10-QPeriod: Q2 FY2018

SOUTHERN COPPER CORP/ Quarterly Report for Q2 Ended Jun 30, 2018

Filed July 30, 2018For Securities:SCCO

Summary

Southern Copper Corporation (SCCO) reported strong financial results for the three and six months ended June 30, 2018. Net sales increased significantly year-over-year, driven by higher average metal prices for copper, molybdenum, and zinc. Net income attributable to SCC also saw a substantial increase, reflecting improved operational performance and favorable market conditions. The company continued its robust capital investment program, focusing on expanding production capacity and improving operational efficiency across its Peruvian and Mexican operations. Key operational highlights include increased copper production driven by higher ore grades in Peru and improved throughput at new concentrators. Despite a slight overall decrease in copper volume sold due to operational factors at some mines, the higher commodity prices more than offset this, leading to strong revenue and profit growth. SCCO maintained a healthy cash position and generated significant operating cash flow, supporting its ongoing capital expenditures and dividend payments.

Financial Highlights

46 data points
Beta

Revenue

$1.84B

44.8% Gross Margin

Net Income

$409.60M

22.3% Net Margin

EPS (Diluted)

$0.53

Total Assets

$14.05B

Cash & Equivalents

$1.03B

Free Cash Flow

$152.30M

Financial Statements
Beta
Revenue$1.84B
Cost of Revenue$851.70M
Gross Profit$822.90M
SG&A Expenses$26.20M
Operating Expenses$1.05B
Operating Income$787.60M
Net Income$409.60M
EPS (Basic)$0.53
Shares Outstanding (Basic)773.00M

Key Highlights

  • 1Net sales increased by 20.1% to $1.84 billion for the three months ended June 30, 2018, compared to $1.53 billion in the prior year period.
  • 2Net income attributable to SCC rose by 36.7% to $409.6 million ($0.53 per share) for the second quarter of 2018, up from $299.7 million ($0.39 per share) in the same period last year.
  • 3Operating income saw a significant increase of 49.8% to $787.6 million in Q2 2018.
  • 4Copper production increased by 2.0% year-over-year in the second quarter, with Peruvian operations showing notable gains.
  • 5The company's operating cash cost per pound of copper, net of by-product revenues, decreased by 17.3% to $0.81 in Q2 2018.
  • 6Capital investments totaled $549.6 million in the first six months of 2018, primarily directed towards expanding production capacity.
  • 7Dividends paid increased substantially to $0.60 per share for the first six months of 2018, up from $0.20 in the prior year period.

Frequently Asked Questions

Revenue growth was primarily driven by significantly higher average metal prices for copper, molybdenum, and zinc, as well as a slight increase in copper sales volume from Peruvian operations. Higher prices for silver and molybdenum also contributed positively.

Operating cash cost per pound of copper, net of by-product revenues, decreased by 17.3% in the second quarter and 14.0% for the first six months of 2018 compared to the prior year. This improvement was mainly due to higher by-product revenues, reflecting higher prices for molybdenum and zinc.

Southern Copper is investing heavily in capital projects to increase production capacity and efficiency. Key projects include the Toquepala concentrator expansion in Peru, which is nearing completion, and various projects in Mexico aimed at increasing zinc and copper production, such as the Buenavista Zinc project and the Pilares mine.

The company believes that copper market fundamentals are solid, with refined copper demand outperforming forecasts due to synchronized economic growth. They expect demand to increase by 2.5% to 3.0% for the year. Supply is expected to grow slower at approximately 2.0% in 2018 due to factors like underinvestment in new projects, labor negotiations, environmental regulations, and technical difficulties, which the company believes will support copper prices.