Southern Copper Corporation
SCCO
suspended operations at its Cuajone mine in Peru from Feb 28, following protests by local communities. The residents cut the mine’s water supply and blocked a key railroad, rendering operations at the mine impossible.
Per Peru’s mining chamber SNMPE, the interruption in production for 15 days so far has led to a loss of more than 7,000 tons of copper, causing damage not only to the company but also to the regional and national economy.
Peru is currently the second-largest producer of copper globally. It holds 13% of the world’s copper reserves. Peru’s national output is expected to grow to 240,000 tons in 2023, per Trading Economics. Mining is a significant contributor to the country’s tax revenues.
Southern Copper is one of the country’s top copper producers and Cuajone is the company’s second-largest mine in the country. However, residents of mines’ nearby communities have been increasingly protesting, stating that mines cause pollution without contributing enough to the local economy.
The SNMPE reported that the community’s claim began as a result of the company’s replacement of the pipeline that supplied water to the Cuajone mine since 1976.
On Feb 10, residents of the rural communities of Tumilaca, Pocata, Coscore and Tala blocked the railway of Southern Peru at the R2 tunnel, impacting the mine’s copper output transfer to the Ilo port as well as material supply.
On Feb 28, some community members blocked the water supply to the mining operation and the Cuajone camp, wherein the workers and their families reside. The SNMPE said that protesters were demanding $5 billion in compensation, as well as a share of 5% of the company’s profits.
MMG’s Las Bambas, Peru’s fourth-largest and the world’s ninth-largest copper mine, has also faced the same predicament, with on-and-off protests and road blockades. The recurring conflict, which has affected the energy mining sector in the last year, is negatively impacting national production.
Southern Copper reported a 4.3% year-over-year decline in its copper production in 2021 to 958,200 tons primarily due to a drop in production at its mines on account of lower grades and recoveries. Cuajone was an exception, as production levels were at par with 2020.
Copper production in 2022 is anticipated to be lower at 922,000 tons. Production will likely be impacted by a temporary reduction in ore grades and recoveries at the Peruvian operations. If the issue at Cuajone is not resolved soon, it might result in the company lowering its guidance.
Copper prices have been rising so far on the escalating crisis over Ukraine amid robust demand. However, copper has recently lost steam. The renewed surge of Covid-19 inflections in the world’s top consumer, China, has triggered demand concerns, leading to the recent dip in copper prices.
Notwithstanding the dip, the long-term outlook for copper is positive, as copper demand is expected to grow, driven by electric vehicles and renewable energy and infrastructure investments.
Price Performance
Image Source: Zacks Investment Research
Shares of Southern Copper have declined 8.2% in the past year against the
industry
’s growth of 2.7%.
Zacks Rank & Stocks to Consider
Southern Copper currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the basic materials space are
The Mosaic Company
MOS
, AdvanSix Inc.
ASIX
and
Allegheny Technologies Incorporated
ATI
.
Mosaic has a projected earnings growth rate of 106.4% for the current year. The Zacks Consensus Estimate for MOS’ current-year earnings has been revised upward by 22.2% in the past 60 days.
Mosaic beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters and missed once, the average surprise being 3.7%. MOS has rallied around 70% in a year. It currently sports a Zacks Rank #1 (Strong Buy). You can see
the complete list of today’s Zacks #1 Rank stocks here
.
AdvanSix has a projected earnings growth rate of 20.8% for the current year. The Zacks Consensus Estimate for ASIX’s current-year earnings has been revised 15.7% upward in the past 60 days.
AdvanSix beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters, while missing once, the average surprise being 23.6%. ASIX has surged 71% in a year. The company currently carries a Zacks Rank #2 (Buy).
Allegheny, presently carrying a Zacks Rank #2, has an expected earnings growth rate of 661.5% for the current year. The Zacks Consensus Estimate for ATI’s earnings for the current year has been revised upward by 45.6% in the past 60 days.
Allegheny beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average surprise being 127.2%. ATI has gained around 20% over a year.
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