10-QPeriod: Q1 FY2016

SOUTHERN COPPER CORP/ Quarterly Report for Q1 Ended Mar 31, 2016

Filed May 2, 2016For Securities:SCCO

Summary

Southern Copper Corporation (SCCO) reported a decrease in net sales and net income for the first quarter of 2016 compared to the same period in 2015. Net sales declined by 2.3% to $1,245.1 million, primarily due to lower average metal prices for copper, molybdenum, silver, and zinc. Net income attributable to SCC fell by 34.5% to $185.1 million, or $0.24 per diluted share, down from $282.4 million, or $0.35 per diluted share, in Q1 2015. Despite lower revenues, the company saw a significant increase in copper sales volume (26.2%) driven by higher production from the Buenavista expansion. The company's operating cash cost per pound of copper, when including by-product revenues, remained stable at $0.98. However, the cash cost without by-product revenues increased due to higher cost of sales, partially offset by operational efficiencies and increased production from lower-cost sources like the Buenavista projects. Significant capital investments continued, with $223.3 million allocated to capital projects aimed at increasing production capacity and improving operational performance. Management expressed an optimistic outlook for long-term copper prices due to anticipated market tightness and production cuts globally.

Financial Highlights

46 data points
Beta

Net Income

$185.10M

EPS (Diluted)

$0.23

Total Assets

$12.81B

Cash & Equivalents

$376.00M

Free Cash Flow

-$159.20M

Financial Statements
Beta
Cost of Revenue$726.80M
Gross Profit$382.90M
SG&A Expenses$26.30M
Operating Expenses$898.90M
Operating Income$346.20M
Net Income$185.10M
EPS (Basic)$0.23
Shares Outstanding (Basic)773.90M

Key Highlights

  • 1Net sales decreased by 2.3% to $1,245.1 million in Q1 2016 compared to Q1 2015, primarily due to lower metal prices.
  • 2Net income attributable to SCC decreased by 34.5% to $185.1 million ($0.24/share) in Q1 2016, down from $282.4 million ($0.35/share) in Q1 2015.
  • 3Copper sales volume increased by 26.2% to 469.3 million pounds, driven by higher production from the Buenavista expansion and improved operational practices.
  • 4Operating cash cost per pound of copper, with by-product revenues, remained stable at $0.98, while without by-product revenues, it increased to $1.41 from $1.66, reflecting improved operational efficiency.
  • 5Capital expenditures were $223.3 million in Q1 2016, a slight decrease from $248.7 million in Q1 2015, supporting ongoing development projects to increase production capacity.
  • 6The company has a positive long-term outlook for copper prices, anticipating market tightness due to global production cuts and steady demand.
  • 7Dividends paid per share decreased to $0.03 in Q1 2016 from $0.10 in Q1 2015.

Frequently Asked Questions

The primary driver of the decrease in net income was lower average metal prices for copper, molybdenum, silver, and zinc compared to the first quarter of 2015. These lower prices reduced overall revenue, despite an increase in copper sales volume.

The company's operating cash cost per pound of copper, including by-product revenues, remained stable at $0.98. However, without by-product revenues, the cost increased. This was largely due to higher cost of sales, but offset by improved operational efficiencies and higher production from the Buenavista expansion, which contributes lower-cost copper. Despite cost pressures, the company continued to invest in capital projects to further enhance production and efficiency.

Southern Copper has an optimistic outlook for long-term copper prices, anticipating market tightness due to global production cut announcements and steady demand, particularly from China. For 2016, the company plans to increase its copper production by 21.6% to 903,300 tons, driven by ongoing expansions and operational improvements.

The company continues to invest in major projects aimed at increasing copper production capacity. Key projects include the Buenavista expansion in Mexico, which is nearing completion and contributing to increased output, and the Toquepala expansion in Peru, designed to boost copper and molybdenum production. These investments are central to the company's strategy to achieve significant production growth over the coming years.