01—Abstract
Summary
Summary of the 10-K filed February 28, 2013. Cited figures are marked; the original filing is the authoritative source.
Southern Copper Corporation (SCCO), a majority-owned subsidiary of Grupo Mexico (81.3% ownership), reported 2012 net sales of $6.67 billiona, only 2.2% below the record 2011 level, despite a roughly 10% decline in average LME copper prices.
Net income attributable to SCC fell to $1.93 billionb (about $2.28 per share) from $2.34 billion, largely because of a one-time $316.2 million legal fee payment tied to the shareholder derivative lawsuit. Excluding that charge, earnings would have been about $2.3 billion, a decline of roughly 3.7%. Operating income was $3.11 billion, and the operating cash cost per pound of copper net of by-products rose to $0.713 from $0.517, driven mainly by lower by-product prices.
The company is in a heavy investment phase. Capital expenditures reached a record $1.05 billionc in 2012, up 72%, and management budgeted about $1.8 billion for 2013, mostly for Buenavista in Mexico. The plan is to lift copper capacity from about 640,000 to 1.2 million tons by 2017.
Financing was strengthened by $1.5 billiond of new unsecured notes issued in November 2012, and Fitch upgraded the unsecured debt to BBB+. Cash rose to $2.46 billion, while total debt reached $4.21 billion, lifting the debt-to-capitalization ratio to 46.8%. A $2.1 billion receipt from AMC under the Delaware court judgment supported liquidity during the year.
Key risks include copper and by-product price volatility, Peruvian community opposition that has delayed Tia Maria (now rescheduled to 2016) and the Toquepala expansion, the long-running strikes at the San Martin and Taxco mines, and the controlling-shareholder relationship with Grupo Mexico. The company raised its quarterly dividend to $0.24 for early 2013 after a 2012 total of $4.06 per share, which included special distributions.
02—Key points
Key Highlights
- Net sales of $6.67 billion in 2012, down only 2.2% from the record $6.82 billion in 2011, even though average LME copper prices fell about 10%.
- Net income attributable to SCC of $1.93 billion ($2.28 per share), down about 17%; excluding the $316.2 million one-time legal fee, earnings would have declined only about 3.7%.
- Record capital expenditures of $1.05 billion in 2012 (up 72%), with about $1.8 billion budgeted for 2013, mainly for the Buenavista expansion, aiming to raise copper capacity to 1.2 million tons by 2017.
- Operating cash cost per pound of copper net of by-product credits rose to $0.713 from $0.517, reflecting lower molybdenum, silver, and zinc prices and higher fuel and power costs.
- Strengthened balance sheet and liquidity: $1.5 billion of new notes issued in November 2012, cash of $2.46 billion, and a Fitch upgrade to BBB+, though total debt rose to $4.21 billion.
- Operational risks persist: Tia Maria is delayed to 2016 after community protests, the Toquepala expansion approval is pending, and the San Martin and Taxco mines remain shut by strikes since 2007.
- Majority control by Grupo Mexico (81.3%) means parent interests can drive dividend, financing, and related-party decisions, and related-party transactions are significant.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2012, Southern Copper Corp kept $0.29.
- Revenue$6.67B100.0%
- Cost of revenue−$3.10B46.4%
- Gross profit$3.57B53.6%
- Operating costs−$465.4M7.0%
- Operating income$3.11B46.6%
- Interest, other & tax−$1.17B17.6%
- Net income$1.93B29.0%
Where FY2012 revenue went
$6.67B- Cost of revenue: $2.77B, 42% of revenue
- Net income: $1.93B, 29% of revenue
- Interest, other & tax: $1.17B, 18% of revenue
- SG&A: $101.3M, 1.5% of revenue
- Other operating costs: $689.9M, 10% of revenue
Kept 29% as net incomeSG&A $101.3M · 1.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 28, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $6.67B$6.82B | −2.2% |
| Cost of Revenue | $2.77B$2.76B | +0.2% |
| Gross Profit | $3.57B$3.77B | −5.1% |
| SG&A Expenses | $101.30M$104.47M | −3.0% |
| Operating Expenses | $3.56B$3.19B | +11.5% |
| Operating Income | $3.11B$3.63B | −14.2% |
| Net Income | $1.93B$2.34B | −17.2% |
| EPS (Basic) | $2.28$2.73 | −16.5% |
| Shares Outstanding (Basic) | 848.35M854.65M | −0.7% |
| Shares Outstanding (Diluted) | 848.35M854.65M | −0.7% |
05—Questions
Frequently Asked Questions
Why did net income fall in 2012 if sales were nearly flat?
Net income attributable to SCC fell about 17% to $1.93 billion mainly because average copper and by-product prices were lower, and the company recorded a one-time $316.2 million legal fee tied to the shareholder derivative lawsuit. Higher production volumes partly offset the price declines.
How did the $2.1 billion received from AMC affect the company's finances?
The company received $2.1 billion from its majority shareholder AMC in satisfaction of a Delaware court judgment over the 2005 Minera Mexico merger. It paid $316.2 million of attorneys' fees from that sum, and the remainder was recorded in additional paid-in capital, not as income. It was a key source of liquidity in 2012, alongside the $1.5 billion bond issuance.
What is the growth outlook and how much will the company spend?
Management plans to increase copper capacity from about 640,000 tons to 1.2 million tons by 2017, with about $1.8 billion budgeted for 2013 (roughly $1.4 billion in Mexico, including about $1.0 billion for Buenavista). Expected 2013 copper production is about 650,000 tons. The Toquepala expansion is targeted for mid-2015, and Tia Maria has been rescheduled to 2016, both subject to permitting.
What are the main risks to investors?
The main risks are volatile metal prices, particularly copper and molybdenum; community opposition and permitting delays in Peru; long-running labor strikes at the San Martin and Taxco mines; currency and inflation exposure to the nuevo sol and Mexican peso; and the controlling position of Grupo Mexico, whose interests may differ from those of minority shareholders.
Is the dividend sustainable?
The company paid $4.06 per share in 2012, a level that included special distributions well above the regular quarterly payments. The board authorized a $0.24 per share dividend for February 2013. Management warns that dividends may be reduced given the heavy capital program, and the payout depends on earnings, cash needs, and debt covenants.
06—Continue