Feb 4, 2015
Operator
Good morning, and welcome to the Southern Copper Corp.' s Fourth Quarter 2014 Results Conference Call.
With us this morning, we have Southern Copper Corp.' s Mr.
Raul Jacob, Vice President Finance and CFO, who will discuss the results of the company for the fourth quarter 2014 as well as answer any questions that you might have.
Operator
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 cautious not to place undue reliance on these forward-looking statements.
Southern Copper Corp. undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
All results are expressed in full U.S. GAAP.
Operator
Now I will pass the call on to Mr. Raul Jacob.
Raul Jacob
Thank you very much, Gilda, and good morning to everyone and welcome to Southern Copper fourth quarter 2014 earnings as well as the year 2014 conference call.
Raul Jacob
Participating with me in today's conference is Mr. Daniel Muñiz, Grupo Mexico's CFO.
Raul Jacob
Before we go into the details of this past quarter and the year 2014, let me mention that in 2014, Southern Copper results showed initial impact of our aggressive organic growth program which will significantly increase our production, improve our cash costs and enhance earnings. We believe that the investors' community will appreciate the company operating transformation much more clearly during 2015.
Raul Jacob
Focusing the matter of today's call, we will begin with an update on our view of the corporate 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.
Raul Jacob
Focusing on the copper market. We think that the recent reduction in copper prices results from copper following all for technical reasons not related to the copper market balance or fundamentals.
We believe current relatively softness in copper prices will start to change as we move on into the second quarter of 2015.
Raul Jacob
As we indicated in the past, we believe short-term copper demand is consistently improving. For this year, we expect the U.S.
economy to keep pulling new copper demand. We also think we'll see higher demand coming from Western Europe.
Raul Jacob
In the case of China, growth will be somehow limited by its housing market slowdown. However, the Chinese elected great plans to expand investments by 24%, supporting growth at about -- supports growth at about 4% for China's copper demand.
On the supply side, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap copper production. Some of them to note are the following
Cochilco, the Chilean Copper Commission have indicated they believe that at current price levels, about 10% of the country's production is at risk. In 2014, Chile produced approximately 5.8 million metric tons of copper.
On the supply side, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap copper production. Some of them to note are the following
The government of Zambia has increased its royalty regime from approximately 6% to 20% of the sales value. Most of the copper producers operating in this country have indicated that this confiscatory taxation will jeopardize their production and exports.
In 2014, Zambia is estimated to produce 577,000 tons of copper. High-quality scrap production, a substitute for refined copper which is about 90% of Southern Copper sales, will significantly reduce its contribution to the refined copper market.
Scrap copper represented approximately 10% of the market of refined copper in 2014.
On the supply side, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap copper production. Some of them to note are the following
The current view on the 2015 copper market ranges in between a market in balance and a market with a surplus. In some estimates, as high as 300,000 tons.
In the majority of these estimates, surplus expectations are significantly low or down from what we had a year ago for 2015.
On the supply side, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap copper production. Some of them to note are the following
Due to the note factors as well as delays in project startups, technical problems, labor unrest and other difficulties that are structural to the supply of copper, we believe that market will try to balance as we move on through 2015.
On the supply side, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap copper production. Some of them to note are the following
We want to also emphasize that prices at current levels are not sufficient to promote the necessary future supply growth, thereby improving the strong long-term fundamentals of our industry.
On the supply side, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap copper production. Some of them to note are the following
Looking at copper production. Copper represented 80% of our sales in the fourth quarter of 2014.
Our mine production increased by 18,550 tons or 11.2% in the fourth quarter when you compare with the same period of 2013. That was mainly due to higher production at our Buenavista operations which increased production by 16,900 tons.
On a yearly basis, copper represented 78% of our sales. Annual mined copper production of Southern Copper increased by 59,580 tons or 9.7%.
In total, Southern produced 677,000 metric tons and that compares to 617,000 tons in 2013.
On the supply side, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap copper production. Some of them to note are the following
For this year, for 2015, improvements in operational practices and capital investments will reduce costs and increase the company copper and molybdenum production. We plan to produce 782,300 tons of copper which will set a new record of production for Southern Copper.
On the supply side, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap copper production. Some of them to note are the following
For this guidance, we are considering that our Buenavista operation will produce 344,700 tons. Of those, about 163,000 will come from our new projects.
The SX/EW Plant III will contribute with 102,000 tons and the new concentrator at the same operation will have 61,000 tons of that total.
On the supply side, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap copper production. Some of them to note are the following
Regarding molybdenum, it represented 6.3% of our sales in the fourth quarter of 2014. Molybdenum production decreased by 138 tons or 2.4% in the fourth quarter when compared to the same period of 2013 and that was as a result of lower production at the La Caridad operation due to lower ore grades.
The lower La Caridad production of molybdenum was significantly offset by improvements in Buenavista. The Buenavista new moly plant increased its production by 50% in the same period.
On the supply side, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap copper production. Some of them to note are the following
The Cuajone operation in Peru increased its production by 36% on these 2 increments in production somehow offset the reduction in production from La Caridad.
On the supply side, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap copper production. Some of them to note are the following
In 2014, Southern Copper produced 23,120 tons of molybdenum. This is 16.2% more than the 19,900 tons produced in 2013.
And by the way, it is a record of production of molybdenum for the company.
On the supply side, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap copper production. Some of them to note are the following
Of the 2014 molybdenum production, the new plant at Buenavista contributed with more than 2,200 tons which is a significant part of the improvement. For 2015, we expect to produce 21,500 tons of molybdenum, given the variance result of lower ore grades and recoveries at our operations.
On the supply side, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap copper production. Some of them to note are the following
In the case of silver, it represented 4.5% of our sales in the fourth quarter of 2014. Comparing the last quarter, silver mine production with the fourth quarter of 2013, there is a decrease of 6.7%, mainly as a result of lower production at our IMMSA operations at Santa Eulalia that was affected by a float; and Charcas which had a technical problem.
The Charcas technical problem has been already solved and we expect to have Santa Eulalia back at full operation by June of this year. For 2015, we expect to produce 2.7 million ounces of silver, in line with 2014 production.
On the supply side, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap copper production. Some of them to note are the following
Zinc represented 4.3% of our sales in the fourth quarter of 2014. Production decreased 33% in the fourth quarter of last year when compared to the fourth quarter of 2014.
That was mainly the result of the lower production at the Charcas and Santa Eulalia mines already discussed.
On the supply side, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap copper production. Some of them to note are the following
As we're solving these difficulties at our IMMSA unit, for 2015, we expect to increase our production of zinc to 86,200 tons, and this is an increase of about 20,000 tons or when you compare that to 2014.
On the supply side, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap copper production. Some of them to note are the following
Looking at our financial results. For the fourth quarter of 2014, net sales were $64 million lower than net sales of the fourth quarter of 2013.
Even though copper prices decreased by more than 7% in the last quarter, Southern Copper managed to increase its sales volume by 7.1%, almost offsetting the sales value impact of the lower copper price.
On the supply side, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap copper production. Some of them to note are the following
Regarding byproducts, we have higher sales of zinc which increased its production or sales by 21% due to an increase in volume and price. We have the lower sales of molybdenum due to lower volume but mostly prices and often, sales adjustments.
On the supply side, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap copper production. Some of them to note are the following
In the case of silver, sales decreased a little bit mainly as a reduction of prices of about 21%.
On the supply side, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap copper production. Some of them to note are the following
Our total operating costs and expenses increased by $27.4 million or 3% when compared to the fourth quarter of 2013. Main cost increments have been the environmental reclamation charge, purchase copper charges and repair materials and operational contractors.
These and other cost increases were offset by exchange rate variance or translation difference, lower inventory consumption, lower workers' participation and depreciation.
On the supply side, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap copper production. Some of them to note are the following
At this point, it is important to know that Southern Copper cost of sales actually decreased by $12.5 million when comparing the fourth quarter of last year with the fourth quarter of 2013. Also on a yearly basis, cost of sales decreased by $22.2 million.
These figures are quite remarkable when considering that the company actually increased its copper production by about 11.2% in the fourth quarter of 2014 and by 9.7% for the full year 2014.
On the supply side, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap copper production. Some of them to note are the following
EBITDA for the fourth quarter was $664 million. That is 45.1% margin and that compares with $726.9 million, 47.3% margin for the fourth quarter of 2013.
On the supply side, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap copper production. Some of them to note are the following
Looking at our cash cost per pound of copper before byproduct credits, it was $1.77 per pound in the fourth quarter of 2014, that compares with $1.96 per pound in the third quarter of 2014. That is a decrease of $0.183 reduction.
This 9.3% lower operating cash cost is the result of lower cost per pound from production cost and capitalized leachable material which compensated for lower premiums and higher treatment and refining charges.
On the supply side, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap copper production. Some of them to note are the following
Southern Copper's operating cash cost, including the benefit of byproduct credits, was $1.09 per pound in the fourth quarter of 2014.
On the supply side, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap copper production. Some of them to note are the following
Regarding byproducts, we had a total credit of $272 million or $0.68 per pound in the fourth quarter. These figures compare with the credit of $287 million or $0.815 per pound in third quarter of 2014.
Total credits have decreased for molybdenum, silver and sulfuric acid but increased for zinc and gold.
On the supply side, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap copper production. Some of them to note are the following
Net income attributable to SCC shareholders in the fourth quarter was $348 million, that is 23.7% of sales or diluted earnings per share of $0.43. Net income for the full year 2014 was $1,333,000,000.
On the supply side, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap copper production. Some of them to note are the following
Looking at our expansion and capital projects. Capital expenditures for the year 2014 were $1.5 billion from a budget of $2.3 billion.
We had the smaller-than-expected capital expenditures because of the delay that we had in the Buenavista and Toquepala expansion programs. In 2015, we will continue our investment program to increase copper production capacity by approximately 89% from our 2013 production level of 617,000 tons to 1,165,000 tons by the year 2018.
For 2015, the Board of Directors approved a capital expenditure program of $2,687 million which will mainly be spent in the following projects
we will conclude the expansion of the Buenavista mine which will reach a production capacity of 488,000 tons of copper per year; we will initiate the expansion of Toquepala which will increase on our production capacity by 100,000 tons of copper and 3,100 tons of molybdenum; we will initiate the construction of the new greenfield project in Peru, Tia Maria which will produce 120,000 tons of copper per year.
For 2015, the Board of Directors approved a capital expenditure program of $2,687 million which will mainly be spent in the following projects
Let me now report on the progress made in each of our main projects. Focusing on the Mexican projects.
The case of the Buenavista projects, we continue developing this $3.4 billion investment program which is expected to increase production capacity as mentioned. We will almost go to 500,000 tons of capacity with an investment of $3.4 billion.
For 2015, the Board of Directors approved a capital expenditure program of $2,687 million which will mainly be spent in the following projects
The mine expansion to date, we have received 61 400-ton capacity trucks, 7 shovels and 8 drills that are required for the mine expansion, that has an investment of $510.8 million. All the equipment is already in operation.
The new copper molybdenum concentrator has an annual production capacity of 188,000 tons of copper and 2,600 tons of molybdenum. The project will also produce 2.3 million ounces of silver and 21,000 ounces of gold per year.
The project has a 92.2% progress, with an investment of $978.5 million out of the approval capital budget of $1,383 million. The project is expected to be completed in the third quarter of this year.
All major equipment is on site and has been installed.
For 2015, the Board of Directors approved a capital expenditure program of $2,687 million which will mainly be spent in the following projects
Regarding the SX/EW III Plant. Performance testing for this facility was successfully completed and technical full capacity has been achieved in accordance with the design flow rate of the plant.
Estimated time of production for the plant is 120,000 tons of copper cathodes. The original capital budget of $444 million was adjusted to accommodate additional final investments of $80.5 million.
The total revised cost is $524.5 million.
For 2015, the Board of Directors approved a capital expenditure program of $2,687 million which will mainly be spent in the following projects
Focusing on the Peruvian projects. On the Toquepala unit, through December of last year, the end of the year, we have invested a total of $346 million in Toquepala projects.
On December 17, 2014, we received the governmental approval of the Environmental Impact Assessment for the Toquepala concentrator expansion which will allow us to continue developing this important project. The Toquepala concentrator expansion will increase on our production, as mentioned, by 100,000 tons of copper and 3,100 tons of molybdenum at a total capital cost of $1.2 billion.
For 2015, the Board of Directors approved a capital expenditure program of $2,687 million which will mainly be spent in the following projects
On the Cuajone unit in Peru, through December 31, 2014, we have invested $40.6 million of a budget of $45 million on the High Pressure Grinding Rolls project, HPGR which will produce a more finely crushed material. The engineering and purchase of equipment has been completed and the project has reached a 99% completion.
The project is expected to generate cost savings, improve copper recovery and reduce power consumption in the crushing process. We are already seeing the benefits of these projects in our current operations and through December of last year, an implementation with the High Pressure Grinding Rolls project and the variable cutoff ore grades implemented in 2013 have produced an estimated additional production of 23,500 tons of copper plus the mentioned cost savings that I indicate.
For 2015, the Board of Directors approved a capital expenditure program of $2,687 million which will mainly be spent in the following projects
The project improved 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 1 shovel; five 400 capacity trucks; 1 drill and oscillator equipment which will be reallocated to our 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 December 31 of last year, 14 million tons of waste material has been removed and activities will continue for 4 additional years. As of December of last year, we have invested $67.7 million in this project.
For 2015, the Board of Directors approved a capital expenditure program of $2,687 million which will mainly be spent in the following projects
Regarding the Tia Maria project, we received the approval of the Environmental Impact Assessment in August of 2014 and we're now working on the construction permit. Tia Maria, when completed, will represent an investment of approximately $1.4 billion to produce 120,000 tons of copper cathodes per year.
This project will use a state-of-the-art technology with the highest international environmental standards. We expect it to generate 3,500 jobs during the construction phase.
When in operation, Tia Maria will directly employ 600 workers and indirectly, another 2,000. Through its expected 20 years of life, the project-related services will create significant business opportunities in the Arequipa region of Peru.
In addition, the company intends to implement the social responsibility programs in Arequipa that are similar to those established in the community near our older Peruvian operations.
For 2015, the Board of Directors approved a capital expenditure program of $2,687 million which will mainly be spent in the following projects
Regarding dividends, 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 quarterly dividend are also considered for the dividend discussion.
Accordingly, at this close to the market on January 29 of this year, the Board of Directors authorized a cash dividend of $0.10 per share of common stock payable on March 3 of this year to shareholders of record at the close of business on February 17.
For 2015, the Board of Directors approved a capital expenditure program of $2,687 million which will mainly be spent in the following projects
With this in mind, ladies and gentlemen, thank you very much for joining us and we will like to open up the forum for questions.
Operator
[Operator Instructions] Our first question comes from Wilfredo Ortiz from Deutsche Bank.
Wilfredo Ortiz
Just a quick question. On the share repurchase program that you announced, this is in addition to the existing program that was in place that I take it that there was still some amounts remaining, is that correct?
Raul Jacob
That's correct. We increased the program that the company established in 2008.
This is a continuation of that effort. We -- the board approved a $1 billion extension on that program.
This is a program similar to the ones that we -- that some other companies carry. It's aimed to defend the share price and we are considering currently that our share needs some backup and that's what we are doing.
Wilfredo Ortiz
Great. And then on the CapEx guidance, the board that approved $2.7 billion is that what you're planning to spend in 2015?
Or is that 2015, 2016? Because I believe the prior guidance was $1.8 billion for 2015 and about $1.1 billion for 2016, so I just wanted to get more clarity on the timing on the expenditures of the $2.7 billion approved.
Raul Jacob
Yes. Well, Wilfredo, it's just for the year 2015 and the reason for that is that we were expecting to spend $2.3 billion in 2014 then we didn't do that.
We spent $1.5 billion, about $800 million less. So this year's budget is considering an increase due to a catch up that we need to do in our Toquepala and Buenavista projects as well as the initiation of the Tia Maria project.
Now that you mentioned on 2016, we're expecting to spend $1,180,000,000 and then for 2017, about $450 million.
Wilfredo Ortiz
Got it. And if I may, as far as the production guidance, I know you mentioned for 2015, could you just repeat that?
And what would be the expectation on 2016 given that you ended up 2014 delivering more than what you were expecting based on the last guidance provided?
Raul Jacob
Yes, our production for 2015 is expected to be 782,000 tons; for 2016, 910,000 tons; 2017, 1,100,000 tons; and 2018, 1,170,000 tons. Gilda, I think that we have some other questions.
Operator
The next question comes from Thiago Lofiego from Merrill Lynch.
Thiago Lofiego
My first question is just to recap on for the plan on Tia Maria. So you said you're already starting works on Tia Maria at this point.
For Toquepala, the licenses are final, right? So nothing else needs to be done with the communities, nothing of that sort?
And when do you think the work should start? That's the first question.
Raul Jacob
Okay. I think that I need to clarify that in the case of Tia Maria, we don't have the final construction permit yet.
We're expecting to receive it by the end of this quarter. And in the case of Toquepala, we've obtained the approval of the Environmental Impact Assessment last December and we're also expecting to have the approval for construction on the first quarter.
Would you like to add? We have with us Mr.
Oscar Gonzalez, our company's CEO. Would you like to comment on that?
Oscar González Rocha
We are expecting to have the permits for work on the projects in the following month, if it's possible, that is inside the first quarter, and then we're going to start the construction in both projects. We plan it to start first in Tia Maria and then just some weeks after, in the Toquepala, in order to spend the CapEx that was mentioned a moment ago.
Thiago Lofiego
And if you could just -- if that materializes and you obtain the final licenses within the next months, you should be able to start up in the mid of 2017. Would you think it's 2 years to develop the projects more or less?
Oscar González Rocha
Yes. It's about 20 to 24 months each project.
Operator
The next question comes from Leonardo Correa from BTG Pactual.
Leonardo Correa
Just sorry to insist on the CapEx numbers still but just wondering if there was any inflation component to that CapEx? Or it's just simply a rollover of CapEx that was not spent in 2014?
And still on the same topic regarding Buenavista after the leakage. I mean, I know that you are reassessing all of the CapEx and those stages are probably still under way.
So I just wanted to get a sense if you -- if anything has of more concrete in terms of CapEx increase has been -- has already been decided on the company. So that's the first question.
And the second one is on cash costs. I mean, we saw pretty good cost control during the quarter.
So I just wanted to get a sense of view of where cash cost evolution could go, especially now with these, I mean, potentially lower oil prices for longer. Just if you can provide maybe some sensitivity on the impact from oil and where you see the evolution of cash costs going forward?
Raul Jacob
Okay. Thank you.
Well, on the CapEx, I think that we have -- we're doing [indiscernible] actually, at this point in time, not many companies are moving forward with projects as aggressive as we are. So we have -- we are seeing not the capital goods inflation.
We're not seeing the opposite though, but we believe we have a more stable price environment for capital goods at this point. In the case of Buenavista, we have rescheduled investments that should have been done in 2014.
We are not considering an increasing investment other than doing some protective expenditures in order to control any possible environmental events for the future. Other than that, we're pretty much holding to the same figures that we had last year.
About cash costs, we have some cash cost improvements in this quarter. Basically they came from several things but fuel was one of them.
We're expecting savings due to exchange rate as well as fuel components. We're estimating that about 1% variance in the cost of oil represents for us about $3.7 million in either savings or more expenses, given our diesel and some other fuels consumption at this point.
For the future, we are looking at a lower cash cost for our operations. And let me mention something on this, let me do some more color.
What we're expecting is to our cash costs before credits, that is the division of what is called in the industry, C1 by the total pounds of copper before credits to decrease about $0.20 in the next few years as we move on and improve our production profile with the new projects. On the byproduct credits, we are doing also an expansion of our production for these by-product credits but not on the same proportion.
So the share, given the same byproduct prices, the share on a per pound basis of the credits will be slightly lower in the next few years. For the total cash cost that has the credits embedded in it, we're expecting a reduction in cash cost of about $0.10 from the current level, say, to about $0.95 or a little bit less than that in the future.
Operator
The next question comes from Karel Luketic from Merrill Lynch.
Operator
[Technical Difficulty]
Operator
The next question comes from Rodolfo De Angele from JPMorgan.
Rodolfo De Angele
Just one follow-up question now. So this year, CapEx is going higher, catching up from what it was and implemented last year, the new buyback program is in place.
So my question for you is how should we think about your balance sheet in terms of leverage and the potential for dividends, especially in 2015?
Raul Jacob
Okay. Thank you very much for your question, Rodolfo, and let me clarify first that our share buyback program is an extension of the one that was approved in 2008, we're just -- the board just approved an extension on that program.
This is what we have been doing for a while already. Regarding our balance sheet, as you know, we have a relatively conservative balance sheet in terms of debt.
So there is some room for financing if we need to ask for any future loans or other financing possibilities. On dividends, well, we have a policy that in case that this is up to the board, I think that a good indication on how the company or the board addresses this matter is our track record.
Currently, we are very flexible. We have reduced a little bit our dividend payout from about $0.12 that we have been paying through 2014 to $0.10.
This is reflecting the aggressive road that we are doing in our capital program as well as the need for the company to be cautious on funds administration for the future.
Operator
The next question comes from Mitesh Thakkar from FBR Capital Markets.
Mitesh Thakkar
Raul, my first question is just kind of a follow-up on the previous one. How much is the net authorization remaining on the share repurchase including this extension?
Raul Jacob
Well, the extension was just approved, it's a $1 billion extension.
Mitesh Thakkar
Okay. So the net remaining is $1 billion, there is nothing carried forward from the previous one?
Raul Jacob
No. It's already completed.
Mitesh Thakkar
Okay. Second is given the weakness in the copper prices, you would think that there could be some producers who might be looking to sell some assets.
You guys are in a much better shape from a balance sheet perspective. How would you evaluate any potential acquisitions?
And do you think it could get a priority against your share buyback program and/or dividend growth?
Raul Jacob
Well, in general, we do review these opportunities to acquire assets, particularly in a price environment as the one that we have right now, that we believe is not showing the fundamentals of the copper market. So we look at the -- we look at opportunities and we study them, and if there is one that we believe will create value for our shareholders, we will certainly present it to our board and ask for their approval for going ahead with it.
Mitesh Thakkar
Any geographical preference? Or is it on a case-by-case basis?
Raul Jacob
It's mainly on a case-by-case basis but I will say that the Americas is our -- is where we feel very comfortable on operating. Even though we may look into some other opportunities, they are particularly -- we believe that they are important for value creation to our shareholders.
Operator
The next question comes from Santiago Perez from Crédit Suisse.
Santiago Perez Teuffer
I have 2 questions also related to CapEx. The first one is what drove the 20% increase in the SX/EW in Buenavista?
And the second one is if you could please break down the number -- the $2.7 billion for '15 between projects, that would be very helpful.
Raul Jacob
Yes. Let me address on the -- well, mainly, there were different things that broadly speaking, we have to capitalize the initial sales that are the materials that you include in the project.
Once you finish the facilities, this is something that was not considering the initial budget because we believe that, that was going to be charged to cost and it is not the -- it hasn't been the case. Then there were some extra expenses in some pipes system that will create some efficiencies on the plant operation.
That was about $31 million of the total $80 million that has been increased the budget. The initial fields [ph] as I'd say -- that I just mentioned were about $20 million.
And then some additional civil works that were considered to improve the design and the operation of the plant. Those are the 3 major components that explain the difference.
Now on the question regarding the split on the budget for 2015 -- hold on a sec please. Okay.
As I said for this year, we're expecting to spend $80 million on the new SX/EW III. The new concentrator will require about $290 million; the Quebalix, $215 million; and other projects, $265 million.
In total, $850 million in Buenavista. The Toquepala expansion will require $450 million; Tia Maria, $660 million; maintenance CapEx, about $350 million.
And then we have some other projects from different initiatives, minor ones that total the remaining difference to $2,687 million approved by our board.
Santiago Perez Teuffer
And under the grint [ph] or better save [ph] under which copper price assumptions are you assessing this CapEx in order to see a bigger plan to finance it with your own cash? Or will you probably be looking to tapping the debt markets?
I mean, your leverage is pretty low, so how do you see yourself financing this?
Raul Jacob
We think that our cash flow will provide an important source of revenues for the company. As we move on into the year, we are expecting -- as I said, we're expecting prices to improve.
We believe that these better prices should help our cash flow. But we are all the time monitoring the markets and if there is a sense that we can do a reasonable financial, finance for this project, we will consider that as well.
At this point, we're looking at that plus our own cash flow generation.
Operator
The next question comes from Matthew Korn from Barclays.
Matthew Korn
I wanted to ask about the SX/EW III plant. First, you stated you reached full capacity.
I just want to confirm, is anything there resolved post the river spill? Are all the leaching ponds tied to the facility in turns [ph] as expected?
And second, can help me understand given that your full capacity stated is 120,000 tons. Why is the expected lift at 102,000?
Is that just practicality of operating rates? Or is there something else I'm not considering?
Raul Jacob
Yes. Thank you very much for your question, Matthew.
Well, there are 2 things here. Regarding the spill, we are still waiting for the authorities to let us operate the facility that was related to this event in 2014.
So as long as we don't have that approval which we're expecting for mid-2015, we can't operate that area of the mine where we will obtain a very good ore PLS grade, that is the material that is processed by this plant. So we're filling the plant with some other PLS or Pregnant Liquid (sic) [Leaching] Solution that we have in our operations, but not with the same grade.
And that's why we are reducing our production to 100,009 tons for this facility in -- I'm sorry, 1,002 -- 100,002 -- 102,000 tons for this facility. That's basically it.
Operator
The next question comes from Alfonso Salazar from Scotiabank
Alfonso Salazar
Just one follow-up on CapEx. I don't know if you can repeat the numbers, your estimates for 2017 and '18.
And confirm if you have a new smelter project included in these numbers or not?
Raul Jacob
No. Let me clarify.
We have no smelter project in our current pipeline of projects. That is not considered in the figures that I'm going to mention now.
For this year, it's $2,687 million; for 2016, it's $1,180 million; for 2017, $450 million; and for 2018, $328 million.
Alfonso Salazar
Excellent. And just one follow-up on Tia Maria.
There has been some projects taking place. So I don't know how you are seeing this, your concern about this increasing or what you're feeling about this situation.
Raul Jacob
We think that this is not a problem. We're seeing some very minor and not popular individuals protesting against the project, but most of the population in the area is favoring the project and expecting to receive the benefits of this type of investments in their lives.
Operator
The next question comes from Daniel Rohr from Morningstar.
Daniel Rohr
Did I hear correctly that you expect cost before credits to decrease by $0.20 in the next few years? And if so, what sort of assumptions does that make about oil prices and exchange rates?
Raul Jacob
Okay. Yes, you're right, that's what I said and we're expecting prices to be at about the average for last year.
That's about $80 per barrel, roughly speaking. And on the exchange rates, again the average for Mexico and Peru last year.
Currently, we have slightly lower oil prices and slightly higher exchange rates in both Mexico and Peru. So we should have additional benefit this year compared to this year.
But for the future, we believe it's going to be about $0.20.
Daniel Rohr
And then just hearing your revised CapEx outlook for 2017 and 2018 and comparing that to my notes from the third quarter call, am I right that there was a pretty significant reduction to the '17 and '18 figures?
Raul Jacob
No. It was clearly a correction in the figures and you can review it in the transcript.
Because we had a project that was not approved by the board in the last quarter's call information. So the numbers are in line with what I've said regarding this trend forecast.
Operator
The next question comes from Garrett Nelson from BB&T Capital Markets.
Garrett Nelson
Another question on the balance sheet. It looks like your total debt to EBITDA ratio is about 1.5x which is very solid, especially relative to many of your peers.
Are you comfortable with higher ratios going forward though, if copper prices do not rebound or even move lower? And is there a maximum leverage ratio the company aims to stay below or maybe a range that Southern Copper aims to stay within?
Raul Jacob
Yes. Actually, we do have a very solid balance sheet and we want to maintain it as it is.
However, if we need to accommodate some more debt for reasons as the one that you mentioned, we will have a concern about this debt-to-EBITDA ratio goes over 2.5. So right now, it's about 1.5.
We don't think that -- we think that ,that's very comfortable but we still have some more room to increase it if it is necessary.
Garrett Nelson
Okay. And then your quarterly interest expense has been trending lower over the past few quarters and it looks like maybe you've been capitalizing a greater percentage of your interest expense.
Is that right? And if so, it looks like your interest expense was $26.5 million in the fourth quarter.
Is that a good quarterly run rate number to use for 2015?
Raul Jacob
Well, we're reducing our -- you're right in your question. One is that we have to -- we're capitalizing a portion of our interest because the loans were taken to develop these projects and that's what we're doing.
Our total capital -- or I'm sorry, our total expense of interest is pretty much constant since all of our debt is in dollars and at fixed interest rates at this point. But we are reducing what is charged to our P&L because of this interest capitalization.
As we increase our capital expenditures, we will increase interest capitalization as well. So there is no -- this is not like a fixed number and it depends on how quick are we advancing in our projects.
In the 2015 capital budget, we're considering the final payments for some of the investments that we have been doing through these last few years. That's why you have over 90% of advance in the Buenavista project and not as much money spent in the projects.
You usually keep a portion of your budget for a final payment once you are sure that the plant is operating as designed or even better. It's possible, obviously.
So we are capitalizing interests, you're right in that, and this is going to be a trend as long as we develop these CapEx programs.
Garrett Nelson
Okay. That's very helpful.
And then it looks like your tax rate was quite a bit lower in the fourth quarter, why was that? And maybe some guidance for what tax rate we should be expecting for 2015.
Raul Jacob
Well, we have -- at the end of the year, we had some adjustments in our tax position, mainly on the deferred taxes. That's why we have a reduction in our effective tax rate in the fourth quarter.
But for the full year, we should expect a tax rate between -- an effective tax rate between 38% and 39%. This tax rate includes not only the income tax but some taxes that are related to operating income such as the royalties approved in Mexico and Peru.
Operator
The next question we have is from John Tumazos from John Tumazos Very Independent Research.
John Tumazos
At the $2.7 billion CapEx budget for calendar 2015 and approximately the fourth quarter copper price of $3 and related cost dynamics, would you expect that, that balance would go up approximately $1 billion before dividends or stock buybacks?
Raul Jacob
Well, at this point, we're looking at the copper market. And as I mentioned, we expect it to be better off as we move on into 2015.
And we also are monitoring how are we spending our $2.7 billion CapEx budget for the year. On that base, if there is a need to approach the financial market, we will consider that.
But at this point, this is all what I can say about that.
John Tumazos
I agree that the copper market should get better which was why I used the $3 benchmark in the January average. When you say approach the capital market, are you referring to debt or equity?
Raul Jacob
Most likely debt.
Operator
The next question comes from Isidro Arrieta from Santander Bank.
Isidro Arrieta
Thank you. My question has already been answered.
Operator
The next question comes from Alex Hacking from Citi.
Alexander Hacking
Raul, my question was mostly answered but just to confirm, you said that your maximum net debt EBITDA that you will be -- well, that the level that you're looking at will be like 2.5, is that correct?
Raul Jacob
No. I said the debt to EBITDA, not net debt, debt to EBITDA is...
Alexander Hacking
Oh debt?
Raul Jacob
Debt to EBITDA, yes. You have to subtract the cash that we have.
Alexander Hacking
Okay. So you will be looking at total debt to EBITDA at 2.5?
Raul Jacob
That's correct, at the most. Currently, we're at about 1.5.
At the most, that would be a benchmark for us that we don't want to pass because it will create some problems with our credit ratings. But as you know, Alex, we're very conservative in how do we handle our finance so this is like a benchmark that we don't want to pass, not a goal as you said so.
Alexander Hacking
Okay. Is there any covenants linked to that?
Raul Jacob
No.
Alexander Hacking
Okay. I mean, the only reason I asked is that the net debt right -- the total debt right now is $4.2 billion, something like this.
Raul Jacob
Yes.
Alexander Hacking
And the EBITDA -- I mean, I know we all expect the copper price to recover but the EBITDA at the current copper price, I would say, is probably less than $2 billion. So if the copper price has not recovered by the end of the year, we're getting very close to those levels, never mind 2-point-something billion of CapEx, buybacks and dividends.
Raul Jacob
Well, don't forget that we're adding about a little bit north of 100,000 tons of new copper production this year. That should take care of -- and that is going to get into our system at a very low cost because it's going to be mostly variable costs.
So it will be actually our EBITDA, we're expecting it to increase through 2015. You see what's happened in this past quarter, it almost canceled the variance that we have in prices.
At least at the net earnings level, we were better off even with these prices than what we were last quarter, the quarter before that.
Alexander Hacking
Okay. It's clear.
I mean, I know you guys have always been very conservative. Historically, my concern is just if the copper price does not recover as we are expecting, but thank you for the clarification.
Operator
The next question comes from Alex Mackey for MFS.
Alexander Mackey
Most of my questions have been answered but I do wonder whether there is a particular cash balance that you really need to have on the balance sheet at all times to keep your operations running the way you'd like to.
Raul Jacob
Well, there is depending on the operation. But let's say that with about $500 million, we were fine.
We can operate with much less than that, that's a number that's the lowest to maintain a reasonable flow of not only our operations but our capital projects and our maintenance CapEx with no problems.
Alexander Mackey
Okay. And then over the course of the year, 2015, how should we think about the ramping of the $2.7 billion CapEx plan?
Raul Jacob
At the beginning of the year, usually you have -- you don't go as fast as, let's say, the fourth quarter, so it slows. When these are new projects and keep in mind that we're putting on track Tia Maria and Toquepala in 2015.
So these 2 projects should spend more money as we move on into the fourth quarter of the year. While Buenavista, we'll be spending money in a continuous flow because they are already approaching to the end of this project.
So holding [ph] and out we should expect about the balance or a slight increase on the third and fourth quarter.
Operator
The next question comes from Andrew Creedon from Sun Life Investments.
Andrew Creedon
My question was answered. Thank you.
Operator
Mr. Jacob, at this moment, we show no further questions.
I would like to turn the meeting back over to you for any final remarks.
Raul Jacob
Thank you very much, Gilda. Well, with this, we conclude our conference call for Southern Copper Fourth Quarter and 2014 Year Results.
We certainly appreciate your participation and hope to have you back with us when we report the first quarter of 2015. Thank you very much and have a very nice day.
Operator
Ladies and gentlemen, this concludes today's conference. We thank you for your participation.
You may now disconnect.
Raul Jacob
Thank you.