Southern Copper Corp. (SCCO, Financial) rose 4.64% to more than $46 per share on the New York Stock Exchange on Tuesday. The stock was up 0.69% to $46.82 per share in Wednesday afternoon trading.
The increases were on the heels of the company's release of earnings in which it reported an increase in sales. The company closed the second quarter of fiscal 2018 with a net profit of $409.6 million. That was a nearly 37% growth on a year-over-year. The net earnings were backed by a quarterly revenue of about $1.84 billion. Thanks to higher sales volumes and base metals prices, the quarterly turnover grew 20.1% from the analogous quarter of fiscal 2017.
The adjusted earnings before interest taxes depreciation and amortization and operating cash flow also increased by 35% year-over-year to $955.2 million and by 25.1% to $1.06 billion in the first six months of 2018 from the same period of fiscal 2017.
Free cash flow was approximately $494 million in the first six months of fiscal 2018.
These positive results of net profit, sales and cash flows were a consequence of strong operations reported by the company at its Peruvian assets. Higher throughput and grades of ore processed in Peru enabled the mining company to increase second quarter copper production by 2% to 219,962 tons in fiscal 2018. The production in Mexico went a bit down but that didn’t hit the global result.
The operating cash costs went down in the second quarter of 2018 when compared to the same period of fiscal 2017. However, that was more a consequence of higher by-product revenues rather than increased throughput of copper.
Southern Copper has not been affected by fears that a trade war would cause a fall in the price of the red metal. The company foresees a meaningful recovery in the price of the red metal in the following months. The strength of the U.S. dollar also weighs in on the price of copper.
Costs efficiencies and enhanced copper production following the completion of Toquepala expansion project in Peru are positioning Southern Copper to take the best from a copper market whose fundamentals remain solid. The Peruvian project is predicted to expand the annual production of copper with 100,000 tons by 2019. Toquepala will bring Southern Copper's total copper production to a yearly one million pounds. This is the catalyst to watch.
The stock in Southern Copper has a market capitalization of $35.95 billion, a price to book ratio of 5.68 times versus an industry median of 2.06 times and a 52-week range of $37.13 to $58.09 per share.
Despite a higher than average price-book ratio, the share price is still below the 200, 100 and 50-SMA lines.
Wall Street is for a hold to underperforming stock and the average target price is $47.25 per share.
Ken Fisher (Trades, Portfolio) opened a position in Southern Copper, acquiring 1,095,229 shares of the copper mining company on the New York Stock Exchange during the second quarter of 2018.
(Disclosure: I have no positions in Southern Copper Corporation.)
