US miner Southern Copper (NYSE: PCU) (SCC) reported a 33.5% year-on-year drop in net earnings for the third quarter to US$418mn due to lower sales volumes and higher costs resulting from increased fuel, power, steel and spare parts prices.
Net sales slumped 10.4% year-on-year to US$1.44bn in the recent quarter due to the continuing strike at the 190,000t/y Cananea copper mine in Mexico's Sonora state and also the lower red metal prices toward the end of the quarter, the company said in its Q3 results report.
"Economic weakness in US and Europe, and concerns of slower growth in China have weakened copper demand for the [remainder of] 2008 and 2009. As a consequence we think a lower price environment will prevail in 2008 and possibly 2009," company CFO Genaro Guerrero said during a conference call.
Cash costs, including by-product credits, totaled US$0.18/lb copper produced compared with negative cash costs of US$0.22/lb year-on-year. Ebitda fell 22.5% to US$784mn versus US$1.01bn year-on-year.
PRODUCTION
SCC's copper production dropped to 118,655t in Q3 from 136,830t year-over-year.
Molybdenum output increased 3.5% year-on-year in Q3 to 4,542t due to higher ore grade and recoveries at the La Caridad mine in Mexico and higher recoveries at the Cuajone mine in Peru, SCC said.
Mine production of zinc in Q3 of this year slipped to 26,880t compared with 29,306t in 3Q07.
Copper production is expected to come in at 120,000t for the fourth quarter and some 480,000t for the full year 2008, while molybdenum output is set for some 4,500t in Q4 and 16,500t for all of 2008, Guerrero said.
SPENDING DURING CRISIS
SCC said it will review capital expenditures in response to the current financial crisis in an effort to contain cost pressures and to somewhat offset the declining metals prices.
"This past quarter has been a turbulent period for the world's economy," SCC chairman German Larrea said in the company's Q3 financial report.
"I believe that our strong financial position will permit us to continue with our immediate capital investment projects under development, which are expected to add 220,000t of copper by 2011 and which will be a source of value creation for shareholders," Larrea added.
The company said, however, that it will be continuing with investments for the expansion projects at its Peruvian operations, having already spent US$78.9mn of the US$580mn committed for Tía María and US$4.8mn of the US$86.9mn at Toquepala.
For Cuajone, SCC has inked a feasibility study contract and will continue with the engineering, procurement process and an environmental impact assessment, the company said.
SCC added that it will continue to evaluate its El Arco and Angangueo projects in Mexico, as well as the Los Chancas project in Peru, keeping in mind the changes in the financial and economic conditions.
Mexican diversified company Grupo México (BMV: GMEXICOB) owns a 75.1% stake in SCC.
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