10-QPeriod: Q2 FY2013

SOUTHERN COPPER CORP/ Quarterly Report for Q2 Ended Jun 30, 2013

Filed August 5, 2013For Securities:SCCO

Summary

Southern Copper Corporation (SCCO) reported its financial results for the quarter and six months ended June 30, 2013. The company experienced a notable decline in net sales and net income compared to the same periods in the prior year, largely driven by lower commodity prices, particularly for copper and molybdenum, as well as reduced sales volumes for copper. Despite these headwinds, SCCO continued to invest heavily in capital expenditures, focusing on increasing production capacity and improving operational efficiencies at its key mining assets in Peru and Mexico. The company's financial performance was impacted by macroeconomic factors such as a slowdown in China's economy and continued weakness in Europe, which affected demand for basic metals. While facing price pressures, SCCO highlighted its ongoing commitment to strategic growth initiatives and maintaining a prudent capital structure. The report also details various operational aspects, including production volumes, cost management, and significant capital projects underway, underscoring the company's focus on long-term value creation.

Financial Highlights

48 data points
Beta

Revenue

$1.41B

42.9% Gross Margin

Net Income

$372.70M

26.4% Net Margin

EPS (Diluted)

$0.44

Total Assets

$10.65B

Cash & Equivalents

$1.94B

Free Cash Flow

-$83.02M

Financial Statements
Beta
Revenue$1.41B
Cost of Revenue$711.23M
Gross Profit$604.40M
SG&A Expenses$27.45M
Operating Expenses$843.85M
Operating Income$565.30M
Net Income$372.70M
EPS (Basic)$0.44
Shares Outstanding (Basic)844.99M

Key Highlights

  • 1Net sales for the six months ended June 30, 2013, decreased by 12.5% to $3.03 billion from $3.47 billion in the same period of 2012.
  • 2Net income attributable to SCC for the six months ended June 30, 2013, decreased by 26.7% to $868.1 million from $1.18 billion in the prior year.
  • 3Operating cash cost per pound of copper produced increased to $2.05 in Q2 2013 from $1.66 in Q2 2012, primarily due to cost inflation and lower production volumes.
  • 4Capital expenditures significantly increased to $702.3 million for the first six months of 2013, up from $407.7 million in the same period of 2012, reflecting ongoing investment in growth projects.
  • 5The company is undertaking significant capital projects, including expansion at Buenavista and Toquepala, aimed at increasing copper production capacity.
  • 6Average LME copper prices decreased by 6.8% to $3.42 per pound for the first six months of 2013 compared to $3.67 per pound in the prior year.
  • 7The company is facing potential regulatory challenges in Peru concerning new, stringent air quality standards for its Ilo smelter, with an estimated compliance cost of $350 million over five years.

Frequently Asked Questions

The primary drivers were lower commodity prices, particularly for copper and molybdenum, which led to a decrease in net sales and net income. Additionally, lower copper sales volumes, due to reduced production at mines like Toquepala and Buenavista, contributed to the decline. Macroeconomic factors such as the economic slowdown in China and Europe also negatively impacted metal demand.

Southern Copper is focusing on cost control, production enhancement, and maintaining a prudent capital structure. The company is also heavily investing in capital expenditure programs to increase production capacity and operational efficiencies, aiming to capitalize on future market recoveries and maintain profitability. Efforts are also directed at managing operating cash costs.

Key growth initiatives include significant capital investments in expanding production capacity at its Buenavista and Toquepala operations. Specific projects include the Buenavista SXEW III plant and the Toquepala expansion. These investments are aimed at increasing copper production and improving cost efficiencies in the long term.

Yes, Southern Copper is facing stringent new air quality standards for sulfur dioxide emissions at its Ilo smelter in Peru, which are set to take effect in January 2014. The company believes current technology may not be sufficient to meet these standards and is studying compliance enhancement measures with an estimated cost of $350 million over five years. The company also faces ongoing environmental considerations and potential litigation in both Peru and Mexico.