Copper Production - Southern Copper Corporation

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Copper Production - Southern Copper Corporation
SOUTHERN COPPER
Overview and Highlights
May, 2008
Safe Harbor Statement
This presentation contains ‘‘forward-looking statements,’’ as defined by federal securities laws, with
respect to our financial condition, results of operations and business, and our expectations or beliefs
concerning future events. These statements include words such as, but not limited to, ‘‘expect,’’
‘‘anticipate,’’ ‘‘believe,’’ ‘‘intend,’’ ‘‘plan,’’ ‘‘seek,’’ ‘‘forecast,’’ ‘‘estimate,’’ ‘‘continue,’’ ‘‘may,’’ ‘‘will,’’
‘‘would,’’ ‘‘could,’’ ‘‘likely,’’ and similar expressions. These forward-looking statements reflect
management’ss current expectations and assumptions regarding future events and operating and
management
financial performance and are based on currently available information. However, actual results are
subject to risks and uncertainties, which could cause actual results to differ materially from those
contained in the forward-looking statements.
Many risks and uncertainties are inherent in the copper industry. Others are more specific to our
operations. Additional information about risks and uncertainties that could affect our future results
are contained in our SEC filings, including our reports on Forms 8-K, 10-Q, and 10-K and a
registration statement on Form S-3 relating to our proposed public offering of common stock.
stock
1
I. Introduction
Management Presenters
Presenters
Title
Genaro Guerrero
f Executive VP and CFO
Raúl Jacob
f Manager of Financial Planning & IR
3
Corporate Structure
75.1%
Public Float
24.9%
99.29 %
SCC Peru Branch
99.95 %
Minera México
4
Southern Copper Highlights
Long Life Reserves and Exploration Prospects
Excellent Organic Growth Projects
Low Cost Fully Integrated Operations
Experienced Management Team
Strong Financial Performance / Investment Grade
Outstanding Dividend History
Strong Copper & Molybdenum Fundamentals
5
Southern Copper Business Strategy
f Leverage
L
our world-class
ld l
reserves and
d exploration
l
ti
prospects
–
Develop portfolio of value enhancing projects
f Low cost, pure copper play
–
Strategic investments focused on cost reduction
–
Increase copper production, reserves and continue exploration
f Investment grade capital structure with focus on cash flow
generation
–
Return excess capital to investors
–
St k repurchase
Stock
h
program and
d stock
t k appreciation
i ti
6
Copper Price Trends
Strong
g underlying
y g fundamentals with p
potential to change
g the long-term
g
average of copper prices
Real Copper Price Trends (US producer) (in US$1998)
1900—1933
1934—1973
1974—2002
Today1
Average: US$2.13/lb
$
Average: US$1.61/lb
$
Average: US$1.36/lb
$
Current Price: US$3.54
$
fTechnological advances fConstruction programs fSubstitution/conservation fIncreased demand
after WWII
reduce Cu consumption
driven by China and
fEconomies of scale
emerging nations
reduce unit costs and
fUS consumer boom
fShift from manufacturing
real prices
to service economies
fLow inventories
fIndustrialization of Japan
$4.50
led to rising real prices fProcessing efficiency
fSupply disruptions
$4.00
lowers costs
fNew projects: Low ore
$3.50
grades and delays
US$/lb
$3 00
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
1900
33 years
1907
1914
1921
29 years
40 years
1928
1935
1942
1949
1956
1963
1970
1977
1984
1991
1998
2005
2006
2007
2008
Source: USGS, Thomson Financial Datastream
Note:
1 Average as of March 31st, 2008
7
II. Overview of Operations
Company Overview
Mexico
i
Copper Reserves 1:
49.1 mmt
For the LTM 2008 (as of March 31, 2008):
Copper Production:
549 kt
Sales:
$ 6,227 M
EBITDA:
$ 3,850 M
Cash Cost:
$ -0.23 / lb.
Cananea
La Caridad
Santa Eulalia
Buenavista
S
Santa
Barbara
b
El Arco
San Martin
Charcas
San Luis Potosi
Angangueo
Taxco
Peru
#2 copper company by
b reserves 2
#7 copper producer 3
Tantahuatay
Key
#8 copper smelter 3
Mines
Smelters and Refineries
Source: Company Filings
Notes:
1 Copper contained in reserves based on US$1.20 per pound of copper as of December 31, 2007
2 Ranking based on companies reports where available
3 CRU
Los Chancas
Tia Maria
Cuajone
Ilo
Projects
T
Toquepala
l
9
SCC Mines
Total copper production in 2007 amounted to 592 kt
Cananea — Mexico
La Caridad — Mexico
f Copper production 1: 99 kt
f Copper production 1: 125 kt
– 17% of total
– 21% of total
– 35% SX-EW 2, 65% mill 3
– 18% SX-EW 2, 82% mill 3
f Reserves 4: 19 Mt
– 39% of total
f Reserves 4: 5.2 Mt
– 10% of total
f Silver p
production: 0.8 M Oz
f Molybdenum
y
production:
p
6.2 kt
f Gold production: 6.9 k Oz
f Silver production: 1.9 M Oz
f Gold production: 4.2 k Oz
Cuajone — Peru
f Copper production 1: 182 kt
Toquepala — Peru
f Copper production 1: 178 kt
– 31% of total
– 30% of total
– 100% mill 3
– 21% SX-EW 2, 79% mill
f Reserves 4: 9.1 Mt
– 18% of total
3
f Reserves 4: 15.7 Mt
– 32% of total
f Molybdenum production: 3.8 kt
f Molybdenum production: 6.2 kt
f Silver production: 2.2
2 2 M Oz
f Silver production: 2.0
2 0 M Oz
f Gold production: 4.9 k Oz
f Gold production: 2.4 k Oz
Source: SCC
1 Production includes copper in concentrate and SX-EW cathodes
2 Solvent Extraction / Electrowinning process
3 Mill: A plant in which ore is treated and metals are recovered or prepared for smelting
4 Copper price of $1.20 / lb used to calculate reserves
10
SCC Metallurgical Complexes
Three main metallurgical complexes
Caridad – Mexico
Ilo – Peru
f Copper Smelter
f Copper Smelter
f Electrolytic
y
Copper
pp Refinery
y
f Copper
pp Refinery
y
f Precious Metal Refinery
f Precious Metals Refinery
f Rod Plant
f Sulfuric Acid Plant
f Sulfuric Acid Plant
f Total copper smelting capacity:
San Luis Potosi – Mexico
f Electrolytic Zinc Refinery
f Copper Smelter
f Sulfuric Acid Plant
– 2,200 kt per year in concentrate feed,
standard equivalent of 640 thousand
tons of contained copper
f Total copper refinery capacity:
– 580 kt per year in refined cathode
f Totall precious
i
metals
l refinery
fi
capacity:
i
– Silver: 19.4 M oz
– Gold : 117 K oz
f Total zinc refinery capacity:
– 105 kt per year in refined zinc
f Total sulfuric acid capacity:
– 2,796 kt per year
11
Long Life Reserves
First largest
g
copper
pp reserves of any
yp
publicly
y traded company
p y
Copper Reserves
SCC Copper Reserves Sensitivity
60
42.1
40
25.6
22.9
17.3
20
16.5
10.2
N/A
Annual Rep
Rep.
20F
$1.20
07/12/31
07/12/31
07/06/30
07/12/31
06/12/31
N/A
$2.31
N/A
N/A
N/A
$2.00
Antofagasta
20F
07/12/31 07/12/31 07/06/30
$1.20
Xstrata
Rio Tinto
06/12/31
10K
Anglo
American
Period
Cu Price
10K
8.7
BHP Billiton
Sourc Annual Rep
Rep.
SCC
0
FCX
10
CVRD-Inco
30
Codelco
Copper Reserrves (Mt)
49.1
Coppe
er Contained in reserrves (Mt)
50.3
50
69.9
70
42%
60
50
40
29%
SEC
38.2
2007
30
20
49.1
2006
10
0
0.90
1.20
2.664
Copper prices ($/lb)
Reserve Rep
Rep. Annual Rep
Rep. Annual Rep
Rep.
Source: SCC
12
Low Cost of Operations
SCC’s cash cost is in the bottom q
quartile of g
global copper
pp p
producers
Net Operating Cash Costs
Low Cost Drivers
(1)
0.6
0.44
(US$/lb)
0.4
0.18
0.2
0.16
0.03
0
-0.17
-0.23
-0.2
2003
2004
2005
2006
2007
LTM 2008
-0.4
Cash Cost per Pound Produced, excluding
By-Product Credits
f High quality reserves
f Strong by-product
by product credits (1)
– molybdenum (18% of revenues)
– zinc (6% of revenues)
– silver (4% of revenues)
– g
gold & others (3%
(
of revenues))
f Significant low cost SX-EW production (2)
– 94 kt or 12% of copper production in 2007
f Large scale mines
f Management focus on cost efficiency
Cost by Elements (1)
1.80
(US$/lb)
1.50
1.28
1.40
1 01
1.01
1.20
Operating
Materials
16%
Maintenance
17%
0.85
0.90
Other
11%
1.48
0.74
Fuel
13%
0.60
0.30
0.00
2003
2004
Source: Southern Copper
Notes:
(1) Includes by-product credits.
2005
2006
2007
LTM 2008
Labor
16%
Notes:
(1) LTM as of March 31, 2008
(2) Solvent Extraction / Electrowinning process.
Energy
27%
13
Geographic and Product Diversification
SCC has broad g
geographic
g p
and p
product diversification
2007 SCC Revenue by Product
2007 SCC Revenue by Market
Asia
9%
Silver Other
Zinc
3%
4%
6%
Peru
2%
Latin America
19%
Europe
24%
Molybdenum
18%
United States
26%
Copper
69%
Mexico
20%
14
Experienced Management Team
SCC’s team has an average
g of 30 y
years experience
p
with the Company
p y
f As a result of the SCC–MM merger, the management teams of both companies have been
seamlessly integrated
Germán Larrea
Chairman of the Board
Oscar González Rocha
CEO SCC &
President - Peru
Xavier García de Q
Quevedo
COO SCC &
President - Mexico
Vidal Muhech
Genaro Guerrero
Armando Ortega
Mario Vinageras
Gabino Paez
VP - Environmental
VP-Finance ((CFO))
General Counsel
VP - Commercial
VP - Human Resources
f SCC is fully compliant with the Sarbanes-Oxley Act
f Strong corporate governance provisions
– one class of shares
– pro-rata number of independent directors (4 of 13)
– Special Nominating Committee for independent directors
– Audit Committee for independent accountants, and to review internal audit procedures,
accounting and financial controls
– independent director oversight of any potential related party transactions
– Compensation and stock incentive plan committees
15
Expansion Projects Description
1st Generation Projects
Tía María SX EW / Copper
f LBE for Operations: 4Q - 2010
f Annual Copper Production: 120 ktpy
f Estimated Capex: $934 M
Toquepala Concentrator Expansion
f LBE ffor O
Operations:
i
2011
f Annual Production: Copper = 100 ktpy;
Moly = 3.1 ktpy
f Estimated Capex:
p
$600
$
M
Cuajone Concentrator Expansion
f LBE for Operations: 2011
f Annual Production:
Ilo Smelter Expansion
f Additional Concentrates from Cuajone &
Toquepala, 445 ktpy
f LBE for Operations: 2011
f From 1.2 MTPY of Conc to 1.8 MTPY
f Copper Prod: 325 ktpy to 490 ktpy
f Estimated Capex: $150 M
Ilo Copper Refinery Expansion
f LBE for Operations: 2011
f Copper Production: From 280 ktpy to 360
ktpy
f Estimated Capex:
p
$50
$ M
Copper concentrate = 50 ktpy
Moly = 700 tpy
f Estimated Capex: $374 M
Additional Production of Cu: 270 ktpy; Capex: $ 2,108 M
Source: SCC
LBE : Last Best Estimate
16
III. Financial Overview
Financial Summary
(US$ MM)
Copper Price (LME) US$ per pound
Income Statement:
Net Revenues
COGS
Gross Margin
G
g
SG&A
EBITDA
EBITDA Margin
EBIT
Interest Expense
Net Income
2003
2004
2005
2006
LTM 20084
3.44
0.81
1.30
1.67
3.05
2007
3.23
$1,577
992
584
58
64
493
31%
326
117
84
$3,097
1,334
1,762
,76
72
1,702
55%
1,482
106
982
$4,089
1,635
2,454
, 5
81
2,335
57%
2,071
109
1,400
$5,460
2,020
3,440
3,
0
88
3,316
61%
3,054
113
2,038
$6,086
2,122
3,964
3,96
98
3,766
62%
3,497
123
2,216
$6,227
2,176
4,050
,050
99
3,850
62%
3,575
122
2,230
Balance Sheet Statement:
Cash & Equivalents
Total Assets
$352
4,491
$710
5,319
$876
5,688
$1,023
6,376
$1,409
6,581
$1,473
6,778
Total Debt 1
Total Liabilities
Total Shareholders' Equity
1,671
2,386
2,023
1,330
2,494
2,814
1,172
2,349
3,326
1,528
2,696
3,667
1,450
2,716
3,848
1,450
2,760
4,001
$65
$228
$471
$456
$316
$281
((0.1))
944
1,193
1,604
2,388
2,376
2.7x
4.2
0.4x
16.0
0.1x
21.4
0.2x
29.3
0.01x
30.6
-0.01X
31.6
Cash Flow Statement:
Capital Expenditures 2
Free Cash Flow
3
Key Credit Ratios
Net Debt / EBITDA
EBITDA / Interest Expense
1 Includes short-term and long-term debt including current portion
2 Includes capitalized stripping costs until 2005
3 Free Cash Flow defined as net cash from operating activities less capital expenditures
4 LTM as of March 31, 2008
18
Solid Financial Performance
Among
g the highest
g
EBITDA margins
g
and strongest
g
leverage
g ratios in the
metals & mining industry
Net Debt/ 2007 EBITDA (x)
2007 EBITDA Margin (%)
Antofagasta
72%
SCC
62%
BHP Billiton
FCX
Anglo American
51%
46%
44%
Antofagasta -0.7x
SCC
BHP Billiton
Anglo
American
e ca
FCX
Rio Tinto
42%
Xstrata
CVRD - Inco
41%
CVRD - Inco
Xstrata
39%
Rio Tinto
-0.02x
0.4x
0.5x
0.7x
1.0x
2.7x
3.2x
Source: SCC; Company Reports
19
Focus on Total Return to Investors
Disciplined
p
approach
pp
to creating
g shareholder value
Current Dividend Yield1 (%)
Anglo American
7.6%
SCC
1.3%
Rio Tinto
1.3%
0.0%
In 2007, SCC paid
US$2 Billi
Billion
1.4%
Xstrata
328%
333%
Antofagasta
US$6.80 per share
291%
Freeport
242%
BHP Billiton
218%
Anglo American
0.5%
1.0%
439%
Rio Tinto
1.7%
Freeport
448%
Xstrata
3 5%
3.5%
BHP Billiton
CVRD
SCC
6.3%
Antofagasta
CVRD
3-Year Share Price Performance1 (%)
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Source: Bloomberg; Company Filings
Note:
1 Regular and special dividends declared over last twelve months by record date
divided by current share price as of March 31, 2008 (SCC = US$103.83)
190%
0%
100%
200%
300%
400%
500%
1 As of March 31, 2008
20
Capital Expenditure Forecast (US$M)
$1,200
$1,070
$1,085
$107
$1,000
$199
$800
$600
$471
$400
$137
$328
$500
$60
$456
$$226
$121
$316
$45
$40
$135
$200
$380
$56
$950
$116
$965
$213
$333
$112
$247
$127
$143
$230
$181
$120
$120
$120
$120
2010E
2011E
$0
2005A
2006A
2007A
2008E
2009E
All Other Projects
f 2008- 2011 = US$
$ 2,108
,
M in First Generation Development
p
f
Source: SCC
US$ 480 M in Other Equipment Replacement
Investments
21
SCC Debt Amortization Schedule
Millions of USD as of March 31, 2008
$1 000
$1,000
SCC is evaluating the best
financing option for its
projects.
j t
$200
$150
$56
$10
$10
$10
$10
$10
$10
2008
2009
2010
2011
2012
2013
Mitsui
Yankee Bonds
2015
2028
2035
10 & 30 year Bonds
22
SOUTHERN COPPER
Overview and Highlights
May, 2008