Molybdenum News Center

Southern Copper Alert:4Q12 results in line

EBITDA in line; EPS slightly ahead of our expectations

Southern Copper published last night results essentially in line with our expectations. EBITDA of USD902mn (54.6% margin) was in line with our forecasts while EPS of USD0.63was 4% higher than our projection. Thereason for a better than anticipated bottom line was a lower than expected effective tax rate that came in at 31% vs 35% in our models. We rate SCCO asa Hold as we believe that the projects it has under construction are fairly valued at the current stock price.

Copper and Molybdenum volumes in line with Silver and Zinc 7% better than DBe Volumes sold were: (i) Copper 161kt (flat YoY); (ii) Molybdenum 4.5kt (-10%YoY); (iii) Silver 120t (-3% YoY); and (iv) Zinc 26.5kt (+19% YoY). Averagerealized prices were: (i) Copper USD3.59\/lb (-1% YoY); (ii) Moly USD11.05\/lb (-17% YoY); (iii) Silver USD32.56\/oz (+2% YoY); and (iv) Zinc USD0.89\/lb (+3%YoY).

Operating costs slightly higher; Labor negotiations still going on in Peru DB estimated operating cash costs before by products were USD2.03\/lb, 2%higher than in the 3Q12 and 4% higher compared with our projection.Reported Cash cost after by-products credits was USD 0.65\/lb. Southern Copper has been conducting negotiations with eight Peruvian unions whosecollective bargaining agreements expired in 2012. In January 2013, thecompany signed a three year agreement with three unions which includes,among other things, annual salaries increases of 6%, 5% and 5% for each ofthe three years, respectively. We believe that these agreements just signedmay possibly bring some cost pressure in the coming quarters.

Capex and dividends update

SCCO invested USD1,052 mn in the year and expects to invest almost USD 2 bnin 2013 as it plans to expand copper production to 1,175,000 tons in 2017 from 640,000 tons in 2013. The company announced last Friday a quarterly dividend of USD0.24per share (20% lower than our USD 0.30 expectation), payable on February 26, 2013, to shareholders of record at the close of business onFebruary 13, 2013. The quarterly dividend represents a 38% payout. We forecast SCCO’s payout to reduce to 50% in 2013(with downside risk to our estimates) due to the large CAPEX program the company has to execute.

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