Temporary copper demand is growing significantly and consistently primarily due to the economic recovery of some of the major European economies such as China and Japan along with a solid demand in the U.S.
The copper production for Southern Copper (SCCO, Financial) held at 80% of its sales during the third quarter. Its mine production enhanced by 9,475 tons or 6.1% during the third quarter against the same period last year. This significant production result was owing to increased production at Buenavista and La Caridad operations.
The increased global copper demand is expected to benefit Southern Copper hugely, expanding the mill operations and thus driving significant company revenue and improved shareholder earnings.
Operational focus
The joint operations at the company’s La Caridad, Cuajone and Toquepala units are believed to be badly affected by the recent accident and Southern Copper has lowered its production forecast from 672,000 tons of copper planned earlier to 658,000 tons of copper expected to be produced in 2014.
The molybdenum sales accounted for 8% of the entire company sales during third quarter of 2014. Molybdenum production enhanced by 1,278 tons or 27% during the third quarter over the same period last year, primarily due to the significant production at Toquepala, producing 65% higher or 740 tons, Cuajone 192 tons which is a 22% increase in molybdenum production Cuajone and Buenavista 321 tons or 300%.
Southern Copper is exploring the $3.4 billion investment opportunity at the Buenavista project and estimate to expand the molybdenum production capacity at Buenavista by 42% and copper production by 175%.
The significant growth in molybdenum production during third quarter of 2014 highlights the company’s healthy operations at some key sites of Buenavista and Cuajone.
For 2014, Southern Copper is expanding its molybdenum production guidance to deliver 23,400 tons of molybdenum from the earlier production guidance of 21,500 tons, an increase of 18% over last year’s production.
However, the silver production for third quarter of 2014 registered a 12% decline over the same period last year and accounted for 4.9% of its sales during the quarter. The production declined due to reduced production at IMMSA operations of Santa Eulalia, badly affected by floods.
The increase in 2014 molybdenum production is believed to be partially offset by the decline in the silver production for the same period in 2014.
The copper sales value enhanced by 6.7% primarily owing to expanded volume which grew by 9.2%.
Considering the by-products, Southern Copper has greater sales of molybdenum at 52.6%, supported by a volume expansion of 27.5% and price rise of 34.8%. Zinc sales declined by 13.2%.
These mixed production results are believed to hardly affect the company’s overall production volume.
Southern Copper targets successfully executing its capital expansion program, which is focused on enhancing copper production capacity by about 87% over the 2013 level to 1.2 million tons by fiscal year 2017.
The innovative copper molybdenum concentrated has yearly production capacity of 2,600 tons of molybdenum and 188,000 tons of copper. In addition, the project is expected to produce extra 21,000 ounces of gold and 2.3 million ounces of silver per year, estimated to get concluded during the third quarter of 2015.
The enhanced capital expansion programs of Southern Copper are believed to drain on the company’s balance sheet but deliver significant long-term growth and superior investor value.
The Tia Maria project is believed to offer a huge investment opportunity of about $1.4 billion to deliver 120,000 tons of copper cathodes each year by leveraging a an advanced technology, meeting the best global environmental standards.
Moving ahead, the Board of Directors have approved a cash dividend of $0.12 per share of common stock payable to shareholders in November 2014.
Conclusion
Therefore, investors are advised to invest cautiously into Southern Copper Co. owing to a Zacks rank of Hold to the company, supported by several key factors such as a compelling forward P/E of 15.33. The PEG ratio of 1.35 suggests that the investors have to invest significantly to achieve a healthy growth . The profit and operating margins of 23.77% and 40.21% respectively is impressive and suggests solid company profit and hence improved investor returns, going forward.
