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Southern Copper Reports Fiscal 2018 Financial Results

- By Alberto Abaterusso

After the closing bell on Monday, Southern Copper Corp. (SCCO) released its operating and financial results for full fiscal 2018.

As a result of higher metal prices, total net sales came in at $7.09 billion, reflecting a 6.6% increase year over year.

Driven by higher sales volumes, net income increased nearly 112% year over year to $1.54 billion and adjusted earnings before interest, taxes, depreciation and amortization jumped 8% to approximately $3.56 billion. Lower taxes also influenced the bottom line.

The adjusted EBITDA margin of 50.1% for the year marked a 121-basis point increase from the adjusted EBITDA margin of 49.5% in 2017. The industry median stands at about 23% to 24%. Along with a reduction in operating cash costs to 87 cents per pound of copper, these results signal an improvement in the efficiency of Southern Copper's operations.

Higher sales volume and metal prices also contriubed to a 13.1% increase in the operating cash flow to $2.24 billion.

Boosted by strong performance from operations in Peru, the production of mined copper grew 0.8% to 883,689 tons in 2018 compared to 876,979 tons in 2017. Including the production of copper concentrates that came from third parties, total production increased 0.7% to 919,895 tons.

Southern Copper also produced 21,985 tons of molybdenum, a 3.1% increase from a year ago, about 17.31 million ounces of silver, an 8.7% jump, and 70,778 tons of zinc, growing 3.1% year over year. The miner's performance was boosted by higher production from assets in Mexico and Peru.

In 2018, the miner placed 885,854 tons of copper, 22,055 tons of molybdenum, 106,483 tons of zinc and 19.44 million ounces of silver on the market. The average prices were $2.9 per pound of copper, $11.86 per pound of molybdenum, $1.33 per pound of zinc and $15.65 per pound of silver.

On a year-over-year basis, the average price per pound of copper, which is the company's main commodity, increased 5.7% on the London Metal Exchange and jumped 4.6% on the COMEX.

Despite an increase in capital investments, which was due to an increase in the amount of funds allocated to the expansion of the Toquepala mineral deposit in Peru, the free cash flow improved to $1.114 billion. The Peruvian asset is expected to reach full capacity before the beginning of July.

The company distributes quarterly dividends to shareholders. The next payment of 40 cents per ordinary share will occur on Feb. 26 for shareholders of record as of Feb. 12.

Based on the quarterly dividend and the closing share price of $31.17 on Monday, the forward dividend yield of the stock is 5.13%.

The stock has declined 35.5% over the past year through Monday, underperforming the Van Eck Vectors Gold Miners ETF (GDX) by nearly 36% over the same period. The market capitalization is roughly $24.1 billion, the 52-week range is $29.01 to $58.09, the price-book ratio is 3.66 and the EV-to-EBITDA ratio is 7.68.

As of Dec. 31, the company had $1.058 billion available in cash on hand and securities and about $5.96 billion in total debt. The total equity, including non-controlling interests, is worth $6.613 billion.

Wall Street has issued a hold recommendation rating with an average target price of $34.69 per share of Southern Copper.

Disclosure: I have no positions in any securities mentioned in this article.

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This article first appeared on GuruFocus.