Table
of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the
quarterly period ended: September 30, 2009
or
o
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the
transition period from to
Commission
File Number: 1-14066
SOUTHERN
COPPER CORPORATION
(Exact name of
registrant as specified in its charter)
Delaware
|
|
13-3849074
|
(State or other jurisdiction of incorporation or
organization)
|
|
(I.R.S. Employer Identification No.)
|
|
|
|
11811
North Tatum Blvd. Suite 2500 Phoenix, AZ
|
|
85028
|
(Address of
principal executive offices)
|
|
(Zip Code)
|
Registrants
telephone number, including area code:
(602) 494-5328
Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for
the past
90 days.
x
Yes
o
No
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Website, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Yes
x
No
o
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2
of the Exchange Act.
Large
accelerated filer
x
|
|
Accelerated
filer
o
|
|
|
|
Non-accelerated
filer
o
|
|
Smaller
reporting company
o
|
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes
o
No
x
As of October 31,
2009 there were outstanding 850,000,000 shares of Southern Copper Corporation
common stock, par value $0.01 per share.
Table of Contents
Southern Copper Corporation (SCC)
INDEX TO FORM 10-Q
|
|
|
Page No.
|
Part I. Financial Information:
|
|
|
|
|
|
|
Item. 1
|
Condensed Consolidated
Financial Statements (unaudited)
|
|
|
|
|
|
|
|
Condensed
Consolidated Statement of Earnings for the three and nine months ended
September 30, 2009 and 2008
|
|
3
|
|
|
|
|
|
Condensed
Consolidated Balance Sheet September 30, 2009 and December 31, 2008
|
|
4
|
|
|
|
|
|
Condensed
Consolidated Statement of Cash Flows for the three and nine months ended
September 30, 2009 and 2008
|
|
5
|
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
|
6-32
|
|
|
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of Operations
|
|
33-49
|
|
|
|
|
Item 3.
|
Quantitative
and Qualitative Disclosure about Market Risk
|
|
50-52
|
|
|
|
|
Item 4.
|
Controls and
Procedures
|
|
53
|
|
|
|
|
Report of Independent Registered Public Accounting
Firm
|
|
54
|
|
|
|
|
Part II.
Other Information:
|
|
|
|
|
|
|
Item 1.
|
Legal Proceedings
|
|
55
|
|
|
|
|
Item 1A.
|
Risk factors
|
|
55-57
|
|
|
|
|
Item 2.
|
Market for
Registrants Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
|
|
58
|
|
|
|
|
Item 6.
|
Exhibits
|
|
59
|
|
|
|
|
|
Signatures
|
|
60
|
|
|
|
|
|
List of
Exhibits
|
|
61
|
|
|
|
|
Exhibit 15
|
Independent
Accountants Awareness Letter
|
|
|
|
|
|
|
Exhibit 31.1
|
Certification Pursuant
to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
Exhibit 31.2
|
Certification Pursuant
to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
Exhibit 32.1
|
Certification Pursuant
to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
Exhibit 32.2
|
Certification Pursuant
to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
Exhibit 101
|
Financial statements
for the quarter ended September 30, 2009 Formatted in XBRL: (i) the
Condensed Consolidated Statement of Earnings, (ii) the Condensed
Consolidated Balance Sheet, (iii) the Condensed Consolidated Statement
of Cash Flows, and (iv) the Notes to Condensed Consolidated Financial
Statements, tagged as blocks of text.
|
|
Submitted
electronically with this report
|
2
Table of Contents
Part I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Southern Copper Corporation
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
|
|
3 Months Ended
|
|
9 Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
(in thousands, except per share amounts)
|
|
Net
sales
|
|
$
|
1,151,769
|
|
$
|
1,440,077
|
|
$
|
2,598,276
|
|
$
|
4,401,079
|
|
|
|
|
|
|
|
|
|
|
|
Operating
costs and expenses:
|
|
|
|
|
|
|
|
|
|
Cost
of sales (exclusive of depreciation, amortization and depletion shown
separately below)
|
|
529,893
|
|
645,798
|
|
1,324,824
|
|
1,716,845
|
|
Selling,
general and administrative
|
|
23,804
|
|
25,937
|
|
60,697
|
|
77,318
|
|
Depreciation,
amortization and depletion
|
|
82,266
|
|
83,944
|
|
239,202
|
|
248,339
|
|
Exploration
|
|
7,075
|
|
8,452
|
|
17,498
|
|
25,504
|
|
Total
operating costs and expenses
|
|
643,038
|
|
764,131
|
|
1,642,221
|
|
2,068,006
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
508,731
|
|
675,946
|
|
956,055
|
|
2,333,073
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
(25,126
|
)
|
(25,610
|
)
|
(74,402
|
)
|
(80,275
|
)
|
Capitalized
interest
|
|
(3,287
|
)
|
2,305
|
|
2,156
|
|
4,834
|
|
Gain(loss)
on derivative instruments
|
|
(37
|
)
|
(13,621
|
)
|
4,144
|
|
(12,700
|
)
|
Other
income (expense)
|
|
760
|
|
21,274
|
|
2,628
|
|
19,689
|
|
Interest
income
|
|
845
|
|
9,764
|
|
6,018
|
|
39,360
|
|
Income
before income taxes
|
|
481,886
|
|
670,058
|
|
896,599
|
|
2,303,981
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
167,661
|
|
249,700
|
|
327,099
|
|
764,614
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
314,225
|
|
420,358
|
|
569,500
|
|
1,539,367
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Net income attributable to the non-controlling interest
|
|
1,774
|
|
2,556
|
|
3,389
|
|
8,115
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to SCC
|
|
$
|
312,451
|
|
$
|
417,802
|
|
$
|
566,111
|
|
$
|
1,531,252
|
|
|
|
|
|
|
|
|
|
|
|
Per
common share amounts:
|
|
|
|
|
|
|
|
|
|
Net
income attributable to SCC - basic and diluted
|
|
$
|
0.37
|
|
$
|
0.47
|
|
$
|
0.67
|
|
$
|
1.73
|
|
Dividends
paid to SCC common shareholders
|
|
$
|
0.10
|
|
$
|
0.57
|
|
$
|
0.26
|
|
$
|
1.61
|
|
Weighted
average common shares outstanding - basic and diluted
|
|
850,009
|
|
882,696
|
|
850,929
|
|
883,165
|
|
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
Table of Contents
Southern Copper Corporation
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
|
|
September 30,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(in thousands)
|
|
ASSETS
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
413,280
|
|
$
|
716,740
|
|
Short-term
investments
|
|
25,956
|
|
62,376
|
|
Accounts
receivable trade, less allowance for doubtful accounts (2009 - $4,611; 2008 -
$4,811)
|
|
449,373
|
|
104,149
|
|
Accounts
receivable other (including affiliates 2009 - $2,978; 2008 - $1,925)
|
|
17,315
|
|
29,439
|
|
Inventories
|
|
417,657
|
|
451,597
|
|
Deferred
income tax
|
|
14,650
|
|
64,711
|
|
Other
current assets
|
|
64,791
|
|
124,681
|
|
Total
current assets
|
|
1,403,022
|
|
1,553,693
|
|
|
|
|
|
|
|
Property,
net
|
|
3,942,922
|
|
3,810,508
|
|
Leachable
material, net
|
|
119,520
|
|
156,294
|
|
Intangible
assets, net
|
|
114,335
|
|
115,059
|
|
Deferred
income tax
|
|
45,060
|
|
83,106
|
|
Other
assets
|
|
51,661
|
|
45,664
|
|
Total
assets
|
|
$
|
5,676,520
|
|
$
|
5,764,324
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$
|
10,000
|
|
$
|
10,000
|
|
Accounts
payable
|
|
231,407
|
|
413,351
|
|
Accrued
income taxes
|
|
17,904
|
|
34,378
|
|
Due
to affiliated companies
|
|
5,079
|
|
8,965
|
|
Accrued
workers participation
|
|
93,427
|
|
205,466
|
|
Interest
|
|
18,983
|
|
40,968
|
|
Other
accrued liabilities
|
|
35,307
|
|
24,335
|
|
Total
current liabilities
|
|
412,107
|
|
737,463
|
|
|
|
|
|
|
|
Long-term
debt
|
|
1,275,182
|
|
1,279,972
|
|
Deferred
income taxes
|
|
120,766
|
|
169,342
|
|
Non-current
taxes payable
|
|
73,171
|
|
70,266
|
|
Other
liabilities and reserves
|
|
89,161
|
|
93,875
|
|
Asset
retirement obligation
|
|
34,489
|
|
18,007
|
|
Total
non-current liabilities
|
|
1,592,769
|
|
1,631,462
|
|
|
|
|
|
|
|
Commitments
and Contingencies (Note L)
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS
EQUITY
|
|
|
|
|
|
Common
stock
|
|
8,846
|
|
8,846
|
|
Additional
paid-in capital
|
|
1,007,844
|
|
993,826
|
|
Retained
earnings
|
|
3,258,501
|
|
2,916,517
|
|
Accumulated
other comprehensive loss
|
|
(23,142
|
)
|
(23,477
|
)
|
Treasury
stock
|
|
(597,233
|
)
|
(514,453
|
)
|
Total
SCC stockholders equity
|
|
3,654,816
|
|
3,381,259
|
|
Non-controlling
interest
|
|
16,828
|
|
14,140
|
|
Total
equity
|
|
3,671,644
|
|
3,395,399
|
|
|
|
|
|
|
|
Total
liabilities and equity
|
|
$
|
5,676,520
|
|
$
|
5,764,324
|
|
The accompanying
notes are an integral part of these condensed consolidated financial statements
.
4
Table
of Contents
Southern Copper Corporation
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
|
|
3 Months Ended
|
|
9 Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
(in thousands)
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to SCC
|
|
$
|
312,451
|
|
$
|
417,802
|
|
$
|
566,111
|
|
$
|
1,531,252
|
|
Adjustments
to reconcile net earnings to net cash provided from operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation,
amortization and depletion
|
|
82,266
|
|
83,944
|
|
239,202
|
|
248,339
|
|
Capitalized
leachable material
|
|
|
|
|
|
|
|
(2,246
|
)
|
(Gain)
loss on currency translation effect
|
|
(3,786
|
)
|
(15,533
|
)
|
9,599
|
|
6,498
|
|
Provision
(benefit) for deferred income taxes
|
|
(13,274
|
)
|
4,440
|
|
40,116
|
|
(10,290
|
)
|
Gain
on sale of property
|
|
|
|
(26,330
|
)
|
|
|
(28,573
|
)
|
(Gain)
loss on sale of short-term investment
|
|
(881
|
)
|
2,661
|
|
(3,200
|
)
|
4,596
|
|
Unrealized (gain) loss on derivative instruments
|
|
(8,319
|
)
|
(20,543
|
)
|
(57,037
|
)
|
(18,444
|
)
|
Non-controlling
interest
|
|
1,774
|
|
2,556
|
|
3,389
|
|
8,115
|
|
|
|
|
|
|
|
|
|
|
|
Cash
provided from (used for) operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
(103,312
|
)
|
109,372
|
|
(302,840
|
)
|
23,617
|
|
Inventories
|
|
38,872
|
|
(943
|
)
|
33,940
|
|
(44,238
|
)
|
Accounts
payable and accrued liabilities
|
|
(9,281
|
)
|
28,057
|
|
(360,446
|
)
|
(172,697
|
)
|
Other
operating assets and liabilities
|
|
84,113
|
|
114,857
|
|
127,895
|
|
66,563
|
|
Net
cash provided from operating activities
|
|
380,623
|
|
700,340
|
|
296,729
|
|
1,612,492
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
(110,559
|
)
|
(137,627
|
)
|
(316,740
|
)
|
(320,573
|
)
|
Net
proceeds from sale of short-term investments
|
|
8,815
|
|
11,816
|
|
39,620
|
|
30,295
|
|
Sale
of property
|
|
858
|
|
55,447
|
|
2,798
|
|
59,727
|
|
Other
|
|
|
|
1,101
|
|
|
|
1,101
|
|
Net
cash used for investing activities
|
|
(100,886
|
)
|
(69,263
|
)
|
(274,322
|
)
|
(229,450
|
)
|
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Debt
repaid
|
|
|
|
|
|
(5,000
|
)
|
(155,025
|
)
|
Dividends
paid to common stockholders
|
|
(86,322
|
)
|
(503,543
|
)
|
(224,128
|
)
|
(1,416,437
|
)
|
Distributions
to non-controlling interest
|
|
(381
|
)
|
(2,387
|
)
|
(570
|
)
|
(9,123
|
)
|
Repurchase
of common shares
|
|
(337
|
)
|
(68,471
|
)
|
(71,903
|
)
|
(68,471
|
)
|
Other
|
|
351
|
|
61
|
|
990
|
|
855
|
|
Net
cash used for financing activities
|
|
(86,689
|
)
|
(574,340
|
)
|
(300,611
|
)
|
(1,648,201
|
)
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
(15,308
|
)
|
(31,348
|
)
|
(25,256
|
)
|
31,535
|
|
Increase
(decrease) in cash and cash
equivalents
|
|
177,740
|
|
25,389
|
|
(303,460
|
)
|
(233,624
|
)
|
Cash
and cash equivalents, at beginning of period
|
|
235,540
|
|
1,150,259
|
|
716,740
|
|
1,409,272
|
|
Cash
and cash equivalents, at end of period
|
|
$
|
413,280
|
|
$
|
1,175,648
|
|
$
|
413,280
|
|
$
|
1,175,648
|
|
The accompanying notes
are an integral part of these condensed consolidated financial statements.
5
Table
of Contents
Southern Copper Corporation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A.
In
the opinion of Southern Copper Corporation, (the Company, Southern Copper
or SCC), the accompanying unaudited condensed consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to state fairly the Companys financial position as of September 30,
2009 and the results of operations and cash flows for the three and nine months
ended September 30, 2009 and 2008.
The condensed consolidated financial statements for the three and nine
months ended September 30, 2009 have been subject to a review by Galaz,
Yamazaki, Ruiz Urquiza S.C., a member firm of Deloitte Touche Tohmatsu, the
Companys independent registered public accounting firm, whose report dated October 30,
2009, is presented on page 54. The
results of operations for the three and nine months ended September 30,
2009 and 2008 are not necessarily indicative of the results to be expected for
the full year. The December 31,
2008 balance sheet data was derived from audited financial statements, but does
not include all disclosures required by generally accepted accounting
principles in the United States of America.
The accompanying condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements at December 31,
2008 and notes included in the Companys 2008 annual report on Form 10-K.
B.
Adoption of
New Accounting Standards:
On June 30, 2009,
the Financial Accounting Standards
Board (FASB) issued Accounting Standard Update No. 2009-01 (ASU No. 2009-01)
to amend topic Accounting Standard Codification 105 (ASC-105) Generally Accepted Accounting Principles an amendment based
on Statement of Financial Accounting Standard No. 168 the FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles. This amendment establishes
the FASB Accounting Standards Codification (Codification) as the
source of authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of financial statements
in conformity with GAAP. Rules and
interpretive releases of the Securities and Exchange Commission (SEC) under
authority of federal securities laws are also sources of authoritative GAAP for
SEC registrants. The Codification is
effective for interim and annual periods ending on or after September 15,
2009. Therefore, the Company is applying
the Codification to its third-quarter interim financial statements.
Starting with this ASU,
the FASB only will issue ASUs which will not be considered as authoritative in their
own right and will serve only to update the Codification.
Prior authoritative literature:
As of June 30, 2009 the Company adopted the following
pronouncements of the
FASB which are now part of the Codification:
In May 2009, the FASB
issued topic ASC 855 Subsequent Events (prior authoritative literature FAS
165 Subsequent Events) to
establish general standards of accounting for and disclosures of events
that occur after the balance sheet date but before financial statements are
issued or are available to be issued. In
particular, this topic sets forth: the period after the balance sheet date
during which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements; the circumstances under which an entity should recognize
events or transactions occurring after the balance sheet date in its financial
statements and the disclosures that an entity should make about events or
transactions that occurred after the balance sheet date.
6
Table of Contents
This topic introduces the concept of financial
statements being available to be issued.
It requires the disclosure of the date through which an entity has
evaluated subsequent events and the basis for that date, that is, whether that
date represents the date the financial statements were issued or were available
to be issued. This topic is effective for interim or annual reporting periods ending
after June 15, 2009 and therefore became effective for the Company as of June 30,
2009. Please see disclosures required in Note Q, Subsequent events.
In
April 2009, the FASB issued ASC 825-10-50 Disclosure about Fair Value of
Financial Instruments (formerly FASB issued Staff Position (FSP) FAS 107-1)
to require disclosures about fair value of financial instruments for interim
reporting periods of publicly traded companies as well as in annual financial
statements. This ASC also amends ASC 270
Interim Financial Reporting (formerly APB Opinion No. 28), to require
those disclosures in summarized financial information at interim reporting
periods. This ASC applies to all
financial instruments within the scope of ASC 825-10-15 and requires disclosing
in the body or in the accompanying notes, the fair value of all financial
instruments for which it is practicable to estimate that value, whether
recognized or not recognized in the statement of financial position. Fair value information disclosed shall be
presented together with the related carrying amount in a form that makes clear
whether the fair value and carrying amount represents assets or liabilities and
how the carrying amount is reported in the statement of financial
position. Also the entity shall disclose
the methods and significant assumptions used to estimate the fair value of
financial instruments and shall describe their changes, if any, in the period. This ASC is effective for interim reporting
periods ending after June 15, 2009 and therefore became effective for the
Company as of June 30, 2009. Please
see disclosures required in Note P, Financial instruments.
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2
Recognition and Presentation of Other-than-temporary Impairments and FSP FAS
157-4 Determining Fair Value when the Volume and Level of Activity for the
Asset or Liability have Significantly Decreased and Identifying Transactions
that are not Orderly. These FASB Staff
positions are effective for interim reporting periods ending after June 15,
2009 and therefore became effective for the Company as of June 30, 2009
and do not have a material impact on its financial position or results of
operations.
On January 1, 2009 the Company adopted the following
pronouncements of the FASB which are now part of the Codification:
On March 19, 2008 the FASB issued ASC 815-10-50 Disclosures about
Derivative Instruments and Hedging Activities (formerly FAS No. 161). This ASC improves financial reporting about
derivative instruments and hedging activities by requiring enhanced disclosures
to enable investors to better understand their effects on an entitys financial
position, financial performance, and cash flows. The adoption of this statement has not had a
material effect on the Companys financial position and results of operations.
See disclosures required in Note G, Derivative instruments.
In December 2007, the FASB published ASC 805 Business
Combinations (former SFAS No. 141-R).
This statement improves the reporting of information about a business
combination and its effects. This
statement establishes principles and requirements for how the acquirer will
recognize and measure the identifiable assets acquired, the liabilities
assumed, and any non-controlling interest in the acquisition. Also, the statement determines the
recognition and measurement of goodwill acquired in the business combination or
a gain from a bargain purchase, and finally, determines the disclosure requirements
to enable users of the financial statements to evaluate the nature and
financial effects of the business combination.
The Company has adopted this pronouncement on January 1, 2009 and
will apply its requirements to future business combinations.
7
Table of Contents
C.
Short-term
Investments:
Short-term
investments were as follows (in millions):
|
|
At
|
|
Investments
|
|
September 30,2009
|
|
December 31, 2008
|
|
Short-term investments in securities issued by
public companies with a weighted average interest rate of 0.66% at
September 30, 2009 and 1.85% at December 31, 2008
|
|
$
|
26.0
|
|
$
|
62.4
|
|
|
|
|
|
|
|
|
|
Short-term
investments in securities consist of available for sale securities issued by
public companies. Each security is
independent of the others.
Related
to these investments for the three and nine months ended September 30,
2009 the Company earned interest of $0.1 million and $0.7 million,
respectively, compared with $0.8 million and $3.4 million in the same periods
of 2008, which were recorded as interest income in the condensed consolidated
statement of earnings. In addition, for
the three and nine months ended September 30, 2009, the Company redeemed
$8.8 million and $39.6 million, respectively, of these investments, compared
with $11.8 million and $30.3 million in the same periods of 2008.
For
the three and nine months ended September 30, 2009 the Company recorded
gains of $0.9 million and $3.2 million, respectively, compared with losses of
$2.7 million and $4.6 million in the same periods of 2008. These gains/losses were recorded as other
income (expense) in the condensed consolidated statement of earnings.
D.
Inventories were as follows:
(in millions)
|
|
September 30,
2009
|
|
December 31,
2008
|
|
Metals at lower of average cost or market:
|
|
|
|
|
|
Finished goods
|
|
$
|
40.3
|
|
$
|
46.7
|
|
Work-in-process
|
|
128.9
|
|
135.8
|
|
Supplies at average cost
|
|
248.4
|
|
269.1
|
|
Total inventories
|
|
$
|
417.6
|
|
$
|
451.6
|
|
E.
Income taxes:
The income tax provision
for the nine months ended September 30, 2009 and 2008 were $327.1 million
and $764.6 million, respectively. These
provisions include income taxes for Peru, Mexico and the United States. The provision for income taxes was based on
our effective tax rate of 36.5% for the nine months of 2009 as compared to
33.2% during the same period in 2008.
The increase in the effective tax rate for the nine months ended September 30,
2009 is largely due to the incremental U.S. tax provided on dividend
distributions made by our Mexican subsidiary to the U.S. parent. This dividend distribution is taxable in the
U.S. at the difference between the 35% U.S. statutory rate and the foreign tax
credit rate of 28.0%.
As of March 27,
2009, Grupo Mexico, through its wholly-owned subsidiary, Americas Mining
Corporation (AMC), became the beneficial owner of 80% of SCCs common
stock. As a result of this new level of
ownership, beginning March 27, 2009 SCC will no longer file a separate
U.S. federal income tax return and its operating results will be included in
the AMC consolidated U.S. federal income tax return. In addition to now holding an 80% interest in
SCC, AMC also owns 100% of ASARCO LLC (Asarco) and its subsidiaries. In accordance with paragraph 30-27 of ASC
740-10-30, it is expected that current and deferred taxes will be allocated to
members of the AMC group as if each were a separate taxpayer. The Company has initiated
8
Table of Contents
discussions with AMC to
put in place a tax sharing agreement in order to establish this allocation as
well as other procedures and policies necessary for an equitable management of
U.S. federal income tax matters. SCC
provides current and deferred income taxes, as if it were a separate filer.
Accounting for
Uncertainty in Income Taxes
There was no material
changes in the unrecognized tax benefits in the nine months ended September 30,
2009. In the United States, all tax
years through 2004 are closed and generally are not subject to change. The tax years 2005, 2006 and 2007 are
currently under IRS field examination, which commenced in November 2008. Management does not expect that any of the
open years will result in a cash payment within the preceding twelve months of September 30,
2010. The Companys reasonable
expectations about future resolutions of uncertain items did not materially
change during the nine month period ended September 30, 2009.
F.
Provisionally Priced Sales:
At September 30,
2009, the Company has recorded provisionally priced sales of 22.6 million
pounds of copper, at an average forward price of $2.80 per pound. Also the Company has recorded provisionally
priced sales of 11.6 million pounds of molybdenum at the September 30,
2009 market price of $13.55 per pound.
These sales are subject
to final pricing based on the average monthly LME or COMEX copper prices and
Dealer Oxide molybdenum prices in the future month of settlement.
Following are the
provisionally priced copper and molybdenum sales outstanding at September 30,
2009:
Copper
(million lbs.)
|
|
Priced at
|
|
Month of
Settlement
|
|
22.6
|
|
2.80
|
|
October 2009
|
|
Molybdenum
(million lbs.)
|
|
Priced at
|
|
Month of
Settlement
|
|
3.1
|
|
13.55
|
|
October 2009
|
|
2.9
|
|
13.55
|
|
November 2009
|
|
3.3
|
|
13.55
|
|
December 2009
|
|
2.3
|
|
13.55
|
|
January 2010
|
|
11.6
|
|
13.55
|
|
|
|
Management believes that
the final pricing of these sales will not have a material effect on the
Companys financial position or results of operations.
G.
Derivative Instruments
The Company occasionally
uses derivative instruments to manage its exposure to market risk from changes
in commodity prices, interest rate and exchange rate risk exposures and to
enhance return on assets. The Company
does not enter into derivative contracts unless it anticipates a future
activity that is likely to occur that will result in exposing the Company to
market risk.
Copper
derivatives:
From
time to time the Company has entered into derivative contracts to protect a
fixed copper or zinc price for a portion of its metal sales.
The
Company did not hold any copper or zinc derivative contracts in the nine months
9
Table of Contents
ended
September 30, 2009.
In
the nine months ended September 30, 2008, the Company entered into copper
collar and swap contracts to protect a portion of its 2008 sales of copper
production. As a result, the Company recorded
a gain of $18.5 million and $29.2 million in the third quarter and nine months
of 2008, respectively. Related to the
fair value of these copper derivative contracts the Company recorded an
unrealized gain of $33.7 million at the end of September 2008. These gains and losses were recorded in net
sales in the condensed consolidated statement of earnings.
Gas swaps:
In 2009 and 2008 the
Company entered into gas swap contracts to protect part of its gas consumptions
as follows:
|
|
Three months ended
|
|
Nine months ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Gas
volume (MMBTUs)
|
|
122,000
|
|
305,000
|
|
122,000
|
|
305,000
|
|
Fixed
price (per MMBTU)
|
|
$
|
3.6350
|
|
$
|
8.2175
|
|
$
|
3.6350
|
|
$
|
8.2175
|
|
Gain
(loss) (in millions)
|
|
$
|
0.1
|
|
$
|
(0.7
|
)
|
$
|
0.1
|
|
$
|
(0.7
|
)
|
The gains (losses)
obtained were charged to production cost. As of September 30, 2009 the
Company held a gas swap contract to protect 184,000 MMBTUs of its gas
consumption with a fixed price of $3.6350 per MMBTU for the fourth quarter of
2009. Related to the settlement of this
gas swap contract the Company recorded an unrealized gain of $0.2 million in
the third quarter of 2009 which was included in the $0.1 million gain reported
in the table above.
Exchange rate
derivatives, U.S. dollar/Mexican peso contracts:
Because more than 85% of
the Companys sales collections in Mexico are in U.S. dollars and many of its
costs are in Mexican pesos, the Company entered into zero-cost derivative
contracts with the purpose of protecting, within a range, against an
appreciation of the Mexican peso to the U.S. dollar.
Related to the exchange
rate derivative contracts the Company recorded a loss of less than $0.1 million
and a gain of $4.1 million for the three and nine months ended September 30,
2009, compared with losses of $13.6 million and $12.7 million, respectively, in
the same periods of 2008. These gains
and losses were recorded as gain (loss) on derivative instruments in the
condensed consolidated statements of earnings.
At September 30,
2009 the Company did not hold any exchange rate derivative contracts.
H.
Asset Retirement Obligation:
The Company
maintains an estimated asset retirement obligation for its mining properties in
Peru, as required by the Peruvian Mine Closure Law. In accordance with the requirements of this
law the Company has prepared and submitted the closure plans to the Peruvian
Ministry of Energy and Mines (MEM).
These plans have been reviewed by the responsible governmental agency
and have been open to public discussion in the areas of the Companys
operations. The closure plan for the
Cuajone facility was approved by MEM in the third quarter of 2009 and the
closure plan for Ilo facility was approved in October 2009, it is
anticipated that the closure plan for the Toquepala facility will be approved
in the fourth quarter. As part of the
closure plan, commencing in January 2010 the Company will be required to
make annual installments over a 34 year period of guarantees sufficient to
provide the funds for the asset
10
Table of Contents
retirement
obligation. In the near term future the
Company plans to use the value of its Lima office complex as support for this
obligation. The Company has adjusted its
original retirement obligation for the Cuajone facility to record the liability
established in the new agreement and will adjust its retirement obligation for
Toquepala in the fourth quarter of 2009 (no adjustment is necessary for
Ilo). The Company does not believe that
such adjustment will have a material effect on its financial results.
The closure cost
recognized for this liability includes the agreed upon cost for Cuajone and the
estimated cost for the Toquepala and Ilo operations, the tailings disposal, and
dismantling the Toquepala and Cuajone concentrators, and the shops and
auxiliary facilities.
As of September 30,
2009, the Company has made an estimated provision of $34.5 million for this
liability in its financial statements, but expects to adjust this estimate in
the fourth quarter of 2009 when closure plans for Toquepala and Ilo are
finalized.
The following
table summarizes the asset retirement obligation activity for the nine months
ended September 30, 2009 and 2008 (in millions):
|
|
2009
|
|
2008
|
|
Balance
as of January 1
|
|
$
|
18.0
|
|
$
|
13.1
|
|
Changes
in estimates
|
|
15.9
|
|
0.7
|
|
Additions
|
|
|
|
|
|
Accretion
expense
|
|
0.6
|
|
0.7
|
|
Balance
as of September 30,
|
|
$
|
34.5
|
|
$
|
14.5
|
|
I.
Related Party Transactions:
Receivable and
payable balances with affiliated companies are shown below (in millions):
|
|
September 30,2009
|
|
December 31
,2008
|
|
Affiliate
receivable:
|
|
|
|
|
|
Grupo
Mexico S.A.B de C.V. and affiliates
|
|
$
|
0.8
|
|
$
|
0.8
|
|
Ferrocarril Mexicano S.A. de C.V.
|
|
0.8
|
|
0.3
|
|
Mexico
Proyectos y Desarrollos S.A. de C.V. and affiliates
|
|
1.4
|
|
0.8
|
|
|
|
$
|
3.0
|
|
$
|
1.9
|
|
Affiliate
payable:
|
|
|
|
|
|
Grupo
Mexico S.A.B. de C.V. and affiliates
|
|
$
|
5.1
|
|
$
|
9.0
|
|
|
|
$
|
5.1
|
|
$
|
9.0
|
|
The Company has entered
into certain transactions in the ordinary course of business with parties that
are controlling shareholders or their affiliates. These transactions include the lease of
office space, air transportation and construction services and products and services
relating to mining and refining. The
Company lends and borrows funds among affiliates for acquisitions and other
corporate purposes. These financial
transactions bear interest and are subject to review and approval by senior
management, as are all related party transactions. It is the Companys policy that the Audit
Committee of the Board of Directors shall review all related party
transactions. The Company is prohibited
from entering or continuing a material related party transaction that has not
been reviewed and approved or ratified by the Audit Committee.
Grupo Mexico, the
Companys ultimate parent and the majority indirect stockholder of the Company,
and its affiliates provide various services to the Company. These services are principally related to
accounting, legal, tax, financial, treasury, human resources, price risk
assessment and hedging, purchasing, procurement and
11
Table of Contents
logistics, sales and
administrative and other support services.
The Company pays Grupo Mexico Servicios S.A de C.V., a subsidiary of
Grupo Mexico for these services. The
total amount paid by the Company for such services in the nine months of 2009
and 2008 was $10.3 million and $9.6 million, respectively. The Company expects to continue to pay for
these services in the future.
The Companys Mexican
operations paid fees of $8.4 million and $7.9 million in the nine months of
2009 and 2008, respectively, for freight services provided by Ferrocarril
Mexicano S.A de C.V and $12.1 million and $16.0 million in the nine months of
2009 and 2008, respectively, for construction services provided by Mexico
Constructora Industrial; both companies are subsidiaries of Grupo Mexico.
The Larrea family
controls a majority of the capital stock of Grupo Mexico, and has extensive
interests in other businesses, including oil drilling services, construction,
aviation, and real estate. The Company
engages in certain transactions in the ordinary course of business with other
entities controlled by the Larrea family relating to mining and refining
services, the lease of office space, sale of vehicles and air transportation
and construction services. In connection
with this, the Company paid fees of $0.2 million and $1.7 million in the nine
months of 2009 and 2008, respectively, for maintenance services and sale of
vehicles provided by Mexico Compañia de Productos Automotrices, S.A. de C.V., a
company controlled by the Larrea family.
Additionally, in 2007, our Mexican subsidiaries have provided guaranties
for loans totaling $10.8 million obtained by Mexico Transportes Aereos, S.A. de
C.V. (MexTransport), a company controlled by the Larrea family. These loans
mature in 2010 ($2.3 million) and 2013 ($8.4 million). MexTransport provides aviation services to
our Mexican operations. The guaranty
provided to MexTransport is backed up by the transport services provided by
MexTransport to the Companys Mexican subsidiaries. The Company paid fees of $1.6 million and
$2.2 million in the nine months of 2009 and 2008, respectively, to MexTransport
for aviation services.
The Company purchased
$4.0 million and $3.4 million in the nine months of 2009 and 2008,
respectively, of industrial materials from Higher Technology S.A.C in which Mr. Carlos
Gonzalez has a proprietary interest. The
Company paid fees of $0.2 million and $0.6 million in the nine months of 2009
and 2008, respectively, for maintenance services provided by Servicios y
Fabricaciones Mecanicas S.A.C., a company in which Mr. Carlos Gonzalez has
a proprietary interest. Mr. Carlos Gonzalez is the son of SCCs Chief
Executive Officer.
The Company purchased
$0.6 million and $0.7 million in the nine months of 2009 and 2008,
respectively, of industrial material from Sempertrans France Belting
Technology, in which Mr. Alejandro Gonzalez is employed as a sales
representative. Also, the Company
purchased $0.1 million and $0.5 million in the nine months of 2009 and 2008,
respectively, of industrial material from PIGOBA, S.A. de C.V., a company in
which Mr. Alejandro Gonzalez has a proprietary interest. Mr. Alejandro
Gonzalez is the son of SCCs Chief Executive Officer.
The Company purchased
$0.8 million and $1.7 million in the nine months of 2009 and 2008,
respectively, of industrial material and services from Breaker, S.A. de C.V., a
company in which Mr. Jorge Gonzalez, son-in-law of SCCs Chief Executive
Officer, has a proprietary interest.
It is anticipated
that in the future the Company will enter into similar transactions with the
same parties.
12
Table of Contents
J.
Benefit Plans:
SCC Defined
Benefit Pension Plans-
The components of
the net periodic benefit costs for the nine months ended September 30 are
as follows (in millions):
|
|
2009
|
|
2008
|
|
Interest
cost
|
|
$
|
0.5
|
|
$
|
0.5
|
|
Expected
return on plan assets
|
|
(0.4
|
)
|
(0.4
|
)
|
Amortization
of net loss (gain)
|
|
0.1
|
|
0.1
|
|
Net
periodic benefit costs
|
|
$
|
0.2
|
|
$
|
0.2
|
|
SCC Post-retirement
Health Care Plan-
The components of the net
periodic benefit costs for the post-retirement health care plan for the nine
months ended September 30, 2009 and 2008 are individually, and in total,
less than $0.1 million.
Minera Mexico Pension
Plans-
The components of the net
periodic benefit costs for the nine months ended September 30, 2009 and
2008 are as follows (in millions):
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Interest
cost
|
|
$
|
1.2
|
|
$
|
1.5
|
|
Service
cost
|
|
1.4
|
|
1.9
|
|
Expected
return on plan assets
|
|
(1.8
|
)
|
(2.3
|
)
|
Amortization
of transition assets, net
|
|
(0.4
|
)
|
(*
|
)
|
Amortization
of net actuarial loss
|
|
(*
|
)
|
(*
|
)
|
Amortization
of prior services cost
|
|
0.1
|
|
(*
|
)
|
Net
periodic benefit cost
|
|
$
|
0.5
|
|
$
|
1.1
|
|
(*) amount is lower than
$0.1 million
Minera Mexico
Post-retirement Health Care Plan-
The components of
the net periodic cost for the nine months ended September 30, 2009 and
2008 are as follows (in millions):
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Interest
cost
|
|
$
|
2.9
|
|
$
|
2.3
|
|
Service
cost
|
|
0.4
|
|
0.5
|
|
Amortization
of net loss (gain)
|
|
0.4
|
|
*
|
|
Amortization
of transition obligation
|
|
0.9
|
|
*
|
|
Net
periodic benefit cost
|
|
$
|
4.6
|
|
$
|
2.8
|
|
(*) amount is
lower than $0.1 million
13
Table of Contents
K.
Comprehensive Income (in millions):
|
|
Three months ended
September 30,
|
|
Nine months ended
September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Net
income
|
|
$
|
314.2
|
|
$
|
420.4
|
|
$
|
569.5
|
|
$
|
1,539.4
|
|
Other
comprehensive income (loss) net of tax:
|
|
|
|
|
|
|
|
|
|
Additional
decrease in liability for
employee benefit obligation
|
|
0.3
|
|
|
|
0.3
|
|
|
|
Comprehensive
income
|
|
314.5
|
|
420.4
|
|
569.8
|
|
1,539.4
|
|
Comprehensive
income attributable to the
non-controlling interest
|
|
1.8
|
|
2.6
|
|
3.4
|
|
8.1
|
|
Comprehensive
income attributable to SCC
|
|
$
|
312.7
|
|
$
|
417.8
|
|
$
|
566.4
|
|
$
|
1,531.3
|
|
L.
Commitments and Contingencies
Environmental
matters:
The Company has instituted extensive environmental
conservation programs at its mining facilities in Peru and Mexico. The Companys environmental programs include,
among other features, water recovery systems to conserve water and minimize
impact on nearby streams, reforestation programs to stabilize the surface of
the tailings dams and the implementation of scrubbing technology in the mines
to reduce dust emissions.
Peruvian operations
The Companys operations are subject to applicable
Peruvian environmental laws and regulations.
The Peruvian government, through the MEM conducts annual audits of the
Companys Peruvian mining and metallurgical operations. Through these environmental audits, matters
related to environmental commitments, compliance with legal requirements,
atmospheric emissions, and effluent monitoring are reviewed. The Company believes that it is in material
compliance with applicable Peruvian environmental laws and regulations.
In 2003 the
Peruvian congress published a new law announcing future closure and remediation
obligations for the mining industry. In
accordance with the requirements of this law the Company has submitted the
required closure plans to MEM and were open to public discussion. The closure plan for the Cuajone facility was
approved by MEM in the third quarter of 2009, and the closure plan for the Ilo
facility was approved in October 2009. It is anticipated that the closure
plan for the Toquepala facility, will be approved in the fourth quarter. As part of the closure plan, commencing in January 2010
the Company will be required to make annual installments over a 34 year period
of guarantees sufficient to provide the funds for the asset retirement
obligation. See Note H, Asset retirement
obligation, for further discussion of this matter.
For the Companys
Peruvian operations, environmental capital expenditures were $1.3 million and
$5.1 million in the nine months ended September 30, 2009 and 2008,
respectively.
Mexican operations
The Companys operations are subject to applicable
Mexican federal, state and municipal environmental laws, to Mexican official
standards, and to regulations for the protection of the environment, including
regulations relating to water supply, water quality, air quality, noise levels
and hazardous and solid waste.
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Contents
The principal legislation applicable to the Companys
Mexican operations is the Federal General Law of Ecological Balance and
Environmental Protection, which is enforced by the Federal Bureau of
Environmental Protection (PROFEPA).
PROFEPA monitors compliance with environmental legislation and enforces
Mexican environmental laws, regulations and official standards. PROFEPA may initiate administrative
proceedings against companies that violate environmental laws, which in the
most extreme cases may result in the temporary or permanent closing of
non-complying facilities, the revocation of operating licenses and/or other
sanctions or fines. Also, according to
the Federal Criminal Code, PROFEPA must inform corresponding authorities
regarding environmental non-compliance.
Mexican environmental regulations have become
increasingly stringent in recent years, and this trend is likely to continue
and has been influenced by the environmental treaty entered into by Mexico,
United States and Canada in connection with NAFTA in 1999. However, the Companys management does not
believe that continued compliance with the federal environmental law or Mexican
state environmental laws will have a material adverse effect on the Companys
business, properties, results of operations, financial condition or prospects
or will result in material capital expenditures. Although the Company believes that all of its
facilities are in material compliance with applicable environmental, mining and
other laws and regulations, the Company cannot assure that future laws and
regulations would not have a material adverse effect on the Companys business,
properties, results of operations, financial condition or prospects.
For the Companys Mexican operations, environmental
capital expenditures were $18.5 million and $6.7 million in the nine months
ended September 30, 2009 and 2008, respectively.
Litigation matters
:
Peruvian operations
Garcia Ataucuri and Others against SCCs Peruvian
Branch (SCCs Peruvian Branch, Branch or Peruvian Branch):
In April 1996, the Branch was served with a
complaint filed in Peru by approximately 800 former employees seeking the
delivery of a substantial number of its labor shares (acciones laborales)
plus dividends on such shares, to be issued in a proportional way to each
former employee in accordance with their time of employment with SCCs Peruvian
Branch.
The Company conducts its operations in Peru through
its Peruvian Branch, a registered branch.
Although the Peruvian Branch has neither capital nor liability separate
from that of the Company, under Peruvian law it is deemed to have an equity
capital for purposes of determining the economic interest of the holders of the
labor shares. The labor share litigation
is based on claims of former employees for ownership of labor shares issued
during the 1970s until 1979 under a former Peruvian mandated profit sharing
system. In 1971, the Peruvian government
enacted legislation providing that workers in the mining industry would
participate in the pre-tax profits of the enterprises for which they worked at
a rate of 10%. This participation was
distributed 40% in cash and 60% as an equity interest in the enterprise. Under the law, the equity participation was
originally delivered to the Mining Community, an organization representing
all workers in the mining industry. The
cash portion was distributed to the workers after the close of the year. The accrual for this participation was (and
continues to be) a current liability of the Company, until paid. In 1978, the law was amended and the equity
distribution was calculated at 5.5% of pre-tax profits and was made to individual
workers of the enterprise in the form of labor shares to be issued in Peru by
the Peruvian Branch of SCC. These labor
shares
15
Table of Contents
represented an equity interest in the enterprise. In addition, according to the 1978 law, the
equity participations previously distributed to the Mining Community were
returned to the Branch and redistributed in the form of labor shares to the
individual employees or former employees.
The cash participation was adjusted to 4.0% of pre-tax earnings and
continued to be distributed to employees following the close of the year. Effective in 1992, the law was amended to its
present status, and the workers participation in pre-tax profits was set at
8%, with 100% payable in cash. The
equity participation component was eliminated from the law.
In 1995, the Company offered to exchange new common
shares of the Company for the labor shares issued under the prior Peruvian law. Approximately 80.8% of the issued labor
shares were exchanged for the Companys common shares, greatly reducing the
minority interest, now called non-controlling interest, on the Companys
balance sheet. What remains of the
workers equity participation is now included on the consolidated balance sheet
under the caption Non-controlling interest.
In relation to the issuance of labor shares by the
Branch in Peru, the Branch is a defendant in the following lawsuits:
1)
As stated above, in April 1996, the Branch was
served with a complaint filed in Peru by approximately 800 former employees,
(Garcia Ataucuri and others vs. SCCs Peruvian Branch), seeking the delivery of
38,763,806.80 labor shares (acciones laborales), now investment shares (acciones
de inversion) (or Nuevos Soles (S/.) 3,876,380,679.56), as required by Law No. 22333,
to be issued in a proportional way to each former employee or worker in
accordance with their time of employment with SCCs Peruvian Branch, plus
dividends on such shares. In 2000, the
Branch appealed an adverse decision of an appellate civil court, affirming a
decision of a lower civil court, to the Peruvian Supreme Court. On September 19, 2001, the Peruvian
Supreme Court annulled the proceedings noting that the civil courts lacked
jurisdiction and that the matter had to be decided by a labor court.
In October 2007, in
a separate proceeding initiated by the plaintiffs, the Peruvian Constitutional
Court nullified the September 19, 2001 Peruvian Supreme Court decision and
ordered the Supreme Court to decide again on the merits of the case accepting
or denying the Branchs 2000 appeal.
In May 2009, the
Supreme Court rejected the 2000 appeal of the Branch affirming the adverse
decision of the appellate civil court and lower civil court. While the Supreme Court has ordered SCCs
Peruvian Branch to deliver the labor shares and dividends to the former
employees of SCCs Peruvian Branch it has clearly stated that SCCs Peruvian
Branch may prove, by all legal means, its assertion that the labor shares and
dividends were distributed to the former employees in accordance with the
profit sharing law then in effect, an assertion which SCCs Peruvian Branch
continues to make.
On June 9, 2009
SCCs Peruvian Branch filed an extraordinary appeal before a civil court in
Peru seeking the nullity of the 2009 Supreme Court decision and other
protective measures. The civil court has
now rendered a favorable decision suspending the enforcement of the Supreme
Court decision, among other reasons, because, as was indicated above, the
Supreme Court decision had clearly stated that SCCs Peruvian Branch may prove,
by all legal means, its assertion that the labor shares and dividends were
distributed to the former employees in accordance with the profit sharing law
then in effect. In view of this and the
recent civil court decision, SCC´s Peruvian Branch continues to analyze the
manner in which the Supreme Court decision may be enforced and what financial
impact, if any, said decision may have.
2)
On May 10, 2006, the Branch was served with a
second complaint filed in Peru, this time by 44 former employees, (Cornejo
Flores and others vs. SCCs Peruvian Branch), seeking delivery of (1) labor
shares (or shares of whatever other current
16
Table of Contents
legal denomination)
corresponding to years 1971 to December 31, 1977 (the plaintiffs are
seeking the same 38,763,806.80 labor shares mentioned in the prior lawsuit),
that should have been issued in accordance with Law No. 22333, plus
interest and (2) labor shares resulting from capital increases made by the
Branch in 1980 for the amount of the workers participation of S/.17,246,009,907.20,
equivalent to 172,460,099.72 labor shares, plus dividends. On May 23, 2006, the Branch answered
this new complaint, denying the validity of the claim. As of September 30, 2009 the case
remains open with no new developments.
3)
On June 27, 2008, the Branch was served with a
new complaint filed in Peru, this time by 82 former employees, (Alejandro
Zapata Mamani and others vs. SCCs Peruvian Branch), seeking delivery of labor
shares (or shares of whatever other current legal denomination) corresponding
to years 1971 to December 31, 1977 (the plaintiffs are seeking the same
38,763,806.80 labor shares mentioned in the two previous labor share lawsuits),
that should have been issued in accordance with Law No. 22333, plus
interest, and labor shares resulting from capital increases, plus
dividends. The Branch answered this new
complaint, denying the validity of the claim.
As of September 30, 2009 the case remains open with no new
developments.
4)
Additionally, in January 2009, the Branch was
served with a new complaint filed in Peru, this time by 12 former employees
(Arenas Rodriguez and others represented by Mr. Cornejo Flores- vs. SCCs
Peruvian Branch) seeking delivery of labor shares (or shares of whatever other
current legal denomination) corresponding to years 1971 to December 31,
1977 (the plaintiffs are seeking the same 38,763,806.80 labor shares mentioned
in the three previous labor share lawsuits), that should have been issued in
accordance with Law No. 22333, plus interest, and labor shares resulting
from capital increases, plus dividends.
The Branch answered this new complaint, denying the validity of the
claim. As of September 30, 2009 the
case remains open with no new developments.
The Company asserts that
the labor shares were distributed to the former employees in accordance with
the profit sharing law then in effect.
The Company has not made a provision for these lawsuits because it
believes that it has meritorious defenses to the claims asserted in the
complaints.
Exploraciones de Concesiones Metalicas S.A.C.:
In August 2009 a new
lawsuit was filed against SCCs Branch by the former stockholders of
Exploraciones de Concesiones Metalicas S.A.C. (Excomet). The plaintiffs allege that the acquisition of
their shares in Excomet by the Branch is null and void because the $2 million
purchase price paid by the Branch for the shares of Excomet was not fairly
negotiated by the plaintiffs and the Branch.
In 2005, the Branch acquired the shares of Excomet after lengthy
negotiations with the plaintiffs, and after the plaintiffs, which were all of
the stockholders of Excomet, approved the transaction in a general
stockholders meeting. Excomet was at
the time owner of a mining concession which forms part of the Tia Maria project
The Company asserts that
the lawsuit is without merit and is vigorously defending against this lawsuit.
Mexican operations
The Mexican Geological Services (MGS) Royalties:
In August 2002, MGS (formerly named Council of
Mineral Resources (COREMI)) filed with the Third Federal District Judge in
Civil Matters, an action demanding from Mexcobre (La Caridad) the payment of
royalties since 1997. In December 2005,
Mexcobre signed an agreement with MGS.
Under the terms of this agreement the parties established a new
procedure to calculate the royalty payments applicable for 2005 and
17
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the following years, and the Company paid in January 2006,
$6.9 million of royalties for 2005 and $8.5 million as payment on account of
royalties from the third quarter 1997 through the last quarter of 2004. On January 22, 2007 the Third Federal
District Judge issued a ruling regarding the payment related to the period from
the third quarter of 1997 through the fourth quarter of 2004. This ruling was appealed by both parties in February 2007. The appeal was lost by the Company in October 2007. The Company filed a protective action (Amparo)
before the Ninth Collegiate Civil Tribunal which rendered a negative ruling on August 27,
2008. The Company is defending its
economic interest in the courts to determine the final amount to be paid to
MGS. On an ongoing basis the Company is
required to pay a 1% royalty on La Caridads copper production value after
deduction of treatment and refining charges and certain other carrying costs.
On September 25,
2009, Southern Copper Corporation (SCC) announced that its subsidiary,
Industrial Minera Mexico S. A. (IMMSA), Desarrolladora Intersaba, S.A. de
C.V. (INTERSABA) and the Municipality of San Luis Potosí had reached an
agreement by means of which IMMSA agrees to change the technology in order to
stop using anhydrous ammonia gas in the production process at its San Luis zinc
plant. The San Luis municipality also
confirmed that local regulations permit IMMSA to use the land of the zinc plant
for industrial purposes.
As part of the
agreement, INTERSABA and the Municipality of San Luis Potosi agreed to donate
an area that was considered by IMMSA as a buffer zone, in order for IMMSA to
construct a park for the recreation of the San Luis population. Also IMMSA and INTERSABA agreed to settle all
litigation between them relating to land permits and buffer zone.
In addition to the foregoing, IMMSA has initiated a
series of legal and administrative procedures against the municipality of San
Luis Potosi due to its refusal to issue IMMSAs use of land permit (licencia de
uso de suelo) in respect to its zinc plant.
A federal judge ruled that IMMSAs use of land permit should be
granted. In February 2009, the
municipal authorities confirmed that local regulations permit IMMSA to use the
land for industrial purposes.
On September 17, 2009, the San Luis municipality
also confirmed that local regulations permit IMMSA to use the land for
industrial purposes.
The Ejidal Commissariat of the Ejido Pilares de
Nacozari, initiated a protective action (Amparo) against the second
expropriation decree (by means of which 2.322 hectares were expropriated for
public use), ignoring the judicial settlement reached with the Company on this
matter. The judicial settlement had been
ratified in January 2006. This case
was solved by a federal judge, in first instance dismissing the Ejido
case. The Company will defend the
settlement reached with the Ejido and seek the definitive dismissal of the
case.
Pasta de Conchos Accident:
Mrs. Martinez, the wife of a miner, who died in
the Pasta de Conchos accident, initiated a protective action against the
negative ruling issued by the Ministry of Economy denying her request to launch
a procedure to cancel IMMSAs coal concessions, which she argued the accident
should trigger.
The First District Administrative judge flatly dismissed
the case, but this ruling was later reviewed by an appeals court. In August 2009 the court definitely
dismissed Mrs. Martinez case on the grounds of lack of standing.
18
Table of Contents
Labor matters
:
In recent years the Company has experienced a number
of strikes or other labor disruptions that have had an adverse impact on its
operations and operating results.
Peruvian Operations
Approximately 68%
of the Companys Peruvian labor force was unionized at December 31, 2008,
represented by eight separate unions.
Three of these unions, one at each major production area, represent the
majority of the Companys workers. The
collective bargaining agreements for these unions last through February 2010. Additionally, there are five smaller unions,
representing the balance of workers.
Collective bargaining agreements for this group are in force through November 2012.
From June 30
to July 5, 2008 the three major unions went on strike in support of a
mining federation strike. During this
strike operations were near normal; an insignificant amount of production was
lost as work continued with the support of staff and administrative personnel
and with contractors.
Mexican operations
Approximately 75%
of the Mexican labor force was unionized at December 31, 2008, represented
by two separate unions. Under Mexican
law, the terms of employment for unionized workers is set forth in collective
bargaining agreements. Mexican companies
negotiate the salary provisions of collective bargaining agreements with the
labor unions annually and negotiate other benefits every two years. The Company conducts negotiations separately
at each mining complex and each processing plant.
In the last eight years the Cananea mine has
experienced more than nine labor stoppages totaling more than 816 days of
inactivity through September 30, 2009.
The Company has tried unsuccessfully to resolve the current labor stoppage that
obstructs production at Cananea. In the
second quarter 2008 the Board of Directors offered all Cananea employees a
severance payment in accordance with the collective bargaining agreement and
applicable law. This was offered in
order to award the employees a significant severance payment that allows them
to choose the labor alternative that is best for each of them. During 2008, under this plan a group of
employees was terminated at a cost to the Company of $15.2 million, which was
recorded in cost of sales on the consolidated statement of earnings. There were no termination payments made in
the nine months ended September 30, 2009.
In accordance with SFAS No. 112, the Company has estimated a
liability of $35.1 million, which was recorded on the condensed consolidated
balance sheet
On March 20, 2009 the Company notified the
Mexican Federal Labor Court of the termination of all the individual labor
contracts of the Cananea workers, including the collective bargaining agreement
with the union. This decision was based
upon a finding by the Mexican mining authorities that confirmed that the
Cananea mine was in a force majeure situation since it was unable to operate
due to severe damages caused by striking workers. On April 14, 2009, the Mexican Federal
Labor Court issued a resolution approving the termination of Cananeas labor
relationships with individual and unionized employees, as well as the
termination of its collective bargaining agreement with its employees and with
the National Mining and Metal Workers Union.
This ruling has been challenged before federal tribunals. Most of the individual challenges by
unionized workers have been resolved by a federal judge, who dismissed their
complaints. The case presented by the
Union is expected to be resolved in the fourth quarter of 2009.
The Company, the state of Sonora and the Mexican
federal government are working to restore the necessary legal and safety
conditions to resume operations at Cananea.
19
Table of Contents
Due to the lengthy work stoppage the Company has
performed an impairment analysis on the assets at the Cananea mine. The Company has determined through its
impairment analysis that no impairment exists as of September 30,
2009. Should estimates of future copper
and molybdenum prices decrease significantly, such determination could change.
Additionally, the Taxco and San Martin mines have been
on strike since July 2007. It is
expected that operations at these mines will remain suspended until these labor
issues are resolved.
Other legal matters
:
Class actions: Three purported class action
derivative lawsuits have been filed in the Delaware Court of Chancery (New
Castle County) late in December 2004 and early January 2005 relating
to the acquisition of Minera Mexico by SCC.
On January 31, 2005, the three actions Lemon Bay, LLP v. Americas
Mining Corporation, et al., Civil Action No. 961-N, Therault Trust v. Luis
Palomino Bonilla, et al., and Southern Copper Corporation, et al., Civil Action
No. 969-N, and James Sousa v. Southern Copper Corporation, et al., Civil
Action No. 978-N were consolidated into one action titled, In re Southern
Copper Corporation Shareholder Derivative Litigation, Consol. Civil Action No. 961-N and the complaint
filed in Lemon Bay was designated as the operative complaint in the
consolidated lawsuit. The consolidated
action purports to be brought on behalf of the Companys common stockholders.
The consolidated complaint alleges, among other
things, that the acquisition of Minera Mexico is the result of breaches of
fiduciary duties by the Companys directors and is not entirely fair to the
Company and its minority stockholders.
The consolidated complaint seeks, among other things, a preliminary and
permanent injunction to enjoin the acquisition, the award of damages to the
class, the award of damages to the Company and such other relief that the court
deems equitable, including interest, attorneys and experts fees and
costs. The defendants believe that this
lawsuit is without merit and are vigorously defending against the action.
The Companys management believes that the outcome of
the aforementioned legal proceeding will not have a material adverse effect on
the Companys financial position or results of operations.
The Company is involved in various other legal
proceedings incidental to its operations, but the Company does not believe that
decisions adverse to it in any such proceedings individually or in the
aggregate would have a material adverse effect on its financial position or
results of operations.
The Companys direct and indirect parent corporations,
including AMC and Grupo Mexico, have from time to time been named parties in
various litigations involving Asarco. In
August 2002 the U.S. Department of Justice brought a claim alleging
fraudulent conveyance in connection with AMCs then-proposed purchase of SCC
from a subsidiary of Asarco. That action
was settled pursuant to a Consent Decree dated February 2, 2003. In March 2003, AMC purchased its
interest in SCC from Asarco. In October 2004,
AMC, Grupo Mexico, Mexicana de Cobre and other parties, not including SCC, were
named in a lawsuit filed in New York State court in connection with alleged
asbestos liabilities, which lawsuit claims, among other matters, that AMCs
purchase of SCC from Asarco should be voided as a fraudulent conveyance. The lawsuit filed in New York State court was
stayed as a result of the August 2005 Chapter 11 bankruptcy filing by
Asarco, as described below. However, on November 16, 2007, this lawsuit
after being removed to federal court was transferred to the United States
District Court for the Southern District of Texas in Brownsville, Texas, for
resolution in conjunction with a new lawsuit filed by Asarcos creditors, as
described below. On February 2, 2007 a complaint was filed by Asarco on
behalf of Asarcos creditors, alleging many of the matters previously claimed
in the New York State lawsuit,
20
Table of Contents
including that AMCs purchase of SCC from Asarco
should be voided as a fraudulent conveyance.
In June 2008 the lawsuit was concluded in Brownsville, Texas. The constructive fraudulent conveyance claim
was dismissed; however the actual fraud and the aiding and abetting the breach
of fiduciary duties counts were favorable to plaintiffs. On April 15, 2009, the United States
District Court for the Southern District of Texas entered a judgment awarding
Asarco certain shares of SCC, which represents approximately 30.6% of SCCs
current outstanding common shares, and an amount equal to the dividends paid on
those shares of common stock of SCC since the date of their acquisition by AMC,
plus interest. Grupo Mexico announced that AMC is appealing that judgment and
that the enforcement of the judgment has been stayed pending the appeal.
In 2005, certain subsidiaries of Asarco filed
bankruptcy petitions in connection with alleged asbestos liabilities. In July 2005, the unionized workers of
Asarco commenced a work stoppage. As a result of various factors, including the
above-mentioned work stoppage, in August 2005 Asarco filed a voluntary
petition for relief under Chapter 11 of the U.S. Bankruptcy Code before the
U.S. Bankruptcy Court in Corpus Christi, Texas.
Asarcos bankruptcy case is being joined with the bankruptcy cases of
its subsidiaries. Asarcos bankruptcy
could result in additional claims being filed against Grupo Mexico and its
subsidiaries, including SCC, Minera Mexico or its subsidiaries.
The Company cannot assure you that these or future
claims, if successful, will not have an adverse effect on the Companys parent
corporation or the Company. Any increase
in the financial obligations of the Companys parent corporation, as a result
of matters related to Asarco or otherwise could, among other effects, result in
the Companys parent corporation attempting to obtain increased dividends or
other funding from the Company.
Other commitments
:
Regional development
contribution:
In December 2006, the Companys Peruvian Branch
signed a contract with the Peruvian government committing the Company to make
annual contributions for five years to support the regional development of
Peru. This was in response to an appeal
by the president of Peru to the mining industry. The contributions are being used for social
benefit programs. In 2009, 2008 and 2007,
the Company made non-deductible contributions of $12.7 million, $18.9 million
and $16.1 million out of 2008, 2007 and 2006 earnings, respectively. These contributions were deposited with a
separate entity, Copper Assistance Civil Association (Asociación Civil Ayuda
del Cobre) which will make disbursements for approved investments in accordance
with the agreement. Future contributions
could increase or decrease depending on copper prices. The commitment of the Branch is for a total
of 1.25% of its annual earnings, after Peruvian income tax. If the average annual LME copper price is
below $1.79 per pound the contribution will cease. In the nine months ended September 30,
2009 the Company made a provision of $5.0 million based on Peruvian Branch
earnings.
Royalty charge
In June 2004, the Peruvian Congress enacted
legislation imposing a royalty charge to be paid by mining companies. Under this law, the Company is subject to a
1% to 3% royalty, based on sales, applicable to the value of the concentrates
produced in our Toquepala and Cuajone mines.
The Company made provisions of $28.6 million and $50.6 million in the
nine months ended September 30, 2009 and 2008, respectively, for this
royalty. These provisions are included
in Cost of sales (exclusive of depreciation, amortization and depletion) in
the condensed consolidated statement of earnings.
21
Table of Contents
Power purchase agreement
In 1997, SCC sold its Ilo power plant to an
independent power company, Enersur S.A. (Enersur). In connection with the sale, a power purchase
agreement was also completed under which SCC agreed to purchase all of its
power needs for its Peruvian operations from Enersur for twenty years,
commencing in 1997. In 2003 the
agreement was amended releasing Enersur from its obligation to construct
additional capacity to meet the Companys increased electricity requirements
and changing the power tariff as called for in the original agreement.
The Company has recently signed a Memorandum of
Understanding (MOU) with Enersur regarding its power supply agreement. The MOU contains new economic terms that the
Company believes better reflect current economic conditions in the power
industry and in Peru. The Company
expects to obtain savings in its future power costs. The new economic conditions agreed in the MOU
have been applied by Enersur to its invoices to the Company since May 2009. Additionally, the MOU includes an option for
providing power for the Tia Maria project.
Tax contingency matters:
Tax contingencies are provided for under ASC
740-10-50-15 Uncertain tax position (see Note E, Income taxes).
M.
Segment and Related Information:
Company management
views Southern Copper as having three operating segments and manages on the
basis of these segments. Each of its
segments report independently to the Chief Operating Officer and he focuses on
operating income as a measure of performance to evaluate different segments,
and to make decisions to allocate resources to the reported segments.
The three segments
identified are groups of mines with similar economic characteristics, type of
products, processes and support facilities, similar regulatory environments,
similar employee bargaining contracts and similar currency risks. In addition, each mine within the individual
group earns revenues from similar type of customers for their products and
services and each group incurs expenses independently, including commercial
transactions between groups.
Intersegment sales
are based on arms-length prices at the time of sale. These may not be reflective of actual prices
realized by the Company due to various factors, including additional
processing, timing of sales to outside customers and transportation cost. Added to the segment information is
information regarding the Companys sales.
The segments identified by the Company are:
1.
Peruvian operations segment, which
includes the Toquepala and Cuajone mine complexes and the smelting and refining
plants, industrial railroad and port facilities which service both mines.
2.
Mexican open pit operations segment,
which includes La Caridad and Cananea mine complexes and the smelting and
refining plants and support facilities which service both mines.
3.
Mexican underground mining operations
segment, which includes five underground mines that produce zinc, copper,
silver and gold, a coal mine which produces coal and coke, and several
industrial processing facilities for zinc and copper. This group is identified as the IMMSA unit.
22
Table of Contents
The Peruvian operations
include two open pit copper mines whose mineral output is transported by rail
to Ilo, Peru where it is processed at the Companys smelter and refinery,
without distinguishing between the products of the two mines. The resulting product, anodes and refined
copper, are then shipped to customers throughout the world. These shipments are recorded as revenue of
the Companys Peruvian mines.
The Mexican open pit
segment includes two copper mines whose mineral output is processed in the same
smelter and refinery without distinguishing between the products of the two
mines. The resultant product, anodes and
refined copper, are then shipped to customers throughout the world. These shipments are recorded as revenues of
the Companys Mexican open pit mines.
The Company has
determined that it is necessary to classify the Peruvian open pit operations as
a separate operating segment from the Mexican open pit operations due to the
very distinct regulatory and political environments in which they operate. The Companys Chief Operating Officer must
consider the operations in each country separately when analyzing results of
the Company and making key decisions.
The open pit mines in Peru must comply with stricter environmental rules and
must continually deal with a political climate that has a very distinct vision
of the mining industry as compared to Mexico.
In addition, the collective bargaining agreement contracts are
negotiated very distinctly in each of the two countries. These key differences result in the Company
taking varying decisions with regards to the two countries.
The IMMSA segment
includes five mines whose minerals are processed in the same smelter and
refinery. This segment also includes an
underground coal mine. Sales of product
from this segment are recorded as revenues of the Companys IMMSA unit. While the Mexican underground mines are
subject to a very similar regulatory environment as the Mexican open pit mines,
the nature of the products and processes of the two Mexican operations vary
distinctly. These differences cause the
Companys Chief Operating Officer to take a very different approach when
analyzing results and making decisions regarding the two Mexican operations.
Financial information is
regularly prepared for each of the three segments and the results of the
Companys operations are regularly reported to the Chief Operating Officer on
the segment basis. The Chief Operating
Officer of the Company focuses on operating income and on total assets as measures
of performance to evaluate different segments and to make decisions to allocate
resources to the reported segments.
These are common measures in the mining industry.
23
Table of
Contents
Financial information
relating to Southern Coppers segments is as follows:
|
|
Three Months Ended September 30, 2009
(in millions)
|
|
|
|
Mexican
Open Pit
|
|
Mexican
IMMSA
Unit
|
|
Peruvian
Operations
|
|
Corporate,
other and
Eliminations
|
|
Consolidated
|
|
Net sales outside of segments
|
|
$
|
315.7
|
|
$
|
111.9
|
|
$
|
710.8
|
|
$
|
13.4
|
|
$
|
1,151.8
|
|
Intersegment sales
|
|
12.6
|
|
38.3
|
|
|
|
(50.9
|
)
|
|
|
Cost of sales (exclusive of depreciation, amortization
and depletion)
|
|
145.5
|
|
105.1
|
|
322.0
|
|
(42.7
|
)
|
529.9
|
|
Selling, general and
administrative
|
|
7.2
|
|
3.1
|
|
12.6
|
|
0.9
|
|
23.8
|
|
Depreciation, amortization and depletion
|
|
43.3
|
|
5.9
|
|
32.7
|
|
0.4
|
|
82.3
|
|
Exploration
|
|
0.9
|
|
2.9
|
|
3.3
|
|
|
|
7.1
|
|
Operating income
|
|
$
|
131.4
|
|
$
|
33.2
|
|
$
|
340.2
|
|
$
|
3.9
|
|
508.7
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
|
|
|
|
|
|
|
|
(27.5
|
)
|
Gain on derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
0.8
|
|
Income taxes
|
|
|
|
|
|
|
|
|
|
(167.7
|
)
|
Non-controlling interest
|
|
|
|
|
|
|
|
|
|
(1.8
|
)
|
Net income attributable to SCC
|
|
|
|
|
|
|
|
|
|
$
|
312.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure
|
|
$
|
13.7
|
|
$
|
3.3
|
|
$
|
82.7
|
|
$
|
10.9
|
|
$
|
110.6
|
|
Property, net
|
|
$
|
1,630.0
|
|
$
|
268.7
|
|
$
|
1,988.9
|
|
$
|
55.3
|
|
$
|
3,942.9
|
|
Total assets
|
|
$
|
2,598.9
|
|
$
|
568.5
|
|
$
|
2,343.1
|
|
$
|
166.0
|
|
$
|
5,676.5
|
|
|
|
Three Months Ended September 30, 2008
(in millions)
|
|
|
|
Mexican
Open Pit
|
|
Mexican
IMMSA
Unit
|
|
Peruvian
Operations
|
|
Corporate,
other and
Eliminations
|
|
Consolidated
|
|
Net sales outside of segments
|
|
$
|
465.3
|
|
$
|
109.8
|
|
$
|
814.9
|
|
$
|
50.1
|
|
$
|
1,440.1
|
|
Intersegment sales
|
|
36.4
|
|
16.9
|
|
|
|
(53.3
|
)
|
|
|
Cost of sales (exclusive of depreciation,
amortization and depletion)
|
|
207.8
|
|
116.7
|
|
324.2
|
|
(2.9
|
)
|
645.8
|
|
Selling, general and
administrative
|
|
9.6
|
|
5.4
|
|
9.4
|
|
1.6
|
|
26.0
|
|
Depreciation, amortization and depletion
|
|
47.3
|
|
8.4
|
|
28.5
|
|
(0.2
|
)
|
84.0
|
|
Exploration
|
|
1.2
|
|
3.1
|
|
4.1
|
|
|
|
8.4
|
|
Operating income
|
|
$
|
235.8
|
|
$
|
(6.9
|
)
|
$
|
448.7
|
|
$
|
(1.7
|
)
|
675.9
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
|
|
|
|
|
|
|
|
(13.5
|
)
|
Loss on derivative instruments
|
|
|
|
|
|
|
|
|
|
(13.6
|
)
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
21.3
|
|
Income taxes
|
|
|
|
|
|
|
|
|
|
(249.7
|
)
|
Non-controlling interest
|
|
|
|
|
|
|
|
|
|
(2.6
|
)
|
Net income attributable to SCC
|
|
|
|
|
|
|
|
|
|
$
|
417.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure
|
|
$
|
29.9
|
|
$
|
11.6
|
|
$
|
86.5
|
|
$
|
9.6
|
|
$
|
137.6
|
|
Property, net
|
|
$
|
1,625.3
|
|
$
|
263.2
|
|
$
|
1,737.3
|
|
$
|
41.7
|
|
$
|
3,667.5
|
|
Total assets
|
|
$
|
2,789.9
|
|
$
|
683.3
|
|
$
|
2,157.3
|
|
$
|
716.2
|
|
$
|
6,346.7
|
|
24
Table of Contents
|
|
Nine Months Ended September 30, 2009
(in millions)
|
|
|
|
Mexican
Open Pit
|
|
Mexican
IMMSA
Unit
|
|
Peruvian
Operations
|
|
Corporate,
other and
Eliminations
|
|
Consolidated
|
|
Net sales outside of segments
|
|
$
|
737.0
|
|
$
|
289.6
|
|
$
|
1,532.9
|
|
$
|
38.8
|
|
$
|
2,598.3
|
|
Intersegment sales
|
|
26.8
|
|
99.0
|
|
|
|
(125.8
|
)
|
|
|
Cost of sales (exclusive of
depreciation,
amortization and
depletion)
|
|
397.7
|
|
281.5
|
|
738.4
|
|
(92.7
|
)
|
1,324.9
|
|
Selling, general and
administrative
|
|
21.3
|
|
9.3
|
|
27.0
|
|
3.1
|
|
60.7
|
|
Depreciation, amortization and
depletion
|
|
126.4
|
|
17.8
|
|
93.8
|
|
1.2
|
|
239.2
|
|
Exploration
|
|
1.7
|
|
5.2
|
|
10.6
|
|
|
|
17.5
|
|
Operating income
|
|
$
|
216.7
|
|
$
|
74.8
|
|
$
|
663.1
|
|
$
|
1.4
|
|
956.0
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
|
|
|
|
|
|
|
|
(66.2
|
)
|
Gain on derivative instruments
|
|
|
|
|
|
|
|
|
|
4.2
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
2.6
|
|
Income taxes
|
|
|
|
|
|
|
|
|
|
(327.1
|
)
|
Non-controlling interest
|
|
|
|
|
|
|
|
|
|
(3.4
|
)
|
Net income attributable to SCC
|
|
|
|
|
|
|
|
|
|
$
|
566.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure
|
|
$
|
55.8
|
|
$
|
17.9
|
|
$
|
220.9
|
|
$
|
22.1
|
|
$
|
316.7
|
|
Property, net
|
|
$
|
1,630.0
|
|
$
|
268.7
|
|
$
|
1,988.9
|
|
$
|
55.3
|
|
$
|
3,942.9
|
|
Total assets
|
|
$
|
2,598.9
|
|
$
|
568.5
|
|
$
|
2,343.1
|
|
$
|
166.0
|
|
$
|
5,676.5
|
|
|
|
Nine Months Ended September 30, 2008
(in millions)
|
|
|
|
Mexican
Open Pit
|
|
Mexican
IMMSA
Unit
|
|
Peruvian
Operations
|
|
Corporate,
other and
Eliminations
|
|
Consolidated
|
|
Net sales outside of segments
|
|
$
|
1,343.0
|
|
$
|
369.0
|
|
$
|
2,571.7
|
|
$
|
117.4
|
|
$
|
4,401.1
|
|
Intersegment sales
|
|
96.5
|
|
82.9
|
|
|
|
(179.4
|
)
|
|
|
Cost of sales (exclusive of
depreciation,
amortization and
depletion)
|
|
591.8
|
|
312.9
|
|
876.0
|
|
(63.8
|
)
|
1,716.9
|
|
Selling, general and
administrative
|
|
28.1
|
|
16.6
|
|
29.4
|
|
3.2
|
|
77.3
|
|
Depreciation, amortization and
depletion
|
|
139.9
|
|
24.4
|
|
84.2
|
|
(0.2
|
)
|
248.3
|
|
Exploration
|
|
4.1
|
|
7.2
|
|
14.2
|
|
|
|
25.5
|
|
Operating income
|
|
$
|
675.6
|
|
$
|
90.8
|
|
$
|
1,567.9
|
|
$
|
(1.2
|
)
|
2,333.1
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
|
|
|
|
|
|
|
|
(36.1
|
)
|
Loss on derivative instruments
|
|
|
|
|
|
|
|
|
|
(12.7
|
)
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
19.7
|
|
Income taxes
|
|
|
|
|
|
|
|
|
|
(764.6
|
)
|
Non-controlling interest
|
|
|
|
|
|
|
|
|
|
(8.1
|
)
|
Net income attributable to SCC
|
|
|
|
|
|
|
|
|
|
$
|
1,531.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure
|
|
$
|
107.9
|
|
$
|
30.9
|
|
$
|
167.9
|
|
$
|
13.9
|
|
$
|
320.6
|
|
Property, net
|
|
$
|
1,625.3
|
|
$
|
263.2
|
|
$
|
1,737.3
|
|
$
|
41.7
|
|
$
|
3,667.5
|
|
Total assets
|
|
$
|
2,789.9
|
|
$
|
683.3
|
|
$
|
2,157.3
|
|
$
|
716.2
|
|
$
|
6,346.7
|
|
25
Table of Contents
Sales value per segment:
|
|
Three Months Ended September 30, 2009
(in millions)
|
|
|
|
Mexican
Open Pit
|
|
Mexican
IMMSA Unit
|
|
Peruvian
Operations
|
|
Corporate &
Elimination
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
$
|
205.6
|
|
$
|
23.4
|
|
$
|
582.0
|
|
$
|
(11.0
|
)
|
$
|
800.0
|
|
Molybdenum
|
|
87.9
|
|
|
|
93.6
|
|
|
|
181.5
|
|
Other
|
|
34.9
|
|
126.8
|
|
35.1
|
|
(26.5
|
)
|
170.3
|
|
Total
|
|
$
|
328.4
|
|
$
|
150.2
|
|
$
|
710.7
|
|
$
|
(37.5
|
)
|
$
|
1,151,8
|
|
|
|
Three Months Ended September 30, 2008
(in millions)
|
|
|
|
Mexican
Open Pit
|
|
Mexican
IMMSA Unit
|
|
Peruvian
Operations
|
|
Corporate &
Elimination
|
|
Consolidated
|
|
Copper
|
|
$
|
311.7
|
|
$
|
14.4
|
|
$
|
598.7
|
|
$
|
2.9
|
|
$
|
927.7
|
|
Molybdenum
|
|
139.2
|
|
|
|
179.7
|
|
|
|
318.9
|
|
Other
|
|
50.8
|
|
112.3
|
|
36.5
|
|
(6.1
|
)
|
193.5
|
|
Total
|
|
$
|
501.7
|
|
$
|
126.7
|
|
$
|
814.9
|
|
$
|
(3.2
|
)
|
$
|
1,440.1
|
|
|
|
Nine Months Ended September 30, 2009
(in millions)
|
|
|
|
Mexican
Open Pit
|
|
Mexican
IMMSA Unit
|
|
Peruvian
Operations
|
|
Corporate &
Elimination
|
|
Consolidated
|
|
Copper
|
|
$
|
476.8
|
|
$
|
55.9
|
|
$
|
1,283.0
|
|
$
|
(16.8
|
)
|
$
|
1,798.9
|
|
Molybdenum
|
|
187.8
|
|
|
|
159.0
|
|
|
|
346.8
|
|
Other
|
|
99.4
|
|
332.6
|
|
90.7
|
|
(70.1
|
)
|
452.6
|
|
Total
|
|
$
|
764.0
|
|
$
|
388.5
|
|
$
|
1,532.7
|
|
$
|
(86.9
|
)
|
$
|
2,598.3
|
|
|
|
Nine Months Ended September 30, 2008
(in millions)
|
|
|
|
Mexican
Open Pit
|
|
Mexican
IMMSA Unit
|
|
Peruvian
Operations
|
|
Corporate &
Elimination
|
|
Consolidated
|
|
Copper
|
|
$
|
939.6
|
|
$
|
75.3
|
|
$
|
1,984.4
|
|
$
|
(20.9
|
)
|
$
|
2,978.4
|
|
Molybdenum
|
|
382.4
|
|
|
|
485.6
|
|
|
|
868.0
|
|
Other
|
|
117.5
|
|
376.7
|
|
101.7
|
|
(41.2
|
)
|
554.7
|
|
Total
|
|
$
|
1,439.5
|
|
$
|
452.0
|
|
$
|
2,571.7
|
|
$
|
(62.1
|
)
|
$
|
4,401.1
|
|
The geographic breakdown
of the Companys sales is as follows (in millions):
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
United
States
|
|
$
|
313.7
|
|
$
|
417.2
|
|
$
|
809.9
|
|
$
|
1,182.3
|
|
Europe
|
|
248.1
|
|
284.7
|
|
532.5
|
|
1,006.2
|
|
Mexico
|
|
256.1
|
|
347.4
|
|
574.4
|
|
1,017.7
|
|
Peru
|
|
64.7
|
|
33.3
|
|
105.5
|
|
111.5
|
|
Latin
America (excluding Mexico and Peru)
|
|
178.8
|
|
251.5
|
|
368.5
|
|
806.1
|
|
Asia
|
|
90.4
|
|
51.8
|
|
207.5
|
|
214.4
|
|
Derivative
instruments
|
|
|
|
54.2
|
|
|
|
62.9
|
|
Total
|
|
$
|
1,151.8
|
|
$
|
1,440.1
|
|
$
|
2,598.3
|
|
$
|
4,401.1
|
|
26
Table of Contents
Major Customer Segment
Information:
For the nine months ended
September 30, 2009, the Company had revenues from two copper customers of
the Mexican and Peruvian operations, which amounted to 18.6% of total revenue;
revenues from one of these customers amounted to 10.8% of total revenue. In addition, the Company had revenues from
two molybdenum customers of the Peruvian and Mexican operations, which amounted
to 11.5% of total revenues; revenues from one of these customers amounted to
7.0% of total revenue. These customers
represent 85.8% of the Companys molybdenum sales revenue.
For the nine months ended
September 30, 2008, the Company had revenues from two copper customers of
the Mexican and Peruvian operations, which amounted to 16.1% of total revenue;
revenues from one of these customers amounted to 11.4% of total revenue. In addition, the Company had revenues from
two molybdenum customers of the Peruvian and Mexican operations, which amounted
to 16.4% of total revenues; revenues from one of these customers amounted to
9.0% of total revenue. These customers
represent 83.0% of the Companys molybdenum sales revenue.
N.
Impact of New Accounting Standards:
In August 2009, the
FASB issued Accounting Standards Update No. 2009-05, Fair Value
Measurements and Disclosures (Topic 820).
This amendment to the FASB Accounting Standards Codification provides
clarification that in circumstances in which a quoted price in an active market
for the identical liability is not available, a reporting entity is required to
measure fair value using one or more of the following techniques:
1. A valuation technique that uses:
a. The quoted price of the
identical liability when traded as an asset.
b. Quoted prices for
similar liabilities or similar liabilities when traded as assets.
2. Another valuation technique that is consistent with the
principles of Topic 820.
Two examples would be an
income approach, such as a present value technique, or a market approach, such
as a technique that is based on the amount at the measurement date that the
reporting entity would pay to transfer the identical liability or would receive
to enter into the identical liability.
The amendments in this
Update also clarify that when estimating the fair value of a liability, a
reporting entity is not required to include a separate input or adjustment to
other inputs relating to the existence of a restriction that prevents the
transfer of the liability.
The amendments in this
Update also clarify that both a quoted price in an active market for the
identical liability at the measurement date and the quoted price for the
identical liability when traded as an asset in an active market when no
adjustments to the quoted price of the asset are required are Level 1 fair
value measurements. The guidance
provided in this Update is effective for the Company beginning in the fourth
quarter of 2009. The Company does not
expect any material impact on its financial position.
O.
Stockholders Equity:
Common stock:
During the first quarter
of 2009 Grupo Mexico, through its wholly owned subsidiary AMC, purchased 4.9
million shares. With this purchase and
the Companys repurchase of its common shares, the indirect ownership of Grupo
Mexico increased to 80% at
27
Table of Contents
March 31, 2009 and
remains at 80% at September 30, 2009.
Please see Note E, Income taxes, for disclosure about the U.S. federal
income tax implications of this increase in ownership. In addition, the Company purchased 12,000
shares in the third quarter of 2009, at a cost of $0.3 million.
Treasury Stock:
Activity in treasury stock in the nine month period
ended September 30, 2009 and 2008 is as follows (in millions):
|
|
2009
|
|
2008
|
|
Southern
Copper common shares
|
|
|
|
|
|
Balance
as of January 1,
|
|
$
|
389.0
|
|
$
|
4.4
|
|
Purchase
of shares
|
|
71.9
|
|
68.5
|
|
Used
for corporate purposes
|
|
(0.2
|
)
|
(0.1
|
)
|
Balance
as of September 30,
|
|
460.7
|
|
72.8
|
|
|
|
|
|
|
|
Parent
Company (Grupo Mexico) common shares
|
|
|
|
|
|
Balance
as of January 1,
|
|
125.5
|
|
170.3
|
|
Other
activity, including dividend, interest and currency translation effect
|
|
11.0
|
|
46.5
|
|
Balance
as of September 30,
|
|
136.5
|
|
216.8
|
|
|
|
|
|
|
|
Treasury
stock balance as of September 30,
|
|
$
|
597.2
|
|
$
|
289.6
|
|
In the nine months ended September 30,
2009 and 2008 the Company distributed 12,000 and 13,200 shares of Southern
Copper, respectively, to Directors under the Directors Stock Award Plan.
In the nine months ended September 30,
2009 and 2008 the Company awarded 11.8 million shares and 14.5 million shares
of Grupo Mexico, respectively, under the employee stock purchase plan.
SCC share repurchase program:
Pursuant to the $500 million share repurchase program
authorized by the Companys Board of Directors in 2008, in the first quarter of
2009 the Company purchased 4.9 million shares of its common stock at a cost of
$71.6 million. In addition the Company
purchased 12,000 shares in the third quarter of 2009 at a cost of $0.3
million. These shares will be available
for general corporate purposes. The
Company may purchase additional shares from time to time, based on market conditions
and other factors. This repurchase
program has no expiration date and may be modified or discontinued at any time.
28
Table of Contents
The following table summarizes the repurchase program
activity since its inception in 2008:
Period
|
|
Total
Number
of Shares
|
|
Average
Price
Paid
per
|
|
Total
Number of
Shares
Purchased as
Part of
Publicly
|
|
Maximum
Number
of Shares that
May Yet Be
Purchased Under
the Plan
|
|
Total
Cost
($ in
|
|
From
|
|
To
|
|
Purchased
|
|
Share
|
|
Announced
Plan
|
|
@ $30.69
|
|
million)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
08/11/08
|
|
12/31/08
|
|
28,510,150
|
|
$
|
13.49
|
|
28,510,150
|
|
|
|
384.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
quarter 2009:
|
|
|
|
|
|
|
|
|
|
|
|
01/12/09
|
|
01/31/09
|
|
1,075,000
|
|
15.17
|
|
29,585,150
|
|
|
|
16.3
|
|
02/01/09
|
|
02/28/09
|
|
2,260,350
|
|
13.45
|
|
31,845,500
|
|
|
|
30.4
|
|
03/01/09
|
|
03/27/09
|
|
1,564,650
|
|
15.89
|
|
33,410,150
|
|
|
|
24.9
|
|
Total
|
|
|
|
4,900,000
|
|
14.61
|
|
|
|
|
|
71.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second
Quarter 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third
Quarter 2009:
|
|
|
|
|
|
|
|
|
|
|
|
09/01/09
|
|
09/30/09
|
|
12,000
|
|
28.05
|
|
33,422,150
|
|
1,415,476
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
purchased
|
|
33,422,150
|
|
$
|
13.66
|
|
|
|
|
|
$
|
456.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of the repurchase of SCC common shares and
AMCs purchase of SCC shares, Grupo Mexicos direct and indirect ownership
increased to 80% at March 27, 2009.
Directors Stock Award Plan:
The Company established a stock award compensation
plan for certain directors who are not compensated as employees of the Company. Under this plan, participants will receive
1,200 shares of common stock upon election and 1,200 additional shares
following each annual meeting of stockholders thereafter. 600,000 shares of
Southern Copper common stock have been reserved for this plan. As of September 30, 2009 the Company has
granted 241,200 shares under this plan which includes 12,000 additional shares
granted since September 30,
2008 at which time the cumulative amount of shares granted was 229,200
shares. The fair value of the award is
measured each year at the date of the grant.
Employee Stock
Purchase Plan:
In January 2007,
the Company offered to eligible employees a stock purchase plan (the Employee
Stock Purchase Plan) through a trust that acquires shares of Grupo Mexico
stock for sale to its employees, and employees of subsidiaries, and certain
affiliated companies. The purchase price
is established at the approximate fair market value on the grant date. Every two years employees will be able to
acquire title to 50% of the shares paid in the previous two years. The employees will pay for shares purchased
through monthly payroll deductions over the eight year period of the plan. At the end of the eight year period, the
Company will grant the participant a bonus of 1 share for every 10 shares
purchased by the employee.
If Grupo Mexico
pays dividends on shares during the eight year period, the participants will be
entitled to receive the dividend in cash for all shares that have been fully
purchased and paid as of the date that the dividend is paid. If the participant has only partially paid
for shares, the entitled dividends will be used to reduce the remaining
liability owed for purchased shares.
In the case of
voluntary resignation of the employee, the Company will pay to the employee the
purchase price applying a deduction over the amount to be paid to the employee
based on the following schedule.
29
Table of Contents
If the resignation occurs
during:
|
|
% Deducted
|
|
1st
year after the grant date
|
|
90
|
%
|
2nd
year after the grant date
|
|
80
|
%
|
3rd
year after the grant date
|
|
70
|
%
|
4th
year after the grant date
|
|
60
|
%
|
5th
year after the grant date
|
|
50
|
%
|
6th
year after the grant date
|
|
40
|
%
|
7th
year after the grant date
|
|
20
|
%
|
In the case of
involuntary termination of the employee, the Company will pay to the employee
the difference between the fair market value of the shares at the date of
termination of employment, and the purchase price. When the fair market value of the shares is
higher than the purchase price, the Company will apply a deduction over the
amount to be paid to the employee based on the following schedule.
If the termination occurs during:
|
|
% Deducted
|
|
1st
year after the grant date
|
|
100
|
%
|
2nd
year after the grant date
|
|
95
|
%
|
3rd
year after the grant date
|
|
90
|
%
|
4th
year after the grant date
|
|
80
|
%
|
5th
year after the grant date
|
|
70
|
%
|
6th
year after the grant date
|
|
60
|
%
|
7th
year after the grant date
|
|
50
|
%
|
In case of retirement or death of the employee, the
Company will render the buyer or his legal beneficiary, the shares effectively
paid as of the date of retirement or death.
For the nine months ended September 30, 2009 and
2008, the stock based compensation expense under this plan was $1.6 million in
both periods. As of September 30,
2009, there was $11.2 million of unrecognized compensation expense under this
plan, which is expected to be recognized over the remaining five years and
three months period.
The following table presents the stock award activity
for the nine months ended September 30, 2009 and 2008:
|
|
Shares
|
|
Unit Weighted Average
Grant Date Fair Value
|
|
Outstanding
shares at January 1, 2009
|
|
14,577,011
|
|
$
|
1.16
|
|
Granted
|
|
|
|
|
|
Exercised
|
|
(2,700,588
|
)
|
1.16
|
|
Forfeited
|
|
(267,230
|
)
|
1.16
|
|
Outstanding
shares at September 30, 2009
|
|
11,609,193
|
|
$
|
1.16
|
|
|
|
|
|
|
|
Outstanding
shares at January 1, 2008
|
|
14,504,151
|
|
$
|
1.17
|
|
Granted
|
|
|
|
|
|
Exercised
|
|
(23,655
|
)
|
1.17
|
|
Received
as dividend
|
|
96,515
|
|
|
|
Forfeited
|
|
|
|
|
|
Outstanding
shares at September 30, 2008
|
|
14,577,011
|
|
$
|
1.16
|
|
Executive Stock Purchase Plan:
Grupo Mexico also offers a stock purchase plan for
certain members of its executive management and the executive management of its
subsidiaries and certain affiliated companies.
Under this plan, participants will receive incentive cash bonuses which
are used to purchase up to 2,250,000 shares of Grupo Mexico over an eight year
30
Table of Contents
period. The
fair value of the award is estimated on the date of grant and is recognized as
compensation expense over a weighted average requisite service period of eight
years. The Company recorded $0.1 million
and $1.3 million, net of tax, in compensation expense in the nine months of
2009 and 2008, respectively. As of September 30,
2009, there was $1.9 million of unrecognized compensation cost, related to this
plan, which is expected to be recognized over the remaining period.
The following table presents the stock award activity
for the nine months ended September 30, 2009 and 2008:
|
|
Shares
|
|
Unit Weighted
Average Grant
Date Fair Value
|
|
Outstanding
shares at January 1, 2009
|
|
697,500
|
|
$
|
0.77
|
|
Granted
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
Outstanding
shares at September 30, 2009
|
|
697,500
|
|
$
|
0.77
|
|
|
|
|
|
|
|
Outstanding
shares at January 1, 2008
|
|
1,372,500
|
|
$
|
0.77
|
|
Granted
|
|
|
|
|
|
Exercised
|
|
(675,000
|
)
|
$
|
0.77
|
|
Forfeited
|
|
|
|
|
|
Outstanding
shares at September 30, 2008
|
|
697,500
|
|
$
|
0.77
|
|
P.
Financial instruments:
SFAS No. 157
establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities (Level 1 measurements) and
the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy
under SFAS No. 157 are described below:
Level 1 Unadjusted
quoted prices in active markets that are accessible at the measurement date for
identical, unrestricted assets or liabilities;
Level 2 Inputs that are
observable, either directly or indirectly, but do not qualify as Level 1
inputs. (i.e., quoted prices for similar assets or liabilities)
Level 3 Prices or
valuation techniques that require inputs that are both significant to the fair
value measurement and unobservable (i.e., supported by little or no market
activity).
The carrying amounts of
certain financial instruments, including cash and cash equivalents, accounts
receivable (other than accounts receivable associated with provisionally priced
sales) and accounts payable approximate fair value due to their short
maturities. Consequently, such financial
instruments are not included in the following table that provides information
about the carrying amounts and estimated fair values of other financial
instruments that are not measured at fair value in the condensed consolidated
balance sheet as of September 30, 2009 (in millions):
31
Table of Contents
|
|
Balance at September 30, 2009
|
|
|
|
Carrying Value
|
|
Fair Value
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Long-term debt
|
|
$
|
1,285.2
|
|
$
|
1,328.0
|
|
|
|
|
|
|
|
|
|
Fair values of assets and
liabilities measured at fair value on a recurring basis were calculated as
follows:
|
|
Fair Value at Measurement Date Using:
|
|
|
|
Fair Value
as of
|
|
Quoted prices in
active markets
for identical
assets
|
|
Significant
other
observable
inputs
|
|
Significant
unobservable
inputs
|
|
|
|
09/30/09
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
26.0
|
|
|
|
$
|
21.8
|
|
$
|
4.2
|
|
Provisionally priced sales:
|
|
|
|
|
|
|
|
|
|
Copper
|
|
(47.0
|
)
|
|
|
(47.0
|
)
|
|
|
Molybdenum
|
|
(16.9
|
)
|
|
|
(16.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Derivative instruments
|
|
0.2
|
|
0.2
|
|
|
|
|
|
Total
|
|
$
|
(37.7
|
)
|
$
|
0.2
|
|
$
|
(42.1
|
)
|
$
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below sets
forth a summary of changes in the fair value of the Companys Level 3
short-term investments (corporate bond, asset backed obligations, and mortgage
backed securities) for the three and nine month periods ended September 30,
2009.
|
|
3 months ended
September 30, 2009
|
|
9 months ended
September 30, 2009
|
|
Balance at beginning of period
|
|
$
|
4.8
|
|
$
|
11.0
|
|
Unrealized gain (loss)
|
|
0.1
|
|
(0.3
|
)
|
Purchases, sales, issuance and settlements
(net)
|
|
|
|
(5.8
|
)
|
Transfers in/out of Level 3
|
|
(0.7
|
)
|
(0.7
|
)
|
Balance at end of period
|
|
$
|
4.2
|
|
$
|
4.2
|
|
The total amount of
unrealized losses for the period was included in other income in the condensed
consolidated statement of earnings for the nine months ended September 30,
2009.
Q.
Subsequent events:
The Company
evaluated subsequent events as of October 30, 2009 which is the date the
financial statements were ready to be issued.
Dividends:
On October 19,
2009, the Board of Directors authorized a dividend of 18 cents per share
payable on November 24, 2009, to SCC shareholders of record at the close
of business on November 5, 2009.
32
Table of
Contents
Part I
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides
information that management believes is relevant to an assessment and
understanding of the consolidated financial condition and results of operations
of Southern Copper Corporation and its subsidiaries (collectively, SCC, the
Company, our, and we). This item
should be read in conjunction with our interim unaudited Condensed Consolidated
Financial Statements and the notes thereto included in this quarterly
report. Additionally, the following
discussion and analysis should be read in conjunction with the Management
Discussion and Analysis of Financial Condition and Results of Operations and
the Consolidated Financial Statements included in Part II of our annual
report on Form 10-K for the year ended December 31, 2008
.
EXECUTIVE OVERVIEW
Business
: Our business is primarily the
production and sale of copper. In the
process of producing copper, a number of valuable metallurgical by-products are
recovered, such as molybdenum, zinc, silver, lead and gold, which we also
produce and sell. Market forces outside
of our control largely determine the sales prices for our products. We, therefore, focus on copper production,
cost control, production enhancement and maintaining a prudent capital
structure to remain profitable. We
believe we achieve these goals through capital spending programs, exploration
efforts and cost reduction programs. Our
aim is to remain profitable during periods of low copper prices and to maximize
financial performance in periods of high copper prices.
Earnings:
Copper prices have improved steadily
during the first three quarters of 2009 from the lows experienced late in
2008. Prices for other metals have also
improved during this period. During the
third quarter of 2009 per pound LME spot copper prices ranged from $2.19 to
$2.94 and averaged $2.66, as compared to $2.12 in the second quarter and $1.56
in the first quarter. While in the near
term the outlook for copper could be volatile we believe that the copper market
outlook remains strong for the next few years.
Limited supplies from existing mines, the absence in the near term of
any major new development projects and increasing demand from Asia, we believe,
supports this outlook. The LME spot price
for copper closed at $2.94 a pound on October 28, 2009.
Third quarter 2009 sales
of $1,152 million and net earnings of $312.5 million reflects the continuing
recovery of copper prices and prices of our other metal products, as well as
companywide productivity improvements which have increased our production and
sales. This allows us to continue with
our capital projects to increase production levels and be ready to improve our
profitability when the copper market and the worlds economy recover.
Production
: Third quarter 2009 mined copper
production was 1.3% higher than the third quarter of 2008. In addition, we increased our production of
molybdenum mined, by 14.3%, zinc mined and refined, by 3.5% and 4.2%,
respectively, and silver mined and refined, by 9.6% and 7.6%, respectively.
Cananea strike:
Operations at our Cananea, San Martin
and Taxco facilities remained closed during the third quarter of 2009, due to
continuing strike activity. These
strikes began in July 2007, and despite our efforts, remain
unresolved. On April 14, 2009, the
Mexican Federal Labor Court issued a resolution, based on force majeure,
approving the termination of Cananeas labor relationship with individual and
unionized employees, as well as the termination of its collective bargaining
agreement with its employees and with the National Mining and Metal Workers
Union. This ruling has been
33
Table of Contents
challenged before
federal tribunals and, based on our understanding of the proceeding, it is
expected that it will be resolved in the fourth quarter of 2009.
The Company, the
state of Sonora and the Mexican federal government are working to restore the
necessary legal and safety conditions to resume operations at Cananea.
Due to the lengthy
work stoppage we have performed an impairment analysis on the assets at
the Cananea mine. We have determined
through our impairment analysis that no impairment exists as of September 30,
2009. Should estimates of future copper
and molybdenum prices decrease significantly, such determination could change.
Reevaluation of capital
expenditures
: We
are continuing with the Tia Maria project using internally generated cash
flow. This project will increase annual
copper production by 120,000 tons and is scheduled to commence operations in
2011. Also we are continuing with the
Toquepala concentrator expansion project which is expected to increase annual
copper output by 100,000 tons by the second half of 2012. In addition, we are continuing our evaluation
of the El Arco copper deposit in Mexico.
KEY MATTERS:
We discuss below several
matters that we believe are important to understand our results of operations
and financial condition. These matters
include, (i) our operating cash costs as a measure of our performance, (ii) metal
prices, (iii) business segments, (iv) the effect of inflation and
other local currency issues, and (v) our expansion and modernization
program and environmental protection programs.
Operating Cash Costs:
An overall benchmark used by us and a
common industry metric to measure performance is operating cash costs per pound
of copper produced. Operating cash cost
is a non-GAAP measure that does not have a standardized meaning and may not be
comparable to similarly titled measures provided by other companies. A reconciliation of our operating cash cost
per pound to the cost of sales (exclusive of depreciation, amortization and
depletion) as presented in the condensed consolidated statement of earnings, is
presented under the subheading Non-GAAP Information Reconciliation,
below. We have defined operating cash
cost per pound as cost of sales (exclusive of depreciation, amortization and
depletion); plus selling, general and administrative charges, treatment and
refining charges, and by-products revenue and sales premiums; less workers
participation and other miscellaneous charges, including the Peruvian mine
royalty charge and the change in inventory levels; divided by total pounds of
copper produced and purchased by us. In
our calculation of operating cash cost per pound of copper produced, we credit
against our costs the revenues from the sale of by-products, principally
molybdenum, zinc, silver and the premium over market price that we receive on
copper sales. We account for the by-product
revenues in this way because we consider our principal business to be the
production and sale of copper. We
believe that our Company is viewed by the investment community as a copper
company, and is valued, in large part, by the investment communitys view of
the copper market and our ability to produce copper at a reasonable cost. We also include copper sales premiums as a
credit, as these amounts are in excess of published copper prices. The increase in recent years in the price of
molybdenum as well as increases in silver and zinc, has had a significant
effect on our traditional calculation of cash cost and its comparability
between periods. Accordingly, we present
cash costs with and without crediting the by-products revenues against our
costs.
We exclude from our
calculation of operating cash cost depreciation, amortization and depletion,
which are considered non-cash expenses.
Exploration is considered a discretionary expenditure and is also
excluded. Workers participation
provisions are determined on the basis of pre-tax earnings and are also
excluded. Additionally, excluded from
operating cash cost are items of a non-recurring nature and the mine royalty
charges.
34
Table of Contents
Our operating cash costs
per pound, as defined, are presented in the table below, for the three and nine
months ended September 30, 2009 and 2008.
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
(cents per pound)
|
|
(cents per pound)
|
|
Cash
cost per pound of copper produced and purchased
|
|
27.4
|
|
18.0
|
|
47.5
|
|
3.5
|
|
Less:
|
|
|
|
|
|
|
|
|
|
By-products
revenue
|
|
136.0
|
|
184.5
|
|
103.8
|
|
175.4
|
|
Cash
cost per pound of copper produced and purchased without by-products revenue
|
|
163.4
|
|
202.5
|
|
151.3
|
|
178.9
|
|
As seen on the chart
above, our per pound cash cost for the three and nine months ended September 30,
2009 when calculated with by-products revenue are costs of 27.4 cents per pound
and 47.5 cents per pound, respectively, compared with a cost of 18.0 cents per
pound and 3.5 cents per pound in the same periods of 2008. The decrease in the by-products credit in the
2009 periods was principally due to lower molybdenum, zinc and silver
prices. See average metal prices
below. Increases in the volume of
molybdenum, zinc and silver sales in both the three and nine-month periods of
2009, partially reduced the price decline.
Our cash cost, excluding
by-product revenues, was lower by 39.1 cents per pound and 27.6 cents per pound
for the three and nine months ended September 30, 2009 than the comparable
2008 periods due to lower power, fuel and material repair costs and to
increased production of all our principal metals in the third quarter of 2009
and increases in all our byproduct production in the nine month 2009
period. In addition, lower copper
production at Cananea due to the ongoing strike partially offset the
improvements noted.
Metal Prices
. The profitability of our operations is
dependent on, and our financial performance is significantly affected by, the
international market prices for the products we produce, especially for copper,
molybdenum, zinc and silver. Metal
prices historically have been subject to wide fluctuations and are affected by
numerous factors beyond our control.
These factors, which affect each commodity to varying degrees, include
international economic and political conditions, levels of supply and demand,
the availability and cost of substitutes, inventory levels maintained by
producers and others and, to a lesser degree, inventory carrying costs and
currency exchange rates. In addition,
the market prices of certain metals have on occasions been subject to rapid
short-term changes due to speculative activities.
We are subject to market
risks arising from the volatility of copper and other metal prices. Assuming that expected metal production and
sales are achieved, that tax rates are unchanged, giving no effect to potential
hedging programs, metal price sensitivity factors would indicate the following
change in estimated 2009 net income attributable to SCC resulting from metal
price changes:
|
|
Copper
|
|
Molybdenum
|
|
Zinc
|
|
Silver
|
|
Change
in metal prices (per pound, except silver per ounce)
|
|
$
|
0.01
|
|
$
|
1.00
|
|
$
|
0.01
|
|
$
|
1.00
|
|
Annual
change in net income attributable to SCC (in millions)
|
|
$
|
6.3
|
|
$
|
23.4
|
|
$
|
1.3
|
|
$
|
9.7
|
|
35
Table of
Contents
Business Segments
.
We view our Company as
having three operating segments and manage on the basis of these segments. These segments are our (1) Peruvian
operations, (2) our Mexican open-pit operations and (3) our Mexican
underground operations, known as our IMMSA unit. Our Peruvian operations include the Toquepala
and Cuajone mine complexes and the smelting and refining plants, industrial
railroad and port facilities which service both mines. The Peruvian operations produce copper, with
significant by-product production of molybdenum, silver and other
material. Our Mexican open-pit
operations include La Caridad and Cananea mine complexes, the smelting and
refining plants and support facilities which service both mines. The Mexican open pit operations produce
copper, with significant by-product production of molybdenum, silver and other
material. Our IMMSA unit includes five
underground mines that produce zinc, lead, copper, silver and gold, a coal mine
which produces coal and coke, and several industrial processing facilities for
zinc, copper and silver.
Segment information is
included in our review of Results of Operations and also in Note M of our
condensed consolidated financial statements.
Inflation and Devaluation
of the Peruvian Nuevo Sol and the Mexican Peso
.
Our functional currency
is the U.S. dollar. Portions of our
operating costs are denominated in Peruvian Nuevos Soles and Mexican
Pesos. Since our revenues are primarily
denominated in U.S. dollars, when inflation/deflation in Peru or Mexico is not
offset by a change in the exchange rate of the Nuevo Sol or the Peso,
respectively, to the dollar, our financial position, results of operations and
cash flows could be adversely affected to the extent that the inflation/devaluation
effects are passed onto us by our suppliers or reflected in our wage
adjustments. In addition, the dollar
value of our net monetary assets denominated in Nuevos Soles or Pesos can be
affected by devaluation of the Nuevo Sol or the Peso, resulting in a
remeasurement loss in our financial statements.
Recent inflation and devaluation rates are provided in the table below
for the three and nine months ended September 30, 2009 and 2008:
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Peru:
|
|
|
|
|
|
|
|
|
|
Peruvian inflation rate
|
|
(0.1
|
)%
|
1.7
|
%
|
(0.1
|
)%
|
5.3
|
%
|
Nuevo Sol/dollar devaluation /(appreciation) rate
|
|
(4.2
|
)%
|
0.3
|
%
|
(8.2
|
)%
|
(0.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
Mexico:
|
|
|
|
|
|
|
|
|
|
Mexican inflation rate
|
|
1.0
|
%
|
1.8
|
%
|
2.3
|
%
|
3.9
|
%
|
Peso/dollar devaluation /(appreciation) rate
|
|
2.3
|
%
|
4.9
|
%
|
(0.3
|
)%
|
(0.8
|
)%
|
Capital Expansion and
Exploration Program
.
We made capital
expenditures of $110.6 million and $316.7 million for the three and nine months
ended September 30, 2009, respectively, compared with $137.6 million and
$320.6 million in the same periods of 2008.
In general, the capital expenditures and projects described below are
intended to increase production and/or decrease costs.
In light of the current
business environment we have suspended many of our capital investments in new
as well as in expansion projects. Set
forth below are descriptions of some of our current expected capital
expenditures. We expect to meet the cash
requirements for these projects from cash on hand, internally generated funds
and from additional external financing, if required.
36
Table of Contents
Peruvian
Operations:
Tia Maria project: This
project, which includes the Tia Maria and La Tapada deposits in the Peruvian
region of Arequipa, is expected to produce about 260 million pounds of SX-EW
copper cathodes per year. The approved
budget for the project is $934 million.
Through September 30, 2009, $250.4 million has been spent on this
project. The detailed engineering is in
progress. Current work on the project
includes equipment fabrication and some early construction work (access roads
and platforms). The environmental impact
assessment (EIA) for the power line and support facilities has been approved by
the Peruvian authorities and construction is underway. Bids for the construction management contract
are being evaluated, while additional drilling is continuing to evaluate water
resources.
In August the
Companys third and final public presentation of the EIA was disrupted by
protesters. The Company is working with
the Peruvian Ministry of Energy and Mines to reschedule this presentation and
to get the EIA approved before year end.
Toquepala concentrator
expansion: As of September 30,
2009, the Company has expended $74.9 million on the Toquepala concentrator
expansion. Proposals for detailed
engineering are in the final evaluation and work is scheduled to commence in
the fourth quarter of this year. One 320
ton truck and two 49HR drilling machines were put in operation, while the
second 73 cubic yard shovel is in its final stage of assembly. Civil works for the push back substation
expansion were completed, and electrical equipment installation is almost
finished. The environmental impact study
is currently being conducted and is also expected to be completed in the fourth
quarter of 2009.
Ilo Smelter
Modernization: A complimentary project
to the Ilo smelter modernization is the construction of a marine trestle to
offload directly to offshore ships the sulfuric acid produced at the
smelter. At September 30, 2009 this
project reached 88.0% completion and is expected to be completed in 2009. The completed project is expected to ease
congestion in our Ilo area.
Tailings disposal at
Quebrada Honda: This project will increase the height of the existing Quebrada
Honda dam to impound future tailings from the Toquepala and Cuajone mills. The procurement of the main equipment and
materials was finished. Construction of
the principal civil, mechanical and electrical installations for the main and
lateral dams has been completed. The
equipment to build the lateral dam was commissioned in December 2008 and
the equipment to continue building the main dam was commissioned in March 2009. At this time there are some pending issues in
order to get to the design capacity.
Progress on the first stage of this project is 99.8% complete, with
final completion expected in the last quarter of 2009. The total cost of this project is estimated
to be $66.0 million, with $40.7 million expended through September 30,
2009.
Mexican operations:
After expending $15.7
million the by-product treatment plant at the La Caridad metallurgical complex
was completed in September and is currently in operation. This plant was recently distinguished winning
the first prize in a nationwide contest to promote waste recycling.
With a total investment
of $17.2 million, the lime plant at Agua Prieta, which is 100 kilometers north
of the La Caridad mine, was fully modernized to comply with environmental
regulations and to meet the lime requirements of the Mexican operations. A vertical Maerz furnace will reduce the
consumption of natural gas to a third of its current level and we expect costs
to be reduced by 45%. No-load tests and
refractory drying were started in September.
The start of operations has been scheduled for October 2009.
37
Table of Contents
Other capital
expenditures:
The El Arco project is a
major copper deposit in the central part of the Baja California peninsula, with
estimated mineralized resources of over 1.3 billion tons. This project is expected to produce 190,000
tons of copper and 105,000 ounces of gold annually. We have recently invested $5.4 million in
land acquisition related to the project.
In addition, a set of studies have been completed evaluating
alternatives to provide El Arco with water and electric power needs. We will consider the development of this
project subject to appropriate investment conditions.
ACCOUNTING ESTIMATES
Our discussion and
analysis of financial condition and results of operations are based on our
condensed consolidated financial statements, which have been prepared in
accordance with US GAAP. Preparation of
these condensed consolidated financial statements requires our management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting periods. Management
makes its best estimate of the ultimate outcome for these items based on
historical trends and other information available when the financial statements
are prepared. Changes in estimates are
recognized in accordance with the accounting rules for the estimate, which
is typically in the period when new information becomes available to
management. Areas where the nature of
the estimate makes it reasonably possible that actual results could materially
differ from amounts estimated include: ore reserves, revenue recognition,
estimated mine stripping ratios, leachable material and related amortization,
the estimated useful lives of fixed assets, asset retirement obligations,
litigation and contingencies, valuation allowances for deferred tax assets, tax
positions, fair value of financial instruments and inventory obsolescence. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances. Actual results
may differ from these estimates under different assumptions or conditions.
PRODUCTION
Three months:
Mine copper production in
the third quarter of 2009 was higher than planned and increased 1.3% to 265.1
million pounds from 261.6 million pounds in the same period of 2008. The increase of 3.5 million pounds was mainly
due to 8.3 million pounds of higher production at the Toquepala mine and 2.9
million pounds at the La Caridad mine, both due to higher ore grades and
improved recoveries. These increases
were partially offset by 7.0 million pounds of lower production at the Cuajone
mine principally due to lower ore grade and 0.9 million pounds of lower SX-EW
production at the Toquepala and La Caridad mines due to lower material
processed and lower PLS grade at La Caridad mine.
In the third quarter of
2009, molybdenum production increased 14.3% to 11.4 million pounds, from 10.0
million pounds in the third quarter of 2008.
This increase was due to 1.6 million pounds of higher production at the
Cuajone mine due to higher grades and improved recovery and 1.4 million pounds
of higher production at the La Caridad mine due to higher recovery. These increases were partially offset by 1.6
million of lower production at the Toquepala mine, due to lower grades.
Zinc mine production in
the third quarter of 2009 was 3.5% higher than the comparable period of
2008. Charcas and Santa Barbara mines
had higher grades and the Santa Eulalia and Charcas mines increased
recovery. The refined zinc production
was also
38
Table of Contents
4.2% higher for the same
period as a result of the improved performance of the San Luis Potosi zinc
refinery.
Nine months:
Mine copper production in
the nine months ended September 30, 2009 was lower than the comparable
2008 period decreasing 1.2% to 792.1 million pounds from 802.0 million
pounds. The decrease of 9.9 million
pounds was mainly due to 9.1 million pounds of lower production at the Cuajone
mine as a result of lower ore grades and recoveries and zero production at the
Cananea mine and SX-EW plant in 2009 compared to production of 34.4 million
pounds in the 2008 period. These
decreases were partially offset by 18.0 million pounds of higher production at
the Toquepala mine due to higher ore grade and improved recoveries, 11.8
million pounds and 3.3 million pounds of higher mine and SX-EW production at La
Caridad mine, respectively, and 0.5 million pounds of higher production from
IMMSA.
In the nine months ended September 30,
2009, molybdenum production increased 10.3% to 30.1 million pounds, from 27.3
million pounds in the comparable 2008 period.
This increase was due to 4.3 million pounds higher production from the
La Caridad mine and 2.1 million of higher production from the Cuajone mine;
both due to higher ore grades and recoveries, partially offset by a decrease in
production of 3.6 million pounds at the Toquepala mine, due to lower ore grade
and recovery.
Zinc mine production in
the nine months ended September 30, 2009 was 4.2% higher than the
comparable period of 2008. Charcas and
Santa Barbara mines had higher grades and Santa Eulalia and Charcas mines
increased recovery. The refined zinc
production was also 4.7% higher for the same period as a result of the improved
performance of the San Luis Potosi zinc refinery.
RESULTS OF OPERATIONS
The following highlights
key financial and operating results for the three and nine months ended September 30,
2009 and 2008 (in millions):
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Net sales
|
|
$
|
1,151.8
|
|
$
|
1,440.1
|
|
$
|
2,598.3
|
|
$
|
4,401.1
|
|
Operating costs and expenses
|
|
(643.1
|
)
|
(764.2
|
)
|
(1,642.2
|
)
|
(2,068.0
|
)
|
Operating income
|
|
508.7
|
|
675.9
|
|
956.1
|
|
2,333.1
|
|
Non-operating income (expense)
|
|
(26.8
|
)
|
(5.8
|
)
|
(59.5
|
)
|
(29.1
|
)
|
Income before income taxes
|
|
481.9
|
|
670.1
|
|
896.6
|
|
2,304.0
|
|
Income taxes
|
|
(167.6
|
)
|
(249.7
|
)
|
(327.1
|
)
|
(764.6
|
)
|
Net income attributable to non-controlling
interest
|
|
(1.8
|
)
|
(2.6
|
)
|
(3.4
|
)
|
(8.1
|
)
|
Net income attributable to SCC
|
|
$
|
312.5
|
|
$
|
417.8
|
|
$
|
566.1
|
|
$
|
1,531.3
|
|
Average Metal Prices
The table below outlines
the average metal prices during the three and nine months ended September 30,
2009 and 2008:
|
|
Three Months Ended
September 30,
|
|
|
|
2009
|
|
2008
|
|
% Change
|
|
Copper ($ per pound LME)
|
|
$
|
2.66
|
|
$
|
3.48
|
|
(23.6
|
)
|
Copper ($ per pound COMEX)
|
|
$
|
2.67
|
|
$
|
3.45
|
|
(22.6
|
)
|
Molybdenum ($ per pound)
|
|
$
|
14.50
|
|
$
|
33.27
|
|
(56.4
|
)
|
Zinc ($ per pound LME)
|
|
$
|
0.80
|
|
$
|
0.80
|
|
|
|
Silver ($ per ounce COMEX)
|
|
$
|
14.76
|
|
$
|
14.92
|
|
(1.1
|
)
|
39
Table of Contents
|
|
Nine Months Ended
September 30,
|
|
|
|
2009
|
|
2008
|
|
% Change
|
|
Copper ($ per pound LME)
|
|
$
|
2.11
|
|
$
|
3.62
|
|
(41.7
|
)
|
Copper ($ per pound COMEX)
|
|
$
|
2.13
|
|
$
|
3.59
|
|
(40.7
|
)
|
Molybdenum ($ per pound)
|
|
$
|
10.78
|
|
$
|
33.01
|
|
(67.3
|
)
|
Zinc ($ per pound LME)
|
|
$
|
0.67
|
|
$
|
0.95
|
|
(29.5
|
)
|
Silver ($ per ounce COMEX)
|
|
$
|
13.71
|
|
$
|
16.57
|
|
(17.3
|
)
|
Net Sales.
Net sales for the three and nine months ended September 30,
2009 decreased by $288.3 million and $1,802.8 million, respectively, compared
with the same periods of 2008. These
20.0% and 41.0% decreases were due to lower metal sales prices partially offset
by higher sales volume of copper and our significant by-products as shown
below.
The table below presents
information regarding the volume of our copper sales by segment for the three
and nine months ended September 30, 2009 and 2008:
Copper Sales (million
pounds)
:
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Peruvian operations
|
|
224.6
|
|
193.5
|
|
605.7
|
|
546.0
|
|
Mexican open-pit
|
|
76.5
|
|
82.9
|
|
217.7
|
|
245.7
|
|
Mexican IMMSA unit
|
|
8.1
|
|
7.4
|
|
27.3
|
|
26.0
|
|
Other and intersegment elimination
|
|
(5.8
|
)
|
0.5
|
|
(11.2
|
)
|
(8.7
|
)
|
Total
|
|
303.4
|
|
284.3
|
|
839.5
|
|
809.0
|
|
The table below presents
information regarding the volume of sales by segment of our significant
by-products for the three and nine months ended September 30, 2009 and
2008:
By-product Sales
:
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
(in million pounds except
silver in million ounces)
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Peruvian
operations
|
|
|
|
|
|
|
|
|
|
Molybdenum
contained in concentrates
|
|
5.9
|
|
5.9
|
|
13.8
|
|
15.7
|
|
Silver
|
|
1.2
|
|
1.2
|
|
3.2
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
Mexican
open-pit
|
|
|
|
|
|
|
|
|
|
Molybdenum
contained in concentrates
|
|
5.4
|
|
4.2
|
|
16.1
|
|
12.0
|
|
Silver
|
|
1.5
|
|
1.5
|
|
4.6
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
Mexican
IMMSA unit
|
|
|
|
|
|
|
|
|
|
Zinc
refined and in concentrate
|
|
57.7
|
|
56.0
|
|
170.8
|
|
162.0
|
|
Silver
|
|
3.5
|
|
2.3
|
|
9.2
|
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
Other
and intersegment elimination
|
|
|
|
|
|
|
|
|
|
Zinc
refined and in concentrate
|
|
(0.2
|
)
|
0.5
|
|
1.1
|
|
1.2
|
|
Silver
|
|
(1.3
|
)
|
(0.3
|
)
|
(3.8
|
)
|
(1.6
|
)
|
|
|
|
|
|
|
|
|
|
|
Total
by-product sales
|
|
|
|
|
|
|
|
|
|
Molybdenum
contained in concentrates
|
|
11.3
|
|
10.1
|
|
29.9
|
|
27.6
|
|
Zinc
refined and in concentrate
|
|
57.5
|
|
56.5
|
|
171.9
|
|
163.2
|
|
Silver
|
|
4.9
|
|
4.7
|
|
13.2
|
|
11.1
|
|
40
Table of
Contents
Operating Costs and
Expenses
Three months:
Operating costs and
expenses were $643.0 million in the third quarter of 2009 compared with $764.1
million in the same period of 2008. The decrease of $121.1 million was
principally due to lower cost of sales (exclusive of depreciation, amortization
and depletion).
Cost of sales (exclusive
of depreciation, amortization and depletion) in the third quarter 2009 was
$529.9 million compared with $645.8 million in the same period of 2008. The decrease of $115.9 million was primarily
attributable to the following: 1) $73.0 million of lower fuel and power cost
mainly as a result of the lower cost of coal and other fuels used as indices in
the calculation of our Peruvian power tariff, 2) $23.3 million of lower labor,
material repair and other production cost mainly in our Mexican operations due
to the strike activity 3) $19.1 million of lower workers participation due to
reduced earnings.
Nine months:
Operating costs and
expenses were $1,642.2 million in the nine months ended September 30, 2009
compared with $2,068.0 million in the comparable 2008 period. The decrease of $425.8 million was
principally due to lower cost of sales (exclusive of depreciation, amortization
and depletion).
Cost of sales (exclusive
of depreciation, amortization and depletion) in the nine months ended September 30,
2009 was $1,324.8 million compared with $1,716.8 million in same period of
2008. The decrease of $392.0 million was
primarily attributable to the following: 1) $168.0 million of lower fuel and
power cost as a result of the lower cost of coal and other fuels used as
indices in the calculation of our Peruvian power tariff, 2) $69.7 million of
lower production costs principally related to labor and operating and repair
material costs mainly in our Mexican operations due to the strike activity, 3)
$135.9 million of lower workers participation due to lower earnings and 4) a
decrease of $19.4 million in the Peruvian mining royalty charge.
Non-Operating Income
(Expense)
:
Interest expense for the three and nine months ended September 30, 2009
was 1.9% and 7.3% lower than the comparable 2008 periods. These decreases were principally due to the
lower average debt level in the 2009 periods and lower interest rate on the
Mitsui loan.
Interest income was $0.8
million and $6.0 million for the three and nine months ended September 30,
2009, respectively, compared to $9.8 million and $39.4 million in the
comparable 2008 periods. The decrease
was largely the result of lower cash balances.
Lower earnings in the 2009 periods as a result of reduced metal prices,
significantly reduced our 2009 cash flow.
The gain (loss) on
derivative instruments for the three and nine months ended September 30,
2009 was a loss of less than $0.1 million and a gain of $4.1 million,
respectively, compared with losses of $13.6 million and $12.7 million in the
comparable 2008 periods. These gain
(loss) amounts were the result of U.S. dollar/Mexican peso exchange rate
derivative activity. Please see details
in Note G, Derivative instruments, of our condensed consolidated financial
statements.
Other income (expense) in
the third quarter of 2009 and nine months ended September 30, 2009 were
income of $0.8 million and $2.6 million compared to income of $21.3 million and
$19.7 million in the comparable 2008 periods.
These decreases of $20.5 million and $19.7 million, respectively were
principally due to: 1) $26.3 million of gain on the sale of inactive properties
in our Mexican operations in 2008, and 2) as a result of
41
Table of Contents
lower earnings, the
charge for the contribution to the Peruvian development fund decreased by $1.5
million and $7.0 million in the third quarter and nine month periods of 2009,
respectively.
Income taxes
: The income tax provision for the nine
months ended September 30, 2009 and 2008 was $327.1 million and $764.6
million, respectively. These provisions
include income taxes for Peru, Mexico and the United States. The provision for income taxes was based on
our effective tax rate of 36.5% for the nine months of 2009 as compared to
33.2% during the same period in 2008.
The increase in the effective tax rate for the nine months of 2009 is
largely due to the incremental U.S. tax provided on dividend distributions made
by our Mexican subsidiary to the U.S. parent.
This dividend distribution is taxable in the U.S. at the difference
between the 35% U.S. statutory rate and the foreign tax credit rate of 28.0%.
As of March 27,
2009, Grupo Mexico, through its wholly-owned subsidiary AMC, became the
beneficial owner of 80% of SCCs common stock.
As a result of this new level of ownership, beginning March 27,
2009 SCC will no longer file a separate U.S. federal income tax return and its
operating results will be included in the AMC consolidated U.S federal income
tax return. In addition to now holding
an 80% interest in SCC, AMC also owns 100% of Asarco and its subsidiaries. In accordance with paragraph 30-27 of ASC
740-10-30, it is expected that current and deferred taxes will be allocated to
members of the AMC group as if each were a separate taxpayer. We have initiated discussions with AMC to put
in place a tax sharing agreement in order to establish this allocation as well
as other procedures and policies necessary for an equitable management of U.S.
federal income tax matters. SCC provides
current and deferred income taxes, as if it were a separate filer.
Segment Results
Analysis
Peruvian Open Pit
Operations
The following table sets
forth net sales, operating cost and expenses and operating income for our
Peruvian open pit operations segment, for the three and nine months ended September 30,
2009 and 2008 (in millions):
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Net
sales
|
|
$
|
710.8
|
|
$
|
814.9
|
|
$
|
1,532.9
|
|
$
|
2,571.7
|
|
Operating
costs and expenses
|
|
(370.6
|
)
|
(366.2
|
)
|
(869.8
|
)
|
(1,003.8
|
)
|
Operating
income
|
|
$
|
340.2
|
|
$
|
448.7
|
|
$
|
663.1
|
|
$
|
1,567.9
|
|
Three months
:
Net sales in the third
quarter of 2009 decreased by $104.1 million to $710.8 million from $814.9
million in the third quarter of 2008.
This decrease in net sales was principally the result of lower metal
prices. An increase in the volume of
copper sales of 31.1 million pounds in the third quarter of 2009, helped to
reduce the sales price decrease.
Operating costs and expenses
in the third quarter of 2009 increased by $4.4 million to $370.6 million from
$366.2 million in the third quarter of 2008, principally due to higher
depreciation on mine equipment placed in service at the Toquepala and Cuajone
operations.
42
Table of Contents
Nine months
:
Net sales in the nine
months ended September 30, 2009 decreased by $1,038.8 million, to $1,532.9
million from $2,571.7 million in the same period of 2008. This decrease in net sales was principally
the result of lower metal prices partially offset by higher volume of copper
sales.
Operating costs and
expenses in the nine months ended September 30, 2009 decreased by $134.0
million to $869.8 million from $1,003.8 million in the comparable 2008 period,
principally due to $137.7 million of lower cost of sales (exclusive of
depreciation, amortization and depletion).
Cost of sales (exclusive
of depreciation, amortization and depletion) for the nine months ended September 30,
2009 was $738.4 million compared to $876.0 million in the comparable 2008
period. The principal elements of cost
of sales, causing this reduction, include the following: 1) $101.8 million of
lower fuel and power cost due a decrease in market prices, 2) $98.4 million of
lower workers participation due to lower earnings and 3) $22.0 million of
lower mine royalties, 4) partially offset by $62.9 million of higher copper
purchases from third parties.
Mexican Open Pit
Operations
The following table sets
forth net sales, operating cost and expenses and operating income for our
Mexican open pit operations segment for the three and nine months ended September 30,
2009 and 2008 (in millions):
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Net
sales
|
|
$
|
328.3
|
|
$
|
501.7
|
|
$
|
763.8
|
|
$
|
1,439.5
|
|
Operating
costs and expenses
|
|
(196.9
|
)
|
(265.9
|
)
|
(547.1
|
)
|
(763.9
|
)
|
Operating
income
|
|
$
|
131.4
|
|
$
|
235.8
|
|
$
|
216.7
|
|
$
|
675.6
|
|
Three months
:
Net sales in the third
quarter of 2009 decreased by $173.4 million to $328.3 million from $501.7
million in the third quarter of 2008.
The decrease was due to lower metal prices and to a reduction of 6.4
million pounds of copper sold.
Operating costs and
expenses in the third quarter of 2009 decreased by $69.0 million to $196.9
million from $265.9 million in the comparable 2008 period, principally due to
lower cost of sales. Cost of sales (exclusive of depreciation, amortization and
depletion) decreased $62.3 million to $145.5 million in the third quarter of
2009 from $207.8 million in the third quarter of 2008. The decrease in cost of sales included: 1)
lower production cost of $32.1 million as a result of lower fuel and power
costs and the strike at the Cananea mine, 2) $11.1 million of lower workers
participation due to lower earnings, and 3) changes in inventory levels.
Nine months
:
Net sales in the nine
months ended September 30, 2009 decreased by $675.7 million, to $763.8
million from $1,439.5 million in the comparable 2008 period. The decrease was due to lower metal prices
and lower copper sales volume partially offset by higher molybdenum sales
volume.
Operating costs and
expenses in the nine months ended September 30, 2009 decreased by $216.8
million to $547.1 million from $763.9 million in comparable 2008 period,
principally due to lower cost of sales.
Cost of sales (exclusive of depreciation, amortization and depletion)
decreased $194.1 million to $397.7 million from $591.8
43
Table of Contents
million in the comparable
2008 period. The decrease in cost of
sales included: 1) lower production cost of $83.3 million due to lower fuel and
power costs and the strike at the Cananea mine, 2) $34.9 million decrease in
workers participation due to lower earnings, 3) $22.4 million of lower metal
purchases from third parties and 4) $39.9 million of lower cost incurred at the
Cananea mine related to the strike.
Mexican
Underground Operations (IMMSA)
The following table sets
forth net sales, operating cost and expenses and operating income for our IMMSA
segment, for the three and nine months ended September 30, 2009 and 2008
(in millions):
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Net
sales
|
|
$
|
150.2
|
|
$
|
126.7
|
|
$
|
388.6
|
|
$
|
451.9
|
|
Operating
costs and expenses
|
|
(117.0
|
)
|
(133.6
|
)
|
(313.8
|
)
|
(361.1
|
)
|
Operating
income
|
|
$
|
33.2
|
|
$
|
(6.9
|
)
|
$
|
74.8
|
|
$
|
90.8
|
|
Three months
:
Net sales in the third
quarter of 2009 increased by $23.5 million to $150.2 million from $126.7
million in the third quarter of 2008.
This increase in net sales was principally due to higher copper, zinc
and silver sales volume. These volume
increases were mainly due to higher ore grades and recoveries at the Santa
Eulalia, Santa Barbara and Charcas mines.
Operating costs and
expenses in the third quarter of 2009 decreased by $16.6 million to $117.0 million
from $133.6 million in the comparable 2008 period. This decrease was principally due to lower
cost of sales (exclusive of depreciation, amortization and depletion) which
decreased by $11.6 million. This
decrease included: 1) lower production cost of $20.0 million due to lower fuel
and power costs and the strikes at the San Martin and Taxco mines, 2) $5.4
million of lower metal purchases from third parties, 3) partially offset by
$4.3 million of higher workers participation related to higher earnings and 4)
to changes in inventory levels.
Nine months:
Net sales in the nine
months ended September 30, 2009 decreased by $63.3 million, to $388.6
million from $451.9 million in the comparable 2008 period. This decrease in net sales was principally
due to lower metal prices partially offset by higher copper, zinc and silver
sales volume. These volume increases
were mainly due to higher ore grades and recoveries at the Santa Eulalia, Santa
Barbara and Charcas mines.
Operating costs and
expenses in the nine months ended September 30, 2009 decreased by $47.3
million to $313.8 million from $361.1 million in the comparable 2008
period. This decrease was principally
due to lower cost of sales (exclusive of depreciation, amortization and
depletion) which decreased by $31.4 million to $281.5 million from $312.9
million in 2008. The decrease in cost of
sales was mainly due to: 1) $49.7 million of lower fuel, power, labor and other
production costs, 2) $10.4 million of lower metal purchases from third parties,
and 3) partially offset by changes in inventory levels.
Intersegment Eliminations
and Adjustments
The net sales, operating
costs and expenses and operating income displayed above will not be directly
equal to amounts in our condensed consolidated statement of earnings because
the adjustments of intersegment operating revenues and expenses must be taken
into account. Please see Note M of the
condensed consolidated financial statements.
44
Table of Contents
CASH FLOW
Three months
:
The following table shows
the cash flow for the three months ended September 30, 2009 and 2008 (in
millions):
|
|
Three Months Ended
September 30
|
|
|
|
2009
|
|
2008
|
|
Variance
|
|
Net
cash provided from operating activities
|
|
$
|
380.6
|
|
$
|
700.3
|
|
$
|
(319.7
|
)
|
Net
cash used for investing activities
|
|
$
|
(100.9
|
)
|
$
|
(69.3
|
)
|
$
|
(31.6
|
)
|
Net
cash used for financing activities
|
|
$
|
(86.7
|
)
|
$
|
(574.3
|
)
|
$
|
487.6
|
|
Net cash provided from
operating activities:
The decrease of $319.7
million in the third quarter 2009 cash provided from operating activities from
third quarter 2008 was due to the reduction of $105.4 million in net income
attributable to SCC and an increase in working capital needs of $240.9 million
partially offset by an increase of $26.6 million on adjustments to reconcile
earnings to cash. The reduction in net income was primarily due to lower metal
prices.
In the third quarter 2009
net income attributable to SCC was $312.5 million approximately 82% of the net
operating cash flow. Significant items
(deducted from), or added to, operating cash flow included, depreciation,
amortization and depletion of $82.3 million, which increased operating cash
flow, and ($13.3) million of deferred income tax benefit and ($8.3) million of
unrealized gain on derivative instruments, which decreased operating cash flow.
In addition, in the third
quarter of 2009 a decrease in working capital increased operating cash flow by
$10.4 million. The third quarter 2009
and 2008 decrease in cash from working capital includes (in millions):
|
|
Three Months Ended September 30,
|
|
|
|
2009
|
|
2008
|
|
Variance
|
|
Accounts receivable
|
|
$
|
(103.3
|
)
|
$
|
109.4
|
|
$
|
(212.7
|
)
|
Inventories
|
|
38.9
|
|
(0.9
|
)
|
39.8
|
|
Accounts payable and accrued liabilities
|
|
(9.3
|
)
|
28.0
|
|
(37.3
|
)
|
Other operating assets and liabilities
|
|
84.1
|
|
114.8
|
|
(30.7
|
)
|
Total
|
|
$
|
10.4
|
|
$
|
251.3
|
|
$
|
(240.9
|
)
|
The increase in accounts
receivable value was due to higher metal prices and higher sales volume in the
third quarter 2009 from the second quarter 2009. During the third quarter of 2009, the LME and
COMEX copper price increased 20%, and molybdenum, zinc and silver increased by
27.8%, 23.1% and 19.1%, respectively.
The decrease in inventories of $38.9 million was mainly due to higher
sales and higher consumption of supplies principally at our Peruvian
operations. The decrease in accounts
payable and accrued liabilities was mainly due to a decrease in accounts
payable trade as a result of the lower prices of supplies and the strikes at
our Mexican operations
In the third quarter 2008, net income attributable to
SCC was $417.8 million, approximately 60.0% of the net operating cash
flow. Significant items (deducted from),
or added to arrive to operating cash flow included, a gain on sale of
investment of ($26.3) million, ($20.5) million of unrealized gain on derivative
instruments and a foreign currency translation gain of ($15.5) million. Depreciation, amortization and depletion of
$83.9 million were added to operating cash flow.
45
Table of Contents
In addition, in the third quarter of 2008 a decrease
in working capital increased operating cash flow by $251.3 million. The major components of this were the
decrease of $109.4 million in accounts receivable and an increase of $114.8
million in other operating assets and liabilities.
Net cash used for
investing activities:
Net cash used for
investing activities in the third quarter of 2009 included $110.6 million for
capital expenditures. The capital
expenditures included $82.7 million of investments at our Peruvian operations,
$63.2 million for the Tia Maria project, $2.1 million for the Toquepala
expansion project, and $17.4 million for various other replacement
expenditures. In addition, we spent
$27.9 million for replacement assets at our Mexican operations, $13.7 million
of which was at our Mexican open pit operations, $3.3 million at our IMMSA unit
and $10.9 million at our administrative office in Mexico City. The third quarter 2009 cash from investing
activities also includes proceeds of $8.8 million from the redemption of
short-term investments.
Net cash used for investing activities in the third
quarter of 2008 was $69.3 million and included $137.6 million for capital
expenditures. The capital expenditures
included $86.5 million of investments at our Peruvian operations and $51.1
million for replacement assets at our Mexican operations. The third quarter 2008 cash from investing
activities also includes proceeds of $55.4 million from sale of property by our
Mexican operations and $11.8 million from the redemption of short-term
investments.
Net cash used for
financing activities:
Net
cash used for financing activities in the third quarter of 2009 was $86.7
million, compared with $574.3 million in the third quarter of 2008. The third quarter of 2009 includes a dividend
distribution of $86.3 million, compared with a distribution of $503.5 million
in the third quarter of 2008. In
addition, the third quarter of 2008 had a purchase of 3.3 million shares of our
common stock at a cost of $68.5 million compared to a purchase of 12,000 shares
at a cost of $0.3 million in the third quarter of 2009.
Nine
months
:
The following table shows
the cash flow for the nine months ended September 30, 2009 and 2008 (in
millions):
|
|
Nine Months Ended
September 30,
|
|
|
|
2009
|
|
2008
|
|
Variance
|
|
Net
cash provided from operating activities
|
|
$
|
296.7
|
|
$
|
1,612.5
|
|
$
|
(1,315.8
|
)
|
Net
cash used for investing activities
|
|
$
|
(274.3
|
)
|
$
|
(229.5
|
)
|
$
|
(44.8
|
)
|
Net
cash used for financing activities
|
|
$
|
(300.6
|
)
|
$
|
(1,648.2
|
)
|
$
|
1,347.6
|
|
Net cash provided from
operating activities:
The decrease of $1,315.8
million in the nine months ended September 30, 2009 cash provided from
operating activities, compared with the same period of 2008, was due to the
reduction of $965.1 million in net income attributable to SCC, a decrease of
$24.1 million on adjustments to reconcile earnings to cash and $374.7 million
of increased working capital needs. The
reduction in net income was primarily due to lower metal prices.
The nine months ended September 30,
2009 and 2008 decrease from working capital includes (in millions):
46
Table of Contents
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
2008
|
|
Variance
|
|
Accounts receivable
|
|
$
|
(302.8
|
)
|
$
|
23.6
|
|
$
|
(326.4
|
)
|
Inventories
|
|
33.9
|
|
(44.2
|
)
|
78.1
|
|
Accounts payable and accrued liabilities
|
|
(360.4
|
)
|
(172.7
|
)
|
(187.7
|
)
|
Other operating assets and liabilities
|
|
127.8
|
|
66.5
|
|
61.3
|
|
Total
|
|
$
|
(501.5
|
)
|
$
|
(126.8
|
)
|
$
|
(374.7
|
)
|
In the nine months ended September 30,
2009, net income attributable to SCC was $566.1 million. Significant items (deducted from), or added
to arrive to operating cash flow included, depreciation, amortization and
depletion of $239.2 million, $40.1 million deferred income tax provision, and
($57.0) million of unrealized gain on derivative instruments.
In addition, an increase
in working capital decreased operating cash flow by $501.5 million. The increase in accounts receivable value was
due to the higher metal prices for most of our products. The LME and COMEX copper price increased
111.4% and 94.6%, respectively, during the period and molybdenum, silver and
zinc increased 42.6%, 43.5% and 70.8%, respectively. The decrease in accounts payable and accrued
liabilities was mainly due to a $112.8 million decrease in workers
participation, due to the payment of the 2008 provision and lower accrual in
the current period, and $181.9 million decrease in accounts payable.
In the nine months ended September 30, 2008, net
income attributable to SCC was $1,531.3 million, approximately 95.0% of the net
operating cash flow. Significant items
(deducted from), or added to arrive to operating cash flow included,
depreciation amortization and depletion of $248.3 million and $6.5 million of
gains in currency translation, ($10.3) million of deferred income tax benefit,
($28.6) million of net gain on sale of property and ($18.4) million of
unrealized gain on derivative instruments.
In addition, an increase in working capital decreased
operating cash flow by $126.8 million.
Net
cash used for investing activities:
Net
cash used for investing activities in the nine months ended September 30,
2009 included $316.7 million for capital expenditures. The capital expenditures included $220.9
million of investments at our Peruvian operations, $132.4 million for the Tia
Maria project, $37.2 million for the Toquepala expansion project, $4.2 million
for the Cuajone expansion and $47.1 million for various other replacement
expenditures. In addition, we spent
$95.8 million for replacement assets at our Mexican operations, $55.8 million
of which was at our Mexican open pit operations, $17.9 million at our IMMSA
unit and $22.1 million at our administrative office in Mexico City. For the nine months ended September 30,
2009 cash from investing activities also includes proceeds of $39.6 million
from the redemption of short-term investments.
Net
cash used for investing activities in the nine months of 2008 was $229.5
million and included $320.6 million for capital expenditures. The capital expenditures included $167.9
million of investments at our Peruvian operations and $152.7 million for
replacement assets at our Mexican operations, $107.9 million at our Mexican
open pit operations, $30.9 million at our IMMSA unit and $13.9 million at our
Mexican administrative office.
Net
cash used for financing activities:
Net
cash used for financing activities in the nine months ended September 30,
2009 was $300.6 million, compared with $1,648.2 million in the same period of
2008. The nine months ended September 30,
2009 include a dividend distribution of $224.1 million,
47
Table of Contents
compared
with a distribution of $1,416.4 million in the nine months of 2008. Also, the nine months of 2009 include the
purchase of 4.9 million shares of our common stock at a cost of $71.9 million
compared to a purchase of 3.3 million shares at a cost of $68.5 million in
2008. In addition, the nine months ended
September 30, 2008 had a debt repayment of $155.0 million, compared with a
debt repayment of $5.0 million in the same period of 2009.
LIQUIDITY
AND CAPITAL RESOURCES
On September 2,
2009, we paid a quarterly dividend of 10.0 cents per share, totaling $86.3
million. On October 19, 2009, our
Board of Directors authorized a dividend of 18 cents per share to be paid on November 24,
2009 to SCC shareholders of record at the close of business on November 5,
2009.
In the first
quarter of 2009, pursuant to our $500 million share repurchase program we
purchased 4.9 million shares of our common stock at a cost of $71.6
million. In addition, in the third
quarter of 2009 we purchased 12,000 shares of our common stock at a cost of
$0.3 million. These shares will be
available for general corporate purposes.
Also, during the same period, Grupo Mexico, through its wholly owned
subsidiary AMC, purchased 4.9 million of our common shares. With these acquisitions Grupo Mexico directly
or indirectly owns 80% of our outstanding shares. Please see Note E, Income taxes, of our
condensed consolidated financial statements regarding disclosure about the U.S.
federal income tax implications of this increase in ownership.
We
expect that we will meet our cash requirements for 2009 and beyond from cash on
hand, internally generated funds and from additional external financing if
required.
Our
ratio of debt to total capitalization was 26.1% at
September
30, 2009,
compared with 27.5% at December 31, 2008.
NON-GAAP INFORMATION
RECONCILIATION
Reconciliation of
operating cash cost to GAAP cost of sales in millions of dollars and cents per
pound.
|
|
Three Months Ended September 30,
|
|
|
|
2009
|
|
2008
|
|
|
|
$ million
|
|
¢ per pound
|
|
$ million
|
|
¢ per pound
|
|
Cost of sales (exclusive of depreciation,
amortization and depletion) GAAP
|
|
$
|
529.9
|
|
191.1
|
|
$
|
645.8
|
|
222.4
|
|
Add:
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
23.8
|
|
8.6
|
|
25.9
|
|
8.9
|
|
Treatment and refining charges
|
|
21.0
|
|
7.6
|
|
15.3
|
|
5.3
|
|
By-products revenue (1)
|
|
(377.0
|
)
|
(136.0
|
)
|
(535.9
|
)
|
(184.5
|
)
|
Less:
|
|
|
|
|
|
|
|
|
|
Workers participation
|
|
(56.5
|
)
|
(20.4
|
)
|
(75.6
|
)
|
(26.0
|
)
|
Royalty charge and other
|
|
(34.0
|
)
|
(12.2
|
)
|
(13.4
|
)
|
(4.7
|
)
|
Inventory change
|
|
(31.3
|
)
|
(11.3
|
)
|
(9.9
|
)
|
(3.4
|
)
|
Operating cash cost
|
|
$
|
75.9
|
|
27.4
|
|
$
|
52.2
|
|
18.0
|
|
|
|
|
|
|
|
|
|
|
|
Add by-product revenue
|
|
377.0
|
|
136.0
|
|
535.9
|
|
184.5
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash cost, without by-product revenue
|
|
$
|
452.9
|
|
163.4
|
|
$
|
588.1
|
|
202.5
|
|
|
|
|
|
|
|
|
|
|
|
Total pounds of copper produced and purchased (in
millions)
|
|
277.3
|
|
|
|
290.4
|
|
|
|
48
Table of Contents
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
2008
|
|
|
|
$ million
|
|
¢ per pound
|
|
$ million
|
|
¢ per pound
|
|
Cost of sales (exclusive of depreciation,
amortization and depletion) GAAP
|
|
$
|
1,324.8
|
|
160.8
|
|
$
|
1,716.8
|
|
202.8
|
|
Add:
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
60.7
|
|
7.4
|
|
77.3
|
|
9.1
|
|
Treatment and refining charges
|
|
35.9
|
|
4.4
|
|
29.8
|
|
3.5
|
|
By-products revenue (1)
|
|
(855.3
|
)
|
(103.8
|
)
|
(1,485.1
|
)
|
(175.4
|
)
|
Less:
|
|
|
|
|
|
|
|
|
|
Workers participation
|
|
(83.2
|
)
|
(10.1
|
)
|
(219.0
|
)
|
(25.9
|
)
|
Royalty charge and other
|
|
(78.6
|
)
|
(9.6
|
)
|
(120.3
|
)
|
(14.2
|
)
|
Inventory change
|
|
(13.2
|
)
|
(1.6
|
)
|
30.5
|
|
3.6
|
|
Operating cash cost
|
|
$
|
391.1
|
|
47.5
|
|
$
|
30.0
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
Add by-product revenue
|
|
855.3
|
|
103.8
|
|
1,485.1
|
|
175.4
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash cost, without by-product revenue
|
|
$
|
1,246.4
|
|
151.3
|
|
$
|
1,515.1
|
|
178.9
|
|
|
|
|
|
|
|
|
|
|
|
Total pounds of copper produced and purchased (in
millions)
|
|
823.8
|
|
|
|
846.7
|
|
|
|
(1)
Includes net by-product sales revenue and
premiums on sales of refined products.
Impact of New
Accounting Standards
Please see Note N to our
condensed consolidated financial statements.
49
Table of Contents
Item 3. Quantitative and
Qualitative Disclosure about Market Risk
A portion of our
outstanding debt bears interest at variable rates and accordingly is sensitive
to changes in interest rates. Interest
rate changes would also result in gains or losses in the market value of our
fixed rate debt portfolio due to differences in market interest rates and the
rates at the inception of the debt agreements.
Based upon our indebtedness at September 30, 2009, a change in
interest rates of one percent (or 100 basis points) would impact net income and
cash flows by $0.5 million annually.
We are also exposed to
market risk associated with changes in foreign currency exchange rates as
certain costs incurred are in currencies other than our functional
currency. To manage the volatility
related to the risk, we may enter into forward exchange contracts, currency
swaps or other currency hedging arrangements.
Inflation and Devaluation
of the Peruvian Nuevo Sol and the Mexican Peso:
Our functional currency
is the U.S. dollar. Portions of our
operating costs are denominated in Peruvian Nuevos Soles and Mexican
Pesos. Since our revenues are primarily
denominated in U.S. dollars, when inflation/deflation in Peru or Mexico is not
offset by a change in the exchange rate of the Nuevo Sol or the Peso,
respectively, to the dollar, our financial position, results of operations and
cash flows could be adversely affected to the extent that the
inflation/devaluation effects are passed on to us by our suppliers or reflected
in our wage adjustments. In addition,
the dollar value of our net monetary assets denominated in Nuevos Soles or
Pesos can be affected by devaluation of the Nuevo Sol or the Peso, resulting in
a remeasurement loss in our financial statements. Recent inflation and devaluation rates are
provided in the table below for the three and nine months ended September 30,
2009 and 2008:
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Peru:
|
|
|
|
|
|
|
|
|
|
Peruvian inflation rate
|
|
(0.1
|
)%
|
1.7
|
%
|
(0.1
|
)%
|
5.3
|
%
|
Nuevo Sol/dollar devaluation/(appreciation) rate
|
|
(4.2
|
)%
|
0.3
|
%
|
(8.2
|
)%
|
(0.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
Mexico:
|
|
|
|
|
|
|
|
|
|
Mexican inflation rate
|
|
1.0
|
%
|
1.8
|
%
|
2.3
|
%
|
3.9
|
%
|
Peso / dollar devaluation/(appreciation) rate
|
|
2.3
|
%
|
4.9
|
%
|
(0.3
|
)%
|
(0.8
|
)%
|
Change in monetary
position:
Assuming an exchange rate
variance of 10% at September 30, 2009 we estimate our net monetary
position in Peruvian Nuevo Sol and Mexican Peso would increase (decrease) our
net earnings as follows:
Variance
|
|
Effect in net earnings
|
|
|
|
($ in millions)
|
|
Appreciation
of 10% in exchange rate dollar vs. Nuevo Sol
|
|
6.6
|
|
Devaluation
of 10% in exchange rate dollar vs. Nuevo Sol
|
|
(5.6
|
)
|
Appreciation
of 10% in exchange rate dollar vs. Mexican Peso
|
|
24.7
|
|
Devaluation
of 10% in exchange rate dollar vs. Mexican Peso
|
|
(20.2
|
)
|
Metal price sensitivity:
We are subject to market
risks arising from the volatility of copper and other metal prices. Assuming that expected metal production and
sales are achieved, that tax rates are unchanged, and giving no effects to
potential hedging programs, metal price sensitivity factors would indicate the
following change in estimated 2009 net income attributable to SCC resulting
from metal price changes:
50
Table of Contents
|
|
Copper
|
|
Molybdenum
|
|
Zinc
|
|
Silver
|
|
Change
in metal prices (per pound except silver per ounce)
|
|
$
|
0.01
|
|
$
|
1.00
|
|
$
|
0.01
|
|
$
|
1.00
|
|
Annual
change in net income attributable to SCC (in millions)
|
|
$
|
6.3
|
|
$
|
23.4
|
|
$
|
1.3
|
|
$
|
9.7
|
|
Provisionally priced
sales:
At
September 30, 2009, we have recorded provisionally priced sales of 22.6
million pounds of copper, at an average forward price of $2.80 per pound. Also we have recorded provisionally priced
sales of 11.6 million pounds of molybdenum at the September 30, 2009
market price of $13.55 per pound. These
sales are subject to final pricing based on the average monthly LME or COMEX
copper prices and Dealer Oxide molybdenum prices in the future month of
settlement. See Note F to our condensed
consolidated financial statements.
Derivative instruments:
We occasionally use
derivative instruments to manage our exposure to market risk from changes in
commodity prices, interest rate and exchange rate risk exposures and to enhance
return on assets. We generally do not
enter into derivative contracts unless we anticipate a future activity that is
likely to occur that will result in exposing us to market risk.
Copper
derivatives:
From
time to time we have entered into derivative contracts to protect a fixed
copper, or zinc price for a portion of our metal sales.
We
did not hold any copper or zinc derivative contracts in the nine months ended September 30,
2009.
In
the nine months ended September 30, 2008, we entered into copper collar
and swap contracts to protect a portion of our 2008 sales of copper
production. As a result, we recorded a
gain of $18.5 million and $29.2 million for the three and nine months ended September 30,
2008. Related to the fair value of these
copper derivative contracts we recorded an unrealized gain of $33.7 million at
the end of September 2008. These
gains and losses were recorded in net sales in the condensed consolidated
statement of earnings.
Gas swaps:
In 2009 and 2008 we
entered into gas swap contracts to protect part of our gas consumptions as
follows:
|
|
Three months ended
|
|
Nine months ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Gas
volume (MMBTUs)
|
|
122,000
|
|
305,000
|
|
122,000
|
|
305,000
|
|
Fixed
price (per MMBTUs)
|
|
3.6350
|
|
8.2175
|
|
3.6350
|
|
8.2175
|
|
Gain
(loss) (in millions)
|
|
$
|
0.1
|
|
$
|
(0.7
|
)
|
$
|
0.1
|
|
$
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gains (losses)
obtained were charged to production cost.
As of September 30, 2009 we held a gas swap contract to protect
184,000 MMBTUs of our gas consumption with a fixed price of $3.6350 per MMBTU
for the fourth quarter of 2009. Related
to the settlement of this gas swap contract we recorded an unrealized gain of
$0.2 million in the third quarter of 2009 which was included in the $0.1
million gain reported in the table above.
51
Table of Contents
Exchange rate
derivatives, U.S. dollar/Mexican Peso contracts:
Because more than 85% of
our sales collections in Mexico are in U.S. dollars and many of our costs are
in Mexican pesos, we entered into zero-cost derivative contracts with the
purpose of protecting, within a range, against an appreciation of the Mexican
peso to the U.S. dollar.
Related to the exchange
rate derivative contracts we recorded a loss of less than $0.1 million and a
gain of $4.1 million for the three and nine months ended September 30,
2009, compared with losses of $13.6 million and $12.7 million, respectively, in
the same periods of 2008. These gains
and losses were recorded as gain (loss) on derivative instruments in the
condensed consolidated statement of earnings.
At
September 30, 2009, we did not hold any exchange rate derivative
contracts.
Short-term
Investment:
Short-term
investments were as follows (in millions):
|
|
At
|
|
Investment
|
|
September 30, 2009
|
|
December 31,2008
|
|
Short-term investment in securities issued by
public companies with a weighted average interest rate of 0.66% at
September 30, 2009 and 1.85% at December 31, 2008.
|
|
$
|
26.0
|
|
$
|
62.4
|
|
|
|
|
|
|
|
|
|
Short-term investments in
securities consist of available for sale securities issued by public companies. Each security is independent of the others.
Related to these
investments for the three and nine months ended September 30, 2009, we
earned interest of $0.1 million and $0.7 million, respectively, compared with
$0.8 million and $3.4 million in the same periods of 2008, which were recorded
as interest income in the condensed consolidated statement of earnings. In addition, in the third quarter and nine
months of 2009, we redeemed $8.8 million and $39.6 million, respectively, of
these investments, compared with $11.8 million and $30.3 million in the same
periods of 2008.
For the three and nine
months ended September 30, 2009 the Company recorded gains of $0.9 million
and $3.2 million, respectively, compared with losses of $2.7 million and $4.6
million in the same periods of 2008, respectively. These gains/losses were recorded as other
income (expense) in the condensed consolidated statement of earnings.
Cautionary
Statement
:
Forward-looking
statements in this report and in other Company statements include statements
regarding expected commencement dates of mining or metal production operations,
projected quantities of future metal production, anticipated production rates,
operating efficiencies, costs and expenditures as well as projected demand or supply
for the Companys products. Actual
results could differ materially depending upon factors including the risks and
uncertainties relating to general U.S. and international economic and political
conditions, the cyclical and volatile prices of copper, other commodities and
supplies, including fuel and electricity, availability of materials, insurance
coverage, equipment, required permits or approvals and financing, the
occurrence of unusual weather or operating conditions, lower than expected ore
grades, water and geological problems, the failure of equipment or processes to
operate in accordance with specifications, failure to obtain financial
assurance to meet closure and remediation obligations, labor relations,
litigation and environmental risks as well as political and economic risk
associated with foreign operations.
Results of operations are directly affected by metal prices on commodity
exchanges that can be volatile.
52
Table of Contents
Item 4. Controls and
Procedures
EVALUATION OF
DISCLOSURE CONTROLS AND PROCEDURES
As of September 30,
2009, the Company conducted an evaluation under the supervision and with the
participation of the Companys Disclosure Committee and the Companys
management, including the Chief Executive Officer and Chief Financial Officer,
of the effectiveness and the design and operation of the Companys disclosure
controls and procedures. Based on that
evaluation, the Chief Executive Officer and the Chief Financial Officer have
concluded that the Companys disclosure controls and procedures are effective
as of September 30, 2009, to ensure that information required to be
disclosed in reports filed or submitted under the Exchange Act is:
1.
recorded, processed, summarized and
reported within the time periods specified in the SECs rules and forms,
and
2.
accumulated and communicated to
management, including the Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure.
CHANGES IN
INTERNAL CONTROLS OVER FINANCIAL REPORTING
There was no change in
the Companys internal controls over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934, as amended) that occurred during the quarter ended September 30,
2009 that has materially affected, or is reasonably likely to materially
affect, the Companys internal controls over financial reporting.
53
Table of Contents
Report of Independent
Registered Public Accounting Firm
To the Board of Directors
and Shareholders of Southern Copper Corporation:
We have reviewed the
accompanying condensed consolidated interim balance sheet of Southern Copper
Corporation and its subsidiaries as of September 30, 2009, and the related
condensed consolidated interim statements of earnings and cash flows for the
three- and nine-month periods then ended.
These interim financial statements are the responsibility of the
Companys management.
We conducted our review
in accordance with the standards of the Public Company Accounting Oversight
Board (United States). A review of
interim financial information consists principally of applying analytical
procedures and making inquiries of persons responsible for financial and
accounting matters. It is substantially
less in scope than an audit conducted in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we
are not aware of any material modifications that should be made to the
accompanying condensed consolidated interim financial statements for them to be
in conformity with accounting principles generally accepted in the United
States of America.
The accompanying
condensed consolidated financial information as of December 31, 2008, and
for the three- and nine-month periods ended September 30, 2008, were not
audited or reviewed by us and, accordingly, we do not express an opinion or any
other form of assurance on them.
Galaz, Yamazaki, Ruiz Urquiza S.C.
Member of Deloitte Touche
Tohmatsu
C.P.C. Arturo Vargas
Arellano
Mexico City, Mexico
October 30, 2009
54
Table of
Contents
PART II OTHER
INFORMATION
Item 1. Legal
Proceedings
The information provided
in Note L to the condensed consolidated financial statements contained in Part I
of this Form 10-Q, is incorporated herein by reference.
Item 1A. Risk Factors:
The following risk
factors contain information that supplement those contained in our Annual
report on Form 10-K for the year ended December 31, 2008 filed with
the SEC on March 2, 2009.
General
Risks Relating to Our Business
We
may be adversely affected by labor disputes.
Related to the Cananea
strike, on January 7, 2009 the judge of the fifth district on labor
matters annulled a decision favorable to the Company. The Company filed a request for a review of
this ruling before an appellate federal court, which declared the strike legal
on March 19, 2009. On March 20,
2009 the Company notified the Mexican Federal Labor Court of the termination of
all the individual labor contracts of the Cananea workers, including the
collective bargaining agreement with the union.
This decision was based upon a finding by the Mexican mining authorities
that confirmed that the Cananea mine was in a force majeure situation; since it
was unable to operate due to severe damages caused by striking workers. On April 14, 2009, the Mexican Federal
Labor Court issued a resolution approving the termination of Cananeas labor
relationships with individual and unionized employees, as well as the termination
of its collective bargaining agreement with its employees and with the National
Mining and Metal Workers Union. This
ruling has been challenged before federal tribunals. Most of the individual challenges by
unionized workers have been resolved by a federal judge, who dismissed their
complaints. The case presented by the
Union is expected to be resolved in the fourth quarter of 2009.
The Company, the
state of Sonora and the Mexican federal government are working to restore the
necessary legal and safety conditions to resume operations at Cananea.
Due to the lengthy
work stoppage the Company has performed an impairment analysis on the
assets at the Cananea mine. The Company
continues to provide periodic maintenance to the assets and expect to begin
operations at this mine in the near future.
The Company has determined through its impairment analysis that no
impairment exists as of September 30, 2009. Should estimates of future copper and
molybdenum prices decrease significantly, such determination could change.
Additionally, our Taxco
and San Martin mines have been on strike since July 2007. It is expected that operations at these mines
will remain suspended until these labor issues are resolved.
Litigation involving Asarco may adversely affect us.
Our direct and indirect
parent corporations, including AMC and Grupo Mexico, have from time to time
been named parties in various litigations involving Asarco.
On April 15, 2009,
the United States District Court for the Southern District of Texas entered a
judgment awarding Asarco certain shares of SCC, which represents approximately
30.6% of SCCs current outstanding common shares, and an amount equal to the
dividends
55
Table of Contents
paid on those shares of
common stock of SCC since the date of their acquisition by AMC, plus interest.
Grupo Mexico announced that AMC is appealing that judgment and enforcement of
the judgment has been stayed pending the appeal.
The Company cannot assure
you that these or future claims, if successful, will not have an adverse effect
on the Companys parent corporation or the Company. Any increase in the financial obligations of
the Companys parent corporation, as a result of matters related to Asarco or
otherwise could, among other effects; result in the Companys parent
corporation attempting to obtain increased dividends or other funding from the
Company.
AMCs
80% ownership of SCC could result in federal income tax contingencies.
In March 2009, Grupo
Mexico, through its wholly-owned subsidiary, AMC, became the beneficial owner
of 80% of SCCs common stock. As a
result of this new level of ownership, SCC operating results will be included
in the AMC consolidated U.S. federal income tax return commencing from March 2009. In addition to now holding an 80% interest in
SCC, AMC also owns 100% of Asarco and its subsidiaries. The Company has initiated discussions with
AMC to put in place a tax sharing agreement, in order to allocate taxes within
the consolidated group and such other procedures necessary for an equitable
management of US federal income tax matters.
We cannot assure you that
the tax sharing agreement will not have any negative consequences in the
future. Additionally, members of a
consolidated group share with each other joint and several liabilities for
taxes reported by the entire group. This
means that the Internal Revenue Service has the right to collect the entire tax
liability of the group from any member of the group. Thus, SCC could become exposed to full
responsibility for the 2009 federal income taxes and future federal income
taxes of other members of the AMC group.
There could be limitations on the amount of capital loss carryforwards
and foreign tax credit carryforwards that the SCC group will be able to utilize
in the future. Also, there could be
limitations restricting the computation of allowable foreign tax credits for
SCC. We cannot assure you that future
federal income tax provisions and payments will not exceed what was previously
calculated prior to SCC joining the AMC group.
Our
new mining or metal production projects may be subject to additional costs due
to community actions and other factors
Our exploration, mining,
milling, smelting and refining activities are subject to Peruvian and Mexican
laws and regulations, including environmental laws and regulations, as well as
certain industry technical standards. As
in any other country, environmental regulations in Peru and Mexico have become
increasingly stringent over the last decades.
In accordance with mining regulations in the countries where we operate,
we have to submit an environmental impact assessment (EIA) for all our new
mining projects or expansions of existing mining operations and/or
facilities. The EIA is then discussed at
various open hearings with the local communities, where they have the
opportunity to voice their opinion and/or concerns. In Peru, the Ministry of Energy and Mines
(MEM) requires the mining companies to respond to the concerns of the
communities. The MEM is the entity that
approves the EIA and the execution of mining projects.
The Tia Maria project,
which includes the Tia Maria and La Tapada ore deposits located in the Peruvian
region of Arequipa, is expected to produce about 260 million pounds of SX-EW
copper cathodes per year. The approved
budget for the project is $934 million.
Through September 30, 2009, $250.4 million has been invested in
this project. The EIA for the power line
and support facilities has been approved by the Peruvian authorities and
construction is underway.
At the last public
hearing in August 2009, some of the local communities in the surrounding
area of the Tia Maria project have opposed the use of underground water for the
project alleging that it could cause a shortage of water supply for the farmers
in
56
Table of
Contents
the local communities and
other potential impacts. We are working
with the local communities and the Peruvian authorities to respond to the
communities concerns on the project and ensure that our Tia Maria mining project
complies with all environmental regulations and other legal requirements in
Peru. Under Peruvian law, the Company
has to submit again its proposal at a third and final public hearing, which
should take place before the end of this year.
After this, the MEM will have jurisdiction to approve the EIA or not.
We are confident that we
will continue with the Tia Maria project as scheduled. However, the Tia Maria project, or any other
project which we may undertake in the future, may be subject to additional
costs due to local community actions or other factors.
57
Table of
Contents
Item
2.
Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
SCC share repurchase program:
Pursuant to the $500 million share repurchase program
authorized by the Companys Board of Directors in 2008, in the first quarter of
2009 the Company purchased 4.9 million shares of its common stock at a cost of
$71.6 million. In addition the Company
purchased 12,000 shares in the third quarter of 2009 at a cost of $0.3
million. These shares will be available
for general corporate purposes. The
Company may purchase additional shares from time to time, based on market
conditions and other factors. This
repurchase program has no expiration date and may be modified or discontinued
at any time.
The following table summarizes the repurchase program
activity since its inception in 2008:
Period
|
|
Total Number
of Shares
|
|
Average
Price
Paid
per
|
|
Total Number of
Shares
Purchased as
Part of
Publicly
|
|
Maximum Number
of Shares that
May Yet Be
Purchased Under
the Plan
|
|
Total Cost
($ in
|
|
From
|
|
To
|
|
Purchased
|
|
Share
|
|
Announced Plan
|
|
@ $30.69
|
|
million)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
08/11/08
|
|
12/31/08
|
|
28,510,150
|
|
$
|
13.49
|
|
28,510,150
|
|
|
|
$
|
384.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter 2009:
|
|
|
|
|
|
|
|
|
|
|
|
01/12/09
|
|
01/31/09
|
|
1,075,000
|
|
15.17
|
|
29,585,150
|
|
|
|
16.3
|
|
02/01/09
|
|
02/28/09
|
|
2,260,350
|
|
13.45
|
|
31,845,500
|
|
|
|
30.4
|
|
03/01/09
|
|
03/27/09
|
|
1,564,650
|
|
15.89
|
|
33,410,150
|
|
|
|
24.9
|
|
Total
|
|
|
|
4,900,000
|
|
14.61
|
|
|
|
|
|
71.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2009:
|
|
|
|
|
|
|
|
|
|
|
|
09/01/09
|
|
09/30/09
|
|
12,000
|
|
28.05
|
|
33,422,150
|
|
1,415,476
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchased
|
|
33,422,150
|
|
$
|
13.66
|
|
|
|
|
|
$
|
456.5
|
|
As a result of the repurchase of SCC common shares and
AMCs purchase of SCC shares, Grupo Mexicos direct and indirect ownership
increased to 80% at March 27, 2009.
58
Table of Contents
Item 6. Exhibits
Exhibit No.
|
|
Description of Exhibit
|
|
|
|
15.
|
|
Independent
Accountants Awareness Letter (filed herewith)
|
|
|
|
31.1
|
|
Certification Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
|
|
|
|
31.2
|
|
Certification Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
|
|
|
|
32.1
|
|
Certification Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.,
Section 1350. This document is being furnished in accordance with SEC
Release No. 33-8238.
|
|
|
|
32.2
|
|
Certification Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.,
Section 1350. This document is being furnished in accordance with SEC
Release No. 33-8238.
|
|
|
|
101.INS
|
|
XBRL Instance Document (submitted electronically with this
report)
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension
Schema Document (submitted
electronically with this report)
|
|
|
|
101.CAL
|
|
XBRL Taxonomy
Calculation Linkbase Document (submitted
electronically with this report)
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Label
Linkbase Document (submitted
electronically with this report)
|
|
|
|
101.PRE
|
|
XBRL Taxonomy
Presentation Linkbase Document (submitted
electronically with this report)
|
Attached as Exhibit 101
to this report are the following documents formatted in XBRL (Extensible
Business Reporting Language): (i) the Condensed Consolidated Statement of
Earnings for the three and nine months ended September 30, 2009 and 2008; (ii) the
Condensed Consolidated Balance Sheet at September 30, 2009 and December 31,
2008; iii) the Condensed Consolidated Statement of Cash Flows for the three and
nine months ended September 30, 2009 and 2008; and iv) the Notes to
Condensed Consolidated Financial Statements tagged as blocks of text. Users of this data are advised pursuant to Rule 406T
of Regulation S-T that this interactive data file is deemed not filed or part
of a registration statement or prospectus for purposes of sections 11 or 12 of
the Securities Act of 1933, is deemed not filed for purposes of section 18 of
the Securities Exchange Act of 1934, and otherwise is not subject to liability
under these sections.
59
Table of Contents
PART II
OTHER INFORMATION
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
SOUTHERN COPPER
CORPORATION
(Registrant)
|
|
|
|
|
|
/s/ Oscar
Gonzalez Rocha
|
|
Oscar Gonzalez
Rocha
|
|
President and
Chief Executive Officer
|
|
|
October 30, 2009
|
|
|
|
|
|
|
/s/ Genaro
Guerrero
|
|
Genaro Guerrero
|
|
Vice President,
Finance and Chief Financial Officer
|
|
|
October 30, 2009
|
|
60
Table of Contents
SOUTHERN COPPER CORPORATION
List of Exhibits
Exhibit No.
|
|
Description of Exhibit
|
|
|
|
|
|
|
15.
|
|
Independent
Accountants Awareness Letter (filed herewith)
|
|
|
|
31.1
|
|
Certification Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
|
|
|
|
31.2
|
|
Certification Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
|
|
|
|
32.1
|
|
Certification Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.,
Section 1350. This document is being furnished in accordance with SEC
Release No. 33-8238.
|
|
|
|
32.2
|
|
Certification Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.,
Section 1350. This document is being furnished in accordance
with SEC Release No. 33-8238.
|
|
|
|
101.INS
|
|
XBRL Instance Document (submitted electronically with this
report)
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension
Schema Document (submitted
electronically with this report)
|
|
|
|
101.CAL
|
|
XBRL Taxonomy
Calculation Linkbase Document (submitted
electronically with this report)
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Label
Linkbase Document (submitted
electronically with this report)
|
|
|
|
101.PRE
|
|
XBRL Taxonomy
Presentation Linkbase Document (submitted
electronically with this report)
|
Attached as Exhibit 101
to this report are the following documents formatted in XBRL (Extensible
Business Reporting Language): (i) the Condensed Consolidated Statement of
Earnings for the three and nine months ended September 30, 2009 and 2008; (ii) the
Condensed Consolidated Balance Sheet at September 30, 2009 and December 31,
2008; iii) the Condensed Consolidated Statement of Cash Flows for the three and
nine months ended September 30, 2009 and 2008; and iv) the Notes to
Condensed Consolidated Financial Statements tagged as blocks of text. Users of
this data are advised pursuant to Rule 406T of Regulation S-T that this
interactive data file is deemed not filed or part of a registration statement
or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933,
is deemed not filed for purposes of section 18 of the Securities Exchange Act
of 1934, and otherwise is not subject to liability under these sections.
61
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