Q1 2016 Grupo Mexico SAB de CV Earnings Call on May 02, 2016

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EDITED TRANSCRIPT
GMEXICOB.MX - Q1 2016 Grupo Mexico SAB de CV Earnings Call
EVENT DATE/TIME: MAY 02, 2016 / 5:30PM GMT
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MAY 02, 2016 / 5:30PM, GMEXICOB.MX - Q1 2016 Grupo Mexico SAB de CV Earnings Call
CORPORATE PARTICIPANTS
Alfredo Casar Grupo Mexico SAB de CV - Director
Daniel Muniz Grupo Mexico SAB de CV - CFO
Xavier Garcia de Quevedo Grupo Mexico SAB de CV - President & CEO, Infrastructure
Genaro Guerrero Grupo Mexico SAB de CV - Director of Finance, Ferrocarril Mexicano
Rodrigo Sandoval Grupo Mexico SAB de CV - Director, Corporate Finance
CONFERENCE CALL PARTICIPANTS
Carlos de Alba Morgan Stanley - Analyst
Karel Luketic Bank of America Merrill Lynch - Analyst
Alphonsa Salazar Scotiabank - Analyst
Ivano Westin Credit Suisse - Analyst
Marcos Assumpcao Itau BBA - Analyst
Guillermo Estrada GBM - Analyst
Alex Hacking Citi - Analyst
Jose Vazquez GBM - Analyst
PRESENTATION
Operator
Good afternoon. Thank you for holding and welcome to Grupo Mexico's First Quarter Earnings Conference Call. With us this afternoon is Mr. Alfredo
Casar, Mr. Daniel Muniz and Mr. Xavier Garcia de Quevedo and other executives of the Company. We'll discuss the financial performance of the
Company during the quarter, giving you a summary of the latest news and address any questions you might have at the end of the call.
Before we begin, I would like to remind you that 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 not
to place undue reliance on these forward-looking statements.
Grupo Mexico 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 US GAAP. At this time, I would like to remind participants that your lines will be in a listen-only
mode until the question-and-answer session.
Now, I will pass the call on to Mr. Alfredo Casar. You may begin.
Alfredo Casar - Grupo Mexico SAB de CV - Director
Thank you, Ricardo. Good afternoon, everyone, and thank you for joining us today in Grupo Mexico's first quarter earnings conference call. Joining
me today are top executives from all our major subsidiaries. On today's conference call, first, I will briefly comment on Grupo Mexico maintenance
and highlights.
Then, Mr. Muniz will comment on the Mining economic environment of this quarter and the main issues impacting the Company's profitability,
followed by the most relevant comments on our Mining division results. I will then explain the financial results of Transportation division. After
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MAY 02, 2016 / 5:30PM, GMEXICOB.MX - Q1 2016 Grupo Mexico SAB de CV Earnings Call
that, Xavier will comment on the main highlights in our Infrastructure division. And finally, we will then open the call for question-and-answer
session.
I'm pleased to say, we reached the new records at the Company; higher copper production for the quarter and the highest EBITDA margin of $0.44
for the Transportation division.
Revenues; consolidated revenues during the first quarter totaled $1.92 billion, which is 8% less than the first quarter of last year. Cost of sales; cost
of sales in the first quarter reached $1.1 billion, 7% less than the first quarter of last year.
EBITDA in the first quarter totaled $728 million, 12% less than in first quarter of last year, mainly because of the drop in metals prices. Net consolidated
profit totaled $407 million, which implies a 21% increase compared to first quarter 2015, with a margin equivalent to 21% of sales.
CapEx; ever since we approved our aggressive expansion plan, we have committed to deliver and create value in our Company. We are proud to
see that the results of our investment today which are reflected in the additional low cost copper production and that we're increasing financial
results in the Transportation and Infrastructure division. Capital investments totaled $307 million in the first quarter.
Cash and debt management; despite the low commodity cycle, we maintained a very strong balance sheet and a solid capital structure with a
lower debt level and long-term amortizations. We have no relevant principal payments until 2035. So we are well positioned to deal with this
copper price cycle. The total consolidated debt amount to $7.5 billion with a cash balance of $1.3 billion. The Company's net debt stands at $5.2
billion with a net debt-to-EBITDA ratio of 2.1 times.
Dividends; with respect to dividends, the Company -- Board approved a quarterly dividend payment of MXN0.15 per share outstanding, which will
be paid in cash on May 13.
Now, I will pass the call to Daniel Muniz, who will comment on the Mining industry environment, metal prices and give the highlights of the Mining
division financial results, Daniel?
Daniel Muniz - Grupo Mexico SAB de CV - CFO
Thank you, Alfredo. Well, it was a complicated beginning of the year as you might recall for copper prices and we have seen in the first quarter,
high volatility. However, we remain confident in the long-term positive fundamentals while dealing with the reality of today's price. During this
price environment, we're making our Company much more cost competitive while maintaining a very solid financial condition. Consequently, we
are well positioned to take advantage of the current market conditions.
On the positive side, we have seen in this past quarter some easing in the macroeconomic headwinds that affected our market over the past years.
We have also seen a slight recovery of commodity prices as the result of the US dollar appreciation.
In addition, sentiment toward China appears to have improved, given the recent strength in property prices and higher than expected fixed asset
investment, improving the sentiment regarding the copper market balance. Outside China, we have seen weakness in Brazil and Japan, but very
positive recoveries in the United States and Europe. According to Wood Mckenzie's estimates, we expect copper demand to increase 2.3% worldwide
and 2.9% in China.
Now, talking a little bit on the supply side, we believe that supply will face a complicated scenario due to the production closures announced and
delays in project startups. We've see technical problems, labor unrest, weather patterns, and other difficulties in many mines across the world.
Production cut announcements are currently over 800,000 tons. If this cut materialize, it will offset the additional production coming from new
operations which are Las Bambas, Toromocho, and including Cerro Verde and our own Buenavista project expansions.
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MAY 02, 2016 / 5:30PM, GMEXICOB.MX - Q1 2016 Grupo Mexico SAB de CV Earnings Call
There are no major new projects coming in line after 2017 and current copper prices do not incentivize any future developments. In addition a
trend of lower ore-grades in the industry continue to affect the supply side. We believe there is a significant deferral of major projects around the
world, as companies look to cut CapEx and focus on increasing returns to shareholders.
This also comes at a time when some entities are at risk of credit rating downgrades that could lead to increase in financing cost. The supply issue
will continue to be a major supported fact for the market giving us an optimistic view of a long-term copper prices. We at Grupo Mexico are very
excited of our low-cost position with a growing level of production and our very large resource base that will continue to give us future growth
opportunities.
I'll now discuss the main developments of our Mining division, which is as you know Americas Mining Corporation, comprises our subsidiaries
Southern Copper Corporation and ASARCO. Copper production, as Alfredo mentioned, increased 20% with a little south of 44,000 tons of additional
copper, representing a production figure record for our Company. This increase is due to the start of operations of the new projects at Buenavista
mine in Sonora, Mexico, which increased this mine's production by 68%. Our gold and silver production also increased, this was by 58% and 28%
respectively.
With this additional low-cost production, we were able to partially offset lower metal prices; Copper dropped 21%, Molybdenum was minus 37%,
Silver minus 11%, Zinc minus 20%, and Gold only 3% lower. This is the prices that we've seen in this quarter. For this quarter of 2016, sales were
$1.4 billion, $110 million lower than sales for the first quarter 2015; this is 7.1% lower.
We are very optimistic regarding our cash cost structure as new projects come online. In the Mining division, we consolidated ourselves as the
Company with the lowest cash cost in the global industry. Cash cost per pound of copper, net of byproducts was $1.10 per pound. This compares
to $0.18 (sic - see press release $1.18) per pound in the same period of last year and this is $0.28 below our last quarter cash cost. This was achieved
despite the sharp drop in the prices of byproducts that I already mentioned.
Cash cost per pound of copper before byproducts was $1.46 per pound compared to the $1.74 in the same period of last year. This is a reduction
of 16%. During this low price environment, again, we're making our Company much more cost competitive and we believe we're positioning
ourselves for what's going to be a very positive copper market in the long run.
EBITDA for the first quarter 2016 was $502 million with [35%] EBITDA margin. This compares with $594 million for the first quarter 2015. Finally,
net income in the first quarter 2016 was $353 million; that is 24.5% of sales.
Now moving on to projects; in 2016, we continued to develop our investment program to increase copper production capacity by approximately
90%. This is from our production level of 600,000 tons in 2013 and we expect to produce 1.2 million tons.
Capital expenditure for the first quarter in the Mining division totaled $283 million. Ever since we approved our aggressive expansion plan, we had
been committed to pursue greater value for our shareholders. Since then, we have absolutely focused on delivery. Today, we are proud to report
these results which are reflected in the additional low-cost production.
I will not comment in detail the capital expenditure in expansion projects as Southern Copper had earlier today its conference call. If you have any
questions, we'll be happy to discuss them as much detail as you want in the Q&A session.
Nevertheless, I'd like to highlight one of the most important projects, the most important ones that we are undertaking i.e. Buenavista del Cobre
in Sonora and Toquepala expansion. Of the $3.5 billion investment program in Buenavista, we have invested $3 billion already. And excluding the
Quebalix project, which is the crushing and conveying system and some other infrastructure facilities, all other facilities of this program are currently
operational and we expect to produce 460,000 tonnes of copper in 2016 and 500,000 tonnes of copper in 2017.
Buenavista program is being completed within budget and with no major delays. Buenavista's concentrator number II is working at 93% of its total
capacity of 180,000 (sic - see press release 188,000) tonnes of copper. This concludes our two largest expansions in Mexico, as you remember
the SX/EW III facility and this new Concentrator.
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MAY 02, 2016 / 5:30PM, GMEXICOB.MX - Q1 2016 Grupo Mexico SAB de CV Earnings Call
The Toquepala expansion includes a new state-of-the-art concentrator, which will increase annual production capacity by 100,000 tons of copper
to 235,000 tons in 2018, and will also increase Molybdenum production by 3,100 tons, at an estimated capital cost of $1.2 billion. Through March
31, 2016, we have invested $406 million in the project. The project is expected to be completed by the first quarter 2018.
To ensure energy supply for the current operations and our expansions, we have reached an energy purchase agreement at a very competitive
cost. This agreement will enable us to ensure the necessary capacity of energy in terms of quality, quantity and cost from a third-party that will
assume all the risk of operations and generation, allowing us to focus on Mining operations, which are our core business.
We believe these investments are a proxy for the continuous creation of value for our shareholders and that confirm a commitment to continue
to invest and develop our expansions on the years to come.
With that, we conclude the Mining Division comments and I will turn back the call to Mr. Alfredo Casar.
Alfredo Casar - Grupo Mexico SAB de CV - Director
Before I go into the results report, it's very important to mention that the results are expressed in dollars that have been affected by the peso
depreciation against the dollar in 21% year-over-year.
Revenue in pesos, as of March this year have increased 17% over first quarter of last year against a decrease of 3.5% in dollar terms. Operating
income in pesos for the year was 28% higher than last year, but 12% higher expressed in dollars. EBITDA in pesos represent 22% increase against
2015 and 2% in dollar terms.
Now, going through operating performance; as result of the infrastructure investment and maintenance programs, the average cruise speed
increased 4% in the first quarter from 30 kilometers to 32 kilometers per hour. Likewise, the yield on diesel consumption improved 5% year-over-year,
decreasing from 4.45 to [4.22] liters per gross thousand tons-kilometer.
The volumes transport year-over-year in tons kilometers increased 7%. The segments with the highest contribution were; Intermodal, Automotive
segment, Agricultural products, and Metals.
Revenues were $435 million. This is 3% less than what we have sold last year. EBITDA reached $174 million exceeding by 2% the figure that we had
in 2015. Our margin improved from 38% to 40%. Operating income as of the first quarter was $136 million, an increase of 12% against the $121
million of last year with an operating ratio of 68.8% versus 73% last year.
Capital spending for the first quarter was $21 million, initiating our 2016 CapEx program of $432 million. The investment program includes 15 new
locomotives beside major infrastructure and capacity projects. This new equipment, the projects will allow us to keep growing our sales and lower
our cost.
Thank you for your attention and now I will return the call to Xavier Garcia de Quevedo.
Xavier Garcia de Quevedo - Grupo Mexico SAB de CV - President & CEO, Infrastructure
Thanks, Alfredo. Good afternoon, everybody. I will now comment on the main highlight during this first quarter for our Infrastructure division,
which is in the final phase of its full development and expansion and we're now seeing the benefits of the important investments made in recent
years.
During the first quarter, Infrastructure division consolidated sales reached $151 million, in line with the same period last year. Despite the drop in
PEMSA, the drilling company revenues. The drop in Perforadora Mexico revenues was due to the agreement signed with Pemex in 2015 where a
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MAY 02, 2016 / 5:30PM, GMEXICOB.MX - Q1 2016 Grupo Mexico SAB de CV Earnings Call
temporary decrease in rates for a 12-month period was established, although accompanied by an additional 12-month extension to our existing
contract. The division's EBITDA totaled $600 million, representing an 8% decrease compared to the same period last year.
Regarding the toll road Salamanca-Leon, we are pleased to share that during the first quarter, the highway reported record revenues of MXN115
million and a weighted average daily of 9,316 vehicles. This first quarter of 2006 (sic - see press release, "2016") revenue increased by 4.5 times and
traffic nearly 4 times versus the first quarter 2015, as a result of the start of operations of the whole highway in September 2015. During the quarter,
the Tamaulipas Modular Platform is all finished and the tests have been completed. We are awaiting the assignment of its location to begin installing
it in the Sound of Campeche. We truly believe we are strategically well positioned to take advantage of the opportunities from the positive growth
outlook that Infrastructure enjoyed in Mexico. Thank you.
With this, we conclude our comments to the early results. Once again, thank you for hearing our first quarter conference call. Operator, could you
please open the session for questions-and-answers?
QUESTIONS AND ANSWERS
Operator
(Operator Instructions) Karel Luketic, Bank of America Merill Lynch.
Karel Luketic - Bank of America Merrill Lynch - Analyst
Good afternoon everyone. Thank you for the questions. I have a couple of questions. The first one, if you could provide some guidance on what to
expect in terms of results for ITM and Infrastructure in 2016 and maybe 2017, talking about revenues, if possible, and EBITDA guidance?
And my second question is on ASARCO. What can we expect in terms of cash costs for 2016 normalized after the first quarter and if that is sustainable
going into 2017? Those are my questions. Thank you.
Daniel Muniz - Grupo Mexico SAB de CV - CFO
I can probably start off with the ASARCO question. This is Daniel Muniz. I mean we've seen a dramatic improvement in costs in ASARCO. Thanks
for the question, giving the opportunity to tell you what we've been doing and it's been analyzing what operations are more expensive than others
and what are worth closing now, given the price environment and found that in Hayden. So I mean, we closed and have reduced the workforce
there, and our cash costs have dramatically dropped from almost [191 to 31] in 2015 and we see this normalizing about $1.60 for ASARCO's following
this year.
So I mean we've seen the results of our reengineering and restructuring of costs at ASARCO and we're very happy to report that. Let me pass on
the call to Genaro Guerrero from the ITM business.
Genaro Guerrero - Grupo Mexico SAB de CV - Director of Finance, Ferrocarril Mexicano
Thank you, Daniel. Well, our guidance for this year in terms of volume is a 4.1% increase. We expect to reach 56,429 million of ton-kilometers. And
this has been adjusted with an increase of 7% that we got during the first quarter. That's our guidance for the year.
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MAY 02, 2016 / 5:30PM, GMEXICOB.MX - Q1 2016 Grupo Mexico SAB de CV Earnings Call
Xavier Garcia de Quevedo - Grupo Mexico SAB de CV - President & CEO, Infrastructure
Now, I would comment about the Infrastructure. We are expecting this year to end with a total revenue of $665 million. For the years 2017 and
2018, we expect an increase to $753 million and $786 million respectively due to the fact that we will have all our facilities running at a full capacity
and we are also expecting to increase our construction of new roads we make. Basically this is the --
Operator
Carlos de Alba, Morgan Stanley.
Carlos de Alba - Morgan Stanley - Analyst
Thank you very much gentlemen. So, first question is on Mining, actually two of them, maybe Daniel, you can help me with, any updates on the
Aznalcollar project in Spain? And also, if you can give us the specific cash cost before and after byproducts of a cycle in the first quarter. That will
be great.
And then moving to the Infrastructure division, maybe, Quevedo you can help me there with, what is the outlook of the rates that PEMSA is receiving
with Pemex? I mean, given the situation of the state-owned company, have you been in discussions or have they approached you to try to renegotiate
the daily rates once more? And also, do you have a specific timing of when the Tamaulipas unit could start generating revenues? Thank you.
Daniel Muniz - Grupo Mexico SAB de CV - CFO
Let me just start off with Aznalcollar. Well, we've seen a very positive increase in Zinc prices, which we are very grateful. We are pushing forward,
as you probably -- I reported last time I think, we concluded all controversies with the second place in the bidding process. We've been handed
the project, the installations, facilities and what have you. We are already managing that site. We are planning an exploration program for this year
and we're working on engineering as well.
So I think the work that we're going to be -- and we are definitely pushing forward, but the work that we have to do now is explore first and have
that engineering works that we're doing there. We already have a team there and we'll give you more details as soon as we progress and we are
happy with this project and moving forward.
Regarding the cash costs for ASARCO, again, as I was saying, we are happy to report that our reengineering, in terms of cost cutting and closure of
the most expensive operations are working. Our cash cost without byproducts for the quarter was $1.80 per pound of copper. And including the
benefits of the byproduct credits, that's $1.70 per pound of copper versus ASARCO.
Carlos de Alba - Morgan Stanley - Analyst
And what is the CapEx budget for Aznalcollar this year?
Daniel Muniz - Grupo Mexico SAB de CV - CFO
I mean it's only EUR10 million. I mean it's again exploring and engineering, EUR10 million. This year it's not relevant, so to speak. Let me pass on
the call to (inaudible) will answer the Infrastructure.
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Unidentified Company Representative
Carlos, let me comment about the Pemex renegotiations. Pemex has asked to all the companies who have the leasing contracts of Pemex for a
re-negotiation process. We are now talking with Pemex, but they won't think of [VCs that] they are often [tuned to new schemes]. It is not only
their renegotiation, we have offered to offset the decline in the rates, a program for increasing efficiency and utilization of the platforms and we
are exactly in the -- in this period, we expect probably that in the next month, we continue with these negotiations. Regarding the Tamaulipas, the
timing to fully in operation this Tamaulipas modular at the Ayatsil field is starting installation in [Lagos] and to start production in October of this
year.
Operator
(Operator Instructions) Ivano Westin, Credit Suisse.
Ivano Westin - Credit Suisse - Analyst
I was listening to your initial comments and you mentioned about your net debt and your net debt to EBITDA at 2.1 times and also about return
to shareholders. So just wonder if you could comment on what your comfortable level in terms of your net debt to EBITDA, whether a buyback
would make sense in this point in time?
And a second question, if you could please provided your updated CapEx guidance for 2016 and 2018? Thank you very much.
Daniel Muniz - Grupo Mexico SAB de CV - CFO
I mean, regarding net debt, I think we feel very comfortable with 2 times and we think about net debt at being the -- let's say the peak, so to speak,
given the incremental production we're having from Buenavista and then from Toquepala. So that will be decreasing so to speak to 1 times. If you
look at Southern Copper by itself. As you know, ITM is very unlevered. It's very conservative in terms of the use of the balance sheet.
In terms of buybacks, we've seen an important -- gladly to report, an important peak so to say in the copper price and in the share price. We bought
back, in the last year, about $1 billion of shares from Southern Copper. This year, we at the Board in January [not this one] was decided that, I mean
it was more prudent to conserve our cash position, so to speak, to the Toquepala expansion, et cetera. So we haven't bought back any shares since
January in Southern Copper.
And in Grupo, we have not bought back shares yet. I mean, there was a discussion about that in the Board and it doesn't really make sense given
the massive, some of the [card's] discount that we're seeing between Southern Copper and Grupo Mexico, but I mean as you saw probably, we
continue in both companies with a track record that we have in terms of decreasing dividends.
Operator
Alphonsa Salazar, Scotiabank.
Alphonsa Salazar - Scotiabank - Analyst
Just a follow-up on the buybacks. Can you remind us what is the amount approved for buybacks at the Grupo Mexico level. And the second question
is regarding EBITDA. In the Southern Copper conference call, Oscar Gonzalez mentioned that for this year, investments will be mostly for drilling
and if I'm not mistaken, your start date, the proposed start date that you mentioned is 2018. So just wondering if you see any change to the start
date of El Pilar after -- or everything is going according to schedule.
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MAY 02, 2016 / 5:30PM, GMEXICOB.MX - Q1 2016 Grupo Mexico SAB de CV Earnings Call
And finally, if you can talk about other projects in Mexico? Now that Buenavista is pretty much completed and I'm thinking about El Arco, Pilares
and especially Angangueo. It seems there is a lot of opposition for environmental reasons. So if you can give us some light on what's going on
there, that will be much appreciated. Thank you.
Alfredo Casar - Grupo Mexico SAB de CV - Director
Well, first of all, let me just go back to the buyback and I appreciate because I missed in the previous call to mention the amount and it is $240
million for Grupo Mexico that was approved in the General Shareholders' Meeting last Friday. And that, as you know, is just the way to Mexican
securities law works
Then in terms of El Pilar, yes, I mean, we are very positive of this project. We've done a lot of engineering and I don't know if you want to comment
something Xavier there? But I mean, yes, we're moving forward, as Oscar Gonzalez pointed out with the drilling and restoration program. We've
also been having a lot of work in terms of engineering towards how to extract synergies. As you know, when we reported, when we acquired this
project, the way the previous owner had envisioned this project was building everything, and that's a (inaudible) et cetera, things that we don't
need.
But good time to remember everyone that this project is 40 kilometers away from Buenavista copper mine. It is highly-developed in terms of
infrastructure, permitting et cetera and we are moving forward. I don't know if you want to ask something Xavier. And I think we don't have much
to report at this point. As you pointed out, we continuously work with the environmental authorities in order to get the permit, et cetera, but do
you want to comment, Xavier?
Xavier Garcia de Quevedo - Grupo Mexico SAB de CV - President & CEO, Infrastructure
No, well, we are also improving our engineering, so we can have a pre-environmental project. As you know, Angangueo is a polymetallic mine, is
underground and we are planning let's say, to do a crushing and milling in the interior of the mine. So we are just, as Daniel mentioned, waiting
for the environmental permit and also working with the authorities of the state to protect the [butterfly] model. This is also a program that we
have.
Regarding Pilares, as you know Pilares is a mine that is only eight kilometers west of La Caridad. And this is a very nice project because we will be
just a mining operation, an open pit mining operation in which we will use the installations of the concentrator of La Caridad. This is just a small
expansion to put on another mill and more flotation sales and we are now finishing with the negotiations to acquiring the land from the hills.
Alfredo Casar - Grupo Mexico SAB de CV - Director
And just to clarify of course, I mean there are similar names in Pilar and Pilares. I was talking about El Pilar which is, I mean when completed it will
be about 30,000 tons of copper per year and (inaudible) I clearly was talking about Pilares which is the deposit very close to Caridad mine and it is
going to be 40,000 tons of copper per year. I mean both when fully completed.
And just going back to the question on additional projects out there. I mean, of course given our cash position, our strong balance sheet, I mean
with this price environment, we're always looking at opportunities. However, we're very prudent in the use of our cash balance and therefore, we
are just analyzing all opportunities out there, but it might not make sense to do things like El Arco now so to speak, given the price environment.
And just another project that we've been working on, it's the Buenavista zinc, that it's a -- I mean within the Buenavista mine, there is a deposit that
we could produce 60,000 tons per annum of Zinc. That is, as you know, we kind of keep in balance Brownfield and expansions against Greenfield
so to speak if you look at El Pilar, Pilares and Aznalcollar and trying balance that portfolio that make sense given revenues, cash position, prices et
cetera. So I mean, that's how we analyzes every report.
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MAY 02, 2016 / 5:30PM, GMEXICOB.MX - Q1 2016 Grupo Mexico SAB de CV Earnings Call
Xavier Garcia de Quevedo - Grupo Mexico SAB de CV - President & CEO, Infrastructure
Just to compliment, as you know, El Arco is a big challenge to have energy. Without energy we cannot start this project. And the estimate is $2.6
billion to build this project without considering the energy. So, it's not the timing to start with the El Arco.
Operator
Marcos Assumpcao, Itau BBA.
Marcos Assumpcao - Itau BBA - Analyst
First question on Asarco's volumes. Could you confirm please the guidance for 2016? And if you're analyzing, increasing this number as the cost is
declining a lot. Second point on Southern Copper. For the full year, you guided that cash cost should be around $1.5 per pound and in the first
quarter, you already reached $1.41. So, also if you could be analyzing eventually reducing that guidance a little bit or if you believe that there is
upside based on the cost side? Thank you.
Operator
(operator instructions) Guillermo Estrada, GBM.
Guillermo Estrada - GBM - Analyst
Just a follow-up question on the Infrastructure division. If you could share the EBITDA breakdown per division for this year and until 2018, as well
as the CapEx evolution, it will be very helpful. Thank you very much.
Operator
Alex Hacking, Citi.
Alex Hacking - Citi - Analyst
Hi, sorry, sounds like the previous questions were not answered. Could you give us an update on GAAP efforts please, the legal status with the
rulings on various appeals and your plan for the holding? And also just to follow-up on the production expectation from ASARCO, it seem like
production was quite strong in the first quarter, considering the closure of Hayden. So maybe you could give us an update on the production
guidance for 2016? Thank you.
Alfredo Casar - Grupo Mexico SAB de CV - Director
(Technical Difficulty) Sorry, I mean we were asked about the cash cost of Southern Copper. Should we proceed and go ahead?
Operator
Yes, please go ahead.
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MAY 02, 2016 / 5:30PM, GMEXICOB.MX - Q1 2016 Grupo Mexico SAB de CV Earnings Call
Rodrigo Sandoval - Grupo Mexico SAB de CV - Director, Corporate Finance
If you want, I can comment on that. This is Rodrigo.
Daniel Muniz - Grupo Mexico SAB de CV - CFO
Go ahead please, go ahead Rodrigo.
Rodrigo Sandoval - Grupo Mexico SAB de CV - Director, Corporate Finance
Okay, regarding our cash cost, as you will know, we reported $1.41 per pound this quarter. We are certainly pleased with this result and we believe
that the cash cost should be at about this level for the rest of the year or slightly improving when we have our second Molybdenum plant operating
in Buenavista.
At this point, the Buenavista second molybdenum plant is being under construction, and we are expecting it to be finished in the second half of
the year. Besides that, we will have slight -- an increase in production coming from the new concentrator when it reaches full capacity, which we
believe should happen at this quarter. So in that sense, we are optimistic about the Company cash cost, but at this point, we want to maintain our
current level of an estimate for the year.
Operator
Jose Vazquez, GBM.
Jose Vazquez - GBM - Analyst
We saw a 200 basis points expansion on the EBITDA margin for your Transportation division. Is this a sustainable margin for the quarters to come
or is there enough space for further improvement? Thank you.
Daniel Muniz - Grupo Mexico SAB de CV - CFO
We think that we will maintain that 40%, mainly for two reasons, because we think that our division, Ferrosur, will increase volume when MX
problems are solved, okay, in Coatzacoalcos. And second, because we are making a lot of investments in order to increase speed in the Infrastructure
part of the business. So, if we can increase the speed, we will lower our cost. Our EBITDA margin that we think in 2019 will be around 44%. But that's
a long-term projection.
Operator
Marcos Assumpcao, Itau BBA.
Marcos Assumpcao - Itau BBA - Analyst
Sorry, I think that one of my questions were not responded before. I asked also about the Asarco's volumes for 2016 and given the recent decline
in cash cost, if you could be revising that number for the full-year. I think the last guidance for Asarco's production was 170,000 tonnes, if I'm not
mistaken. Thank you.
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MAY 02, 2016 / 5:30PM, GMEXICOB.MX - Q1 2016 Grupo Mexico SAB de CV Earnings Call
Alfredo Casar - Grupo Mexico SAB de CV - Director
Thank you Marcos. I mean the guidance stands, I mean we are focusing on reducing costs and this 170,000 tonnes is still our expected production
guidance for this year. So yes, that's the one. I mean we're happy with the cost reductions, but bills are attributable, as I said, to the closures we've
made in Hayden. So I mean happy with results. We're going to keep trying to improve productivity and I mean 170,000 tonnes is the right number.
Marcos Assumpcao - Itau BBA - Analyst
Okay, is there a breakeven price for copper that you would be considering restarting the Hayden plant?
Alfredo Casar - Grupo Mexico SAB de CV - Director
Not at this momentum, I mean that concentrator is the oldest we have so far. I mean, it needs to change dramatically in order to reopen that specific
operation. I mean, it's part of a concentrator that's very old, actually from 1911, if I recall correctly. So at this point, I mean we are going to focus on
what we have most efficiently operating.
Operator
Guillermo Estrada, GBM.
Guillermo Estrada - GBM - Analyst
Just a follow-up question on the Infrastructure division, if you could share the EBITDA breakdown per division for this year and until 2018, as well
as the CapEx evolution, it will be very helpful. Thank you very much.
Xavier Garcia de Quevedo - Grupo Mexico SAB de CV - President & CEO, Infrastructure
Your first question is EBITDA for each one of the division. Well, for Perforadora, we have $118 million this year and we give you later the EBITDA
margin. For our energy sector, we have a $136 million of EBITDA and the construction and engineering Company $61 million. This is for 2016. For
2017, we are expecting an increase of EBITDA in around $40 million that is coming mainly from the energy and construction companies, okay?
construction (inaudible) need more specific information.
Alfredo Casar - Grupo Mexico SAB de CV - Director
Do we have any further questions operator?
Operator
(Operator Instructions) At this time, I see we've no questions in queue.
Alfredo Casar - Grupo Mexico SAB de CV - Director
I think with that we conclude this conference call and look forward to seeing everyone, and thank you for joining us, and thank you for the interest
in our Company and goodbye now.
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MAY 02, 2016 / 5:30PM, GMEXICOB.MX - Q1 2016 Grupo Mexico SAB de CV Earnings Call
Operator
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.
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