10-QPeriod: Q1 FY2014

SOUTHERN COPPER CORP/ Quarterly Report for Q1 Ended Mar 31, 2014

Filed May 6, 2014For Securities:SCCO

Summary

Southern Copper Corporation (SCCO) reported its first-quarter 2014 financial results, showing a decrease in net sales and net income compared to the prior year's first quarter. This decline was primarily attributed to lower commodity prices for copper, silver, and molybdenum, as well as a reduction in copper sales volume. Despite the revenue dip, the company maintained robust production levels, with copper output increasing year-over-year due to higher throughput and improved ore grades at key mines. SCCO continued to invest significantly in its capital expansion program, focusing on increasing copper production capacity. While facing a challenging pricing environment, the company highlighted its strong market position and its strategy to manage costs and enhance production. Management expressed confidence in the long-term fundamentals of the copper market and the company's ability to capitalize on future growth opportunities. The company also navigated increased tax burdens, particularly from new royalty taxes in Mexico, which impacted its effective tax rate.

Financial Highlights

46 data points
Beta

Revenue

$1.35B

44.4% Gross Margin

Net Income

$323.40M

23.9% Net Margin

EPS (Diluted)

$0.39

Total Assets

$11.26B

Cash & Equivalents

$1.47B

Free Cash Flow

$11.31M

Financial Statements
Beta
Revenue$1.35B
Cost of Revenue$641.89M
Gross Profit$602.00M
SG&A Expenses$24.50M
Operating Expenses$791.46M
Operating Income$562.90M
Net Income$323.40M
EPS (Basic)$0.39
Shares Outstanding (Basic)833.79M

Key Highlights

  • 1Net sales decreased by 16.5% to $1.35 billion for the three months ended March 31, 2014, compared to $1.62 billion in the same period of 2013, mainly due to lower metal prices and reduced copper sales volume.
  • 2Net income attributable to SCC fell by 34.8% to $323.4 million ($0.39 per diluted share) from $495.4 million ($0.59 per diluted share) in the prior year's quarter.
  • 3Copper production increased by 9.2% to 359.7 million pounds, driven by higher output at Buenavista, Cuajone, Toquepala, and La Caridad mines.
  • 4Operating cash cost per pound of copper produced, with by-product revenues, increased to $1.02 from $0.87 in the prior year, primarily due to lower by-product prices.
  • 5Capital expenditures were $323.7 million for the quarter, largely focused on expansion programs in Mexico, particularly at the Buenavista mine.
  • 6The effective income tax rate increased to 39.1% from 32.8% in the prior year, largely due to a new Mexican royalty tax implemented in 2014.
  • 7The company's share repurchase program continued, with $52.5 million spent in the first quarter of 2014.

Frequently Asked Questions

The primary drivers for the decrease were lower commodity prices, particularly for copper and silver, and a reduction in the sales volume of copper. Higher sales volumes for molybdenum and zinc partially offset these declines.

Southern Copper reported a strong increase in copper production, up 9.2% to 359.7 million pounds. This growth was achieved through higher throughput, improved ore grades, and better recoveries at its key mines, including Buenavista and Cuajone.

Management expressed confidence in the long-term fundamentals of the copper market, noting the positive impact of expected economic growth in major economies and decreasing inventory levels. The company is proceeding with an aggressive organic growth investment program aimed at increasing copper production capacity by approximately 87% to 1.2 million tons by 2017.

Operating cash cost per pound of copper produced, including by-product revenues, increased to $1.02 due to lower by-product prices. The effective income tax rate rose to 39.1% from 32.8%, primarily because of new royalty taxes introduced in Mexico in 2014.