01—Abstract
Summary
Summary of the 10-K filed February 27, 2014. Cited figures are marked; the original filing is the authoritative source.
Southern Copper Corporation (SCCO), one of the world's largest integrated copper producers, reported FY2013 results with net sales of $5.95 billiona, down 10.7% from $6.67 billion in 2012, driven by lower copper, molybdenum, and silver prices.
Operating income fell 18.5% to $2.53 billionb and net income attributable to SCC declined to $1.62 billion ($1.92 per share) from $1.93 billion ($2.28 per share). Copper accounted for 78.2% of sales, and the company's operating cash cost per pound rose to $1.92 without by-product credits and $1.00 with them, up from $1.73 and $0.69 respectively, reflecting higher labor, fuel, and power costs. The filing is dominated by an aggressive growth program.
Capital expenditures reached a record $1.70 billionc in 2013 (61.9% above 2012), and management plans $2.3 billion for 2014 to lift copper capacity roughly 87% to about 1.175 million tons by 2017. Key projects include the Buenavista expansion (new concentrator, SX-EW III, and molybdenum plant), Quebrada Honda tailings work, and the Tia Maria and Toquepala expansion projects in Peru, which face community and permitting delays. Free cash flow is therefore constrained: operating cash flow of $1.86 billion did not cover capex, and cash fell $787 million to $1.67 billion.
Net debt rose to $2.53 billiond, lifting the net debt to net capitalization ratio to 31.3% from 26.8%. Investors should weigh the company's strong reserve base and low-cost positioning against several risks: its majority parent Grupo Mexico controls 82.3% of the stock and can direct dividends and related-party dealings; labor strikes at the Taxco and San Martin mines have persisted since 2007; Mexico enacted new mining royalties and water-fee increases effective 2014; and Peruvian community opposition continues to affect project timelines. Dividends were cut sharply to $0.68 per share in 2013 from $4.06 in 2012, which was inflated by a one-time payment tied to the shareholder derivative lawsuit settlement.
02—Key points
Key Highlights
- Net sales fell 10.7% to $5.95 billion and operating income fell 18.5% to $2.53 billion, as lower metal prices (COMEX copper averaged $3.34/lb, down 7.5%; molybdenum down 18.7%; silver down 23.6%) outweighed higher sales volumes of molybdenum, zinc, and silver.
- Net income attributable to SCC was $1.62 billion ($1.92 per share), down from $1.93 billion ($2.28 per share) in 2012, which included a $316.2 million legal fee charge.
- Operating cash cost per pound of copper rose to $1.92 without by-product credits (from $1.73) and to $1.00 with them (from $0.69), driven by Peruvian labor contracts, fuel, power, and reagent inflation.
- Record 2013 capital expenditures of $1.70 billion; 2014 capex plan of $2.3 billion aims to raise copper capacity about 87% to roughly 1.175 million tons by 2017.
- Net debt rose to $2.53 billion (net debt/net capitalization 31.3% vs. 26.8%), with total debt of $4.2 billion, all at fixed rates, following the $1.5 billion notes issued in November 2012.
- Dividends declined to $0.68 per share in 2013 from $4.06 in 2012, which included a one-time distribution from the derivative lawsuit settlement; the Board authorized a $0.12 quarterly dividend for Q1 2014.
- Grupo Mexico owns 82.3% of the company and controls board composition and dividend policy; the share repurchase authorization was raised to $2 billion, with 57.2 million shares repurchased to date for $1.16 billion.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Southern Copper Corp kept $0.27.
- Revenue$5.95B100.0%
- Cost of revenue−$3.27B54.9%
- Gross profit$2.69B45.1%
- Operating costs−$153.5M2.6%
- Operating income$2.53B42.5%
- Interest, other & tax−$913.6M15.3%
- Net income$1.62B27.2%
Where FY2013 revenue went
$5.95B- Cost of revenue: $2.87B, 48% of revenue
- Net income: $1.62B, 27% of revenue
- Interest, other & tax: $913.6M, 15% of revenue
- SG&A: $102.5M, 1.7% of revenue
- Other operating costs: $447.0M, 7.5% of revenue
Kept 27% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 27, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $5.95B$6.67B | −10.7% |
| Cost of Revenue | $2.87B$2.77B | +3.7% |
| Gross Profit | $2.69B$3.57B | −24.9% |
| SG&A Expenses | $102.50M$101.30M | +1.2% |
| Operating Expenses | $3.42B$3.56B | −3.9% |
| Operating Income | $2.53B$3.11B | −18.6% |
| Net Income | $1.62B$1.93B | −16.3% |
| EPS (Basic) | $1.92$2.28 | −15.8% |
| Shares Outstanding (Basic) | 842.70M848.35M | −0.7% |
05—Questions
Frequently Asked Questions
Why did Southern Copper's revenue and earnings decline in 2013?
The decline was mainly due to lower metal prices: average LME copper fell about 8%, molybdenum about 19%, silver about 24%, and zinc about 1%. Sales volume of copper fell 2.3% because of flooding at the Buenavista mine, which cost roughly 50.6 million pounds of copper sales. Higher production costs, particularly Peruvian labor under new collective agreements and higher fuel and power costs, also weighed on margins.
How much is Southern Copper spending on growth, and how will it be funded?
Capital expenditures were $1.70 billion in 2013 and are planned at $2.3 billion for 2014. The main projects are the Buenavista expansion (a $3.4 billion program with a new SX-EW III plant and a new concentrator), Quebrada Honda tailings work, and the Toquepala and Tia Maria projects in Peru. Management says funding will come from cash on hand, internally generated cash flow, and external financing if needed. Cash fell to $1.67 billion during 2013 and operating cash flow of $1.86 billion did not fully cover capex.
What are the main risks for investors?
Key risks include copper price volatility (a $0.01/lb change moves net income by about $8.7 million); controlling-shareholder influence from Grupo Mexico, which holds 82.3% and has significant related-party dealings; long-running strikes at the Taxco and San Martin mines since 2007; community opposition delaying Peruvian projects; new Mexican royalties and water-fee increases in 2014 (about $53 million and $20 million after tax, respectively); and rising debt levels from the expansion program.
Will the dividend remain at 2013 levels?
The 2013 dividend of $0.68 per share was far below 2012's $4.06, which included a one-time payment connected to the shareholder lawsuit settlement. The company has said dividends may be reduced from recent levels because of its capital investment program and global economic conditions. The Board declared $0.12 per share for Q1 2014, and future dividends depend on earnings, cash needs, and Board discretion.
What is the status of the company's reserves and mine life?
Copper contained in ore reserves was about 67.6 million tons at a $2.00/lb planning price, the largest reported copper reserve position in the filing's description. Under SEC rules, which use three-year average prices ($3.65/lb copper at year-end 2013), proven and probable reserves are reported separately. Open-pit mines are deepening, and slope stability work is underway at Toquepala and Cuajone to support reserve recovery.
06—Continue