Southern Copper Corp. (PCU) expects its operations, hit by labor problems in Mexico, to become much smoother by the last quarter of the year, chief financial officer Eduardo Gonzalez said Thursday.

Southern Copper was hit by work stoppages in the second quarter at its Cananea and La Caridad mines in Mexico, forcing the company to declare force majeure on some commercial contracts for June and July, and to buy third-party copper concentrates to meet contracts.

Those purchases, which Gonzalez characterized as "aggressive," drove down the company's second-quarter profits, as they were at a higher cost than using the company's own mine production.

"We will continue to do some third-party purchases – of course not to the extent that we did in the second quarter," Gonzalez said in a conference call with analysts. He said that additional costs in the second quarter totaled $60 million associated with buying third party concentrates.

The company has also closed its La Caridad mine, which it plans to reopen with a new structure.

"The case of the Cananea mine has been resolved and we believe it has been resolved in a profound and solid way in the sense we think we can operate with no significant or material labor disruption going forward," he said.

He said road blockages at the entrance of the La Caridad mine have been removed.

"We are at this time negotiating how we could come back into operations within the very near future," he added.

"Hopefully with all of these things we should be normally running our mines by the fourth quarter of this year," he added.

The company also recorded a decrease of $92 million on its net sales in the second quarter, as it sold copper production for the second quarter of 2006 in advance at an average price of $2.90 per pound against an actual market price of $3.16 per pound of copper.

The company said late Wednesday in releasing second-quarter financial results that it has sold 50% of its production for the second half of the year at an average price of $3.50.

On the conference call, Gonzalez said that it has only about 10% of production hedged into the fourth quarter at about $3.60 per pound, and none at all into 2007.

He said more hedging could take place in the fourth quarter if they see average prices considerably higher than current prices.

"We believe that there is still room to maneuver," Gonzalez said.

Later in the conference call, he added, "It will depend on whether copper goes back to $4.00."

The company will also have higher royalty payments in Peru due to higher prices, and will also face larger worker participation costs.

Southern Copper Corp.'s second-quarter net sales rose to $1.28 billion, a 34% increase from the same quarter a year before, while second-quarter net income jumped 41% to $439.3 million.

In a report, investment bank UBS said Thursday that "looking forward, we believe the coming quarters should be positive for Southern Copper, as copper prices remain strong, and the company has upped its average hedge price to $3.50 per pound."

"As cash flow improves, we expect dividend to be increased in the coming quarters," UBS added.

The company said that mine copper production amounted to 273.9 million pounds in the second quarter, a 26% decline compared with the same quarter of 2005. That was due to declines from Mexican open pit and underground mine operations.