This Mining Giant Offers Double Digit Yields
Dr. Osman is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Southern Copper Corporation (NYSE: SCCO) is one of the top nine largest copper producers in the world, with a production level of 487 thousand metric tons of copper. After its incorporation in 1952 in Delaware, Southern Copper was able to continuously increase its copper production to 587.49 thousand metric tons by the end of 2011. Recently, Southern Copper has been venturing into notes and public offering. In November 2012, the company announced the completion of $1.5 billion in notes for public offer in order to finance its capital expenditure. What is the fate of Southern Copper in the stock market?
Future Challenges and Prospects
The biggest challenge for Southern Copper is not far from what the whole industry will be facing soon – the worldwide depletion of copper reserves. Recent events have shown this will be a significant problem for the industry in the coming years. For instance, ICSG data shows that the growth in the demand for copper in 2011 exceeded the growth in its production. This may result in a total deficit of around 200,000 metric tons annually. There are even some projections stating that most copper mines might reach the exhaustion point before 2015.
While Southern Copper is also among the top producers of molybdenum, as well as silver and zinc, its copper production remains its principal source of revenue and sales. Hence, the company needs to have better management of its production and operation in order to address worldwide copper reserve depletion. Expansion projects might be reasonable, but diversification of operations and production would be more rational.
Southern Copper vs. the Rest
Freeport-McMoRan Copper & Gold (NYSE: FCX) and Oz Minerals Limited (OZMLF) are among Southern Copper’s top competitors when it comes to market capitalization.
Now, based on the figures above, Freeport McMoRan is performing better than Southern Copper when it comes to market capitalization. Nevertheless, the figures of the two are not as low as that of Oz Minerals, which is still far behind even though it is in the top three in the industry. However, for investors who value income more than anything else, Southern Copper is the best stock to buy. This is because its dividend yield is more than triple that of Freeport McMoRan, and double that of Oz Minerals. While Freeport McMoRan has the highest market capitalization, it has the lowest dividend yield among the three, with only 3.1% in 2011.
I think Southern Copper is a good buy for the long term. The company recently offered notes to boost its financial leverage. Aluminum prices suffered from the worldwide recession. But as we are experiencing some sort of recovery, related stocks are also moving up. Southern Copper returned almost 30% so far in this year, thanks to rising copper demand from world markets. If the recovery keeps going, Southern Copper would keep moving upward. With a yield of above 10%, Southern is also one of the top dividend stocks in the market. In case of a market downturn, the yield can provide protection against capital losses.
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