10-QPeriod: Q3 FY2012

SOUTHERN COPPER CORP/ Quarterly Report for Q3 Ended Sep 30, 2012

Filed October 25, 2012For Securities:SCCO

Summary

Southern Copper Corporation (SCCO) reported its third-quarter and nine-month results for the period ending September 30, 2012. The company experienced a significant decrease in net income, largely due to a substantial legal fee related to a shareholder derivative lawsuit settlement. For the nine months ended September 30, 2012, net income attributable to SCC was $1.40 billion, a decrease from $1.80 billion in the same period of 2011. This decline was primarily impacted by lower metal prices across its key commodities (copper, molybdenum, silver, and zinc) and a one-time $316.2 million legal fee. Despite lower revenues, the company saw an increase in copper production by 11.2% year-to-date, driven by higher ore grades and recoveries at its Cuajone, La Caridad, and Buenavista mines. Capital expenditures remained robust, with $665.9 million invested in the nine-month period for expansion projects, signaling a continued focus on organic growth.

Financial Statements
Beta
Revenue$1.55B
Cost of Revenue$670.86M
Gross Profit$800.20M
SG&A Expenses$23.76M
Operating Expenses$1.10B
Operating Income$447.80M
Net Income$217.90M
EPS (Basic)$0.26
Shares Outstanding (Basic)848.42M
Shares Outstanding (Diluted)848.42M

Key Highlights

  • 1Net income attributable to SCC for the nine months ended September 30, 2012, was $1.40 billion, down from $1.80 billion in the prior year, impacted by lower metal prices and a $316.2 million legal fee from a shareholder derivative lawsuit settlement.
  • 2Net sales decreased by 2.5% for the nine months ended September 30, 2012, to $5.02 billion, primarily due to lower average commodity prices.
  • 3Copper mined production increased by 11.2% for the nine months ended September 30, 2012, driven by improved ore grades and recoveries at key mines.
  • 4The company received a significant $2.1 billion payment from its majority shareholder, Americas Mining Corporation (AMC), in October 2012, settling a shareholder derivative lawsuit regarding the 2005 merger.
  • 5Capital expenditures totaled $665.9 million for the nine months ended September 30, 2012, with significant investments in expansion projects at the Buenavista, Toquepala, and Cuajone mines.
  • 6Operating cash costs per pound of copper produced (with by-product credits) increased to $0.65 in the nine months of 2012 from $0.45 in the same period of 2011, mainly due to lower by-product revenues and higher copper production.
  • 7The company's outlook is influenced by macroeconomic factors, including the European debt crisis and potential slowdown in China, though it notes positive demand signals from China and a recovering US economy.

Frequently Asked Questions

The primary drivers for the decrease in net income were lower average commodity prices for copper, molybdenum, silver, and zinc, and a significant one-time legal fee of $316.2 million related to the settlement of a shareholder derivative lawsuit. This legal fee was recorded in the third quarter of 2012.

Southern Copper Corp. reported an 11.2% increase in copper mined production for the nine months ended September 30, 2012, compared to the same period in 2011. This increase was primarily attributed to higher ore grades and improved recoveries at its Cuajone, La Caridad, and Buenavista mines.

In October 2012, the company received $2.1 billion from Americas Mining Corporation (AMC), its majority shareholder, as a full settlement for a judgment related to the 2005 merger where it was determined that SCCO had paid an excessive price. This transaction was recorded in the third quarter of 2012 and also included the payment of $316.2 million in legal fees.

Southern Copper Corp. invested $665.9 million in capital expenditures during the first nine months of 2012. Key investments are focused on organic growth and expansion projects, including significant spending at the Buenavista mine (such as a crushing, conveying, and spreading system, and a molybdenum plant), as well as expansion projects at the Toquepala and Cuajone mines in Peru.