01—Abstract
Summary
Summary of the 10-K filed March 1, 2019. Cited figures are marked; the original filing is the authoritative source.
Southern Copper Corporation (SCCO) is a leading global copper producer with substantial operations in Peru and Mexico, reporting its fiscal year 2018 results.
The company highlights record net sales of $7.1 billiona, driven by strong performance across its mining segments and aided by favorable metal prices for copper and molybdenum. SCCO emphasizes its commitment to growth through significant capital investments, totaling $1.12 billion in 2018, with plans for further expansion to increase copper production significantly by 2025. The company maintains a robust and extensive copper reserve base, considered among the largest globally.
Despite operational successes and record sales, investors should note the company's sensitivity to volatile commodity prices and ongoing risks associated with foreign operations, labor relations, and environmental regulations. SCCO's financial health remains strong, supported by a prudent capital structure and substantial cash flow generation, allowing for significant dividend payouts and share repurchases, although the latter has been inactive since 2016.
02—Key points
Key Highlights
- Record Net Sales: Achieved $7.1 billion in net sales for 2018, the highest in the company's history.
- Significant Capital Investments: Invested $1.12 billion in capital projects in 2018, with a planned $1.75 billion for 2019, focusing on expanding production capacity and improving operations.
- World-Class Copper Reserves: Holds one of the largest copper reserve positions globally, estimated at 69.7 million tons of contained copper.
- Strong Production Growth Expected: Forecasts an 11.7% increase in copper production for 2019, reaching 986,700 tons, driven by new projects and operational improvements.
- By-Product Strength: Saw significant increases in molybdenum prices (+45.9%) and substantial growth in silver (+8.7%) and zinc (+3.1%) production, contributing positively to overall results.
- Low Operating Cash Costs: Maintained competitive operating cash costs per pound of copper, particularly when net of by-product revenues ($0.87/lb in 2018), reflecting efficient operations.
- Shareholder Returns: Returned significant capital to shareholders through dividends, with $1.40 per share paid in 2018, and continued share repurchase authorizations, though repurchases were paused in 2016.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Southern Copper Corp kept $0.22.
- Revenue$7.10B100.0%
- Cost of revenue−$4.08B57.5%
- Gross profit$3.01B42.5%
- Operating costs−$132.2M1.9%
- Operating income$2.88B40.6%
- Interest, other & tax−$1.34B18.9%
- Net income$1.54B21.7%
Where FY2018 revenue went
$7.10B- Cost of revenue: $3.41B, 48% of revenue
- Net income: $1.54B, 22% of revenue
- Interest, other & tax: $1.34B, 19% of revenue
- SG&A: $102.6M, 1.4% of revenue
- Other operating costs: $703.9M, 9.9% of revenue
Kept 22% as net incomeSG&A $102.6M · 1.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed March 1, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $7.10B$6.65B | +6.6% |
| Cost of Revenue | $3.41B$3.25B | +4.8% |
| Gross Profit | $3.01B$2.73B | +10.4% |
| SG&A Expenses | $102.60M$93.10M | +10.2% |
| Operating Expenses | $4.22B$4.04B | +4.5% |
| Operating Income | $2.88B$2.62B | +10.0% |
| Net Income | $1.54B$728.50M | +111.8% |
| EPS (Basic) | $2.00$0.94 | +112.8% |
| Shares Outstanding (Basic) | 773.00M773.00M | 0.0% |
05—Questions
Frequently Asked Questions
What were Southern Copper's key financial results for 2018?
In 2018, Southern Copper reported record net sales of $7.1 billion, a 6.6% increase over 2017, primarily driven by higher copper and molybdenum prices and increased sales volumes of silver and molybdenum. Net income attributable to SCC was $1.54 billion, a significant increase from $728.5 million in 2017, largely due to the impact of the U.S. Tax Cuts and Jobs Act of 2017 which resulted in a non-cash tax adjustment in 2017.
What are the company's primary growth drivers and capital investment plans?
Southern Copper's growth is driven by its extensive reserve base and ongoing capital investments. In 2018, capital investments were $1.12 billion, and the company plans to invest $1.75 billion in 2019. Key projects include the Toquepala Expansion Project in Peru, expected to increase annual copper production by 100,000 tons, and the development of new projects like Pilares in Mexico and the potential development of large-scale projects like El Arco and Michiquillay in Mexico and Peru, respectively, aiming to significantly increase copper production by 2025.
How does the company manage exposure to commodity price volatility?
Southern Copper's financial performance is highly dependent on copper, molybdenum, zinc, and silver prices, which are subject to significant fluctuations. While the company does not extensively hedge, its focus on cost control, production efficiency, and maintaining a strong balance sheet helps mitigate the impact of price volatility. Its substantial by-product revenues also help to offset overall production costs, particularly for copper.
What are the main risks facing Southern Copper?
Key risks include the volatility of metal prices, operational risks inherent in mining (such as slope stability, labor disputes, and environmental hazards), dependence on government regulations and political stability in Peru and Mexico, and the capital-intensive nature of the business. The company also faces risks related to currency fluctuations and cybersecurity threats.
06—Continue