10-QPeriod: Q1 FY2009

SOUTHERN COPPER CORP/ Quarterly Report for Q1 Ended Mar 31, 2009

Filed May 11, 2009For Securities:SCCO

Summary

Southern Copper Corporation (SCCO) reported a significant decline in financial performance for the first quarter of 2009 compared to the same period in 2008. Net sales dropped by 58.5% to $622.0 million from $1,499.2 million, primarily driven by a sharp decrease in metal prices, especially for copper and molybdenum. Consequently, net income attributable to SCC fell dramatically from $565.0 million to $78.7 million, with earnings per share decreasing from $0.64 to $0.09. The company experienced operational challenges, notably a prolonged strike at its Cananea mine in Mexico, which led to a 6.3% decrease in overall copper production. Despite these headwinds, SCCO maintained cost control efforts and saw some increases in molybdenum, zinc, and silver production volumes. The company also continued its share repurchase program, buying back $71.6 million in common stock during the quarter, and its parent company, Grupo Mexico, increased its ownership stake to 80%.

Financial Highlights

26 data points
Beta

Net Income

$78.69M

EPS (Diluted)

$0.09

Cash & Equivalents

$291.27M

Free Cash Flow

-$257.26M

Financial Statements
Beta
Cost of Revenue$375.45M
SG&A Expenses$18.79M
Operating Expenses$477.87M
Operating Income$144.13M
Net Income$78.69M
EPS (Basic)$0.09
EPS (Diluted)$0.09
Shares Outstanding (Basic)852.77M
Shares Outstanding (Diluted)852.77M

Key Highlights

  • 1Net sales decreased by 58.5% to $622.0 million from $1,499.2 million due to lower metal prices.
  • 2Net income attributable to Southern Copper Corporation plummeted from $565.0 million to $78.7 million.
  • 3Earnings per share (diluted) dropped to $0.09 from $0.64 year-over-year.
  • 4Copper production decreased by 6.3% to 264.1 million pounds, significantly impacted by the ongoing strike at the Cananea mine.
  • 5The company repurchased $71.6 million of its common stock under its $500 million share repurchase program.
  • 6Grupo Mexico, through its subsidiary AMC, increased its ownership to 80% of SCCO's outstanding shares.
  • 7Operating cash costs per pound of copper produced, excluding by-product revenues, increased to $0.0102 from $0.1503, reflecting lower by-product prices.

Frequently Asked Questions

The primary driver for the substantial decrease in net sales and net income was the sharp decline in global metal prices, particularly for copper and molybdenum, compared to the first quarter of 2008. Lower production volumes due to the strike at the Cananea mine also contributed to the reduced financial performance.

The strike at the Cananea mine, which began in July 2007 and remained unresolved through Q1 2009, significantly impacted production, leading to a 6.3% decrease in overall copper production. The company has incurred costs related to the strike and is assessing the significant investments required to repair damages and restart operations.

Southern Copper is actively managing its cash through cost control measures and a reduced capital expenditure and exploration budget for 2009. The company also continued its share repurchase program and maintained a relatively stable debt-to-capitalization ratio. Despite a significant decrease in operating cash flow compared to the prior year, the company expects to meet its future cash requirements from existing cash, internally generated funds, and potential external financing.

Grupo Mexico, through its subsidiary Americas Mining Corporation (AMC), increased its ownership to 80% of SCCO's common stock. This has implications for SCCO's US federal income tax status, as it will be included in AMC's consolidated tax return. The company is working to establish a tax-sharing agreement to manage these implications and potential joint liabilities.