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Southern Copper Falls on 1st-Quarter Results

- By Alberto Abaterusso

Shares of Southern Copper Corp. (SCCO) closed 0.15% lower at $38.87 on Monday after the mining company missed first-quarter consensus estimates. GAAP earnings of 50 cents per share were 3 cents short of estimates and revenue of $1.75 billion was $60 million shy of expectations.

Earnings per share decreased 18% from the prior-year quarter and revenue declined 4.8% as a result of lower metal prices. The average price of copper - the main commodity produced by the company - fell 10.8% to $2.82 per pound on the London Metal Exchange and dropped 10.5% to $2.81 on the Comex.

On the output side, Southern Copper recorded a 3.8% increase in total copper production to 229,360 tons, 4.6% growth in zinc production to 18,550 tons and silver production surged 4.8% to 4.342 million ounces. Production of mined molybdenum was flat at 5,145 tons.

The company said its production was boosted by operating improvements at copper concentrators and plants in Mexico and the ramping up of the new Toquepala concentrator in Peru, which reached 86% of its full capacity usage on March 31.

Sales volumes increased as well. Copper sales grew nearly 7% to 227,424 tons, zinc sales rose 2.2% to 26,962 tons and silver sales soared almost 20% to approximately 5.1 million ounces. Sales of molybdenum fell 2.7% to 5,103 tons.

The U.S. miner, which has assets in Peru, Mexico, Argentina, Ecuador and Chile, also recorded a 0.2 percentage point decline in the adjusted earnings before interest, taxes, depreciation and amortization margin to 50.8% and a nearly 43% decrease in operating cash flow to $371.3 million. A higher share of profit paid to the workforce in Peru and a higher fiscal burden in Mexico and Peru impinged on the company's operating cash flow.

Following a 25% decline over the past year, the stock closed at $38.9 on April 29 for a market capitalization of $30.5 billion. The share price is still well above the 100-day simple moving average line and slightly higher than the 200- and 50-day lines.

The closing price on Monday was 34% off the 52-week low of $29.01 and 37% from the 52-week high of $53.25. The 14-day relative strength index is 46, indicating the stock is still above oversold levels.

Wall Street issued a hold recommendation rating for Southern Copper and predicts only 1% upside in the share price to $39.21 within 52 weeks. Nevertheless, the company expects significant increases in production and sees sales growing by more than $800 million in 2019.

Disclosure: I have no positions in any securities mentioned.

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This article first appeared on GuruFocus.