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Southern Copper (SCCO) Hits 52-Week High, Can the Run Continue?

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Shares of Southern Copper Corporation SCCO scaled a fresh 52-week high of $58.32 during Nov 23 trading session, before retracting to close at $56.83. The surge can primarily be attributed to better-than-expected third-quarter 2020 results, and higher silver and copper prices. Further, expected benefits from cost-reduction programs and expansion projects have contributed to this rally.

The company has a market capitalization of $43.9 billion. It has an expected long-term earnings per share growth rate of 8.7%.

Year-to-date, shares of Southern Copper have gained 36.9%, compared with the industry’s growth of 36.4%. The company also outperformed the Basic Materials sector and S&P 500, which rallied 6.4% and 10.8%, respectively in the same time frame.

Meanwhile, earnings estimates for the fourth quarter and 2020 have gained 38% and 17%, respectively, over the past 60 days. Also, earnings estimates for the next year have improved 22% in same timeframe.

Driving Factors

Better-Than-Expected Q3 Earnings: Southern Copper’s adjusted earnings per share grew 30% year over year to 65 cents in third-quarter 2020, while revenues improved 15% to $2,129 million. The company beat the Zacks Consensus Estimate on both counts aided by increased sales volumes, and higher silver and copper prices.

Solid Production Numbers: Despite the uncertainty related to the COVID-19 pandemic, copper production rose 0.6% year over year to 741,624 tons in the first nine-month period of 2020. During the aforesaid period, molybdenum production increased 19.4% to 22,694 tons, while silver production increased 10.4% to 16.1 million ounces.

Surge in Copper & Silver Prices: Copper has been gaining lately on solid demand in China, which is the top consumer, and optimism surrounding a coronavirus vaccine. Meanwhile production has been declining in Chile, which is the top producer, for four straight months due to labor negotiations. Further, pickup in industrial activity bodes well for both copper and silver given their widespread industrial usage.

Copper Reserves & Lower Costs: A Win-Win Combination: Southern Copper has the largest copper reserves in the industry and operates high-quality, world-class assets in investment grade countries, such as Peru and Mexico. Peru is currently the second largest producer of copper globally and its output has surged 93% over the 2009-2019 time frame. It is expected grow to 245000 tons in 2022, per Trading Economics. Notably, Peru holds 13% of the world’s copper reserves.

Backed by its constant commitment to increase low-cost production and growth investments, the company is well positioned to continue delivering enhanced performance.

Solid Pipeline of Expansion Projects: Southern Copper’s board has approved projects in Peru with a total capital budget of $2.8 billion of which $1.6 billion has already been invested. Including the Michiquillay ($2.5 billion) and Los Chancas ($2. billion) projects, its total investment program in Peru runs to $7.9 billion.

In Mexico, the company has a planned investment of $413 million in the Buenavista Zinc — Sonora project. An investment of $159 million is projected for Pilares — Sonora project in Mexico, which comprises an open pit mine operation with an annual production capacity of 35,000 tons of copper in concentrates. The El Pilar project with an investment of $310 million is expected to be completed in 2023 and will add 35,000 tons of copper annually.

The above-mentioned projects and other investments in Mexico will enhance the company’s Mexican operations’ copper production by 16% and zinc production by 93%. The company has a number of other projects that might be developed in the future, which will help it in achieving copper volume production target of 1.5 million tons by 2028.

Zacks Rank & Stocks to Consider

Southern Copper currently sports a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are Agnico Eagle Mines Limited AEM, Clearwater Paper Company CLW and Silvercorp Metals Inc. SVM. While Agnico Eagle sports a Zacks Rank #1 (Strong Buy), Clearwater Paper and Silvercorp Metals carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Agnico Eagle has an expected earnings growth rate of 103.1% for 2020. Its shares have returned 5% year to date.

Clearwater Paper has an expected earnings growth rate of 1961% for 2020. The company’s shares have gained 66% so far this year.

Silvercorp has an expected earnings growth rate of 40% for 2020. The company’s shares have surged 17% year to date.

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Southern Copper Corporation (SCCO) : Free Stock Analysis Report
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