Tag Archives: SCCO

Southern Copper Corp,$SCCO

Freeport or Teck Resources: Which Offers a Valuation Upside?

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For commodity companies like BHP Billiton (BHP) and Glencore (GLNCY), the EV-to-EBITDA multiple is the preferred valuation metric.

 





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How Are Freeport’s Cash Flows Looking amid the Current Turmoil?

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Behind Copper in 1Q17: A Comparative Analysis PART 8 OF 9

Free cash flows

So far in this series, we’ve discussed copper mining companies’ 1Q17 shipments and profits. But alongside these metrics, the market is also interested in cash flows and leverage positions. To be sure, some mining companies (GLNCY) (BHP) were saddled with huge debt last year and took measures to cut their debt levels.

Remember, generating negative free cash flow negates the debt reductions that these companies completed in recent quarters.

How Are Freeport’s Cash Flows Looking amid the Current Turmoil?

1Q17 cash flows: Southern Copper and Teck Resources

Southern Copper (SCCO) generated free cash flows of $244 million in 1Q17. The company had generated free cash flows of -$159 million in 1Q16 and $9.2 million in 4Q16. This is the third consecutive quarter wherein SCCO has generated positive free cash flows.

Teck Resources (TECK) posted free cash flows of 937 million Canadian dollars (or ~$693 million) in 1Q17, which was lower than the company’s 4Q16 cash flows. As we noted previously, Teck Resources’ 1Q17 earnings were lower sequentially, mainly due to lower coking coal prices.

Freeport-McMoRan’s free cash flows

Freeport-McMoRan (FCX) generated free cash flows of $448 million in 1Q17, as compared to its free cash flows of $806 million in 4Q16 and -$242 million in 1Q16.

Freeport expects to generate free cash flow of $2.4 billion in 2017. The guidance assumes that copper will $2.5 per pound and that gold will be $1,250 per ounce.

It goes without saying that the company’s actual 2017 cash flow will depend on commodity prices. According to consensus estimates compiled by Thomson Reuters, analysts expect Freeport to post free cash flow of ~$2.3 billion this year.

In the next and final part of this series, we’ll discuss how markets are now valuing these copper companies.

 





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Why Freeport and Teck Resources Reported Lower Profits in 1Q17

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Behind Copper in 1Q17: A Comparative Analysis PART 7 OF 9

Lower profits

Investors can use several metrics to measure a company’s profitability. However, for companies in the commodity space (BHP) (RIO), EBITDA (earnings before interest, tax, depreciation, and amortization) is the most common metric.

Teck Resources (TECK) generated adjusted EBITDA of 1.5 billion Canadian dollars, or ~$1.1 billion in 1Q17, which represents a YoY (year-over-year) increase of 231%. Although Teck Resources’ 1Q17 EBITDA rose on a YoY basis, however, it fell 20.6% as compared to 4Q16. Lower realized coal prices were the key drivers of the sequential decline in Teck Resources’ 1Q17 EBITDA.

Why Freeport and Teck Resources Reported Lower Profits in 1Q17

Freeport-McMoRan (FCX) generated adjusted EBITDA of $1.0 billion in 1Q17, as compared to its adjusted EBITDA of $873 million in 1Q16 and $1.7 billion in 4Q16. Lower operating rates and shipments from its Grasberg mine dragged down Freeport’s 1Q17 profits, despite higher copper prices.

Notably, Freeport has missed the consensus earnings estimates for three consecutive quarters now. The primary reason behind Freeport’s earnings misses has been lower production from the Grasberg mine.

Southern Copper

Southern Copper’s (SCCO) 1Q17 EBITDA rose to $722 million in 1Q17, as compared to $620 million in 4Q16 and $481 million in 1Q16. As a pure-play copper producer, Southern Copper has benefited from higher copper prices. But the company didn’t face any major production shutdowns during the quarter like other copper miners.

Meanwhile, along with the profits, it’s important to examine cash flows. In the next part, we’ll look at these copper mining companies’ 1Q17 free cash flows.

 





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How Freeport’s Unit Costs Stack Up to Southern Copper

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Behind Copper in 1Q17: A Comparative Analysis PART 6 OF 9

Unit cash costs

Commodity producers don’t have much control over commodity prices. When commodity prices start falling, high-cost producers become unprofitable much sooner than peers that are placed more favorably on the cost curve.

Low-cost producers are able to ride out economic cycles better, and so it’s wise for commodity producers to control their unit production costs. In this part of the series, we’ll look at various copper producers’ (GLNCY) (XLB) 1Q17 unit cash costs.

How Freeport’s Unit Costs Stack Up to Southern Copper

Peer comparisons: Teck Resources and Southern Copper

Teck Resources (TECK) reported unit cash costs before by-product credits of $1.86 per pound in 1Q17, while its after by-product unit cash cost was $1.55 per pound. The company’s unit cash cost after by-product credit was $1.45 in 4Q16. Notably, the increase in Teck’s unit cash costs is due to lower grade ores.

Southern Copper’s (SCCO) 1Q17 unit cash cost before by-product credit rose slightly over 4Q16 on higher fuel and labor costs. However, the company’s after by-product unit cash cost fell to $0.88 in 1Q17 from $0.97 in 4Q16 due to higher by-product credit.

Antofagasta and Freeport-McMoRan

Antofagasta’s (ANFGF) 1Q17 unit cash costs also rose on a sequential basis, while they fell on a yearly basis. The company attributed higher sequential costs to lower production.

Freeport-McMoRan’s (FCX) reported unit cash costs after by-product credit of $1.39 per pound in 1Q17. Although the metric is similar to the corresponding quarter last year, it’s higher than the $1.20 per pound that Freeport reported in 4Q16. These higher costs as compared to 4Q16 could be attributed to lower production from Freeport’s Grasberg mine.

Meanwhile, copper prices showed strength in 1Q17, and this has positively impacted miners’ profitability. Next, we’ll look at these mining companies’ profitability in 1Q17.

 





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How to Read the Projected Copper Deficit Theme

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Behind Copper in 1Q17: A Comparative Analysis PART 5 OF 9

Copper deficit

Copper miners that are holding onto their copper assets or expanding their copper operations in the current depressed pricing environment could be in a better position to reward their shareholders when the commodity cycle turns around.

How to Read the Projected Copper Deficit Theme

Production plans: Southern Copper, Rio Tinto, and Glencore

Southern Copper (SCCO) expects to produce 0.9 million metric tons of copper in 2017, similar to its 2016 production. The company is investing in the development of its Tia Maria mine and the expansion of its Buenavista mine. Notably, the company expects to produce 1.5 million metric tons of copper in 2023, which would be 67% higher than what it’s expected to produce this year.

Rio Tinto’s (RIO) Turquoise Hill Resources (TRQ) is also expected to join the ranks of major copper producers in the next decade, once the company ramps up its underground operations.

Meanwhile, Glencore’s (GLNCY) copper volumes could rise after 2017. The company expects its copper volumes to rise 300,000 metric tons by the end of 2019.

Teck Resources and Freeport-McMoRan

Teck Resources’ (TECK) copper production is expected to be stagnant over the 2018–2020 period. However, Teck Resources is investing in its Quebrada Blanca Phase 2 project, which is expected to increase its copper production significantly over the next decade.

However, we could see a decline in Freeport-McMoRan’s (FCX) copper production over the next few years as its Grasberg mine transitions to underground operations.

Along with rising production profiles, however, it’s smart to look at miners with lower unit production costs. Continue to the next part for a closer look.

 





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Copper’s Outlook: Understanding the 2017 Deficit Story

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Behind Copper in 1Q17: A Comparative Analysis PART 4 OF 9

Copper’s outlook

Copper prices showed strength in 1Q17, as markets started to factor in a deficit in 2017. Remember, markets (DBC) are in a surplus when production exceeds demand, while a deficit occurs when demand exceeds production. Notably, some of the leading brokerages, including Goldman Sachs and Citi, are projecting a supply deficit for 2017.

Copper’s Outlook: Understanding the 2017 Deficit Story

Miners’ views

During their 1Q17 earnings call, Southern Copper (SCCO) also said that the company sees “supply underperforming market needs in 2017.” The company also cited Wood Mackenzie, which expects a deficit of 100,000 metric tons in 2017.

However, Freeport-McMoRan (FCX) sounded somewhat circumspect about the projected deficit during the company’s 1Q17 earnings call. According to Freeport, “The new greenfield projects are particularly scarce, and so we have a looming significant deficit in this business and the question is the timing for that deficit, which will be dependent on events in China and the global marketplace.”

What’s changed?

While supply-side issues helped build a deficit story in 1Q17, demand concerns are now back on the table. Copper has pared its 2017 gains amid concerns about Chinese demand. Chinese copper imports were lower than expected in April 2017, which negatively impacted copper market sentiments. Prior to that, China’s April manufacturing PMI (purchasing managers’ index) missed estimates, raising a red flag regarding China’s economic activity. The country’s April fixed asset investment data also came in lower than expected.

The 2017 deficit story could be under scrutiny now due to mounting demand concerns. That said, most market observers expect copper’s supply to fall short of demand by the end of this decade.

In the next part of this series, we’ll discuss which miners (GLNCY) (BHP) are well positioned to capitalize on the above opportunity.

 





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Copper Producers Today: Your 2017 Performance Overview

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Behind Copper in 1Q17: A Comparative Analysis PART 1 OF 9

Copper producers’ 1Q17 performance

The 1Q17 earnings season for copper producers is almost over. Freeport-McMoRan (FCX), the world’s second-largest copper mining company, released its 1Q17 earnings on April 25, 2017, and Teck Resources (TECK) released its 1Q17 financial results on the same day. Southern Copper (SCCO) released its 1Q17 financial results on May 3.

Remember, we won’t see earnings reports for leading diversified miners such as BHP Billiton (BHP), Rio Tinto (RIO), and Glencore (GLNCY), because they release half-year and annual financial results only, though we do have their quarterly production data.

Copper Producers Today: Your 2017 Performance Overview

Price action

The earnings season for copper miners was largely lackluster, with both Freeport and Teck Resources missing their 1Q17 earnings estimates. May is turning out to be another sore month for miners (XME). Copper producers have pared most of their 2017 gains, and companies like Freeport and Teck Resources are now trading at YTD (year-to-date) losses.

Meanwhile, Trump trade, which catapulted metals to higher price levels, is now showing signs of reversal, with the reform agenda getting overshadowed by political uncertainties. (You can read What’s Next for Metals as Trump Trade Shows Signs of Reversal? to explore how’s the unwinding of Trump trade impacting metal prices.)

Series overview

In this series, we’ll explore some of the key highlights of major copper miners’ 1Q17 performances. We’ll also compare leading miners’ financial positions so far in 2017 to determine how these copper miners are placed in the current market scenario.

In the next part of this nine-part series, we’ll explore how different copper producers fared in terms of copper production in 1Q17.

 





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2 Top Copper Stocks to Consider Buying in 2017

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Like most commodities, copper has been on a roller coaster over the last few years. That hasn’t changed this year, with copper prices rising early in the year and then slowly coming back down. That’s exactly what’s happened to Southern Copper‘s (NYSE:SCCO) stock price, too. As one of the largest copper miners, though, it should be on your short list for a number of fundamental reasons. Freeport-McMoRan (NYSE:FCX) shares, on the other hand, have followed a different, news-driven path and is a worthwhile copper industry play in 2017 for a completely different reason.

Getting stronger

Southern Copper is the largest copper miner in the world by reserves, but it is only the fifth largest by production. Copper, meanwhile, made up roughly 80% of the miner’s revenues in 2016. Many of the other large copper miners are far more diversified, with copper representing a much smaller slice of the pie. So, if you’re looking for direct copper exposure, Southern needs to be on your list.  

A Southern Copper employee.

Image source: Southern Copper.

But there’s more to like here than just that. For example, between 2013 and 2016, Southern Copper trimmed its operating cash costs per pound of copper by nearly 25%. It is the lowest-cost producer in the industry, beating out diversified mining giants like BHP Billiton and Rio Tinto, among others. It also has the longest mine life among its peers. Effectively, it can keep mining for copper longer than its peers without having to find new material to dig up.  

But Southern isn’t sitting still; it has been investing in expanding production. Although 2017 production is expected to be flat with 2016, heavy investments this year are projected to increase production by 20% between now and 2020.  

Copper prices will wax and wane with supply and demand, but Southern will likely remain one of the best-positioned and most focused copper miners. If you’re looking at copper, Southern needs to be on top of your wish list this year and in the future.  

Southern Copper compared to peers for copper reserves.

Southern and Freeport are among the largest copper miners in the world. Image source: Southern Copper.

The fixer-upper

At the other end of the spectrum is Freeport-McMoRan. This company is one of the world’s biggest copper producers (it expects to be No. 2 in 2017), and its reserves are among the largest as well (No. 3). It’s been lowering its copper costs, too. That’s all good stuff, but it isn’t what’s driving the stock, which is down around 10% so far this year compared to Southern Copper’s roughly 8% advance.  

The problem is news, though it hasn’t been all bad. For example, Freeport made a poorly timed move into oil a few years ago that left it with a heavy debt load and an underperforming oil business. It’s been working hard to get out from under that decision and finally made some good headway in 2016. Net debt, for example, fell roughly 40% last year. And it’s been able to sell off most of its oil business. This is basically all good news, and it leaves copper as its core commodity focus, though it also produces gold and molybdenum.  

Freeport and Indonesia win if the Grasberg is resolved.

Freeport and Indonesia benefit from Grasberg working at full steam. Image source: Freeport-McMoRan Inc.

The problem this year, though, is that Freeport is dealing with a rule change in Indonesia that has led to reduced production, higher costs, and the scaling back of investment in the giant Grasberg Mine. That single mine accounts for roughly 30% of the miner’s copper reserves and almost all of its gold reserves. It’s a complicated legal and political issue that’s going to be tough to work through, so it’s reasonable that investors would be worried.  

That said, neither Indonesia nor Freeport benefit if the Grasberg mine stops operating. So a glass-half-full analysis suggests something will be worked out. And when that something does come to pass, aggressive investors who stepped in during the news-driven dip will stand to benefit. In other words, it could be a good time for those willing to take on a little uncertainty to buy one of the world’s largest copper miners.

Two ways to play

Copper prices are going to change with supply and demand, there’s nothing you can do about that. However, Southern Copper is a first stop for investors looking for a well-positioned and largely pure-play copper miner. Its fundamentals are strong, and it’s set to expand production in the years ahead.

If you’re a little more adventurous, though, Freeport-McMoRan’s news-driven decline this year might have created a good opportunity to buy a world-class copper miner on the cheap. However, it’s something of a special situation since you have to believe that the Indonesian issue will be worked out in a positive way — the dynamics of the problem do suggest that’s a highly likely outcome.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. The Motley Fool has a disclosure policy.

 





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Southern Copper Corp. : SCCO-US: Dividend Analysis : May 17th, 2017 (record date) : By the numbers : May 19, 2017

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Our analysis is based on comparing Southern Copper Corp. with the following peers – Freeport-McMoRan, Inc., Grupo Mexico S.A.B. de C.V. Class B, Lundin Mining Corporation, Teck Resources Limited Class B, Sociedad Minera Cerro Verde SAA, First Quantum Minerals Ltd., BHP Billiton Limited Sponsored ADR, Rio Tinto plc Sponsored ADR, BHP Billiton Plc Sponsored ADR and Compania de Minas Buenaventura SAA (FCX-US, GMBXF-US, LUNMF-US, TECK-US, CVERDEC1-PE, FM-CA, BHP-US, RIO-US, BBL-US and BUENAVC1-PE).

Southern Copper Corp.’s dividend yield is 0.89 percent and its dividend payout is 19.49 percent. This compares to a peer median dividend yield of 0.80 percent and a payout level of 1.36 percent. This type of dividend performance might make it a good stock for dividend investors. In addition, the company’s relatively good dividend quality score of 83 out of a possible score of 100 points to some sustainability of its robust payout ratio, and underscores its attractiveness for dividend investors seeking current income.

Dividend Yield
Dividend Quality Score

Dividend Quality Overview

  • Over the last twelve months (prior to March 31, 2017), SCCO-US paid a high quality dividend, which represents a yield of 0.68% at the current price.
  • Dividend quality trend has not been consistent over the last five years. Dividends were paid during each of these years — of these 1 was high quality, 2 were medium quality and 2 were low quality.
  • The ending cash balance, with a dividend coverage of 4.22x, provides a substantial cushion in case of a significant reduction of cash flows in the future.
Dividend Quality Score Vs Dividend Yield

Quadrant label definitions. Hover to know more

High Score;High Yield, High Score;Low Yield, Low Score;Low Yield, Low Score;High Yield

Dividend Coverage

Over the last twelve months (prior to March 31, 2017), SCCO-US paid a high quality dividend.

The source of the company’s cash to support the dividend paid over the last twelve months is operating cash flow (coverage of 7.58x), investing cash flow (coverage of -4.48x), issuance cash flow (coverage of -0.10x) and twelve-month prior cash (coverage of 3.73x), for a total dividend coverage of 5.22x.

SCCO-US‘s issuance cash flow includes outflows from net share buybacks (coverage of -0.10x). Thus, the total coverage including share buybacks is 5.32x, which reflects our assumption that the cash paid for share buybacks is discretionary and could instead be used to pay dividends.

TTM)1495209450.png" title="Dividend Coverage by Cash Flow (TTM)" alt="Dividend Coverage by Cash Flow (TTM)">

These coverage ratio factors imply that the firm’s dividends are wholly paid from operating and investing cash flows net of any debt repayments, which suggests a high dividend quality.

Dividend History

Item 2012-12-31 2013-12-31 2014-12-31 2015-12-31 2016-12-31 Latest
Dividend Yield (%) 9.81 2.39 1.66 1.34 0.56 0.89
Dividend Payout (%) 162.72 35.42 28.57 36.56 18 19.49

A complete list of metrics and analysis is available on the company page.

Company Profile

Southern Copper Corp. engages in the development and exploration of mineral properties. It operates through the segments: Mexican Open-Pit; Mexican IMMSA Unit; Peruvian Operations; and Corporate and Other. The Mexican Open-Pit segment manages mines and processes anodes and copper. The Mexican IMMSA Unit segment operates underground coal mines. The Peruvian Operations segment includes open-pit mines in Peru. The Corporate and Other segment consists of the firm’s administrative activities. The company was founded on December 12, 1952 and is headquartered in Phoenix, AZ.

Disclaimer

The information presented in this report has been obtained from sources deemed to be reliable, but AnalytixInsight does not make any representation about the accuracy, completeness, or timeliness of this information. This report was produced by AnalytixInsight for informational purposes only and nothing contained herein should be construed as an offer to buy or sell or as a solicitation of an offer to buy or sell any security or derivative instrument. This report is current only as of the date that it was published and the opinions, estimates, ratings and other information may change without notice or publication. Past performance is no guarantee of future results. Prior to making an investment or other financial decision, please consult with your financial, legal and tax advisors. AnalytixInsight shall not be liable for any party’s use of this report. AnalytixInsight is not a broker-dealer and does not buy, sell, maintain a position, or make a market in any security referred to herein. One of the principal tenets for us at AnalytixInsight is that the best person to handle your finances is you. By your use of our services or by reading any our reports, you’re agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that AnalytixInsight, its directors, its employees, and its agents will not be liable for any investment decision made or action taken by you and others based on news, information, opinion, or any other material generated by us and/or published through our services. For a complete copy of our disclaimer, please visit our website www.analytixinsight.com.

 





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Trump, China, and Geopolitical Tensions Make Doctor Copper Sick

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What’s Next for Metals as ‘Trump Trade’ Shows Signs of Reversal? PART 4 OF 6

Copper prices

Analysts see copper prices as a reflection of the health of the global economy. For that reason, copper has been dubbed “Doctor Copper.” Copper prices rallied steeply after Donald Trump’s election. Though copper pared some of its post-election gains, it still managed to gain ~17% last year.

Trump, China, and Geopolitical Tensions Make Doctor Copper Sick

Copper is trading with marginal year-to-date gains of 1.7% based on May 17 closing prices and has lagged aluminum’s returns. In this article, we’ll look at some of the factors driving copper’s underperformance.

Demand concerns

China is the world’s largest copper consumer and is the biggest market for miners (SCCO) (GLNCY) like BHP Billiton (BHP) and Teck Resources (TECK). Some of the economic data points from China have disappointed markets this month. China’s April manufacturing PMI (purchasing managers’ index) and fixed asset investment data were lower than expected. Furthermore, Chinese copper imports, which are seen as a leading indicator of Chinese copper demand, were also lower in April. Rising geopolitical tensions, especially in the Korean peninsula, aren’t helping copper either.

Trump trade

Furthermore, we still don’t have much clarity about Trump’s infrastructure investments, which seemed to be a key driver of copper’s upward price action. Copper sentiment improved considerably after President Donald Trump’s election as investors bought copper expecting higher demand from Trump’s proposed infrastructure investments. With the Trump reform agenda coming under scrutiny and Chinese economic data raising a red flag over the country’s copper demand, copper prices have come under pressure.

Some of the copper miners like Freeport-McMoRan (FCX) have now fallen to their pre-election levels. We’ll discuss this more in the next article.

 





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