Southern Copper's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Southern Copper Corporation (SCCO)

Q2 2012 Earnings Call

July 31, 2012 11:00 AM ET

Executives

Raul Jacob – Comptroller

Oscar Gonzalez Rocha – President and CEO

Daniel Muniz – CFO, Copper Mexico

Analysts

Carlos de Alba – Morgan Stanley

Marcos Assumpção – Itaú BBA

Felipe Hirai – Merrill Lynch Brazil

Leonardo Capas – Deutsche Bank

Leonardo Korea – Barclays Capital

Mandeep Singh – JP Morgan

Derrick Nelson – BB& T Capital Markets

Juan Lopez – GBM

Rene Kleyweg – Renaissance Capital

Jamie Nicholson – Credit Suisse

Presentation

Operator

Good morning and welcome to Southern Copper Corporation Second Quarter and First Six Months 2012 Results Conference Call. With us this morning we have Southern Copper Corporation’s Mr. Raul Jacob, CFO of Peruvian Operations and Investor Relations of Southern Copper, who will discuss the results of the company for the second quarter and the first six months 2012 as well as answer any questions that you might have.

The information discussed on today’s call may include forward-looking statements regarding the company’s results and prospects that are subject to risks and uncertainties. Actual results may differ materially and the company’s cautions do not place undue reliance on these forward-looking statements. Southern Copper Corporation undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise. All results are expected – expressed in full U.S. GAAP.

Now I will pass the call onto Mr. Raul Jacobs. Please go ahead, sir

Raul Jacob

Thank you very much, Michelle, and good morning to everyone, and welcome to Southern Copper’s Second Quarter Earnings Conference Call. Participating in today’s conference are Mr. Oscar Gonzalez Rocha, Southern Copper’s CEO and Mr. Daniel Muniz, Copper Mexico’s CFO.

On today’s conference call we will begin with an update of our view in the metal markets. We will then talk about Southern Copper’s key results related to production, sales, operating costs, financial results, expansion projects, and capital spending program. After that we will open the call for questions.

Focusing on the metal market and prices of the metals that Southern Copper use, during the first half of 2012 metal markets continue to be driven by negative macroeconomic events that effected consumer expectations. The most important ones being Europe’s debt crisis particularly the provinces in Spain and Italy and the possibility of a slowdown of the Chinese economy. Even though we believe copper fundamentals are sound for 2012, demand has been repeatedly negatively influenced by the macro outlook for Europe and China.

At present we perceive a difference in the situations of the Asian markets and the developed markets. In China several sources point to a growth in demand of approximately 7% to 8% for this year. That’s for copper, which should give support to the market of copper in the next few months. The United States and Europe although demand is weak, inventories are extremely tight and we see them increasing to more normal levels over the next 12 months are equally in the United States.

Demand from emerging economics are also growing and some – and that this is somewhat offsetting the weaker consumption that European and the United States markets. See our view currently estimates that there will be a total refine copper demand growth of 3.5% for 2012. If we consider global copper demand is about 19.3 million pounds per year, this will represent approximately 675,000 tons of additional refined copper demand.

On the supply side, production has underperformed badly in 2012 due to labor unrest, power churn produced, weather conditions and four grade declines. All of these events are still continuing constraining supply and maintaining a timeliness in the copper market. Currently we are estimating a supply growth of less than 0.5%, less than 1% for the year 2012.

Focusing on the company production, in the second quarter of 2012, copper mine production increased by 10% to 160,595 tons, which compared to 146,240 tons in the second quarter of 2011. This increase is the result of higher production at our Cuajone operation that increased its production by 31% compared to last year. Zakładać plus 13%, and Buenavista plus 5%. All of them have better all grades and recoveries in this past quarter.

Regarding molybdenum production, it increased by 4% in the second quarter of 2012 when compared to the same period of last year. Again Cuajone production was 43% higher, zakładać 10% higher, and the result was mainly, this was mainly the result of higher grade and recovers.

Regarding silver, silver mine production increased by 10% in the second quarter, principally as a result of higher production at our Cuajone and Buenavista operations, as well as zakładać. Refined silver increased by 9% to 3.5 million ounces, and that figure compares to 3.2 million ounces in the second quarter of 2011.

Focusing on our financial results, for the second quarter of this year sales were $1.7 billion, 8% lower than the $1.8 billion we had in the second quarter of 2011. As a result of improved operating performance, we were able to upset some of the effect of lower metal prices in the second quarter of 2012 vis-à-vis the second quarter of 2011, with increased in sales volume. Copper sales volume increased by 7%, silver by 25%, molybdenum by 2% and zinc remained equal. These increments in volumes sold; partially offset the lower prices for copper. For instance, copper prices decreased by 14%, molybdenum prices by 17%, silver by 23% and zinc by 15% in the second quarter.

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