What drove the strong Q2 2024 earnings growth?

Growth came from both volume and price. Sales volumes rose for copper (+5.5%), molybdenum (+21.4%), silver (+31.6%) and zinc (+78.1%, mostly from the new Buenavista zinc concentrator). Metal prices were also higher, with LME copper up 14.8% year over year. Lower unit costs from higher copper output and larger by-product credits added to margins.

What is the dividend and how does the stock dividend work?

The Board approved a $0.60 per share cash dividend and a 0.0056 share stock dividend per share, payable August 26, 2024 to holders of record on August 9, 2024. Shareholders need not act; stock dividend shares are credited to book-entry accounts, or to brokers for street-name holdings. Fractional entitlements are paid in cash at $106.54, the average of the July 18, 2024 high and low prices. The company's Q2 2024 dividends paid were $1.20 per share.

Why did operating cash flow decline even though earnings rose?

Six-month operating cash flow fell 18.2% to $1,621.8 million from $1,982.2 million, mainly because of a $511.0 million working capital build, driven by higher accounts receivable at the Mexican operations. Earnings are not converting to cash as quickly while receivables are elevated, so investors should watch whether working capital reverses in the second half.

What are the key risks around the Tia Maria project?

The company restarted Tia Maria on July 1, 2024 after social and political delays in Islay and Arequipa, and targets operations in 2027. The historical capex budget of $1.4 billion is under review and will be updated by year-end, so the final cost estimate remains open. Management projects 600 direct and 4,800 indirect jobs at operation and $17.5 billion in exports and $3.4 billion in taxes and royalties over 20 years, but these depend on copper prices and timely execution.

How leveraged is the balance sheet and who controls the company?

At June 30, 2024, total debt was about $6.26 billion ($499.5 million current plus $5,757.0 million long-term), against $2.20 billion of cash and short-term investments, for net debt of roughly $4.05 billion. Cash rose to $1,875.3 million from $1,151.5 million at year-end 2023. Grupo Mexico owns 88.9% of the company, with the remaining 11.1% held by public investors, so controlling-shareholder influence and limited free float are important considerations.

SCCO 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed July 19, 2024. Cited figures are marked; the original filing is the authoritative source.

Southern Copper reported strong second-quarter 2024 results, with net sales of $3,118.3 million^a, up 35.5% year over year, and net income attributable to SCC of $950.2 million, up 73.6%.

Adjusted EBITDA reached $1,797.0 million^b with a 57.6% margin, versus 48.5% a year earlier. Growth was driven by higher volumes of copper (+5.5%), molybdenum (+21.4%), silver (+31.6%) and zinc (+78.1%), together with higher metal prices (LME copper +14.8%, zinc +12.2%, silver +18.9%, molybdenum +3.9%). Operating cash cost net of by-product credits fell to $0.76 per pound in Q2 from $1.07 in Q1, helped by a 34% increase in by-product revenue credits.

Cash generation was weaker than earnings. Six-month operating cash flow fell 18.2% to $1,621.8 million^c, pressured by a $511.0 million working capital build, mainly higher receivables at the Mexican operations. Capital investments were $331.8 million in Q2 and $545.6 million year to date.

The company's capital program exceeds $15 billion^d, including Tia Maria, Los Chancas and Michiquillay in Peru and several Mexican projects. Tia Maria restarted activities on July 1, 2024, with operations targeted for 2027. The company is reviewing its $1.4 billion historical Tia Maria capex budget and will update it by year-end, so investors should watch that figure for cost risk.

The Board authorized a quarterly cash dividend of $0.60 per share plus a stock dividend of 0.0056 shares per share, payable August 26, 2024 to holders of record on August 9, 2024. Cash will be paid in lieu of fractional shares at $106.54. The company had 781.2 million shares outstanding at June 30, 2024, and total debt of roughly $6.26 billion against about $2.20 billion in cash and short-term investments.

Grupo Mexico owns 88.9% of the company, which matters for free float and governance. Figures are unaudited and the filing is furnished under Item 2.02, not filed.

02—Key points

Key Highlights

Q2 2024 net sales rose 35.5% to $3,118.3 million; six-month sales rose 12.2% to $5,718.1 million.
Q2 net income attributable to SCC rose 73.6% to $950.2 million, a 30.5% net margin (versus 23.8%); adjusted EBITDA rose 61.1% to $1,797.0 million (57.6% margin).
Operating cash cost net of by-product credits was $0.76/lb in Q2 (down 29% from Q1's $1.07/lb) and $0.91/lb for the first half, down 2.7% year over year.
Six-month operating cash flow fell 18.2% to $1,621.8 million due to a $511.0 million working capital increase, mainly Mexican receivables.
Quarterly dividend of $0.60 cash plus a 0.0056-share stock dividend declared, payable August 26, 2024 (record date August 9, 2024).
Tia Maria restarted July 1, 2024 (operations targeted for 2027); the $1.4 billion historical capex budget is under review, with an update due by year-end.
Capital program exceeds $15 billion; Q2 capex was $331.8 million (up 31.4%) and first-half capex was $545.6 million (up 11.2%).

03—Questions

Frequently Asked Questions

What drove the strong Q2 2024 earnings growth?
Growth came from both volume and price. Sales volumes rose for copper (+5.5%), molybdenum (+21.4%), silver (+31.6%) and zinc (+78.1%, mostly from the new Buenavista zinc concentrator). Metal prices were also higher, with LME copper up 14.8% year over year. Lower unit costs from higher copper output and larger by-product credits added to margins.
What is the dividend and how does the stock dividend work?
The Board approved a $0.60 per share cash dividend and a 0.0056 share stock dividend per share, payable August 26, 2024 to holders of record on August 9, 2024. Shareholders need not act; stock dividend shares are credited to book-entry accounts, or to brokers for street-name holdings. Fractional entitlements are paid in cash at $106.54, the average of the July 18, 2024 high and low prices. The company's Q2 2024 dividends paid were $1.20 per share.
Why did operating cash flow decline even though earnings rose?
Six-month operating cash flow fell 18.2% to $1,621.8 million from $1,982.2 million, mainly because of a $511.0 million working capital build, driven by higher accounts receivable at the Mexican operations. Earnings are not converting to cash as quickly while receivables are elevated, so investors should watch whether working capital reverses in the second half.
What are the key risks around the Tia Maria project?
The company restarted Tia Maria on July 1, 2024 after social and political delays in Islay and Arequipa, and targets operations in 2027. The historical capex budget of $1.4 billion is under review and will be updated by year-end, so the final cost estimate remains open. Management projects 600 direct and 4,800 indirect jobs at operation and $17.5 billion in exports and $3.4 billion in taxes and royalties over 20 years, but these depend on copper prices and timely execution.
How leveraged is the balance sheet and who controls the company?
At June 30, 2024, total debt was about $6.26 billion ($499.5 million current plus $5,757.0 million long-term), against $2.20 billion of cash and short-term investments, for net debt of roughly $4.05 billion. Cash rose to $1,875.3 million from $1,151.5 million at year-end 2023. Grupo Mexico owns 88.9% of the company, with the remaining 11.1% held by public investors, so controlling-shareholder influence and limited free float are important considerations.

04—Continue

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