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Southern Copper (SCCO) Hits 52-Week High: What's Driving It?

Zacks Equity Research

Southern Copper Corporation SCCO scaled a fresh 52-week high of $42.73, before eventually closing the day at $42.63 on Dec 18. This upside can primarily be attributed to the surge in copper prices, better-than-expected third-quarter results and upbeat outlook for 2019. The stock was also favored by the fact that the Peru government gave a go-ahead to the delayed Tia Maria copper project.

We note that shares of this Phoenix, AZ-based company have gained 43% so far this year, outperforming the industry’s growth of 35.7%. This Zacks Rank #3 (Hold) stock has also outpaced the Basic Material sector and the S&P 500 Index’s rally of 5.9% and 26.1%, respectively. The company also has a long-term earnings growth rate of 11.46%.

Driving Factors

Southern Copper’s share price has gained 18.5% since it reported third-quarter 2019 results. The company reported earnings of 50 cents per share, which beat the Zacks Consensus Estimate of 49 cents and was 4% higher than the prior-year quarter. The improved results reflect the benefits from the new Toquepala concentrator that reached full capacity usage in the first-half 2019, lower cash cost and other cost reductions.

For 2019, the company projects total copper production of 991,000 tons, 12% higher than the 883,689 tons generated in 2018. It anticipates producing 25,500 tons of molybdenum, an expected growth of 16%, aided by significant contribution from the molybdenum plant at the new Toquepala concentrator. Zinc production is anticipated to increase 10% year over year to 77,500 tons for the ongoing year, as a result of the partial recovery of production at San Martin mine. Silver production is expected to improve 14% year over year to 19.7 million ounces backed by contributions from the San Martin, Santa Barbara and Toquepala mines.

The company continues to witness the benefits of cost-reduction programs and expansion actions. Southern Copper expects cash cost to average 80 cents per copper pound in 2019, an additional reduction of 8% year over year, strengthening its dominance as a low-cost producer. Southern Copper has the largest copper reserves in the industry and operates high-quality, world-class assets in investment grade countries, such as Mexico and Peru. Backed by its constant commitment to increasing low-cost production and growth investments, the company is well poised to continue delivering enhanced performance.

Southern Copper’s board 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 ($2.8 billion) projects, its total investment program in Peru runs to $8.1 billion. Peru's government has given the green light to Southern Copper’s much delayed Tia Maria copper project. In August the government had suspended permit for the $1.4 billion project amid violent protest.

Copper prices have been trending higher lately on strong data of imports from China, its biggest customer. Moreover, the metal, which is usually viewed as a gauge of economic health, is likely to gain from the United States and China’s efforts toward a phase one trade deal. Higher copper prices bode well for Southern Copper.

Stocks to Consider

Some better-ranked stocks in the basic materials space are Kirkland Lake Gold Ltd KL, Impala Platinum Holdings Ltd IMPUY and Polymetal International plc AUCOY, each sporting a Zacks Rank #1 (Strong Buy).

You can see the complete list of today’s Zacks #1 Rank stocks here.

Kirkland Lake Gold has an expected earnings growth rate of 97.1% for 2019. The company’s shares have surged 60% so far this year.

Impala Platinum Holdings has projected earnings growth rate of 255.2% for fiscal 2020. The company’s shares have skyrocketed 312% in a year.

Polymetal International has an estimated earnings growth rate of 40.5% for the current year. Its shares have returned 56% in the past year.

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