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SOUTHERN COPPER CORP/ Annual Report (Amendment), Year Ended Dec 31, 2005

Filing Date
Filed August 30, 2006
Period End
December 31, 2005
Security
SCCO
In the record · 2016–202610-K1510-Q328-K86

SCCO filed 15 annual reports (10-K), 32 quarterly reports (10-Q) and 86 current reports (8-K) between 2016 and 2026.

  1. FY2018 annual report10-K · Mar ’19Mar ’19
  2. Leadership change8-K · Jul ’21Jul ’21
  3. Leadership change8-K · Jul ’25Jul ’25

01—Abstract

Summary

Summary of the 10-K/A filed August 30, 2006. Cited figures are marked; the original filing is the authoritative source.

Southern Copper Corporation's (SCC) Amendment No. 2 to its 2005 Form 10-K (filed August 2006) restates the full annual report to amend Items 1 and 2, update the corporate address, and fix typos; it does not change previously reported financials.

The headline story for 2005 is the April 1, 2005 acquisition of Minera México from Grupo México's subsidiary AMC, accounted for like a pooling of interests, which lifted Grupo México's stake to about 75.1% and roughly doubled reserves and production. Net sales rose 32.8% to $4.11 billiona and net earnings rose 42.5% to $1.40 billion ($9.51 per share), driven by copper prices up about 29% and molybdenum up about 95%. Byproducts, especially molybdenum, now make up over a third of sales.

The filing also flags several issues investors should weigh. Operating cash cost without byproduct credits rose to $1.005b per pound from $0.852, and a January 1, 2006 adoption of the EITF stripping-cost consensus will reverse $499.5 million of capitalized costs, with a $322.9 million net charge to retained earnings and higher near-term operating costs.

Other risks include a February 2006 mine accident at Pasta de Conchos that killed 65 miners, a Peruvian royalty charge, Asarco's Chapter 11 bankruptcy with potential claims against the parent group, the controlling-shareholder conflicts inherent in Grupo México's 75.1% ownership, and an ongoing IRS audit. Financially, SCC ended 2005 with $876 millionc in cash, debt of $1.17 billion, and a net debt to total capitalization ratio of 8.2%, and it paid $5.80 per share in dividends for the year.

02—Key points

Key Highlights

  1. Net sales rose 32.8% to $4,112.6 million in 2005 from $3,096.7 million, with copper prices up about 29% and molybdenum prices up about 95%.
  2. Net earnings grew 42.5% to $1,400.1 million, or $9.51 per share, versus $982.4 million in 2004; operating income reached $2,094.5 million.
  3. The April 1, 2005 acquisition of Minera México raised reserves by about 107% and annual copper production by about 81%, and lifted Grupo México's ownership to about 75.1%.
  4. Operating cash cost per pound excluding byproduct credits rose to $1.005 from $0.852, while byproduct credits (mainly molybdenum at $0.617/lb) offset most of it, bringing net cash cost to $0.026/lb.
  5. On January 1, 2006, SCC adopted the EITF stripping-cost consensus, reversing $499.5 million of capitalized costs with a $322.9 million after-tax charge to retained earnings and expected higher future operating costs.
  6. Cash rose to $876.0 million and net debt to total capitalization fell to 8.2% from 17.0%; the company paid $5.80 per share in dividends in 2005, including a $2.75 dividend declared in January 2006.
  7. Key risks include the February 2006 Pasta de Conchos mine explosion (65 miners lost), Peruvian royalty charges, Asarco's Chapter 11 filing and possible claims against the parent group, and an ongoing IRS audit of 1997–2003.

03—Questions

Frequently Asked Questions

  1. Why did SCC's earnings jump so much in 2005?

    Earnings rose mainly because copper prices increased about 29% and molybdenum prices about 95%, which lifted net sales by $1.0 billion. Minera México, acquired April 1, 2005, also added significant volume, though it was consolidated on a combined basis for all periods presented, so the comparison is not fully like-for-like.

  2. How much of SCC's revenue now comes from byproducts rather than copper?

    Byproduct sales were $1,373.6 million in 2005, about 33.4% of net sales, up from 31.9% in 2004. Molybdenum alone accounted for 22.5% of net sales, so SCC's results are increasingly sensitive to molybdenum prices as well as copper prices.

  3. What is the impact of the accounting change adopted in 2006?

    Adopting the EITF consensus on stripping costs on January 1, 2006 reversed $499.5 million of net capitalized stripping and leach inventory costs, recording a $322.9 million net charge to retained earnings after tax and workers' participation benefits of $176.6 million. Operating costs will be higher in future periods because previously capitalized costs will now be expensed as incurred.

  4. What are the main risks for investors beyond metal prices?

    Key risks include Grupo México's control of about 75.1% of the stock, which lets it dictate board composition, dividends, and asset sales, potentially diverging from minority holders' interests. Other risks are the Asarco bankruptcy and possible fraudulent-conveyance claims against the parent group, Peruvian and Mexican political and currency exposure, labor disruptions, the Peruvian royalty charge, and the February 2006 mining disaster at Pasta de Conchos.

04—Continue

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