Southern Copper (NYSE: SCCO) will start building its US$1.4-billion Tia Maria copper mine in Peru before the end of 2014, after having secured approval of the project’s environmental-impact assessment in early August. Production is expected in 2017.
Once built, Tia Maria is forecast to produce 120,000 tonnes copper cathode a year over a 20-year mine life.
Aleksandra Bukacheva, who covers the company for BMO Capital Markets, writes in a research note that the approval confirms her view that “the permitting environment in Peru has been improving.”
The analyst notes that the mine “represents 20% of [Southern Copper’s] proposed production growth, from 650,000 tonnes per year of copper to 1.2 million tonnes per year by 2017.”
Bukacheva comments that Tia Maria “is the highest-risk growth project in Southern Copper’s pipeline, as it is their only greenfield initiative, while 80% of the company’s growth is from expansions of brownfield operations.”
According to Anthony Rizzuto of Cowen and Co. in New York, Southern Copper has already invested US$345 million of the US$1.4-billion project costs, and management expects that cash costs will come in below US$1 per lb. due to the fact that Tia Maria would be a copper-oxide leaching operation. Rizzuto said he expects that Tia Maria “will help the company lower its unit costs in 2017, as the facility is expected to come online in late 2016 or early 2017.”
Southern Copper describes itself as one of the largest integrated copper producers in the world, with the largest copper reserves in the industry. Grupo Mexico owns 82.6%, with the remaining 17.4% held by the international investment community. The company operates mining units and metallurgical facilities in Mexico and Peru, and is undertaking exploration there as well as in Argentina, Chile and Ecuador.
Net income in the second quarter reached US$337.3 million, up 4.3% from the first quarter’s US$323.4 million.
Copper mine production increased by 2,183 tons (1,980 tonnes), or 1.3%, from the first quarter, mostly due to initial production at the Buenavista SX-EW III plant, higher recoveries at its La Caridad mine, and higher grades and recoveries at Toquepala.
Molybdenum production also rose by 4.6% in the second quarter over the first quarter, mainly due to production at its Buenavista molybdenum plant.
Operating cash costs per pound of copper before by-product credits came in at US$1.98, while cash costs per pound of copper net of by-product credits was US92¢ — a 10% decrease from US$1.02 per lb. in the first quarter — mainly due to higher molybdenum sales and prices.
At press time Southern Copper traded at US$32.13 per share within a 52-week range of US$24.50 to US$33.90. The company has a US$26.7-billion market capitalization. Bukacheva has a US$40 target price on the stock.
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