Southern Copper Corp.: Skyrocketing Metals Prices Drive Profits

Net income up nearly 40% in first-quarter 2007 for copper producer as it deals with labor-relations issues and tragedy.

From northern Mexico to the Andes Mountains in Peru, Southern Copper Corp. mines enough copper to be the world's fifth-largest copper producer. The Phoenix-based company, which is controlled by Grupo Mexico S.A.B. de C.V., owns four open-pit copper mines, three metallurgical processing facilities and five underground mines that produce various metals, including copper, zinc, silver and gold.

The company, one of IndustryWeek's 50 Best Manufacturers for 2007, has benefited recently from rising copper prices, which hit a 10-month high on May 3. The company's first-quarter 2007 profit rose to $563.5 million, or $1.91 per share, a 34% increase over the year-earlier period.

The increase in profit "is attributable to the continued robust prices for most of our metals and to an increase of more than 6% in copper production," said company Chairman German Lerrea in a statement released on April 26. The company increased copper production by 6.9% over first-quarter 2006, mining 378.4 million pounds during the first fiscal period. Molybdenum production rose 6.6%, while zinc production declined by 6.6% because of lower average ore grades and recovery, the company said.

But success doesn't come without challenges. Workers walked out for eight days beginning in late April after they demanded a greater share of record profits, Bloomberg news service reported. The strike was settled, but smelter union general secretary Arnaldo Oviedo told Bloomberg on May 5 negotiations will continue and that it's up to the company's "goodwill" whether the two sides make progress.

The company also continues to grapple with a tragic mining accident that left 65 Southern Copper miners dead on Feb. 19, 2006. The accident occurred in a coal mine that belongs to the company's subsidiary, Industrial Minera Mexico S.A. de C.V. in Coahuila, Mexico. A gas explosion in the mine, called Pasta de Conchos, trapped more than 70 miners. On Feb. 21, 2006, the company reported that 11 miners were found alive but confirmed several days later the deaths of other miners involved.

In its year-end financial report, the company said it was still working to recover the bodies "until the human and technical possibilities are exhausted." The company also said it is working with the families of the dead to provide them with economic support in addition to legal compensation.

Southern Copper Corp.
At A Glance

Southern Copper Corp.
Phoenix, Ariz.
Primary Industry: Primary metals
Number of Employees: 12,877
2006 In Review
Revenue: $5.46 billion
Profit Margin: 37.32%
Sales Turnover: 0.86
Inventory Turnover: 4.99
Revenue Growth: 32.77%
Return On Assets: 35.83%
Return On Equity: 61.26%

Meanwhile, the company expects smelter production at its Ilo smelter operations to reach full capacity during the second quarter. The facility went through a modernization project, which was completed Jan. 31. As of March 31, smelter production had reached 80% capacity. The company invested more than $600 million in the project to comply with Peruvian environmental laws.

The company also said in its first-quarter statement that exploration efforts will continue throughout the following fiscal period. Southern Copper is conducting a pre-feasibility study at Los Chancas, a copper-molybdenum property in southern Peru, which is expected to be completed in the second quarter. In addition, the company has contracted a consulting firm to develop a feasibility study for Tia Maria, a copper oxide deposit in Arequipa, Peru, which should be completed by the third quarter.


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