Copper stocks have been garnering attention from investors due to their potential for growth in a rapidly developing world. As one of the top copper stocks in the market, Southern Copper Corp (NYSE: SCCO) has been under the spotlight as investors look for copper mining stocks with promising prospects. In this article, we will delve into a balanced analysis of Southern Copper Corp as an investment opportunity, considering its performance, financials, and market position.
Southern Copper Corp: Company Overview
Southern Copper Corp is a leading copper mining company with operations in Peru and Mexico. It is a majority-owned, indirect subsidiary of Grupo Mexico S.A.B. de C.V. The company conducts its operations in Peru through a registered branch called the SPCC Peru Branch, which includes nearly all assets and liabilities related to its copper operations in the country.
SCCO also owns 99.96% of Minera Mexico, the largest mining company in Mexico. Minera Mexico operates as a holding company, with all operations carried out through subsidiaries grouped into three units: (i) the La Caridad unit, (ii) the Buenavista unit, and (iii) the IMMSA unit.
SCCO Q4 2022 Results
From the company’s February 2023 earnings meeting, Raul Jacob Ruisanchez, Souther Copper’s Chief Financial Officer, summarised 2022 as a challenging year for the company due to economic difficulties, lower metal prices, inflation, and operational disruptions.
Despite these challenges, the company showed resilience and improved its financial performance in Q4.
Political upheaval in Peru has caused unrest, but the company's operations remain unaffected. In 2023, the focus is on growth, with the Pilares mine and Buenavista zinc concentrator expected to contribute to increased copper and zinc production.
Southern Copper production increased in Q4 2022, with copper constituting 70% of sales. For 2023, the company expects to produce 925,800 tons of copper, a 4% increase over 2022.
Copper market prices are currently around $4.07, and market analysts predict a balanced or slightly surplus copper market for 2023.
Molybdenum, silver, and zinc are the company's primary by-products, with molybdenum prices increasing due to global supply shortages and strong demand.
Silver production is expected to grow in 2023, while zinc production faced a decrease in 2022 but is expected to increase with the new zinc concentrator at Buenavista.
Despite a difficult 2022, in which Southern Copper reported a 6.6% year-on-year decline in its total mined copper production, the company saw a 31% increase in net sales in Q4 compared to Q3.
SCCO Stock Performance and Valuation
Over the past year, SCCO stock has traded between $42.42 and $82.05. Today it trades at around $81.68 So far this year, the Southern Copper stock price is up 32%, while the S&P 500 has risen over 8% over the same period.
SCCO stock has a price-to-earnings ratio (P/E) of 23.6 and a market cap of $63bn. The company currently gives shareholders a 5% dividend yield.
FactSet analysts have a consensus Underweight rating on SCCO stock with a target share price of $60.31.
Southern Copper (SCCO) has an average rating of underperform, with price targets ranging from $43 to $80, as per analysts polled by Capital IQ and FactSet data.
Nevertheless, On April 14, 2023, Southern Copper stock reached a new high, closing at $80.54, outperforming the subsector average change of -25.6%.
Pros of Investing in Southern Copper Corp
Market Position: As one of the top copper stocks, Southern Copper Corp has a strong presence in the copper mining industry. Its extensive operations in Peru and Mexico, coupled with its ownership of Minera Mexico, position the company well for future growth.
Demand for Copper: With the world becoming increasingly reliant on technology and green energy solutions, the demand for copper is expected to rise. This trend could potentially boost copper stock prices, including that of Southern Copper Corp.
Dividend Yield: SCCO stock offers investors an attractive dividend yield, making it a compelling investment for income-seeking investors.
Cons of Investing in Southern Copper Stock
Volatility in Copper Prices: Copper stock prices are heavily influenced by fluctuations in the price of the metal. Any sudden changes in copper prices could adversely impact the company's profitability and share price.
Geopolitical Risks: Southern Copper Corp's operations in Peru and Mexico expose the company to geopolitical risks, which could affect its performance and stock price.
Environmental and Regulatory Concerns: The mining industry is subject to strict environmental regulations, and any breaches could result in financial penalties or operational disruptions for the company.
Weighing Up a Southern Copper Corp Investment
Southern Copper Corp presents a mixed bag for investors considering copper mining stocks. While the company boasts a strong market position, attractive dividend yield, and potential for growth in the face of the increasing copper demand, it also faces risks associated with volatile copper prices, geopolitical issues, and environmental regulations. As with any investment, it is crucial for investors to carefully weigh the pros and cons before deciding whether Southern Copper Corp is the right fit for their portfolio.
What's Next for Your Investment Portfolio?
Diversifying it with oil and gas stocks could be a strategic move. The industry faces the challenge of finding high-quality oil and gas reserves, which makes investing in exploration and production (E&P) stocks particularly intriguing. To deepen your understanding and expand your investment strategies, consider exploring our investing guides on topics such as buying OTC and TSX stocks, finding investment opportunities, and the benefits of investing in gold.