10-QPeriod: Q1 FY2015

SOUTHERN COPPER CORP/ Quarterly Report for Q1 Ended Mar 31, 2015

Filed April 30, 2015For Securities:SCCO

Summary

Southern Copper Corporation (SCCO) reported a decrease in net sales and net income for the first quarter of 2015 compared to the same period in 2014, primarily driven by lower metal prices, particularly for copper. Despite the revenue decline, the company managed to increase its copper sales volume by 12.6% and production by 8.9%, demonstrating operational resilience. Significant capital investments continue to fuel expansion projects in both Peru and Mexico, with a focus on increasing copper production capacity for future growth. The company also highlighted a substantial repurchase of its own shares, indicating a commitment to returning value to shareholders. However, investors should note the ongoing legal and environmental matters, including the significant copper sulfate spill in Mexico, which has led to provisions and ongoing remediation efforts. Additionally, a material weakness in internal controls over financial reporting was disclosed, with remediation efforts underway through the implementation of SAP systems.

Financial Highlights

49 data points
Beta

Revenue

$1.27B

37.5% Gross Margin

Net Income

$282.40M

22.2% Net Margin

EPS (Diluted)

$0.35

Total Assets

$11.09B

Cash & Equivalents

$192.10M

Free Cash Flow

-$24.30M

Financial Statements
Beta
Revenue$1.27B
Cost of Revenue$679.80M
Gross Profit$478.00M
SG&A Expenses$24.90M
Operating Expenses$837.90M
Operating Income$436.90M
Net Income$282.40M
EPS (Basic)$0.35
Shares Outstanding (Basic)805.40M

Key Highlights

  • 1Net sales decreased by 5.9% to $1,274.8 million, and net income attributable to SCC decreased by 12.7% to $282.4 million compared to Q1 2014, primarily due to lower metal prices.
  • 2Copper production increased by 8.9% to 391.6 million pounds, driven by higher output at the Buenavista and Toquepala mines.
  • 3Capital expenditures for Q1 2015 were $245.8 million, down 27.0% from Q1 2014, focused on expanding production capacity in Mexico and Peru.
  • 4The company repurchased $370.1 million of its common stock in Q1 2015, part of a larger $3 billion repurchase program.
  • 5A significant environmental remediation provision of $5.9 million was recorded for the copper sulfate spill at the Buenavista mine.
  • 6The company disclosed a material weakness in internal controls over financial reporting related to access controls in its Mexican operations, with SAP implementation underway as a remediation measure.
  • 7Subsequent to the quarter, on April 20, 2015, SCCO issued $2.0 billion in fixed-rate senior unsecured notes to fund its capital expenditure program.

Frequently Asked Questions

The primary driver for the decrease in net sales and net income for the first quarter of 2015, compared to the same period in 2014, was the decline in global metal prices, particularly for copper, molybdenum, and silver. This was partially offset by an increase in sales volume for copper and some by-products.

Southern Copper is focused on significant capital investments to expand its copper production capacity. Key projects are underway in both Peru (e.g., Toquepala expansion) and Mexico (e.g., Buenavista projects including a new concentrator and SX-EW III plant). The company aims to increase its total copper production capacity significantly by 2018. These investments are expected to drive future growth and cost efficiencies.

The company is dealing with several significant matters. In Mexico, there is an ongoing remediation effort and associated contingent liability related to a copper sulfate spill in August 2014, which has resulted in administrative fines and collective lawsuits. In Peru, there are long-standing labor share litigation cases and the development of the Tia Maria project has faced delays due to community differences. The company also reported a material weakness in its internal controls over financial reporting, which it is addressing through system implementations.

Southern Copper generated $221.5 million in net cash from operating activities in Q1 2015. The company continues to return value to shareholders through dividends, with a $0.10 per share dividend paid in March 2015 and authorized for May 2015. Additionally, the company actively repurchased $370.1 million of its own stock in Q1 2015, demonstrating a commitment to share buybacks. The company also secured $2.0 billion in new debt financing post-quarter end for capital expenditures.