Why did net income fall year over year despite higher production?

Net income fell 9.5% to $736.0 million from $813.2 million in 1Q23, mainly because net sales dropped 6.9% on lower copper, molybdenum and zinc prices. Higher copper volumes and lower operating costs partly offset the price decline, but not fully.

Why was operating cash flow so much lower than a year ago?

Operating cash flow was $659.9 million, down 55.7% from $1,185.2 million in 1Q23. The company attributed the decline to a $310.8 million increase in working capital, driven primarily by its Mexican operations. Management characterized underlying cash generation as strong, supported by higher sales and cost controls.

What does the stock dividend mean for shareholders?

Shareholders will receive 0.0104 additional shares for each share held, with no action required. Cash will be paid in lieu of fractional shares based on a $115.13 reference price, which implies roughly $1.20 per share in value. Shares are administered by Computershare and payable May 23, 2024 to holders of record on May 8, 2024.

What drove the improvement in unit costs and the Buenavista project's contribution?

Operating cash cost net of by-product credits fell to $1.07 per pound from $1.25 in 4Q23, reflecting a 5.3% drop in operating costs, a 5.9% rise in by-product credits (mainly molybdenum) and higher copper volumes. The new Buenavista zinc concentrator, with a 100,000-ton annual zinc capacity, began operating in 1Q24 and produced 9,695 tons of zinc in the quarter. Management expects 54,500 tons of zinc and 11,900 tons of copper from it in 2024.

What are the key growth projects and their expected timing?

Tia Maria (Arequipa, Peru; 120,000 tons per year of SX-EW copper; $1.4 billion budget) is expected to begin construction in the near future. Los Chancas (Apurimac, Peru; 130,000 tons of copper and 7,500 tons of molybdenum per year; $2.6 billion) is expected to start operating in 2031, pending resolution of illegal mining issues and completion of environmental studies. Michiquillay (Cajamarca, Peru; 225,000 tons of copper per year; about $2.5 billion) has a production start-up target of 2032.

SCCO 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed April 26, 2024. Cited figures are marked; the original filing is the authoritative source.

Southern Copper reported first-quarter 2024 results that were strong sequentially but weaker year over year.

Net sales were $2,599.8 million^a, up 13.3% from 4Q23 on higher copper and silver volumes and firmer metal prices, but down 6.9% from 1Q23 on lower copper, molybdenum and zinc prices. Net income attributable to SCC was $736.0 million ($0.95 per share), up 65.4% sequentially but down 9.5% year over year. Adjusted EBITDA was $1,417.7 million at a 54.5% margin, compared with 46.0% in 4Q23 and 56.1% in 1Q23.

Operating cash cost net of by-product credits fell to $1.07^b per pound from $1.25 in 4Q23, helped by higher molybdenum credits and a 2.2% rise in copper output. Cash generation was mixed. Operating cash flow was $659.9 million, up 22.0% sequentially but down 55.7% from 1Q23, mainly because a $310.8 million increase in working capital, driven largely by Mexican operations, absorbed cash.

Capital investments were $213.8 million^c, down 10.2% year over year. Copper production rose 7.7% year over year to 240,679 tons, supported by the new Buenavista zinc concentrator, which began operating in 1Q24 and produced 9,695 tons of zinc in the quarter. The company also reiterated a capital program of more than $15 billion for the decade, with Tia Maria, Los Chancas and Michiquillay in Peru and several Mexican projects.

The Board approved a quarterly stock dividend of 0.0104 shares per share of common stock, payable May 23, 2024 to holders of record on May 8, 2024. Based on the $115.13^d reference price, this equals roughly $1.20 per share in value, which is less than the $1.00 per share cash dividend paid in 1Q23 but is paid in stock rather than cash. This filing furnishes the earnings press release under Item 2.02 and is not deemed filed under the Exchange Act.

02—Key points

Key Highlights

Net sales of $2,599.8 million rose 13.3% sequentially but fell 6.9% year over year, reflecting lower copper (-5.4% LME), molybdenum (-38.1%) and zinc (-21.8%) prices.
Net income of $736.0 million ($0.95 per share) was up 65.4% from 4Q23 but down 9.5% from 1Q23; net margin was 28.3%.
Adjusted EBITDA of $1,417.7 million carried a 54.5% margin, up from 46.0% in 4Q23 but below 56.1% in 1Q23.
Operating cash cost net of by-product credits fell 14.2% sequentially to $1.07 per pound of copper, while operating cash flow declined 55.7% year over year to $659.9 million due to a $310.8 million working capital build.
Copper production totaled 240,679 tons (+7.7% year over year), and mined zinc output rose 74.9% to 26,366 tons after the Buenavista zinc concentrator began operating.
Management reiterated a capital investment program exceeding $15 billion this decade; Q1 capex was $213.8 million, down 10.2% year over year.
The Board declared a quarterly 0.0104-share stock dividend (record date May 8, payable May 23, 2024), with cash paid in lieu of fractional shares at a $115.13 reference price.

03—Questions

Frequently Asked Questions

Why did net income fall year over year despite higher production?
Net income fell 9.5% to $736.0 million from $813.2 million in 1Q23, mainly because net sales dropped 6.9% on lower copper, molybdenum and zinc prices. Higher copper volumes and lower operating costs partly offset the price decline, but not fully.
Why was operating cash flow so much lower than a year ago?
Operating cash flow was $659.9 million, down 55.7% from $1,185.2 million in 1Q23. The company attributed the decline to a $310.8 million increase in working capital, driven primarily by its Mexican operations. Management characterized underlying cash generation as strong, supported by higher sales and cost controls.
What does the stock dividend mean for shareholders?
Shareholders will receive 0.0104 additional shares for each share held, with no action required. Cash will be paid in lieu of fractional shares based on a $115.13 reference price, which implies roughly $1.20 per share in value. Shares are administered by Computershare and payable May 23, 2024 to holders of record on May 8, 2024.
What drove the improvement in unit costs and the Buenavista project's contribution?
Operating cash cost net of by-product credits fell to $1.07 per pound from $1.25 in 4Q23, reflecting a 5.3% drop in operating costs, a 5.9% rise in by-product credits (mainly molybdenum) and higher copper volumes. The new Buenavista zinc concentrator, with a 100,000-ton annual zinc capacity, began operating in 1Q24 and produced 9,695 tons of zinc in the quarter. Management expects 54,500 tons of zinc and 11,900 tons of copper from it in 2024.
What are the key growth projects and their expected timing?
Tia Maria (Arequipa, Peru; 120,000 tons per year of SX-EW copper; $1.4 billion budget) is expected to begin construction in the near future. Los Chancas (Apurimac, Peru; 130,000 tons of copper and 7,500 tons of molybdenum per year; $2.6 billion) is expected to start operating in 2031, pending resolution of illegal mining issues and completion of environmental studies. Michiquillay (Cajamarca, Peru; 225,000 tons of copper per year; about $2.5 billion) has a production start-up target of 2032.

04—Continue

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