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 robert.kozak@wsj.com
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