10-QPeriod: Q1 FY2013

SOUTHERN COPPER CORP/ Quarterly Report for Q1 Ended Mar 31, 2013

Filed April 30, 2013For Securities:SCCO

Summary

Southern Copper Corporation (SCCO) reported its first quarter 2013 results, showing a notable decrease in net sales and net income compared to the same period in 2012. This decline was primarily driven by lower copper and by-product prices, as well as a reduction in sales volume for copper and zinc. Despite these headwinds, the company continues to invest heavily in its expansion projects, particularly in its Mexican operations, signaling confidence in its long-term growth strategy and the expected recovery in copper demand. Key operational metrics show mixed performance, with copper production slightly down year-over-year, while molybdenum and zinc production saw increases. The company's operating cash costs per pound of copper, especially when excluding by-product revenues, increased significantly, largely due to higher production costs and lower by-product prices. SCCO remains focused on cost control and production enhancement, aiming to maximize financial performance through its organic growth initiatives designed to substantially increase copper production capacity by 2017.

Financial Highlights

46 data points
Beta

Revenue

$1.62B

49.6% Gross Margin

Net Income

$495.40M

30.5% Net Margin

EPS (Diluted)

$0.59

Total Assets

$10.56B

Cash & Equivalents

$2.46B

Free Cash Flow

$277.67M

Financial Statements
Beta
Revenue$1.62B
Cost of Revenue$722.75M
Gross Profit$805.70M
SG&A Expenses$25.37M
Operating Expenses$849.02M
Operating Income$770.00M
Net Income$495.40M
EPS (Basic)$0.59
Shares Outstanding (Basic)845.55M

Key Highlights

  • 1Net sales decreased by 10.1% to $1.62 billion in Q1 2013 compared to $1.81 billion in Q1 2012, primarily due to lower metal prices and sales volumes.
  • 2Net income attributable to SCC fell by 20.3% to $495.4 million in Q1 2013 from $621.4 million in Q1 2012.
  • 3Earnings per share (EPS) decreased to $0.59 in Q1 2013 from $0.73 in Q1 2012.
  • 4Total capital expenditures increased significantly to $316.8 million in Q1 2013 from $177.4 million in Q1 2012, driven by expansion projects in Mexican operations.
  • 5Copper production decreased slightly by 2.2% year-over-year, while molybdenum and zinc production increased.
  • 6Operating cash costs per pound of copper, excluding by-product revenues, increased by 8.2% year-over-year, reflecting higher production costs.
  • 7The company has no active copper derivative contracts as of March 31, 2013.

Frequently Asked Questions

The primary drivers for the decrease in net sales and net income were lower average metal prices, particularly for copper and molybdenum, and a reduction in the sales volume of copper and zinc. These factors were partially offset by higher sales volumes for molybdenum and silver.

Southern Copper significantly increased its capital expenditures in Q1 2013, with a strong focus on its Mexican operations' expansion projects, such as at the Buenavista unit. The company aims to increase its copper production capacity substantially by 2017 through these organic growth initiatives, signaling confidence in future demand.

Despite concerns regarding Chinese growth, LME inventory increases, and macroeconomic worries, Southern Copper believes the fundamentals of the copper market are sound. They anticipate a recovery in demand, particularly from Asia, and expect supply constraints to help balance the market. The company is optimistic about the future outlook if global economies continue to improve.

As of March 31, 2013, Southern Copper did not hold any copper derivative contracts. The company strategically uses derivative instruments as part of its risk management policy to safeguard assets and mitigate market volatility but does not appear to be actively hedging copper prices at the beginning of 2013.