Southern Copper CEO Sees Chinese Copper Demand Helping Prices -- Update

By Robert Kozak 

LIMA, Peru--Strong demand from China for copper and an economic recovery in other parts of the world should help keep prices for the metal firm next year, the chief executive officer of one of the world's largest copper mining companies said.

Southern Copper Corp. Chief Executive Oscar Gonzalez Rocha expects copper prices to average around $3 a pound next year as demand in China remains strong, down from an expected average of about $3.11 a pound this year. The average copper price in 2013 was $3.34 a pound.

"They (Chinese buyers) will continue to consume copper, and this will keep a balance in prices that even if we aren't at the $4 a pound that we saw a couple of years ago, prices will be maintained at around $3 a pound," he said in an interview Wednesday at company headquarters in Lima.

The weaker copper price is hitting at the bottom line of various mining companies, Southern Copper included.

The company's profits in the first nine months reached $985 million, and Mr. Gonzalez Rocha said net income could end the year at about $1.3 billion, which would be down from 2013 full year net income of $1.6 billion.

"We will fall a little short because of the price of copper," he said.

For next year, increased production and lower fuel costs should help overturn the lower forecasted copper price.

"In the best case it will be somewhat the same due to the lower prices although production will increase. One thing will compensate for the other," he said.

Mr. Gonzalez Rocha said Southern Copper expects to produce about 780,000 tons next year, with increased output from Mexico. That compares to about 660,000 tons of copper expected to be produced this year, half from Mexico and half from Peru.

The company has an ambitious program of capital expenditures in both nations aimed at producing about 1.2 million tons of copper a year after 2017.

He said the company should receive permits this month to start construction on the $1.4 billion Tia Maria copper project in Peru, and that the mine will be running at the end of 2016 or in the start of 2017, eventually adding 120,000 metric tons a year of copper.

Southern Copper will spend a total of $1.2 billion for an expansion at its already running Toquepala mine in Peru to add another 100,000 tons of copper a year. Work is expected to start in January.

An expansion in Mexico at the Buenavista mine will boost output there to make it one of the biggest copper mines in the world, he said.

"All these things will lift us to 1.2 million tons, which will make us the third or fourth largest producer in the world, apart from the fact that we have the best copper reserves in the world," Mr. Gonzalez Rocha said.

Southern Copper also expects its molybdenum production to rise sharply in coming years, making it the world's second largest producer of molybdenum as a byproduct. The company also produces zinc, silver and other byproducts.

Mr. Gonzalez Rocha said Southern Copper made overtures recently to develop the large Quellaveco copper project in Peru, majority-owned by Anglo American PLC, but hasn't heard anything back yet.

"We believe that the best option for them and everyone is to move ahead in an association with us. But if they want to sell it to us we are ready to negotiate," he said.

He added Southern Copper could issue bonds on capital markets for its expansion program, although that it still has cash on hand.

BMO Capital Markets mining analyst Aleksandra Bukacheva said Southern Copper is a mining company that can ride out lower prices, pointing to its brownfields projects with an industry leading reserve base, low country risk in Peru and Mexico, and "a healthy balance sheet with a large portion of growth program funded from operating cash flow."

Among the negatives are a "history of expansion delays, reducing production guidance, and operational challenges," she said in a email.

Write to Robert Kozak at [e-mail]

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