Oct 29, 2016
Executives
Raul Jacob - VP, Finance and Chief Financial Officer Oscar Gonzalez Rocha - Chief Executive Officer Daniel Muniz - Executive Vice President
Analysts
Carlos de Alba - Morgan Stanley Guillermo Estrada - GBM Alfonso Salazar - Scotiabank John Tumazos - John Tumazos Very Independent Research Tony Rizzuto - Cowen & Company Ivano Westin - Credit Suisse Tiago Losiego - Bradesco BBI
Operator
Good morning and welcome to Southern Copper Corporation's Third Quarter and Nine Months 2016 Results Conference Call. With us this morning, we have Southern Copper Corporation, Mr.
Raul Jacob, Vice President - Finance, Treasurer and CFO, who will discuss the results of the company for the third quarter and nine months 2016, as well as answer any questions that you may have. The information discussed on today's call may include forward-looking statements regarding the company's results and prospects, which are subject to risks and uncertainties.
Actual results may differ materially, and the company cautions to not place undue reliance on the forward-looking statements. Southern Copper Corporation undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
All results are expressed in full U.S. GAAP.
I will now turn the call over to Mr. Raul Jacob.
Mr. Jacob, you may begin.
Raul Jacob
Thank you very much, Chris. Good morning to everyone and welcome to the Southern Copper's third quarter 2016 earnings conference call.
Participating with me in today's conference are Mr. Oscar Gonzalez Rocha, Southern Copper's CEO and Board member and Mr.
Daniel Muniz, Executive Vice President of Southern Copper and also Board member of the company. In today's call, we will begin with an update on our view of the copper market.
We will then review Southern Copper's key results related to production, sales, operating costs, financial results, and expansion projects. After that, we will open the session for questions.
Now let me focus on the copper market, the core of our business. As we approach to the end of 2016, our expectations are for the year to finish with a small deficit in the copper market given support to current sizes.
For 2017, we expect the demand growth in the range of 2.5% to 3%. Even though we have a lower-than-expected growth profile for the world economy, we believe that next year, we will see the beginning of the structural copper market deficit that has been created by the lack of new project investments in recent years.
On the supply side, even though new projects will increase refined copper availability, production cuts as well as delays in project startups, technical problems, labor unrest, excess government taxation and other difficulties will affect total market copper supply, significantly reducing the impact of new production on copper market balance. We think that all of these elements will significantly offset the new production coming to the market as a result of past investment.
Let me now focus on Southern Copper production for the past quarter. Copper mine production increased by 25% in the third quarter of 2016 to 224,869 tons, that's from 179,892 tons in the third quarter of last year.
This is basically the result of 72.8% increase in production at the Buenavista mine in Sonora, Mexico, which increased production by 47,987 tons. With this quarter's production, we will reach a new nine-month production record of 672,372 tons, an increase of 25.3%, compared with the same period of 2015.
The remaining production changes includes a positive variance at La Caridad operations and a reduction at our Cuajone and Toquepala operations in Peru. At this point, we're adjusting our guidance for the year for a production of 905,600 tons for this year 2016.
There is an increase of 162,600 tons over 2015 production and a new company record for the year. Molybdenum production represented 5.2% of the company's sales in the third quarter of this year and it's currently our second byproduct.
Molybdenum production decreased by 2.8% to 5,581 tons in the third quarter of this year from 5,739 tons in the same period of 2015. This was principally due to lower production at the Peruvian operations, as a result of lower grades and recoveries.
The Mexican molybdenum operations increased their volume, partially offsetting the lower volume from the Peruvian mines. For this year, we expect to produce 22,800 tons of molybdenum.
Silver represented 6.2% of our sales in the third quarter. Mined silver production increased by 20% in this quarter from a when you compare that to the same period of 2015.
It was mainly the result of higher production at our Buenavista mine that increased silver production by 121.3% and the IMMSA operations. Zinc represented 4.3% of our sales in the second quarter of 2016.
Mined zinc production was 18,851 tons in the third quarter, 15.7% higher than the third quarter of 2015 production as prior year problems at the Charcas and Santa Eulalia mines were resolved. The last nine months' zinc production has increased by 25.1%.
Looking at our financial results for the third quarter of 2016, sales were $1.4 billion; that is $267.1 million higher than sales of the third quarter of last year or 23.6% increase in dollar sales. Copper sales volume increased by 30.5% and value by 19.7% in any scenario of lower copper prices of minus 8.8%.
Regarding byproducts, we had higher sales of molybdenum, which increased compared to third quarter of 2015 by almost 90%. This was the result of better prices, molybdenum prices have increased 20.7% and vis-a-vis the same quarter of 2015, and a positive open sales adjustment that compensated for slightly lower volume.
Higher sales of silver that increased by 59.2% due to higher volume, 21.5% and better prices by 31.7%, higher sales of zinc of 32.5% due to higher volume of zinc that increased by 12.2% and better prices. Our total operating cost and expenses increased by $191.6 million or 22.6%, when compared to the third quarter of 2015, while copper production increased by 25%.
The main cost increment has been in depreciation, lower capitalized leachable material, higher purchase copper, energy costs and repair materials. Operating materials and reagents and [Indiscernible] also increasing for the quarter to quarter comparison.
These cost increments were partially offset by lower diesel and fuel costs, fire and explosive costs and environmental remediation and other factors. The EBITDA for the third quarter was $546.5 million; that is 29.7% higher than the $421.2 million that we had in the third quarter of 2015.
The margin increased from 37.2% to 39%. But let me mention that we achieved this EBITDA with a reduction in copper prices of almost 9%.
Cash cost per pound of copper before byproduct credits was $1.49 per pound in the third quarter of this year. This compares with $1.41 [Audio Gap] 2016.
This is an $0.08 increase. This 5.6% increase in operating cash cost is the result of higher cost per pound from production cost and treatment and refining charges, which were partially offset by higher premium and lower capitalized leachable materials.
Southern Copper's operating cash cost, including the benefit of byproduct credits, were $95.05 per pound in the third quarter of 2016. This cash cost was $0.048 higher than the cash cost of the second quarter, which was $0.907 per pound.
Regarding byproducts, we had a total credit of $253 million or $0.538 per pound in the third quarter of 2016. This amounts compare with the credit of $249 million or $0.507 per pound in the second quarter of this year.
Total credit has increased for silver by 25.4%; for zinc, 20%; sulfuric acid, 6.3% and decreased for molybdenum, 11.2% and gold. Net income attributable to SCC shareholders in the third quarter was $197.6 million; that is 14.1% of sales or diluted earnings per share of $0.26 per share.
Capital investments, our capital investments were $840.5 million for the nine months of this year, almost the same amount invested in the nine months of 2015 and this represented 139% of net income. In 2016, we continue the development of our investment program to increase copper production capacity to 1.2 million tons or 90% higher from our 2013 production level of 617,000 tons.
Our Buenavista projects in the state of Sonora, Mexico has a total budget of $3.5 billion for investment, and the Company has already spent $3.2 billion of this budget. A new concentrator started operations in September 2015 and it is now running at 105% of its design capacity.
We're expecting to increase Buenavista production by 200,000 tons to produce about 460,000 tons of copper in 2016 and 500,000 copper in 2017. We also expect to increase our Buenavista molybdenum production to a capacity of 4,600 tons per year.
In Buenavista, we also have a project that is called Quebalix IV, and this is a facility for crushing, conveying and spreading leachable ore. The project's main objective is to reduce processing time as well as mining and hauling costs.
We will also increase production by improving SX-EW copper recovery. It has a crushing and conveying capacity of 80 million tons per year.
The plan is already commissioned and is expected to be completed in the fourth quarter of 2016. As of September of this year, the project has a 99% progress with an investment of $296.9 million out of the approved capital budget of $340 million.
Excluding the almost completed Quebalix IV project and some minor infrastructure facilities, all the other facilities of this program are currently operating. The Buenavista program is being finished on time and below our budget.
Looking at the Peruvian projects, we have the Toquepala expansion project, which is in the Tacna region in Peru. This project includes a new state-of-the-art concentrator, which will increase annual production capacity by 100,000 tons of copper to 235,000 tons of copper production by 2018.
It will also increase the molybdenum production by 3,100 tons of molybdenum at an estimated capital cost of $1.2 billion. Through September of this year, we have invested $476.6 million in the project.
The project is expected to be completed by the second quarter of 2018. The Toquepala high-pressure grinding rolls, or HPGR system, has a main objective to ensure that our existing concentrator in Toquepala will operate at its maximum milling capacity of 60,000 tons per day, even with an increase of the ore material hardness index.
Additionally, recoveries will be improved and production enhanced with a better ore crushing. The budget for this project is $40 million and we have invested $18.1 million as of September of 2016.
The project is expected to be completed by the fourth quarter of next year 2017. In Cuajone, we have a heavy mineral management optimizing project.
The project consists of installing a primary crusher at the Cuajone mine pit with a conveyor system for moving the ore to the concentrator. This project aims to optimize the hauling process by replacing rail haulage, thereby reducing operating and maintenance costs, as well as the environmental impact of the Cuajone mine.
The crusher will have a processing capacity of 43.8 million tons per year. The main components, including the crusher and the 7-kilometer overland conveyor belt, have been acquired and we have started the excavations and civil work.
As of September of this year, we have invested $112.9 million in this project out of the approved capital budget of $215.5 million. The project is expected to be completed in the second quarter of 2017.
The Cuajone tailing thickeners project at the concentrator will replace two of the three existing thickeners with a new hi-rate thickener. The purpose is to streamline the concentrator flotation process and improve water recovery efficiency, increasing the tailings solid content from 54% to 61%, thereby reducing fresh water consumption and replacing it with recovered water.
As of September of this year, we're continuing with the engineering and procurement process. We have invested $7.7 million in this project out of the approved capital budget of 30 million, and we expect it to be completed by the second quarter of 2017.
Looking at the recent dividend announcement, well, regarding dividends, as you know, it is the Company policy to review at each Board meeting cash resources, expected cash flow generation from operations, capital investment plan and other financial needs in order to determine the appropriate quarterly dividend. Accordingly, at the close to the market on October 20, the Board of Directors authorized a cash dividend of $0.05 per share of common stock payable on November 29; that is to shareholders of record of the close of business on November 9.
With this in mind, ladies and gentlemen, thank you very much for joining us and we will like to open the forum for questions.
Operator
[Operator Instructions] And our first question comes from Felipe Hirai, Bank of America. Your line is open.
Unidentified Analyst
Hi, good afternoon. This is actually Kyle here.
So I have two questions. The first one here is that's on Tia Maria.
If you could provide a brief update on when do you believe we could have the construction permit unlocked. And also linked to that question, if you could provide an updated guidance in terms of CapEx for the coming years, not only this one, which is running below budget, but also 2017 and 2018 accordingly and depending on Tia Maria as well, that would be great.
Thank you.
Raul Jacob
Okay. Thank you very much for your question, Kyle.
Let me start by the CapEx guidance. And let me emphasize that at this point, we're currently reviewing our budgets for 2017.
So this is what we believe right now, but it may be adjusted in our first call for 2017 that is in January. Currently, we're expecting to close this year, with about $1.2 billion in capital expenditure.
For next year, we're expecting to spend $1.5 billion, for 2018, 1.4 billion; 2019, 1 billion; and 2020, $500 million. $500 million is about our long-term maintenance budget for now.
Regarding Tia Maria, I think that we're currently working with the new Peruvian authorities as well as the local communities to move along with the Tia Maria project a certain point in time. We are currently doing several contracts and talk [audio gap].
Is Chris in the call?
Unidentified Company Representative
No, I think we got disconnected.
Raul Jacob
You see I lost all in my end. I'm logging back now.
Operator
Pardon me, are we taking our next question?
Raul Jacob
We got disconnected.
Operator
Can you hear now?
Raul Jacob
We do listen to you Chris.
Operator
Okay, you are live. So, I'm going to ahead and open the line for the next question, which is from Ivano Westin, Credit Suisse.
Ivano Westin
Hi, Raul, Oscar and Daniel, thanks for the call and for the questions. First point would be on your cash cost.
I appreciate if you could provide a guidance even though you expect before and after by-products for the next three years, 2017, 2018 and 2019. And as a follow-up to the previous question, your CapEx plan breakdown is very clear.
I appreciate if you could provide the breakdown of Tia Maria CapEx for the next couple of years. First to understand what might be the impact in your overall CapEx plan in case the Tia Maria gets a bit delayed.
Thank you very much.
Raul Jacob
Okay. Thank you very much for your questions, Ivano.
Let me mention first that, as you have seen fuel prices decreasing through the end of 2015 and beginning of this year, we're seeing now the bounce back in fuel prices and that is affecting our energy cost in general. As you have seen, our cash cost has gone between the second and the third quarter, has gone up before credits by about $0.08 and after credits, by about $0.05.
So, I'm going to focus on the amount before credits, because the difference is just the sales times, the sales of byproduct times, the volumes and the prices that we have for our byproducts. In the case of the $0.08 of increase in cash cost before any credits, we have just for energy, which is fuel and power.
Power is somehow related to fuel prices' increased increments; that is about $0.03 increase in the cash cost. Besides that, we have other production costs that are reflecting somehow these higher oil prices, but it's about $0.005.
A translation difference between a year where we had significant depreciation in 2015, I'm sorry, in the second quarter and third quarter; that is $0.018; a higher inventory consumption, $0.014 and leachable material consumption, about $0.01. So that's basically the variances that we have on a per pound basis.
I mentioned the absolute variances when we talk about the operating cost goal. On your second question, we have a view on the cash cost for the next year, is that as we move on into 2017, we should have a cash cost decreasing towards about $0.85 and 2018, about $0.82, and then remains stable at about $0.80 per pound after 2019.
We're forecasting cash costs. As you may imagine, it's a very difficult task, because it's, they have many variables that intervene to form the cost.
In the case of the Tia Maria CapEx, we do have a budget for next year, but it's been adjusted as we move on. At this point, we don't have the final construction permit approved.
So this is very contingent, but for now, we are considering about a $187 million for Tia Maria next year; that is, as I said, it's contingent of obtaining all the permits and we don't want to move on until we're sure that we will be in an excellent relationship with the local communities on this matter.
Operator
Okay. And our next question is from Tiago Losiego from Bradesco BBI.
Your line is open. Please go ahead.
Tiago Losiego
Thank you. I have two questions, Raul, if you could comment on other potential projects like El Arco and [indiscernible], I mean you have other potential alternatives to grow and I would just like to understand what's your view on [multiple speaker], hello.
Raul Jacob
Yes.
Tiago Losiego
I would just like to understand your view on these potential growth alternatives, if you don't do Tia Maria or even beyond Tia Maria, just would like to hear from you and also if you could and then if you already provided, but an update on your production guidance, both 2016. Thank you.
Raul Jacob
The first one on other projects, well, we have been reporting in our 10-Q for instance on El Arco, which is an excellent greenfield project that the Company has. It's been developed as we speak and it has substantial, producing 190,000 tons of copper and some gold as byproduct.
The total budget is very close to $3 billion for the project at this point. That is one of the initiatives that the Company has.
We also have a good chance of having more zinc producer in our Buenavista concession. We have found a zinc deposit that could be developed in the next few years.
Besides that, in Peru, we have Los Chancas which is a copper deposit that may produce about 100,000 tons of copper and very important molybdenum byproduct that will add about 7,000 tons of molybdenum per year in this project; that has a cost of about $1.2 billion. Besides these two projects, we have in Mexico in our IMMSA operations, the Angangueo project that is also mentioned in our 10-Q.
And obviously, we acquired El Pilar last year. This is a deposit that where we have conducted a drilling campaign that is showing some preliminary, very optimistic results for us, but we are currently in the middle of the drilling campaign.
So at this point, we want to mention -- Daniel, would you like to mention.
Daniel Muniz
Yes. That's the kind of like the pipeline of projects that we have that I think that the important thing to convey here is, we are very sensitive in cash flows; we're sensitive that we are in what we believe is at Pilares of the copper in commodity cycle.
So, I mean of course we have all these projects and we have a dashboard. We prioritize every single project in terms of cash needs, rates of returns, risk rewards, etcetera.
So that's why you us pushing the gas on really the brownfield expansions, which we believe are achievable, low risk and that's how we deliver Buenavista. So obviously, lot of points, not in I mean in the near future so to speak.
We are fortunate to have all these projects, El Pilar might be, we are exploring more project. Do you remember, we acquired for $100 million that will produce around 30,000 tons of copper per year.
That's 40 kilometers or even closer to Buenavista. So that has a lot of potential.
It's like a brownfield expansion so to speak, so the new SX-EW concentrator that we have in Buenavista. So, that's kind of like the mindset here; being very conservative, looking at IRRs, looking at risk rewards and kind of like really pushing the gas on the better ones, so to speak.
Raul Jacob
And on your second question, which is on the production profile for the next few years. For 2017 currently, we're looking at a forecast of 926,000 tons; 2018 1.61 million tons; and 2019 a little bit over 1 million tons; and 2020 where we will have the impact of -- partial impact of Tia Maria, 1.1 million tons.
Let me say again that, we're currently reviewing this production budget as well. And so, these may be adjusted when we do our end of 2016 conference call.
Operator
Thank you. We have a question from Carlos de Alba with Morgan Stanley.
Your line is open.
Carlos de Alba
Yes, thank you very much, everyone. Could you remind us how much of the energy of Minera Mexico or the mines in Mexico is being currently purchased from the Infrastructure Division of Grupo Mexico and at what price?
And then, a second question…
Raul Jacob
Yes. Go ahead.
Carlos de Alba
Sorry, Raul. And the second session would be just to confirm if the cash cost guidance that you gave earlier, those on after byproduct basis or before byproducts, I suspect that is after byproducts.
Raul Jacob
It is after byproducts, Carlos. On the energy, we don't disclose the cost per kilowatt hour that the Company pays for the energy acquired in Mexico.
Currently, the Company is buying 100% of its Mexican demand for power from the Infrastructure Division. And the Infrastructure Division, as I understand, is selling a portion of their energy production to the Mexican grid, beside planning thus far obviously.
Operator
Thank you. Our next question comes from Guillermo Estrada with GBM.
Your line is open. Please go ahead.
Guillermo Estrada
Hi, good morning, everyone. Just a follow-up question on Tia Maria.
Do you have anything to report new at this moment? Las Bambas disruption is like the first real step for [indiscernible] at this moment.
Does it affect in some way the development of Tia Maria and currently, how is the situation between the communities and the government in order to get Tia Maria moving forward. My second question is regarding molybdenum, we continue to see lower grades coming quarter-over-quarter.
So if you could provide your molybdenum guidance, it will be very, very helpful. Thank you very much.
Raul Jacob
You're welcome. Okay.
For Tia Maria, we don't see any situation similar to Las Bambas at this point. I would believe that these are two disconnected situations, and we're currently working in the same conditions that we have had in the last few months on Tia Maria.
On the molybdenum production, we mentioned, I mentioned that for 2016, we are expecting 22,800 tons of molybdenum. Our forecast is to maintain this production level in the next few years as we, next year, and then we should have the increase in molybdenum production by the Toquepala operation in 2018.
Operator
Thank you. And our next question comes from Peter [indiscernible] with Barclays.
Your line is open. Please go ahead.
Unidentified Company Representative
Hi guys. Thanks a lot for taking my questions.
Eventually, most of them already asked, but I just follow up on with so much of headlines on Codelco cutting copper premium in Europe, this is like $80, $85 per ton. So any color you guys could provide on where you're seeing in actions you're taking, any impact on the company?
Raul Jacob
Well, we're currently in talks. Our commercial team is as we speak now going to the LME conferences next week.
So at this point, we can't comment on that. You could look into some reports that prepared by the companies that follow these negotiations, but for us, we don't have anything to comment about that.
Operator
Thank you. And our next question comes from Alfonso Salazar with Scotia Bank.
Your line is open. Please go ahead.
Alfonso Salazar
Hi Raul, Alfonos here. And one question regarding the energy cost in Peru.
If I have not mistaken next year, you have the all contracts ending. So if you can give some guidance, what you expect after this happens in terms of your energy cost in your Peruvian operations?
The second question is, regarding La Caridad mine, do you have any update on what is happening with the Pilares mine, the [indiscernible] mine you wanted to open. And the other one is what is the trend in all rates at La Caridad as if you remind us because copper and moly, if I remember, well copper was going to decline, moly was going to move up, but if you can give us some more color on this as well.
It will be very helpful.
Raul Jacob
Okay. Let me start with the energy cost in Peru, and then I'll ask Mr.
Gonzalez to answer on Latin America Caridad operation. In the case of energy cost, in Peru, we are ending a 20-year power purchase agreement with local producer that has been replaced by the three new contracts.
These contracts are very favorable for the company. We're expecting a reduction of about 30% in our energy costs for next year starting in May, when we have the new contracts, all the new contracts in place.
Regarding La Caridad, would you like to comment, Mr. Gonzalez?
Oscar Gonzalez Rocha
Yes. About the Pilares, we are expecting the year to start developing the mine of Pilares to supply or to the concentrator of La Caridad and then get that increase in the grade because Pilares gets better grades than La Caridad right now.
Raul Jacob
Let me add that, this is a project that we have had in our pipeline for a quite a while. We're currently in talks with the local communities.
These talks are well advance. So we're very optimistic about the results in Pilares.
Our expectation is to increase using the La Caridad concentrator production by about 40,000 tons once we have this project moving forward, but we're still in a prior step to that.
Operator
Thank you. Our next question comes from John Tumazos.
Your line is open. Please go ahead.
John Tumazos
Could you elaborate a little bit on how you view debt and what's your where there is a potential capital project with those chances of El Pilar, El Arco and others, how much that weighs, whether your CapEx to be larger than you're projecting?
Daniel Muniz
Sure. Thank you, John.
As, we've issued so far and we have a $6 billion total debt in the balance sheet. We're still thinking it as conservative.
We want to keep it that way. We want to maintain investment grade.
We haven't issued more. We've used this cash now to complete the Buenavista expansion mainly to start the Toquepala expansion mainly.
If you're comfortable with the debt level we currently have, we are not planning on issuing any more at the moment. And with the expansions kicking in and hopefully prices, even the debt to EBITDA ratio will decrease, and the way we view debt in the future is have a strong balance sheet, something that's it's necessary with the project we have in front us, but not really being extremely aggressive as some of our peers have in the past.
So that's how in the last Board, last week, we decided not to issue any more and focus on delivering expansions at this moment and cash management and preservation.
Operator
Thank you. Our next question comes from David Olkovetsky from CQS.
Your line is open. Please go ahead.
David Olkovetsky
Hi, good afternoon guys. I apologize, I missed it.
Can you just very quickly run through your copper guidance one more time from 2017 through 2020, I heard 945,000 tons, 104,500 tons, 1 million tons and then 1.1 million tons, is that correct?
Raul Jacob
I'll read it again.
Unidentified Company Representative
For next year, 926,000 tons; for 2018, 1.61 million tons; for 2019; about 1 million tons 1.29 million tons; and for 2020, 1.1 million tons.
David Olkovetsky
Okay, great. And then, can you talk about any water available issues you might have or any interruptions from geologic movements, anything like that?
Raul Jacob
Actually, we don't have any water related problems as of now. The Company has all its licenses in order, and we're consuming about what we are entitled to.
So not much to report. Obviously, as we operate in the case of the Peruvian operations as we operate at the northern part of Atacama Desert, it is important that we emphasize water recycling.
That's why we're going ahead with this investment in new saline thickeners that are improving the water recovery of the Toquepala operation, Cuajone operation in Peru.
Operator
Thank you. Our next question comes from Tony Rizzuto with Cowen & Company.
Your line is open. Please go ahead.
Tony Rizzuto
Thank you very much for taking my questions. I think I heard that you talked about, Raul, of energy and the cost increase sequentially, about one half of the $0.08 per pound increase before byproduct credits was oil related.
I was wondering if you could just remind me what your sensitivity is to fuel either on an EBITDA basis or cost per pound basis or change in fuel oil, it would be great.
Raul Jacob
Okay. Hold on a sec, please Tony.
Okay. Let's say that we have a 1% change in oil prices will impact us with the total cost of $2.9 million in fuel.
Tony Rizzuto
Okay. And the reason for, I just wanted to pursue the slight decline in your production -- expected production in 2019.
Is that simply a variation in the mine plan or is it ore grades and where it goes from 2018 to 2019 down a little bit year-on-year?
Raul Jacob
It is ore grades mainly, ore grades and recoveries. As you know, ore grades, when they decreased, you also -- it usually decreases slightly your recovery as well.
So it's like a double whammy, once you have for a slightly lower ore grade, you usually have a slight drops in recovery and then those two account for the difference that I had mentioned already now. Let me say that this is our current view.
As I mentioned before, we're currently looking into our few next year's budgets for both CapEx and production, and this is important because once we see these results, we don't like what you just mentioned, a drop in production in 2019. So we're seeing ways of not having this kind of profile for the next few years at this point.
Tony Rizzuto
Understood. And just one final question.
In terms of the overall copper market outlook, I was wondering if you could provide us with what the supply growth estimate is for 2017 and if you have it both for mine supply as well as refined supply growth in that year.
Raul Jacob
Yes. Well, we focus on the refined copper market and we're expecting an increase in supply of about 2% overall.
And the reason for that is that we believe that this year, we have several operations worldwide doing an extra effort for surviving, and this is like one-time thing that you can do. Once you do it as the first time, it is very difficult that you can also have significant increase in supply given the cost control, if I make myself clear.
What I mean is that certain operations worldwide that are very close for being shutdown has made an effort or has made some other changes in their production plans like high grading for instance, and that maintain them in operation in 2016, but that is not necessarily what will happen next year. And certainly, we will not have this element getting into the copper market again.
By the way, we are not doing anything like that because of our operations are very low cost across the board. So we don't have to change our mining plans.
Actually, we're currently doing a very aggressive stripping to prepare our operations for the expansions that are being underway in the case of Toquepala and pretty much finished in the case of Buenavista.
Operator
Thank you. And it looks like we have no further questions at this time.
Raul Jacob
Okay, thank you very much, Chris. And well, with this, we conclude our conference call for the third quarter of 2016 results of Southern Copper.
We certainly appreciate your participation and hope we have you back with us when we report the fourth quarter and full year 2016. Thank you very much and have a nice day.
Operator
Thank you, ladies and gentlemen. This concludes today's conference.
Thank you for participating and you may now disconnect.