Exhibit 99.1
SOUTHERN COPPER CORPORATION
11811 North Tatum Blvd., Suite 2500, Phoenix, AZ 85028, U.S.A.
Phone: (602) 977-6595 - Fax: (602) 494-5318
FOR IMMEDIATE RELEASE
Investor Relations (602) 977-6595
Southern Copper Corporation Reports
Third Quarter and Nine Month 2006 Results
Phoenix, October 27, 2006- Southern Copper Corporation (SCC) (NYSE and LSE: PCU)
2006 THIRD QUARTER HIGHLIGHTS
· Third quarter 2006 net sales increased by $382.0 million compared to the third quarter of 2005 and amounted to $1,412.2 million, an increase of 37.1%. Cost of sales grew by 33.0%, or $126.3 million, compared to the third quarter of last year, primarily due to the increased purchase of third party copper concentrates in Mexico.
· EBITDA during the third quarter of 2006 rose by $251.1 million to $877.4 million equivalent to 62.1% of sales, compared to an EBITDA of $626.3 million, equivalent to 60.8% of sales in the third quarter of 2005.
· Third quarter 2006 net income increased to $521.6 million from $369.4 million in the third quarter of 2005, an increase of 41.2% and amounted to $1.77 per fully diluted share, compared to $1.25 per fully diluted share for the third quarter of 2005. This increase was due principally to higher copper, silver and zinc prices.
· On August 30, 2006 the Executive Committee of the Board of Directors declared a two-for-one split of the company’s outstanding common stock. The Company common stock began trading at its post-split price on October 3, 2006.
· In August 2006, we distributed a shareholders’ dividend of $2.00 per share, equivalent to $1.00 per share after the recent stock split.
· On October 26, 2006 the Board of Directors authorized a dividend of $1.375 per share to be paid on December 7, 2006 to shareholders of record as of November 16, 2006.
· The LME and COMEX copper prices increased to an average of $3.48 and $3.54 per pound in the third quarter of 2006, respectively, compared to $1.70 in the third quarter of 2005. Metals Week dealer oxide molybdenum price for the third quarter of 2006 decreased to an average of $25.94 per pound, compared to $30.06 per pound in the third quarter of 2005.
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· After giving effect to nine months 2006 capital and exploration spending of $347.9 million and dividend distributions of $1,104.2 million, net debt (debt minus cash) as of September 30, 2006 amounted to $619.7 million compared to $296.1 million at December 31, 2005. At the same time, stockholders’ equity at the end of the third quarter of 2006 increased during the year by 2.7% amounting to $3.4 billion as of September 30, 2006.
· As of the end of October, zinc production at the San Luis Potosi zinc refinery will be totally restored. The refinery was shut down in the first quarter of this year after a major electrical disruption that started a fire at the power substation.
· Net cash provided by operating activities was $522.6 million for the third quarter of 2006 compared with $458.4 million for the same period of 2005, an increase of 14.0%.
· After a lengthy and disruptive illegal work stoppage, on July 27, 2006, we regained control of the La Caridad mine in Sonora, Mexico. Collective and individual labor contracts were terminated, and we commenced the rehiring of workers and resumed operations. As of September 30, 2006 production was restored to approximately 70% of normal capacity; we estimate to reach 100% of capacity during fourth quarter 2006, once training and capacitating programs for new employees have been completed.
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SUMMARY FINANCIAL TABLE
| | Third Quarter | | Nine Months | |
| | 2006 | | 2005 | | Var. | | % | | 2006 | | 2005 | | Var. | | % | |
| | (in millions, except per share amounts and%s) | |
Copper sold — pounds | | 318.8 | | 371.6 | | (52.8 | ) | (14.2 | )% | 982.0 | | 1,109.1 | | (127.1 | ) | (11.5 | )% |
| | | | | | | | | | | | | | | | | |
Net sales | | $ | 1,412.2 | | $ | 1,030.2 | | $ | 382.0 | | 37.1 | % | $ | 3,810.3 | | $ | 2,923.1 | | $ | 887.2 | | 30.4 | % |
Cost of sales | | 509.3 | | 383.0 | | 126.3 | | 33.0 | % | 1,438.0 | | 1,185.7 | | 252.3 | | 21.3 | % |
Operating income | | 804.5 | | 545.8 | | 258.7 | | 47.4 | % | 2,086.1 | | 1,454.7 | | 631.4 | | 43.4 | % |
EBITDA GAAP (1) | | 877.4 | | 626.3 | | 251.1 | | 40.1 | % | 2,296.7 | | 1,656.4 | | 640.3 | | 38.7 | % |
EBITDA margin | | 62.1 | % | 60.8 | % | 1.3 | % | 2.1 | % | 60.3 | % | 56.7 | % | 3.6 | % | 6.3 | % |
Net earnings | | $ | 521.6 | | $ | 369.4 | | $ | 152.2 | | 41.2 | % | $ | 1,382.4 | | $ | 979.7 | | $ | 402.7 | | 41.1 | % |
Earnings per share | | $ | 1.77 | | $ | 1.25 | | $ | 0.52 | | 41.2 | % | $ | 4.69 | | $ | 3.33 | | $ | 1.37 | | 41.1 | % |
Capital expenditures | | $ | 102.3 | | $ | 118.1 | | $ | (15.8 | ) | (13.4 | )% | $ | 333.0 | | $ | 263.3 | | $ | 69.7 | | 26.5 | % |
| | | | | | | | | | | | | | | | | |
(1) Reconciliation of net earnings computed in accordance to GAAP to EBITDA
| | Third Quarter | | Nine Months | |
| | 2006 | | 2005 | | 2006 | | 2005 | |
Net earnings | | $ | 521.6 | | $ | 369.4 | | $ | 1,382.4 | | $ | 979.7 | |
Add: | | | | | | | | | |
Minority interest | | 2.8 | | 1.6 | | 6.6 | | 4.6 | |
Income taxes | | 271.9 | | 152.6 | | 679.7 | | 405.4 | |
Interest expense | | 31.6 | | 37.7 | | 82.7 | | 86.2 | |
Depreciation, amortization and depletion | | 67.7 | | 74.8 | | 198.8 | | 206.3 | |
Less: | | | | | | | | | |
Interest income | | (10.8 | ) | (5.1 | ) | (34.5 | ) | (13.5 | ) |
Interest capitalized | | (7.4 | ) | (4.7 | ) | (19.0 | ) | (12.3 | ) |
EBITDA | | $ | 877.4 | | $ | 626.3 | | $ | 2,296.7 | | $ | 1,656.4 | |
OTHER INFORMATION
| | Third Quarter | | Nine Months | |
| | 2006 | | 2005 | | VAR. | | % | | 2006 | | 2005 | | VAR. | | % | |
| | (in millions, except per share amounts and %s) | |
| | | | | | | | | | | | | | | | | |
Total debt at end of period | | | | | | | | | | $ | 1,537.8 | | $ | 1,225.2 | | $ | 312.6 | | $ | 25.5 | % |
Total debt to capitalization ratio | | | | | | | | | | 31.0 | % | 27.7 | % | 3.3 | % | 11.8 | % |
Total cash at end of period | | | | | | | | | | $ | 918.1 | | $ | 766.9 | | $ | 151.2 | | 19.7 | % |
Net debt (debt minus cash) | | | | | | | | | | $ | 619.7 | | $ | 458.3 | | $ | 161.4 | | 35.2 | % |
Production data: | | | | | | | | | | | | | | | | | |
Copper mined (lbs) | | 311.5 | | 392.8 | | (81.3 | ) | (20.7 | )% | 939.3 | | 1,121.3 | | (182.0 | ) | (16.2 | )% |
Molybdenum mined (lbs) | | 5.1 | | 8.5 | | (3.4 | ) | (40.0 | )% | 17.9 | | 25.3 | | (7.4 | ) | (29.2 | )% |
Silver mined (oz) | | 4.0 | | 4.5 | | (0.5 | ) | (11.1 | )% | 11.7 | | 13.7 | | (2.0 | ) | (14.6 | )% |
Zinc mined (lbs) | | 81.1 | | 81.5 | | (0.4 | ) | (0.5 | )% | 227.4 | | 239.8 | | (12.4 | ) | (5.2 | )% |
| | | | | | | | | | | | | | | | | | | | | |
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Southern Copper Corporation reports net earnings of $521.6 million, or earnings per share of $1.77, for the third quarter of 2006 compared with $369.4 million, or earnings per share of $1.25, for the third quarter of 2005. Net earnings for the first nine months of 2006 were $1,382.4 million, or earnings per share of $4.69, compared with $979.7 million or earnings per share of $3.33 in the first nine months of 2005. These increases of approximately 41%, in both the 3 month and 9 month periods, were due principally to higher copper prices.
Net sales were $1,412.2 million in the third quarter of 2006 compared with $1,030.2 million in the third quarter of 2005, an increase of 37.1%. Net sales in the first nine months of 2006 were $3,810.3 million, compared with $2,923.1 million in the first nine months of 2005, an increase of 30.4%.
The average prices for copper in the third quarter of 2006 on the London Metal Exchange (LME) and the New York Commodity Exchange (COMEX) were $3.48 and $3.54 per pound, respectively, compared with an average of $1.70 per pound in the third quarter of 2005. Approximately 45% of our third quarter 2006 copper sales were priced based on COMEX and the balance on the LME. The average Metals Week Dealer oxide price for molybdenum, our principal by-product, was $25.94 per pound in the third quarter of 2006, compared with $30.06 per pound in the third quarter of 2005. The average price for zinc on the LME in the third quarter of 2006 was $1.53 per pound compared with $0.59 per pound in the third quarter of 2005. The average price of silver, on COMEX was $11.65 per ounce in the third quarter of 2006, compared with $7.07 per ounce in the third quarter of 2005.
Mine copper production amounted to 311.5 million pounds in the third quarter of 2006, a decrease of 20.7% compared with the third quarter of 2005. This decrease of 81.3 million pounds included a decrease of 72.5 million pounds from the Mexican open pit operations, a decrease of 9.4 million pounds from the Peruvian open pit mines and an increase of 0.6 million pounds from the Mexican underground mines.
Molybdenum production decreased from 8.5 million pounds in the third quarter of 2005 to 5.1 million pounds in the third quarter of 2006. This 40.0% decrease in production is due to 2.0 million of lower production in the Mexican operations as result of the closing of the La Caridad mine and a decrease of 1.4 million pounds in Peruvian production, mainly due to lower ore grade and recovery at the Cuajone mine.
Mine zinc production amounted to 81.1 million pounds in the third quarter of 2006, a 0.5% decrease from the third quarter of 2005. The decrease of 0.4 million pounds in zinc production is due to lower grade. We will restore 100% of the zinc production at the San Luis Potosi zinc refinery by the end of October 2006.
Operating income in the third quarter of 2006 increased by $258.7 million, when compared to the same period in 2005, an increase of 47.4%. This positive outcome is the result of higher sales prices for copper, silver and zinc.
Net sales during the third quarter rose by 37.1% when compared to the third quarter of 2005 and amounted to $1,412.2 million, while cost of sales increased 33.0%. The increase in cost of sales was principally the result of the cost of copper concentrates purchased from third parties to cover the production losses in order to make an effort to supply our customers.
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Commenting on the Company’s results, for the third quarter of 2006, Mr. German Larrea, Chairman of SCC said, “Earnings for the third quarter of 2006 amounted to $521.6 million, an increase of $152.2 million over the third quarter of 2005. The increase is primarily attributable to the continued robust prices for most of our metals. We have continued to focus on cost containment and expect 2006 to be another rewarding year for the Company”.
Reporting on the Company’s modernization program, Mr. Oscar Gonzalez Rocha, Chief Executive Officer of SCC, said “As we near the target date, January 2007, established in our PAMA, the Ilo smelter modernization project is on schedule and as of September 30, 2006 is 94.1% completed. Investments in the smelter project exceed $400 million, and have generated more than 3,500 new jobs during the construction; 50% of them from the city of Ilo. With the completion of the Ilo Smelter modernization project, we will have fulfilled our total obligation under the PAMA. Investment for all steps of the PAMA is expected to be more than $600 million.
Additionally, the Company’s crushing and conveying project at the Toquepala mine are in full production. The primary crusher and associated overland conveying system are fully operational; construction of the operating ramp for this project will continue until expected completion in the fourth quarter of 2006. The project is 97.9% complete. We will construct a new SX/EW plant at the Cananea mine with a 33,000 mtpy capacity. The Company signed a contract with Bechtel International, Inc. to develop the plant’s basic engineering which was 64% complete at the end of September 2006 and is expected to be finished in December 2006. Also in Cananea mine, the Company is developing a crushing and conveying system project with a 15 million mtpy capacity and an approximately $50 million investment. The basic engineering is 95% complete, the crusher has been acquired and the bids for the conveying system are under final evaluation.
The Company is currently in the process of evaluating an Ilo smelter expansion from 1.2 million tons to 1.8 million tons of concentrates and an Ilo refinery expansion from 280,000 tons to 360,000 tons.”
Regarding the Company’s exploration activities, Mr. Xavier Garcia de Quevedo, Chief Operating Officer of SCC stated “In May 2006, we began a pre-feasibility study at Los Chancas, a copper-molybdenum property in Southern Peru. We expect that the study will be completed late this year at which time we would hope to move forward with a full feasibility study. It is our plan to fast track this project. Additionally, we have requested bids for a pre-feasibility study for Tia Maria a copper deposit in the department of Arequipa, Peru. We expect to begin this study in the fourth quarter of 2006 and be completed before the middle of 2007 in order to start construction of this project.
Mr. Garcia de Quevedo also stated that an expansion of the Cananea concentrator is under a technical and economic evaluation. The expanded concentrator would have an additional milling capacity of 35,000 tons per year and would begin production in the year 2009. In parallel, due to improving molybdenum grades, we hope to build a molybdenum plant to produce concentrates with approximately 4,000 tons of molybdenum content.
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