Strong Project Pipeline Aids Southern Copper (SCCO), Costs Ail
Southern Copper Corporation SCCO is well-poised for growth, backed by its industry-leading copper reserves and ongoing investment in solid expansion projects. However, the current inflationary scenario remains a concern.
Upbeat Production Outlook for 2023
The company anticipates copper production to increase 4.2% year over year and reach 932,100 tons in 2023. This will be made possible by the Peruvian production coming back on track and new production from Pilares and Buenavista zinc concentrators.
Southern Copper expects to produce 24,200 tons of molybdenum in 2023, which represents a decrease of 8% from 2022. It has set a production target of 20.1 million ounces of silver, which indicates an increase of 8% from the 2022 production level. Zinc production is estimated to be 108,000 tons, which represents an increase of 80% year over year. This growth will be driven by the production start-up of the Buenavista zinc operations and the recovery of the IMMSA mines production, where better ore grade areas have been identified.
Efforts to Control Costs Will Bear Fruit
In the first half of 2023, the operating cash cost per pound of copper (net of by product revenues) was 94 cents. This was 14.1 % higher than the comparable prior year period mainly due to higher production costs. The company has been witnessing higher labor costs due to the ongoing tightness on labor supply.
This, along with ongoing inflation for repair materials, operating materials, inventory consumption, operation contractors and services, will continue to weigh on Southern Copper’s margins. Nevertheless, its efforts to lower costs will aid the company to negate the impacts of higher costs.
Solid Projects on Track
Southern Copper has the largest copper reserves and operates high-quality, world-class assets in investment-grade countries, such as Mexico and Peru. The company continues to invest to grow its portfolio and reserves.
Including the Michiquillay ($2.5 billion) and Los Chancas ($2.6 billion) projects, its total investment program in Peru runs to $7.8 billion. Michiquillay is expected to become one of Peru's largest copper mines and will produce 225,000 tons of copper per year (along with by-products of molybdenum, gold and silver), starting in 2032. The Los Chancas project is expected to produce 130,000 tons of copper and 7,500 tons of molybdenum annually from 2030 onward.
In Mexico, the Buenavista Zinc – Sonora project is expected to start operations in the second half of 2023 and will double the company’s zinc production capacity. The Pilares – Sonora project comprises an open pit mine operation with an annual production capacity of 35,000 tons of copper in concentrates. It is currently delivering copper mineral to the facilities of the Caridad operation. This project will significantly improve the overall mineral ore grade.
The El Pilar - Sonora project is expected to begin production in 2025 with an annual capacity of 36,000 tons of copper cathodes. The El Arco - Baja California project has a projected output of 190,000 tons of copper and 105,000 ounces of gold.
The company has a number of other projects that are planned to be developed in the future, which will help to attain its abovementioned copper volume production targets.
Metal Prices to Pick Up in the Long Term
Copper prices had been impacted this year, on weaker-than-expected data from China. However, prices have picked up lately amid expectations that demand in China will improve, backed by stimulus measures from the government.
The long-term outlook for copper is positive, as copper demand is expected to grow driven by electric vehicles and renewable energy, and infrastructure investments. Molybdenum prices are set to increase on the back of healthy demand and reduced supply. Long-term fundamentals for zinc and silver remain strong due to their significant industrial consumption.
Price Performance
The company’s shares have gained 68.3% over the past year compared with the industry’s 47.1% growth.
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Zacks Rank & Stocks to Consider
Southern Copper currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the basic materials space are Hawkins, Inc. HWKN, Carpenter Technology Corporation CRS and L.B. Foster Company FSTR. HWKN and CRS sport a Zacks Rank #1 (Strong Buy) at present, and FSTR carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Hawkins has an average trailing four-quarter earnings surprise of 25.5%. The Zacks Consensus Estimate for HWKN’s fiscal 2024 earnings is pegged at $3.40 per share. The consensus estimate for 2024 earnings has moved 38% north in the past 60 days. Its shares have gained 62.7% in the last year.
Carpenter Technology has an average trailing four-quarter earnings surprise of 10%. The Zacks Consensus Estimate for CRS’s fiscal 2024 earnings is pegged at $3.48 per share. The consensus estimate for 2023 earnings has moved 8% north in the past 60 days. Its shares have gained 72.9% in the last year.
L.B. Foster has an average trailing four-quarter earnings surprise of 134.5%. The Zacks Consensus Estimate for FSTR’s 2023 earnings is pegged at 53 cents per share. Earnings estimates have been unchanged in the past 60 days. FSTR’s shares have gained 50.4% in the last year.
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