Southern Copper Corp: Paying a Price for Falling Demand

April 16, 2009
Metals prices begin to stabilize after yearlong freefall

Rebounding copper prices should provide some stability for Southern Copper Corp. after fourth-quarter profit dropped by nearly 37% from the year-earlier period.

The IW 50 Best Manufacturer for 2008 was dealt a major hit during the quarter when the average corporate commodity price per pound was $1.77, a 46% drop from the $3.26 per pound average during the same quarter in 2007 and 49% lower than the third quarter of 2008, said Genaro Guerrero, Southern Copper's chief financial officer, in a Feb. 3 earnings call.

But the price of copper futures for May hit $2.13 per pound, a level not reached since October 2008, according to MarketWatch.

Southern Copper Corp.
At A Glance

Southern Copper Corp.
Phoenix, Ariz.
Primary Industry: Primary Metals
Number of Employees: 12,877
2007 In Review
Revenue: $6.1 billion
Profit Margin: 36.42%
Sales Turnover: 0.93
Inventory Turnover: 4.92
Revenue Growth: 11.46%
Return On Assets: 34.76%
Return On Equity: 60.45%
When the Phoenix-based company announced its earnings in February, Guerrero said he expected demand would rebound after China and other major consumers finish their destocking process.

"The demand recovery will certainly depend on how fast the global economy turns around again to growth," Guerrero said.

The company posted a loss of $124.7 million, or 14 cents per share, compared with net income of $310.9 million during the same period in 2007. Net sales in the fourth quarter reached $449.7 million compared with $1.3 billion during the year-ago period. For the year, net sales totaled $4.9 billion, down from $6.1 billion in 2007. Net earnings in 2008 totaled $1.4 billion, or $1.60 a share, compared with $2.2 billion, or $2.51 per share in 2007.

Meanwhile, Southern Copper is caught in the middle of a battle between its parent company Grupo Mexico SAB and its rival Vedanta Resources PLC. Grupo Mexico has offered $1.3 billion to take its subsidiary Ascarco LLC out of Chapter 11 bankruptcy proceedings in an effort to block Vedanta's bid to acquire Ascarco, according to an April 14 Wall Street Journal report.

The move came less than two weeks after a federal court in Brownsville, Texas, ordered a unit of Grupo Mexico to return to Asarco 30% of the shares of Southern Copper.

"The order stemmed from a ruling last year that Grupo Mexico defrauded Asarco creditors when it transferred Asarco's stake in the then-named Southern Peru Copper Co. to one of its own subsidiaries in 2004," the Journal reported.

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