha
Yes, in Tia Maria -- on Tia Maria, we already gave the approval of the environmental impact study. We are presenting the approval for the construction and we plan to start up at the beginning of next year the construction if everything went right.
We don’t foresee any delay. On the Toquepala, we are waiting for get at the middle of the month of November the approval of environmental impact study.
And if everything go right, we will have the license construction approval factor because we already are working in Toquepala and it’s not a new project. And we plan to start at the same time of the beginning of the year the construction of Toquepala and start requesting the purchase order for the main equipments.
We don’t foresee any change in the CapEx. The CapEx as we care for Tia Maria is around $1.4 billion and in Toquepala $1.2 billion that is a total of $4.6 billion embedment for the following years of 2015 and 2016.
We planned to start both projects at the beginning of 2017.
Thiago Lofiego - Merrill Lynch
Could you just confirm how much you've already spent with the Tia Maria project, Raul?
Raul Jacob
About $350 million has been spent already in Tia Maria.
Thiago Lofiego - Merrill Lynch
Okay.
Oscar Gonzalez Rocha
That is mainly in all the crushing and conveyance system because you’ll remember that we sold the leaching plant to the Buenavista project. And we are going to need to buy another plant for these projects.
Thiago Lofiego - Merrill Lynch
And on Toquepala, next question. So what have you already spent anything on Toquepala?
Oscar Gonzalez Rocha
That mainly is the technological improvements that we are doing in order to substitute the railroad for a conveyor system that will be good for the expansion of the mine because we are going to be able to transport all the 120,000 tons through that conveyor and through that crushing building that will have two crushing plants or crushing equipment in order to do both the old and the new expansion for 120,000 tons of million capacity.
Raul Jacob
Let me add to that Thiago that we have spent already $325 million in projects that are not exactly for the expansion but related to improve company efficiency and cost as indicated by Mr. Gonzalez in the Toquepala operations.
We spent $325 million for these purposes.
Thiago Lofiego - Merrill Lynch
Okay. That’s clear.
Thank you, Mr. Gonzalez.
Thank you, Raul.
Oscar Gonzalez Rocha
Thank you.
Raul Jacob
Thank you very much.
Operator
Our next question on line comes from Carlos De Alba from Morgan Stanley. Please go ahead.
Carlos De Alba - Morgan Stanley
Yes, good morning and thank you. Do you have any updated guidance for production in post 2015?
And also any changes in CapEx since the last call? And finally, how do you see the evolution of the cash cost, the overall cash cost of the four byproducts during the coming quarters?
Raul Jacob
Okay. Carlos, well let me focus first on copper.
Now, for the benefit of our audience, I will repeat from our guidance for 2014 and on. For 2014, our new guidance is 658,000 tons; for 2015, 758,000 tons; for 2016, 912,000 tons; 2017, 1,150,000 tons or 1,151,000 tons; and for 2018, 1,199,000 tons.
That’s for copper production. On CapEx, we indicated that the current capital expenses already made $1.1 billion, we will add about $600 million in the fourth quarter that is about -- that will let us finish the year with $1.7 million in the capital expenditures for 2014.
Now that changed a little bit our forecast for the next year. For 2015, we’re expecting to spend $2 billion; for 2016, $1.4 billion; for 2017, $1.2 billion; and for 2018, $600 million.
These figures include about $400 million of maintenance capital.
Carlos De Alba - Morgan Stanley
Okay. Perfect.
Thank you very much, Raul. Any comments on cost, cash cost before byproducts in the coming quarters?
Raul Jacob
Yes. In the first quarter, we have at the end of the quarter, a significant reduction in molybdenum prices.
Molybdenum is currently our main byproduct with silver. In the cast of molybdenum, we are expecting moly prices to be at about $10 for the rest of the year.
That is impacting the credits that we are getting. As I mentioned, we are decreasing our estimation or actually our specific credits for the quarter.
I believe that this is going to affect us for the remaining of 2014. However, as we move on with the ramping up of the SXEW III plant, we should be getting much more cooper production on the copper that has a very, very comparative cash cost.
Additional cooper with low cash cost. So we think that our cash cost before credits will tend to decline in the fourth quarter.
But the credits will be more or less on a per ton basis where they are or even smaller due to the reduction in byproduct prices.
Carlos De Alba - Morgan Stanley
Okay. Thank you, Raul.
Raul Jacob
You are welcome.
Operator
Your next question in line comes from Wilfredo Ortiz from Deutsch Bank. Please go ahead.
Wilfredo Ortiz - Deutsche Bank
Yes, good morning everyone. Just wanted to check in on the income.
On the income statement, you had a $37 million environmental charge. Is that pertaining to the spill and is that going to be ongoing as part of the $150 million?
And is that also part of the reason why the unit cash costs were also higher on a sequential basis? Just wanted to get a little bit more clarity on that line item.
Raul Jacob
Let me start by the end of your question, Wilfredo. This is not including our cash costs.
Certainly, it has influenced our costs. We have some impact on total operating cost due to the spill.
But specifically speaking on the trust fund, the $37 million I indicated at the beginning of the call that the portion of that has been already use about $40 million for environmental claims. And for the future, we will see what other expenses related to these unfortunate events require the company to fund some remediation and we believe that this is already finished, we will stop with the funding.
So the $150 million, it’s a number that is referenced -- it's an estimate that we will see how much of that will be used.
Wilfredo Ortiz - Deutsche Bank
Thank you.
Oscar Gonzalez Rocha
Just for the sake of completeness, it is worth mentioning that we've completed all the clean up of the river so far that all the wells are open -- that will open, I mean that’s our human consumption on agriculture, so we made a lot of progress.
Operator
Thank you. Our next question on the line comes from Andre Pinheiro from Itau BBA.
Please go ahead.
Andre Pinheiro - Itau BBA
I have two quick questions. The first -- good afternoon everyone.
The first, regarding -- given that SCCO will reduce its target for next year and will likely produce less copper, and we're seeing that in the industry in general, do you think that we could see some upside to prices in 2015, the same thing we've seen at least this year? For example, the market could be a bit more balanced and we could prices even going up.
That would be my first question.
Raul Jacob
In generally speaking, we don’t comment on where the prices are going to be. We focus on production.
We focus on manage our operations to most efficient away and if copper prices, we will certainly appreciate the extra cash flow for our operations. But other than that I’m sorry that we can’t comment on that, on the prices.
What we are seeing it at this level, several projects that should be moving forward are not and this is something that improved the fundamentals long-term speaking for our company.
Andre Pinheiro - Itau BBA
Okay, great. That's very clear.
No problem. And regarding costs in 2015, I mean we were talking about this short-term, but I couldn't really hear you on the call.
In 2015, should we see cash costs before byproducts declining as well?
Raul Jacob
Yes. That is something that we are expecting.
On our expectation about cash cost for next year, we will address this matter on the conference call for the closing of 2014 that is in January of next year.
Andre Pinheiro - Itau BBA
And just to confirm, you….
Raul Jacob
Let me emphasize that. We do expect a much greater cash cost in 2015 for the following.
We will have the SXEW III in Buenavista running at full capacity. That is very -- it's a low cost facility that will improve our cash cost for sure.
Also, we will have at the end of the year, the new Buenavista concentrator running or initiating its ramping up. That will increase our additional copper, so this being copper that is at least very competitive cost wise.
We expect to impact very positively our cash costs.
Andre Pinheiro - Itau BBA
Okay, perfect, Raul. And just one final confirmation here.
Regarding your production guidance for 2016 that was the only number that I didn't hear. If you can repeat that please.
Raul Jacob
2016 is 911,000 tons.
Andre Pinheiro - Itau BBA
Okay, perfect. Thank you very much.
Raul Jacob
You are welcome, Andre.
Operator
Our next question comes from Marcelo Aguiar from Goldman Sachs. Please go ahead.
Marcelo Aguiar - Goldman Sachs
Yes, hi. Thank you everyone.
Good afternoon. So Raul, just can I get a view how you're seeing Buenavista production?
I mean you guys have cut like around 20% production I think until the end of the year. So should we believe that means the production of Buenavista is going to return to the normal level in the very beginning of next year?
That's the first question.
Raul Jacob
Yes, that’s our goal, where we will be working in the fourth quarter to ramp up at full capacity to new SXEW III plant. As we indicated in our report to the market in our press release, we have already the leaching portion of the plant operating and we open up the second half or the other portion of the refinery, electrolytic refinery also to start operation.
So that will be up and running in 2015, plus we have our current operations of Buenavista that has been basically normal, with no inconveniences through 2015.
Marcelo Aguiar - Goldman Sachs
Okay. And I mean if you can elaborate just a little on the byproduct.
I mean you have a guidance for moly, zinc and silver on some of the production, annual production?
Raul Jacob
On production, we are about as I say we are expecting 23,000 tons for 2014. I think that could be the goal for next year or maybe a little bit higher than that.
But let me emphasize, Marcelo, that we will provide a detail guidance on copper as well as other metals production in the first quarter of 2015.
Marcelo Aguiar - Goldman Sachs
Okay. Fair enough.
Thank you.
Raul Jacob
You are welcome.
Operator
Our next question on the line comes from Mitesh Thakkar from FBR. Please go ahead.
Mitesh Thakkar - FBR
Good afternoon, gentlemen. My first question is just on the CapEx side.
I understand from the CapEx numbers you provided, you are expecting about $6.9 billion of CapEx spending between ’14 and ‘18. If I remember this correctly, last quarter this number was about $5.9 billion.
So it looks like the CapEx went up. Does that make sense?
And if it is, what are the drivers for that?
Raul Jacob
No. We haven’t made any significant adjustments in our capital budget, Mitesh.
Basically the two products that changed their budgets were the Tia Maria project that increase from about $1 billion to $1.4 billion. We reported that I believe….
Mitesh Thakkar - FBR Capital Management
Last quarter.
Raul Jacob
….a couple of quarters ago and in the case of Toquepala, the initial budget was about $600 million. We changed the scope of the project a few years ago actually.
We increased the capacity of the concentrator and with that, the budget of the project increased to about $1 billion. And now we are having an adjustment to that figure that was provided to the market recently of $1.2 billion.
So those are the only changes but this has been for a while out there.
Mitesh Thakkar - FBR Capital Management
Okay. We'll take this offline.
I just have some doubt about the numbers. But second, on the production change from 800,000 some tons to 758,000 tons in 2015.
Can you give us some buckets how much of that was driven by the acid spill issue and how much of that is just normal delays in the project?
Raul Jacob
It’s quite clearly the second reason that you indicated. It’s not -- the spill has impacted our ramping up of the SXEW III.
We have had some delays on the concentrator and the changes in our production guidance is related to that rather than any thing else.
Mitesh Thakkar - FBR Capital Management
Okay. Thank you very much.
Good luck.
Operator
Thank you. Our next question comes from Mandeep Singh from J.P.
Morgan. Please go ahead.
Mandeep Singh - J.P. Morgan
Hi. Thank you.
Hi, Raul. How are you?
My question is related to the Buenavista concentrator expansion. We saw that you pushed the date of startup from first half of 2015 to third quarter of 2015.
Could you talk about the reasons behind this delay and if it had anything to do with the recent spill at SXEW III plant?
Raul Jacob
The delay has basically some technical reasons that are related to the way that the project has been operating. At the beginning of this problem, we had to slowdown the works at the concentrator and that created a lag, perhaps some other factors that affected the project.
So that’s why we rescheduled the start-up for the third quarter of 2015.
Mandeep Singh - J.P. Morgan
Thank you. And another question is basically related to the SXEW III plant.
In the new guidance of 658,000 ton, could you specify how much of that you assume would be contributed by the SXEW III plant? And what are the steps that are still pending before that you need to achieve before you could achieve full ramp up in terms of critical steps in terms of fixing the problem at the first place caused the spill?
Raul Jacob
On the SXEW III, Mandeep, we were expecting to be now at full capacity. That hasn’t being the case.
We will be finishing the ramping up through 2014 and that somehow impacted the effect of the SXEW III in next year, in terms of its production capacity. I think other than that, speaking our ramping up of production will move on in the right direction, not at the pace that we were expecting but in a reasonably good way.
And that’s why -- even though we are giving some guidance on 2015 now, we will like to review and give you a more accurate number between now and our January call.
Mandeep Singh - J.P. Morgan
Okay. Thank you.
Operator
Our next question on the line comes from Alfonso Salazar from Scotiabank. Please go ahead.
Alfonso Salazar - Scotiabank
Thank you. Raul, I have one question regarding zinc because of the decline in production.
So can you explain what is happening at IMMSA particularly at Charcas mine? And if you can tell us production guidance for the next few quarters, so we see how this is going to recover?
Raul Jacob
Yes. What is happening in IMMSA is that we have two operating units affected by different reasons.
In the case of Santa Eulalia, we have had a fault that is affecting the production, its currency, not producing. In the case of Charcas, we had a transformer that was operating incorrectly and had to be replaced that created a delay in the production of Charcas, a slowdown in the production of Charcas.
For the year, for this year 2014, we are expecting to produce about 68,000 tons of zinc from our IMMSA mines. That includes the production level of Charcas and we’re still not considering Santa Eulalia in this forecast.
But if it comes into operation earlier than that, it will certainly give us some extra production of zinc.
Alfonso Salazar - Scotiabank
Okay. Thank you.
Very clear. And the second question is regarding Angangueo project.
I don't know if you can give us an update on this project, when it could be ready. If you have it in your estimates and when and also about the permitting, if you have any update on it?
Raul Jacob
Well, this is a project that is moving forward relatively slow. We are not putting all the resources that we will like CapEx wise in this.
And we are waiting for the permitting to develop the project as it was designed. At this point, there is not much that I can report on that.
Alfonso Salazar - Scotiabank
Okay. And the production, the copper production, I think it was 10,000 tons, when you have it in your estimates starting or it's not in your estimates at all?
Raul Jacob
At this point we don’t have -- we don’t have (indiscernible) at this point in our production forecast.
Alfonso Salazar - Scotiabank
Okay. Great.
Thank you.
Raul Jacob
You’re welcome.
Operator
Our next question online comes from Sasha Bukacheva from BMO Capital Markets. Please go ahead.
Sasha Bukacheva - BMO Capital Markets
Hi. Good morning, everyone.
Just hoping to get some clarification. So the production guidance for next year has been reduced by about 80,000 tons, I gather, from 840,000 tons to 760,000 tons.
So just trying to get a better sense of how much, I guess, less production are you now expecting from the SXEW circuit at Buenavista versus the new concentrator at Buenavista?
Raul Jacob
On the SXEW III we are expecting to produce about 29,000 tons this year Sasha.
Sasha Bukacheva - BMO Capital Markets
No, no, for next year. For -- like for 2015, because you said you're still going to be going through a ramp up?
Raul Jacob
No. Next year we expect to have to initiate 2015 at its full capacity of 120,000 tons.
Sasha Bukacheva - BMO Capital Markets
Okay. And then what are you expecting then from the new concentrator?
Raul Jacob
The new concentrator has the capacity of 188,000 tons. We are expecting about 80,000 tons coming from it.
Sasha Bukacheva - BMO Capital Markets
In 2015. Got it.
Okay. Second question, so I understand that there has been considerable cleanup completed at the river and the wells have been reopened.
I'm just curious as to whether or not the investigation or any claims are still ongoing and if there is risk to any further requirements by a government environmental agency?
Daniel Muñiz
Well, I mean, of course, as you, I mean, there has been a big process here, we have completed, the first thing to do was complete the clean-up, its being completed 100%. The wells have been open all of them as you pointed out.
I mean there is still administrative proceedings going on, I mean, requirement form the authority to comply or do that, et cetera. But they are mainly administrative, we’re very positive about that.
They have been resolved and moved forward with the operations.
Sasha Bukacheva - BMO Capital Markets
But so when do you -- do you have a kind of sense of the timeline for when -- when the investigation might be completed or when that process might be closed?
Daniel Muñiz
Yeah. I wouldn't call it an investigation.
I would define that as administrative proceedings. I mean kind of like authorities went through it, very thorough due diligence regarding that plant in particular and I don't know, things like in a couple of other, I mean own wells where we think water, we've been analyzing differences that we had and solving those, same thing with other minor permits.
And so there is, I mean, unfortunately there's not a strong deadline there. But we're working towards solving this ASAP and we'll report back to all of you as soon as we have news.
Sasha Bukacheva - BMO Capital Markets
Okay. Thanks for that.
That’s it for me.
Daniel Muñiz
Thanks.
Operator
Our next question comes from Alex Hacking from Citi. Please go ahead.
Alex Hacking - Citi
Hi, Raul. A couple of clarifications, firstly, on the SXEW III at Buenavista, as I understand, the solvent extraction plant have been closed down by the authorities?
And I want to clarify if that has been reopened or not and then second question…
Raul Jacob
Let me clarify that.
Alex Hacking - Citi
Sorry.
Raul Jacob
Let me clarify that.
Alex Hacking - Citi
Yeah.
Raul Jacob
The SXEW plant had not been cancelled by the authority. What -- what was put on a provisional stoppage was deconstruction of a pond, the leaching pond, I mean, many kilometers away from the plant, which is where the accident happened, while it was being build.
So the SXEW is not, I mean, under any cancellation, warning or whatever. I mean the SXEW is producing and we’re accessing with the best way to get up to full production and we are.
Alex Hacking - Citi
Okay. As I understood it, the solvent extractions have been closed.
The electro winning was still operating but using solvent from the other plants, that's incorrect?
Raul Jacob
I mean, we have many leaching pond through that, I mean, as you know, Buenavista is one of largest mine in world, we have many ponds and you can take PLS for many other ponds within the premises. And we’ve been sending -- so what is release, it is one of the pond where the accident happened which was under construction actually.
That was been put on a provisional or neither cancellation, closure or whatever, which we are hoping to left ASAP.
Alex Hacking - Citi
Okay. And then just coming back to the guidance next year, I don't want to harp on it, but I'm a little confused because this year you're going to produce 658.
Next year you're going to produce 758, so it's 100 more? But then the guidance for the SXEW III is to increase to 120 from 29, which 90 million tons and then for the new concentrator, it's to produce 80,000 tons?
So I'm just -- I am trying to reconcile those numbers.
Raul Jacob
Okay. Alex, I think, that that -- let me -- I couldn’t -- I didn’t want to interrupt you.
But on the -- let me clarify and then I apologies for the change I am going to make on the SXEW III, we are considering 80,000t tons for next year, that’s part of the ramping up of the plant. And on the concentrator, the second concentrator is 50,000.
Alex Hacking - Citi
Okay.
Raul Jacob
I made a mistake with the information and I’m correcting it now. The difference, because these two have 230 comes from our reduction in ore grade at the La Caridad operation.
Alex Hacking - Citi
Okay. Clear.
And then just if I could follow up, any reason why the new SXEW is at 80.000 if it's going to reach capacity in 4Q and capacity is 120,000?
Raul Jacob
Well, we are expecting to operate it at full capacity. Currently, we’re working with the SXEW the refineries at full speed.
And we are giving you guidance on 2015. But we’re revising that guidance between now and our next call.
So I think that the best estimate for next year will be provide when we have conference call in January.
Alex Hacking - Citi
Okay. Perfect.
It's clear. Thanks, Raul and Daniel.
Raul Jacob
Thank you very much.
Daniel Muñiz
I think important as well and I think, I mean, there has been a little bit of confusion, I think it’s important to clarify that, I mean, as you just pointed out. There going to be an important increment of production for next year for 2015.
And that’s come -- Raul just pointed, out from new production on our concentrator two in Buenavista and from our new production in the SXEW III at Buenavista. And I think the confusion lies, how that the river affecting or not and when is -- there is going to be, I mean, that the pond that have been putting in provisional closure will be lifted.
But, I mean, however, I mean, we are estimating that we’re going to complete this year and have both of those plants starting up next year and increasing their production. I think that’s the main point.
I know you’re all making your number there, so are we. But I think the main point is we’re increasing more than the 100,000 tons next year.
And I mean we’ve just experienced a little delay on the ramp-up of this project. I guess that’s what I would like you to have in mind.
Alex Hacking - Citi
Thanks.
Operator
Our next question on line comes from Marlene Finny from GBM. Please go ahead.
Marlene Finny - GBM
Hi, good morning everyone. Thank you so much for taking our questions.
I have two questions. My first question is regarding CapEx, especially in Buenavista.
Should we expect an increasing CapEx for Buenavista for the spill? And my second question is regarding the $37 million of the expenses.
Should we expect this to be a periodical expense? I know that $14 million has already been spent but should we expect or do you have an estimate of how much could be recorded in the fourth quarter and maybe the next quarters?
Thank you.
Raul Jacob
No. On the second question, Marlene and thank you very much for those -- for both of them.
We don’t expect -- we will see how these evolves and regarding in terms of impact in our financials, we will -- as we move on into 2015, we’ll see if this require to add some funds to the trust fund. The trust funds have a limit of $150 million and that’s -- and those were really recognizing $37 million and we’ll see as we move on.
Marlene Finny - GBM
Okay.
Raul Jacob
On the Buenavista CapEx, we’re looking into the work that have to be done. Regarding these specifically, we may have to change in our CapEx but very small in the range of $57 million to $70 million in the total CapEx expected for Buenavista.
Marlene Finny - GBM
Okay. Thank you so much.
Raul Jacob
You’re welcome.
Operator
Your next question on line comes from Marcos Assumpcao form Itau. Please go ahead.
Marcos Assumpcao - Itau
Hi, good afternoon everyone. Thank you for taking the question.
First question is on the copper prices, on the copper market actually. We have seen your market commodities like iron ore and coking coal, for example, prices undershooting the marginal cash cost.
And on the copper market, we have seen quite resistant support at $3 per pound. Can you comment a little bit on what are the reasons that you believe that copper prices are so sustained at those levels and you should think there is any risk of copper prices going below that on a sustainable basis?
Raul Jacob
Well, on the copper market, we have one element which is important about between 6% and 10% of the total refine copper supply and I’m specifically speaking about the refine copper market. Okay.
It’s about between 6% and 10% of the total copper supply over time. It comes from scrap copper.
And scrap copper appears at high prices and disappears very quickly when prices are not that good. That is a very, very strong balancing mechanism that we have at the copper market and its currently affecting our supporting prices.
For what comes in the next few quarters, we don’t know where copper prices are going to be. However, we believe that they are going to be around these levels as the possibility that we are not in the business of providing forecasts for copper prices.
We do understand how the market works and have our own view on that.
Oscar Gonzalez Rocha
Marcos.
Marcos Assumpcao - Itau
Yes, yes. Okay, and just a follow-up question on the accident at Buenavista.
There were a lot of talks ranging on all of the potential impacts for the company. One of them is a little bit weird in my view, one of the comments that probably were out in some newspapers and from more radical people.
Just to clarify that with you, were there any talks between the regulatory agencies and the responsibles in Mexico and the company about revoking about the license, or this is completely out of question?
Raul Jacob
I think the latter. That is completely out of question.
I think there is no ground for that. It was in Mexico particularly locally with another story in terms of the media the way we saw it and I think you will right in your last impetus.
Marcos Assumpcao - Itau
Got you. Thank you very much.
Operator
Thank you. Our next question on line comes from Andreas Bokkenheuser from UBS.
Please go ahead.
Andreas Bokkenheuser - UBS
Yes. Thank you very much.
Just a follow-up on the waste water spill site. Last we spoke it was my understanding that obviously one of the main leaching ponds supporting the SXEW III expansion has still been shut down.
I assume that's still the case. If that remains shut down, will you still be able to ramp up SXEW III at full capacity next year using the support of the other leaching ponds or would you possibly have to downgrade your production targets for the SXEW III expansion for next year?
Thank you.
Daniel Muñiz
Well, thank you for your comment. And you are absolutely right.
That’s what we’re working on assessing because what I was commenting earlier is there are many leaching ponds. Of course, the one that you are referring to, that was under construction and where the accident happened was built for the SXEW III.
I mean, we’re working on a alternative plan or what we believe that this is -- I mean, the closure was provisional closer and just for us to provide a like redundancy in terms of safety dams and measures going forward for this never to happen again in this particular ponds. And of course, this is not going to happen again because this happened because it was under construction, I mean for the completion of the SXEW system -- solution system if you like.
So we’re working on assessing, how can we feel the new SXEW III with the other pond that we have and that we’ve had for many, many years. So that why it’s been a little of a confusion here on the guidance for the SXEW III.
But we’re working on that. We’ll give you the full details in the next quarter, as soon as we have list of the closure, we’ll make a present view and -- but the idea is to have it, as Raul pointed out, at least an 80,000 ton.
There is another measure that we’re working on which is we have an SXEW plant I and SXEW plant II, and this new one is SXEW plant III in Buenavista. So we are working on how we work the three of them together.
For instance, we might decide a close of the I and work with the II and III et cetera. So we’re working as we are talking today on finalizing this.
We had a big meeting yesterday with the environmental authority (indiscernible) and we are, I mean, going forward to lifting this closure and so that we’re able to report back to you ASAP.
Andreas Bokkenheuser - UBS
Okay. That's very clear.
Raul Jacob
Andreas, let me add to what Daniel said that we are considering -- we are reviewing our current view next year at this point. We expect to provide a new one and we’re reviewing it because we want to have a better plan for next year than what I mentioned, say the 158,000 tons.
Okay.
Andreas Bokkenheuser - UBS
Okay. That's clear.
Thank you.
Raul Jacob
You are welcome.
Operator
Our next question online comes from Carlos de Alba from Morgan Stanley. Please go ahead.
Carlos, your line is now open.
Carlos de Alba - Morgan Stanley
Yes. Sorry.
Thank you very much for the follow-up. Raul or Daniel, could you comment as to how do you see that the disbursements of the monies that remain in the trust that was created for the spill?
Do you expect to see every quarter around $37 million to $38 million going into the P&L? But the disbursements at the rate closer to what you mentioned earlier, Raul, of perhaps $13.5 million per month.
Or how do you see this? And the second question is, do you expect to use all of the funds that were put in the trust?
And in the event that the total remediation costs are less than what was put into the trust, what will happen to those monies?
Daniel Muñiz
Sure.
Raul Jacob
Go ahead, Daniel.
Daniel Muñiz
Yeah. Let me just explain how the trust fund works, I mean, from a bigger picture perspective.
I mean, there is not -- when we set up the trust with the federal government, there weren’t any study or budget to come up with the amount. It was an agreement between the government and the company and the idea is if it’s more, it’s more, if it’s less, it’s less.
So that's why we didn't put the whole 2 billion pesos to start off with, and we started of with 500 million pesos. We completed the cleanup.
I mean, everything’s pretty much back to normal there. And I guess the discussion going forward is -- I mean, are there anything spending or not.
And that’s been several doing now. So that we’ll do now as we speak because it hasn’t been spend a full 500 million pesos that we deposited first, the cleanups completed.
We’ve completed some of the task. We are filing the test today.
I mean, on soils, et cetera water is started to clean. The authorities have said that.
On soil, we find the test. We have very good news on the soils as well.
So we expect this to kind of conclude very soon. Unfortunately, this is something that had to be said or concluded by the authorities, not us.
Carlos, that’s why we cannot say, definite either date or amount, but this is pretty much what we are to-date.
Carlos de Alba - Morgan Stanley
All right. Fair enough.
Thank you very much.
Daniel Muñiz
Thank you.
Raul Jacob
Carlos, let me clarify what are on the financial side of this. To our cash total operating cost has been charged in the third quarter $10.4 million operating cost that are outside the trust funds, okay.
Then to complete the cleanup, we have another $4.3 million through October, that’s in total $14.7 million that are included in our operating cost related to the spill. And as have been mentioned several times through the call, we already finished the cleanup of this spill.
On the trust fund, which is a different, a fund for compensation or environmental recommendations, we have to spend $5.5 million of the trust of the $37 million as a closing of September and about $8.4 million through the first 15 days of October. A total of $13.9 million has been used of the $37 million of the trust fund.
Carlos de Alba - Morgan Stanley
Perfect. Thank you very much, Raul.
Raul Jacob
You are welcome.
Operator
We have a follow-up question from (indiscernible). Please go ahead.
Unidentified Analyst
History, guys, good afternoon. Thank you.
Just a very quick question left over here. Please feel to answer very quickly here.
Just on the income statement, looking at the tax line and looking at the tax bracket this quarter, we noticed something around 32% as an effective tax rate. This looks low compared to what you were previously indicating and looking at the numbers, I mean we are closer to 37% and 38%.
So just wanted to see if this is a structural change or this is more of a one-off where we’re going to revert back to levels of closer to 40% than 30%? That’s it.
Thank you.
Raul Jacob
Generally speaking, thank you for your question, [Bernando] (ph). Generally speaking, our tax rate should be at about 39% when you consider as we do the New Mexican taxation into our taxes.
In this past quarter, we had lower tax rate because we have made an adjustment in our view on cash generation at our subsidiary of New Mexico. And that has been affecting the effective tax rate for the year.
I think the better guidance is the accumulated tax rate for the nine months of 2014 at this point.
Unidentified Analyst
Thank you, Raul.
Operator
Our last question comes from Santiago Pérez-Teuffer from Credit Suisse.
Santiago Pérez-Teuffer - Credit Suisse
Thanks. Actually my questions were answered previously.
Thanks a lot. Bye.
Raul Jacob
Thank you very much.
Operator
We have no further questions at this time. I’d like to turn the call over to Raul for closing comments.
Raul Jacob
Yes. Well, thank you very much Richard and to everyone participating in this conference.
Well, we are concluding our conference call for this quarter. We certainly appreciate your participation and hope to have you back with us when we report the fourth quarter and our 2014 results.
Thank you very much and have a very nice day.
Operator
Thank you, ladies and gentlemen. This concludes today's conference.
Thank you for participating. You may now disconnect.