10-QPeriod: Q2 FY2022

SOUTHERN COPPER CORP/ Quarterly Report for Q2 Ended Jun 30, 2022

Filed July 27, 2022For Securities:SCCO

Summary

Southern Copper Corporation (SCCO) reported a notable decrease in net sales and net income for the second quarter and the first six months of 2022 compared to the prior year. Net sales declined by 20.4% in Q2 and 6.6% year-to-date, primarily driven by lower sales volumes across major products and a significant negative adjustment related to provisionally priced sales. Net income attributable to SCC fell by 53.7% in Q2 and 28.3% year-to-date, impacted by lower sales, increased operating costs due to inflation (fuel, power), and lower copper production, particularly due to the Cuajone mine stoppage in Peru. The Cuajone mine experienced a significant production loss from February to April 2022 due to a community protest and blockade, resulting in an estimated $228 million reduction in sales. While operations have resumed, this event highlights operational risks in certain regions. Despite these challenges, the company managed to fulfill all sales commitments. Looking ahead, SCCO anticipates lower copper production for 2022 but expects a rebound in 2023. The company also notes the volatility in commodity prices, particularly copper, citing concerns about global economic slowdowns while emphasizing the long-term positive outlook for copper demand driven by clean energy transitions.

Financial Highlights

49 data points
Beta

Revenue

$2.31B

46.0% Gross Margin

Net Income

$432.30M

18.7% Net Margin

EPS (Diluted)

$0.56

Total Assets

$17.12B

Cash & Equivalents

$2.11B

Free Cash Flow

$85.30M

Financial Statements
Beta
Revenue$2.31B
Cost of Revenue$1.25B
Gross Profit$1.06B
SG&A Expenses$30.90M
Operating Expenses$1.50B
Operating Income$808.50M
Net Income$432.30M
EPS (Basic)$0.56
EPS (Diluted)$0.56
Shares Outstanding (Basic)773.10M
Shares Outstanding (Diluted)773.10M

Key Highlights

  • 1Net sales for Q2 2022 decreased by 20.4% to $2.31 billion, and year-to-date sales were down 6.6% to $5.07 billion compared to the prior year, driven by lower sales volumes and adverse provisional sales adjustments.
  • 2Net income attributable to SCCO for Q2 2022 dropped significantly by 53.7% to $432.3 million, and year-to-date net income decreased by 28.3% to $1.22 billion, impacted by reduced sales and higher operating costs.
  • 3The Cuajone mine in Peru experienced a production stoppage from February to April 2022 due to community protests, resulting in an estimated $228 million sales reduction and $14.0 million in unabsorbed fixed costs.
  • 4Operating cash costs per pound of copper, net of by-product revenues, increased by 86.4% in Q2 2022 to $1.10 compared to $0.59 in Q2 2021, primarily due to lower by-product revenues and decreased production.
  • 5Despite a 12.1% decrease in Q2 copper production, the company expects to produce 898,200 tons of copper in 2022, with a projected rebound to 971,200 tons in 2023.
  • 6Capital expenditures for the first six months of 2022 were $429.7 million, a 5.0% decrease year-over-year, primarily directed towards projects in Mexico and Peru.
  • 7The company announced a cash dividend of $0.75 per share payable on August 25, 2022.

Frequently Asked Questions

The decline in net sales was primarily due to lower sales volumes across copper, molybdenum, silver, and zinc, coupled with a negative adjustment for provisionally priced sales. The substantial decrease in net income was driven by these lower sales, increased operating costs related to inflation (fuel, power), and a significant reduction in copper production, largely influenced by the stoppage at the Cuajone mine in Peru. Additionally, lower copper prices and a mark-to-market adjustment on open sales further impacted profitability.

The Cuajone mine in Peru was seized by protesters from February 28 to April 21, 2022, causing a complete halt in operations. This resulted in a production loss of approximately 22,208 tonnes of copper and 485 tonnes of molybdenum, translating to an estimated $228 million reduction in sales. The company also incurred $14.0 million in unabsorbed fixed costs. Despite this, SCCO managed to fulfill its sales commitments by acquiring concentrates from other sources, albeit at a higher cost.

Operating costs and expenses increased in the second quarter and year-to-date periods of 2022 compared to 2021. This rise was driven by higher costs for fuel, power, metals purchased from third parties, and increased worker participation expenses. The operating cash cost per pound of copper, net of by-product revenues, significantly increased due to lower by-product revenues and reduced production volumes, which spread fixed costs over fewer units. The company is focused on cost control and operational efficiencies despite these pressures.

Southern Copper anticipates a decrease in copper production for 2022 compared to 2021, projecting 898,200 tons. However, they expect production to rebound in 2023 to 971,200 tons. Regarding prices, the company notes current downward pressure on copper due to global economic slowdown concerns but remains optimistic about the long-term demand driven by the clean energy transition, expecting the current cycle of low prices to be short-lived. Molybdenum prices saw a significant increase in Q2 2022, which is expected to continue being supported by market deficits.