SOUTHERN COPPER CO. THIRD QUARTER AND
NINE MONTHS 2014
Investor Relations:
Raul Jacob
(602) 264-1375
southerncopper@southernperu.com.pemailto:southerncopper@southernperu.com.pewww.southerncoppercorp.com
October 27, 2014 - Southern Copper Corporation (NYSE and BVL: SCCO)
Third quarter 2014 ("3Q14") net sales were $1,474.6 million,
6.5% higher than 3Q13 net sales of $1,384.5 million due to
better volumes.
EBITDAi in 3Q14 was $675.7 million, 1.6% lower than the $686.8 million in 3Q13. Margin decreased from 49.6% to
45.8% mainly due to the higher cost of inputs such as fuel, tires and water.
Net income in 3Q14 was $324.3 million (22.0% of net sales), 5.8% lower than the net income of $344.2 million (24.9% of net sales) in the 3Q13. Net Income in the nine months of 2014 ("9M14") was $985.0 million. Net income this year has decreased in $65 million due to the new special tax on mining in Mexico.
Copper production increased 4.7% from 160,602 metric tons in 3Q13 to 168,210 metric tons in 3Q14. Molybdenum production increased by 26.9% in 3Q14 compared with 3Q13. This increase was the result of greater production from our Buenavista and Toquepala operations.
Operating cash costii per pound of copper before by-product credits was $1.96 in 3Q14, a 4.8% increase compared to 3Q13. Operating cash cost per pound of copper net of by-product credits was $1.14 in 3Q14.
Capital expenditures for the 9M14 were $1,111 million, which in addition to the approximately $600 million already committed, we have reached 74% of our budget of $2.3 billion for 2014.
Tia Maria Project: On August 1, 2014, we received the final approval of our Environmental Impact Assessment (EIA). We expect to be granted the authorization to move forward with the construction phase before the end of the year and begin construction in the 1Q15. This project will produce 120,000 tons of copper cathodes per year and will be completed in 1Q17.
Accident in Leaching Dam under Construction: On August 6, 2014, an accidental spill of approximately 40,000 cubic meters of copper sulfate solution occurred at a leaching pond that was under construction ten kilometers away from the Buenavista mine. The accident was caused by a rock collapse that affected the system's pumping station and by a construction defect in the seal of a pipe in the leaching system containment dam, a part of the new SX/EW III plant. This solution reached the Bacanuchi River, a branch of the Sonora River.
We commissioned more than 1,210 people to attend the local communities work on the cleanup of the 250 kilometers of the Bacanuchi and Sonora riverbeds, which has been successfully completed.
We established a 2 billion peso (approximately $150 million) trust fund to support remedial actions and provide compensation for those affected by this accident. A technical committee was created to manage the funds, comprised of representatives from the federal government, the Company and specialists assisted by a team of environmental experts.
THIRD QUARTER AND NINE MONTHS 2014 RESULTS SOUTHERN COPPER
The authorities have determined that all the wells for agriculture and domestic use that were preventively closed can be reopened because the official water test results comply with all applicable norms and regulations.
The Company created a website with the latest news of all actions taken to mitigate and remediate the Sonora River accident: www.riosonora.com.mx
Dividends: On October 23, 2014, the Board of Directors authorized a dividend of $0.12 per share payable on
November 25, 2014, to shareholders of record at the close of business on November 11, 2014.
Commenting on the quarter, Mr. German Larrea, Chairman of the Board, said "The Company investment program is
yielding its first results through higher copper and molybdenum production. Mined copper production has increased by
9% in the nine months of 2014 while molybdenum by 24% in the same period. These encouraging results are mainly the consequence of our aggressive investment program which aims to increase copper production by 87% from its
2013 level to over 1.2 million tons of capacity by 2017. I believe the positive results of our capital program will be of great benefit for our stockholders, labor force, government and other constituencies of Southern Copper".
Sales | $1,474.6 | $1,384.5 | $90.1 | 6.5% | $4,316.4 | $4,417.7 | $(101.3) | (2.3)% |
Cost of sales | 729.5 | 663.3 | 66.2 | 10.0% | 2,098.0 | 2,097.3 | 0.7 | - |
Operating income | 547.1 | 583.6 | (36.5) | (6.3)% | 1,707.3 | 1,923.9 | (216.6) | (11.3)% |
Environmental | ||||||||
reclamation | 37.2 | N.A. | 37.2 | N.A. | 37.2 | N.A. | 37.2 | N.A. |
EBITDA1 | 675.7 | 686.8 | (11.1) | (1.6)% | 2,052.4 | 2,229.0 | (176.6) | (7.9)% |
EBITDA margin | 45.8% | 49.6% | (3.8)% | (7.7)pp | 47.5% | 50.5% | (3.0)% | (5.9)pp |
Net income | $324.3 | $344.2 | $(19.9) | (5.8)% | $985.0 | $1,212.3 | $(227.3) | (18.7)% |
Net income margin | 22.0% | 24.9% | (2.9)% | (11.5)pp | 22.8% | 27.4% | (4.6)% | (16.8)pp |
Income per share | $0.39 | $0.41 | (0.02) | (4.3)% | $1.18 | $1.44 | $(0.25) | (17.6)% |
Capital expenditures | $411.6 | $488.2 | $(76.6) | (15.7)% | $1,111.0 | $1,190.5 | $(79.5) | (6.7)% |
The current status of our major capital expenditure projects as of September 30, 2014, is the following:
Mexican Projects
Buenavista Projects: We continue developing our $3.4 billion investment program at this unit which is expected to increase its copper production capacity by approximately 175%, as well as molybdenum production by 42%.
Mine Expansion: to date we have received sixty-one 400-tons capacity trucks, seven shovels and eight drills required for the mine expansion; with an investment of $510.8 million. All of this equipment is currently in operation.
The new Copper Molybdenum Concentrator has an annual production capacity of 188,000 tons of copper and 2,600 tons of molybdenum. The project will additionally produce 2.3 million ounces of silver and 21,000 ounces of gold per
1 http://www.southerncoppercorp.com/ENG/invrel/Pages/PGEbitda.aspxhttp://www.southerncoppercorp.com/ENG/invrel/Pages/PGEbitda.aspx
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THIRD QUARTER AND NINE MONTHS 2014 RESULTS SOUTHERN COPPER
year. The project has an 86.4% progress with an investment of $882.6 million out of the approved capital budget of
$1,383.6 million. The project is expected to be completed in the 3Q15. All major equipment is on site and has been installed.
SXEW III Plant: we continue to ramp-up production since the first copper cathode was produced last June. All three Solvent Extraction trains are in operation, and we recently initiated operation of the second half of our Electro Winning Plant. Estimated annual production for the plant is 120,000 tons of copper cathodes. We expect to reach full capacity by the end of 4Q14 (adjusted from 3Q14 previously reported before the Sonora River accident). Capital budget of $444.0 million has been invested.
Crushing, Conveying and Spreading System for Leachable Ore (Quebalix IV): This project main objective is to reduce processing time and mining and hauling costs, and it will also increase production by improving SXEW copper recovery. It has a crushing and conveying capacity of 80 million tons per year and is expected to be completed in the
4Q15. The project has a 42.3% progress with an investment of $93.2 million out of the approved capital budget of $340 million.
Peruvian Projects
Toquepala Projects: Through September 30, 2014, we have invested a total of $324.9 million in Toquepala projects. On September 25, 2014, we answered the questions and comments received from authorities and other stakeholders related to the EIA of the Toquepala concentrator expansion. We expect to receive governmental approval of the EIA in the last quarter of 2014, which will allow us to continue developing this important project. The Toquepala concentrator expansion will increase annual production capacity by 100,000 tons of copper and 3,100 tons of molybdenum at a total capital cost of approximately $1.2 billion.
Cuajone Projects: Through September 30, 2014, we have invested and committed $39.2 million of a budget of $45 million on the HPGR project, which will produce a more finely crushed material. This project continues in the ramping up stage and we expect to reach full capacity during the fourth quarter of 2014. The project is expected to generate cost savings, improve copper recovery and reduce power consumption in the crushing process. Through September 2014, the implementation of the HPGR project and the variable cut-off ore grade project, implemented in 2013, have produced an estimated incremental production of 18,000 tons of copper.
The project to improve slope stability at the south area of the Cuajone mine will remove approximately 148 million tons of waste material. This project will improve mine design without reducing current production level. The mine equipment acquired includes one shovel, five 400-ton capacity trucks, one drill and auxiliary equipment which will be reallocated to our mine operations once the project is finished. Besides preparing the mine for the future, this investment will avoid a reduction in average ore grade. As of September 30, 2014, 7 million tons of waste material have been removed and activities will continue for 4.5 additional years. As of September 30, 2014, we have invested $66.7 million in this project.
Tia Maria Project: The project will represent an investment of approximately $1.4 billion to produce 120,000 tons of copper cathodes per year using state of the art technology with the highest international environmental standards. The project is currently expected to generate 3,500 jobs during the construction phase. When in operation, Tia Maria will directly employ 600 workers and indirectly another 2,000. Through its expected twenty-years of life, the project related services would create significant business opportunities in the Arequipa region.
In addition, the Company intends to implement social responsibility programs in the Arequipa region similar to those established in the communities near its other Peruvian operations.
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THIRD QUARTER AND NINE MONTHS 2014 RESULTS SOUTHERN COPPER
Conference Call
The Company's third quarter and nine months earnings conference call will be held on Wednesday, October 29, 2014, beginning at 12:00 P.M. - EST (11:00 A.M. Lima and 10:00 AM Mexico City time).
To participate:
Dial-in number: 888-771-4371 in the U.S.
847-585-4405 outside the U.S.
Raul Jacob, SCC Vice President of Finance & CFO
Conference ID: 38384422 and "Southern Copper Corporation Third Quarter and Nine Months 2014 Earnings Results"
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THIRD QUARTER AND NINE MONTHS 2014 RESULTS SOUTHERN COPPER
LME Copper ($/lb.) | COMEX Copper ($/lb.) | Molybdenum ($/lb.) | Zinc ($/lb.) | Silver ($/oz.) | Gold ($/oz.) | |
1Q 2014 | 3.19 | 3.24 | 9.93 | 0.92 | 20.46 | 1,293.95 |
2Q 2014 | 3.08 | 3.10 | 13.45 | 0.94 | 19.62 | 1,288.54 |
3Q 2014 | 3.17 | 3.16 | 12.62 | 1.05 | 19.63 | 1,281.92 |
9M 2014 | 3.15 | 3.17 | 12.00 | 0.97 | 19.90 | 1,288.14 |
1Q 2013 | 3.60 | 3.60 | 11.28 | 0.92 | 30.03 | 1,630.47 |
2Q 2013 | 3.24 | 3.25 | 10.80 | 0.83 | 23.10 | 1,413.65 |
3Q 2013 | 3.21 | 3.23 | 9.36 | 0.84 | 21.39 | 1,327.54 |
4Q 2013 | 3.24 | 3.28 | 9.60 | 0.87 | 20.77 | 1,272.47 |
9M 2013 | 3.35 | 3.36 | 10.48 | 0.87 | 24.84 | 1,457.22 |
Average 2013 | 3.32 | 3.34 | 10.26 | 0.87 | 23.82 | 1,411.03 |
Variance: 3Q14 vs. 3Q13 | (1.2)% | (2.2)% | 34.8% | 25.0% | (8.2)% | (3.4)% |
Variance: 3Q14 vs. 2Q14 | 2.9% | 1.9% | (6.2)% | 11.7% | 0.1% | (0.5)% |
Variance: 9M14 vs. 9M13 | (6.0)% | (5.7)% | 14.5% | 11.5% | (19.9)% | (11.6)% |
Source: Silver - COMEX; Gold and Zinc - LME; Molybdenum - Metals Week Dealer Oxide
Production and SalesThree Months Ended
September 30,
Nine Months Ended
September 30,
2014 2013 % 2014 2013 %
Copper (tons) Mined | 164,468 | 154,993 | 6.1% | 492,987 | 451,957 | 9.1% |
3rd party concentrate | 3,742 | 5,609 | (33.3%) | 5,989 | 18,203 | (67.1%) |
Total production | 168,210 | 160,602 | 4.7% | 498,976 | 470,160 | 6.1% |
Smelted | 148,514 | 145,627 | 2.0% | 437,915 | 428,316 | 2.2% |
Refined and Rod | 192,197 | 186,038 | 3.3% | 550,976 | 545,823 | 0.9% |
Sales | 166,462 | 152,396 | 9.2% | 476,553 | 458,674 | 3.9% |
Molybdenum (tons) | ||||||
Mined | 6,024 | 4,746 | 26.9% | 17,410 | 14,049 | 23.9% |
Sales | 6,011 | 4,713 | 27.5% | 17,352 | 14,087 | 23.2% |
Zinc (tons) | ||||||
Mined | 13,318 | 25,006 | (46.7%) | 50,634 | 75,518 | (33.0%) |
Refined | 16,685 | 22,133 | (24.6%) | 65,149 | 71,716 | (9.2%) |
Sales | 16,895 | 24,440 | (30.9%) | 64,792 | 73,247 | (11.5%) |
Silver (000s ounces) | ||||||
Mined | 2,960 | 3,351 | (11.7%) | 9,592 | 9,870 | (2.8%) |
Refined | 3,520 | 3,558 | (1.1%) | 9,701 | 11,979 | (19.0%) |
Sales | 3,661 | 3,770 | (2.9%) | 10,463 | 12,447 | (15.9%) |
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THIRD QUARTER AND NINE MONTHS 2014 RESULTS SOUTHERN COPPER
Southern Copper Corporation CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (Unaudited)Three Months Ended
September 30,
Nine Months Ended
September 30,
2014 2013 VAR % 2014 2013 VAR % (in millions, except per share amount)
Net sales: $1,474.6 $1,384.5 6.5% $4,316.4 $4,417.7 (2.3)%
Operating cost and expenses:
Cost of sales (exclusive of depreciation, amortization, and depletion shown
separately below) 729.5 663.3 10.0% 2,098.0 2,097.3 -%
Selling, general and administrative 26.3 24.1 9.1% 76.2 76.9 (0.9)% Environmental reclamation 37.2 - 100.0% 37.2 - 100.0% Depreciation, amortization and depletion 113.9 101.5 12.2% 340.4 285.6 19.2% Exploration 20.6 12.0 71.7% 57.3 34.0 68.5% Total operating costs and expenses 927.5 800.9 15.8% 2,609.1 2,493.8 4.6%
interest (34.6) (49.2) (29.7)% (112.0) (153.1) (26.8)% Other income (expense) (22.5) 1.7 (1,423.5)% (32.5) 19.5 (266.7)% Interest income 3.8 5.5 (30.9)% 12.0 15.8 (24.1)% Income before income tax 493.8 541.6 (8.8)% 1,574.8 1,806.1 (12.8)% Income taxes 173.9 197.9 (12.1)% 603.9 604.6 (0.1)% Net income before equity earnings of
affiliate 319.9 343.7 (6.9)% 970.9 1,201.5 (19.2)% Equity earnings of affiliate 5.9 1.8 227.8% 17.9 15.2 17.8%
Less: Net income attributable to non-
controlling interest 1.5 1.3 15.4% 3.8 4.4 (13.6)%
Net income attributable to SCC common
shareholders - basic and diluted $0.39 $0.41 (4.3)% $1.18 $1.44 (17.6)% Dividends paid $0.12 $0.12 0.0% $0.34 $0.56 (39.3)%
Weighted average shares outstanding
(Basic and diluted) 829.2841.9832.1844.1
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THIRD QUARTER AND NINE MONTHS 2014 RESULTS SOUTHERN COPPER
ASSETS
Current assets:
September 30, December 31, September 30,
2014 2013 2013 (in millions)
Cash and cash equivalents $1,034.2 $1,672.7 $1,795.3
Short-term investments 208.0 208.3 363.5
Accounts receivable 598.4 597.8 582.7
Inventories 750.0 693.9 731.1
Other current assets 364.9 243.3 271.8
Total current assets 2,955.5 3,416.0 3,744.4
Property, net 7,189.6 6,476.2 6,032.1
Related parties receivable 161.2 161.2 161.2
Leachable material, net 539.6 395.2 347.2
Intangible assets, net 110.1 110.2 110.2
Deferred income tax 250.0 180.7 124.5
Other assets 331.1 256.5 269.4
Total assets $11,537.1 $10,996.0 $10,789.0
LIABILITIES
Current liabilities:
Current portion of long-term debt $200.0 - $5.0
Accounts payable 641.4 $493.2 437.7
Income taxes 84.6 7.5 6.7
Accrued workers' participation 172.8 192.4 148.2
Other accrued liabilities 125.4 90.5 126.0
Total current liabilities 1,224.2 783.6 723.6
Long-term debt 4,005.7 4,204.9 4,204.7
Deferred income taxes 214.0 244.9 251.2
Other liabilities 63.9 76.0 74.6
Asset retirement obligation 149.2 124.8 124.9
Total non-current liabilities 4,432.8 4,650.6 4,655.4
EQUITY
Stockholders' equity:
Common stock 3,357.5 3,349.2 3,344.8
Treasury stock (1,611.5) (1,216.6) (1,055.4) Accumulated comprehensive income 4,102.9 3,401.1 3,093.4
Total stockholders' equity 5,848.9 5,533.7 5,382.8
Non-controlling interest 31.2 28.1 27.2
Total equity 5,880.1 5,561.8 5,410.0
Total Liabilities and equity $11,537.1 $10,996.0 $10,789.0
As of September 30, 2014, December 31, 2013 and September 30, 2013 there were 822.9 million, 835.3 million and 841.3 million shares outstanding, respectively.
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THIRD QUARTER AND NINE MONTHS 2014 RESULTS SOUTHERN COPPER
Southern Copper Corporation CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW (Unaudited)Three months ended
September 30,
Nine months ended
September 30,
2014 2013 2014 2013 (in millions)
OPERATING ACTIVITIES
Net income $325.8 $345.6 $988.8 $1,216.7
Depreciation, amortization and depletion 113.9 101.5 340.5 285.6
Deferred income tax (76.2) (9.8) (133.1) 0.9
Cash used for operating assets and liabilities 90.1 29.5 (46.2) (145.0) Other, net (18.0) (1.7) (30.8) 3.9
Net cash provided from operating activities 435.6 465.1 1,119.2 1,362.1
Capital expenditures (411.6) (488.2) (1,111.0) (1,190.5) Sale (purchase) of short-term investment, net 81.8 29.4 0.2 (229.2)
Other, net - 9.5 4.9 23.8
Net cash used for investing activities (329.8) (449.3) (1,105.9) (1,395.9)
Debt repaid - - - (5.0) Dividends paid (99.6) (101.0) (283.0) (473.1) Distributions to non-controlling interest (0.2) (0.2) (0.7) (1.1) SCC common shares buyback (323.4) (59.4) (388.9) (124.0) Other 0.2 0.2 1.0 1.1
Net cash used for financing activities (423.0) (160.4) (671.6) (602.1)
Effect of exchange rate changes on cash 16.0 0.2 19.8 (28.3)
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THIRD QUARTER AND NINE MONTHS 2014 RESULTS SOUTHERN COPPER
Company Profile
Southern Copper Corporation (SCC) is one of the largest integrated copper producers in the world and we believe we currently have the largest copper reserves in the industry. The Company is a NYSE and Lima Stock Exchange listed company that is
84% owned by Grupo Mexico, a Mexican company listed on the Mexican stock exchange. The remaining 16% ownership
interest is held by the international investment community. The Company operates mining units and metallurgical facilities in
Mexico and Peru and conducts exploration activities in Argentina, Chile, Ecuador, Mexico and Peru.
USA
1440 E Missouri Ave, Suite 160
Phoenix, AZ 85014, U. S. A. Phone: (602) 264-1375
Fax: (602) 264-1397
Mexico
Campos Eliseos N° 400
Colonia Lomas de Chapultepec
Delegacion Miguel Hidalgo C.P. 11000 - MEXICO Phone: (5255) 1103-5000
Fax: (5255) 1103-5567
Peru
Av. Caminos del Inca 171
Urb. Chacarilla del Estanque
Santiago de Surco Lima 33 - PERU Phone: (511) 512-0440
Fax: (511) 512-0492
###
This news release contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. In addition to the ri sks and uncertainties noted in this news release, there are certain factors that could cause results to differ materially from th ose anticipated by some of the statements made. These factors include those listed in the Company's most recently filed quarterly reports on Form 10-Q and annual report on Form 10-K. The Company expressly disclaims any obligation to release publicly any updates or revisions to any forward -looking statements contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.
i EBITDA is a common non-GAAP measure useful for our management as an indicator of Company's ability to produce income from its operations.
See reconciliation of EBITDA to GAAP net earnings on our website http://www.southerncoppercorp.com/ENG/invrel/Pages/PGEbitda.aspx.
ii Operating cash cost is a non-GAAP measure useful as a management tool to track our performance and better allocate our resources. It is als o useful to readers of the financial statements for analysis and comparability purposes. See reconciliation of operating cash c ost to GAAP cost of sales on our website http://www.southerncoppercorp.com/ENG/invrel/Pages/PGEbitda.aspx.
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