10-QPeriod: Q1 FY2019

SOUTHERN COPPER CORP/ Quarterly Report for Q1 Ended Mar 31, 2019

Filed April 29, 2019For Securities:SCCO

Summary

Southern Copper Corporation (SCCO) reported its first quarter 2019 financial results, showing a year-over-year decrease in net sales and net income, primarily driven by lower commodity prices, particularly copper. Despite the price pressures, the company saw an increase in copper production volumes, benefiting from the initial ramping up of the new Toquepala concentrator and operational improvements at Buenavista. Cash flow from operations was significantly lower than the prior year, largely due to increased working capital requirements and lower net income. The company also highlighted ongoing capital investment programs aimed at increasing production capacity and efficiency, with significant expenditures in both its Peruvian and Mexican operations. SCCO continues to manage its business with a focus on cost control and production enhancement, aiming to remain profitable through price cycles.

Financial Highlights

47 data points
Beta

Revenue

$1.75B

41.5% Gross Margin

Net Income

$388.20M

22.1% Net Margin

EPS (Diluted)

$0.50

Total Assets

$15.54B

Cash & Equivalents

$737.00M

Free Cash Flow

$198.20M

Financial Statements
Beta
Revenue$1.75B
Cost of Revenue$844.10M
Gross Profit$727.70M
SG&A Expenses$28.50M
Operating Expenses$1.06B
Operating Income$693.70M
Net Income$388.20M
EPS (Basic)$0.50
Shares Outstanding (Basic)773.00M

Key Highlights

  • 1Net sales decreased by 4.8% to $1.75 billion in Q1 2019 compared to Q1 2018, primarily due to a 10.8% decline in copper prices.
  • 2Net income attributable to SCCO decreased by 17.5% to $388.2 million in Q1 2019, largely impacted by lower sales and prices.
  • 3Copper production increased by 11.6% to 504.0 million pounds, driven by higher output at Toquepala (following the new concentrator ramp-up) and Buenavista.
  • 4Operating cash cost per pound of copper, net of by-product revenues, increased by 13.9% to $0.90, mainly due to lower by-product credits.
  • 5Capital investments in Q1 2019 were $173.1 million, a decrease of 41.5% from Q1 2018, reflecting ongoing strategic project development.
  • 6The company declared a dividend of $0.40 per share, an increase from the $0.30 paid in the prior year's quarter.
  • 7SCCO continues to manage its significant related-party transactions with Grupo Mexico and its affiliates, which are subject to Audit Committee review.

Frequently Asked Questions

The primary driver was the decrease in metal prices, particularly copper, which saw an 10.8% decline in the LME price compared to the prior year's quarter. This was partially offset by an increase in copper sales volume.

Overall copper production increased by 11.6% year-over-year, reaching 504.0 million pounds. This growth was significantly boosted by the initial ramp-up of the new Toquepala concentrator, which commenced operations in Q4 2018 and is expected to reach full production in Q2 2019.

Management anticipates a recovery in copper prices in the coming months and projects a total demand growth of 2.5% for refined copper in 2019, driven by consumption in the U.S. and Asia. Molybdenum and zinc prices are expected to remain stable or improve due to supply constraints and recovery in the U.S. economy, while silver is expected to be supported by industrial uses and its role as a safe-haven asset.

The Toquepala Concentrator Expansion project was completed, with production beginning in Q4 2018 and full production expected by Q2 2019. For the Tia Maria project, the company is awaiting a construction license, with expectations for issuance in the first half of 2019, though there is no assurance it will be granted.