2018 net saleswere $7,096.7 million,the highest in our historyand 6.6% higher than 2017, principally due to higher prices of copper (+4.6% COMEX), molybdenum (+45.9%) and zinc (+1.5%). While copper sales volume remained level, by-product sales volumes increased for silver (+15.3%) and molybdenum (+3.3%).
2018 Net incomewas $1,543.0 million, 111.8% higher than 2017 net income. The $814.5 million improvement in 2018 resulted mainly from higher sales and lower taxes as the 2017 financial results included a $785.9 million adjustment for the U.S. income tax reform.
2018 Adjusted EBITDAwas $3,556.0 million, 8.0% higher than in 2017. The adjusted EBITDA margin in 2018 was 50.1% compared with 49.5% in 2017.
2018 Copper productionincreased 0.8% compared with 2017 production as a result of higher production at the Peruvian mines of Toquepala (+15.0%) and Cuajone (+1.6%), partially offset by a decrease at the Mexican mines.Copper production in 4Q18increased 4.0% to 234,991 tons compared with 4Q17 principally due to higher production at the Toquepala mine (+20.8%), as a result of additional copper production of 8,630 tons from the new concentrator.
By-product production:Molybdenum production increased by 3.1% to 21,985 tons in 2018 from 21,328 tons in 2017, principally due to higher production at the Buenavista mine (+42.0%), partially offset by lower production at the Peruvian operations. Mined silver production increased by 8.7% in 2018 compared with 2017 mainly due to higher production at the Toquepala mine (+19.8%) and at our IMMSA mines (+18.7%). Mined zinc production increased 3.1% in 2018, compared with 2017 production due to higher production at our IMMSA mines. In addition, the production of all our main by-products in 4Q18 increased compared with 4Q17 (zinc, +26.8%; silver, +13.9% and molybdenum, +7.5%).
Operating cash costper pound of copper net of by-product revenues was $0.87 in 2018, compared to $0.92 in 2017.
Cash flow from operating activitiesin 2018 was $2,235.1 million, a 13.1% increase when compared to $1,976.6 million in 2017. This improvement results from the strong cash generation from operations due to higher sales volume and metal prices.
Capital investments in 2018were $1,121.4 million compared with $1,023.5 million in 2017. Capital investments in 2018 include $334.3 million for the Toquepala expansion.
Dividends:On January 24, 2019, the Board of Directors authorized adividend of $0.40per share to be paid on February 26, 2019, to shareholders of record at the close of business on February 12, 2019.
In addition, as part of the settlement of claims brought on behalf of the Company and its shareholders against Grupo Mexico, AMC and certain current and former directors (together with Grupo Mexico and AMC, the"Defendants")a dividend of $0.44428per share will be paid on February 21, 2019 to shareholders of record at the close of business on February 11, 2019, other than the Defendants. The settlement dividend, totaling $36.5 million, plus its legal fees of $ 13.5 million, have been funded by Grupo Mexico and AMC.
Mr. German Larrea, Chairman of the Board,commenting on the Company´s progress said:"During the 4Q18 we completed the construction of the Toquepala concentrator expansion which at the end of 2018 was producing at about 60% of capacity. We expect to reach full capacity by the beginning of the 2Q19. During this year, we will see the full benefit of our Toquepala expansion and cost reduction programs in our financial results. During 2018, we obtained a cash cost reduction from $0.92 to $0.87 per pound, a 5.3% decrease, despite an increase of 16.5% in fuel cost and other materials. Considering last year´s average prices for our main products, for 2019 we expect our cash cost to average $0.80 per copper pound, an additional reduction of 8.0%, reinforcing Southern Copper'sleadership as a low-cost producer.
Southern Copper has the largest copper reserves in the industry and operates high quality world-class assets in investment grade countries such as Mexico and Peru. We are currently developing the next phase of a growth program aiming to reach a milestone copper production capacity of 1.5 million tons by 2025."
Key Financial Data
Cost of salesOperating income Net income
623.5 $ 293.2
Net income marginAdjusted EBITDAAdjusted EBITDA margin Income (loss) per share Capital investments
46.8% $ 0.38
$ 580.7 (202.0)%
53.6% $ (0.37)
$ 0.75 (202.7)%
Note: Amounts in millions except per share amounts and %'s.
Southern Copper's investment philosophy is not based on the outlook of copper prices but on the quality of the assets that we operate and develop. Throughout the years, our strong financial discipline has consistently allowed us to invest on a continuous basis in our superior asset portfolio.
Our portfolio of Board approved projects in Peru has a total capital budget of $2.9 billion of which $1.8 billion have already been invested. Considering the Michiquillay ($2.5 billion) and Los Chancas ($2.8 billion) projects, our total investment program in Peru increases to $8.2 billion.
Toquepala Expansion Project-Tacna:This $1.3 billion project includes a new-state-of-the-art concentrator that will increase Toquepala´s annual copper production to 258,000 tons in 2019, a 52% production increase for this operation when compared to 2018. Through December 31, 2018, we have invested $1,243.4 million in this expansion. The construction of the project was completed and it initiated production in the 4Q18. Full production is expected to be reached by the 2Q19.
Tia Maria - Arequipa:We completed all engineering and environmental requirements, including responding to the recent 14 observations received from the Ministry of Energy and Mines in 4Q18. We expect to receive the construction license for this 120,000 ton annual SX-EW copper greenfield project with a total capital budget of $1,400 million in the first half of 2019.
In addition to our on-going social work with the communities of the Tambo valley, the Company is currently deploying its successful labor program"Forge Your Future"(Forjando Futuro) to train 700 people from the Islay Province in 2019. After training, the participants will be eligible to apply for one of the estimated 9,000 jobs (3,600 direct and 5,400 indirect) required during the Tia Maria construction phase. We believe that the initiation of construction activities for Tia Maria will generate significant economic opportunities for the Islay province and the Arequipa region.
When in operation, we expect that Tia Maria will produce 120,000 tons of copper, will generate a significant contribution through mining royalties and taxes from day one and will directly employ 600 workers and indirectly provide jobs to another 4,200.
Buenavista Zinc-Sonora:This project is located within the Buenavista facility and includes the development of a new concentrator to produce approximately 80,000 tons of zinc and 20,000 tons of copper per year. Currently, we have completed the basic engineering and are working on the purchasing process for the main project components. Water concessions have been requested. The project´s budget is $413 million, and we expect to initiate operations in 2021. When completed, this new zinc concentrator will double the Company's zinc production capacity.
Pilares-Sonora:Located 6 kilometers from La Caridad, this project consists of an open-pit mine operation with an annual production capacity of 35,000 tons of copper in concentrates. The ore will be transported from the pit to the primary crushers of the La Caridad copper concentrator through a new 25-meter wide off-road facility for mining trucks. Environmental permit studies were presented to the government´s environmental authorities and additional land is being acquired. This project will significantly improve the over-all mineral ore grade (combining the 0.78% expected from Pilares with the 0.34% from La Caridad). The budget for Pilares is $159 million and we expect it to start producing in early 2020.
The Company'sfourth quarter and twelve months earnings conference call will be held on Tuesday, February 12, 2019, beginning at 10:00 AM-EST (10:00 AM Lima and 09:00 AM Mexico City time).
Dial-in number: 877-455-8486 in the U.S.
629-228-0768 outside the U.S.
Raul Jacob, SCC Vice President of Finance, Treasurer and CFO
Southern Copper Corporation published this content on 11 February 2019 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 12 February 2019 07:59:03 UTC