01—Abstract
Summary
Summary of the 10-K filed February 26, 2016. Cited figures are marked; the original filing is the authoritative source.
Southern Copper (SCCO) reported FY2015 results marked by sharply lower metal prices and a heavy capital program.
Net sales fell 12.8% to $5,045.9 milliona from $5,787.7 million, and operating income dropped 36.7% to $1,414.4 million. Net income attributable to SCC fell 44.8% to $736.4 million, or $0.93 per share, as copper's average LME price declined 19.6% to $2.50/lb and molybdenum fell 41.7%. Copper still made up roughly 79% of sales, and copper output hit a record 742,993 tons (mined copper volumes rose about 9.8%), with Buenavista's new concentrator and SX-EW III driving growth.
Operating cash cost per pound with by-product credits rose to $1.12b from $1.07, as by-product revenue fell, while cost without by-products improved to $1.66 from $1.89. The balance sheet shows a clear shift toward leverage. Total debt rose to $5.95 billion from $4.18 billion after a $2.0 billion senior notes issuance in April 2015, and net debt to net capitalization climbed to 48.9% from 37.3%.
Cash from operations fell to $879.8 millionc from $1,355.9 million, and capital investments of $1.25 billion (including the $100.4 million El Pilar acquisition) exceeded operating cash flow. The company also repurchased $1.0 billion of shares and paid $271 million in dividends, which were cut to $0.34 per share from $0.46. Grupo Mexico controls about 88.6% of the stock, which remains a governance consideration for minority investors.
Forward-looking items include 2016 copper production guidance of 903,300 tons (up 21.6%), a $1,577.8 milliond capital budget, and a target of 1.2 million tons of annual capacity by 2018, anchored by the Toquepala expansion and the stalled Tia Maria project. Risk factors include a reported material weakness in 2014 that was remediated in 2015, ongoing environmental and labor disputes (including Mexican strikes at San Martin and Taxco since 2007), a $400 million uncertain tax liability tied to U.S. matters, and contingent liabilities from the Peruvian labor share litigation.
02—Key points
Key Highlights
- Net sales declined 12.8% to $5,045.9M and operating income fell 36.7% to $1,414.4M, driven mainly by lower metal prices (copper -19.6%, molybdenum -41.7%).
- Net income attributable to SCC fell 44.8% to $736.4M ($0.93/share) from $1,333.0M in 2014.
- Record copper production of 742,993 tons; 2015 copper sales volume rose 12.3% to 1,625.8M lbs.
- Operating cash cost fell to $1.66/lb without by-products (from $1.89) but rose to $1.12/lb with by-product credits (from $1.07).
- Total debt rose to $5,951.5M after a $2.0B bond issuance; net debt/net capitalization increased to 48.9% from 37.3%.
- Operating cash flow dropped to $879.8M from $1,355.9M, while capital investments of $1,250M and $1,004M in buybacks were funded partly by new debt.
- Dividend reduced to $0.34/share in 2015 (from $0.46) and $0.03/share declared for Q1 2016; 2016 capex plan of $1,577.8M targets 1.2M tons of annual copper capacity by 2018.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, Southern Copper Corp kept $0.15.
- Revenue$5.05B100.0%
- Cost of revenue−$3.44B68.1%
- Gross profit$1.61B31.9%
- Operating costs−$193.2M3.8%
- Operating income$1.41B28.0%
- Interest, other & tax−$678.0M13.4%
- Net income$736.4M14.6%
Where FY2015 revenue went
$5.05B- Cost of revenue: $2.93B, 58% of revenue
- Net income: $736.4M, 15% of revenue
- Interest, other & tax: $678.0M, 13% of revenue
- SG&A: $99.4M, 2.0% of revenue
- Other operating costs: $604.5M, 12% of revenue
Kept 15% as net incomeSG&A $99.4M · 2.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 26, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $5.05B$5.79B | −12.8% |
| Cost of Revenue | $2.93B$2.84B | +3.1% |
| Gross Profit | $1.61B$2.50B | −35.8% |
| SG&A Expenses | $99.40M$103.40M | −3.9% |
| Operating Expenses | $3.63B$3.56B | +2.2% |
| Operating Income | $1.41B$2.23B | −36.7% |
| Net Income | $736.40M$1.33B | −44.8% |
| EPS (Basic) | $0.93$1.61 | −42.2% |
| Shares Outstanding (Basic) | 794.70M828.20M | −4.0% |
05—Questions
Frequently Asked Questions
Why did Southern Copper's earnings fall so sharply in 2015?
The decline was driven mainly by lower metal prices. The average LME copper price fell 19.6% to $2.50/lb, molybdenum fell 41.7%, and silver fell 17.6%. Those declines outweighed a 12.3% increase in copper sales volume. Operating income fell $818M, and higher depreciation and a $45M environmental charge (down from $91.4M in 2014) also weighed on results.
Is the dividend at risk?
The dividend was cut to $0.34/share in 2015 from $0.46 in 2014, and the 10-K explicitly warns that future distributions may be reduced given the capital program and global economic conditions. Cash flow after capital spending was negative in 2015, and debt rose significantly, so the company is funding payouts and buybacks partly through borrowing. Investors should watch whether 2016 operating cash flow supports the $0.03 quarterly payout.
How leveraged is the company now, and what are the debt risks?
Total debt reached $5.95B at year-end 2015, up from $4.18B, and net debt to net capitalization rose to 48.9%. The debt is all fixed rate with a weighted average cost of about 5.89%, and maturities are concentrated beyond 2021. Covenants restrict additional debt and liens, and Minera Mexico's Yankee bonds require an EBITDA-to-interest ratio of at least 2.5x, which the company met. Dividends from the Mexican subsidiary are legally constrained.
What drives growth prospects for 2016 and beyond?
Management guides to 903,300 tons of copper production in 2016 (up 21.6%), driven by the Buenavista concentrator ramp-up and SX-EW III, with a target of 1.2 million tons by 2018 after the Toquepala expansion and Tia Maria. Tia Maria has been delayed by community opposition and its construction permit remains pending. Investors should weigh the timing of this growth against the capital intensity and the company's leverage.
What are the main non-financial risks highlighted in the filing?
Key risks include Grupo Mexico's 88.6% control, which limits minority influence; labor disputes, including strikes at the San Martin and Taxco mines since 2007; environmental liabilities from the August 2014 Buenavista spill and related lawsuits; community opposition to projects in Peru; and the Peruvian labor-share litigation, for which no provision has been recorded. The company also disclosed a 2014 material weakness in internal controls, which it reports was remediated in 2015.
06—Continue