Shares of Southern Copper Corporation SCCO scaled a fresh 52-week high of $47.43 during the Aug 18 trading session, before retracting to close at $46.55. Better-than-expected second quarter 2020 results, higher production numbers, benefits from cost-reduction programs, expansion projects and higher copper prices have contributed to this rally.
The company has a market capitalization of $35.5 billion. Sothern Copper has an expected long-term earnings per share growth rate of 12.9%.
Share Price Performance
In the past year, the stock has gained 54.3%, outperforming the industry’s growth of 45.2%.
Q2 Earnings & Sales Beat: Southern Copper reported an adjusted earnings of 34 cents per share in second-quarter 2020 beating the Zacks Consensus Estimate of 28 cents. Revenues of $1,785 million also surpassed the Zacks Consensus Estimate of $1,223 million.
Driving Factors
The company’s copper production increased 2% year over year in the first half of 2020 on higher production at the Peruvian mines (+9.5%) driven by the new Toquepala concentrator. Construction of the Toquepala concentrator expansion reached full capacity usage at the end of the June-end quarter last year. This expansion project has boosted Toquepala´s annual copper production by 100,000 tons.
Molybdenum production increased 26.4% in the first half of the year on stellar production in all of the company’s mines. A new molybdenum plant, which started operating last year, has contributed significantly to the Toquepala mine output. Mined silver production increased 17.3% year over year in the first half of 2020 driven by higher production at all its operations.
The company continues to witness the benefits of cost-reduction programs and expansion actions. 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 increase low-cost production and growth investments, the company is well poised to continue delivering enhanced performance.
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 ($2.8 billion) projects, its total investment program in Peru runs to $8.1 billion. Peru is currently the second largest producer of copper globally and its national output is anticipated to grow 27% by 2022.
In Mexico, the company has a planned investment of $413 million in the Buenavista Zinc — Sonora project. An investment of $159 million is estimated for Pilares — Sonora project in Mexico, which consists of 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, along with other investments in Mexico, will enhance the company’s Mexican operations’ copper production by 16% and zinc production by 93%. The company has number of other projects that might be developed in the future, which will help it achieve copper volume production target of 1.5 million tons by 2028.
Copper prices are gaining momentum on financial stimulus and solid demand in China which is the top consumer. Further, supply disruptions from the top copper producer Chile due to the pandemic in the country are driving the red metal’s prices. The long-term outlook for copper is positive as copper demand is expected to grow on electric vehicles, and renewable energy and infrastructure investments.
Zacks Rank & Other Stocks to Consider
Southern Copper currently sports a Zacks Rank #1 (Strong Buy).
Some other top-ranked stocks in the basic materials space include Golden Star Resources Ltd. GSS, Eldorado Gold Corporation EGO and Yamana Gold Inc. AUY, each carrying a Zacks Rank #2 (Buy) currently. You can see the complete list of today’s Zacks #1 Rank stocks here.
Golden Star Resources has an estimated earnings growth rate of 12.5% for 2020. The company’s shares have surged 88.4% in a year’s time.
Eldorado Gold has an expected earnings growth rate of 2,225% for the current year. Its shares have appreciated 38.8% in the past year.
Yamana has a projected earnings growth rate of 76.9% for the ongoing year. The company’s shares have soared 91.8% over the past year.
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