Southern Copper Corporation
Southern Copper Corporation (NYSE: SCCO) is a copper and other mineral integrated producers with mining, smelting, and refining operations in Peru and Mexico. Mexican open-pit operations and Mexican underground mining operations are the company's three segments. Most of Southern Copper's revenue comes from copper sales, with the remainder from non-copper items.
- Cuajone Restarted Operations: A small group of protestors from Tumilaca, Pocata, Coscore, and Tala seized the facilities at the Via Blanca water reservoir on February 28, 2022, and shut off the water supply to the roughly 5,000 people who reside in Cuajone. They say the company has encroached on their territory and seeks USD 5.0 billion in compensation. Cuajone operations remained closed as of March 31, 2022. After many attempts by authorities to restore calm via discussion, the Peruvian government announced a state of emergency in the Moquegua area on April 20, 2022. The protestors returned the Via Blanca water reservoir and railway to the Company on April 21, 2022. The industrial railroad and the Cuajone mine, concentrator, and ancillary infrastructure are all fully operational today. On April 30, 2022, the Peruvian government issued a ministerial Resolution to establish a three-party round table for interaction with community residents, government officials, and Company officers to understand all parties' concerns better.
Q1 FY22 Results:
- Decent Growth in Revenue: The company's net sales in Q1 FY22 were USD 2.76 billion, up 9.13% from USD 2.53 billion the previous quarter, owing to higher market metal prices for all its products except silver, somewhat offset by reduced volume.
- Recovery in Operating Cash Cost per Pound: Due to the sale of byproducts, the operating cash cost was USD 0.55 per pound in Q1 FY22, compared to USD 0.74 per pound in Q1 FY21. Furthermore, the company reduced its yearly operational cash costs, increasing net income.
(Source: Company Filings)
- Higher Profitability: The company's net income was USD 787.8 million in Q1 FY22 compared to USD 767.1 million in Q1 FY21, driven by a significant increase in other income and interest income, resulting increase in EPS from USD 0.99 per share to USD 1.02 per share.
- Estimated Copper Production: SCCO is estimated to generate 895,800 tonnes of copper in FY22, a 6.5% decline from FY21 due to suspension at Cuajone and recoveries at the Peruvian operations. SCCO estimates its copper output to rebound in 2023, reaching 971,200 tonnes as it gets Peruvian production back on track.
- Commodity Price Risk: SCCO's financial performance is based on underlying metal prices, specifically copper, molybdenum, zinc, and silver, which are highly volatile and can be influenced by a variety of factors such as economic and political downturns, supply and demand, and imbalances, exchange rate fluctuations, and so on.
- Capital Intensive Business: Exploration, extraction, and mining are capital intensive and require heavy capital investments. As a result, if SCCO does not generate enough cash and liquidity to fund its capital-intensive operation, it may face financial consequences.
Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation
(Source: Analysis by Kalkine Group)
SCCO's is now trading around the bottom of its 52-week range of USD 25.33 to USD 15.69. The SCCO price is trading below the horizontal trend line on the weekly chart and is up against the same resistance. Furthermore, the 14-period RSI momentum oscillator is trading at ~37.58, reverting from higher levels. However, the price is trading above the 21-period SMA of the trend-following indicator, which might operate as immediate support.
Based on revenue growth, outstanding margins, regulated operational cash expenses, excellent equity returns, increasing profitability, related risks, and current valuation, we recommend a "Buy" rating on the stock at the current market price of USD 57.45 as of June 15, 2022, at 09:35 AM PDT.
1-Year Technical Price Chart (as of June 15, 2022, at 09:35 AM PDT) Source: REFINITIV, Analysis by Kalkine Group
Technical Summary Analysis
*CMP as on June 15, 2022, at 09:35 AM PDT.
Technical Indicators Defined: -
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.
Note 3: The report publishing date is as per the Pacific Time Zone.