Southern Copper Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparative period is Q1 2023 unless stated otherwise. Southern Copper is an integrated copper and other-minerals producer operating primarily in Peru and Mexico. Grupo Mexico indirectly owned 88.9% of the Company at quarter-end. Financial statements are unaudited; the independent accountant performed a review, not an audit.
Financial and operating results
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $2,599.8 million | $2,793.9 million | -6.9% |
| Operating income | $1,189.7 million | $1,353.7 million | -12.1% |
| Operating margin | 45.8% | 48.4% | -2.6 percentage points |
| Net income attributable to SCC | $736.0 million | $813.2 million | -9.5% |
| EPS, basic and diluted | $0.95 | $1.05 | -$0.10 |
| Operating cash flow | $659.7 million | $1,185.2 million | -44.3% |
| Capital expenditures | $213.8 million | $238.1 million | -10.2% |
- Revenue fell primarily on weaker realized market prices: copper -5.4%, molybdenum -38.1%, and zinc -21.8%. Higher copper sales volume (+2.8%) and molybdenum sales volume (+8.4%) partly offset the price pressure. Copper accounted for 78.6% of sales.
- Operating expenses declined 2.1% to $1,410.1 million, including a 3.1% decrease in cost of sales excluding depreciation, depletion and amortization. SCC-attributable net margin was 28.3%, versus 29.1%.
- Cash from operations declined amid a $310.8 million use of cash from operating assets and liabilities, including a $301.6 million increase in other operating assets and liabilities. Investing cash flow was a $56.2 million source, principally reflecting $270.0 million of net proceeds from short-term investments, partly offset by capital expenditures. Financing cash use was $620.1 million, including $618.5 million of common dividends paid.
- At March 31, cash and cash equivalents were $1,252.2 million and short-term investments were $329.3 million, together $1,581.5 million. Long-term debt was $6,255.5 million; cash and short-term investments less debt were approximately negative $4,674 million. Current assets were $4,440.8 million and current liabilities $1,340.0 million (current ratio approximately 3.3).
- Production increased year over year: mined copper +7.6%, molybdenum +9.5%, silver +8.4%, and zinc +74.9%. Zinc growth reflected startup of the Buenavista zinc concentrator. The Mexican open-pit segment’s operating income fell 18.0%; IMMSA reported a $6.8 million operating loss, compared with $1.4 million operating income in Q1 2023. Peruvian operating income rose 1.8%.
Outlook, commentary and material risks
- Management expects 2024 production of 948,800 tonnes of copper (+4.1% versus 2023), 26,100 tonnes of molybdenum (+2.4%), 20.5 million ounces of silver (+11.4%), and 120,300 tonnes of zinc (+83.7%). These are forward-looking estimates, not guarantees.
- Management sees copper demand supported over the long term by electrification, decarbonization and AI-related demand, and considers the current low-price cycle potentially short-lived. It expects near-term molybdenum prices to be supported by market deficit and aerospace and defense demand. These views remain exposed to commodity-market uncertainty.
- Operating cash cost was $2.11 per pound before by-product credits, versus $2.09; after credits it was $1.07 versus $0.76. The increase net of by-products principally reflected lower by-product revenue credits. These are non-GAAP measures and may not be comparable with other companies.
- Management cites ongoing commodity-price, operating-cost, exchange-rate, water-supply, permitting, labor, environmental, political and litigation risks. Buenavista had water-supply difficulties in late 2023; the Company says it secured sufficient water for planned Mexican operations during Q1 2024.
- Significant unresolved matters include five lawsuits concerning the Tia Maria project and litigation related to the 2014 Buenavista spill. Management says it is defending the cases; potential amounts for some claims cannot be reasonably estimated. The Company also reports continuing labor disputes affecting the long-suspended Taxco mine and a pending challenge related to the San Martin labor dispute.
- Mexico’s 2023 mining-law amendments, including shorter concession terms, water-use restrictions, closure guarantees and community contributions, are being challenged and reviewed by the Supreme Court. Management does not expect negative operational impact but cannot assure future effects.
- Q1 included $19.4 million of insurance compensation within other income. The Company also paid $86.2 million for uncertain tax positions in Peru and Mexico. A Peruvian closure-law regulation remains unpublished, so the potential financial impact of additional closure guarantees is not fully estimable.
- On April 18, 2024, the Board authorized a stock dividend of 0.0104 shares per common share, payable May 23, 2024. Management says capital projects are expected to be funded with cash on hand, internally generated funds and, if required, external financing. No full-year earnings guidance is provided in the filing text.
Most important facts for investors to verify
- Whether copper, molybdenum and zinc prices, and by-product revenues, support the stated production and earnings outlook.
- Whether operating cash flow recovers from the working-capital-related outflow and how much cash is required for capital projects, dividends and debt service.
- Execution and ramp-up of the Buenavista zinc concentrator, including the stated 2024 production contribution and water availability.
- Progress, permitting and legal outcomes for Tia Maria, Michiquillay and other major projects; Tia Maria construction timing remains an expectation.
- Developments in the Buenavista spill and Tia Maria litigation, Mexican mining-law review, and Peruvian mine-closure requirements, including financial exposure where estimates are unavailable.
- The filing’s MD&A reports Q1 dividends per share of $0.80, while the equity note describes dividends declared and paid at $1 per share; verify the period and basis for this difference.