Southern Copper Gets Permit on Delayed Peru Copper Project

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Southern Copper Corporation SCCO has received a construction permit for its Tia Maria copper mine project in Peru worth $1.4 billion. The project had been stalled owing to concerns about the impact on agriculture. However, the company stated that it will not commence work until it gains more support from local residents.

The Tia Maria mine is a large copper deposit located in the south of Peru in the province of Islay, Arequipa Region. On Aug 1, 2014, Southern Copper had received the final approval of Tia Maria´s Environmental Impact Assessment (EIA). However, the issuance of the construction permit had been delayed owing to pressure from anti-mining groups. The company had since been working with community groups to resolve the issues concerning the project. Of Tia Maria´s total project budget of $1.4 billion, $333.3 million has been invested through Mar 31, 2019.

On completion, Tia Maria is expected to produce annually 120,000 tons of copper cathodes over a life-span of 20 years. This project will utilize state-of-the-art SX-EW technology with the highest international environmental standards. The SX-EW facilities do not require a smelting process and with no emissions, and thus are environmental friendly. The project will only use seawater, transporting it more than 25 kilometers to 1,000 meters above sea level, and includes a desalinization plant. Consequently, the Tambo river water resources will be utilized solely for farming and human consumption. During the construction phase, the project is likely to generate 9,000 jobs and while in operation, Tia Maria will directly employ 600 workers and indirectly 4,200.

Southern Copper boasts of the largest copper reserves in the industry, and operates high-quality and world-class assets in investment grade countries, such as Mexico and Peru.

Peru is currently the second largest producer of copper and its national output is anticipated to hit 4.8 million ton per year by 2021 — double the output of 2017. In June 2018, Southern Copper completed the acquisition of Michiquillay project in Cajamarca, Peru, which boasts mineral resources of 1,150 million tons and copper grade of 0.63%. It will produce 225,000 tons of copper annually and by-products such as molybdenum, gold and silver, at a very competitive cash-cost.

Taking the Michiquillay ($2.5 billion) and Los Chancas ($2.8 billion) projects into consideration, the company’s total investment program in Peru runs to $8.1 billion.

Backed by persistent focus on increasing low-cost production and growth investments, the company is well poised to continue delivering improved performance. However, current weakness in metal prices and high-debt levels will affect near-term results.

Share Price Performance

Shares of Southern Copper have plunged 19.5% in the last year, compared with the industry’s decline of 19.1%.
Zacks Rank and Stocks to Consider

Southern Copper currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the Basic Materials space are Israel Chemicals Ltd. ICL, Arconic Inc. ARNC and Materion Corporation MTRN, each carrying a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Israel Chemicals has an expected earnings growth rate of 13.51% for 2019. The company’s shares have gained 11% in the past year.

Arconic has an estimated earnings growth rate of 36.76% for the current year. The stock has appreciated 45.7% in a year’s time.

Materion has a projected earnings growth rate of 30.25% for the ongoing fiscal. Its shares have rallied 15% over the past year.

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