Southern Copper Corporation — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This filing reports annual results; it does not provide a clear standalone fourth-quarter income statement. Southern Copper is an integrated copper producer operating mines and processing facilities in Peru and Mexico, with copper, molybdenum, zinc and silver among its principal products. Grupo Mexico indirectly owned 88.9% of the company.
Financial and operating performance
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net sales | $9.896 billion | $10.048 billion | Down 1.5% |
| Operating income | $4.192 billion | $4.436 billion | Down 5.5% |
| Net income attributable to SCC | $2.425 billion | $2.639 billion | Down 8.1% |
| Basic and diluted earnings per share | $3.14 | $3.41 | Down $0.27 |
| Operating cash flow | $3.573 billion | $2.803 billion | Up $0.771 billion |
| Capital expenditures | $1.009 billion | $0.949 billion | Up 6.3% |
Operating margin was approximately 42.4% and net margin approximately 24.5%, calculated from reported sales and income. Net sales declined mainly with lower copper and zinc prices, partly offset by stronger molybdenum and silver prices and higher copper and molybdenum sales volumes. Provisionally priced sales adjustments reduced 2023 sales by $406 million. Copper represented 76.7% of sales; molybdenum 11.4%, silver 4.2% and zinc 3.0%.
Mined copper production rose 1.8% to 2,008.4 million pounds. Mined molybdenum increased 2.3% to 59.2 million pounds and zinc increased 9.2% to 144.4 million pounds; silver decreased 0.8% to 18.4 million ounces. The non-GAAP operating cash cost was $2.19 per pound before by-product revenues and $1.03 net of by-product revenues, versus $2.02 and $0.78, respectively, in 2022.
Liquidity, debt and capital allocation
At year-end, cash and cash equivalents were $1.152 billion and short-term investments were $599.3 million, totaling $1.751 billion. Current assets were $4.430 billion and current liabilities $1.389 billion (a calculated current ratio of about 3.2). Total debt was $6.255 billion, substantially unchanged from 2022; it is dollar-denominated and fixed-rate, with a weighted average rate of 5.82%. Cash and short-term investments less debt imply net debt of approximately $4.504 billion.
Cash and cash equivalents declined by $918 million during 2023. Financing cash outflow included $3.092 billion of dividends; the company paid $4.00 per share in 2023, compared with $3.50 in 2022. Operating cash flow less capital expenditures was approximately $2.565 billion. The Board declared a further $0.80-per-share dividend in January 2024, paid February 29, 2024.
Changes, outlook and notable matters
- Year-over-year: Lower copper and zinc prices and higher operating costs pressured earnings. Copper’s average LME price was $3.85 per pound, down 3.8%; zinc averaged $1.20 per pound, down 24.1%. Molybdenum averaged $23.73 per pound, up 27.5%. Operating cash cost net of by-product revenues rose 32.6%, reflecting higher production costs and reduced by-product credits.
- Segments: Mexican open-pit operations reported $2.775 billion operating income, versus $2.955 billion in 2022. Peruvian operations reported $1.473 billion, slightly above 2022. IMMSA, the Mexican underground segment, recorded a $4.2 million operating loss, versus $60.6 million income in 2022.
- 2024 outlook: Management expects copper production of 935,900 metric tonnes, up 2.7%; molybdenum production of 25,500 tonnes, down 4.9%; silver of 20.7 million ounces, up 12.2%; and mined zinc of 117,800 tonnes, up 79.8%. Management expects copper prices to remain broadly stable and molybdenum prices near $19 per pound. These are forecasts, not guarantees.
- Investment and projects: The Board approved a 2024 capital program of $1.104 billion. Management’s longer-term objective is 1.3 million tonnes of annual copper production by the end of the decade. Buenavista Zinc began ramp-up in early 2024 after technical adjustments; management expects it to contribute materially to zinc output. Tia Maria remains dependent on social acceptance and other conditions, despite the company’s expectation that construction could begin in the near future.
- Operational and legal risks: Lower grades and recovery weighed on Buenavista and La Caridad. Buenavista experienced reduced freshwater availability in the second half of 2023; alternative water transport was planned for 2024. The Taxco mine remains suspended amid a strike dating to 2007. Tia Maria faces pending lawsuits and community opposition. Mexican mining-law changes enacted in 2023, including shorter concession terms and new water and closure requirements, are being challenged; the company said it did not expect a material current impact.
- Other significant disclosures: The company recorded five workplace fatalities in 2023 (three employees and two contractors). It reported no material cybersecurity incidents in 2023, while disclosing a ransomware attack in 2021. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting. The audit identified capitalization of costs in Mexican leach-pad inventories as a critical audit matter.
Most important facts for investors to verify
- Whether the expected 2024 production increases, particularly at Buenavista Zinc, are achieved and how the ramp-up affects costs and recoveries.
- Whether Buenavista secures sufficient water and whether community, labor or political events disrupt operations or projects.
- How copper, zinc and molybdenum prices, provisional pricing adjustments and by-product revenues affect realized sales and cash costs.
- Whether planned capital spending, dividends and project commitments remain supportable alongside debt service and liquidity needs.
- Developments in Tia Maria litigation and social engagement, Mexican mining-law challenges, and environmental or remediation contingencies, including the Sonora River spill proceedings.
- The assumptions and recoverability of leach-pad inventory and mineral reserves; reported resources are not reserves and do not establish economic viability.