01—Abstract
Summary
Summary of the 10-K filed March 1, 2011. Cited figures are marked; the original filing is the authoritative source.
Southern Copper Corporation (SCC) reported a strong fiscal 2010, with net sales of $5,149.5 milliona (up 38% from $3,734.3 million in 2009) and net income attributable to SCC of $1,554.0 million, or $1.83 per share, up about 67%.
The increase was driven mainly by sharply higher metal prices: the average LME copper price rose 46% to $3.42b/lb, molybdenum rose 43%, and silver rose 38%. Copper accounted for about 73% of 2010 revenue, molybdenum about 13%, and silver about 6%. Operating cash flow reached $1.92 billion, and the company ended the year with $2.19 billion in cash against $2.76 billion of total debt.
The filing also highlights a set of forward-looking items. Management guides to 2011 copper production of about 630,000 tons, a 26% increase, driven by the full restart of the Buenavista mine after its roughly three-year strike. It plans a $1.7 billionc capital program for 2011, including the Tia Maria project in Peru (about $934 million total budget, first copper expected in Q4 2012, EIA approval expected Q2 2011).
Management has hedged about 61% of 2011 copper sales. Dividends were $1.68d per share for 2010, and the Board declared a 58-cent dividend payable March 1, 2011. Key investor risks include: (1) a pending non-binding all-stock combination proposal from parent AMC (Grupo Mexico, which owns 80%) under which SCC shares would convert at 1.237 AMC shares each, now under review by a special committee; (2) ongoing labor disputes and strikes at Taxco and San Martin; (3) community opposition to Tia Maria and new Mexican environmental litigation rules; (4) a sharp rise in debt after the $1.5 billion bond issuance in April 2010; and (5) class-action suits tied to both the 2005 merger and the proposed AMC combination.
02—Key points
Key Highlights
- Net sales rose 38% to $5.15 billion in 2010, and net income attributable to SCC rose 67% to $1.55 billion ($1.83 per share), driven mainly by higher metal prices.
- Copper accounted for about 73% of 2010 revenue. Average LME copper prices rose 46% to $3.42/lb, and molybdenum prices rose 43%.
- Operating cash flow was $1.92 billion, up from $963 million in 2009, and cash on hand reached $2.19 billion at year-end.
- Total debt rose to $2.76 billion after a $1.5 billion unsecured notes issuance in April 2010; net debt to net capitalization stood at 12.7%.
- The 2011 capital program is budgeted at $1.7 billion, with Tia Maria (about $934M total budget, targeted first copper Q4 2012) as a key project. Buenavista's full restart is expected to lift 2011 copper output about 26%, to roughly 630,000 tons.
- Parent AMC (Grupo Mexico, 80% owner) proposed an all-stock combination at 1.237 AMC shares per SCC share. A special committee is evaluating it, and there is no deadline.
- Key risks include labor strikes at Taxco and San Martin, community opposition to Tia Maria, Peruvian and Mexican regulatory uncertainty, and pending shareholder litigation.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, Southern Copper Corp kept $0.30.
- Revenue$5.15B100.0%
- Cost of revenue−$2.41B46.8%
- Gross profit$2.74B53.2%
- Operating costs−$134.7M2.6%
- Operating income$2.60B50.6%
- Interest, other & tax−$1.05B20.4%
- Net income$1.55B30.2%
Where FY2010 revenue went
$5.15B- Cost of revenue: $2.13B, 41% of revenue
- Net income: $1.55B, 30% of revenue
- Interest, other & tax: $1.05B, 20% of revenue
- SG&A: $100.3M, 1.9% of revenue
- Other operating costs: $316.0M, 6.1% of revenue
Kept 30% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed March 1, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $5.15B$3.73B | +37.9% |
| Cost of Revenue | $2.13B$1.87B | +14.1% |
| Gross Profit | $2.74B$1.87B | +46.6% |
| SG&A Expenses | $100.29M$85.17M | +17.8% |
| Operating Expenses | $2.55B$2.25B | +13.2% |
| Operating Income | $2.60B$1.49B | +75.3% |
| Net Income | $1.55B$929.38M | +67.2% |
| EPS (Basic) | $1.81$1.09 | +66.1% |
| EPS (Diluted) | $1.83$1.09 | +67.9% |
| Shares Outstanding (Basic) | 859.00M850.68M | +1.0% |
| Shares Outstanding (Diluted) | 859.00M850.68M | +1.0% |
05—Questions
Frequently Asked Questions
How much did Southern Copper earn in 2010 and what drove the increase?
Net income attributable to SCC was $1,554.0 million, or $1.83 per share, up from $929.4 million ($1.09 per share) in 2009. The increase was driven mainly by higher metal prices: LME copper averaged $3.42/lb (up 46%), molybdenum rose 43%, and silver rose 38%. Copper sales volume was roughly flat, and molybdenum volume rose about 10%.
What is the status of the AMC combination proposal?
On July 22, 2010, parent AMC proposed an all-stock combination in which SCC holders would receive 1.237 AMC shares per SCC share. A special committee of independent directors was formed in August 2010 and has engaged advisors. The filing states there is no set deadline, and no definitive agreement had been reached as of the filing date. If completed, SCC shares would be delisted from the NYSE and Lima exchanges.
What are the main growth projects and their expected timing?
The Tia Maria copper project in Arequipa, Peru (about 260 million lbs/year of SXEW cathodes, total budget about $934 million, $432.5 million spent through 2010) is expected to receive EIA approval in Q2 2011, with construction starting in Q2 2011 and production by Q4 2012. Buenavista's SXEW III plant (about $216 million budget) and the Quebalix III crushing system are also in progress, and the Toquepala and Cuajone concentrator expansions are expected to start in 2011 and 2013.
How exposed is the company to copper price changes and does it hedge?
Management estimates that each $0.01/lb change in copper alters 2011 net earnings by about $7.6 million, and each $1.00/lb change in molybdenum alters them by about $21.1 million. The company held copper zero-cost collars and swaps covering about 61% of expected 2011 copper sales and 13% of Q1 2012 sales after early-2011 additions. Management acknowledges that these hedges limit upside as well as downside.
What are the main risks for shareholders?
Key risks include: control by Grupo Mexico (80% owner), which can determine board composition and dividend policy; labor disputes at the Taxco and San Martin mines (both on strike since July 2007); community opposition to the Tia Maria project and new Mexican legal rules allowing broader environmental challenges; metal and currency price volatility; and pending lawsuits, including shareholder derivative actions over the 2005 merger and the proposed AMC combination. Dividend levels could also fall as the company funds its capital program.
06—Continue