Grupo Mexico SAB de CV
BMV:GMEXICOB
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Grupo Mexico SAB de CV
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Good afternoon, and thank you for holding, and welcome to Grupo México's Second Quarter Earnings Conference Call.
With us this afternoon is Ms. Marlene Finny de la Torre, Mr. Xavier Garcia de Quevedo, Mr. Fernando López Guerra, Mr. Oscar González, Mr. Octavio Ornelas and other executives who will discuss the financial performance of the company during the quarter, giving you a summary of the latest news and address any questions you may 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 México 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 Instructions]
Now I will pass the call to the company.
Hi. Good afternoon, everyone, and thank you for joining us today in Grupo México's Second Quarter Earnings Conference Call. Here with me are all the top executives from all of our major subsidiaries.
I would like to remind that on today's conference call, this is something different from the previous calls we have held. We're going to be following a presentation that have been put -- and you can find it in our website. You can download it from our website or you can access the webcast, if you prefer it, following the presentation. Either way, we will be following that presentation.
So -- and then, first, on today's conference call, on Slide 3, we're going to follow the schedule. I will start with the comments on Grupo México's main financial highlights. Mr. Oscar González will be commenting on the mining economic environment and the main highlights -- the financial highlights of our Mining Division. Fernando López Guerra will then explain the financial results of our Transportation Division; and finally, Octavio Ornelas will comment on the main highlights of the Infrastructure Division. We will then open up the call for questions-and-answers.
Going to Page #5 in the slides, we are very pleased to announce very strong numbers for this quarter that support shareholders' returns. And then going to the numbers in a few minutes with the highlights that [ convenient ] with value for our shareholders, we continue to increase our dividends. This time, the company and the company's board approved a quarterly dividend payment of MXN 0.80 per share outstanding. This implies a 6% dividend yield within a strong cash flow generation at the end of our expansion projects in Buenavista and Toquepala.
In addition, we continue to invest for the future and to deliver a great performance, sustainable growth and the bigger values. As you know, Grupo Mexico has the largest copper reserves in the industry and operate high-quality, world-class assets in investment-grade countries -- mining -- as our mining assets in investment-grade countries such as Mexico, Peru, U.S.A. and Spain.
We are currently developing our next phase of growth with a proven aim to realize copper production capacity of 1.8 million tons by 2025 with our [ various concessions ].
We are also investing in our other divisions outside of Transportation that brought excellent results and means that fully restructured in the division.
I'm going to go into our main highlights, financial highlights, on Slide #6. Our consolidated revenues were 19% higher than the second quarter of 2017. This was mainly driven by high metal prices, copper, moly and zinc prices, and in addition to [indiscernible] talking our Transportation and Infrastructure Division.
Our EBITDA grew 32% and reached $1.34 billion this quarter and with a margin of 49%.
Net profit was 22% and reached $459 million. We grew 22% -- or 22% higher and reached $459 million.
And finally, our CapEx numbers grew 23%. This is higher. We are also now finishing with Toquepala that will start operations in next quarter and we already finished in the previous year with our big expansion in Buenavista. There are still many projects, and in a couple of minutes, Oscar will comment on that.
Going to Slide #7. We remain very confident of our strong capital structure and this generates value. Our balance sheet is very solid. We have our net debt-to-EBITDA ratio of 1.3x, with 80% of our debt in dollars and 20% in pesos, which is next to our revenue -- to our revenue income, which is, in the Mining Division, 100% in U.S. dollars. We got
78% of the debt on fixed rate.
We also have a very comfortable debt payment schedule, which is given in the next slide, Page #8, with no very big maturities until 2035.
In addition to that, we already mentioned the dividend, but I think it's very important to really highlight the increase in dividends and the dividend yield we are giving. As we are generating very strong operations, there is a lot of copper [indiscernible] and we continue to deliver very good results.
I will now pass the call to Oscar, who will discuss the Mining Division.
Thank you, Marlene. Regarding the financial performance of the Mining Division, the U.S. sales were $2 billion, and it was a good quarter. And sales increased due primarily to price of copper, which increased 15% and -- or 20%, excuse me, and price of zinc, 20%; and price of molybdenum, 44%.
Production was very similar to last year's quarter, 248,000 tons and production was flat during the quarter due to lower production of Asarco, compensated by higher production in Peru and the pace of the Mexican operations. We -- as we saw in the first quarter, we have been having lower production on the SX-EW facility. Although on our concentrate facility at Buenavista, we have 3.6% higher production.
EBITDA was $953 million, a 30% increase from last year, and we reached a margin of 48%. And our net profit was $369 million, a rise of 77% from last year.
The copper outlook during the last quarter, LME's copper price increased significantly, from an average of $2.57 per pound in the second quarter of '17 to $3.12, 21%, per pound in the second quarter of 2018.
During July, the copper prices have decreased to as low as $2.71 per pound on July 19, although we kept seeing a comeback in the last few days. We view the fall of copper prices as a result of the market concerns regarding the trade protection between U.S., China and Europe.
We expect a recovery on the copper prices in the coming months because the copper fundamentals are solid.
As a result of the synchronized economic growth of major world economies, refined copper demand is currently our initial forecast and industry experts are forecasting an increase of demand of 2.5% to 3% for the year.
We expect supply to grow approximately 2% in 2018, which will be a support for copper price.
Regarding our projects, we'll talk a little bit of our breakeven as it will give us the highlights operating cash per pound of copper before mine products. Credit was $1.65 per pound in the second quarter of '18. That is $0.107 lower than the value in the first quarter of '18. And this is principally due to lower cost of operations. And regarding mine products, we had a total credit of $308 million or $0.581 per pound in the second quarter. This figure represent a 15.2% decrease when compared with a credit of $343 million or $0.597 per pound in the first quarter of '18. Total credits have decreased for molybdenum, $0.23; increased for zinc, $0.04; and for silver, $0.039 increase; and gold, [ $0.117 ] increase; and sulfuric acid, [ $0.036 ].
Operating cash per pound copper before by-products was $1.55 per pound in the second quarter. That is $0.017 higher than the second quarter of 2017. This 1.1% increase in operating cost resulted in higher cost per pound for production cost of 1.3%.
Regarding by-products for the same period. So total credits were $308 million or $0.581 per pound in the second quarter of '18. This 20.5 increase when compared with the credit of $257 million or $0.483 per pound on the second quarter of '17.
Regarding our projects. [ And Raul tackled ] in the previous calls have a more [ extensive ] presentation, I will keep it short. And Toquepala expansion on the southern Peru town -- excuse me, expansion project in Tacna, Peru, a $1.25 billion project that includes a state-of-the-art concentrator that will expand annual production 100,000 tons of copper, translating into a 59% (sic) [ 69% ] increase. Up to June 30, 2018, we have invested $1,042,000,000, expecting to begin production in the third quarter of 2018.
Tia Maria in Arequipa, Peru. We are working with the government of Peru to obtain construction license in 2018 for the growth projects that will increase 120,000 tons of copper on the SX-EW facility. Investment of $1.4 billion and we expect the license to be issued in 2018.
Buenavista Zinc in Sonora, Mexico. Construction of the concentrator with a production capacity of 80,000 tons of zinc and 20,000 tons of additional copper annually. The budget of the investment is $413 million and we should be operational in 2020. Once completed, our zinc production will double.
Pilares in Sonora, Mexico near our La Caridad mine, an open pit mine with an annual production capacity of 35,000 tons of copper concentrates. High ore-grade minerals will be transported to feed the main concentrator, improving the average ore grade by 0.78% expected from the 0.34% that La Caridad produces currently. The investment budget for the Pilares project is $159 million, and we expect to start production in 2019.
In Asarco, we -- the project to modernize the Hayden facility in Arizona was completed 100% -- or we now complying with 100% of the mineral environmental regulation and we have invested $229 million. And the project is nearly completed. We have a great efficiency and we will reach new copper concentrates smelting design capacity expected to 630,000 tons per year.
Aznalcóllar, and that's our zinc -- mainly zinc production project in Spain. Permitting process will continue, expected to begin late in 2018, with operations starting in 2021. The project investment is an estimated $290 million, and will increase our production to 105,000 tons of zinc per year.
And just talking a little bit of the acquisition of Michiquillay on February 20 this year, the company won the public bidding process for Michiquillay project in Cajamarca, Peru. The company offer included a purchase price of $400 million. Michiquillay is a world-class mining project with minerals of 1,150 million tons of average copper grade of 0.63%. We expect to produce 225,000 tons of copper per year, along with molybdenum, gold and silver. Our initial mine life is more than 25 years and the cost -- and at a competitive cost extraction.
We estimate capital investment of around $2.5 billion. The company plans to start Michiquillay production in 2025 and will become one of the largest copper mines in Peru. This asset not only offers a unique and very attractive growth opportunity, but also an excellent strategic and operational complement that fits perfectly into our portfolio of mining projects in the Americas, especially in countries of low investment risk.
Thank you, and now I pass the call to Fernando.
Thank you, Oscar. As you know, we held our call -- our conference call earlier today for GMXT, commenting in detail of such division. So I will briefly -- I will going to briefly -- going to go through the numbers. Feel free to ask any questions right at the end of the call.
Total revenues for 2018 reached $601 million. This is 26% higher than first quarter 2017 -- second quarter 2017 due to the Florida East acquisition. I'm sorry. [indiscernible] Yes?
26% higher.
This is 26% higher than the first -- yes, in the second quarter of 2017, due to the Florida East acquisition consolidation as well as stronger operations in Mexico, mainly driven by the Intermodal minerals and cement segments.
Volume transported during the second quarter of '18 were 15% higher in tons per kilometer and 32% higher in revenue carloads than the same period during 2017.
In the Energy segment, growth was due to increase transborder imports of diesel, gasoline, LPG and coal, driving the segment 12% growth in ton-kilometers and 8% in carloads. It is expected that in the last quarter of 2019, new petroleum storage -- well, new transport terminals will be ready, which will allow us to boost significantly this business segment.
On the Intermodal segment, our revenue grew 157% versus first quarter '17 -- versus second quarter '17, mainly due to the incorporation of volumes transported by the FEC and a 51% hike in numbers of containers hauled in the domestic services. This is thanks to the capacity increase we have on a -- and we got through our investments from the double-stack capacity that we made on the big towns in the Pacific coast.
Industrial segment grew 18% in tons-kilometer and 11% in carloads due to new truck-to-rail conversion and construction for us, and that increased -- I'm sorry.
[ Turning to... ]
Slide #18.
This is Slide #18, yes, and we're going now to Intermodal minerals and cement.
Cement, as I was mentioning, we have some new construction business as we converted more routes from truck into rails. We have gained some business of the new airport construction, also the reconstruction of the Southeast after the September '17 earthquake.
We're also -- we're having good growth in industrial with new export on [ beer ] volumes and new railcars manufactured in Mexico. Chemicals were growing for new volumes on the imports of plastic resins.
In agricultural, we've had an outstanding quarter -- the second quarter as we grow all-time records on the imports from shuttle trains and unit trains from the U.S. into Mexico, as well as the start of the Mexican and the Pacific cargoes at the Sinaloa and Sonora.
We have a slight decrease on automotive and metals. Automotive, mainly due to the first quarter lack of supply of empty railcars into Mexico and the capacity shortage from that end and the maintenance shutdown from some of the automakers' plants in Mexico.
On metals, with the lifeline, but there are many other projects that are being addressed right now as of the second quarter. We have managed to revert that drop and we continue to grow.
If we're to go into the -- into page -- into income statement. I'm sorry, to go back to Page 17. We've managed to -- we're separating GMXT, excluding Florida, then Florida on the blue columns. And at the end, GMXT with the FEC, with Florida East Coast. We're growing for the quarter at 8.2% on the GMXT, including Florida. We're growing the EBITDA at 12.2% on the Florida division. We're growing 8.4% on the revenue side. And on the EBITDA side, we're growing 15.6% and also achieving a margin expansion from 35.4% into 37.7%, and on the rest of the operations from 40% (sic) [ 44.2% ] to 45.9%.
On that compound level of the entire company through the quarter, we're growing at 31.1%. And revenue is pesos. And on the EBITDA, we're growing also at 31.8%.
And I think that's a brief summary of our value. We would like to talk about the infrastructure numbers.
Okay. Thank you very much, Fernando. Good afternoon, everybody. We are very excited to share with you that during the second quarter of this year, we've reached a new record in energy generation, with 979,000 megawatt-hours produced, which represents an increase of 6.4% of last year. The average power was 437 megawatts.
The EBITDA of the second quarter of this year increased 8% with respect to the second quarter of last year and reached a -- we reached a margin of 36%. The net sale price of electricity power to Minera México during the second quarter was $0.0507, which is 25% lower than in the second quarter of last year.
Also, we reached a new record in the Salamanca-León Highway in this current quarter. We had record MXN 105 million revenues and our weighted average traffic of 12,380 units; and that's [ equivalent ] of more than 19,691 units. The increase in vehicular traffic was 11.3% with respect to last year.
Silao Bypass. On March 22 of this year, the concession title was signed to build, operate, exploit, conserve and maintain the Silao Bypass with a 30-year duration. The highway will be a high specification highway with a length of 17.5 (sic) [ 17.4 ] kilometers that will connect the internal port of Bajío and Silao with the highway of the city of Guanajuato. The estimated investment of this highway will be $120 million.
From the financial side of the picture of the division, we made possible this quarter the refinancing of the Salamanca-León Highway. The credit facility that we have with Banobras was refinanced by a new credit facility with Inbursa for an amount equals to MXN 3.5 billion in UDIS, a real rate of 5.9%, with a 23-year term, which is unique in Mexico, and with a repayment schedule that will allow greater cash flow in the short and medium term to the highway finish.
Next, we have the refinancing of the platform bridge of the syndicated facility that we have with 6 -- 7 different banks. The syndicated loan for these platforms was refinanced by HSBC México, who contracted the total amount of credit to $174 million. We extend the tenor of this credit from June 2019 to December 2021. And the rate drop from
[Audio Gap]
350 basis points to LIBOR plus 250 basis points, a reduction of 100 basis points. The quarterly amortizations of this credit were reduced, which allow us a greater flow in the short term.
Finally, on the oil and gas division. We have the start of the modular Tamaulipas operations and restart operations of the Chihuahua Platform. Currently, we have 5 rigs operating with PEMEX. In April, Modular Tamaulipas began operations; in the same month, the Chihuahua Platform resumed operations with PEMEX, since it was out of operation since September of last year. The date on which the Zacatecas Platform rate resumes operations is currently being negotiated with PEMEX.
All in all, during this first semester of 2018, the Infrastructure Division revenues reached $313 million, which is 404% (sic) [ 4% ] higher than in the previous year.
EBITDA in the division for the second quarter reached $72 million, which is an increase from last year of 5%. And we had a net profit of $32 million compared with the -- a high increase compared to the one of last year. Right now, we continue to look into new opportunities to grow our Infrastructure Division and generate more value to the company.
With this, I conclude my comments to the earnings results of the Infrastructure Division. And once again, thank you for joining us today. Operator, could you please open the session for Q&A? Thank you, and goodbye.
[Operator Instructions] And our first question is from Jon Brandt with HSBC.
My first question relates to Asarco. I know there was some production issues again because of the accident in the first quarter. I'm wondering if you could give us a little bit about when you expect productions to normalize. Should we see it normalize in the third quarter? And what impact it had on the cash costs of the second quarter. And then secondly, I wanted to ask, I guess, on the corporate structure. Grupo México has been trading at a discount. I know you've been working on improving transparency, increasing dividend, et cetera, which hasn't -- so far, hasn't really seemed to work. I'm wondering if there's anything else that you're potentially looking at doing, share buybacks or anything else that can help close that discount.
Yes, Jon, regarding the cycle growth, yes, we're almost at full capacity in mission. We have the issue of the slides that we mentioned in the last fall, but we are almost at 100% power of production and milling there. So we expect third quarter to have better numbers on production especially. And the breakeven for the second quarter was, byproducts, 2 73. And we expect for the end of the year to be around 2 32 in Asarco.
And going on with the second question, Jon, yes, as you noticed, we increased the dividend where, given a dividend yield of 6%, it's been much higher than previous years and higher than the other subsidiaries. So we are looking into our toolbox to see what else we can do. We have thought about buybacks, so it's something that we still have in the back of our minds. Not working on any right now. We already have buyback program approved, but the board would have to take that decision. In this quarter, the [indiscernible] duration giving more dividends. And there's no other additional structure or things that we are thinking right now. But always open and always looking into what else we can do to increase dividends, some other discount.
And just following up on that, I mean, is there a reason that you wouldn't increase the buyback given the discount that you're trading at? And clearly, you have the balance sheet to do so.
No, Jon, we believe because we intend to give more dividends, so it wasn't -- at the end, well, we have our returns for our shareholders, and this time we would like to go ahead with increasing the dividends instead of doing buyback. So we are analyzing both options.
And next question is from Thiago Lofiego with Bradesco BBI.
I have 2 questions. The first one on the rail division. Could you give us a little bit more color on the productivity gains related to bigger compositions? Is this sustainable going forward? Should we expect even improved gains from this specific item? And also, if you could talk a little bit more about the new sign-in systems and improvement in average feed, how is that evolving? The second question on the Infrastructure Division. What's the strategy from here? I mean, we know that there might be possibilities in terms of new investments that you guys are analyzing, potentially fuel storages or even looking at further investments in the toll roads segment. What can you tell us at this point on potential new venture in the Infrastructure Division?
Thank you. Going into the transportation division, as you've witnessed, we've been expanding our margins for consistently for the past years. For this last quarter, on the Mexican operations, we have an expansion of margins of 170 basis points in order to convey -- to deploy operations to 230 basis points. This is -- we are confident that we can continue to deliver on these margin expansions. As we mentioned on the transportation call, we still have our target to increase our train speed within the next 12 to 18 months up to 40 kilometers per hour. This is 10% higher than what we achieved last year. And I mean, it's a bit shy of what we are achieving. We're currently achieving under -- over 37 kilometers per hour. The other metrics that we are confident we can deliver within the next 12 to 18 months, it's 6,000 tons per train. This is -- we're currently achieving -- we're coming from 5,300 of last year and 5,800 of -- we achieved over 5,800 this quarter. We continue to strive towards that. As you know, we have our project -- a lot of CapEx projects are focused on closing in the gap of 800 basis points versus the other carriers. We have achieved this 200 -- almost 200 basis points for this year -- I mean, for the start of this year. And we believe that we can continue to deliver on that end. We are -- with these productivity achievements and investments, we believe we can, by the end of the year, arrive into 250 basis points plus for the year. As you know, this is a multiyear program, and -- but we -- it's a good year for us to achieve this 250-plus basis points.
Okay, Thiago. I take the second question. This is Octavio Ornelas. The new opportunities that we're exploring in the Infrastructure Division, right now, we have been focusing on newly investments in the strength in energy for the storage terminals at port [ the ] city. These are terminals for distillates, which means for diesel and gasoline. Diesel the high level of import that we have in the country of this product derivatives of oil. Secondly, we have been looking also for new opportunities in toll roads. We have been focusing besides the Silao Mine Park that I have explained, we have been looking for brownfield projects like other roads very near to the Salamanca-Leon that we already have from -- operated right now by [indiscernible]. That's basically what we are looking right now in Infrastructure Division.
And our next question is from Carlos de Alba with Morgan Stanley.
I have 3 questions if I may. First, coming back to Asarco. Would you please share how do you see 2019? I mean, clearly, 2018 wasn't the best year, given the accident and the impact on volumes and cost. But what about 2019? Can you comment what the expectations is -- or expectations are in terms of output and shipments as well as cost? And then my second question has to do with the Florida railway, good growth year-on-year in the first half of the year and obviously in the second quarter. What can you share in terms of the EBITDA outlook for that unit? So obviously the acquisition price wasn't necessarily the cheapest and a significant EBITDA growth is required to make that acquisition attractive. So you can share, now that you have been running the business for some time, how the outlook has potentially changed or improved there? And then finally, if I may, Octavio, Brent prices have recovered recently from $48 to $75. Has this or can this result in higher tariffs in the services that you provide to PEMEX with the modular units?
Carlos, I'll start with the Asarco question, what we expect for coming '19 is higher production, of course, not affected by what happened this year. We're thinking to produce around 144,000 tons of copper and to get an EBITDA of $228 million and an operating [ tons ] of production of 228,000.
All right. And what is the implicit or the copper price assumed for EBITDA?
It's $3.
$3, great.
On the Florida acquisition, we're confident that for 2019, we will be delivering an EBITDA of $200 million. We should be delivering an EBITDA of $200 million. At 2021, it should be nearing those $250 million, Carlos.
Okay, Carlos, related to the third question that you're making to us, let me explain. Right now, we have -- PEMEX has much better prices than when we closed all the new contracts that we have right outstanding with them. We don't see -- foresee in the short run any change in the leasing grades that we have right now. We link the price -- the leasing prices -- the leasing rates to the utilization rates of our jack-ups with the Clarksonindex. So right now we don't see any change in the short run, okay?
We do -- each half of the year, we do a revision. Thank you, Carlos.
Our next question comes from Renan Criscio with Credit Suisse.
So basically, my first question will be just a follow-up on the question on the project pipeline in the Infrastructure Division. Just confirm, did you mention the like target dates for the decision to come on which projects and when you should expect it to come up with a specific project, like do you have a timing for a decision? And the second question will be just if you, given the current outlook on the Infrastructure Division for the 3 main divisions you have there, what would be the outlook for the EBITDA? And if you can comment like breaking down this for each division, that would be very helpful.
Renan, the guidance for EBITDA you want for the Infrastructure Division or for Grupo México? We didn't -- I didn't understand.
Yes. Sorry, just for the infrastructure.
Guidance. Give us a second.
Okay, the expected EBITDA for the Infrastructure Division for this year is going to be $290 million. We are expecting that amount to increase the next years from $290 million to $340 million next year. And then we will go from onto $400 million in the next years.
What was your first question, Renan? Sorry, could you repeat that, please?
Sure. The first question was if you have a timing for -- like to make a decision on the projects in the Infrastructure Division, like if you have a timing to make up which projects would you advance first.
Yes. I should say that, right now, what have we analyzed more deeply are the ones in midstream. And after those ones -- we have considered the first investments in those ones, and after that, we have been very active analyzing new toll roads brownfield projects, Infrastructure Division.
Our next question comes from the line of Marcos Assumpção with Itaú BBA.
First question is regarding long-term copper production guidance for 2025 of 1.8 million tons. Besides the 1.5 million tons for Southern Copper, what is the capacity that you're considering for Asarco and for other projects? And the second question is related to Mexico. What are your first impressions on the new administration, the new government in México? And if you see any risks of increasing royalties or changing labor contracts or revisions in concession contracts.
Sure. Thank you, Marcos, for your question.
So on the 2025 estimate of 1.8 million, you're interested in Asarco specifically or...
Yes, Asarco and others. Yes, what are you considering for the 300,000 tons additional besides Southern Copper, yes?
Well, the additionals at El Pilar and Pilares are 34,000 and 36,000 that we have there. Asarco with 240,000 and Michiquillay -- oh, one moment -- Los Chancas with 187,000. I will tell you those are the big...
For Asarco, we are continuing roughly -- give us just 1 minute -- roughly [indiscernible] thousand tons. Our view is more than that. So the [indiscernible]
Sorry, I didn't get the [indiscernible]
Give us just a second.
Asarco would be up a hundred and...
Roughly 200,000 tons and then we will have a required [indiscernible] production of copper. And obviously this is our project that we have now in copper. And we can tell you a breakdown after working in one of these projects.
Our next question comes from Alfonso Salazar with Scotiabank.
I think there was a question about the new administration. I'm not sure if that was answered. And I have another one regarding also the new administration. It seems that it plans to create a free-trade zone in the north border, and I was wondering if you have considered the potential impact on your operations in Sonora and in Buenavista, in particular, given that it's so close to the border. The second question is, well, in Southern Copper's press release, you noted a quite remarkable $8 billion in potential mining investments in Peru. And I was wondering, what is the plan in Mexico? And more specifically, what are your plans if there is any news related to Empalme and El Arco projects? And the third question is a follow-up on the Infrastructure Division. Are there any plans to [ move ] this region to other countries so is this under consideration at this point?
Alfonso, I didn't understand the -- you say the free trading zone for the border?
Right, yes. It seems that the new administration has a plan to create a free-trade zone in the north border, and I was wondering if this will have an impact in your operations in the Sonora state?
No, not really. We don't see any impact in operations in our mine operations of our -- coming for us from any free trade zone, Alfonso. And your second question was? What was your second question, Alfonso?
Regarding Empalme and El Arco projects, if there is any news on these 2 projects.
Yes, regarding Empalme and El Arco, well, Empalme, we have been analyzing the construction of the Cu Smelter refinery, we are $1.1 billion and we are still looking to do some decision because still the market for semi concentrate is more positive than this investment. We will continue analyzing. We don't have a decision yet. For El Arco as well, well, we are in the process of finishing the acquisition of the land. And once we have the land, we will start the environmental impact assessment. This is the program. I would like to add also that we are interested from Infrastructure Division in the special economic zones not only in the border but we are analyzing the southeast portion, especially in the [ ismo ], yes? The south and southeast of Mexico.
Alfonso, I complete the last part of your question. There was one if the Infrastructure Division is considering projects in other countries. We have been, right now, analyzing the construction of toll roads and operation of toll roads in Peru, Chile and Colombia. We're doing right now that. So we are considering any opportunity that we can have in that front for the future in South America.
Our next question comes from John Tumazos with Very Independent Research.
The transportation margins were very, very good, even though there were the derailments in May and some extra security costs perhaps. Were all of those costs related to banditos covered by insurance?
No, the -- part of the insurance -- the insurance only covers when we go past, take $1 million. So everything below that, we pay it from our pockets. So only one of those incidents went above it and that was how we -- the rest were paid by ourselves. So we estimate, if we had run a smooth operations on the Veracruz line, our margins could have been up between 120, 150 basis points. And this is about MXN 300 million more in EBITDA, in pesos, no? $15 million more in U.S.
[Operator Instructions] And our next question is from Christian Landi with Scotiabank.
I would like to know, you guys mentioned that for the Florida East Coast railway, you're expecting $250 million in EBITDA for 2021. I was wondering what kind of EBITDA margin would you be expecting for that year. I guess, it should be higher than the 37%, 38% that you are now delivering. Some guidance there would be helpful.
That is correct. Yes, we strive to improve our margins. We still see a gap that where we can bring it almost to the same level of the Mexican operations. And as you know, we do have above a very small or, how do you say it, an over-the-road operations. We run almost 500 trucks. Their EBITDA margin there is lower. However, all in, we should be delivering between 40%, 42% margin EBITDA still regardless of the trucking operations.
Yes. Just one comment there. The Mexicans got the benefit of the fuel benefit -- the fuel tax benefit. If we take that out, the margins have been much the same. So I'm wondering...
Bear in mind that -- excuse me, bear in mind that it's not a benefit. It's only bringing us to competitive market, international market. What they're giving us back -- if you look at the prices, the diesel in Mexico taking away the EVAT, the VAT, it's about MXN 15 per liter. From those MXN 15, MXN 5 -- MXN 10 is the international price and MXN 5 is the [indiscernible], which is the specialty tax that the Mexican government puts on fuel in Mexico. And that tax is meant to be the specialty tax because it's meant to be focused on certain products. And they are taxing fuel because if you have a car, it means you have more money than the people who don't have a car. That's why it's specialty tax. So it's not a benefit versus the international market. It's bringing it to be competitive against the international market. I don't know if I made myself clear.
And I'm not showing any further questions in the queue. I would like to turn the call back to management for their final remarks.
Thank you so much for joining us today. And if there are any more questions, we can generally take it off the line. And we will [ reconduct ] next quarter. Thank you so much.
And ladies and gentlemen, thank you for participating in today's program. This concludes the conference, and you may all disconnect. Have a wonderful day.