The Phoenix-based Southern Copper Corporation (NYSE:SCCO) is simply a majority-owned, indirect subsidiary of Grupo México, S.A.B. de C.V. (OTCPK: GMBXF).
As of June 31, 2023, Grupo Mexico, done its wholly-owned subsidiary Americas Mining Corp ("AMC"), owns 88.91% of its superior stock.
The institution is an integrated shaper of copper, representing astir 84% of the gross successful Q2'23, and different metals (mainly molybdenum, silver, and zinc).
Note: This nonfiction updates my May 29, 2023 article. I person followed SCCO connected Seeking Alpha since January 2021.
The institution operates mining operations, smelting, and refining facilities successful Peru and Mexico (See representation below). SCCO copper reserves are 44.8 MMT arsenic of March 2023. Production currency outgo was $0.78 per lb successful 2022, leaving a comfy nett margin.
From the astir caller institution June presentation, Southern Copper besides conducts exploration activities successful Argentina, Chile, and Ecuador.
1 - Summary
On July 27, 2023, SCCO reported second-quarter 2023 net of $0.71 per stock connected a nett merchantability of $2,300.7 million, beating analysts' expectations. Revenues were astir the aforesaid arsenic the prior-year quarter.
Cash travel from operating activities successful Q2'23 was $797.1 million, representing an summation implicit the $309.9 cardinal posted successful Q2'22.
Southern Copper Corporation owns the world's largest copper reserves astatine 44.8 MMT. SCCO's full accumulation is expected to beryllium 1.6 M tons by 2032, with a currency outgo of $0.78 per lb successful 2022.2 - Stock performance
Southern Copper is 1 of the 2 copper companies I screen astatine Seeking Alpha, aft Freeport-McMoRan Inc. (FCX). However, Freeport McMoRan produces a important magnitude of golden from its excavation successful PNG and should not beryllium considered a axenic copper play.
SCCO is up a whopping 72% YoY, outperforming FCX and COPX.
2 - Investment Thesis
Southern Copper and Freeport-McMoRan are 2 coagulated copper companies successful presumption of equilibrium sheets that wage generous dividends. SCCO has a output of 4.77%, portion FCX pays 1.52%.
The main quality betwixt FCX and SCCO is that the second is not producing important golden and, thus, is much straight correlated to copper terms fluctuation.
The copper terms is down astir 12% YoY.
The outlook for copper is inactive uncertain and volition apt beryllium volatile successful H2 2023 owed to a deficiency of coagulated request maturation successful China and rising recession risks. Copper futures fell beneath $3.70 per lb successful September, the lowest since precocious May (see illustration below), "amid persistent pressure from a beardown dollar and anemic concern sentiment worldwide."
Global copper prices are expected to autumn to $7,000 per tonne this year.
Contracting manufacturing enactment and slumping concern profits successful China person turned investors bearish. The state consumes astir fractional of the world's copper and the metal, utilized successful operation and powerfulness is often viewed arsenic an economical bellwether.
However, according to analysts astatine UBS, copper prices could deed $4 per lb successful 2024.
Our China copper predictor (about 80% historically accurate) suggests that request volition turn astir mid-single digits year-over-year done mid-year from a debased (Covid-lockdown) base,
Thus, semipermanent investors should proceed accumulating this highly cyclical banal connected immoderate important weakness. But, owed to utmost volatility successful the copper demand, I urge short-term trading LIFO. About 50% should beryllium allocated to this task to minimize the risks of a abrupt terrible retracement that tin hap without warning.
Southern Copper - Q2'23 - Balance Sheet and Trend History - The Raw Numbers
Southern Copper Q2'22 Q3'22 Q4'22 Q1'23 Q2'23 Total Revenues successful $ Million 2,306.9 2,156.9 2,820.3 2,793.9 2300.7 Net income successful $ Million 432.3 519.0 902.4 813.2 547.5 EBITDA $ Million 1,025.7 1,025.7 1,649.8 1,589.2 1138.7 EPS diluted successful $/share 0.56 0.67 1.17 1.05 0.71 Cash from Operations successful $ Million 309.9 590.1 1,081.9 1,185.2 797.1 Capital Expenditure successful $ Million 224.6 227.9 290.9 238.1 252.5 Free Cash Flow successful $ Million 85.3 362.2 791.0 947.1 544.6 Total currency $ Million 2,355.7 2,184.8 2,278.1 2,440.4 2,199.3 Total Long-term Debt successful $ Million 6.549.4 6,550.3 6,251.2 6,252.0 6,252.9 Dividend $/sh 0.75 0.50 1.00 1.00 1.00 Shares outstanding (diluted) successful Million 773.1 773.1 773.1 773.1 773.1
Source: Southern Copper release.
Analysis: Revenues, Free Cash Flow, and Copper/Silver/Molybdenum Production
1 - Revenues were $2,300.7 cardinal for the 2nd 4th of 2023
Southern Copper's net per diluted stock were $0.71 per share, and revenues were $2.301 billion. The Q2'23 adjusted EBITDA was $1,115.5 million, an summation of 9.2% from the $1,021.4 cardinal recorded successful Q2'22. The adjusted EBITDA borderline was 48.5% versus 44.3% successful Q2'22.
Net income were somewhat higher than successful 2022 owed to an summation successful the income measurement for copper (+11%), metallic (+3.3%) and zinc (+9.2%) and to amended prices for molybdenum (+41.9%). These variances were partially offset by little mean metallic prices for copper (-10.8%, LME) and zinc (-25.9%) and by a alteration successful the income measurement for molybdenum (-4.2%).
Q2'23 nett income was $547.5 million, representing a 26.7% summation compared to the $432.3 cardinal successful Q2'22. On July 20, 2023, the Board of Directors authorized a dividend of $1.00 per share.
SCCO is considered a low-cost cognition with a currency outgo per lb of $1.12 nett of by-products successful Q2'23 oregon $0.94 per lb for FY23.
2 - Free currency travel was $544.6 cardinal successful the 2nd 4th of 2023
Note: I cipher the generic escaped currency travel utilizing the currency from operating activities minus CapEx.
Trailing 12-month escaped currency travel was $2,644.9 million, with $544.6 million successful Q2'23. The escaped currency travel procreation has been precise steadfast successful the past 3 quarters.
3 - Net indebtedness was $4.05 cardinal connected June 30, 2023.
4 - Production investigation - Copper-Cu, Silver-Ag, and Molybdenum-Mo.
Note: The value successful metric tons is adjacent to 2,204.6 pounds
Price Q2'22 Q3'22 Q4'22 Q1'23 Q2'23 Copper terms realized - Cu (Comex) $/Lbs 4.32 3.51 3.63 4.05 3.85 Silver terms Realized - Ag $/oz 22.65 19.10 21.25 22.53 24.26 Molybdenum terms realized - Mo $/Lbs 18.30 16.00 21.17 32.04 20.87 Zinc terms $/Lbs 1.78 1.48 1.36 1.42 1.15 Gold $/oz 1,872 1,728 1,729 1,889 1,978
Copper Production for Q2'23 was 501.62 Cu M lbs and 502.78 Cu M lbs, including 3rd party. The copper terms was $3.85 per Lb successful Q2'23 (see array above).
Production Au Oz Q2'22 Q3'22 Q4'22 Q1'23 Q2'23 Production Copper M Lbs 459.5 508.2 531.9 492.2 501.6 Production incl. 3rd enactment concentrate 520.5 508.7 532.3 492.9 502.8 Production Molybdenum M Lbs 13.9 13.4 14.9 14.2 14.0 Production of Silver K oz 4.45 4.88 4.96 4.41 4.80 Production of Zinc M Lbs 33.4 32.8 33.7 33.2 33.4
From Fun Trading Files
Copper accumulation registered an summation of 9.2% successful Q2'23 successful a quarter-on-quarter presumption to basal astatine 227,533 tons. Our quarterly effect reflects higher accumulation astatine each of our operations.
By-product production: Mined zinc accumulation accrued 13.8% this 4th owed to higher accumulation astatine the Charcas and Santa Barbara units. This was partially offset by little accumulation astatine the San Martin mine. Total mined metallic accumulation roseate 8.0% successful Q2'23 driven by higher accumulation astatine each our operations. Molybdenum accumulation registered a flimsy summation of 0.2% successful Q2'23 compared to Q2'22.
Technical Analysis and Commentary
Note: The illustration is adjusted for the dividend.
SCCO forms a descending transmission signifier with absorption astatine $78.8 and enactment astatine $72.
Descending transmission patterns are short-term bearish successful that a banal moves little wrong a descending channel, but they often signifier wrong longer-term uptrends arsenic continuation patterns. The descending transmission signifier is often followed by higher prices, but lone aft an upside penetration of the precocious inclination line. The banal volition proceed channeling downward until it is capable to interruption either the precocious oregon little inclination line.
The wide strategy is to support a mean halfway semipermanent presumption and usage astir 50% to commercialized LIFO portion waiting for a higher last terms people to merchantability your halfway position. The task is much manageable, knowing that SCCO pays a quarterly dividend of $1.00 per share.
I urge selling astir 50% of your presumption LIFO (assuming a profit, ne'er merchantability astatine a loss) betwixt $78 and $79.8 with imaginable higher absorption astatine $84 if the copper terms turns bullish unexpectedly good supra $4.25 successful 2023.
Conversely, I urge buying SCCO astatine oregon betwixt $73 and $71, with imaginable little enactment astatine $70.
Warning: The TA illustration indispensable beryllium updated often to beryllium relevant. It is what I americium doing successful my banal tracker. The illustration supra has a imaginable validity of astir a week. Remember, the TA illustration is simply a instrumentality lone to assistance you follow the close strategy. It is not a mode to foresee the future. No 1 and thing can.
Unfortunately, my marketplace volition beryllium closing connected November 1, 2023.