10-QPeriod: Q3 FY2010

SOUTHERN COPPER CORP/ Quarterly Report for Q3 Ended Sep 30, 2010

Filed November 5, 2010For Securities:SCCO

Summary

Southern Copper Corporation (SCCO) reported a strong performance for the nine months ended September 30, 2010, driven by a significant increase in net sales and net income compared to the same period in 2009. This growth was primarily fueled by higher average commodity prices, particularly for copper, molybdenum, zinc, and silver. The company's strategic focus on cost control and production enhancement, coupled with substantial capital expenditure programs aimed at increasing production capacity, positions it well for future growth. Financially, SCCO demonstrated robust operational cash flow, enabling substantial dividend payments to shareholders and managing significant capital expenditures for expansion projects. Despite some operational disruptions, including labor-related issues in Mexico, the company maintained its cost leadership and expressed confidence in the long-term outlook for copper, anticipating a deficit market in 2011. The company's balance sheet showed a substantial increase in cash and cash equivalents, reflecting strong operational performance and prudent financial management.

Financial Highlights

51 data points
Beta

Net Income

$365.20M

EPS (Diluted)

$0.43

Total Assets

$7.61B

Cash & Equivalents

$2.24B

Free Cash Flow

$420.98M

Financial Statements
Beta
Cost of Revenue$550.80M
Gross Profit$635.80M
SG&A Expenses$23.15M
Operating Expenses$654.97M
Operating Income$602.90M
Net Income$365.20M
EPS (Basic)$0.43
EPS (Diluted)$0.43
Shares Outstanding (Basic)850.00M
Shares Outstanding (Diluted)850.00M

Key Highlights

  • 1Net sales increased by 40.5% to $3.65 billion for the nine months ended September 30, 2010, compared to $2.60 billion in the prior year period, driven by higher commodity prices.
  • 2Net income attributable to SCC more than doubled, rising by 87.6% to $1.06 billion for the nine months ended September 30, 2010, from $566 million in the prior year.
  • 3Earnings per share (diluted) increased to $1.25 for the nine months ended September 30, 2010, from $0.67 in the comparable 2009 period.
  • 4The company's cash and cash equivalents significantly increased to $2.24 billion as of September 30, 2010, from $772 million at December 31, 2009.
  • 5Southern Copper Corporation issued $1.5 billion in fixed-rate unsecured notes in April 2010, increasing its total debt and resulting in a higher debt-to-capitalization ratio.
  • 6The company is actively investing in capital expansion projects in Peru and Mexico, totaling approximately $5.6 billion, aimed at significantly increasing copper and molybdenum production capacity.
  • 7Despite ongoing labor disruptions in Mexico, specifically at the Cananea mine, production is progressing with expected full restoration by February 2011, and significant damage repair costs are being incurred.

Frequently Asked Questions

The substantial increase in revenue and net income for the first nine months of 2010 was primarily driven by a significant rise in average commodity prices, particularly for copper, molybdenum, zinc, and silver, compared to the same period in 2009. Higher production volumes from certain operations, like the recovery at the Cananea mine, also contributed.

Southern Copper issued $1.5 billion in fixed-rate unsecured notes in April 2010, leading to an increase in its total debt and a rise in the debt-to-capitalization ratio from 24.7% at the end of 2009 to 41.5% at the end of the third quarter of 2010. While this provides capital for expansion, investors should monitor the company's leverage levels and its ability to service this debt, especially given its long-term nature.

Investors should be aware of ongoing labor disruptions, particularly in Mexico, which have impacted production at mines like Cananea and San Martin, leading to repair costs and delayed restoration. Additionally, the company faces inherent risks associated with commodity price volatility, environmental regulations, potential litigation (including historical labor share claims in Peru and a class-action lawsuit related to the Pasta de Conchos accident), and foreign currency fluctuations, although the company actively manages some of these risks through hedging and diversified operations.

Southern Copper is optimistic about its long-term outlook, anticipating a copper deficit in 2011. The company is undertaking significant capital expansion projects expected to boost copper and molybdenum production substantially. Combined with its focus on cost leadership and strong reserve base, these factors position Southern Copper to benefit from favorable market conditions and continue generating strong returns for shareholders.