Solid Projects to Aid Southern Copper (SCCO) Amid High Costs
Southern Copper Corporation SCCO is poised well for growth, backed by its industry-leading copper reserves, focus on increasing low-cost production and ongoing investment in expansion projects. However, the current inflationary scenario remains a concern.
Upbeat Outlook for 2023 Onwards
In 2022, the company registered a 6.6% year-over-year decline in copper production to 894,703 tons, due to work stoppage at the Cuajone mine as well as lower ore grades. The company anticipates copper production to increase 5% year over year and reach 939,400 tons in 2023. The improvement will be further driven with the Peruvian production coming back on track and new production from Pilares and Buenavista zinc concentrators. SCCO expects to take this figure to 1.642 million tons of copper by 2032 by developing its organic growth projects.
Solid Projects on Track
Southern Copper has the largest copper reserves in the industry. It operates high-quality, world-class assets in investment-grade countries, such as Mexico and Peru, which will continue to aid its growth.
In Mexico, the company invested $416 million in the Buenavista Zinc – Sonora project. It is expected to start operations in the second half of 2023 and will double the company’s zinc production capacity. The Pilares – Sonora project in Mexico, (a budget of $176 million), comprises an open pit mine operation with an annual production capacity of 35,000 tons of copper in concentrates. It initiated operations as per schedule in the fourth quarter of 2022. Southern Copper expects to produce minerals for the Caridad concentrator at full capacity in the second quarter of 2023. This project will significantly improve the overall mineral ore grade.
The El Pilar - Sonora project, with a budgeted investment of $310 million, is expected to begin production in 2025 with an annual production capacity of 36,000 tons of copper cathodes. The El Arco - Baja California project, with an estimated capital budget of $2.9 billion, is expected to produce 190,000 tons of copper and 105,000 ounces of gold.
Southern Copper’s total investment program in Peru runs to $7.9 billion, including the Michiquillay ($2.5 billion) and Los Chancas ($2.6 billion) projects. Peru is currently the second-largest producer of copper globally and holds 13% of the world’s copper reserves. Michiquillay is expected to become one of Peru's largest copper mines and will produce 225,000 tons of copper per year for an initial mine life of more than 25 years and at a competitive cash cost. Production is expected to commence by 2032.
The Los Chancas project located in Apurimac, Peru is a copper and molybdenum porphyry deposit. The project envisions an open-pit mine with a combined operation of the concentrator and SX-EW processes to produce 130,000 tons of copper and 7,500 tons of molybdenum annually. The project is expected to commence in 2030.
The company has a number of other projects that are planned to be developed in the future, which will help to attain its abovementioned copper volume production targets.
Metal Prices to Pick Up in the Long Term
Copper prices had been impacted lately, on weaker-than-expected data from China. The country’s industrial output grew 3.5% year over year in May, lower than 5.6% in April. This, along with the 7.2% decline witnessed in property investment in January-May, have impacted copper prices.
The long-term outlook for copper nevertheless, is positive, as copper demand is expected to grow, driven by electric vehicles and renewable energy, and infrastructure investments. Copper prices will be supported by growth in public infrastructure investment in the United States, as well as global initiatives to address climate change.
Molybdenum prices are set to increase on the back of healthy demand and reduced supply. Long-term fundamentals for zinc remain strong due to its significant industrial consumption. Silver prices will also gain, given its industrial use, expected demand-supply imbalance and safe-haven demand.
Efforts to Control Costs Will Bear Fruit
Backed by its constant focus on increasing low-cost production and growth investments, the company is well-poised to continue delivering enhanced performance. Its efforts to lower costs have aided the company to negate the impacts of higher costs for diesel and fuel, operating and repair materials, supplies and energy, as well as higher labor costs.
Price Performance
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The company’s shares have gained 34.2 over the past year, compared with the industry’s 46.5% growth.
Zacks Rank & Stocks to Consider
Southern Copper currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the basic materials space are Piedmont Lithium Inc. PLL, Gold Fields Limited GFI and Linde Plc LIN. PLL and GFI currently sport a Zacks Rank #1 (Strong Buy) while LIN carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Piedmont Lithium’s earnings per share is pegged at $6.29 for 2023. Earnings estimates have been revised 62.9% upward in the past 60 days. PLL has gained 22.5% in a year.
The consensus estimate for Gold Fields’ fiscal 2023 earnings per share is pegged at $1.01. Earnings estimates have moved 6.3% north in the past 60 days. GFI’s shares have gained 51% in the past year.
The Zacks Consensus Estimate for Linde’s current-year earnings has been revised 4.4% upward in the past 60 days. LIN beat the Zacks Consensus Estimate in all the last four quarters, with the average earnings surprise being 6.9%. The company’s shares have gained 29.1% in the past year.
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