Southern copper corporation_ 27.10.15 southern copper corporation results third quarter and nine months 2015 – the wall street transcript
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Raul Jacob (602) 264-1375 southerncopper@southernperu. com. pe www. southerncoppercorp. com
October 27, 2015 – Southern Copper Corporation (NYSE and BVL: SCCO)
Notwithstanding the decrease in metal prices (copper -18%, Molybdenum -40%, Silver -20%, Zinc -5% and gold -9%), the Company was able to mitigate this downward trend by increasing
sales volumes for copper (+11.0%) and zinc (+12.5%) and significantly reducing costs, while maintaining a sound capital structure and a very strong balance sheet.
Nine months of 2015 (‘9M15’) net sales were $3,791.3 million, 12.2% lower than 9M14 net sales of $4,316.4 million principally due to lower metal prices.
EBITDA i in 9M15 was $1,614.7 million, 21.8% lower than the
$2,064.3 million in 9M14. The EBITDA margin decreased from 47.8% to 42.6%.
Net income in 9M15 was $675.6 million (17.8% of net sales), 31.4% lower than net income of $985.0 million (22.8% of sales) in the 9M14. This decrease was mainly due to lower metal prices as well as a non-cash tax adjustment, recorded in 3Q15, of $51.4 million related to the filing of the 2014 tax return.
Copper mine production increased in 9M15 to 536,593 tons (+8.8%) from 492,987 tons in 9M14, mainly as a result of the production performance of the Buenavista mine, which increased production by 35,171 tons (+22.1%) mostly from the additional production of the new state of the art, low cost SX/EW III plant. The remaining 8,435 tons of additional copper production resulted from better ore grades from our operations of Toquepala (+6.0%), La Caridad (+3.7%) and IMMSA mines (+15.2%). The Company expects to further enhance its copper production and low cash cost position in 2016 with the full production of both the SX/EW III and the new Buenavista Concentrator.
By-product production: Mined silver production increased by 1.4% in 9M15 mainly due to higher production at our Mexican operations. Molybdenum production decreased marginally by -0.3% to 17,354 tons in 9M15 from 17,410 tons in 9M14. Refined zinc production was 71,487 tons in the 9M15, 9.7% higher than 9M14 production.
Operating cash cost ii per pound of copper before by-products credits was $1.64 in 9M15, a reduction of 14.5% when compared to the $1.92 per pound for the same period of 2014. This improvement in the Company´s cash cost is due to Buenavista´s new low cost SX-EW production, lower fuel cost (-16.6%), electricity (-18.3%), labor (-9.1%) and maintenance supplies (-2.3%). Operating cash cost per pound, net of by-product credits, was $1.06 in 9M15, an increase of 1.9% compared to $1.04 in 9M14 mainly due to lower metal prices of all our by-products.
Capital investments, including the $100.4 million for El Pilar acquisition, were $946.3 million for the nine months in 2015, 14.6% lower than in the same period of 2014, and represented 140.1% of net income. We continue moving forward with our investment program to increase copper production capacity by approximately 90% from our 2013 production level of 617,000 tons to 1,165,000 tons by 2018.
Debt Repayment: On July 27, 2015 the Company paid $200 million from the 10 year bond issued in 2005. The Company has no other amortizations until 2020 when $400 million are due from the 10 year bond issued in 2010. Southern Copper has a solid balance sheet and comfortable amortization schedule with an average duration of over 20 years. Company is well positioned to face this low price environment and move forward with its aggressive expansion program.
Dividends: On October 22, 2015, the Board of Directors authorized a dividend of 4 cents per share payable on November 24, 2015, to shareholders of record at the close of business on November 10, 2015.
(in millions except per share amount and %s)
Commenting on the Company’s results and outlook, Mr. German Larrea, Chairman of the Board, said ‘We have successfully initiated production at our new Buenavista concentrator and we expect to reach full capacity during the first quarter of 2016. With that, the expansion program for our Mexican mining operations will be near completion. Despite the adverse economic environment, thanks to our continuous cost control initiatives and prudent financial policies, we are in a solid position to keep moving forward with the Toquepala concentrator expansion in Peru. The lower per pound cost of the incremental production from our expansion projects is improving our overall cash-cost. I am confident that the positive results from our investment program will greatly benefit all our stakeholders.’
Cost of sales
Net income margin
Income per share
Acquisition of El Pilar
1 http://www. southerncoppercorp. com/ENG/invrel/Pages/PGEbitda. aspx
Buenavista Projects: We continue developing our $3.5 billion investment program at this unit which is expected to increase its copper production by approximately 180% as well as molybdenum production by 42%:
Mine Expansion: to date we have received sixty-one 400-ton capacity trucks, seven shovels and eight drills required for the mine expansion; with an investment of $510.9 million. All these assets are 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 also produce 2.3 million ounces of silver and 21,000 ounces of gold per year. The new concentrator is in its ramping-up phase and 3 out of the 6 mills are already in operations. The tonnage processed by the mills has exceeded their design capacity. Initial results have been encouraging with better than expected recovery and concentrate grade. In September, we obtained the first copper concentrate lot and due to the promising initial results, it is expected to gradually increase production until the plant reaches full capacity by the 1Q16. The project has a 99% progress with an investment of $1,114 million out of the approved capital budget of $1,384 million.
SX-EW III Plant: In July the Mexican authorities approved the initiation of activities in the Tinajas 2 leaching pad. This will allow the Company to achieve the designed annual production capacity of low cost 120,000 tons of copper cathodes by the first quarter of 2016. As of September 30, 2015, we have invested $522.4 million in this project.
Crushing, Conveying and Spreading System for Leachable Ore (Quebalix IV): This project’s main objective is to reduce processing time as well as mining and hauling costs. It will also increase production by improving SX-EW copper recovery. It has a crushing and conveying capacity of 80 million tons per year and is expected to be completed by the 2Q16. The project has a 78% progress with an investment of $197.0 million out of the approved capital budget of $340 million.
The remaining projects to complete the $3.5 billion budgeted program include important investments in infrastructure (power lines and substations, water supply, tailings dam, mine equipment shops, internal roads, etc.) with a global progress of 70%.
Toquepala Projects: Through September 30, 2015, we have invested $372.3 million in Toquepala projects. On April 14, 2015 the construction permit for the Toquepala expansion project was approved, allowing us to continue its development. Once in operation, the Toquepala expansion will increase annual production capacity by 100,000 tons of copper, from 135,000 tons estimated in 2015 to 235,000 tons in 2018, and will also increase molybdenum production by 3,100 tons at an estimated capital cost of $1.2 billion. This investment is estimated to generate 2,200 jobs during the construction phase and 300 additional jobs once finished, which will add to current 1,500 permanent employees at Toquepala. The project is expected to be completed by the 4Q17.
Our Board approved a project to improve the crushing process at Toquepala with the installation of a High Pressure Grinding Roll (HPGR) system, which will act as a quaternary crusher. The main objective is to ensure that the concentrator will operate at its maximum capacity of 60,000 tons per day, even with an increase of the ore material hardness index. Additionally, recoveries will be improved with a better ore crushing. During the past 3Q15 we finalized commercial discussions with the selected vendor and already initiated the project engineering and procurement. Once the engineering is sufficiently advanced we will start construction and plant assembly. The budget for this project is $40 million and we have invested $5.4 million as of September 30, 2015. It is expected to be completed by the 1Q17.
Cuajone Projects: 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 this project is finished. Besides preparing the mine for the future, this investment will avoid a reduction in average ore grade. As of September 30, 2015, 38.5 million tons of waste material have been removed and this activity will continue for 3.5 additional years, until the end of 2018. As of September 30, 2015, we have invested $67.7 million in this project.
In-Pit Crushing and Conveyor (IPCC) Project: This project consists of installing a primary crusher at the Cuajone mine pit with a conveyor system for moving the ore to the concentrator. The project aims to optimize the hauling process by replacing rail haulage, thereby reducing operating and maintenance costs as well as the environmental impact of the Cuajone mine. The crusher will have a processing capacity of 43.8 million tons per year. We are completing the detailed engineering. The main components, including the crusher and the overland belt, have been already acquired and we have started their installation. As of September 30, 2015, we have invested $65.8 million in this project out of the approved capital budget of $165.5 million. The project is expected to be completed by second quarter of 2017.
Tia Maria project: While we have received approval of Tia Maria´s Environmental Impact Assessment, the issuance of the project´s construction permit has been delayed pending the resolution of certain differences with community groups. The Peruvian government has recommended a dialogue roundtable for the resolution of these differences.
The Company has established a multi-faceted encounter plan to explain the merits of the Tia Maria project. A national media campaign was launched in May and, after it, the Company has conducted a door-to-door campaign in the neighboring district of Cocachacra. This campaign had the purpose of explaining the relevant environmental topics of the project that concerned the local community, as the anti-mining groups had wrongfully confused the community with respect to the project’s water source and consumption, as well as to the alleged emissions into the atmosphere.
Tia Maria, when completed, will represent an investment of approximately $1.4 billion to produce 120,000 tons of copper cathodes per year. This project will use state of the art SX/EW technology with the highest international environmental standards. SX/EW facilities are the most environmentally friendly in the Industry as they do not require a smelting process and consequently, no emissions into the atmosphere are released. The project will only use seawater, transporting this more than 25 kilometers (15.5 miles) and at 1,000 meters (3,300 feet) above sea level, constructing a desalinization plant representing an investment of $95 million. In this manner, the Company guarantees that the Tambo river water resources will be used solely for farming and human consumption.
We expect the project 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-year life, the project related services will create significant business opportunities in the Arequipa region. Tia Maria has complied with all existing requirements and regulations and therefore the Company trusts that it will soon receive from government authorities the construction licenses and permits required in order to begin construction of this project.
This content was issued by Southern Copper Corporation on the 2015-10-27 and was initially posted on www. southernperu. com. It was distributed, unedited and unaltered, by noodls on 2015-10-27 14:01:07 UTC. The original issuer is solely responsible for the accuracy of the information contained therein.