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WIKI ANALYSIS
Southern Copper Corporation (NYSE:SCCO) is one of the largest integrated producers of copper, molybdenum, zinc and silver.[1] The company operates in three segments: Peruvian operations, Mexican open-pit operations, and Mexican underground mining operations. The majority of Southern Copper's revenues come from copper sales.[2] As a metals producer, the company's earnings depend largely on the demand and price of its products. In addition, Southern Coppers operations are located in Peru and Meixco and exposed to country-specific political risks.[3]
Business Growth
Southern Copper reported net income of $1.5 billion on 2010 revenues of $5.15 billion, versus earnings of $929 million on $3.7 billion in 2009 revenues.[4] Growth can partially be attributed to growing demand from emerging market economies, particularly China. In addition, the company's exploration activities in Mexico, Peru and Chile have provided additional sources of production.[5]
Trends and Forces
Emerging economies provide growth in global demand for copper
China and other emerging markets have supported growth in the demand for and price of copper.[6] In fact, global demand for copper has outpaced global supply, which has also led to higher prices. While many other emerging markets are significant sources of demand, China is by far the largest (the country comprises 40% of global demand). As a result, Southern Coppers revenues depend on the demand for copper in China.[7]
Companies like Southern Copper are spending larges amount of capital to build production facilities capable of meeting China's copper consumption. In addition, copper prices depend heavily on demand from countries like China.[8] A significant drop off in demand from China has the potential of curtailing Southern Copper's long-term growth prospects. [9]
Southern Copper's locations expose the company to political risks
In Mexico and Peru, metal resources are owned by the state, with contracts awarded by the state to firms.[10] As a result, the company is exposed to significant political and currency risks with the the Mexican and Peruvian governments.[11] In addition, the Peruvian government has significant price controls, currency controls, and investment controls, which have the potential of restricting growth and new exploration projects. Labor unrest has the potential of halting production and hindering the company's ability to meet copper demand.[12]
Competition
Southern Copper's competes with global metals producers. Its competitors are as follows:[13]
- Freeport-McMoRan Copper & Gold (FCX)
- Rio Tinto (RIO)
- Corporacion Nacional del Cobre de Chile (private)
Notes
- ↑ Reuters: SCCO Company Profile
- ↑ Reuters: SCCO Company Profile
- ↑ Reuters: SCCO Company Profile
- ↑ Morningstar.com: Financials for SCCO
- ↑ Southerperu.com: 2010 10-k
- ↑ WSJ: Southern Copper Aims to Double Copper Output by 2015
- ↑ WSJ: Southern Copper Aims to Double Copper Output by 2015
- ↑ WSJ: Southern Copper Aims to Double Copper Output by 2015
- ↑ WSJ: Southern Copper Aims to Double Copper Output by 2015
- ↑ Metalsplace.com: Southern Copper reaffirms its production targets despite labour dispute
- ↑ Metalsplace.com: Southern Copper reaffirms its production targets despite labour dispute
- ↑ Metalsplace.com: Southern Copper reaffirms its production targets despite labour dispute
- ↑ Yahoo! Finance: Competitors for SCCO
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