SOUTHERN COPPER CORPORATION EXECUTIVE SUMMARY
This Management's Discussion and Analysis of Financial Condition and Results of Operations relates to and should be read together with our Audited Consolidated Financial Statements as of and for each of the years in the three-year period endedDecember 31, 2020 . Therefore, unless otherwise noted, the discussion below of our financial condition and results of operations is forSouthern Copper Corporation and its subsidiaries (collectively, "SCC," "Southern Copper ," "the Company," "our," and "we") on a consolidated basis for all periods. Our financial results may not be indicative of our future results. This discussion contains forward-looking statements that are based on management's current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in the forward-looking statements as a result of a number of factors. See Item 1 "Business-Cautionary Statement." EXECUTIVE OVERVIEW Business: Our business is primarily the production and sale of copper. In the process of producing copper, a number of valuable metallurgical by-products are recovered, which we also produce and sell. Market forces outside of our control largely determine the sale prices for our products. Our management, therefore, focuses on value creation through copper production, cost control, production enhancement and maintaining a prudent capital structure to remain profitable. We endeavor to achieve these goals through capital spending programs, exploration efforts and cost reduction programs. Our aim is to remain profitable during periods of low copper prices and to maximize financial performance in periods of high copper prices. We are one of the world's largest copper mining companies in terms of production and sales and our principal operations are inPeru and Mexico. We also have an active ongoing exploration program inChile ,Argentina andEcuador .
We believe we hold the world's largest copper reserve position. As of
Copper contained in ore reserves Thousand tons Mexican openpit 30,346 Peruvian operations 22,439 IMMSA 256 Development projects 14,647 Total 67,688
Outlook: Various key factors affect our outcome. These include, but are not limited to, the following:
Sales structure: In the last three years, approximately 81.0% of our revenues ? came from the sale of copper, 7.0% from molybdenum, 4.0% from zinc, 5.0% from
silver and 3.0% from various other products, including gold, sulfuric acid and
other materials.
Copper: In the last quarter of 2020, the LME copper price increased, from an
average of
outlook for the 2021 copper market. We believe the following factors are influencing the market:
A worldwide recovery in copper demand for industrial uses, driven mainly by a
? sustained recovery in economic activity in
in the European auto industry.
Regarding
? decreased by 48% in the last 10 months of 2020, which led to a subsequent
increase in Chinese consumption of refined copper.
69
Table of Contents
? The combined inventories of the LME, Comex,
closed 2020 at their lowest levels sinceDecember 2014 .
Given the current market outlook for supply and demand, we have a positive view for this year and for the long-term evolution of the copper market.
Molybdenum: It represented approximately 6.4% of our sales in 2020. Molybdenum
? prices averaged
decrease.
Molybdenum is mainly used to produce special alloys of stainless steel that require significant hardness, corrosion and heat resistance. A new use for this metal is in lubricants and sulfur filtering of heavy oils and shale gas production.
Zinc: Although average zinc prices decreased in 2020 compared with 2019 ? (-11.0%), we believe zinc has very good long-term fundamentals due to its
significant industrial consumption and expected production. Zinc represented
3.1% of our sales in 2020.
Silver: We believe that silver prices will have support due to its industrial ? uses as well as being perceived as a value shelter in times of economic
uncertainty. Silver represented 5.6% of our sales in 2020.
Production: In 2021 and 2022, we expect to produce 943,000 tons of copper given ? that production during these periods will be affected by a temporary reduction
in ore grade and recovery at our Peruvian operations.
We expect our copper production to recover by 2023 and reach 1,031,000 tons of
production as we get Peruvian production back on track and generate new
production on our
We also expect to produce 21.4 million ounces of silver in 2021, in line with 2020 production. In 2021, we expect to produce 76,200 tons of zinc from our mines, up 10.5% from 2020 production level. Additionally, we expect to produce 26,800 tons of molybdenum, which represents a decrease of 11.3% compared to
2020 production levels.
Capital investments: Capital investments were
16.3% lower than in 2019, and represented 37.7% of net income. Our growth ? program to develop the full production potential of our Company is underway. We
are currently developing a new organic growth plan to increase our copper volume production to 1.9 million tons by 2028 with the development of new projects.
For 2021, the Board of Directors approved a capital investment program of
COVID-19 InMarch 2020 , theWorld Health Organization classified the COVID-19 outbreak as a pandemic based on a rapid increase in global transmission rates. The full impact of the COVID-19 outbreak will continue and the magnitude of the impact on the Company's financial condition, liquidity and future operating results is uncertain. Senior management is actively monitoring the global situation´s effect on the Company´s financial condition, liquidity, operations, suppliers, industry and workforce and is focusing principally on the health, safety and well-being of our employees, their families and the communities where we have operations. As ofDecember 31, 2020 , there have been no major delays in the supply of the materials and services critical for operations and sales. In addition, the supply of non-critical materials and services for the operations is gradually being restored. Additionally, shipments of products and collections experienced no known major delays in the fourth quarter of 2020.
As of
70
Table of Contents
The Company maintains a solid financial position and performance level. We believe this has allowed and will continue to allow us to deal with the effects of the pandemic in a way that prevents adverse material effects on our operations and financial results. The table below compares some of our financial information as of and for the years endedDecember 31, 2020 and 2019: 2020 2019 ($ in millions, except ratios) Cash and cash equivalents 2,183.6 1,925.1 Accounts receivable 1,136.6 911.8 Total assets 16,946.5 16,407.4 Long term debt 6,544.2 6,541.0 Sales 7,984.9 7,285.6 RATIOS
Current assets to current liabilities 3.49 2.83 Accounts receivable turnover (1) 7.03 7.99 Total debt ratio (2)
0.39 0.42
Net income margin (3) 19.7% 20.4%
(1) Represents net sales divided by accounts receivable.
(2) Represents total debt divided by total assets.
(3) Represents net income divided by net sales, as a percentage.
Governmental authorities inMexico andPeru have declared that essential economic activities must continue during the COVID-19 health emergency. These activities include industrial mining and/or any other activity necessary to ensure the provision of essential services such as electricity; provide elements to install medical and hospital infrastructure; and manufacture health-related supplies and technological equipment. We believe that industrial mining stands as the most efficient and timely supplier of inputs that are critical to the productive chain to fight the pandemic. Given the nature of mining operations, which are highly automated, conducted in remote locations and with mandatory use of personal safety equipment at all the mines, it is easier to implement and comply with COVID-19 protective measures, such as physical isolation and control of access to facilities. Industrial mining uses advanced and reliable machinery and does not require high physical concentration of employees. In many cases, workers fulfill their duties maintaining distances of more than 100 meters from their closest coworkers. At the present time, our operations are in compliance with all sanitary and government regulations and maintain proper environmental safeguards. Our COVID-19 emergency protocol has reinforced preventive measures such as disinfecting, clinical monitoring before work, cleaning and sanitizing of work areas and respect for social distancing. We have also restricted the access of contractors, suppliers and personnel to our facilities if visits are not indispensable and enforced multiple actions to limit workforce exposure to COVID-19 by imposing travel restrictions, prohibiting face-to-face meetings and urging frequent hand washing, as well as adhering to all other health, safety and social distancing measures required by governmental authorities. AtDecember 31, 2020 , approximately 92% of the workforce inMexico was working on site or at home under strict safety measures; the remaining 8% of the workforce was not working, including all individuals at high risk due to age and/or preexisting medical conditions. At our Peruvian operations, approximately 63% of the workforce was working onsite or at home under strict safety measures, while the remaining 37% was not working, including all individuals at high risk due to age and/or preexisting medical conditions. ThroughDecember 31, 2020 , SCC incurred approximately$27.6 million in COVID-19 related production costs that include protective equipment and labor costs. These costs have been expensed to cost of sales in the Company´s consolidated statement of earnings. 71 Table of ContentsKEY MATTERS Below, we discuss several matters that we believe are important to understand our results of operations and financial condition. These matters include (i) earnings, (ii) production, (iii) "operating cash costs" as a measure of our performance, (iv) metal prices, (v) business segments, (vi) the effect of inflation and other local currency issues and (vii) our capital investment
and exploration program.
Earnings: The table below highlights key financial and operational data of our Company for the three years endedDecember 31, 2020 (in millions, except copper price and per share amounts): Variance 2020 2019 2018 2020 - 2019 2019 - 2018 Copper price LME 2.80 2.72 2.96 0.08 (0.24) Pounds of copper sold 2,305.9 2,173.8 1,952.9 132.1 220.9 Net sales$ 7,984.9 $ 7,285.6 $ 7,096.7 $ 699.3 $ 188.9 Operating income$ 3,120.7 $ 2,753.0 $ 2,881.2 $ 367.7 $ (128.2) Income before income taxes$ 2,745.8 $ 2,426.5 $ 2,589.4 $ 319.3 $ (162.9) Net income attributable to SCC$ 1,570.4 $ 1,485.8 $ 1,543.0 $ 84.6 $ (57.2) Earnings per share$ 2.03 $ 1.92 $ 2.00 $ 0.11 $ (0.08) Dividends per share$ 1.50 $ 1.60 $ 1.40 $ (0.10) $ 0.20 Net sales in 2020 of$8.0 billion were the highest in our history and exceeded those recorded in 2019 by$699.3 million . This increase was mainly the result of higher copper (+6.1%), molybdenum (+12.7%) and silver (+8.8%) sales volumes, as well as higher copper (+2.9%) and silver (+27.6%) prices; this effect was partially offset by lower molybdenum (-24.0%) prices. Net sales in 2019 of$7.3 billion were higher than in 2018 by$188.9 million . This increase was mainly the result of higher copper (+11.3%), molybdenum (+21.7%) and silver (+5.7%) sales volumes and was partially offset by lower copper (-8.1%) and molybdenum (-5.0%) prices. The two largest components of operating costs and expenses are cost of sales and depreciation, amortization and depletion, both of which increased in each of the years in the periods shown above. In 2020, cost of sales increased by$323.4 million and depreciation, amortization and depletion increased by$11.2 million . The increase in cost of sales in 2020 was mainly due to an increase in the cost of metals purchased from third parties and a decrease in the capitalization of leachable material. This increase was partially offset by a reduction in the cost of diesel and fuel. In 2019, cost of sales increased by$197.4 million and depreciation, amortization and depletion increased by$90.1 million . The increase in cost of sales in 2019 was mainly due to higher repairing materials and operating contractors' costs, as well as a decrease in capitalized leachable material. This increase was partially offset by a decrease in the cost of metals purchased from third parties. Net income attributable to SCC in 2020 was 5.7% higher than reported in 2019; this was mainly due to higher sales volumes and to higher copper and silver prices. Net income attributable to SCC in 2019 was 3.6% lower than in 2018; this was primarily driven by a decrease in prices for copper and molybdenum, despite an increase in sales volumes. 72 Table of Contents
Production: The table below contains mine production data of our Company for the
three years ended
Variance
2020 - 2019 2019 - 2018
2020 2019 2018 Volume % Volume %
Copper (in million
pounds) 2,207.6 2,191.0 1,948.2 16.6 0.8 % 242.8 12.5 %
Molybdenum (in
million pounds) 66.7 59.3 48.5 7.4 12.5 % 10.8 22.3 %
Zinc (in million
pounds) 152.0 163.0 156.0 (11.0) (6.8) % 7.0 4.5 %
Silver (in million
ounces) 21.5 20.3 17.3 1.2 6.2 % 3.0 17.3 %
The table below contains copper production data from each of our mines for the
three years ended
Variance
2020 - 2019 2019 - 2018
Copper (in million pounds): 2020 2019 2018 Volume % Volume %
Toquepala 562.4 568.8 375.4 (6.4) (1.1) % 193.4 51.5 %
Cuajone 371.8 344.8 354.0 27.0 7.8 % (9.2) (2.6) %
La Caridad 298.8 293.4 292.1 5.4 1.8 % 1.3 0.4 %
Buenavista 951.9 965.8 913.0 (13.9) (1.4) % 52.8 5.8 %
IMMSA 22.7 18.2 13.7 4.5 24.6 % 4.5 32.8 %
Total mined copper 2,207.6 2,191.0 1,948.2 16.6 0.8 % 242.8 12.5 %
2020 compared to 2019:
Copper mine production in 2020 increased 0.8% to 2,207.6 million pounds, up from 2,191.0 million pounds in 2019. This increase was due to:
? Higher production at the Cuajone mine (+7.8%), which was driven by an increase
in ore grades and recoveries.
? Higher production at the
? Higher production at the IMMSA operations (+24.6%), which was attributable to
an increase in ore grades.
Molybdenum production increased 12.5% in 2020 compared to the level in 2019 due to an increase in production at our Toquepala (+37.7%), Cuajone (+28.6%) andLa Caridad (+3.2%) operations; this was partially offset by a decrease in production at ourBuenavista (-10.6%) mine. Zinc production decreased 6.8% in 2020, which was driven by a decrease in ore grades and in production at ourSanta Eulalia (-96.0%) andLos Charcas (-5.0%) operations; this was partially offset by an increase in production at ourSan Martin (+151.0%) mine, which restored production to full capacity at the end of the third quarter of 2019. Mined silver production increased 6.2% in 2020 compared to the level recorded in 2019; this was mainly due to an increase in production at our Cuajone (+8.8%),La Caridad (+16.4%) and IMMSA (+15.0%) operations, which was partially offset by a decrease in production at the Toquepala (-2.4%) andBuenavista (-3.6%) mines. 2019 compared to 2018:
Copper mine production in 2019 increased 12.5% to 2,191.0 million pounds from 1,948.2 million pounds in 2018. This increase was due to:
Higher production at the Toquepala mine (+51.5%), as a result of additional ? copper production of 93,108 tons from the successful ramping up of the new
concentrator.
? Higher production at the
at our new
73
Table of Contents
? Higher production at the IMMSA operations (+32.9%), as result of the
restoration of the
Molybdenum production increased 22.3% in 2019 compared to 2018 due to higher production at all of our mines, principally at the Toquepala mine (+75%) due to the successful ramping up of the new molybdenum plant that started production inApril 2019 .
Zinc production increased 4.4% in 2019, as a result of higher production at ourSanta Barbara mine due to higher grades and recoveries, as well as the restored production of 5,837 tons from ourSan Martin mine.
Mined silver production increased 17.1% in 2019 compared to 2018, mainly due to
higher production at our Toquepala (+60.5%), IMMSA (+22.9%) and
Operating Cash Costs: An overall benchmark used by us and a common industry metric to measure performance is operating cash costs per pound of copper produced. Operating cash cost is a non-GAAP measure that does not have a standardized meaning and may not be comparable to similarly titled measures provided by other companies. This non-GAAP information should not be considered in isolation or as substitute for measures of performance determined in accordance with GAAP. A reconciliation of our operating cash cost per pound of copper produced to the cost of sales (exclusive of depreciation, amortization and depletion) as presented in the consolidated statement of earnings is presented under the subheading, "Non-GAAP Information Reconciliation" on page 96. We disclose operating cash cost per pound of copper produced, both before and net of by-product revenues. We define operating cash cost per pound of copper produced before by-product revenues as cost of sales (exclusive of depreciation, amortization and depletion), plus selling, general and administrative charges, treatment and refining charges net of sales premiums; less the cost of purchased concentrates, workers' participation and other miscellaneous charges, including royalty charges, and the change in inventory levels; divided by total pounds of copper produced by our own mines.
In our calculation of operating cash cost per pound of copper produced, we exclude depreciation, amortization and depletion, which are considered non-cash expenses. Exploration is considered a discretionary expenditure and is also excluded. Workers' participation provisions are determined on the basis of pre-tax earnings and are also excluded. Additional exclusions from operating cash costs are items of a non-recurring nature and the mining royalty charge as it is based on various calculations of taxable income, depending on which jurisdiction,Peru or Mexico, is imposing the charge. We believe these adjustments will allow our management and stakeholders to see a presentation of our controllable cash cost, which we believe is one of the lowest of all copper-producing companies of similar size. We define operating cash cost per pound of copper produced net of by-product revenues as operating cash cost per pound of copper produced, as defined in the previous paragraph, less by-product revenues and net revenue (loss) on sale of metal purchased from third parties. In our calculation of operating cash cost per pound of copper produced, net of by-product revenues, we credit against our costs the revenues from the sale of all our by-products, including, molybdenum, zinc, silver, gold, etc. and the net revenue (loss) on sale of metals purchased from third parties. We disclose this measure including the by-product revenues in this way because we consider our principal business to be the production and sale of copper. As part of our copper production process, much of our by-products are recovered. These by-products, as well as the processing of copper purchased from third parties, are a supplemental part of our production process and their sales value contribute to covering part of our incurred fixed costs. We believe that our Company is viewed by the investment community as a copper company, and is valued, in large part, by the investment community's view of the copper market and our ability to produce copper at a reasonable cost. We believe that both of these measures are useful tools for our management and our stakeholders. Our cash costs before by-product revenues allow us to monitor our cost structure and address areas of concern within operating management. The measure operating cash cost per pound of copper produced net of by-product revenues is a common measure used in 74
Table of Contents
the copper industry and is a useful management tool that allows us to track our performance and better allocate our resources. This measure is also used in our investment project evaluation process to determine a project's potential contribution to our operations, its competitiveness and its relative strength in different price scenarios. The expected contribution of by-products is generally a significant factor used by the copper industry to determine whether to move forward or not in the development of a new mining project. As the price of our by-product commodities can have significant fluctuations from period to period, the value of its contribution to our costs can be volatile.
Our operating cash cost per pound of copper produced, as defined above, is
presented in the table below for the three years ended
Operating cash cost per pound of copper produced(1)
(In millions, except cost per pound and percentages)
2020 - 2019 2019 - 2018
2020 2019 2018 Value % Value %
Total operating cash cost
before byproduct revenues $ 2,923.7 $ 3,230.9 $ 2,904.4 $ (307.2) (9.5) % $ 326.5 11.2 %
Total byproduct revenues $ (1,455.9) $ (1,359.2) $ (1,267.7) $ (96.7) 7.1 % (91.5) 7.2 %
Total operating cash cost
net of byproduct revenues $ 1,467.8 $ 1,871.7 $ 1,636.7 $ (403.9) (21.6) % $ 235.0 14.4 %
Total pounds of copper
produced(2) 2,136.1 2,133.3 1,886.8 2.8 0.1 % 246.5 13.1 %
Operating cash cost per
pound before byproduct
revenues $ 1.37 $ 1.52 $ 1.54 $ (0.15) (9.9) % $ (0.02) (1.3) %
Byproducts per pound
revenues $ (0.68) $ (0.64) $ (0.67) $ (0.04) 6.3 % $ 0.03 (4.5) %
Operating cash cost per
pound net of byproduct
revenues $ 0.69 $ 0.88 $ 0.87 $ (0.19) (21.7) % $ 0.01 1.1 %
(1) These are non-GAAP measures, see page 96 for reconciliation to GAAP measure.
(2) Net of metallurgical losses.
2020 compared to 2019: As seen in the table above, our per pound cash cost before by-product revenues in 2020 was 9.9% lower than that recorded in 2019. This reduction is mainly attributable to a temporary decrease in production costs, as some operating, stripping and maintenance costs were reduced or postponed due to the COVID-19 pandemic. Our cash cost per pound net of by-product revenues for 2020 was 21.7% below that seen for the same period of 2019 and was also attributable to the temporary decrease in production costs outlined above. 2019 compared to 2018: As seen in the table above, our per pound cash cost before by-product revenues in 2019 was 1.3% lower when compared with 2018. This decrease was the result of the unit cost effect of 13.1% higher production. Meanwhile, our cash cost per pound when calculated net of by-product revenues for 2019 was 1.1% higher than in the same period of 2018 due to the higher production noted, as well as lower by-product revenues due to the additional copper volume effect. Metal Prices: The profitability of our operations is dependent on, and our financial performance is significantly affected by, the international market prices for the products we produce, especially for copper, molybdenum, zinc
and
silver.
We are subject to market risks arising from the volatility of copper and other
metals prices. Metal prices historically have been subject to wide fluctuations
and are affected by numerous factors beyond our control. These factors, which
affect each commodity to varying degrees, include international economic and
political conditions, levels of supply and demand, the availability and cost of
substitutes, inventory levels maintained by producers and others and, to a
lesser degree, inventory carrying costs and currency exchange rates. In
addition, the market prices of certain metals have on occasion been subject to
rapid short-term changes due to economic concerns and financial investments.
75
Table of Contents
For 2021, assuming that expected metal production and sales are achieved; 2020 tax rates are unchanged and giving no effects relative to potential hedging programs, metal price sensitivity factors indicate the following change in estimated annual net income attributable to SCC resulting from metal price changes:
Copper Molybdenum Zinc Silver
Change in metal prices (per pound except
silver-per ounce) $ 0.10 $ 1.00 $ 0.10 $ 1.00
Change in net earnings (in millions) $ 122.2 $ 35.8 $ 14.3$ 13.5
Business Segments: We view our Company as having three reportable segments and manage it on the basis of these segments. These segments are (1) our Peruvian operations, (2) our Mexican open-pit operations and (3) our Mexican underground operations, known as our IMMSA unit. Our Peruvian operations include the Toquepala and Cuajone mine complexes and the smelting and refining plants, industrial railroad and port facilities that service both mines. Our Mexican open-pit operations includeLa Caridad andBuenavista mine complexes, the smelting and refining plants and support facilities, which service both mines. Our IMMSA unit includes five underground mines and several industrial processing facilities.
Segment information is included in our review of "Results of Operations" in this item and also in Note 18 "Segment and Related Information" of the consolidated financial statements. Inflation and Exchange Rate Effect of the Peruvian sol and the Mexican peso: Our functional currency is theU.S. dollar and our revenues are primarily denominated inU.S. dollars. Significant portions of our operating costs are denominated in Peruvian sol and Mexican pesos. Accordingly, when inflation and currency devaluation/appreciation of the Peruvian and Mexican currency occur, our operating results can be affected. In recent years, we believe these changes have had no material effect on our results and financial position. Please see Item 7A "Quantitative and Qualitative Disclosures about Market Risk" for more detailed information.
Capital Investment Program: We made capital investments of
76
Table of Contents
The table below contains information on our capital investments for the
three years ended
2020 2019 2018
Peruvian projects:
Toquepala expansion project $ 5.1 $ 41.1 $ 392.4
Quebrada Honda dam expansion 30.9 - -Heavy mineral management optimizing project-Cuajone - - 17.0 Toquepala mine truck acquisition 9.7 - - HPGR system-Toquepala - 7.6 7.8 Tailings disposal-Quebrada Honda dam 0.4 1.0 23.7 Ilo sulfuric acid plant N°1 modification 2.0 5.1 15.3 Pumping system neutralization plant - Toquepala 5.1 8.0 - Other projects 46.8 37.8 25.1 Subtotal projects 100.0 100.6 481.3 Maintenance and replacement 109.4 216.3 201.4 Net change in capital expenditures incurred but not yet paid (14.4) 33.2 91.3 Total Peruvian expenditures 195.0 350.1 774.0 Mexican projects: New Buenavista concentrator 68.3 1.0 5.8 Pilares Mine 33.4 - - Buenavista projects infrastructure - 1.1 2.3 Solutions system improvements of Tinajas 10.0 6.0 1.3 Quebalix IV 0.1 0.7 2.0 New tailing disposal deposit at Buenavista mine 27.0
35.8 56.7
Over elevation of tailings deposit N° 7 at
11.0 25.4 18
Sonora River water restitution system in Moritas Basin - 1.8 6
San Martin mine restoration 21.1 48.9 13.5
Other projects 109.5 85.7 63.5
Subtotal projects 280.4 206.4 169.4
Maintenance and replacement 132.5 148.6 169.3
Net change in capital expenditures incurred but not
yet paid (15.7) 2.4 8.7
Total Mexican expenditures 397.2 357.4 347.4
Total capital investments $ 592.2 $ 707.5 $ 1,121.4
In 2021, we plan to invest $1,431.3 million in capital projects. In addition to
our ongoing capital maintenance and replacement spending, our principal capital
programs include the following:
Projects in Mexico:
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. We have completed the
basic engineering study and the detailed engineering study has reached 81%
completion. In order to continue with the project, stronger preventive measures
to combat COVID-19 have been put in place. Purchase orders have been placed for
major equipment, some of which is currently being manufactured. The project has
all the necessary permits. The project´s budget is $413 million , and we expect
to initiate operations in 2023. When completed, we anticipate that this new
facility will double the Company's zinc production capacity and will provide 490
direct jobs and 1,470 indirect jobs.
Pilares - Sonora: This project, located six kilometers from La Caridad , will be
developed as an open-pit mine operation with an annual production capacity of
35,000 tons of copper in concentrate. 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, which is under construction,
and will significantly improve the overall mineral ore grade (combining the
0.78%
77
Table of Contents
expected from Pilares with 0.34% from La Caridad ). The budget for Pilares is
$159 million and we expect the project to begin production in the first quarter
of 2022.
El Pilar - Sonora: This is a low-capital intensity copper development project
strategically located in Sonora, Mexico , approximately 45 kilometers from our
Buenavista mine. Its copper oxide mineralization contains estimated proven and
probable reserves of 281 million tons of ore with an average copper grade of
0.301%. El Pilar will operate as a conventional open-pit mine with an annual
production capacity of 36,000 tons of copper cathodes. This operation will use
highly cost efficient and environmentally friendly SX-EW technology. We estimate
a development investment of approximately $310 million . Construction at the
pilot plant and experimental pads has ended and tests are being performed. The
results from experimental pads on leaching process have confirmed adequate
levels of copper recovery. We expect this project to start production in 2023
with an expected mine life of 13 years.
The San Martin mine recovery program. After eleven years of illegal stoppage, we
resumed control of the San Martin mine in August 2018 . The San Martin facilities
deteriorated during this period but we made a major renovation and restarted
operations during the second quarter of 2019. In 2020, we produced 14,361 tons
of zinc, 2.8 million ounces of silver, 3,601 tons of copper, and 1,425 tons of
lead. The budget for the restoration program is $97.7 million . As of December
31, 2020 the program reported a total expense of $86.4 million .
Projects in Peru :
Quebrada Honda dam expansion - Tacna: This project aims to enlarge the main and lateral dams in Quebrada Honda and includes the relocation of some facilities due to dam growth and implementation of other facilities for water recovery, among other factors. As ofDecember 31, 2020 , the engineering study is complete and we have initiated the procurement process for the necessary materials and equipment. This project has a total budget of$140.0 million , of which we have invested$32 million as ofDecember 31, 2020 . Progress on the Project is 41% according to the plan.Tia Maria - Arequipa: OnJuly 8, 2019 , we were granted the construction permit for this 120,000 ton annual SX-EW copper greenfield project with a total capital budget of$1,400 million . The Government awarded the permit after completing an exhaustive review process, complying with all established regulatory requirements and addressing all observations raised. The challenges surrounding the construction permit were overcome when onOctober 30, 2019 , theMining Council of thePeruvian Ministry of Energy and Mines ratified the construction permit for the Tia Maria project. The Company has been consistently working to promote the welfare of the Islay province population. As part of these efforts, we have implemented successful social programs in education, healthcare and productive development to improve the quality-of-life in the region. We also have promoted agricultural and livestock activities in theTambo Valley and supported growth in manufacturing, fishing and tourism in Islay. We consider that the initiation of construction activities at Tia Maria will generate significant economic opportunities for the Islay province and the Arequipa region. During the construction and operation phase, we will make it a priority to hire local labor to fill the 9,000 jobs (3,600 direct and 5,400 indirect) that we expect to generate duringTia Maria's construction phase. When operating, we expectTia Maria to directly employ 600 workers and indirectly provide jobs for another 4,200. Additionally, from day one of our operations, we will generate significant contributions to revenues in the Arequipa region
via royalties and taxes. This greenfield project, located inArequipa, Peru , will use state of the art SX-EW technology with the highest international environmental standards. SX-EW facilities are the most environmentally friendly in the industry due to their technical process with no emissions released into the atmosphere. Potential projects:
We have a number of other projects that we may develop in the future. We continuously evaluate new projects on the basis of our long-term corporate objectives, strategic and operating fit, expected return on investment, required investment, estimated production, estimated cash-flow profile, social and environmental considerations, among other
78
Table of Contents
factors. All capital spending plans will continue to be reviewed and adjusted to respond to changes in the economy, market conditions or the COVID-19 pandemic.
El Arco -Baja California : This is a world-class copper deposit located in the central part of theBaja California peninsula, with ore reserves of 2.4 billion tons with an ore grade of 0.422%, 0.3 billion tons of leach material with an ore grade of 0.288% and 0.11 grams of gold per ton. This project envisions an open-pit mine with a combined concentrator and SX-EW operations, with an estimated production capacity of 190,000 tons of copper and 105,000 ounces of gold annually. The project has an estimated capital budget of$2.9 billion . The Company has started the baseline study and is reviewing the basic engineering analysis to request the environmental impact permit. We are currently in the final stage of the land acquisition process for the project. Los Chancas-Apurimac: This greenfield project, located in Apurimac,Peru , is a copper and molybdenum porphyry deposit. Current estimates indicate the presence of 545 million tons of mineralized material with a copper content of 0.59%, molybdenum content of 0.04% and 0.039 grams of gold per ton, as well as 181 million tons of mineralized leachable material with a total copper content of 0.357%.Los Chancas project envisions an open-pit mine with a combined operation of concentrator and SX-EW processes to produce 130,000 tons of copper and 7,500 tons of molybdenum annually. The estimated capital investment is$2,600 million and the project is expected to be in operation in 2027. In 2019, we continued to engage in social and environmental improvements for the local communities. In 2020, we continued to work on these activities and plan to conclude the environmental impact assessment for the project in 2021. Michiquillay Project-Cajamarca: OnJune 12, 2018 ,Southern Copper signed a contract and made an initial payment of$12.5 million for the acquisition of the Michiquillay project inCajamarca, Peru . The Company has created a multidisciplinary management team to plan the development of this project. As part of this plan, the Company has established contact with the local and regional authorities and communities to promote programs to sustainably develop the area. In 2020, we continued to develop social and environmental programs for the local communities and are concluding a semi-detailed environmental impact assessment. This will allow us to begin a 50,000 meter diamond drilling program in 2021 to verify and update the project´s estimated mineralized materials. Michiquillay is a world class mining project with estimated mineralized material of 1,150 million tons with an estimated copper grade of 0.63%. When developed, we expect Michiquillay to produce 225,000 tons of copper per year (along with by-products of molybdenum, gold and silver) for an initial mine life of more than 25 years and at a competitive cash-cost. We estimate an investment of approximately$2.5 billion will be required and expect production start-up by 2028. We believe that Michiquillay will become one of Peru´s largest copper mines. The project will create significant business opportunities in the Cajamarca region, generate new jobs for the local communities and contribute with taxes and royalties to the local, regional and national governments. The above information is based on estimates only. We cannot make any assurances that we will undertake any of these projects or that the information noted
is accurate.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our significant accounting policies are discussed in Note 2 "Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements, included in Item 8 "Financial Statements and Supplementary Data" of this Annual Report.
Our discussion and analysis of financial condition and results of operations, as well as quantitative and qualitative disclosures about market risks, are based upon our consolidated financial statements, which have been prepared in accordance withU.S. GAAP. Preparation of these consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We make our best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available to 79 Table of Contents management. Areas where the nature of the estimate makes it reasonably possible that actual results could materially differ from amounts estimated include: ore reserves, revenue recognition, ore stockpiles on leach pads and related amortization, estimated impairment of assets, asset retirement obligations, determination of discount rates related to the operating lease liabilities, valuation allowances for deferred tax assets and unrecognized tax benefits. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Ore Reserves: For internal ore reserve estimation, we use metal price assumptions of$3.00 per pound for copper and$9.00 per pound for molybdenum. These prices are intended to conservatively approximate average prices over the long term and are based on internal estimates for the curves of long-term metal prices. However, pursuant toSEC guidance, the reserve information in this report is calculated using average metal prices for the most recent three-year period, except as otherwise stated. We refer to these three-year average metals prices as "current average prices." Our current average prices for copper are calculated using prices quoted by COMEX, and our current average prices for molybdenum are calculated using prices published in Platt's Metals Week. Unless otherwise stated, reserve estimates in this report use the following three years average prices for copper and molybdenum as ofDecember 31, 2020 : Average 2020 2019 2018 2020 - 2018 Copper ($per pound)$ 2.80 $ 2.72 $ 2.93 $ 2.82 Molybdenum ($per pound)$ 8.69 $ 11.35 $ 11.94 $ 10.66 Certain financial information is based on reserve estimates calculated on the basis of current average prices. These include amortization of intangible assets and mine development. Variations in ore reserve calculations from changes in metal price assumptions generally do not create material changes in our financial results. However, significant decreases in metal prices could adversely affect our earnings by causing, among other things, asset impairment charges, please see "Assets impairment" below. A 20% increase or decrease in three-year average copper prices (current prices) for mineral reserves estimation, which is a reasonable possibility, would not materially affect our statement of earnings as the amount of reserves would not change significantly. Please see Item 2 "Properties-Ore reserves." Ore stockpiles on leach pads: The leaching process is an integral part of the mining operations carried out at our open-pit mines. We capitalize the production cost of leachable material at our Toquepala,La Caridad andBuenavista mines recognizing it as inventory. The estimates of recoverable mineral content contained in the leaching dumps are supported by engineering studies. As the production cycle of the leaching process is significantly longer than the conventional process of concentrating, smelting and electrolytic refining, we include current leach inventory (as part of work-in-process inventories) and long-term leach inventory on our balance sheet. Amortization of leachable material is recorded by the units of production method. OnJanuary 1, 2020 , the Company aligned its capitalization method for its Peruvian and Mexican operations to capitalize based on the allocation of copper content recoverable between ore and leach material. In addition, inventory consumption is now valued at the average unit cost, instead of the declining percentages of recovery method used previously. As a result of these changes, during 2020 the value of capitalized material decreased by$196.4 million and consumption decreased by$29.3 million when compared to the previous capitalization method. Management has evaluated ASC 250-10 and considered appropriate guidance to conclude that the aforementioned classifies as a change in accounting estimate, and therefore should affect accounting books prospectively. Management believes that this new method will result in a more accurate valuation of this material. Asset Retirement Obligation: Our mining and exploration activities are subject to various laws and regulations governing the protection of the environment. Accounting for reclamation and remediation obligations requires management to make estimates unique to each mining operation of the future costs we will incur to complete the reclamation and remediation work required to comply with existing laws and regulations. These estimates are based in part on our inflation and credit rate assumptions. Actual costs incurred in future periods could differ from amounts estimated. Additionally, future changes to environmental laws and regulations could increase the extent of reclamation and remediation work required to be performed by us. Any such increases in future costs could materially impact the 80
Table of Contents
amounts charged to operations for reclamation and remediation. In 2020, the Company made a change in the estimate for the asset retirement obligation for its Mexican operations, mainly due to a detailed review of the closing activities required for each facility. The effect of this change was an increase in the asset retirement obligation of$269.3 million , which was recorded inDecember 2020 .
Asset retirement obligations are further discussed in Note 10 "Asset Retirement Obligation" to the consolidated financial statements included herein.
Revenue Recognition: For certain of our sales of copper and molybdenum products, customer contracts allow for pricing based on a month subsequent to shipping, in most cases within the following three months and in a few cases, in a period that can exceed three months. In such cases, revenue is recorded at a provisional price at the time of shipment. The provisionally priced copper sales are adjusted to reflect forward LME or COMEX copper prices at the end of each month until a final adjustment is made to the price of the shipments upon settlement with customers pursuant to the terms of the contract. In the case of molybdenum sales, for which there are no published forward prices, the provisionally priced sales are adjusted to reflect the market prices at the end of each month until a final adjustment is made to the price of the shipments upon settlement with customers pursuant to the terms of the contract. (See details in "Provisionally Priced Sales" under this Item 7). Income Taxes: In preparing our consolidated financial statements, we recognize income taxes in each of the jurisdictions in which we operate. For each jurisdiction, we calculate the actual amount currently payable or receivable, as well as deferred tax assets and liabilities attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in rate is recognized through the income tax provision in the period
that the change is enacted. A valuation allowance is provided for those deferred tax assets for which it is more likely than not that the related benefits will not be realized. In determining the amount of the valuation allowance, we consider estimated future taxable income, as well as feasible tax planning strategies in each jurisdiction. If we determine that we will not realize all or a portion of our deferred tax assets, we will increase our valuation allowance with a charge to income tax expense. Conversely, if we determine that we will ultimately be able to realize all or a portion of the related benefits for which a valuation allowance has been provided, all or a portion of the related valuation allowance will be reduced with a credit to income tax expense. Our Company's operations involve dealing with uncertainties and judgments in the application of complex tax regulations in multiple jurisdictions. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from federal, state, and international tax audits. We recognize potential liabilities and record tax liabilities for anticipated tax audit issues in theU.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. We follow the guidance of ASC 740 "Income Taxes" to record these liabilities. (See Note 7 "Income Taxes" of the consolidated financial statements for additional information). We adjust these reserves in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. If our estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense. OnDecember 22, 2017 , the Tax Cuts and Jobs Act ("TCJA") significantly changedU.S. tax law by, among other things, lowering corporate income tax rates from 35% to a flat 21% effectiveJanuary 1, 2018 , implementing a territorial tax system; and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. To address circumstances that could arise because of the late passage of TCJA in 2017, theSEC issued Staff Accounting Bulletin No. 118 to address the application ofU.S. GAAP in situations when a registrant lacked sufficient information prepared or analyzed 81
Table of Contents
in reasonable detail, to complete accounting under ASC 740 "Accounting For Income Taxes" during the following year (2018).
Asset Impairments: We evaluate our long-term assets when events or changes in economic circumstances indicate that the carrying amount of such assets may not be recoverable. Our evaluations are based on business plans that are prepared using a time horizon that is reflective of our expectations of metal prices over our business cycle. We are currently using an average copper price of$2.20 per pound and an average molybdenum price of$5.00 per pound, which reflect what we believe, for impairment test purposes, is the lower range of the current price environment. The results of our impairment sensitivity analysis, which included a stress test using a copper price assumption of$2.00 per pound and a molybdenum price assumption of$4.00 per pound, showed projected discounted cash flows in excess of the carrying amounts of long-lived assets by margins ranging from 1.3 to 4.3 times such carrying amount. In recent years, our assumptions for long-term average prices resulted in stricter evaluations for impairment analysis than using the three year average prices for copper and molybdenum prices. Should this situation change in the future with three-year average prices falling below the long-term price assumption, we would assess the need to use the three-year average prices in our evaluations. We use an estimate of the future undiscounted net cash flows of the related asset or asset group over the remaining life to measure whether the assets are recoverable and measure any impairment compared to fair value. Leases: In 2019, the Company adopted the new leases standard and it resulted in the recognition of right-of-use assets and lease obligations on the Company´s balance sheet. After the analysis of this standard, the Company concluded that all of its existing lease contracts are operating lease contracts. Right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent an obligation by the Company to make lease payments that arise from the lease. Lease right-of-use assets and liabilities are recognized at the inception date based on the present value of lease payments over the lease term. As the Company's lease contracts do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the inception date to determine the present value
of
lease payments.
82
Table of Contents
RESULTS OF OPERATIONS
The following table highlights key financial results for each of the years in
the three-year period ended
Variance
Statement of Earnings Data 2020 2019 2018 2020 - 2019 2019 - 2018
Net sales $ 7,984.9 $ 7,285.6 $ 7,096.7 $ 699.3 $ 188.9
Operating costs and expenses (4,864.2) (4,532.6) (4,215.5) (331.6) (317.1)
Operating income 3,120.7 2,753.0 2,881.2 367.7 (128.2)
Nonoperating income (expense) (374.9) (326.5) (291.8) (48.4) (34.7)
Income before income taxes 2,745.8 2,426.5 2,589.4 319.3 (162.9)
Income taxes (1,237.9) (966.3) (1,105.0) (271.6) 138.7
Deferred income taxes 63.5 21.0 51.5 42.5 (30.5)
Equity earnings of affiliate 6.4 10.7 12.3 (4.3) (1.6)
Net income attributable to
noncontrolling interest (7.4) (6.1) (5.2) (1.3) (0.9)
Net income attributable to SCC
NET SALES 2020-2019: Net sales in 2020 were$7,984.9 million , compared to$7,285.6 million in 2019, which represented an increase of$699.3 million . This 9.6% increase was mainly the result of higher sales volumes of copper (+6.1%), silver (+8.8%), molybdenum (+12.7%) and zinc (+1.0%) as well as higher copper (+2.9%) and silver (+27.7%) prices. This effect was slightly offset by lower molybdenum (-24.0%) and zinc (-11.2%) prices. 2019-2018: Net sales in 2019 were$7,285.6 million , compared to$7,096.7 million in 2018, an increase of$188.9 million . This 2.7% increase was mainly the result of higher copper (+11.3%), molybdenum (+21.7%) and silver (+5.7%) sales volumes, partially offset by copper (-8.1%) and molybdenum (-5.0%) prices. The table below outlines the average published market metals prices for our metals for each of the three years in the three-year period endedDecember 31, 2020 : % Variance 2020 2019 2018 2020 - 2019 2019 - 2018 Copper price ($per pound-LME)$ 2.80 $ 2.72 $ 2.96 2.9 % (8.1) %
Copper price ($per pound-COMEX)$ 2.80 $ 2.72 $ 2.93 2.9 % (7.2) % Molybdenum price ($per pound)(1)$ 8.57 $ 11.27 $ 11.86 (24.0) % (5.0) % Zinc price ($per pound-LME)$ 1.03 $ 1.16 $ 1.33 (11.2) % (12.8) % Silver price ($per ounce-COMEX)$ 20.62 $ 16.16 $ 15.65
27.6 % 3.3 %
(1) Platt's Metals Week Dealer Oxide.
The table below provides our metal sales as a percentage of our total net sales:
Year Ended
December 31,
Sales as a percentage of total net sales 2020 2019 2018
Copper 81.6 % 80.2 % 80.4 %
Molybdenum 6.4 % 7.5 % 7.2 %
Silver 5.6 % 4.5 % 4.2 %
Zinc 3.1 % 3.8 % 4.6 %
Other byproducts 3.3 % 4.0 % 3.6 %
Total 100.0 % 100.0 % 100.0 %
83
Table of Contents
The table below provides our copper sales by type of product (in million
pounds). The difference in value between products is the level of processing. At
the market price, concentrates take a discount since they require smelting and
refining processes, while refined and rod copper receive premiums due to their
purity and presentation.
Variance
Copper Sales (million pounds) 2020 2019 2018 2020 - 2019 2019 - 2018
Refined (including SXEW) 1,069.6 1,065.2 1,152.2 4.4 (87.0)
Rod 389.0 365.5 335.7 23.5 29.8
Concentrates and other 847.3 743.1 465.0 104.2 278.1
Total 2,305.9 2,173.8 1,952.9 132.1 220.9
The table below provides our copper sales volume by type of product as a percentage of our total copper sales volume:
Year ended December 31,
Copper Sales by product type 2020 2019 2018
Refined (including SXEW) 46.4 % 49.0 % 59.0 %
Rod 16.9 % 16.8 % 17.2 %
Concentrates and other 36.7 % 34.2 % 23.8 %
Total 100.0 % 100.0 % 100.0 %
OPERATING COSTS AND EXPENSES
The table below summarizes the production cost structure by major components for the three years ended 2020 as a percentage of total production cost:
Year ended December 31,
2020 2019 2018
Power 16.8 % 14.7 % 14.8 %
Labor 13.5 % 13.9 % 13.9 %
Fuel 11.2 % 13.2 % 14.6 %
Maintenance 22.6 % 21.0 % 19.5 %
Operating material 17.4 % 17.7 % 18.7 %
Other 18.5 % 19.5 % 18.5 %
Total 100.0 % 100.0 % 100.0 %
2020-2019: Operating costs and expenses in 2020 increased
Operating cost and expenses for 2019
Plus:
• Increase in volume and cost of metals purchased from third
parties. 177.5
• Decrease in capitalized leachable material. 218.2 • COVID-19 related costs. 27.6 • Increase in depreciation, amortization and depletion expense. 11.2 • Increase in exploration expense. 2.6
Less:
• Decrease in other cost of sales (exclusive of depreciation,
amortization and depletion), mainly attributable to lower fuel
costs. (99.9)
• Decrease in selling, general and administrative expenses.
(5.6)
Operating cost and expenses for 2020$ 4,864.2 84 Table of Contents
2019-2018: Operating costs and expenses in 2019 increased
Operating cost and expenses for 2018
Plus:
• Decrease in capitalized leachable material.
97.9
• Increase in other cost of sales (exclusive of depreciation,
amortization and depletion) mainly due to higher repairing
materials and operating contractors costs, partially offset by
lower cost of metals purchased from third parties. 99.5
• Higher depreciation, amortization and depletion expense due to our
expansion and maintenance investments. 90.1
• Higher selling, general and administrative expenses.
29.2
• Higher exploration expense.
0.4
Operating cost and expenses for 2019$ 4,532.6 Variance
NONOPERATING INCOME (EXPENSE) 2020 2019
2018 2020 - 2019 2019 - 2018 Interest expense$ (393.4) $ (372.9) $ (360.9) $ (20.5) $ (12.0) Capitalized interest 26.8 32.2 83.8 (5.4) (51.6) Other expense (27.5) (7.0) (30.7) (20.5) 23.7 Interest income 19.2 21.2 16.0 (2.0) 5.2
Total nonoperating income (expense)
2020-2019: Non-operating income and expense were a net expense of$374.9 million in 2020 compared to a net expense of$326.5 million in 2019. The$48.4 million increase in net expense in 2019 was mainly due to:
?
?
?
in
?
2019-2018: Non-operating income and expense were a net expense of$326.5 million in 2019 compared to a net expense of$291.8 million in 2018. The$34.7 million increase in net expense in 2019 was mainly due to:
?
have been transferred to operations.
?
issuance in
operations, and
?
Income taxes
Year Ended
December 31,
2020 2019 2018
Provision for income taxes ($ in millions)
42.8 % 39.0 % 40.7 %
The income tax provision includes Peruvian, Mexican and
85
Table of Contents
Components of income tax provision for 2020, 2019 and 2018 include the following ($ in millions):
2020 2019 2018
Statutory income tax provision $ 1,020.9 $ 831.4 $ 903.4
Tax reform adjustment - - 30.9
Peruvian royalty 31.4 14.2 9.0
Mexican royalty 72.1 61.6 79.6
Peruvian special mining tax 50.0 38.1 30.6
Total income tax provision $ 1,174.4 $ 945.3 $ 1,053.5 The increase in the 2020 effective income tax rate from the prior year was primarily attributable to a movement in exchange gains and losses from the devaluation of the Mexican peso and the Peruvian sol against theU.S. dollar; an increase in the Peruvian special mining tax; and an increase in the Mexican and Peruvian royalty. In 2018 the Company, pursuant toSAB 118, completed its analysis of the effects of the 2017 U.S. tax reform and recorded a non-cash tax provision of$30.9 million in addition to the non-cash amount of$785.9 recorded in 2017. After applying the conditions of US tax reform in 2017, the aforementioned led to a total non-cash tax provision for 2017 and 2018 to$816.8 million .
Equity earnings of affiliate
In 2020, 2019 and 2018 we recognized
Net Income attributable to the non-controlling interest
Net income attributable to the non-controlling interest in 2020 was$7.4 million , compared to$6.1 million in 2019, and$5.2 million in 2018. This increased in 2020 and 2019 by$1.3 million and$0.9 million respectively. These changes were the result of higher earnings at our Peruvian operations in both years. Income attributable to SCC Our net income attributable to SCC in 2020 was$1,570.4 million , compared to$1,485.8 million in 2019 and$1,543.0 million in 2018. The increase in 2020 net income attributable to SCC was mainly due to growth in net sales. Net income attributable to SCC decreased in 2019, which was mainly due to increases in the cost of sales and depreciation, amortization and depletion. SEGMENT RESULTS ANALYSIS We have three segments: the Peruvian operations, the Mexican open-pit operations and the Mexican underground mining operations. Please see a detailed definition of these segments in Item 1 "Business-Business Reporting Segments." The following table presents the volume of sales by segment of copper and our significant by-products for each of the years in the three-year period endedDecember 31, 2020 : Variance Copper Sales (million pounds) 2020 2019 2018 2020 - 2019 2019 - 2018 Peruvian operations 964.2 959.3 759.4 4.9 199.9 Mexican openpit 1,330.7 1,214.0 1,193.6 116.7 20.4 Mexican IMMSA unit 31.7 18.7 19.0 13.0 (0.3)
Other and intersegment elimination (20.7) (18.2) (19.0)
(2.5) 0.8
Total copper sales 2,305.9 2,173.8 1,953.0 132.1 220.8
86
Table of Contents
Variance
Byproduct Sales (million pounds,
except silver-million ounces) 2020 2019 2018 2020 - 2019 2019 - 2018
Peruvian operations:
Molybdenum contained in concentrate 31.3 23.2 16.0 8.1 7.2
Silver 5.9 5.8 4.5 0.1 1.3
Mexican openpit operations:
Molybdenum contained in concentrate 35.4 36.0 32.6 (0.6) 3.4
Silver 11.7 11.5 11.3 0.2 0.2
IMMSA unit
Zincrefined and in concentrate 230.9 228.5 234.8 2.4 (6.3)
Silver 7.5 5.2 5.5 2.3 (0.3)
Other and intersegment elimination
Silver (2.7) (1.9) (1.9) (0.8) -
Total byproduct sales
Molybdenum contained in concentrate 66.7 59.2 48.6 7.5 10.6
Zincrefined and in concentrate 230.9 228.5 234.8
2.4 (6.3)
Silver 22.4 20.6 19.4 1.8 1.2
Peruvian Open-pit Operations:
Variance
2020 2019 2018 2020 - 2019 2019 - 2018
Net sales $ 3,153.6 $ 2,940.1 $ 2,572.2 $ 213.5 $ 367.9
Operating costs and expenses (2,055.2) (2,085.2) (1,802.0)
30.0 (283.2)
Operating income $ 1,098.4 $ 854.9 $ 770.2 $ 243.5 $ 84.7
Net sales:
2020-2019: Net sales in 2020 increased by $213.5 million compared to the amount
recorded in 2019, which was mainly attributable to an increase in sales volumes
for copper (+0.5%), molybdenum (+35.0%) and silver (+2.1%) and to higher copper
and silver prices, partially offset by lower molybdenum prices.
2019-2018: Net sales in 2019 increased by
Operating costs and expenses:
2020-2019: Operating costs and expenses in 2020 decreased
Operating costs and expenses for 2019$ 2,085.2 Less: • Decrease in other cost of sales (exclusive of depreciation, amortization and depletion) mainly due to lower fuel costs, operating contractors costs and lower labor costs. (208.0) • Decrease in exploration expenses. (7.1) • Decrease in selling, general and administrative expenses. (0.9) Plus: • Decrease in capitalized leachable material. 106.0 • Increase in cost of metals purchased from third parties. 54.2 • COVID-19 related costs. 25.2 • Increase in depreciation, amortization and depletion expense. 0.6 Operating costs and expenses for 2020$ 2,055.2 87 Table of Contents
2019-2018: Operating costs and expenses in 2019 increased by
Operating costs and expenses for 2018
Plus:
• Increase in cost of sales (exclusive of depreciation, amortization
and depletion) mainly due to higher repairing materials costs,
operating contractors, power costs and higher workers'
participation expense; partially offset by lower inventory
consumption and lower fuel costs. 192.7• Increase in depreciation, amortization and depletion expense due
to our expansion and maintenance investments. 90.7
• Increase in selling, general and administrative expenses.
1.8
Less:
• Decrease in exploration expenses.
(2.0)
Operating costs and expenses for 2019
$ 2,085.2 Operating income:
2020-2019: Operating income in 2020 increased by$243.5 million compared to the amount recorded in 2019, which was mainly attributable to a$213.5 million increase in sales and a$30.0 million decrease in operating costs and expenses, as explained above.
2019-2018: Operating income in 2019 increased by
Mexican Open-pit Operations:
Variance
2020 2019 2018 2020 - 2019 2019 - 2018
Net sales % $ 4,412.4 $ 3,963.9 $ 4,075.9 $ 448.5 $ (112.0)
Operating costs and expenses % (2,431.3) (2,045.4) (2,028.7) (385.9) (16.7)
Operating income % $ 1,981.1 $ 1,918.5 $ 2,047.2 $ 62.6 $ (128.7)
Net sales:
2020-2019: Net sales in 2020 increased by
2019-2018: Net sales in 2019 decreased by
88
Table of Contents
Operating costs and expenses:
2020-2019: Operating costs and expenses in 2020 increased by
Operating costs and expenses for 2019 $
2,045.4
Plus:
Increase in cost and volume of metals purchased from third • parties.
238.8
• Decrease in capitalized leachable material.
112.2
• COVID-19 related costs.
1.4
• Increase in other cost of sales (exclusive of depreciation,
amortization and depletion) mainly due to higher inventory
consumption, and higher workers participation expense, partially
offset by lower fuel costs.
26.1
• Increase in exploration expenses.
0.7
• Increase in depreciation, amortization and depletion expense.
14.8
Less:
• Decrease in selling, general and administrative expenses.
(8.1)
Operating costs and expenses for 2020 $
2,431.3
2019-2018: Operating costs and expenses in 2019 increased by
Operating costs and expenses for 2018 $
2,028.7
Plus:
• Decrease in capitalized leachable material. 70.9 • Increase in selling, general and administrative expenses. 23.3 • Increase in cost of sales (exclusive of depreciation, amortization and depletion) mainly due to higher fuel and labor costs.
17.2
Less:
Decrease in cost and volume of metals purchased from third • parties.
(86.0)
• Decrease in depreciation, amortization and depletion expense.
(8.5)
• Decrease in exploration expenses.
(0.2)
Operating costs and expenses for 2019 $
2,045.4 Operating income:
2020-2019: Operating income in 2020 increased by
2019-2018: Operating income in 2019 decreased by
IMMSA unit:
Variance
2020 2019 2018 2020 - 2019 2019 - 2018
Net sales $ 529.9 $ 464.8 $ 527.9 $ 65.1 $ (63.1)
Operating costs and expenses (443.6) (449.5) (438.6)
5.9 (10.9)
Operating income $ 86.3 $ 15.3 $ 89.3 $ 71.0 $ (74.0)
Net sales:
2020-2019: Net sales in 2020 increased$65.1 million compared to 2019. This increase was primarily due to an increase in copper (+69.7%), silver (+44.4%) and zinc (+1.0%) sales volumes and to higher copper and silver prices; this was slightly offset by lower zinc prices. 89 Table of Contents
2019-2018: Net sales in 2019 decreased
Operating costs and expenses:
2020-2019: Operating costs and expenses in 2020 decreased by
Operating costs and expenses for 2019 $
449.5
Plus:
Increase in other cost of sales (exclusive of
depreciation, amortization and depletion) mainly due to
higher inventory consumption, higher workers'
participation expense and foreign currency effect,
• partially offset by lower power and labor costs. 21.9
• COVID-19 related costs. 1.1
• Increase in selling, general and administrative expenses. 1.6
Less:
• Decrease in cost of metals purchased from third parties. (20.3)
Decrease in depreciation, amortization and depletion
• expense. (9.8)
• Decrease in exploration expenses. (0.4)
Operating costs and expenses for 2020 $
443.6
2019-2018: Operating costs and expenses in 2019 increased by
Operating costs and expenses for 2018 $
438.6
Plus:
• Increase in depreciation, amortization and depletion
expense. 4.7
• Increase in exploration expenses. 3.8
Increase in other cost of sales (exclusive of
depreciation, amortization and depletion) mainly due to
higher inventory consumption and higher repairing
• materials costs. 32.7Less:
• Decrease in cost of metals purchased from third parties.
(29.7)
• Decrease in selling, general and administrative expenses.
(0.6)
Operating costs and expenses for 2019 $
449.5
Operating income:
2020-2019: Operating income in 2020 increased by
2019-2018: Operating income in 2019 decreased by
Intersegment Eliminations and Adjustments:
The net sales, operating costs and expenses and operating income discussed above
will not be directly equal to amounts in our consolidated statement of earnings
because the adjustments to intersegment operating revenues and expenses must be
taken into account. Please see Note 18 "Segment and Related Information" of the
consolidated financial statements.
90
Table of Contents
LIQUIDITY AND CAPITAL RESOURCES
The following discussion relates to our liquidity and capital resources for each
of the years in the three-year period ended
Cash Flow:
The following table shows the cash flow for the three year period ended
Variance
2020 2019 2018 2020 - 2019 2019 - 2018Net cash provided by operating activities$ 2,783.6 $ 1,911.9 $ 2,235.1 $ 871.7 $ (323.2) Net cash used in investing activities$ (915.8) $ (574.0) $ (1,296.2) $ (341.8) $ 722.2 Net cash used in financing activities$ (1,563.3) $ (262.2) $ (1,083.4) $ (1,301.1) $ 821.2
Net cash provided by operating activities:
The 2020, 2019 and 2018 change in net cash from operating activities include (in
millions):
Variance
2020 2019 2018 2020 - 2019 2019 - 2018
Net income $ 1,577.8 $ 1,491.9 $
1,548.2
11.2 90.1
Benefit for deferred income taxes (63.5) (21.0) (51.5) (42.5) 30.5
Loss on foreign currency transaction effect 0.9 17.9 17.3
(17.0) 0.6
Other adjustments to net income 9.1 5.7 23.1 3.4 (17.4)
Operating assets and liabilities 483.7 (347.0) 23.7 830.7 (370.7)
Net cash provided by operating activities
Significant items added to (deducted from) net income to arrive at operating cash flow include depreciation, amortization and depletion, deferred tax amounts and changes in operating assets and liabilities. 2020: Net income was$1,577.8 million , which represented approximately 56.7% of the net operating cash flow. A net increase in operating assets and liabilities increased operating cash flow by$483.7 million , which was attributable to the following variances in operating assets and liabilities:
?
by a significant increase in copper prices during the last quarter of 2020.
Mexican operations.
at our Peruvian and Mexican operations.
parties.
2019: Net income was
result of higher earnings at our Mexican and Peruvian operations in 2018.
?
sales volumes at our Peruvian operations.
91
Table of Contents
at our Mexican operations.
to changes in tax legislation.
2018: Net income was
?
?
offset by
?
Net cash used in investing activities:
2020: Net cash used for investing activities in 2020 included$592.2 million for capital investments. This included$397.2 million of investments at our Mexican operations and$195.0 million at our Peruvian operations. For further information, please see "Capital Investment Program" under this Item on page 76.
The 2020 investing activities also included net purchases of short-term
investments of
2019: Net cash used for investing activities in 2019 included$707.5 million for capital investments. This included$357.4 million of investments at our Mexican operations and$350.1 million at our Peruvian operations. For further information, please see "Capital Investment Program" under this Item on page 76.
The 2019 investing activities also included net sales of short-term investments
of
2018: Net cash used for investing activities in 2018 included$1,121.4 million for capital investments. This included$347.4 million of investments at our Mexican operations and$774.0 million at our Peruvian operations. For further information, please see "Capital Investment Program" under this Item on page 76.
The 2018 investing activities also included net purchases of short-term
investments of
Net cash used in financing activities:
2020: Net cash used in financing activities in 2020 was
? A dividend distribution of
? A debt repayment of
2019: Net cash used in financing activities in 2019 was
? A dividend distribution of
? Gross proceeds of
Mexican subsidiary.
? Payment of debt issuance costs of
2018: Net cash used in financing activities in 2018 was
92
Table of Contents
Other Liquidity Considerations
We expect that we will meet our cash requirements for 2021 and beyond from cash on hand and internally generated funds. In addition, we believe that we will be able to access additional external financing on reasonable terms, if required. As ofDecember 31, 2020 ,$1,297.3 million of the Company´s total cash, cash equivalents and short-term investments of$2,594.4 million were held by foreign subsidiaries. The cash, cash equivalents and short-term investments maintained in our foreign operations are generally used to cover local operating and investment expenses. Earnings of the Company's Peruvian branch are not subject to transition taxes since they are taxed inthe United States on a current basis. Share repurchase program: In 2008, our Board of Directors ("BOD") authorized a$500 million share repurchase program that has since been increased by the BOD and is currently authorized to$3 billion . Since the inception of the program throughDecember 31, 2020 , we have purchased 119.5 million shares of our common stock at a cost of$2.9 billion . These shares are available for general corporate purposes. We may purchase additional shares of our common stock from time to time based on market conditions and other factors. This repurchase program has no expiration date and may be modified or discontinued at any time. For further details please see Item 5 "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities-SCC common stock repurchase plan."
Dividend: On
FINANCING Our total debt atDecember 31, 2020 was$6,544.2 million , compared to$6,940.8 million atDecember 31, 2019 , net of the unamortized discount and issuance costs of notes issued under par for$107.0 million and$110.4 million as ofDecember 31, 2020 and 2019 respectively. This debt is all denominated in dollars at fixed interest rates, weighed at 5.69%. The ratio of total debt to total capitalization was 47.4% as ofDecember 31, 2020 , compared to 50.2% as ofDecember 31, 2019 . In addition, the ratio of net debt to net capitalization was 35.2% as ofDecember 31, 2020 , compared to 41.8% as ofDecember 31, 2019 .
We define net debt as total debt, including current maturities, minus cash, cash equivalents and short-term investments balance. We believe that net debt is useful to investors as a measure of our financial position. We define net capitalization as the sum of net debt and equity. We use the net debt to net capitalization ratio as measure of our indebtedness position and to determine how much debt we can take in addition to the use of the equity and of the balance sheet in general. We define total capitalization as the sum of the carrying values of our total debt, including current maturities and equity. A reconciliation of our net debt to net capitalization and total debt to total capitalization as included in the consolidated balance sheet is presented under the sub heading "Non-GAAP Information Reconciliation" below.
Please see Note 11 "Financing" for a discussion about the covenants requirements related to our long-term debt.
Capital Investment Program
A discussion of our capital investment program is an important part of understanding our liquidity and capital resources. We expect to meet the cash requirements for these capital investments from cash on hand, internally generated funds and from additional external financing if required. For information regarding our capital expenditure programs, please see the discussion under the caption "Capital Investment Program" under this Item 7.
93
Table of Contents
CONTRACTUAL OBLIGATIONS
The following table summarizes our significant contractual obligations as of
December 31, 2020 :
Payments due by Period
2026 and
Total 2021 2022 2023 2024 2025 Thereafter
(dollars in millions)
Longterm debt $ 6,651.1 $ - $ 300.0 $ - $ - $ 500.0 $ 5,851.1
Interest on debt 7,511.2 380.0 378.5 369.4 369.5 359.6 5,654.2
Uncertain tax
position(a) 66.1 - - - - - -
Workers'
participation 247.8 247.8 - - - - -
Pension and
postretirement
obligations 39.2 4.6 3.3 3.3 3.5 3.4 21.1
Operating leases 1,272.1 114.7 113.7 112.3 104.7 103.7 723.0
Asset retirement
obligation 545.0 - - - - - 545.0
Purchase
obligations:
Commitments to
purchase energy 2,859.2 240.9 240.9 259.3 259.3 259.3 1,599.5
Capital investment
projects 365.8 356.1 9.7 - - - -
Total $ 19,557.5 $ 1,344.1 $ 1,046.1 $ 744.3 $ 737.0 $ 1,226.0 $ 14,393.9 The above table does not include any scheduled payments related to
uncertain tax position liabilities because there is often a high degree of
uncertainty regarding the timing of future cash outflows. As of
netted against the deferred tax asset in the consolidated Balance Sheet.
Please refer to Note 7 "Income Taxes" of the consolidated financial
statements.
Long-term debt payments do not include the debt discount valuation account and
issuance costs of
Interest on debt is calculated at rates in effect at
Workers' participation is currently calculated based on Peruvian Branch and Mexican pre-tax earnings. InPeru , the provision for workers' participation is calculated at 8% of pre-tax earnings. The current portion of this participation, which is accrued during the year, is based on the Peruvian Branch's taxable income and is largely distributed to workers after final results are determined for the year. Amounts in excess of 18 times a worker's salary are distributed to governmental bodies. In Mexico, workers' participation is determined using the guidelines established in the Mexican income tax law at a rate of 10% of pre-tax earnings as adjusted by the tax law. Operating leases include lease payments for power generating facilities to MGE, vehicles and properties. Please refer to Note 9 "Leases" of the consolidated financial statements.
Pension and post retirement obligations include the benefits expected to be paid under our pension and post-retirement benefit plans. Please refer to Note 12 "Benefit Plans" of the consolidated financial statements. Asset retirement obligations include the aggregate amount of closure and remediation costs for our Peruvian mines and facilities to be paid under the mine closure plans approved by MINEM and the closure and remediation costs of our Mexican operations. See Note 10 "Asset Retirement Obligation." InJune 2014 , we entered into a power purchase agreement for 120 megawatt ("MW") with the state companyElectroperu S.A. , which began supplying energy for our Peruvian operations for twenty years starting onApril 17, 2017 . InJuly 2014 , we entered into a power purchase agreement for 120MW with a private power generatorKallpa Generacion S.A. ("Kallpa"), which began supplying energy for our Peruvian operations for ten years starting onApril 17, 2017 . InMay 2016 , we signed an additional power purchase agreement for a maximum of 80MW with
Kallpa,
94
Table of Contents
under which Kallpa will supply energy to the operations related to the Toquepala
Expansion and to other minor projects for ten years starting on May 1, 2017 and
ending after ten years of commercial operation of the Toquepala Expansion or on
April 30, 2029 ; whichever occurs first.
Additionally, we have a commitment to purchase power for our Mexican operations
from MGE, a subsidiary of Grupo Mexico through 2032. See Note 13 "Commitment and
Contingencies-Other commitments".
Amounts indicated in the table above are based on our long-term estimated power
costs, which are subject to change as energy generation costs change and our
forecasted power requirements through the life of the agreements change.
Capital investment projects include committed purchase orders and executed contracts for our Mexican projects and for our Peruvian expansion projects at Tia Maria and the Toquepala mine.
CYBERSECURITY Our operations depend upon information technology systems that may be subject to disruption, damage or failure from different sources, including, without limitation, installation of malicious software, computer viruses, security breaches, cyber-attacks and defects in design. In recent years, cybersecurity incidents have increased in frequency and include, but are not limited to, malicious software, attempts to gain unauthorized access to data and other electronic security breaches that could lead to disruptions in systems, unauthorized release of confidential or otherwise protected information and the corruption of data. We have implemented appropriate preventative measures to mitigate potential risks by implementing an information security management system, which ensures implementing controls that are frequently reviewed and tested, including a risk matrix that considers the possible threats through an impact and probability analysis, actions to avoid or mitigate them and the corresponding testing plan. In 2020, we did not have any material cybersecurity breaches in our systems. CLIMATE CHANGE
Peruvian operations: OnApril 17, 2018 , the Peruvian government enacted Law N. 30754, establishing a Climate Change Framework. Through this law, promoting public and private investments in climate change management is declared to be of national interest. The law proposes to create an institutional framework to address climate change inPeru , outlining new measures, particularly with respect to climate change mitigation. It includes, for example, provisions regarding: increasing carbon capture and use of carbon sinks; afforestation and reforestation practices; land use changes; and sustainable systems of transportation, solid waste management, and energy systems. This is the first climate change framework law inLatin America to incorporate obligations from the Paris Agreement. Regulations to this law were enacted by Supreme Decree 013-2019, which was published onDecember 31, 2019 and are applicable to all Peruvian institutions and agencies. It is expected that further Peruvian regulations will be applicable to non-governmental entities. The Company anticipates initiating a multi-year process to adopt applicable reporting recommendations of the Task-Force on Climate Related Financial Disclosures (TCFD) once new Peruvian climate change regulations applicable to non-governmental entities are implemented. The Company is committed to the environment and to managing climate-related impacts. The Company's focus is to seek continuous improvement in the responsible use of natural resources while complying with strict applicable legal standards for prevention, mitigation, control and remediation of environmental impacts. Implementing continuous improvement in the Company's processes improves efficiency in the use and consumption of energy, water, and other natural resources. Mexican operations: Grupo Mexico, the indirect parent of SCC has issued sustainability reports under theGlobal Reporting Initiative (GRI) for more than 10 years. Grupo Mexico also participates in different Mexican and international reporting programs such as the Greenhouse Gases (GHG) Mexico Program and CDP (formerly theCarbon Disclosure Project ). In 2013, GHG and CDP signed a memorandum of understanding to work on aligning their reporting frameworks. Grupo Mexico's 2018 CDP questionnaire included responses to theTask Force on Climate-Related Disclosure or TCFD concerns. In compliance with the 2012 Mexican Climate Change Law, Grupo Mexico's GHG emissions are reported and verified independently. Grupo Mexico's Sustainability Reports, which disclose inventories of GHG emissions, can be found at "https://www.gmexico.com/en/Pages/development.aspx". OnOctober 18, 2017 , Grupo Mexico was selected to join theS&P Sustainability Indices MILA Pacific Alliance (DJSI MILA). In 2017, this regional 95
Table of Contents
sustainability index included 42 leading companies in sustainability from the countries that form part of thePacific Alliance : Mexico,Chile ,Colombia andPeru .
NON-GAAP INFORMATION RECONCILIATION
Operating cash cost: Following is a reconciliation of "Operating Cash Cost" (see
page 74) to cost of sales (exclusive of depreciation, amortization and
depletion) as reported in our consolidated statement of earnings, in millions of
dollars and dollars per pound in the table below:
2020 2019 2018
$ per $ per $ per
$ millions pound $ millions pound $ millions pound
Cost of sales (exclusive of
depreciation, amortization and
depletion) $ 3,929.8 $ 1.84 $ 3,606.4 $ 1.69 $ 3,409.0 $ 1.81
Add:
Selling, general and
administrative 126.2 0.06 131.8 0.06 102.6 0.05
Sales premiums, net of treatment
and refining charges 17.0 0.01 28.7 0.02 13.9 0.01
Less:
Workers' participation (263.9) (0.13) (214.5) (0.10) (226.1) (0.12)
Cost of metals purchased from
third parties (495.2) (0.23) (263.4) (0.12) (384.5) (0.20)
Royalty charge and other, net (171.6) (0.08) (125.7)
(0.06) (125.0) (0.07)
Inventory change (218.6) (0.10) 67.6 0.03 114.5 0.06
Operating Cash Cost before
byproduct revenues $ 2,923.7 $ 1.37 $ 3,230.9 $ 1.52 $ 2,904.4 $ 1.54
Add:
Byproduct revenues(1) (1,375.9) (0.64) (1,307.3) (0.61) (1,211.4) (0.64)
Net revenue on sale of metal
purchased from third parties (80.0) (0.04) (51.9)
(0.03) (56.3) (0.03)
Total byproduct revenues (1,455.9) (0.68) (1,359.2) (0.64) (1,267.7) (0.67)
Operating Cash Cost net of
byproduct revenues 1,467.8 0.69 1,871.7 0.88 1,636.7 0.87
Total pounds of copper produced
(in millions) 2,136.1 2,133.3 1,886.8
(1) By-product revenues included in our presentation of operating cash cost
contain the following:
2020 2019 2018
$ per $ per $ per
$ millions pound $ millions pound $ millions pound
Molybdenum $ (510.3) $ (0.24) $ (549.4) $ (0.26) $ (509.9) $ (0.27)
Silver (415.5) (0.19) (278.3) (0.13) (244.5) (0.13)
Zinc (202.9) (0.10) (211.5) (0.10) (229.5) (0.12)
Sulfuric Acid (135.9) (0.06) (158.8) (0.07) (111.3) (0.06)
Gold (73.6) (0.03) (53.2) (0.03) (53.1) (0.03)
Other (37.7) (0.02) (56.1) (0.02) (63.1) (0.03)
Total $ (1,375.9) $ (0.64) $ (1,307.3) $ (0.61) $ (1,211.4) $ (0.64)
The by-product revenue presented does not match with the sales value reported by
segment on page 157 because the above table excludes purchases from third
parties, which are reclassified to net revenue on sale of metal purchased from
third parties.
96
Table of Contents
Net debt to net capitalization: Net debt to net capitalization as of
2020 2019
Total debt $ 6,544.2 $ 6,940.8
Cash and cash equivalents (2,183.6) (1,925.1)
Shortterm investments (410.8) (80.7)
Net debt 3,949.8 4,935.0
Net capitalization:
Net debt 3,949.8 4,935.0
Equity 7,276.0 6,858.2
Net capitalization $ 11,225.8 $ 11,793.2
Net debt/net capitalization(*) 35.2 % 41.8 %
(*) Represents net debt divided by net capitalization.
Total debt to total capitalization: Total debt to total capitalization as of
2020 2019
Total debt $ 6,544.2 $ 6,940.8
Capitalization
Debt 6,544.2 6,940.8
Equity 7,276.0 6,858.2
Total capitalization $ 13,820.2 $ 13,799.0 Total debt/total capitalization(*) 47.4 % 50.3 %
(*) Represents debt divided by total capitalization.
97
Table of Contents© Edgar Online, source
