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November 11, 2009
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Southern Copper Corporation (PCU), one of the leading copper producers in the world, posted net earnings of 37 cents in the third quarter of 2009, better than the Zacks Consensus Estimate of 31 cents. Earnings jumped 78.6% from 21 cents sequentially while it declined 22.3% from 47 cents year on year. The company attributed lower costs for driving earnings. Operating costs decreased 15.8% year over year due to higher productivity.
Copper production in the quarter improved 1.3% to 120,240 tons from 118,657 tons, driven by higher production at the La Caridad mine in Mexico and the Peruvian mines, on the back of better ore grades. Molybdenum production increased 14.3% to 5,191 tons, compared to 4,541 tons in the year-ago quarter. Higher ore grades and recoveries lead to an increase of 631 tons at La Caridad and 734 tons production at the Cuajone mine in Peru. These increases were partially offset by 715 tons of lower production at the Toquepala mine in Peru due to lower ore grades.
Zinc production improved 3.5% during the quarter. The Charcas and Santa Barbara mines in Mexico produced higher ore grades. The refined zinc production was 4.2% higher for the same period as a result of the improved performance of the San Luis Potosi zinc refinery in Mexico.
Revenues of $1.15 billion for the quarter reflected a decline of 20% from the previous year on lower copper prices. Quarter on quarter, revenues increased 40% based on improved copper volumes and prices.
As of Sep 30, 2009, Southernin Copper had debt of $1.27 billion. We are concerned of the company’s high debt with cash and cash equivalent of just $413 million. Southern Copper believes that the copper market outlook remains strong for the next few years and anticipates further improvements in results. The company continues with the development of the Tia Maria project in Peru. The project is expected to increase annual copper production by 120,000 tons and is scheduled to commence operations in 2011. Another ongoing project is the Toquepala concentrator expansion in Peru, which is expected to increase annual output by 100,000 tons of copper per year and 3,100 tons of molybdenum per year, starting 2012. The company also continues the development of the El Arco project in Mexico, which is expected to have an annual production of 190,000 tons of copper and 105,000 ounces of gold.
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