Southern Copper: Delays Expected At Tia Maria But Buenavista’s Expansion Positive

We have revised our estimates for Southern Copper Corporation (SCCO:US)following the changes made to our commodities’ price deck. We analyze the influence of further delays at Tia María on persisted opposition and include our second quarter of 2015 results preview. Southern Copper believes that short-term copper demand has been improving consistently. For 2015, Southern Copper expects global copper demand growth of around 3%. The company also anticipates demand for refined copper to be around 700,000 tons in 2015. The main drivers of this improved demand are demand growth of 4% in China, sustained recovery in demand from European export industries and stable copper demand in the U.S.

However, looking ahead to 2016, the company notified that it expects a deficit in copper supply as current copper prices do not support sufficient copper supply growth for the future.

Southern Copper acquired the El Pilar Copper Project in Sorona, Mexico in Jul 2015. The company will be producing refined copper in this plant using a highly cost-efficient and environmentally friendly SX-EW technology. By 2018, the plant will be responsible for an average annual production of 35,000 tons of copper over an initial 13-year mine life.

In Jul 2015, Mexican authorities approved mining activities in the SX-EW III plant which will enable the company to achieve annual production capacity of 120,000 tons of copper cathodes by the first quarter of 2016.

In Apr 2015, the construction permit for the Toquepala expansion project was approved, allowing Southern Copper to continue with the development of this key project. The company has invested an amount of $354.6 million in this project till Jun 30, 2015. Once on stream, the Toquepala project will raise annual production capacity by 100,000 tons of copper and 3,100 tons of molybdenum at an estimated capital cost of $1.2 billion.

For the Tia Maria project, the company secured the clearance of the environmental impact assessment. However, construction permits for the project have been delayed. The project has been postponed, pending the resolution of certain differences with community groups. After completion, the project is anticipated to produce 120,000 tons of copper cathodes per year.

Southern Copper continues to work toward developing its investment program to boost copper production capacity by about 89% to 1,165,000 tons by 2018 from its 2013 production level of 617,000 tons. Our proven model does not conclusively show that Southern Copper is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:

About

Michael Jones, Post graduate in Finance, is equity analyst and focuses Services, Technology and Energy & Utilities sectors. Prior joining Equities Mogul, Michael Jones worked with JMP Securities. If you have a great story idea for Michael Jones, you can write at [michael.jones@equitiesmogul.com ].

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