Like fellow copper-mining giant Freeport-McMoRan FCX , Southern Copper’s PCU third-quarter bottom line benefited nearly as much from better ore grades and higher byproduct content as it did from the $0.54-per-pound sequential increase in the London Metal Exchange copper price. Stronger molybdenum volumes (up 18%) and higher prices for molybdenum, zinc, and silver pushed net cash costs per pound of copper down to $0.27 per pound from $0.59 per pound in the second quarter.
Southern Copper management sounded a rather bullish note on the near-term outlook for copper prices, suggesting that the Organisation for Economic Co-operation and Development economies had turned the corner and would soon add another leg of support to copper prices which have been hitherto wholly dependent on massive Chinese imports. Plans for continued expansion activities at Tia Maria, Toquepala, and El Arco, and a tentative $600 million capital-expenditure budget for 2010 (which would be the company’s highest on record) suggest this is not merely talk.
We note that Southern Copper’s view contrasts with the somewhat more tentative outlook on the OECD economies offered up by Freeport management in its earnings call last week, when management indicated any full-scale restart of higher-cost U.S. assets would be contingent on clear evidence of a recovery in U.S. and European copper demand.