PART I
ITEM 1. BUSINESS
THE COMPANY
Southern Copper Corporation ("SCC", "Southern Copper" or the "Company") is one of the largest integrated copper producers in the world. Our
major production includes copper, molybdenum, zinc and silver. All of our mining, smelting and refining facilities are located in Peru and Mexico and we conduct exploration activities in those
countries and in Argentina, Chile and Ecuador. See Item 2 "PropertiesReview of Operations" for maps of our principal mines, smelting facilities and refineries. Our operations make
us one of the largest mining companies in Peru and Mexico. We believe we have the largest copper reserves in the world. We were incorporated in Delaware in 1952 and have conducted copper mining
operations since 1960. Since 1996, our common stock has been listed on both the New York and Lima Stock Exchanges.
Our
Peruvian copper operations involve mining, milling and flotation of copper ore to produce copper concentrates and molybdenum concentrates; the smelting of copper concentrates to
produce blister and anode copper; and the refining of anode copper to produce copper cathodes. As part of this production process, we also produce significant amounts of molybdenum concentrate and
sulfuric acid. Our precious metals plant at the Ilo refinery produces refined silver, gold, and other materials. Additionally, we produce refined copper using solvent extraction/electrowinning
technology ("SX-EW"). We operate the Toquepala and Cuajone open-pit mines high in the Andes Mountains, approximately 860 kilometers southeast of the city of Lima, Peru. We also operate a smelter and
refinery west of the Toquepala and Cuajone mines in the coastal city of Ilo, Peru.
Our
Mexican operations are conducted through our subsidiary, Minera Mexico S.A. de C.V. ("Minera Mexico"), which we acquired in 2005. Minera Mexico engages primarily in the mining
and processing of copper, molybdenum, zinc, silver, gold and lead. Minera Mexico operates through subsidiaries that are grouped into three separate units. Mexicana de Cobre S.A. de C.V.
(together with its subsidiaries, the "La Caridad" unit) operates La Caridad, an open-pit copper mine, a copper ore concentrator, a SX-EW plant, a smelter, refinery and a rod plant. The La Caridad
refinery has a precious metals plant which produces refined silver, gold and other materials. Operadora de Minas e Instalaciones Mineras S.A de C.V. (the "Buenavista unit") operates Buenavista, an
open-pit copper mine, which is located at the site of one of the world's largest copper ore deposits, two copper concentrators and three SX-EW plants. Industrial Minera Mexico, S.A. de C.V.
(together with its subsidiaries, the "IMMSA unit") operates five underground mines that produce zinc, lead, copper, silver and gold, a coal mine and a zinc refinery.
We
utilize modern, state of the art mining and processing methods, including global positioning systems and computerized mining processes. Our operations have a high level of vertical
integration that allows us to manage the entire production process, from the mining of the ore to the production of refined copper rod and other products and most related transport and logistics
functions, using our own facilities, employees and equipment.
The
sales prices for our products are largely determined by market forces out of our control. Our management, therefore, focuses on cost control and production enhancement to remain
profitable. We endeavor to achieve these goals through capital spending programs, exploration efforts and cost reduction programs. Our focus is to remain profitable during periods of low copper prices
and on maximizing results in periods of high copper prices. For additional information on the sale prices of the metals we produce, please see "Metal Prices" in this Item 1.
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Currency Information:
Unless
stated otherwise, all our financial information is presented in U.S. dollars and any reference herein to "U.S. dollars", "dollars", or "$" are to U.S. dollars;
references to "sol", "soles" or "S/", are to Peruvian soles; and references to "peso", "pesos", or "Ps.", are to Mexican pesos.
Unit Information:
Unless
otherwise noted, all tonnages are in metric tons. To convert to short tons, multiply by 1.102. All ounces are troy ounces. All distances are in kilometers. To
convert to miles, multiply by 0.621. To convert hectares to acres, multiply by 2.47.
ORGANIZATIONAL STRUCTURE
The
following chart describes our organizational structure, starting with our controlling stockholders, as of December 31, 2017. For clarity of presentation, the
chart identifies only our main subsidiaries and eliminates intermediate holding companies.
We
are a majority-owned, indirect subsidiary of Grupo Mexico S.A.B. de C.V. ("Grupo Mexico"). At December 31, 2017, Grupo Mexico through its wholly-owned subsidiary
Americas Mining Corporation ("AMC") owned 88.9% of our capital stock. Grupo Mexico's principal business is to act as a holding company for the shares of other corporations engaged in the mining,
processing, purchase and sale of minerals and other products and railway and other related services.
We
conduct our operations in Peru through a registered branch (the "SPCC Peru Branch", "Branch" or "Peruvian Branch"). The SPCC Peru Branch comprises substantially all of our assets and
liabilities associated with our copper operations in Peru. The SPCC Peru Branch is not a corporation separate from us and, therefore, obligations of SPCC Peru Branch are direct obligations of SCC and
vice-versa. It is, however, an establishment, registered pursuant to Peruvian law, through which we hold assets, incur liabilities and conduct operations in Peru. Although it has neither its own
capital nor liability separate from us, it is deemed to have equity capital for purposes of determining the economic interests of holders of our investment shares (See Note 13
"Stockholders´ Equity" of our consolidated financial statements).
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Table of Contents
In
April 2005, we acquired Minera Mexico, from Americas Mining Corporation ("AMC"), a subsidiary of Grupo Mexico, our controlling stockholder. Minera Mexico is a holding company and all
of its operations are conducted through subsidiaries that are grouped into three units: (i) the La Caridad unit (ii) the Buenavista unit and (iii) the IMMSA unit. We own 99.96% of
Minera Mexico.
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. Pursuant to this program, through December 31, 2017 we have purchased 119.5 million shares of our common stock at a cost of $2,918.4 million. These shares are
available for general corporate purposes. We may purchase additional shares 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.
REPUBLIC OF PERU AND MEXICO
Our
revenues are derived primarily from our operations in Peru and Mexico. Risks related to our operations in both countries include those associated with economic and
political conditions, the effects of currency fluctuations and inflation, the effects of government regulations and the geographic concentration of our operations.
AVAILABLE INFORMATION
We
file annual, quarterly and current reports, proxy statements and other information with the U.S. Securities and Exchange Commission ("SEC"). You may read and copy
any document we file at the SEC's Public Reference Room at 100 F Street NE, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for information on the Public Reference
Room. The SEC maintains a website that contains annual, quarterly and current reports, proxy statements and other information that issuers (including Southern Copper Corporation) file electronically
with the SEC. The SEC's website is www.sec.gov.
Our
website is www.southerncoppercorp.com. Beginning with the Form 8-K dated March 14, 2003, we have made available on this website, free of charge, our annual, quarterly
and current reports, as soon as reasonably practical after we electronically file such material with, or furnish it to, the SEC. Our website also includes the Company's Corporate Governance guidelines
and the charters of our principal Board Committees. However, the information found on our website is not part of this or any other report.
CAUTIONARY STATEMENT
Forward-looking
statements in this report and in other Company statements include information regarding expected commencement dates of mining or metal production
operations, projected quantities of future metal production, anticipated production rates, operating efficiencies, costs and expenditures, including taxes, as well as projected demand or supply for
the Company's products. Actual results could differ materially depending upon certain factors, including the risks and uncertainties relating to general U.S. and international economic and political
conditions, the cyclical and volatile prices of copper, other commodities and supplies, including fuel and electricity, the availability of materials, insurance coverage, equipment, required permits
or approvals and financing, the occurrence of unusual weather or operating conditions, lower than expected ore grades, water and geological problems, the failure of equipment or processes to operate
in accordance with specifications,
failure to obtain financial assurance to meet closure and remediation obligations, labor relations, litigation and environmental risks, as well as political and economic risk associated with foreign
operations. Results of operations are directly affected by metal prices on commodity exchanges, which can be volatile.
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Additional
business information follows:
COPPER BUSINESS
Copper
is an important component in the world's infrastructure. It is the third most widely used metal, after iron and aluminum. Copper has unique chemical and physical
properties, including high ductility, malleability, thermal and electrical conductivity, and resistance to corrosion that has made it a superior material for use in electrical and electronic products,
including power transmission and generation, which accounts for about three quarters of copper global use, telecommunications, building construction, transportation and industrial machinery. Copper is
also an important metal in non-electrical applications such as plumbing and roofing and, when alloyed with zinc to form brass, in many industrial and consumer applications.
Copper
is an internationally traded commodity with prices principally determined by the major metal exchanges, the Commodities Exchange, or "COMEX", in New York and the London Metal
Exchange or "LME." Copper is usually found in nature in association with sulfur. Pure copper metal is generally produced from a multistage process, beginning with the mining and concentrating of
low-grade ores containing copper sulfide minerals, and followed by smelting and electrolytic refining to produce a pure copper cathode. An increasing share of copper is produced from acid leaching of
oxidized ores. Copper is one of the oldest metals ever used and has been one of the most important materials in the development of civilization.
BUSINESS REPORTING SEGMENTS:
Our
management views Southern Copper as having three reportable segments and manages it on the basis of these segments.
The
three segments identified are groups of individual mines, each of which constitutes an operating segment with similar economic characteristics, type of products, processes and
support facilities, regulatory environments, employee bargaining contracts and currency risks. In addition, each mine within the individual group earns revenues from similar types of customers for
their products and services and each group incurs expenses independently, including commercial transactions between groups.
Inter-segment
sales are based on arm's length prices at the time of sale. These may not be reflective of actual prices realized by the Company due to various factors, including
additional processing, timing of sales to outside customers and transportation cost. Added to the segment data is information regarding the Company's sales. The segments identified by the Company
are:
-
1.
-
Peruvian
operations, which include the Toquepala and Cuajone mine complexes and the smelting and refining plants, including a precious metals plant, industrial
railroad and port facilities that service both mines. Sales of its products are recorded as revenue of our Peruvian mines. The Peruvian operations produce copper, with production of by-products of
molybdenum, silver and other materials.
-
2.
-
Mexican
open-pit operations, which include the La Caridad and Buenavista mine complexes and the smelting and refining plants, including a precious metals plant and a
copper rod plant and support facilities that service both mines. Sales of its products are recorded as revenue of our Mexican mines. The Mexican open-pit operations produce copper, with production of
by-products of molybdenum, silver and other materials.
-
3.
-
Mexican
underground mining operations, which include five underground mines that produce zinc, copper, lead, silver and gold, a coal mine that produces coal and coke,
and a zinc refinery. This group is identified as the IMMSA unit and sales of its products are recorded as revenue of the IMMSA unit.
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Table of Contents
Financial
information is regularly prepared for each of the three segments and the results are reported to Senior management on a segment basis. Senior management focuses on operating
income and on
total assets as measures of performance to evaluate different segments and to make decisions to allocate resources to the reported segments. These are common measures in the mining industry.
Segment
information is included in Item 2 "Properties," under the captions"Metal Production by Segments" and "Ore Reserves." More information on business segment and
segment financial information is included in Note 17 "Segment and Related Information" of our consolidated financial statements.
CAPITAL INVESTMENT PROGRAM AND EXPLORATION ACTIVITIES
For
a description of our capital investment program, see Item 7 "Management's Discussion and Analysis of Financial Condition and Results of
OperationsCapital Investment Program" and for our exploration activities, see Item 2 "PropertiesExplorations Activities."
PRINCIPAL PRODUCTS AND MARKETS
Copper
is primarily used in the building and construction industries, in the power generation and transmission industry, in electrical and electronic products and, to a
lesser extent, in industrial machinery and equipment, consumer products and in the automotive and transportation industries. Molybdenum is used to toughen alloy steels and soften tungsten alloy and is
also used in fertilizers, dyes, enamels and reagents. Silver is used for photographic, electrical and electronic products and, to a lesser extent, in brazing alloys and solder, jewelry, coinage,
silverware and catalysts. Zinc is primarily used as a coating on iron and steel to protect against corrosion and is also used to make die cast parts, in the manufacturing of batteries and in the form
of sheets for architectural purposes.
Our
marketing strategy and annual sales planning emphasize developing and maintaining long-term customer relationships. Thus acquiring annual or other long-term contracts for the sale of
our products is a high priority. Generally, 80% to 90% of our metal production is sold under annual or longer-term contracts. Sales prices are determined based on the prevailing commodity prices for
the quotation period according to the terms of the contract.
We
focus on the ultimate end-user customers as opposed to selling on the spot market or to trading companies. In addition, we devote significant marketing efforts to diversifying our
sales both by region and by customer base. We also strive to provide superior customer service, including timely deliveries of
our products. Our ability to consistently fulfill customer demand is supported by our substantial production capacity.
For
additional information on sales please see "Revenue recognition" in Note 2 "Summary of Significant Accounting Policies" and Note 17 "Segment and Related Information" of
our consolidated financial statements.
METALS PRICES
Prices
for our products are principally a function of supply and demand and, with the exception of molybdenum, are established on COMEX and LME. Prices for our
molybdenum products are established by reference to the publication Platt's Metals Week. Our contract prices also reflect any negotiated premiums and the costs of freight and other factors. From time
to time, we have entered into hedging transactions to provide partial protection against future decreases in the market price of metals and we may do so under certain market conditions. For a further
discussion of our products market prices, please see Item 7 "Management's Discussion and Analysis of Financial Condition and Results of OperationsMetal Prices."
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Table of Contents
The table below shows the high, low and average COMEX and LME per pound copper prices during the last 10 years:
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Copper (COMEX)
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Copper (LME)
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Year
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High
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Low
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Average
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High
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Low
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Average
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2008
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4.08
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1.25
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3.13
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4.08
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1.26
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3.16
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2009
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3.33
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1.38
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2.35
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3.33
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1.38
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2.34
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2010
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4.44
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2.76
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3.43
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4.42
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2.76
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3.42
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2011
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4.62
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3.05
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4.01
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4.60
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3.08
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4.00
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2012
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3.97
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3.28
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3.61
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3.93
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3.29
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3.61
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2013
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3.78
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3.03
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3.34
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3.74
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3.01
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3.32
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2014
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3.43
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2.84
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3.12
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3.37
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|
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2.86
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3.11
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2015
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2.95
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2.02
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2.51
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2.92
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2.05
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2.50
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2016
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2.69
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1.94
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2.20
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2.69
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1.96
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2.21
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2017-1st Q
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2.78
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2.48
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2.65
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2.79
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2.49
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2.65
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2017-2nd Q
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2.70
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|
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2.49
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2.58
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2.68
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2.48
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2.57
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2017-3rd Q
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3.13
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2.64
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2.89
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3.13
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2.62
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|
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2.88
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2017-4th Q
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3.29
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2.92
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3.10
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3.27
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2.92
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|
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3.09
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2017
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3.29
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2.48
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2.80
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3.27
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2.48
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2.80
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The
per pound COMEX copper price during the last 5 and 10 year periods averaged $2.79 and $3.05, respectively. The per pound LME copper price during the last 5 and 10 year
periods also averaged $2.79 and $3.05, respectively.
The
table below shows the high, low and average per-pound, except silver, which is per ounce, market prices for our three principal by-products during the last 10 years:
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Silver (COMEX)
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Molybdenum (Dealer
Oxide Platt's
Metals Week)
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Zinc (LME)
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Year
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High
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Low
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Average
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High
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Low
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Average
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High
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Low
|
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Average
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2008
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20.69
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8.80
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14.97
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33.88
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8.75
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28.42
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1.28
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0.47
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0.85
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2009
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19.30
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10.42
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14.67
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18.00
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7.83
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10.91
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1.17
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0.48
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0.75
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2010
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30.91
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14.82
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20.18
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18.60
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11.75
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15.60
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1.14
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0.72
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0.98
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2011
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48.58
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26.81
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35.18
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17.88
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12.70
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15.33
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1.15
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0.79
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0.99
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2012
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37.14
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26.25
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31.19
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14.80
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10.90
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12.62
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0.99
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0.80
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0.88
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2013
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32.41
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18.53
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23.82
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11.95
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9.12
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10.26
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0.99
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|
|
0.81
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|
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0.87
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2014
|
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22.05
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15.39
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19.04
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|
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15.05
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8.75
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11.30
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1.10
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0.88
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0.98
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2015
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18.35
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13.67
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15.68
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9.40
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4.30
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6.59
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1.09
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0.66
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0.88
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2016
|
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20.67
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|
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13.74
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17.10
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8.60
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5.10
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6.42
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1.32
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0.73
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0.95
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2017-1st Q
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18.44
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16.36
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17.45
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8.88
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6.85
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|
7.74
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1.35
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1.00
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1.26
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2017-2nd Q
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|
18.49
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|
|
16.01
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17.19
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9.03
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6.85
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8.00
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1.26
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|
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1.10
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1.18
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2017-3rd Q
|
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18.03
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15.37
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16.80
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|
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8.90
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7.00
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|
8.05
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1.46
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|
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1.24
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|
|
1.34
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2017-4th Q
|
|
|
17.36
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15.58
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|
16.66
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|
|
10.25
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|
|
8.25
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|
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8.72
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1.53
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1.40
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1.47
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2017
|
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18.49
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|
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15.37
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|
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17.03
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10.25
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6.85
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8.13
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|
|
1.53
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|
|
1.00
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|
|
1.31
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The
per ounce COMEX silver price during the last 5 and 10 year periods averaged $18.53 and $20.89, respectively. The per pound Platt's Metals Week Dealer Oxide molybdenum price
during the last 5 and 10 year periods averaged $8.54 and $12.56, respectively. The per pound LME zinc price during the last 5 and 10 year periods averaged $1.00 and $0.94, respectively.
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Table of Contents
COMPETITIVE CONDITIONS
Competition
in the copper market is based primarily on price and service basis, with price being the most important factor when supplies of copper are ample. Our
products compete with other materials, including aluminum and plastics. For additional information, see Item 1A "Risk FactorsThe copper mining industry is highly competitive."
LABOR FORCE
As
of December 31, 2017, we had 13,140 employees, approximately 71.8% of whom are unionized and represented by eight different labor unions. Despite the three
strikes in 2017 at our Peruvian operations, we believe the Company has a positive labor environment in our operations in Mexico and Peru, which is allowing us to increase productivity as well as
helping us achieve the goals of our capital expansion program.
Peru
69%
of our 4,628 Peruvian employees were unionized at December 31, 2017. Currently, there are six separate unions, one large union and five smaller unions. In
the first quarter of 2016, the Company signed three-year agreements with five unions. These agreements include, among other things, annual salary increases of 5% for each of the three years.
In
April 2017, the Unified Labor Union of SPCC workers and one of Toquepala's unions began a strike, demanding a review of certain health and profit sharing benefits. The strike lasted
12 days. These two unions began illegal strikes in July and November 2017, that lasted five days and 21 days, respectively. The Company estimates that the loss of copper production
resulting from the 2017 strikes was not significant and our sales contracts were not affected.
Employees
of the Toquepala and Cuajone units reside in townsites, where we have built 3,700 houses and apartments. We also have 90 houses at Ilo for staff personnel. Housing, together
with maintenance and utility services, is provided at minimal cost to most of our employees. Our townsite and housing complexes include schools, medical facilities, churches, social clubs and
recreational facilities. We also provide shopping, banking and other services at the townsites.
Mexico
74%
of our 8,450 Mexican employees were unionized at December 31, 2017, represented by three separate unions. Under Mexican law, the terms of employment for
unionized workers are set forth in collective bargaining agreements. Mexican companies negotiate the salary provisions of collective bargaining agreements with the labor unions annually and negotiate
other benefits every two years. We conduct negotiations separately at each mining complex and each processing plant.
Our
Taxco and San Martin mines in Mexico have been on strike since July 2007. For a discussion of labor matters reference is made to the information contained under the caption "Labor
matters" in Note 12 "Commitments and Contingencies" of the consolidated financial statements.
Employees
of La Caridad and Buenavista units reside in townsites at Nacozari and Cananea, where we have built approximately 2,000 and 275 houses and apartments, respectively. Most of the
employees of the IMMSA unit reside on the grounds of the mining or processing complexes in which they work and where we have built approximately 900 houses and apartments. Housing, together with
maintenance and utility services, is provided at minimal cost to most of our employees. Our townsites and housing complexes include educational and medical facilities, churches, social clubs, shopping
centers, banking and other services. Through 2007, the Buenavista unit provided health care services to employees and retired unionized employees and their families through its own hospital at the
Buenavista unit. In 2010, the Company signed an agreement with the Secretary of Health of the State
9
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of
Sonora to provide these services to its retired workers and their families. The new workers of Buenavista receive health services through the Mexican Institute of Social Security as is the case for
all Mexican workers.
FUEL, ELECTRICITY AND WATER SUPPLIES
The
principal raw materials used in our operations are fuel, electricity and water. We use natural gas to power boilers and generators, and for metallurgical processes
at our Mexican operations and diesel fuel to power mining equipment. We believe that sources of fuel, electricity and water are readily available. The prices of these raw materials may fluctuate
outside of our control, therefore we focus our efforts to reduce these costs through cost and energy saving measures.
Energy
is the principal cost in mining, so the concern for its conservation and efficient usage is very important. We have energy management committees at most of our mines, which meet
periodically to discuss consumption and to develop measures directed at saving energy. Also, alternative sources are being analyzed at the corporate level, from both traditional and renewable energy
sources. This has helped us to develop a culture of energy conservation directed at the sustainability of our operations.
Peru:
Fuel:
In Peru, we obtain fuel primarily from local companies. The Company believes that adequate supplies of fuel are
available in Peru.
Electricity:
In June 2014, we entered into a power purchase agreement for 120 megawatt ("MW") with the state company
Electroperu S.A., which began supplying energy for our Peruvian operations for twenty years starting on April 17, 2017. In July 2014, we entered into a power purchase agreement for 120MW
with a private power generator Kallpa Generacion S.A. ("Kallpa"), which began supplying
energy for our Peruvian operations for ten years starting on April 17, 2017. In May 2016, we signed an additional power purchase agreement for a maximum of 80MW with Kallpa, under which Kallpa
will supply energy for the operations related to the Toquepala Expansion and 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. In addition, we feel confident that additional power can be obtained from the Peruvian national grid, should the need arise.
Additionally,
we have nine megawatts of power generation capacity from two small hydro-generating installations at Cuajone. Power is distributed over a 224-kilometer closed loop
transmission circuit, which is interconnected with the Peruvian network.
Water:
We have water rights or licenses for up to 1,950 liters per second from well fields at the Huaitire, Vizcachas
and Titijones aquifers and surface water rights from the Suches lake and two small water courses, Quebrada Honda and Quebrada Tacalaya. We believe these water sources are sufficient to supply the
needs of our operating units at Toquepala and Cuajone. At Ilo, we have desalination plants that produce water for industrial use and domestic consumption that we believe are sufficient for our current
and projected needs.
Mexico:
Fuel:
In Mexico, fuel is purchased directly from Petroleos Mexicanos ("PEMEX"), the state oil monopoly.
The
La Caridad unit imports natural gas from the United States through its pipeline (between Douglas, Arizona and Nacozari, Sonora), which allows us to import natural gas from the
United States at market prices and thereby reduce operating costs. Several contracts with PEMEX and the United States provide us with the option of using a monthly or daily fixed price
for our natural gas purchases.
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Natural
gas is used for metallurgical processes, to power furnaces, converters, casting wheels, boilers and electric generators. Diesel oil is a backup for all these uses. We use diesel
oil to power mining equipment at our operations.
Electricity:
Electricity is used as the main energy source at our mining complexes. We purchase most of our electricity
from Mexico Generadora de Energia S. de R. L. ("MGE"), a subsidiary of Grupo Mexico which has two power plants designed to supply power to La Caridad and Buenavista units. MGE is supplying 13.5% of
its power output to third party energy users. These plants are natural gas-fired combined cycle power generating units, with a net total capacity of 516.2 megawatts. In 2012, we entered into a power
supply agreement with MGE through 2032. The first plant was completed in 2013 and the second was completed in the second quarter of 2014. The first plant began to supply power to the Company in
December 2013, and the second plant began to supply power in June 2015.
We
also purchase electricity from the
Comision Federal de Electricidad
(the Federal Electricity Commission or the "CFE"), the state's
electrical power producer. In addition, we recover some energy from waste heat boilers at the La Caridad smelter. Accordingly, a significant portion of our operating costs in Mexico is dependent upon
the pricing policies of CFE, as well as PEMEX, which reflect government policy, as well as international market prices for crude oil, natural gas and conditions in the refinery markets.
Some
of the mining operations also purchase electricity from Eolica el Retiro, S.A.P.I de C.V. ("Eolica"), a windfarm energy producer that is an indirect subsidiary of Grupo
Mexico. In August 2013, IMMSA and other of the mining operations of the Company entered into a purchase agreement and in late 2014 started to purchase electricity. Most of the purchases from Eolica
were made by IMMSA, due to the nature of the production process there is not a set amount of KWh contracted. In 2017 the total purchases were of approximately 55.3 million KWh.
Water:
In Mexico, water is deemed a public property and industries not connected to a public service water supply must
obtain a water concession from
Comision Nacional del Agua
(the National Water Commission or the "CNA"). Water usage fees are established in the
Ley Federal de
Derechos
(the Federal Rights Law), which distinguishes several availability zones with different fees per unit of volume according to
each zone, with the exception of Mexicana de Cobre. All of our operations have one or several water concessions and pump out the required water from wells. Mexicana de Cobre pumps water from the La
Angostura dam, which is close to the mine and plants. At our Buenavista facility, we maintain our own wells and pay the CNA for water usage. Water conservation committees have been established in each
plant in order to conserve and recycle water. Water usage fees are updated on a yearly basis and have been increasing in recent years.
ENVIRONMENTAL MATTERS
For
a discussion of environmental matters reference is made to the information contained under the caption "Environmental matters" in Note 12 "Commitments and
Contingencies" of the consolidated financial statements.
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MINING RIGHTS AND CONCESSIONS
Peru:
We
have 131,278 hectares in concessions from the Peruvian government for our exploration, exploitation, extraction and production operations, at various sites, as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toquepala
|
|
Cuajone
|
|
Ilo
|
|
Other
|
|
Total
|
|
|
|
(hectares)
|
|
Plants
|
|
|
300
|
|
|
456
|
|
|
421
|
|
|
|
|
|
1,177
|
|
Operations
|
|
|
24,679
|
|
|
21,255
|
|
|
4,525
|
|
|
35,459
|
|
|
85,918
|
|
Exploration
|
|
|
|
|
|
|
|
|
|
|
|
44,183
|
|
|
44,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
24,979
|
|
|
21,711
|
|
|
4,946
|
|
|
79,642
|
|
|
131,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We
believe that our Peruvian concessions are in full force and in effect under applicable Peruvian laws and that we are in compliance with all material terms and requirements applicable
to these concessions. The concessions have indefinite terms, subject to our payment of concession fees of up to $3.00 per hectare annually for the mining concessions and a fee based on nominal
capacity for the processing concessions. Fees paid during 2017, 2016 and 2015, were approximately $1.2 million, $1.3 million and $1.7 million, respectively. We have two types of
mining concessions in Peru: metallic and non-metallic concessions.
In
2011, the Peruvian Congress approved an amendment to the mining royalty charge. The new mining royalty charge is based on operating income margins with graduated rates ranging from 1%
to 12% of operating profits, with a minimum royalty charge assessed at 1% of net sales. If the operating income margin is 10% or less, the royalty charge is 1% and for each 5% increment in the
operating income margin, the royalty charge rate increases by 0.75%, up to a maximum of 12%. In 2017, 2016 and 2015, we made provisions of $23.4 million, $16.8 million and
$22.9 million, respectively.
At
the same time the Peruvian Congress amended the mining royalty charge, it enacted a new tax for the mining industry. This tax is also based on operating income and its rates range
from 2% to 8.4%. For additional information see Note 7 "Income Taxes" to the consolidated financial statements.
Mexico:
In
Mexico we have 532,457 hectares in concessions from the Mexican government for our exploration and exploitation activities as outlined on the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMMSA
|
|
La Caridad
|
|
Buenavista
|
|
Projects
|
|
Total
|
|
|
|
(hectares)
|
|
Mine concessions
|
|
|
187,930
|
|
|
102,699
|
|
|
93,706
|
|
|
148,122
|
|
|
532,457
|
|
We
believe that our Mexican concessions are in full force and in effect under applicable Mexican laws and that we are in compliance with all material terms and requirements applicable to
these concessions. Under Mexican law, mineral resources belong to the Mexican nation and a concession from the Mexican federal government is required to explore or mine mineral reserves. Mining
concessions have a 50-year term that can be renewed for another 50 years. Holding fees for mining concessions can be from $0.36 to $7.82 per hectare depending on the beginning date of the
mining concession. Fees paid during 2017, 2016 and 2015 were approximately $5.8 million, $5.4 million and $5.6 million, respectively. In addition, all of our operating units in
Mexico have water concessions that are in full force and effect. Although ownership is not required in order to explore or mine a concession, we generally own the land related to our Mexican
concessions. We also own all of the processing facilities of our Mexican operations and the land on which they are constructed.
In
December 2013, the Mexican government enacted a new law which, among other things, established a mining royalty charge of 7.5% on earnings before taxes as defined by Mexican tax
regulations and an additional royalty charge of 0.5% over gross income from sales of gold, silver and platinum. These charges were effective January 2014 and are deductible for income tax purposes.
12
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ITEM 1A. RISK FACTORS
Every investor or potential investor in Southern Copper Corporation should carefully consider the following risk factors.
Financial risks
Our financial performance is highly dependent on the price of copper and the other metals we produce.
Our financial performance is significantly affected by the market prices of the metals that we produce, particularly the market prices of
copper, molybdenum, zinc and silver. Historically, these prices have been subject to wide fluctuations and are affected by numerous factors out of our control, including international economic and
political conditions, levels of supply and demand, the availability and costs of substitutes, inventory levels maintained by users, actions of participants in the commodities markets and currency
exchange rates. In addition, the market prices of copper and certain other metals have on occasion been subject to rapid short-term changes.
In
the last three years, approximately 80% of our revenues came from the sale of copper, 5% came from molybdenum and 9% came from silver and zinc. Please see the distribution of our
revenues per product on Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" caption "Results of operationsnet sales" on page 80.
See
also historical average price of our products on Item 1 Business caption "Metals prices".
We
cannot predict whether metals prices will rise or fall in the future. Future declines in metals prices, and in particular copper, will have an adverse impact on our results of
operations and financial condition. In very adverse market conditions, we might consider curtailing or modifying some of our mining and processing operations.
Our business requires levels of capital investments which we may not be able to maintain.
Our business is capital intensive. Specifically, the exploration and exploitation of copper and other metal reserves, mining, smelting and
refining costs, the maintenance of machinery and equipment and compliance with laws and regulations require significant capital investments. We must continue to invest capital to maintain or increase
the amount of copper reserves that we exploit and the amount of copper and other metals we produce. We cannot assure you that we will be able to maintain our production levels to generate sufficient
cash, or that we have access to sufficient financing to continue our exploration, exploitation and refining activities at or above present levels.
Restrictive covenants in the agreements governing our indebtedness and the indebtedness of our Minera Mexico
subsidiary may restrict our ability to pursue our business strategies.
Our financing instruments and those of our Minera Mexico subsidiary include financial and other restrictive covenants that, among other things,
limit our and Minera Mexico's abilities to incur additional debt and sell assets. If either we or our Minera Mexico subsidiary do not comply with these obligations, we could be in default under the
applicable agreements which, if not addressed or waived, could require repayment of the indebtedness immediately. Our Minera Mexico subsidiary is further limited by the terms of its outstanding notes,
which also restrict the Company's applicable incurrence of debt and liens. In addition, future credit facilities may contain limitations on our incurrence of additional debt and liens, on our ability
to dispose of assets, or on our ability to pay dividends to our common stockholders.
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We may not pay a significant amount of our net income as cash dividends on our common stock in the future.
We distributed a significant amount of our net income as dividends since 1996. Our dividend practice is subject to change at the discretion of
our Board of Directors at any time. The amount that we pay in dividends is subject to a number of factors, including our results of operations, financial condition, cash requirements, tax
considerations, future prospects, legal restrictions, contractual restrictions in credit agreements, limitations imposed by the government of Peru, Mexico or other countries where we have significant
operations and other factors that our Board of Directors may deem relevant. In light of our capital investment program and global economic conditions, it is possible that future dividend distributions
will be reduced from the levels of recent years.
Our ability to recognize the benefits of deferred tax assets is dependent on future cash flows and taxable
income.
Through 2017 the Company recognized the expected future tax benefit from deferred tax assets when the tax benefit was considered to be more
likely than not of being realized, otherwise, a valuation allowance was applied against deferred tax assets. Assessing the recoverability of deferred tax assets requires management to make significant
estimates related to expectations of future taxable income and existing tax laws.
The
Tax Cuts and Jobs Act of 2017 ("the Act") was enacted into U.S. tax law on December 22, 2017 and contains many significant changes to the U.S. federal income tax laws. The
Company also adopted SEC Staff Accounting Bulletin 118 ("SAB 118"). Accordingly, the accounting for the effect of the Act is based on the Company's best estimate, which may require
adjustment. However, the Company was able to make reasonable estimates of certain effects and therefore, recorded a provisional $785.9 million non-cash tax expense for the estimated effects of
the Act. These adjustments were related to the valuation allowance for foreign tax credits, and other US deferred tax assets, revaluation of our deferred tax assets due to the rate change from 35% to
21% and the transition tax on the repatriation of cumulative foreign earnings. The ultimate impact may differ from the Company´s estimate due to changes in estimates or further
clarification of the new law.
Operational risks
Our actual reserves may not conform to our current estimates of our ore deposits and we depend on our ability
to replenish ore reserves for our long-term viability.
There is a degree of uncertainty attributable to the calculation of reserves. Until reserves are actually mined and processed, the quantity of
ore and grades must be considered as estimates only. The proven and probable ore reserves data included in this report are estimates prepared by us based on evaluation methods generally used in the
mining industry. We may be required in the future to revise our reserves estimates based on our actual production. We cannot assure you that our actual reserves conform to geological, metallurgical or
other expectations or that the estimated volume and grade of ore will be recovered. Market prices of our metals, increased production costs, reduced recovery rates, short-term operating factors,
royalty charges and other factors may render proven and probable reserves uneconomic to exploit and may result in revisions of reserves data from time to time. Reserves data are not indicative of
future results of operations. Our reserves are depleted as we mine. We depend on our ability to replenish our ore reserves for our long-term viability. We use several strategies to replenish and
increase our ore reserves, including exploration and investment in properties located near our existing mine sites and investing in technology that could extend the life of a mine by allowing us to
cost-effectively process ore types that were previously considered uneconomic. Acquisitions may also contribute to increase ore reserves and we review potential acquisition opportunities on a regular
14
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basis.
However, we cannot assure you that we will be able to continue with our strategy to replenish reserves indefinitely.
Our operations are subject to risks, some of which are not insurable.
The business of mining, smelting and refining copper, zinc and other metals is subject to a number of risks and hazards, including industrial
accidents, labor disputes, unusual or unexpected geological conditions, changes in the regulatory environment, environmental hazards, weather and other natural phenomena, such as seismic activity.
Such occurrences could result in damage to, or destruction of, mining operations resulting in monetary losses and possible legal liability. In particular, surface and underground mining and related
processing activities present inherent risks of injury to personnel and damage to equipment. We maintain insurance against many of these and other risks, which in certain circumstances may not provide
adequate coverage. Insurance against certain risks, including certain liabilities for environmental damage or hazards as a result of exploration and production, is not generally available to us or
other companies within the mining industry. Nevertheless recent environmental legal initiatives have considered future regulations regarding environmental damage insurance. In case such regulations
come into force, we will have to analyze the need to obtain such insurance. We do not have, and do not intend to obtain, political risk insurance. These or other uninsured events may adversely affect
our financial condition and the results of operations.
Changes in the demand level for our products and copper sales agreements could adversely affect our revenues.
Our financial results are subject to fluctuations on the level of industrial and consumer demand for the refined, semi-refined metal products
and concentrates we sell, as well as global economic slow-downs or recessions. Also, changes in technology, industrial processes, concerns over weaknesses in the global economy and consumer habits may
affect the level of demand to the extent that those increase or decrease the need for our metal products. Likewise, our revenues could be adversely affected by events of force majeure that could have
a negative impact on our sales agreements. These events include acts of nature, labor strikes, fires, floods, wars, transportation delays, government actions or other events that are beyond the
control of the parties of the agreement.
Interruptions of energy supply or increases in energy costs, shortages of water supply, critical parts,
equipment, skilled labor and other production costs may adversely affect our results of operations.
We require substantial amounts of fuel oil, electricity, water and other resources for our operations. Fuel, gas and power costs constituted
approximately 31%, 30% and 32% of our total production cost in 2017, 2016 and 2015, respectively. We rely upon third parties for our supply of the energy resources consumed in our operations so that
prices for and availability of energy resources may be subject to change or curtailment, due to, among other things, new laws or regulations, imposition of new taxes or tariffs, interruptions in
production by suppliers, worldwide price levels and market conditions. Regarding water consumption, although each operation currently has sufficient water rights to cover its operational demands, the
loss of some or all water rights for any of our mines or operations, in whole or in part, or shortages of water to which we have rights could require us to curtail or shut down mining production and
could prevent us from pursuing expansion opportunities. In addition, future shortages of critical parts, equipment and skilled labor could adversely affect our operations and development projects.
Our Company is subject to health and safety laws which may restrict our operations, result in operational
delays or increase our operating costs and adversely affect our financial results of operations.
We are required to comply with occupational health and safety laws and regulations in Peru and Mexico where our operations are subject to
periodic inspections by the relevant governmental
15
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authorities.
These laws and regulations govern, among others, health and safety work place conditions, including high risk labor and the handling, storage and disposal of chemical and other hazardous
substances. We believe our operations are in compliance in all material respects with applicable health and safety laws and regulations in the countries in which we operate. Compliance with these laws
and regulations and new or existing regulations that may be applicable to us in the future could increase our operating costs and adversely affect our financial results of operations and cash flows.
Our
efforts are focused on the health and safety of our workforce in order to consistently improve performance and compliance through the implementation of occupational health programs,
adequate training and safety incentives at our operations. Despite the Company's efforts, we are not exempt from accidents. These are reported to Mexican and Peruvian authorities as required.
Regarding non-fatal
accidents, in the last three years, the Company's Dart rate (rate to measure workplace injuries severe enough to warrant Day Away from work, job Restrictions and/or job Transfers) was much lower than
the MSHA Dart rate (the MSHA Dart rate is published by the U.S.'s Mine Safety and Health Administration, and is used as an industry benchmark). In 2017, 2016 and 2015 we had two, six and one
fatalities, respectively, in Mexico and Peru. The amounts paid to the Mexican and Peruvian authorities for reportable accidents did not have an adverse effect on our results. Under Mexican and
Peruvian law penalties and fines for safety violations are generally monetary, but in certain cases may lead to the temporary or permanent shutdown of the affected facility or the suspension or
revocation of permits or licenses. Also, violations of security and safety laws and regulations in our Peruvian operations can be considered a crime, punishable with a sentence of up to
10 years of prison.
Our metals exploration efforts are highly speculative in nature and may be unsuccessful.
Metals exploration is highly speculative in nature. It involves many risks and is frequently unsuccessful. Once mineralization is discovered, it
may take a number of years from the initial phases of drilling until production is possible, during which time the economic feasibility of production may change. Substantial expenditures are required
to establish proven and probable ore reserves through drilling, to determine metallurgical processes to extract the metals from the ore and, in the case of new properties, to construct mining and
processing facilities. We cannot assure you that our exploration programs will result in the expansion or replacement of current production with new proven and probable ore reserves.
Development
projects have no operating history upon which we can base estimates of proven and probable ore reserves and estimates of future cash operating costs. Estimates are, to a
large extent, based upon the interpretation of geological data obtained from drill holes and other sampling techniques, and feasibility studies that derive estimates of cash operating costs based upon
anticipated tonnage and grades of ore to be mined and processed, the configuration of the ore body, expected recovery rates of the mineral from the ore, comparable facility and equipment operating
costs, anticipated climatic conditions and other factors. As a result, actual cash operating costs and economic returns based upon development of proven and probable ore reserves may differ
significantly from those originally estimated. Moreover, significant decreases in actual or expected prices may mean reserves, once found, will be uneconomical to produce.
We may be adversely affected by challenges relating to slope stability.
Our open-pit mines get deeper as we mine them, presenting certain geotechnical challenges including the possibility of slope failure. If we are
required to decrease pit slope angles or provide additional road access to prevent such a failure, our stated reserves could be negatively affected. Furthermore, hydrological conditions relating to
pit slopes, renewal of material displaced by slope failures and increased stripping requirements could also negatively affect our stated reserves. We
have taken actions in order to maintain slope stability, but we cannot assure you that we will not have to take additional action in the future or that our actions taken to date will be sufficient.
Unexpected
16
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failure
or additional requirements to prevent slope failure may negatively affect our results of operations and financial condition, as well as have the effect of diminishing our stated ore reserves.
We may be adversely affected by labor disputes.
In the last several years we have experienced a number of strikes or other labor disruptions that have had an adverse impact on our operations
and operating results. As of December 31, 2017, unions represented approximately 71.8% of our workforce. Currently, we have labor agreements in effect for our Mexican and Peruvian operations.
During
2017, the Unified Labor Union of SPCC workers and one of Toquepala's unions held three separate strikes. The Company estimates that the loss of copper production resulting from
the 2017 strikes was not significant and our sales contracts were not affected.
Our
Taxco and San Martin mines in Mexico have been on strike since July 2007. It is expected that operations at these mines will remain suspended until these labor issues are resolved.
We
cannot assure you when these strikes will be settled, or that in the future we will not experience strikes or other labor related work stoppages that could have a material adverse
effect on our financial condition and results of operations.
Our mining or metal production projects may be subject to additional costs due to community actions and other
factors.
In recent years, worldwide mining activity has been pressured by neighboring communities for financial commitments to fund social benefit
programs and infrastructure improvements. Our projects in Peru are not exempt from these pressures. Our Tia Maria project in Peru has experienced delays while trying to resolve issues with community
groups.
It
appears that it is becoming a part of the Peruvian mining environment that in order to obtain acceptance from local communities for projects in their localities, demands for
substantial investments in community infrastructure and upgrades must be met in order to proceed with the mining projects.
We
are confident that we will move forward with the Tia Maria project. However, we cannot assure you when and that we will not continue to incur additional costs for community
infrastructure and upgrades in order to obtain the approval of current or future mining projects.
Environmental, regulatory response to climate change, and other regulations may increase our costs of doing
business, restrict our operations or result in operational delays.
Our exploration, mining, milling, smelting and refining activities are subject to a number of Peruvian and Mexican laws and regulations,
including environmental laws and regulations, and certain industry technical standards. Additional matters subject to regulation include, but are not limited to, concession fees, transportation,
production, water use and discharge, power use and generation, use and storage of explosives, surface rights, housing and other facilities for workers, reclamation, taxation, labor standards, mine
safety and occupational health.
Environmental
regulations in Peru and Mexico have become increasingly stringent over the last decade and we have been required to dedicate more time and money to compliance and
remediation activities. Furthermore, the Mexican authorities have become more rigorous and strict in enforcing Mexican environmental laws. We expect additional laws and regulations will be enacted
over time with respect to environmental matters.
Please
refer to Note 12 "Commitments and ContingenciesEnvironmental matters" of our financial statements for further information on this subject.
17
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The
potential physical impacts of climate change on our operations are highly uncertain, and would be particular to the geographic location of our facilities. These may include changes
in rainfall patterns, water shortages, changing sea levels, changing storm patterns and intensities, and changing temperatures. These effects may adversely impact the cost, production and financial
performance of our operations.
We
are aware of fluctuations in weather patterns in the areas where we operate. Aligned with government efforts, we are working in measuring its carbon footprint in order to reduce any
contribution to greenhouse gases generated by our operations. Similarly, we evaluate our water demand, as weather changes may result in increase/decrease scenarios that affect our needs.
The
development of more stringent environmental protection programs in Peru and Mexico and in relevant trade agreements could impose constraints and additional costs on our operations
requiring us to make significant investments in the future. We cannot assure you that current or future legislative, regulatory or trade developments will not have an adverse effect on our business,
properties, operating results, financial condition or prospects.
Our mining and metal production projects may subject us to new risks.
Our Company is in the midst of a large expansion program, which may subject us to additional risks of industrial accidents. While we believe our
contractors employ safety standards and other procedures to ensure these projects are completed with proper governance, it is possible that the increased activity occurring at our sites could cause
accidents of an environmental nature or danger to human life.
In
August 2014, our new SX-EW plant in Mexico had an industrial accident caused by a rock slide, coupled with a construction defect in the seal of a pipe at the new leaching system
containment dam, which caused a spill of copper sulfate solution in to the Bacanuchi River, a tributary of the Sonora River. As a result of this accident the Company absorbed charges of
$126.2 million through 2017. In addition, there are a number of collective action lawsuits and civil action lawsuits, filed against the Company in Mexico´s federal courts and
the state courts of Sonora. A number of constitutional lawsuits have also been filed against various governmental authorities and against the Company. These lawsuits are seeking damages and requesting
remedial actions to restore the environment. The Company believes that it is not possible to determine the extent of the damages
sought and considers the lawsuits without merit. However the Company cannot offer any assurances that the outcome of these lawsuits will not have an adverse effect on the Company.
While
this is an unusual event in the Company's history, we cannot offer assurance that an accident related to our project development program will not occur again in the future and
cause environmental damage or damage that causes harm or loss of life.
Our business depends upon information technology systems which may be adversely affected by disruptions,
damage, failure and risks associated with implementation and integration.
Our operations depend upon information technology systems which 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 believe that we have implemented appropriate preventative measures to mitigate potential risks by
implementing a certified IT service management system with the necessary controls that are frequently reviewed and tested, including a risk matrix that considers all the possible threats with an
impact and probability analysis, actions to avoid or mitigate them and the corresponding
18
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testing
plan. However, given the unpredictability of the timing, nature and scope of information technology disruptions, we could potentially be subject to manipulation or improper use of our systems
and networks, operational delays, the compromising of confidential or otherwise protected information, destruction or corruption of data, security breaches, financial losses from remedial actions, any
of which could have a material adverse effect on our cash flows, competitive position, financial condition or results of operations.
Other risks
Applicable law restricts the payment of dividends from our Minera Mexico subsidiary to us.
Our subsidiary, Minera Mexico, is a Mexican company and, as such, may pay dividends only out of net income that has been approved by the
shareholders. Shareholders must also approve the actual dividend payment, after mandatory legal reserves have been created and losses for prior fiscal years have been satisfied. These legal
constraints may limit the ability of Minera Mexico to pay dividends to us, which in turn, may have an impact on our ability to pay stockholder dividends or to service debt.
Global and local market conditions, including the high competitiveness in the copper mining industry, may
adversely affect our profitability.
Our industry is cyclical by nature and fluctuates with economic cycles. Therefore, we are subject to the risks arising from adverse changes in
domestic and global economic and political conditions, such as lower levels of consumer and corporate confidence, decreased business investment, increased unemployment, reduced income and asset values
in many areas, currency volatility and limited availability of credit and access to capital. Additionally, we face competition from other copper mining and producing companies around the world;
significant competition exists to acquire properties producing or capable of producing copper and other metals as well as consolidation among some of our main competitors that make them more
diversified than we are.
We
cannot assure you that changes in market conditions, including competition, will not adversely affect us to compete in the future on the basis of price or other factors with companies
that may benefit from future favorable trading or other arrangements.
We are controlled by Grupo Mexico, which exercises control over our affairs and policies and whose interests
may be different from yours.
At December 31, 2017, Grupo Mexico owned indirectly 88.9% of our capital stock. Certain of our and Minera Mexico's officers and directors
are also directors and/or officers of Grupo Mexico and/or of its affiliates. We cannot assure you that the interests of Grupo Mexico will not conflict with our minority stockholders.
Grupo
Mexico has the ability to determine the outcome of substantially all matters submitted for a vote to our stockholders and thus exercises control over our business policies and
affairs, including the following:
-
-
the composition of our Board of Directors and, as a result, any determinations of our Board with respect to our business direction and policy,
including the appointment and removal of our officers;
-
-
determinations with respect to mergers and other business combinations, including those that may result in a change of control;
-
-
whether dividends are paid or other distributions are made and the amount of any dividends or other distributions;
-
-
sales and dispositions of our assets;
19
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-
-
the amount of debt financing that we incur; and
-
-
the approval of capital projects.
We
cannot assure you that increased financial obligations of Grupo Mexico or AMC resulting from financings or for other reasons will not result in our parent corporations obtaining
loans, increased dividends or other funding from us.
In
addition, we have in the past engaged in, and expect to continue to engage in, transactions with Grupo Mexico and its other affiliates which are related party transactions and may
present conflicts of interest. For additional information regarding the share ownership of, and our relationships with, Grupo Mexico and its affiliates, see Note 16 "Related Party
Transactions."
Unanticipated litigation or negative developments in pending litigation or with respect to other
contingencies may adversely affect our financial condition and results of operations.
We are currently, and may in the future become, subject to litigation, arbitration or other legal proceedings with other parties. If decided
adversely to the Company, these legal proceedings, or others that could be brought against us in the future, may adversely affect our financial position or prospects. For further detailed discussion
of pending litigation, please see Note 12 "Commitment and ContingenciesLitigation matters".
International Risks
We are a company with substantial assets located outside of the United States. We conduct production operations in Peru and Mexico and
exploration activities in these countries as well as in Chile, Argentina and Ecuador. Accordingly, in addition to the usual risks associated with conducting business in foreign countries, our business
may be adversely affected by political, economic and social uncertainties in each of these countries. Such risks include possible expropriation or nationalization of property, confiscatory taxes or
royalties, possible foreign exchange controls, changes in the national policy toward foreign investors, extreme environmental standards, etc.
Our
insurance does not cover most losses caused by the above described risks. Consequently, our production, development and exploration activities in these countries could be
substantially affected by factors out of control, some of which could materially and adversely affect our financial position or results of operations.
Risks Associated with Doing Business in Peru and Mexico
There is uncertainty as to the termination and renewal of our mining concessions.
Under the laws of Peru and Mexico, mineral resources belong to the state and government and concessions are required in both countries to
explore for or exploit mineral reserves. In Peru, our mineral rights derive from concessions from Ministry of Energy and Mines ("MINEM") for our exploration, exploitation, extraction and/or
production operations. In Mexico, our mineral rights derive from concessions granted, on a discretionary basis, by the Ministry of Economy, pursuant to Mexican mining law and regulations thereunder.
Mining
concessions in both Peru and Mexico may be terminated if the obligations of the concessioner are not satisfied. In Peru, we are obligated to pay certain fees for our mining
concession. In Mexico, we are obligated, among other things, to explore or exploit the relevant concession, to pay any relevant fees, to comply with all environmental and safety standards, to provide
information to the Ministry of Economy and to allow inspections by the Ministry of Economy. Any termination or unfavorable modification of the terms of one or more of our concessions, or failure to
obtain renewals
20
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of
such concessions subject to renewal or extensions, could have a material adverse effect on our financial condition and prospects.
Peruvian economic and political conditions may have an adverse impact on our business.
A significant part of our operations are conducted in Peru. Accordingly, our business, financial condition or results of operations could be
affected by changes in economic or other policies of the Peruvian government or other political, regulatory or economic developments in the
country. During the past several decades, Peru has had a succession of regimes with differing policies and programs. Past governments have frequently intervened in the nation's economy and social
structure. Among other actions, past governments have imposed controls on prices, exchange rates and local and foreign investments, as well as limitations on imports, have restricted the ability of
companies to dismiss employees and have prohibited the remittance of profits to foreign investors.
In
more recent years Peru has had political and social stability. The Peruvian government's economic policies reduced inflation and the Peruvian economy has experienced significant
growth.
Because
we have significant operations in Peru, we cannot provide any assurance that political developments and economic conditions in Peru and/or other factors will not have a material
adverse effect on market conditions, prices of our securities, our ability to obtain financing and our results of operations and financial condition.
Mexican economic and political conditions, as well as drug-related violence, may have an adverse impact on
our business.
The Mexican economy is highly sensitive to economic developments in the United States, mainly because of its high level of exports to
this market. Gross domestic product grew by 2.3% in 2016, 1.7% in 2017 and is expected to grow 2.3% in 2018. Other risks in Mexico are increases in taxes on the mining sector and higher royalties as
was enacted in 2013. As has occurred in other metal producing countries, the mining industry may be perceived as a source of additional fiscal revenue.
In
addition, security institutions in Mexico are under significant stress, as a result of drug-related violence. This situation creates potential risks especially for transportation of
minerals and finished products, which affect a small part of our production. However, drug-related violence has had a limited impact on our operations as it has tended to concentrate outside our areas
of production. If this were to change, the potential risks to our operations might increase.
Because
we have significant operations in Mexico, we cannot provide any assurance that political developments and economic conditions as well as drug-related violence, in Mexico will not
have a material adverse effect on market conditions, prices of our securities, on our ability to obtain financing, and on our results of operations and financial condition.
Peruvian inflation and fluctuations in the sol exchange rate may adversely affect our financial condition and
results of operations.
Although the U.S. dollar is our functional currency and our revenues are primarily denominated in U.S. dollars, as we operate in Peru, portions
of our operating costs are denominated in Peruvian soles. Accordingly, when inflation or deflation in Peru is not offset by a change in the exchange rate of the sol, our financial position, results of
operations, cash flows and the market price of our common stock could be affected.
Over
the past several years, Peru has experienced one of its best economic periods. Inflation in 2017, 2016 and 2015 was 1.5%, 3.2% and 4.4%, respectively. The value of the sol has
appreciated against the U.S. dollar 3.4% and 1.6% in 2017 and 2016, respectively, and it has depreciated 14.2% in 2015. Although the Peruvian government's economic policy reduced inflation and the
economy has
21
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experienced
significant growth in recent years, we cannot assure you that inflation will not increase from its current level or that such growth will continue in the future at similar rates or at all.
Additionally a global financial economic crisis, could negatively affect the Peruvian economy.
To
manage the volatility related to the risk of currency rate fluctuations, we may enter into forward exchange contracts. We cannot assure you, however, that currency fluctuations will
not have an impact on our financial condition and results of operations.
Mexican inflation, restrictive exchange control policies and fluctuations in the peso exchange rate may
adversely affect our financial condition and results of operations.
Although all of our Mexican operations' sales of metals are priced and invoiced in U.S. dollars, a substantial portion of its costs are
denominated in pesos. Accordingly, when inflation in Mexico increases without a corresponding depreciation of the peso, the net income generated by our Mexican operations is adversely affected. The
annual inflation rate in Mexico was 6.8% in 2017, 3.4% in 2016 and 2.1% in 2015.
At
the same time, the peso has been subject in the past to significant volatility, which may not have been proportionate to the inflation rate and may not be proportionate to the
inflation rate in the future. The value of the peso relative to the U.S. dollar increased by 4.5% in 2017, and decreased by 20.1% in 2016 and 16.9% in 2015.
The
Mexican government does not currently restrict the ability of Mexican companies or individuals to convert pesos into dollars or other currencies. While we do not expect the Mexican
government to impose any restriction or exchange control policies in the future, it is an area we closely monitor. We cannot assure you the Mexican government will maintain its current policies with
regard to the peso or that the peso's value will not fluctuate significantly in the future. The imposition of exchange control policies could impair Minera Mexico's ability to obtain imported goods
and to meet its U.S. dollar-denominated obligations and could have an adverse effect on our business and financial condition.
Developments in the United States, Europe and emerging market countries may adversely affect the
Company business, our common stock price and our debt securities
.
The business and market value of securities of companies with significant operations in Peru and Mexico is, to varying degrees, affected by the
economic policies and market conditions in the United States, Europe and emerging market countries. Although economic policies and conditions in such countries may significantly differ from
economic conditions in Peru or Mexico, as the case may be, the business community reactions to developments in any of these countries may adversely effect the Company business or the market value or
trading price of the securities, including debt securities, of issuers that have significant operations in Peru or Mexico.
In
addition, in recent years economic conditions in Mexico have increasingly become correlated to U.S. economic conditions. Therefore, changes in economic policies and conditions in the
United States could also have a significant adverse effect on Mexican economic conditions, affecting our business, the price of our common stock or debt securities. In 2017, the
United States, Canada and Mexico began a discussion leading towards an update of the North American Free Trade Agreement ("NAFTA"). As of January 2018, six rounds of discussions
have taken place and more than thirty issues are being discussed.
We
cannot assure you that the market value or trading prices of our common stock and debt securities, will not be adversely affected by events in the United States or elsewhere,
including in emerging market countries.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 2. PROPERTIES
We were incorporated in Delaware in 1952. Our corporate offices in the United States are located at 1440 East Missouri Avenue Suite 160,
Phoenix, Arizona 85014. Our Phoenix telephone number is (602) 264-1375. Our corporate offices in Mexico are located in Mexico City and our corporate offices in Peru are located in Lima.
Our website is www.southerncoppercorp.com. We believe that our existing properties are in good condition and suitable for the conduct of our business.
REVIEW OF OPERATIONS
The
following maps set forth the locations of our principal mines, smelting facilities and refineries. We operate open-pit copper mines in the southern part of
Peruat Toquepala and Cuajoneand in Mexico, at La Caridad and Buenavista. We also operate five underground mines that produce zinc, copper, silver and gold, as well as a coal
mine and a coke oven.
EXTRACTION, SMELTING AND REFINING PROCESSES
Our
operations include open-pit and underground mining, concentrating, copper smelting, copper refining, copper rod production, solvent extraction/electrowinning
("SX-EW"), zinc refining, sulfuric acid production, molybdenum concentrate production and silver and gold refining. The extraction and production process are summarized below.
OPEN-PIT MINING
In
an open-pit mine, the production process begins at the mine pit, where waste rock, leaching ore and copper ore are drilled and blasted and then loaded onto
diesel-electric trucks by electric shovels. Waste is hauled to dump areas and leaching ore is hauled to leaching dumps. The ore to be milled is transported to the primary crushers.
UNDERGROUND MINING
In
an underground mine, the production process begins at the stopes, where copper, zinc and lead veins are drilled and blasted and the ore is hauled to the underground
crusher station. The crushed ore is then hoisted to the surface for processing.
CONCENTRATING
The
copper ore with a copper grade over 0.4% from the primary crusher or the copper, zinc and lead-bearing ore from the underground mines is transported to a
concentrator plant where gyratory
23
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crushers
break the ore into sizes no larger than three-quarter of an inch. The ore is then sent to a mill section where it is ground to the consistency of fine powder. The finely ground ore is mixed
with water and chemical reagents and pumped as a slurry to the flotation separator where it is mixed with certain chemicals. In the flotation separator, reagent solutions and air pumped into the
flotation cells cause the minerals to separate from the waste rock and bubble to the surface where they are collected and dried.
If
the bulk concentrated copper contains molybdenum, it is first processed in a molybdenum plant as described below under "Molybdenum Production."
COPPER SMELTING
Copper
concentrates are transported to a smelter, where they are smelted using a furnace, converter and anode furnace to produce either blister copper (which is in the
form of cakes with air pockets) or copper anodes (which are cleaned of air pockets). At the smelter, the concentrates are mixed with flux (a chemical substance intentionally included for high
temperature processing) and then sent to reverberatory furnaces producing copper matte and slag (a mixture of iron and other impurities). Copper matte contains approximately 65% copper. Copper matte
is then sent to the
converters, where the material is oxidized in two steps: (i) the iron sulfides in the matte are oxidized with silica, producing slag that is returned to the reverberatory furnaces, and
(ii) the copper contained in the matte sulfides is then oxidized to produce copper that, after casting, is called blister copper, containing approximately 98% to 99% copper, or anodes,
containing approximately 99.7% copper. Most of the blister and anode production is sent to the refinery and the remainder is sold to customers.
COPPER REFINING
Anodes
are suspended in tanks with a solution containing water, sulfuric acid and copper sulfate. A weak electrical current is passed through the anodes and chemical
solution and the dissolved copper is deposited on very thin starting sheets to produce copper cathodes containing approximately 99.99% copper. During this process, silver, gold and other metals (for
example, palladium, platinum and selenium), along with other impurities, settle on the bottom of the tank (anodic muds). This anodic mud is processed at a precious metal plant where selenium, silver
and gold are recovered.
COPPER ROD PLANT
To
produce copper rod, copper cathodes are first smelted in a furnace and then dosified in a casting machine. The dosified copper is then extruded and passed through a
cooling system that begins solidification of copper into a 60×50 millimeter copper bar. The resulting copper bar is gradually stretched in a rolling mill to achieve the desired diameter.
The rolled bar is then cooled and sprayed with wax as a preservation agent and collected into a rod coil that is compacted and sent to market.
SOLVENT EXTRACTION/ELECTROWINNING ("SX-EW")
A
complementary processing method is the leaching and SX-EW process. During the SX-EW process, low-grade sulfides ore and copper oxides are leached with sulfuric acid
to allow copper content recovery. The acid and copper solution is then agitated with a solvent that contains chemical additives that attract copper ions. As the solvent is lighter than water, it
floats to the surface carrying with it the copper content. The solvent is then separated using an acid solution, freeing the copper. The acid solution containing the copper is then moved to
electrolytic extraction tanks to produce copper cathodes.
24
Table of Contents
MOLYBDENUM PRODUCTION
Molybdenum
is recovered from copper-molybdenum concentrates produced at the concentrator. The copper-molybdenum concentrate is first treated with a thickener until it
becomes slurry with 60% solids. The slurry is then agitated in a chemical and water solution and pumped to the flotation separator. The separator creates a froth that carries molybdenum to the surface
but not the copper mineral (which is later filtered to produce copper concentrates containing approximately 27% copper). The molybdenum froth is skimmed off, filtered and dried to produce molybdenum
concentrates of approximately 58% contained molybdenum.
ZINC REFINING
Metallic
zinc is produced through electrolysis using zinc concentrates and zinc oxides. Sulfur is eliminated from the concentrates by roasting and the zinc oxide is
dissolved in sulfuric acid solution to eliminate solid impurities. The purified zinc sulfide solution is treated by electrolysis to produce refined zinc and to separate silver and gold, which are
recovered as concentrates.
SULFURIC ACID PRODUCTION
Sulfur
dioxide gases are produced in the copper smelting and zinc roasting processes. As a part of our environmental preservation program, we treat the sulfur dioxide
emissions at two of our Mexican plants and at our Peruvian processing facilities to produce sulfuric acid, some of which is, in turn, used for the copper leaching process, with the balance sold to
mining and fertilizer companies located principally in Mexico, Peru, United States and Chile.
SILVER AND GOLD REFINING
Silver
and gold are recovered from copper, zinc and lead concentrates in the smelters and refineries, and from slimes through electrolytic refining.
KEY PRODUCTION CAPACITY DATA
All
production facilities are owned by us. The following table sets forth as of December 31, 2017, the locations of production facilities by reportable segment,
the processes used, as well as the key production and capacity data for each location:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility Name
|
|
Location
|
|
Process
|
|
Nominal Capacity(1)
|
|
2017
Production
|
|
2017 Capacity
Use(4)
|
|
PERUVIAN OPEN-PIT UNIT
|
|
|
|
|
|
|
|
|
|
|
|
Mining Operations
|
|
|
|
|
|
|
|
|
|
|
|
Cuajone open-pit mine
|
|
Cuajone (Peru)
|
|
Copper ore milling and recovery, copper and molybdenum concentrate production
|
|
90.0 ktpdore milled
|
|
|
82.4
|
|
|
91.5
|
%
|
Toquepala open-pit mine
|
|
Toquepala (Peru)
|
|
Copper ore milling and recovery, copper and molybdenum concentrate production
|
|
60.0 ktpdore milled
|
|
|
57.1
|
|
|
95.2
|
%
|
Toquepala SX-EW plant
|
|
Toquepala (Peru)
|
|
Leaching, solvent extraction and cathode electrowinning
|
|
56.0 ktpyrefined
|
|
|
25.1
|
|
|
44.8
|
%
|
Processing Operations
|
|
|
|
|
|
|
|
|
|
|
|
Ilo copper smelter
|
|
Ilo (Peru)
|
|
Copper smelting, blister, anodes production
|
|
1,200.0 ktpyconcentrate feed
|
|
|
1,153.5
|
|
|
96.1
|
%
|
Ilo copper refinery
|
|
Ilo (Peru)
|
|
Copper refining
|
|
280 ktpyrefined cathodes
|
|
|
291.4
|
|
|
104.1
|
%
|
Ilo acid plants
|
|
Ilo (Peru)
|
|
Sulfuric acid
|
|
1,050 ktpysulfuric acid
|
|
|
1,119.6
|
|
|
106.6
|
%
|
Ilo precious metals refinery
|
|
Ilo (Peru)
|
|
Slime recovery & processing, gold & silver refining
|
|
320 tpy
|
|
|
372.6
|
|
|
116.4
|
%
|
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Table of Contents
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|
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|
|
|
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|
|
Facility Name
|
|
Location
|
|
Process
|
|
Nominal Capacity(1)
|
|
2017
Production
|
|
2017 Capacity
Use(4)
|
|
MEXICAN OPEN-PIT UNIT
|
|
|
|
|
|
|
|
|
|
|
|
Mining Operations
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|
|
|
|
|
|
|
|
|
|
|
Buenavista open-pit mine Concentrator 1
|
|
Sonora (Mexico)
|
|
Copper ore milling & recovery, copper concentrate production
|
|
82.0 ktpdmilling
|
|
|
81.8
|
|
|
99.7
|
%
|
Buenavista open-pit mine Concentrator 2
|
|
Sonora (Mexico)
|
|
Copper ore milling & recovery, copper concentrate production
|
|
100.0 ktpdmilling
|
|
|
107.6
|
|
|
107.6
|
%
|
Buenavista SX-EW I plant
|
|
Sonora (Mexico)
|
|
Leaching, solvent extraction & refined cathode electrowinning
|
|
11.0 ktpyrefined
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|
|
|
|
|
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%
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Buenavista SX-EW II plant
|
|
Sonora (Mexico)
|
|
Leaching, solvent extraction & refined cathode electrowinning
|
|
43.8 ktpyrefined
|
|
|
11.2
|
|
|
25.5
|
%
|
Buenavista SX-EW III plant
|
|
Sonora (Mexico)
|
|
Leaching, solvent extraction & refined cathode electrowinning
|
|
120.0 ktpyrefined
|
|
|
100.6
|
|
|
83.8
|
%
|
La Caridad open-pit mine
|
|
Sonora (Mexico)
|
|
Copper ore milling & recovery, copper & molybdenum concentrate production
|
|
94.5 ktpdmilling
|
|
|
94.9
|
|
|
100.4
|
%
|
La Caridad SX-EW plant
|
|
Sonora (Mexico)
|
|
Leaching, solvent extraction & cathode electrowinning
|
|
21.9 ktpyrefined
|
|
|
28.4
|
|
|
129.7
|
%
|
Processing Operations
|
|
|
|
|
|
|
|
|
|
|
|
La Caridad copper smelter
|
|
Sonora (Mexico)
|
|
Concentrate smelting, anode production
|
|
1,000 ktpyconcentrate feed
|
|
|
998.0
|
|
|
99.8
|
%
|
La Caridad copper refinery
|
|
Sonora (Mexico)
|
|
Copper refining
|
|
300 ktpy copper cathode
|
|
|
228.0
|
|
|
76.0
|
%
|
La Caridad copper rod plant
|
|
Sonora (Mexico)
|
|
Copper rod production
|
|
150 ktpy copper rod
|
|
|
133.0
|
|
|
88.7
|
%
|
La Caridad precious metals refinery
|
|
Sonora (Mexico)
|
|
Slime recovery & processing, gold & silver refining
|
|
1.8 ktpyslime
|
|
|
1.0
|
|
|
55.6
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%
|
La Caridad sulfuric acid plant
|
|
Sonora (Mexico)
|
|
Sulfuric acid
|
|
1,565.5 ktpysulfuric acid
|
|
|
976.4
|
|
|
62.4
|
%
|
IMMSA UNIT
|
|
|
|
|
|
|
|
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|
|
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Underground mines
|
|
|
|
|
|
|
|
|
|
|
|
Charcas
|
|
San Luis Potosi (Mexico)
|
|
Copper, zinc, lead milling, recovery & concentrate production
|
|
1,460 ktpyore milled
|
|
|
1,249.52
|
|
|
85.6
|
%
|
San Martin(2)
|
|
Zacatecas (Mexico)
|
|
Lead, zinc, copper & silver mining, milling recovery & concentrate production
|
|
1,606 ktpyore milled
|
|
|
|
|
|
|
%
|
Santa Barbara
|
|
Chihuahua (Mexico)
|
|
Lead, copper and zinc mining & concentrates production
|
|
2,190 ktpyore milled
|
|
|
1,337.4
|
|
|
61.1
|
%
|
Santa Eulalia
|
|
Chihuahua (Mexico)
|
|
Lead & zinc mining and milling recovery & concentrate production
|
|
547.5 ktpyore milled
|
|
|
283.9
|
|
|
51.9
|
%
|
Taxco(2)
|
|
Guerrero (Mexico)
|
|
Lead, zinc silver & gold mining recovery & concentrate production
|
|
730 ktpyore milled
|
|
|
|
|
|
|
%
|
Nueva Rosita coal & coke complex(3)
|
|
Coahuila (Mexico)
|
|
Clean coal production
|
|
900 ktpy clean coal
|
|
|
66.0
|
|
|
7.3
|
%
|
|
|
|
|
|
|
100 ktpy coke
|
|
|
45.0
|
|
|
45.0
|
%
|
Processing Operations
|
|
|
|
|
|
|
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San Luis Potosi zinc refinery
|
|
San Luis Potosi (Mexico)
|
|
Zinc concentrates refining
|
|
105.0 ktpy zinc cathode
|
|
|
104.4
|
|
|
99.4
|
%
|
San Luis Potosi sulfuric acid plant
|
|
San Luis Potosi (Mexico)
|
|
Sulfuric acid
|
|
180.0 ktpy sulfuric acid
|
|
|
180.6
|
|
|
100.3
|
%
|
ktpd =
thousands of tons per day
ktpy = thousands of tons per year
Tpy = tons per year
-
(1)
-
Our
estimates of actual capacity under normal operating conditions with allowance for normal downtime for repairs and maintenance and based on the average metal
content for the relevant period.
-
(2)
-
The
Taxco and San Martin mines have been on strike since July 2007.
-
(3)
-
At
December 31, 2017, the coal reserves for the Nueva Rosita coal plant were 94.9 million tons with average sulfur content of 1.38% and a BTU content
of 10,022 per pound.
-
(4)
-
In
some cases, real production exceeds the nominal capacity due to higher grades and recovery rates.
26
Table of Contents
PROPERTY BOOK VALUE
At
December 31, 2017, net book values of property are as follows (in millions):
|
|
|
|
|
Peruvian operations:
|
|
|
|
|
Cuajone
|
|
$
|
453.5
|
|
Toquepala
|
|
|
861.0
|
|
Tia Maria project
|
|
|
353.9
|
|
Ilo and other support facilities
|
|
|
612.6
|
|
Construction in progress
|
|
|
1,518.9
|
|
|
|
|
|
|
Total
|
|
$
|
3,799.9
|
|
|
|
|
|
|
Mexican open-pit operations:
|
|
|
|
|
Buenavista
|
|
$
|
3,591.8
|
|
La Caridad
|
|
|
785.1
|
|
Construction in progress
|
|
|
271.6
|
|
|
|
|
|
|
Total
|
|
$
|
4,648.5
|
|
|
|
|
|
|
Mexican IMMSA unit:
|
|
|
|
|
San Luis Potosi
|
|
$
|
97.3
|
|
Zinc electrolytic refinery
|
|
|
79.9
|
|
Charcas
|
|
|
62.3
|
|
San Martin
|
|
|
28.2
|
|
Santa Barbara
|
|
|
65.9
|
|
Taxco
|
|
|
2.4
|
|
Santa Eulalia
|
|
|
30.2
|
|
Nueva Rosita
|
|
|
8.7
|
|
Construction in progress and other facilities
|
|
|
58.9
|
|
|
|
|
|
|
Total
|
|
$
|
433.8
|
|
|
|
|
|
|
Other property:
|
|
|
|
|
El Pilar
|
|
$
|
86.7
|
|
Mexicana del Arco
|
|
|
42.7
|
|
|
|
|
|
|
Total
|
|
$
|
129.4
|
|
|
|
|
|
|
Mexican administrative offices
|
|
$
|
88.0
|
|
Total Southern Copper Corporation
|
|
$
|
9,099.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
Table of Contents
SUMMARY OPERATING DATA
The
following table sets out certain operating data underlying our financial and operating information for each of the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
|
|
Year Ended December 31,
|
|
2017 - 2016
|
|
2016 - 2015
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Volume
|
|
%
|
|
Volume
|
|
%
|
|
COPPER
(thousand pounds)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peru open-pit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toquepala
|
|
|
271,056
|
|
|
256,894
|
|
|
263,291
|
|
|
14,162
|
|
|
5.5
|
%
|
|
(6,397
|
)
|
|
(2.4
|
)%
|
Cuajone
|
|
|
348,562
|
|
|
377,978
|
|
|
392,835
|
|
|
(29,416
|
)
|
|
(7.8
|
)%
|
|
(14,857
|
)
|
|
(3.8
|
)%
|
SX-EW Toquepala
|
|
|
55,320
|
|
|
54,851
|
|
|
53,279
|
|
|
469
|
|
|
0.9
|
%
|
|
1,572
|
|
|
3.0
|
%
|
Mexico open-pit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
La Caridad
|
|
|
234,287
|
|
|
231,373
|
|
|
228,974
|
|
|
2,914
|
|
|
1.3
|
%
|
|
2,399
|
|
|
1.0
|
%
|
Buenavista
|
|
|
703,072
|
|
|
696,681
|
|
|
357,157
|
|
|
6,391
|
|
|
0.9
|
%
|
|
339,524
|
|
|
95.1
|
%
|
SX-EW La Caridad
|
|
|
62,586
|
|
|
62,406
|
|
|
59,883
|
|
|
180
|
|
|
0.3
|
%
|
|
2,523
|
|
|
4.2
|
%
|
SX-EW Buenavista
|
|
|
246,426
|
|
|
289,705
|
|
|
270,268
|
|
|
(43,279
|
)
|
|
(14.9
|
)%
|
|
19,437
|
|
|
7.2
|
%
|
IMMSA unit
|
|
|
12,094
|
|
|
14,171
|
|
|
12,330
|
|
|
(2,077
|
)
|
|
(14.7
|
)%
|
|
1,841
|
|
|
14.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mined
|
|
|
1,933,403
|
|
|
1,984,059
|
|
|
1,638,017
|
|
|
(50,656
|
)
|
|
(2.6
|
)%
|
|
346,042
|
|
|
21.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Smelted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peru open-pit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blister Ilo
|
|
|
3,953
|
|
|
2,048
|
|
|
6,174
|
|
|
1,905
|
|
|
93.0
|
%
|
|
(4,126
|
)
|
|
(66.8
|
)%
|
Anodes Ilo
|
|
|
762,460
|
|
|
711,137
|
|
|
747,131
|
|
|
51,323
|
|
|
7.2
|
%
|
|
(35,994
|
)
|
|
(4.8
|
)%
|
Mexico open-pit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anodes La Caridad
|
|
|
595,717
|
|
|
590,492
|
|
|
564,938
|
|
|
5,225
|
|
|
0.9
|
%
|
|
25,554
|
|
|
4.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Smelted
|
|
|
1,362,130
|
|
|
1,303,677
|
|
|
1,318,243
|
|
|
58,453
|
|
|
4.5
|
%
|
|
(14,556
|
)
|
|
(1.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peru Open-pit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cathodes Ilo
|
|
|
642,367
|
|
|
595,652
|
|
|
618,587
|
|
|
46,715
|
|
|
7.8
|
%
|
|
(22,935
|
)
|
|
(3.7
|
)%
|
SX-EW Toquepala
|
|
|
55,320
|
|
|
54,851
|
|
|
53,279
|
|
|
469
|
|
|
0.9
|
%
|
|
1,572
|
|
|
3.0
|
%
|
Mexico Open-pit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cathodes La Caridad
|
|
|
502,783
|
|
|
494,175
|
|
|
470,369
|
|
|
8,608
|
|
|
1.7
|
%
|
|
23,806
|
|
|
5.1
|
%
|
SX-EW La Caridad
|
|
|
62,586
|
|
|
62,406
|
|
|
59,883
|
|
|
180
|
|
|
0.3
|
%
|
|
2,523
|
|
|
4.2
|
%
|
SX-EW Buenavista
|
|
|
246,426
|
|
|
289,705
|
|
|
270,268
|
|
|
(43,279
|
)
|
|
(14.9
|
)%
|
|
19,437
|
|
|
7.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Refined
|
|
|
1,509,482
|
|
|
1,496,789
|
|
|
1,472,386
|
|
|
12,693
|
|
|
0.8
|
%
|
|
24,403
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rod Mexico Open-pitLa Caridad
|
|
|
293,435
|
|
|
318,604
|
|
|
304,634
|
|
|
(25,169
|
)
|
|
(7.9
|
)%
|
|
13,970
|
|
|
4.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SILVER
(thousand ounces)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peru Open-pit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toquepala
|
|
|
1,779
|
|
|
1,586
|
|
|
1,613
|
|
|
193
|
|
|
12.2
|
%
|
|
(27
|
)
|
|
(1.7
|
)%
|
Cuajone
|
|
|
2,390
|
|
|
2,178
|
|
|
2,269
|
|
|
212
|
|
|
9.7
|
%
|
|
(91
|
)
|
|
(4.0
|
)%
|
Mexico Open-pit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
La Caridad
|
|
|
2,009
|
|
|
1,967
|
|
|
2,044
|
|
|
42
|
|
|
2.1
|
%
|
|
(77
|
)
|
|
(3.8
|
)%
|
Buenavista
|
|
|
4,988
|
|
|
4,819
|
|
|
2,367
|
|
|
169
|
|
|
3.5
|
%
|
|
2,452
|
|
|
103.5
|
%
|
IMMSA unit
|
|
|
4,760
|
|
|
5,622
|
|
|
4,995
|
|
|
(862
|
)
|
|
(15.3
|
)%
|
|
627
|
|
|
12.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mined
|
|
|
15,926
|
|
|
16,172
|
|
|
13,288
|
|
|
(246
|
)
|
|
(1.5
|
)%
|
|
2,884
|
|
|
21.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PeruIlo
|
|
|
3,953
|
|
|
3,295
|
|
|
3,408
|
|
|
658
|
|
|
20.0
|
%
|
|
(113
|
)
|
|
(3.3
|
)%
|
MexicoLa Caridad
|
|
|
7,152
|
|
|
8,260
|
|
|
7,659
|
|
|
(1,108
|
)
|
|
(13.4
|
)%
|
|
601
|
|
|
7.9
|
%
|
IMMSA unit
|
|
|
2,583
|
|
|
3,641
|
|
|
2,571
|
|
|
(1,058
|
)
|
|
(29.0
|
)%
|
|
1,070
|
|
|
41.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Refined
|
|
|
13,688
|
|
|
15,196
|
|
|
13,638
|
|
|
(1,508
|
)
|
|
(9.9
|
)%
|
|
1,558
|
|
|
11.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MOLYBDENUM
(thousand pounds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toquepala
|
|
|
9,224
|
|
|
13,942
|
|
|
17,469
|
|
|
(4,718
|
)
|
|
(33.8
|
)%
|
|
(3,527
|
)
|
|
(20.2
|
)%
|
Cuajone
|
|
|
8,259
|
|
|
8,655
|
|
|
9,797
|
|
|
(396
|
)
|
|
(4.6
|
)%
|
|
(1,142
|
)
|
|
(11.7
|
)%
|
Buenavista
|
|
|
7,636
|
|
|
3,472
|
|
|
2,071
|
|
|
4,164
|
|
|
119.9
|
%
|
|
1,401
|
|
|
67.7
|
%
|
La Caridad
|
|
|
21,900
|
|
|
21,850
|
|
|
22,136
|
|
|
50
|
|
|
0.2
|
%
|
|
(286
|
)
|
|
(1.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mined
|
|
|
47,019
|
|
|
47,919
|
|
|
51,473
|
|
|
(900
|
)
|
|
(1.9
|
)%
|
|
(3,554
|
)
|
|
(6.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ZINC
(thousand pounds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mined IMMSA
|
|
|
151,380
|
|
|
163,107
|
|
|
136,447
|
|
|
(11,727
|
)
|
|
(7.2
|
)%
|
|
26,630
|
|
|
19.5
|
%
|
Refined IMMSA
|
|
|
230,166
|
|
|
233,894
|
|
|
221,732
|
|
|
(3,728
|
)
|
|
(1.6
|
)%
|
|
12,162
|
|
|
5.5
|
%
|
28
Table of Contents
SLOPE STABILITY:
Peruvian Operations
The
Toquepala and Cuajone pits are approximately 825 meters and 930 meters deep, respectively. Under the present mine plan configuration the Toquepala pit will reach a
depth of 1,635 meters and the Cuajone pit will reach a depth of 1,290 meters. The deepening pits present us with a number of geotechnical challenges. Perhaps the foremost concern is the possibility of
slope failure, a possibility that all open-pit mines face. In the past, in order to maintain slope stability, we
have decreased pit slope angles, installed additional or duplicate haul road access, and increased stripping requirements. We have also responded to hydrological conditions and removed material
displaced by slope failures. To meet the geotechnical challenges relating to slope stability of the open-pit mines, we have taken the following steps:
In
the late 1990s, we hosted round table meetings in Vancouver, B.C. with a group of recognized slope stability and open-pit mining specialists. The agenda for these meetings was
principally a review of pit design for mines with greater than 700 meter depth. The discussions included practices for monitoring, data collection and blasting processes.
Based
on the concepts defined at the Vancouver meetings, we initiated slope stability studies to define the mining of reserves by optimum design. These studies were performed by outside
consultants and included slope stability appraisals, evaluation of the numerical modeling, slope performance and inter-ramp angle design and evaluation of hydrological conditions.
The
studies were completed in 2000 and we believe we implemented the study recommendations. One of the major changes implemented was slope angle reduction at both mines, at Toquepala by
an average of five degrees and at Cuajone by an average of seven degrees. Although this increased the waste included in the mineable reserve calculation, it also improved the stability of the pits.
Since
1998, a wall depressurization program has been in place in both pits. This consists of a horizontal drilling program, which improves drainage thereby reducing saturation and
increasing wall stability. Additionally, a new blasting control program was put in place, implementing vibration monitoring and blasting designs of low punctual energy and pre-split techniques. Also a
new slope monitoring system was implemented using reflection prisms, deformation inclinometers and piezometers for water level control, as well as real-time robotic monitoring equipment.
Toquepala
:
In
2007, we installed 20 meter wide geotechnical berms every 10 benches at the Toquepala mine. We believe this will further strengthen the stability of the Toquepala
pit. In October 2012, two interferometric radars were put in place to monitor slope stability at the Toquepala mine, and in September 2013, new full monitoring software (FMS360) was installed. These
systems improve the reliability of instrumentation, the information quality for assessing the behavior of the slopes and anticipates the risks of instability.
In
2013, a mining consulting group began a study of dump stability at the Toquepala mine. This study assessed the current stability of the dumps and is developing a geotechnical campaign
to obtain
information to assess the stability of the future and final stages of the dumps. In 2016, the stability study was resumed by executing geophysical test and test pits for the characterization of the
dumps. The execution of sonic perforations and complementary geophysical tests are currently pending. On December 2016, the consultants also presented the report
"Slope
Stability Analysis in Deposits of Waste and Leachable Material".
In
2016, the mining consultants presented the final report "
Physical Stability of the Quebrada Honda tailings dam
". This study consisted
in the development of geotechnical investigations, static,
29
Table of Contents
seismic
and post-seismic stability analysis, filtration analysis, deformation analysis, liquefaction potential analysis and dynamic analysis.
In
2016, as part of the slope stability upgrade study, a geotechnical and hydrological oriented drill program of 3,470 meters was executed at the Toquepala mine. This program was
conducted in order to complement the study and to get a better understanding of the behavior of the rock mass. The geotechnical drilling program involved 11 diamond drill holes, six geotechnical
drills and five hydrogeological drills, all of them with geological and geotechnical logging. During the execution of these hydrogeological drills, permeability tests in the rock were executed as well
as slug tests and constant load tests. Additionally, instrumentation was implemented with five vibrating wire piezometers for the monitoring of water table and to give support to the hydrogeological
model. Also in 2016, the external mining consultants began the report for phase three of this study, which was concluded in 2017. They submitted and updated the block models of inter-ramp angles, the
model of rock mass, the hydrogeological model and the 3D structural model. In addition, fieldwork continued on the
"Slope Stability Analysis in Deposits of Waste and Leachable
Material"
study by executing geophysical tests, sampling and laboratory tests of soil mechanics. In recent years, we have destined efforts for the development of stability
studies of slopes of the pit, dumps and leachable deposits and tailings; thus guaranteeing the safety of personnel and equipment, the continuity of the operations, and complying with Peruvian
regulations.
Cuajone
:
At
the Cuajone mine, in 2007 in order to minimize the damage to the slopes caused by production blast vibrations, blasting control using three pre-split drills was
implemented. Also, the slope monitoring system with reflection prisms has been replaced by a system using slope monitoring radar. In February 2012, the first radar equipment was put in service
followed in August 2013 with the second radar installation and a geotechnical surveillance camera was added. This system
improved the reliability and continuity of monitoring, improved the quality of information used to evaluate the performance of the slopes and helped better anticipate the risk of instability. The
sub-surface deformation and the water level are still monitored with inclinometers and piezometers. In September 2012, we completed a program of oriented geotechnical drilling totaling 17,938 meters,
and in May 2013 we completed a program of vertical geotechnical drilling totaling 2,814 meters, with hydraulic tests performed on rock and subsequently instrumented with inclinometers/piezometers. The
geotechnical and hydraulic information obtained from the two programs will be used in the development of a geotechnical study for the new 15 year mine development plan (2015-2029). Also during
2013, we drilled 772 meters of sub-horizontal holes in order to drain the east slope of the pit. The geotechnical study for the new 15-year mine development plan was completed at the end of 2015 and
the result of this study is the increase by an average of three degrees of the inter ramp angle and include 40 meters wide geotechnical berms for inter ramp heights above 150 meters. This study also
contains recommendations for improving the stability of the pit slopes.
In
2013, the Board of Directors approved a project to improve slope stability at the south area of the Cuajone mine, which will remove approximately 148 million tons of waste
material in order to improve the mine design without reducing our actual production level. As of December 31, 2017, 86.8 million tons of waste material have been removed. For further
information see Item 7 "Management Discussion and AnalysisCapital Investment Program."
In
2017, we installed three vibration monitoring stations and ten digital extensometers to monitor surface deformations on waste dumps in real time. We also completed the detailed
engineering for the construction of the coronation channel in the west Torata waste dump.
To
increase the possibility of mining in the event of a slide, we have provided for two extraction ramps for each open-pit mine. While these measures cannot guarantee that a slope
failure will not
30
Table of Contents
occur,
we believe that our mining practices are sound and that the steps taken and the ongoing reviews performed are a prudent methodology for open-pit mining.
Mexican operations
In
2004, our 15-year mine plan study for the La Caridad mine was awarded to an independent consulting firm to conduct a geotechnical evaluation. The purpose of the plan
was to
develop a program of optimum bench design and inter-ramp slope angles for the open-pit. The results of the evaluation presented by the consultants included a recommendation of a maximum average bench
face angle of 72 degrees. Additionally, single benching was recommended for the upper sections of the west, south and east walls of the main pit. Likewise, double benching was recommended for the
lower levels of the main pit and single benching for the upper slope segments that consist of either alluvial material, mine waste dumps or mineralized stockpile material. Alternatively, slopes in
these types of materials, may be designed with an overall 37 degree slope. The geostructural and geotechnical parameters recommended were applied in the pit design for the new life of the mine plan
for La Caridad mine prepared in 2015. This mine plan replaced the 15-year mine plan prepared in 2010. However, since final pit limits have not been yet established at La Caridad, all current pit walls
are effectively working slopes. Geostructural and geotechnical data collected at the open-pit mine from cell-mapping and oriented-core drilling databases provided the basis for the geotechnical
evaluation and recommendations. We continue to collect new information related to geotechnical data and other geology features from the mine pit and diamond drill hole, in order to ensure the
structural security and also to improve the geotechnical data base for future studies.
At
the Buenavista mine, we are following the recommendations of a geotechnical evaluation of design slope for the 15-year pit plan. This evaluation was prepared by an independent mine
consulting firm. This evaluation included the determination of optimum pit slope design angles and bench design parameters for the proposed mine plan. The objective of the study was: (1) to
determine optimum inter-ramp slope angles and bench design parameters for the 15-year plan and (2) to identify and analyze any potential major instability that could adversely impact mine
operation. In 2012, we installed a radar system to monitor the walls of the mine.
The
following recommendations were made for the Buenavista mine: inter-ramp slope design angles for the 15-year pit plan, for all of the 21 design sectors, defined on a rock-fabric-based
catch bench analysis, using double bench, can range from 48° and 55°, and the inter-ramp slope angles are based on geometries that resulted from the back-break analysis using
80% reliability of achieving the required 7.5 meter catch bench width for a single bench configuration and 10.6 meter catch bench width for a double bench configuration. Preliminary observations
suggest the 15-year pit walls may be relative free-draining, the back-break analysis assumed depressurized conditions of mine benches, and the inter-ramp stability analysis were performed for both,
saturated and depressurized conditions.
A
pit dewatering/depressurization plan for the Buenavista mine was also recommended to address the issues of open-pit drainage, dewatering plan and future slope depressurization.
Phase I of the geohydrological study was completed by an independent consultant. The analysis included a preliminary assessment and work plan implementations.
In
2011, five wells for extraction and monitoring were drilled close to the mine. Also, we began a drilling program to monitor possible water filtration beyond the limits of the open-pit
mine. All the information obtained from these well drilling programs has been analyzed and included in the hydrologic model. The open-pit dewatering program from the bottom benches also continued
during 2012 with a drilling program of 3,797 meters in several monitoring wells in order to allow us to continue with the current mining plan.
In
2013, Buenavista continued the drilling program monitoring the extraction wells in the area of Increment (Phase) five of the mine and beyond the current limits of the open pit mine.
31
Table of Contents
During 2013, the program to dewater the Buenavista pit bottom was continued in accordance with the short and medium term mine plans. Pumping from sumps located in
Increment five, permitted mining of high grade copper blocks. Concurrent with this operational task, a geophysical study was conducted to determine the best locations for water extraction wells to
control the inflow of water to the pit bottom and thus allow us to continue our mining operations. The water extracted is being used for various purposes, including road irrigation for dust
mitigation. The geophysical investigation also permitted the location of underground workings and the filtration and seepage through fractures.
A
total of 7,339 meters were drilled during 2013 for 30 extraction wells, three of these wells are located in the area of Increment (Phase) five. The rest were drilled at various
locations outside of the current open pit mine limit.
In
2014, we continued collecting new geotechnical information from two exploration drilling projects; this data is available to analyze the geotechnical data base for new studies in
accordance with slope angle for the open pit excavations. In the free face benches at the open pit mine operations, the cell-mapping were prepared to increment the geotechnical data base. Following
the recommendations of geotechnical evaluation we continued monitoring the walls using the radar system.
Various
studies are now being conducted by outside specialized consultants in order to establish long-range mine water management objectives and to implement recommendations for the
efficient use of this resource.
METAL PRODUCTION BY SEGMENTS
Set
forth below are descriptions of the operations and other information relating to the operations included in each of our three segments.
PERUVIAN OPERATIONS
Our
Peruvian segment operations include the Cuajone and Toquepala mine complexes and the smelting and refining plants, industrial railroad which links Ilo, Toquepala
and Cuajone and the port facilities.
32
Table of Contents
Following
is a map indicating the approximate location of, and access to, our Cuajone and Toquepala mine complexes, as well as our Ilo processing facilities:
We
have ongoing maintenance and improvement programs to ensure the satisfactory performance of our equipment. We believe all our Peruvian plant's equipment is in good physical condition
and suitable for our operations.
Cuajone
Our
Cuajone operations consist of an open-pit copper mine and a concentrator located in southern Peru, 30 kilometers from the city of Moquegua and 840 kilometers from
Lima, at an altitude of 3,430 meters above sea level. Access to the Cuajone property is by plane from Lima to Tacna (1:40 hours) and then by highway to Moquegua and Cuajone (3:30 hours).
The concentrator has a milling capacity of 90,000 tons per day. Overburden removal commenced in 1970 and ore production commenced in 1976. Our Cuajone operations utilize a conventional open-pit mining
method to collect copper ore for further processing at the concentrator.
33
Table of Contents
The
table below sets forth 2017, 2016 and 2015 production information for our Cuajone operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
2017 - 2016
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Volume
|
|
%
|
|
Mine annual operating days
|
|
|
|
|
365
|
|
|
366
|
|
|
365
|
|
|
|
|
|
|
|
Mine
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ore mined
|
|
(kt)
|
|
|
29,769
|
|
|
30,825
|
|
|
30,956
|
|
|
(1,056
|
)
|
|
(3.4
|
)%
|
Copper grade
|
|
(%)
|
|
|
0.617
|
|
|
0.649
|
|
|
0.666
|
|
|
(0.032
|
)
|
|
(4.9
|
)%
|
Leach material mined
|
|
(kt)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leach material grade
|
|
(%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stripping ratio
|
|
(x)
|
|
|
4.01
|
|
|
4.68
|
|
|
5.19
|
|
|
(0.67
|
)
|
|
(14.3
|
)%
|
Total material mined
|
|
(kt)
|
|
|
149,265
|
|
|
175,009
|
|
|
191,651
|
|
|
(25,744
|
)
|
|
(14.7
|
)%
|
Concentrator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total material milled
|
|
(kt)
|
|
|
29,751
|
|
|
30,681
|
|
|
31,093
|
|
|
(930
|
)
|
|
(3.0
|
)%
|
Copper recovery
|
|
(%)
|
|
|
86.10
|
|
|
86.12
|
|
|
86.09
|
|
|
(0.02
|
)
|
|
(0.0
|
)%
|
Copper concentrate
|
|
(kt)
|
|
|
607.5
|
|
|
656.5
|
|
|
694.6
|
|
|
(49.0
|
)
|
|
(7.4
|
)%
|
Copper in concentrate
|
|
(kt)
|
|
|
158.1
|
|
|
171.4
|
|
|
178.2
|
|
|
(13.3
|
)
|
|
(7.8
|
)%
|
Copper concentrates average grade
|
|
(%)
|
|
|
26.03
|
|
|
26.11
|
|
|
25.65
|
|
|
(0.08
|
)
|
|
(0.3
|
)%
|
Molybdenum
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Molybdenum grade
|
|
(%)
|
|
|
0.019
|
|
|
0.019
|
|
|
0.021
|
|
|
|
|
|
|
|
Molybdenum recovery
|
|
(%)
|
|
|
66.62
|
|
|
68.60
|
|
|
69.48
|
|
|
(1.98
|
)
|
|
(2.9
|
)%
|
Molybdenum concentrate
|
|
(kt)
|
|
|
6.9
|
|
|
7.1
|
|
|
8.2
|
|
|
(0.2
|
)
|
|
(3.1
|
)%
|
Molybdenum concentrate average grade
|
|
(%)
|
|
|
54.16
|
|
|
55.01
|
|
|
53.99
|
|
|
(0.85
|
)
|
|
(1.5
|
)%
|
Molybdenum in concentrate
|
|
(kt)
|
|
|
3.7
|
|
|
3.9
|
|
|
4.4
|
|
|
(0.2
|
)
|
|
(4.6
|
)%
|
-
Key:
-
kt =
thousand tons
x =
Stripping ratio obtained dividing waste plus leachable material by ore mined.
Copper
and molybdenum grades are referred to as total copper grade and total molybdenum grade, respectively.
Geology
The Cuajone porphyry copper deposit is located on the western flank of Cordillera Occidental, in the southern-most Andes Mountains of Peru. The
deposit is part of a mineral district that contains additional known deposits, Toquepala, Quellaveco and Cerro Verde. The copper mineralization at Cuajone is typical of porphyry copper deposits and it
can also be obtained molybdenum.
The
Cuajone deposit is located approximately 30 kilometers north-west from the Toquepala deposit and is part of the Toquepala Group dated approximately 50 to 100 million years
(Upper Cretaceous to Lower Tertiary). These rocks, part of the Toquepala Group, have been intruded by magmatic pulses between 50 and 70 million years, which some of them originated the Cuajone
mineralization. Covering the previous sequence, there are the postmineral volcanics (Miocene) that partially cover the deposit. The deposit contains 43 rock types including, pre-mineral rocks,
basaltic andesite, porphyritic rhyolite, Toquepala dolerite and intrusive rocks, including diorite, porphyritic latite, breccias and dikes. In addition, the following post-mineral rocks are present:
the Huaylillas and Chuntacala formation that have been formed by conglomerates, tuffs sequence, traquites and agglomerates. These formations date nine to 23 million years. There is also the
occurrence of Quaternary rocks formed by alluvial and colluvial mainly located in slopes of hills and streams.
34
Table of Contents
The
mineralogy is simple and is evenly distributed. It is mainly composed of copper minerals and iron such as chalcopyrite (CuFeS
2
), bornite
(Cu
5
FeS
4
), pyrite (FeS
2
), chalcosine (Cu
2
S) and molybdenite (MoS
2
) with occasional presence of galena, sphalerite and tetraedrite.
Mine exploration
Exploration activities during the drill campaign in 2017 were as follows:
|
|
|
|
|
|
|
|
|
Studies
|
|
Meters
|
|
Holes
|
|
Notes
|
Infill drilling
|
|
|
3,623
|
|
|
12
|
|
To obtain additional information to improve confidence in our block model.
|
Geotechnical
|
|
|
362
|
|
|
2
|
|
To confirm the continuity of major structures.
|
Concentrator
Our Cuajone operations use state-of-the-art computer monitoring systems at the concentrator, the crushing plant and the flotation circuit in
order to coordinate inflows and optimize operations. Material with a copper grade over 0.35% is loaded onto rail cars and sent to the milling circuit, where giant rotating crushers reduce the size of
the rocks to approximately one-half of an inch. The ore is then sent to the ball mills, which grind it to the consistency of fine powder. The finely ground powder is agitated in a water and reagents
solution and is then transported to flotation cells. Air is pumped into the cells to produce foam for floating the copper and molybdenum minerals, but separating waste material called tailings. This
copper-molybdenum bulk concentrate is then treated by inverse flotation where molybdenum is floated and copper is depressed. The copper concentrate is shipped by rail to the smelter at Ilo and the
molybdenum concentrate is packaged for shipment to customers. Sulfides under 0.35% copper are considered waste.
Tailings
are sent to thickeners where water is recovered. The remaining tailings are sent to the Quebrada Honda dam, our principal tailings storage facility.
A
major mill expansion was completed in 1999 and the eleventh primary mill was put in operation in January 2008. In December 2013, the high pressure grinding roll was put in operation.
At the end of 2016, the Larox filter press for molybdenum concentrate began operations. The new overland primary crusher and a new tailings thickener are expected to start operations in early 2018.
Toquepala
Our
Toquepala operations consist of an open-pit copper mine and a concentrator. We also refine copper at the SX-EW facility through a leaching process. Toquepala is
located in southern Peru, 30 kilometers from Cuajone and 870 kilometers from Lima, at an altitude of 3,220 meters above sea level. Access is by plane from Lima to the city of Tacna (1:40 hours)
and then by the Pan-American highway to Camiara (1:20 hours) and by road to Toquepala (1 hour). The concentrator has a milling capacity of 60,000 tons per day. The SX-EW facility has a
production capacity of 56,000 tons per year of LME grade A copper cathodes. Overburden removal commenced in 1957 and ore production commenced in 1960. Our Toquepala operations utilize a conventional
open-pit mining method to collect copper ore for further processing in our concentrator.
35
Table of Contents
The
table below sets forth 2017, 2016 and 2015 production information for our Toquepala operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
2017 - 2016
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Volume
|
|
%
|
|
Mine annual operating days
|
|
|
|
|
365
|
|
|
366
|
|
|
365
|
|
|
|
|
|
|
|
Mine
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ore mined
|
|
(kt)
|
|
|
20,411
|
|
|
19,940
|
|
|
20,150
|
|
|
471
|
|
|
2.4
|
%
|
Copper grade
|
|
(%)
|
|
|
0.663
|
|
|
0.647
|
|
|
0.643
|
|
|
0.016
|
|
|
2.5
|
%
|
Leach material mined
|
|
(kt)
|
|
|
85,048
|
|
|
78,485
|
|
|
54,440
|
|
|
6,563
|
|
|
8.4
|
%
|
Leach material grade
|
|
(%)
|
|
|
0.201
|
|
|
0.191
|
|
|
0.158
|
|
|
0.01
|
|
|
5.2
|
%
|
Stripping ratio
|
|
(x)
|
|
|
8.98
|
|
|
9.48
|
|
|
8.58
|
|
|
(0.50
|
)
|
|
(5.3
|
)%
|
Total material mined
|
|
(kt)
|
|
|
203,778
|
|
|
209,064
|
|
|
193,013
|
|
|
(5,286
|
)
|
|
(2.5
|
)%
|
Concentrator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total material milled
|
|
(kt)
|
|
|
20,392
|
|
|
20,071
|
|
|
20,272
|
|
|
321
|
|
|
1.6
|
%
|
Copper recovery
|
|
(%)
|
|
|
90.94
|
|
|
89.73
|
|
|
91.62
|
|
|
1.21
|
|
|
1.4
|
%
|
Copper concentrate
|
|
(kt)
|
|
|
451.9
|
|
|
424.5
|
|
|
429.0
|
|
|
27.4
|
|
|
6.5
|
%
|
Copper in concentrate
|
|
(kt)
|
|
|
122.9
|
|
|
116.5
|
|
|
119.4
|
|
|
6.4
|
|
|
5.5
|
%
|
Copper concentrate average grade
|
|
(%)
|
|
|
27.21
|
|
|
27.45
|
|
|
27.84
|
|
|
(0.24
|
)
|
|
(0.9
|
)%
|
SX-EW plant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated leach recovery
|
|
(%)
|
|
|
24.62
|
|
|
25.29
|
|
|
25.88
|
|
|
(0.67
|
)
|
|
(2.7
|
)%
|
SX-EW cathode production
|
|
(kt)
|
|
|
25.1
|
|
|
24.8
|
|
|
24.2
|
|
|
0.3
|
|
|
1.2
|
%
|
Molybdenum
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Molybdenum grade
|
|
(%)
|
|
|
0.029
|
|
|
0.043
|
|
|
0.054
|
|
|
(0.014
|
)
|
|
(32.6
|
)%
|
Molybdenum recovery
|
|
(%)
|
|
|
69.69
|
|
|
73.61
|
|
|
72.70
|
|
|
(3.92
|
)
|
|
(5.3
|
)%
|
Molybdenum concentrate
|
|
(kt)
|
|
|
7.5
|
|
|
11.3
|
|
|
14.1
|
|
|
(3.8
|
)
|
|
(33.6
|
)%
|
Molybdenum concentrate average grade
|
|
(%)
|
|
|
55.76
|
|
|
55.96
|
|
|
56.14
|
|
|
(0.20
|
)
|
|
(0.4
|
)%
|
Molybdenum in concentrate
|
|
(kt)
|
|
|
4.2
|
|
|
6.3
|
|
|
7.9
|
|
|
(2.1
|
)
|
|
(33.3
|
)%
|
-
Key:
-
kt =
thousand tons
x =
Stripping ratio obtained dividing waste plus leachable material by ore mined.
Copper
and molybdenum grades are referred to as total copper grade and total molybdenum grade, respectively.
Geology
The Toquepala porphyry copper deposit is located on the western slopes of Cordillera Occidental, in the southern-most Andes Mountains of Peru.
The deposit is part of a mineral district that contains two additional known deposits, Cuajone and Quellaveco.
The
Toquepala deposit is in the southern region of Peru, located on the western slope of the Andes mountain range, approximately 120 kilometers from the border with Chile. This region
extends into Chile and is home to many of the world's most significant known copper deposits. The deposit is in a territory with intrusive and eruptive activities of rhyolitic and andesitic rocks
which are 70 million years old (Cretaceous-Tertiary) and which created a series of volcanic lava. The lava is composed of rhyolites, andesites and volcanic agglomerates with a western dip and
at an altitude of 1,500 meters. These series are known as the Toquepala Group. Subsequently, different intrusive activities occurred which broke and smelted the rocks of the Toquepala Group. These
intrusive activities resulted in diorites, granodiorites and dikes of porphyric dacite. Toquepala has a simple mineralogy with regular copper grade distribution. Economic ore is found as disseminated
sulfurs throughout the deposit as
36
Table of Contents
veinlets,
replenishing empty places or as small aggregates. Ore minerals include chalcopyrite (CuFeS2), chalcosine (Cu2S) and molybdenite (MoS2). A secondary enrichment zone is also found with
thicknesses between 0 and 150 meters.
Mine Exploration
Exploration activities during the drill campaign in 2017 were as follows:
|
|
|
|
|
|
|
|
|
Studies
|
|
Meters
|
|
Holes
|
|
Notes
|
Ore and leach confirmation to reserves and phases
|
|
|
20,837
|
|
|
32
|
|
To confirm the continuity of the ore and leach material.
|
Study of Slopes Stability Instability-South east
|
|
|
140
|
|
|
1
|
|
To define the potential depth of instability.
|
Exploration geotechnical and hydrogeological drill
|
|
|
4,142
|
|
|
11
|
|
To define rock mass quality and hydrogeological behavior.
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
25,119
|
|
|
44
|
|
|
Concentrator
Our Toquepala concentrator operations use state-of-the-art computer monitoring systems in order to coordinate inflows and optimize operations.
Material with a copper grade over 0.40% is loaded onto rail cars and sent to the crushing circuit, where rotating crushers reduce the size of the rocks by approximately 85%, to less than one-half of
an inch. The ore is then sent to the rod and ball mills, which grind it in a mix with water to the consistency of fine powder. The finely ground powder mixed with water is then transported to
flotation cells. Air is pumped into the cells producing a froth, which carries the copper mineral to the surface but not the waste rock, or tailings. The bulk concentrate with sufficient molybdenum
content is processed to recover molybdenum by inverse flotation. This final copper concentrate with a content of approximately 26.5% of copper is filtered in order to reduce moisture to 8.5% or less.
Concentrates are then shipped by rail to the Ilo smelter.
Tailings
are sent to thickeners where water is recovered. The remaining tailings are sent to the Quebrada Honda dam, our principal tailings storage facility.
SX-EW Plant
The SX-EW facility at Toquepala produces grade A LME electrowon copper cathodes of 99.999% purity from solutions obtained by leaching low-grade
ore stored at the Toquepala and Cuajone mines. The leach plant commenced operations in 1995 with a design capacity of 35,629 tons per year of copper cathodes. In 1999, the capacity was expanded to
56,000 tons per year.
Copper
oxides from Cuajone with a copper grade higher than 0.208%, with an acid solubility index higher than 43% and a cyanide solubility index higher than 17% are leached. In Toquepala,
the copper sulfides cutoff grade is 0.153% and therefore material with a total copper grade between 0.153% and 0.300% are leached. Copper in solution produced at Cuajone is sent to Toquepala through
an eight-inch pipe laid alongside the Cuajone-Toquepala railroad track.
Plant
and equipment are supported by a maintenance plan and a quality management system to assure good physical condition and high availability. The SX-EW plant management quality system
(including leaching operations) has been audited periodically since 2002 by an external audit company, and found to be in compliance with the requirements of the ISO 9001-2008 standard. In
2012, we obtained the certification OHSAS 18001 of our occupational health and safety system and the ISO14001-2004 for our environmental standards at the SX-EW plant.
37
Table of Contents
Processing FacilitiesIlo
Our
Ilo smelter and refinery complex is located in the southern part of Peru, 17 kilometers north of the city of Ilo, 121 kilometers from Toquepala, 147 kilometers from
Cuajone and 1,240 kilometers from the city of Lima. Access is by plane from Lima to Tacna (1:40 hours) and then by highway to the city of Ilo (2:00 hours). Additionally, we maintain a
port facility in Ilo, from which we ship our products and receive supplies. Products shipped and supplies received are moved between Toquepala, Cuajone and Ilo on our industrial railroad.
Smelter
Our Ilo smelter produces copper anodes for the refinery we operate as part of the same facility. Copper produced by the smelter exceeds the
refinery's capacity and the excess is sold to other refineries around the world. In 2007, we completed a major modernization of the smelter. The nominal installed capacity of the smelter is 1,200,000
tons of concentrate per year.
Copper
concentrates from Toquepala and Cuajone are transported by railroad to the smelter, where they are smelted using an ISASMELT furnace, converters and anode furnaces to produce
copper anodes with 99.7% copper. At the smelter, the concentrates are mixed with flux and other material and sent to the ISASMELT furnace producing a mixture of copper matte and slag, which is tapped
through a taphole to either of two rotary holding furnaces, where these smelted phases will be separated. Copper matte contains approximately 63% copper. Copper matte is then sent to the four Pierce
Smith converters, where the material is oxidized in two steps: (1) the iron sulfides in the matte are oxidized with oxygen enriched air and silica is added producing slag that is sent to the
slag cleaning furnaces, and (2) the copper contained in the matte sulfides is then oxidized to produce blister copper, containing approximately 99.3% copper. The blister copper is refined in
two anode furnaces by oxidation to remove sulfur with compressed air injected into the bath. Finally, the oxygen content of the molten copper is adjusted by reduction with injection of liquefied
petroleum gas with steam into the bath. Anodes, containing approximately 99.7% copper, are cast in two casting wheels. The smelter also can produce blister copper bars, especially when an anode
furnace is in general repair.
The
table below sets forth 2017, 2016 and 2015 production and sales information for our Ilo smelter plant:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
2017 - 2016
|
|
Smelter
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Volume
|
|
%
|
|
Concentrate smelted
|
|
(kt)
|
|
|
1,153.5
|
|
|
1,070.6
|
|
|
1,143.7
|
|
|
82.9
|
|
|
7.7
|
%
|
Average copper recovery
|
|
(%)
|
|
|
97.4
|
|
|
97.4
|
|
|
97.4
|
|
|
|
|
|
|
|
Anode production
|
|
(kt)
|
|
|
346.6
|
|
|
323.3
|
|
|
339.7
|
|
|
23.3
|
|
|
7.2
|
%
|
Average anode grade
|
|
(%)
|
|
|
99.77
|
|
|
99.77
|
|
|
99.76
|
|
|
|
|
|
|
|
Blister production
|
|
kt
|
|
|
1.8
|
|
|
0.9
|
|
|
2.8
|
|
|
0.9
|
|
|
92.8
|
%
|
Average blister grade
|
|
(%)
|
|
|
99.32
|
|
|
99.23
|
|
|
99.31
|
|
|
0.09
|
|
|
0.1
|
%
|
Sulfuric acid produced
|
|
(kt)
|
|
|
1,119.6
|
|
|
1,036.3
|
|
|
1,104.7
|
|
|
83.3
|
|
|
8.0
|
%
|
The
off gases from the smelter are treated to recover over 92% of the incoming sulfur received in the concentrates producing 98.5% sulfuric acid. The gas stream from the smelter with
11.34% SO
2
is split between two plants: The No. 1 acid plant (single absorption/single contact) and the No. 2 plant (double absorption/double contact). Approximately, 16% of
the acid produced is used at our facilities with the balance sold to third parties. We anticipate that our internal usage will be over 80% when the Tia Maria project begins operation.
38
Table of Contents
The
smelter also has two oxygen plants. Plant No. 1, with 272 tons per day of production capacity, and Plant No.2, with 1,045 tons per day of capacity.
In
2010, the Ilo smelter marine trestle started operation. This facility allows us to offload directly to offshore ships the sulfuric acid produced, avoiding hauling cargo through the
city of Ilo. The 500 meter long marine trestle is the last part of the Ilo smelter modernization project. Currently all overseas shipments of sulfuric acid are being made using the marine
trestle.
Refinery
The Ilo refinery consists of an electrolytic plant, a precious metal plant and a number of ancillary installations. The refinery is producing
grade A copper cathode of 99.998% purity. The nominal capacity is 280,000 tons per year. Anodic slimes are recovered from the refining process and then sent to the precious metals facility to produce
refined silver, refined gold and commercial grade selenium.
Anodes
are suspended in tanks containing a solution of sulfuric acid and copper sulfate. A low voltage but high amperage electrical current is passed through the anodes, chemical
solution and cathodes in order to dissolve copper which is deposited on initially very thin starting sheets increasing its thickness to produce high grade copper cathodes. During this process, silver,
gold and other metals, including palladium, platinum and selenium, along with other impurities, settle on the bottom of the tank in the form of anodic slime. This anodic slime is processed in a
precious metal plant where silver, gold and selenium are recovered.
The
table below sets forth 2017, 2016 and 2015 production and sales information for our Ilo refinery and precious metals plants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
2017 - 2016
|
|
Refinery
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Volume
|
|
%
|
|
Cathodes produced
|
|
(kt)
|
|
|
291.4
|
|
|
270.2
|
|
|
280.6
|
|
|
21.2
|
|
|
7.8
|
%
|
Average copper grade
|
|
(%)
|
|
|
99.999
|
|
|
99.998
|
|
|
99.998
|
|
|
0.001
|
|
|
0.0
|
%
|
Refined silver produced
|
|
(000 Kg)
|
|
|
123.0
|
|
|
102.5
|
|
|
106.0
|
|
|
20.5
|
|
|
20.0
|
%
|
Refined gold produced
|
|
(kg)
|
|
|
237.7
|
|
|
209.9
|
|
|
190.9
|
|
|
27.8
|
|
|
13.2
|
%
|
Commercial grade selenium produced
|
|
(tons)
|
|
|
49.2
|
|
|
48.7
|
|
|
54.4
|
|
|
0.5
|
|
|
1.1
|
%
|
In
addition to the processing facilities, the refinery has a production control section, a laboratory which provides sample analysis throughout the Company, a maintenance department, a
desalinization plant and other support facilities.
Other
facilities in Ilo are a coquina plant with a production capacity of 200,000 tons per year of seashells and a lime plant with a capacity of 80,000 tons per year. We also operate an
industrial railroad to haul production and supplies between Toquepala, Cuajone and Ilo.
The
industrial railroad's main equipment includes locomotives of different types and rolling stock with different types of cars and capacities. The track runs in a single 214 kilometer
standard gauge line and supports a 30-ton axle load. The total length of the track system is around 257 kilometers including main yards and sidings. The infrastructure includes 27 kilometers of track
under tunnels and one concrete bridge. The industrial railroad includes a car repair shop which is responsible for maintenance and repair of the car fleet. Annual tonnage transported is approximately
4.7 million tons.
39
Table of Contents
MEXICAN OPERATIONS
Following
is a map indicating the approximate locations of our Mexican mines and processing facilities:
MEXICAN OPEN-PIT SEGMENT
Our
Mexican open-pit segment operations combine two units of Minera Mexico, La Caridad and Buenavista, which include La Caridad and Buenavista mine complexes and
smelting and refining plants and support facilities, which service both complexes.
40
Table of Contents
Following
is a map indicating the approximate location of, and access to, our Mexican open-pit mine complexes, as well as our processing facilities:
We
have ongoing maintenance and improvement programs to ensure the satisfactory performance of our equipment. We believe all our Mexican open-pit segment equipment is in good physical
condition and suitable for our operations.
41
Table of Contents
Buenavista
The
Buenavista mining unit operates an open-pit copper mine, two concentrators and three SX-EW plants. It is located 100 air-kilometers northwest of La Caridad and 40
kilometers south of the Arizona, U.S.Mexican border, at an altitude of 1,900 meters above sea level. It lies on the outskirts of the city of Cananea. Buenavista is connected by paved
highways to the border city of Agua Prieta to the northeast, to the town of Nacozari in the southeast and to the town of Imuris to the west. Buenavista is also connected by railway to Agua Prieta and
Nogales. A municipal airport is located approximately 20 kilometers to the northeast of Buenavista.
We
have concluded our $3.5 billion investment program in Mexico and all of the projects of this program are in full operation. The program included a third SX-EW plant, completed
in June 2014, with a rated annual capacity of 120,000 tons of copper. A new concentrator, completed in 2015, with an annual copper production capacity of 188,000 tons. The program includes two
molybdenum plants with a combined annual capacity of 4,600 tons. The first plant was completed in 2013 and the second one, in 2016. Additionally, the program included the Crushing, Conveying and
Spreading System for Leachable Ore (Quebalix IV), which has been completed on time and under budget and is currently operating steadily. This project will reduce mining costs as well as increase SX-EW
copper recovery, allowing the Buenavista unit to reach its copper production capacity of 500,000 tons.
The
original concentrator currently has a nominal milling capacity of 76,700 tons per day. The second concentrator began operations in 2015 with a nominal milling capacity of 100,000
tons per day. The SX-EW facilities have a cathode production capacity of 174,470 tons per year. The Buenavista ore body is considered one of the world's largest porphyry copper deposits. Buenavista is
the oldest continuously operated copper mine in North America, with operations dating back to 1899. High grade ore deposits in the district were mined exclusively using underground methods. The
Anaconda Company acquired the property in 1917. In the early 1940s, Anaconda started developing the first open-pit in Buenavista. In 1990, through a public auction procedure, Minera Mexico acquired
100% of the Buenavista mining assets for $475 million. Buenavista is currently applying conventional open-pit mining methods to extract copper ore for further processing in the concentrator.
42
Table of Contents
The
following table shows 2017, 2016 and 2015 production information for Buenavista:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 - 2016
Variance
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Volume
|
|
%
|
|
Mine annual operating days
|
|
|
|
|
365
|
|
|
366
|
|
|
365
|
|
|
|
|
|
|
|
Mine:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ore mined
|
|
(kt)
|
|
|
69,773
|
|
|
66,328
|
|
|
33,726
|
|
|
3,445
|
|
|
5.2
|
%
|
Copper grade
|
|
(%)
|
|
|
0.547
|
|
|
0.566
|
|
|
0.593
|
|
|
(0.019
|
)
|
|
(3.4
|
)%
|
Leach material mined
|
|
(kt)
|
|
|
157,802
|
|
|
123,738
|
|
|
150,546
|
|
|
34,064
|
|
|
27.5
|
%
|
Leach material grade
|
|
(%)
|
|
|
0.261
|
|
|
0.281
|
|
|
0.293
|
|
|
(0.020
|
)
|
|
(7.1
|
)%
|
Stripping ratio
|
|
(x)
|
|
|
3.14
|
|
|
2.88
|
|
|
6.23
|
|
|
0.26
|
|
|
9.0
|
%
|
Total material mined
|
|
(kt)
|
|
|
288,716
|
|
|
257,395
|
|
|
282,954
|
|
|
31,321
|
|
|
12.2
|
%
|
Concentrator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total material milled
|
|
(kt)
|
|
|
69,294
|
|
|
66,112
|
|
|
33,141
|
|
|
3,182
|
|
|
4.8
|
%
|
Copper recovery
|
|
(%)
|
|
|
84.12
|
|
|
84.50
|
|
|
82.50
|
|
|
(0.38
|
)
|
|
(0.5
|
)%
|
Copper concentrate
|
|
(kt)
|
|
|
1,361.8
|
|
|
1,329.6
|
|
|
705.0
|
|
|
32.2
|
|
|
2.4
|
%
|
Copper in concentrate
|
|
(kt)
|
|
|
319.0
|
|
|
316.0
|
|
|
162.0
|
|
|
3.0
|
|
|
1.0
|
%
|
Copper concentrate average grade
|
|
(%)
|
|
|
23.42
|
|
|
23.77
|
|
|
22.98
|
|
|
(0.35
|
)
|
|
(1.5
|
)%
|
SX-EW plant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated leach recovery
|
|
(%)
|
|
|
70.00
|
|
|
70.77
|
|
|
47.78
|
|
|
(0.77
|
)
|
|
(1.1
|
)%
|
SX-EW cathode production
|
|
(kt)
|
|
|
111.8
|
|
|
131.4
|
|
|
122.5
|
|
|
(19.6
|
)
|
|
(14.9
|
)%
|
Molybdenum
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Molybdenum grade
|
|
(%)
|
|
|
0.013
|
|
|
0.013
|
|
|
0.013
|
|
|
|
|
|
|
|
Molybdenum recovery
|
|
(%)
|
|
|
39.85
|
|
|
25.11
|
|
|
25.55
|
|
|
14.74
|
|
|
58.7
|
%
|
Molybdenum concentrate
|
|
(kt)
|
|
|
6.74
|
|
|
3.19
|
|
|
1.87
|
|
|
3.55
|
|
|
111.3
|
%
|
Molybdenum concentrate average grade
|
|
(%)
|
|
|
51.38
|
|
|
49.45
|
|
|
50.25
|
|
|
1.93
|
|
|
3.9
|
%
|
Molybdenum in concentrate
|
|
(kt)
|
|
|
3.46
|
|
|
1.58
|
|
|
0.94
|
|
|
1.88
|
|
|
119.0
|
%
|
-
Key:
-
kt =
thousand tons
x =
Stripping ratio obtained dividing waste plus leachable material by ore mined.
The
copper and molybdenum grade are total grade.
Geology
The Buenavista mining district lies on the southern cordilleran orogen, which extends from southern Mexico to northwestern United States. It
also falls within the Basin and Range metallogenic province. Geological and structural features in the district are representative of large, disseminated type, porphyry copper deposits. A calcareous
sedimentary sequence of lower Paleozoic age, lithologically correlated with a similar section in southeastern Arizona, uncomformably overlies Precambrian granite basement. The entire section was
covered by volcanic rocks of Mesozoic age and later intruded by deep seated granodiorite batholith of Tertiary age, with further quartz monzonite porphyry differentiates of Laramide age.
Mineralization
in the district is extensive covering a surface area of approximately 30 square kilometers. An early pegmatitic stage associated with bornite-chalcopyrite-molybdenite
assemblage was followed by a widespread flooding of hydrothermal solutions with quartz-pyrite-chalcopyrite. A pervasive quartz-sericite alteration is evident throughout the district's igneous rock
fabric.
An
extensive and economically important zone of supergene enrichment, with disseminated and stockworks of chalcocite (Cu
2
S), developed below the iron oxide capping. This zone
coincides with the topography and has an average thickness of 300 meters. A mixed zone of secondary and primary
43
Table of Contents
sulfides
underlay the chalcocite blanket. The hypogene mineralization, principally chalcopyrite (CuFeS
2
), extensively underlies the ore body. Molybdenite occurs throughout the deposit and
the content tends to increase with depth.
The
Buenavista copper porphyry is considered world-class and unique. The deepest exploration results in the core of the deposit have confirmed significant increase in copper grades.
Similar porphyry copper deposits usually contain lower grades at depth. The district is also unique for the occurrence of high-grade breccia pipes, occurring in clusters following the trend of the
district.
Current
dimensions of the mineralized ore body are 5x3 kilometers, and projects to more than one kilometer at depth. Considering the geological and economic potential of the Buenavista
porphyry copper deposit, it is expected that the operation can support a sizeable increase in copper production capacity.
Mine Exploration
In-fill core drilling was conducted in 2011 at the Buenavista zinc-copper-silver deposit, including directional drilling for geotechnical
purposes. A deep drilling campaign was initiated in 2011 to explore the extent of the deposit at depth, drilling a total of 3,860 meters in 2012. For short-term mine planning, 6,652 meters were
drilled to confirm copper grade and metallurgical recoveries. Also, in 2011, a condemnation drilling program was initiated to define areas for future infrastructure, as well as areas where leach and
waste dumps will be deposited. A total of 28,369 meters of core drilling were completed in 2011. A geohydrology program was initiated in 2011 to explore the possibility of groundwater sources within
the mine limits, and a total of 29,750 meters of diamond drilling were drilled in 2012. In addition, 3,797 meters were drilled for water monitoring wells. We did not have a drilling campaign in 2013.
In 2014, we performed a drilling program of 20,000 meters in order to verify the reserves. In 2015, we complied with our drilling program target of 15,000 meters to define reserves and to confirm
copper and molybdenum grades. For 2018, we plan to drill 10,000 meters to further define reserves and confirm grades.
Concentrator
Buenavista uses state-of-the-art computer monitoring systems at the concentrators, the crushing plant and the flotation circuit in order to
coordinate inflows and optimize operations. In the original concentrator, material with a copper grade over 0.38% is loaded onto trucks and sent to the milling circuit, where giant rotating crushers
reduce the size of the ore to approximately one-half of an inch. The ore is then sent to the ball mills, which grind it to the consistency of fine powder. The finely ground powder is agitated in a
water and reagents solution and is then transported to flotation cells. Air is pumped into the cells producing a froth, which carries the copper mineral to the surface but not the waste rock, or
tailings. Recovered copper, with the consistency of froth, is filtered and dried to produce copper concentrates with an average copper content of approximately 24%. Concentrates are then shipped by
rail to the smelter at La Caridad.
In
the second concentrator, material with a copper grade over 0.57% is sent to a three-phase milling circuit, where the ore size is reduced to approximately one-half inch. The ore is
then sent to a circuit of six ball mills, which grind it to the consistency of fine powder. The finely ground powder is agitated in a water and reagents solution and is then transported to flotation
cells. Air is pumped into the cells producing a froth, which carries the copper mineral to the surface but not the waste rock, or tailings. Recovered copper, with the consistency of froth, is filtered
and dried to produce copper concentrates with an average copper content of approximately 24%. Concentrates are then sent by trucks or by railroad to the La Caridad smelter or to the Guaymas port, at
Sonora, for exporting.
As
part of the expansion program for this unit, in 2013 we completed the construction of the first molybdenum plant with an annual production capacity of 2,000 tons of molybdenum
contained in
44
Table of Contents
concentrate.
The plant was designed to process 1,500 tons of copper-molybdenum concentrates per day with a recovery of approximately 80%of copper and 50% of molybdenum content. The molybdenum plant
consists of thickeners, homogenizer tanks, flotation cells, column cells and a holo-flite dryer. The second molybdenum plant obtained its first production lot in July 2016 and fully initiated
operations in November 2016.
SX-EW Plant
The Buenavista unit operates a leaching facility and three SX-EW plants. All copper ore with a grade lower than the mill cut-off grade of 0.38%,
but higher than 0.25%, is delivered to the leach dumps. A cycle of leaching and resting occurs for approximately five years in the run-of-mine dumps and three years for the crushed leach material.
There
are three irrigation systems for the dumps and eleven dams for the pregnant leach solution (PLS). Plant I has four solvent extraction tanks with a nominal capacity of 18,000 liters
per minute of PLS and 54 electrowinning cells and has a daily production capacity of 30 tons of copper cathodes with 99.999% purity. Plant II has five trains of solvent extraction with a nominal
capacity of 62,000 liters per minute of PLS and 220 cells distributed in two bays and has a daily production capacity of 120 tons of copper cathodes with 99.9% purity. Plant III has three trains of
solvent extraction with a nominal capacity of 167,100 liters per minute of PLS and 270 cells distributed in two bays and has a daily production capacity of 328 tons of copper cathodes with 99.9%
purity. The plant produces copper cathodes of LME grade A. Please see "Capital Investment Program" under Item 7 for further information.
La Caridad
The
La Caridad complex includes an open-pit mine, concentrator, smelter, copper refinery, precious metals refinery, rod plant, SX-EW plant, lime plant and two sulfuric
acid plants.
La
Caridad mine and mill are located about 23 kilometers southeast of the town of Nacozari in northeastern Sonora, at an altitude of 2,000 meters above sea level. Nacozari is about 264
kilometers northeast of the Sonora state capital of Hermosillo and 121 kilometers south of the U.S.-Mexico border. Nacozari is connected by paved highway with Hermosillo and Agua Prieta and by rail
with the international port of Guaymas, and the Mexican and United States rail systems. An airstrip with a reported runway length of 2,500 meters is located 36 kilometers north of Nacozari, less than
one kilometer away from the La Caridad copper smelter and refinery. The smelter and the sulfuric acid plants, as well as the refineries and rod plant, are located approximately 24 kilometers from the
mine. Access is by paved highway and by railroad.
The
concentrator began operations in 1979, the molybdenum plant was added in 1982, the smelter in 1986, the first sulfuric acid plant in 1988, the SX-EW plant in 1995, the second
sulfuric acid plant in 1997, the copper refinery in 1997, the rod plant in 1998, the precious metals refinery in 1999 and the dust and effluents plant in 2012.
45
Table of Contents
The
table below sets forth 2017, 2016 and 2015 production information for La Caridad:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
2017 - 2016
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Volume
|
|
%
|
|
Mine annual operating days
|
|
|
|
|
365
|
|
|
366
|
|
|
365
|
|
|
|
|
|
|
|
Mine
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ore mined
|
|
(kt)
|
|
|
34,699
|
|
|
34,648
|
|
|
34,445
|
|
|
51
|
|
|
0.1
|
%
|
Copper grade
|
|
(%)
|
|
|
0.360
|
|
|
0.355
|
|
|
0.351
|
|
|
0.005
|
|
|
1.4
|
%
|
Leach material mined
|
|
(kt)
|
|
|
36,540
|
|
|
41,342
|
|
|
32,758
|
|
|
(4,802
|
)
|
|
(11.6
|
)%
|
Leach material grade
|
|
(%)
|
|
|
0.230
|
|
|
0.228
|
|
|
0.244
|
|
|
0.002
|
|
|
0.9
|
%
|
Stripping ratio
|
|
(x)
|
|
|
1.84
|
|
|
1.84
|
|
|
1.74
|
|
|
|
|
|
|
|
Total material mined
|
|
(kt)
|
|
|
98,534
|
|
|
98,435
|
|
|
94,283
|
|
|
99
|
|
|
0.1
|
%
|
Concentrator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total material milled
|
|
(kt)
|
|
|
34,548
|
|
|
34,539
|
|
|
34,468
|
|
|
9
|
|
|
0.0
|
%
|
Copper recovery
|
|
(%)
|
|
|
85.51
|
|
|
85.66
|
|
|
85.76
|
|
|
(0.15
|
)
|
|
(0.2
|
)%
|
Copper concentrate
|
|
(kt)
|
|
|
443.3
|
|
|
447.1
|
|
|
455.2
|
|
|
(3.8
|
)
|
|
(0.8
|
)%
|
Copper in concentrate
|
|
(kt)
|
|
|
106.3
|
|
|
104.9
|
|
|
103.9
|
|
|
1.4
|
|
|
1.3
|
%
|
Copper concentrate average grade
|
|
(%)
|
|
|
23.98
|
|
|
23.47
|
|
|
22.81
|
|
|
0.51
|
|
|
2.2
|
%
|
SX-EW plant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated leach recovery
|
|
(%)
|
|
|
38.16
|
|
|
38.26
|
|
|
38.57
|
|
|
(0.10
|
)
|
|
(0.3
|
)%
|
SX-EW cathode production
|
|
(kt)
|
|
|
28.39
|
|
|
28.31
|
|
|
27.16
|
|
|
0.08
|
|
|
0.3
|
%
|
Molybdenum
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Molybdenum grade
|
|
(%)
|
|
|
0.035
|
|
|
0.035
|
|
|
0.036
|
|
|
|
|
|
|
|
Molybdenum recovery
|
|
(%)
|
|
|
82.50
|
|
|
81.15
|
|
|
81.62
|
|
|
1.35
|
|
|
2.5
|
%
|
Molybdenum concentrate
|
|
(kt)
|
|
|
18.3
|
|
|
18.7
|
|
|
18.9
|
|
|
(0.4
|
)
|
|
(2.1
|
)%
|
Molybdenum concentrate average grade
|
|
(%)
|
|
|
54.31
|
|
|
52.96
|
|
|
53.76
|
|
|
1.35
|
|
|
22.5
|
%
|
Molybdenum in concentrate
|
|
(kt)
|
|
|
9.9
|
|
|
9.9
|
|
|
10.0
|
|
|
|
|
|
|
|
-
Key:
-
kt =
thousand tons
x =
Stripping ratio obtained dividing waste plus leachable material by ore mined
The
copper and molybdenum grade are total grade.
Geology
The La Caridad deposit is a typical porphyry copper and molybdenum deposit as seen also in the southwestern basin of United States. The La
Caridad mine uses a conventional open-pit mining method. The ore body is at the top of a mountain, which gives La Caridad the advantage of a relative low waste-stripping ratio, natural pit drainage
and relative short haul for both ore and waste. The mining method involves drilling, blasting, loading and haulage of ore mill and waste to the primary crushers and the leach materials and waste to
dumps, respectively.
La
Caridad deposit is located in northeastern Sonora, Mexico. The deposit is situated near the crest of the Sierra Juriquipa, about 23 kilometers southeast of the town of Nacozari,
Sonora, Mexico. The Sierra Juriquipa rises to elevations of around 2,000 meters in the vicinity of La Caridad and is one of the many north-trending mountain ranges in Sonora that form a
southern extension of the basin and range province.
The
La Caridad porphyry copper-molybdenum deposit occurs exclusively in felsic to intermediate intrusive igneous rocks and associated breccias. Host rocks include diorite and
granodiorite. These rocks are intruded by a quartz monzonite porphyry stock and by numerous breccia masses, which contain fragments of all the older rock types.
46
Table of Contents
Supergene
enrichment consists of complete to partial chalcosite (Cu
2
S) replacement of chalcopyrite (CuFeS
2
). The zone of supergene enrichment occurs as a flat and
tabular blanket with an average diameter of 1,700 meters and thickness generally between 0 and 90 meters.
Economic
ore is found as disseminated sulfurs within the central part of the deposit. Sulfide-filled breccia cavities are most abundant in the intrusive breccia. This breccia-cavity
mineralization occurs as sulfide aggregates which have crystallized in the spaces separating breccia clasts. Near the margins of the deposit, mineralization occurs almost exclusively in veinlets. Ore
minerals include chalcopyrite (CuFeS2), chalcosite (Cu
2
S) and molybdenite (MoS
2
).
Mine Exploration
The La Caridad ore body has been mined for over 35 years. The extent of the model area is approximately 6,000 meters by 4,000 meters with
elevation ranging from 750 to 1,800 meters. Seventeen drilling campaigns have been conducted on the property since 1968. These campaigns drilled a total of 3,349 drill holes: 1,186 were diamond drill
holes and 2,163 were reverse circulation. We have also drilled some hammer and percussion drill holes.
In
2008, La Caridad finished a large exploration program of 50,000 meters. The target was to reach to the 900 level in order to reduce the drilling space and to define the copper and
molybdenum mineralization continuity and also carry out metallurgical testing for the flotation and leaching processes. There was no exploration program in 2009, 2011 and 2013. In 2012 we drilled
10,000 meters and further defined the extent of the copper and molybdenum mineralization. From 2014 to 2017 we drilled 96 diamond drill holes equivalent to 38,984 meters in order to define a high
grade ore body located in the south western edge of the pit (Bella Union location).
Concentrator
La Caridad uses state-of-the-art computer monitoring systems at the concentrator, the crushing plant and the flotation circuit in order to
coordinate inflows and optimize operations. The concentrator has a current capacity of 94,500 tons of ore per day.
Ore
extracted from the mine with a copper grade over 0.30% is sent to the concentrator and is processed into copper concentrates and molybdenum concentrates. The copper concentrates are
sent to the smelter and the molybdenum concentrate is sold to a Mexican customer. The molybdenum recovery plant has a capacity of 2,000 tons per day of copper-molybdenum concentrates. The lime plant
has a capacity of 340 tons of finished product per day.
SX-EW Plant
Approximately 835.5 million tons of leaching ore with an average grade of approximately 0.243% copper have been extracted from the La
Caridad open-pit mine and deposited in
leaching dumps from May 1995 to December 31, 2017. All copper ore with a grade lower than the mill cut-off grade 0.30%, but higher than 0.15% copper, is delivered to the leaching dumps. In
1995, we completed the construction of a SX-EW facility at La Caridad that has allowed processing of this ore and certain leach ore reserves that were not mined and has resulted in a reduction in our
copper production costs. The SX-EW facility has an annual design capacity of 21,900 tons of copper cathodes.
The
plant has three trains of solvent extraction with a nominal capacity of 2,400 cubic meters per hour and 94 electrowinning cells distributed in one single electrolytic bay. The plant
has a daily production capacity of 65 tons of copper cathodes with 99.999% purity.
47
Table of Contents
Processing FacilitiesLa Caridad
Our
La Caridad complex includes a smelter, an electrolytic copper refinery, a precious metal refinery, a copper rod plant and an effluent and dust treatment plant. The
distance between this complex and the La Caridad mine is approximately 24 kilometers.
Smelter
Copper concentrates from Buenavista, Santa Barbara, Charcas and La Caridad are transported by rail and truck to the La Caridad smelter where
they are processed and cast into copper anodes of 99.2% purity. Sulfur dioxide off-gases collected from the flash furnace, the El Teniente converter and conventional converters are processed into
sulfuric acid at two sulfuric acid plants. Approximately 2% to 3% of this acid is used by our SX-EW plants and the balance is sold to third parties.
All
of the anodes produced in the smelter are sent to the La Caridad copper refinery. The actual installed capacity of the smelter is 1,000,000 tons per year, a capacity that is
sufficient to treat all the concentrates of La Caridad and almost 40.5% of total production of the OMIMSA I and OMIMSA II concentrators from Buenavista, and starting in 2010, the concentrates from the
IMMSA mines, as we closed the San Luis Potosi smelter.
Other
facilities in the smelter include two sulfuric acid plants with capacities of 2,625 and 2,135 tons per day, three oxygen plants each with a production capacity of 275 tons per day;
and one power turbine which generates 11.5 MWh.
Refinery
La Caridad includes an electrolytic copper refinery that uses permanent cathode technology. The installed capacity of the refinery is 300,000
tons per year. The refinery consists of an anode plant with a preparation area, an electrolytic plant with an electrolytic cell house with 1,115 cells and 32 liberator cells, two cathode stripping
machines, an anode washing machine, a slime treatment plant and a number of ancillary installations. The refinery is producing grade A (LME) and grade 1 (COMEX) copper cathode of 99.99% purity. Anodic
slimes are recovered from the refining process and sent to the slimes treatment plant where additional copper is extracted. The slimes are then filtered, dried, packed and shipped to the La Caridad
precious metals refinery to produce silver and gold.
Precious Metals Plant
The operations of the precious metal refinery begin with the reception of anodic slimes, which are dried in a steam dryer. After this, the dried
slime is smelted and a gold and silver alloy is obtained, which is known as Dore. The precious metal refinery plant has a hydrometallurgical stage and a pyrometallurgical stage, besides a steam dryer,
Dore casting system, Kaldo furnace, 20 electrolytic cells in the silver refinery, one induction furnace for fine silver, one silver ingot casting system and two reactors for obtaining fine gold. The
process ends with the refining of the gold and silver alloy. We also recover commercial selenium from the gas produced by the Kaldo furnace process.
Copper Rod Plant
A rod plant at the La Caridad complex began operations in 1998 and reached its full annual operating capacity of 150,000 tons in 1999. The plant
is producing eight millimeter copper rods with a purity of 99.99%.
Effluent and Dust Treatment Plant
In 2012, we started operating a dust and effluent plant with a treatment capacity of 5,000 tons of smelter dusts per year which will produce
1,500 tons of copper by-products and 2,500 tons of lead sulfates per year. This plant is designed to reduce dust emissions from La Caridad metallurgical complex.
48
Table of Contents
The table below sets forth 2016, 2015 and 2014 production information for the La Caridad processing facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
2017 - 2016
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Volume
|
|
%
|
|
Smelter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total copper concentrate smelted
|
|
(kt)
|
|
|
997.7
|
|
|
1,004.8
|
|
|
933.4
|
|
|
(7.1
|
)
|
|
(0.7
|
)%
|
Anode copper production
|
|
(kt)
|
|
|
271.8
|
|
|
269.5
|
|
|
257.9
|
|
|
2.3
|
|
|
0.9
|
%
|
Average copper content in anode
|
|
(%)
|
|
|
99.41
|
|
|
99.38
|
|
|
99.34
|
|
|
0.03
|
|
|
0.0
|
%
|
Average smelter recovery
|
|
(%)
|
|
|
97.4
|
|
|
96.8
|
|
|
98.3
|
|
|
0.6
|
|
|
0.6
|
%
|
Sulfuric acid production
|
|
(kt)
|
|
|
976.4
|
|
|
1,007.9
|
|
|
972.4
|
|
|
(31.5
|
)
|
|
(3.1
|
)%
|
Refinery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refined cathode production
|
|
(kt)
|
|
|
228.1
|
|
|
224.2
|
|
|
213.4
|
|
|
3.9
|
|
|
1.7
|
%
|
Refined silver production
|
|
(000 kg)
|
|
|
222.5
|
|
|
256.9
|
|
|
238.2
|
|
|
(34.4
|
)
|
|
(13.4
|
)%
|
Refined gold production
|
|
(Kg)
|
|
|
1,264.2
|
|
|
4,805.8
|
|
|
4,578.5
|
|
|
(3,541.6
|
)
|
|
(73.7
|
)%
|
Rod Plant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper rod production
|
|
(kt)
|
|
|
133.1
|
|
|
144.5
|
|
|
138.2
|
|
|
(11.4
|
)
|
|
(7.9
|
)%
|
-
Key:
-
kt =
thousand tons
Kg =
kilograms
MEXICAN IMMSA UNIT
Our
IMMSA unit (underground mining poly-metallic division) operates five underground mining complexes situated in central and northern Mexico and produces zinc, lead,
copper, silver and gold, and has a coal mine. These complexes include industrial processing facilities for zinc, lead, copper and silver. All of IMMSA's mining facilities employ exploitation systems
and conventional equipment. We believe that all the plants and equipment are in satisfactory operating condition. IMMSA's principal mining facilities include Charcas, Santa Barbara, San Martin,
Santa Eulalia and Taxco.
49
Table of Contents
The
table below sets forth 2017, 2016 and 2015 production information for our Mexican IMMSA unit:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
2017 - 2016
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Volume
|
|
%
|
|
Average annual operating days(*)
|
|
|
|
|
352
|
|
|
353
|
|
|
234
|
|
|
|
|
|
|
|
Total material mined and milled
|
|
(kt)
|
|
|
2,871
|
|
|
3,031
|
|
|
2,631
|
|
|
(161
|
)
|
|
(5.3
|
)%
|
Zinc:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zinc average ore grade
|
|
(%)
|
|
|
2.76
|
|
|
2.81
|
|
|
2.68
|
|
|
(0.05
|
)
|
|
(1.8
|
)%
|
Zinc average recovery
|
|
(%)
|
|
|
86.75
|
|
|
86.93
|
|
|
87.88
|
|
|
(0.18
|
)
|
|
(0.2
|
)%
|
Zinc concentrate produced
|
|
(kt)
|
|
|
129.2
|
|
|
140.0
|
|
|
115.0
|
|
|
(10.8
|
)
|
|
(7.5
|
)%
|
Zinc concentrate average grade
|
|
(%)
|
|
|
53.13
|
|
|
52.96
|
|
|
53.81
|
|
|
0.17
|
|
|
0.3
|
%
|
Zinc in concentrate
|
|
(kt)
|
|
|
68.7
|
|
|
73.9
|
|
|
61.9
|
|
|
(5.2
|
)
|
|
(7.2
|
)%
|
Lead:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lead average ore grade
|
|
(%)
|
|
|
0.95
|
|
|
1.00
|
|
|
0.96
|
|
|
(0.05
|
)
|
|
(4.7
|
)%
|
Lead average recovery
|
|
(%)
|
|
|
73.91
|
|
|
80.41
|
|
|
82.05
|
|
|
(6.50
|
)
|
|
(8.1
|
)%
|
Lead concentrate produced
|
|
(kt)
|
|
|
33.6
|
|
|
40.7
|
|
|
32.8
|
|
|
(7.1
|
)
|
|
(17.4
|
)%
|
Lead concentrate average grade
|
|
(%)
|
|
|
60.29
|
|
|
59.88
|
|
|
63.15
|
|
|
0.41
|
|
|
0.7
|
%
|
Lead in concentrate
|
|
(kt)
|
|
|
20.2
|
|
|
24.4
|
|
|
20.7
|
|
|
(4.2
|
)
|
|
(17.2
|
)%
|
Copper:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper average ore grade
|
|
(%)
|
|
|
0.35
|
|
|
0.37
|
|
|
0.38
|
|
|
(0.02
|
)
|
|
(6.3
|
)%
|
Copper average recovery
|
|
(%)
|
|
|
54.65
|
|
|
56.83
|
|
|
55.32
|
|
|
(2.18
|
)
|
|
(3.8
|
)%
|
Copper concentrate produced
|
|
(kt)
|
|
|
21.3
|
|
|
24.9
|
|
|
23.5
|
|
|
(3.6
|
)
|
|
(14.5
|
)%
|
Copper concentrate average grade
|
|
(%)
|
|
|
25.71
|
|
|
25.86
|
|
|
23.82
|
|
|
(0.15
|
)
|
|
(0.6
|
)%
|
Copper in concentrate
|
|
(kt)
|
|
|
5.5
|
|
|
6.4
|
|
|
5.6
|
|
|
(0.9
|
)
|
|
(14.1
|
)%
|
Silver:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silver average ore grade
|
|
(ounces)
|
|
|
2.19
|
|
|
2.35
|
|
|
2.31
|
|
|
(0.16
|
)
|
|
(6.4
|
)%
|
Silver average recovery
|
|
(%)
|
|
|
75.72
|
|
|
79.41
|
|
|
81.53
|
|
|
(3.69
|
)
|
|
(4.7
|
)%
|
Silver concentrate average grade
|
|
(%)
|
|
|
25.8
|
|
|
30.4
|
|
|
29.2
|
|
|
(1.6
|
)
|
|
(5.8
|
)%
|
Silver in concentrates
|
|
((000) ounces)
|
|
|
4,759.9
|
|
|
5,622.0
|
|
|
4,995.0
|
|
|
(862.1
|
)
|
|
(15.3
|
)%
|
kt =
thousand tons
-
(*)
-
Weighted
average annual operating days based on total material mined and milled in the three active mines: Charcas, Santa Barbara, and Santa Eulalia.
Charcas
The
Charcas mining complex is located 111 kilometers north of the city of San Luis Potosi in the State of San Luis Potosi, Mexico. Charcas is connected to the
state capital by a paved highway of 130 kilometers. It was discovered in 1573 and operations in the 20th century began in 1911. The complex includes three underground mines
(San Bartolo, Rey-Reina and La Aurora) and one flotation plant that produces zinc, lead and copper concentrates, with significant amounts of silver. The Charcas mine is characterized by low
operating costs and good quality ores and is situated near the zinc refinery. Regarding its geology, economic ore is found as replacement sulfurs in carbonates host rock. The ore mineralogy is
comprised predominantly of calcopyrite (CuFeS
2
), sphalerite (ZnS), galena (PbS) and silver minerals as
diaphorite (Pb
2
Ag
3
Sb
3
S
8
). The Charcas mine is now Mexico's largest producer of zinc.
In
October 2015, an earthquake damaged some underground facilities as well as the access to the mine. Consequently, normal mine operations were interrupted. In 2016, operations took
place normally and a production compliance of 97% was reached.
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Table of Contents
Mine
exploration in 2015 included 32,144 meters of surface drilling and 20,536 meters from underground stations, which increased our reserves by 3,089,797 tons. For 2016, it
included 20,000 meters of surface drilling and 20,754 meters from underground stations, which increased our reserves by 1,778,728 tons. For 2017, it included 5,999 meters of surface
drilling and 23,098 meters from
underground stations, which increased our reserves by 2,004,577 tons. For 2018, 31,757 meters of diamond drilling are planned to identify additional reserves.
Santa Barbara
The
Santa Barbara mining complex is located approximately 26 kilometers southwest of the city of Hidalgo del Parral in southern Chihuahua, Mexico. The
area can be reached via paved road from Hidalgo del Parral, a city on a federal highway. It was discovered in 1536 and mining activities in the 20th century began in 1913. Santa Barbara
includes three main underground mines (San Diego, Segovedad and Tecolotes) and a flotation plant and produces lead, copper and zinc concentrates, with significant amounts of silver.
Regarding
its geology, economic ore minerals include sphalerite (ZnS), marmatite (ZnFeS), galena (PbS), chalcopyrite (CuFeS
2
) and
tetrahedrite (CuFe
12
Sb
4
S
13
). Due to the variable characteristics of the ore bodies, four types of mining methods are used: shrinkage stoping, long-hole
drilled open stoping, cut-and-fill stoping and horizontal bench stoping. The ore, once crushed, is processed in the flotation plant to produce concentrates.
Mine
exploration in 2015 included 5,977 meters of surface drilling and 16,609 meters from underground stations, which increased our reserves by 1,135,750 tons. For 2016, it
included 14,300 meters from underground stations, which increased our reserves by 1,416,756 tons. For 2017, it included 2,571 meters of surface drilling and 11,838 meters from
underground stations, which increased our reserves by 613,872 tons. For 2018, 13,750 meters of diamond drilling are planned to identify additional reserves.
Santa Eulalia
The
mining district of Santa Eulalia is located in the central part of the state of Chihuahua, Mexico, approximately 26 kilometers east of the city of
Chihuahua, and is connected to the city of Chihuahua by a paved road (highway no. 45). It was discovered in 1590 but exploitation began in 1870. The main mines in Santa Eulalia
are The Buena Tierra mine and the San Antonio mine.
Regarding
its geology, the mineralization corresponds in its majority to ore skarns: silicoaluminates of calcium, iron and manganese with variable quantities of lead, zinc, copper and
iron sulfides. Economic ore include sphalerite (ZnS), galena (PbS) and small quantities of pyrargyrite (Ag
3
SbS
3
).
Mine
exploration in 2015 included 3,014 meters from underground stations, which increased our reserves by 64,800 tons. For 2017, it included 936 meters from underground stations,
which increased our reserves by 60,525 tons. For 2018, 5,053 meters of diamond drilling are planned to identify additional reserves.
In
the third quarter of 2014, the Santa Eulalia mine suspended operations due to a flooding in the area brought on by the failure of a dike caused by excess water pressure.
Production was restored in November 2015.
San Martin and Taxco
San
Martin and Taxco have been on strike since July 2007. Please see Note 12 "Commitments and ContingenciesLabor matters" to our consolidated
financial statements.
51
Table of Contents
The
San Martin mining complex is located in the municipality of Sombrerete in the western part of the state of Zacatecas, Mexico. It was discovered in 1555 and mining operations in the
20th century began in 1949. The complex includes an underground mine and a flotation plant. The ore body contains lead, copper and zinc concentrates, with significant amounts of silver.
The
Taxco mining complex is located on the outskirts of the city of Taxco in the northern part of the state of Guerrero, Mexico. It was discovered in 1519 and mining activities in the
20th century began in 1918. The complex includes several underground mines (San Antonio, Guerrero and Remedios) and a flotation plant. The ore contains lead and zinc concentrates, with
some amounts of gold and silver.
There
was no mine exploration drilling in San Martin and Taxco during the three years ended December 31, 2017 because of the strikes.
Processing FacilitiesSan Luis Potosi
Our
San Luis Potosi electrolytic zinc refinery is located in the city of San Luis Potosi, in the state of San Luis Potosi, Mexico. The city of San Luis Potosi is
connected to our refinery by a major highway.
Zinc Refinery
The San Luis Potosi electrolytic zinc refinery was built in 1982 and was designed to produce 105,000 tons of refined zinc per year by
treating up to 200,000 tons of zinc concentrate from our own mines, principally Charcas, which is located 113 kilometers from the refinery. The refinery produces special high
grade zinc (99.995%), high grade zinc (over 99.9%) and zinc-based alloys with aluminum, lead, copper or magnesium in varying quantities and sizes depending on market demand.
Refined silver and gold production is obtained from tolling services provided by a third party mining company.
The
electrolytic zinc refinery has an acid plant, a steam recovery boiler and a roaster. There is also a calcine processing area with five leaching stages: neutral, hot acid,
intermediate acid, acid, purified fourth and jarosite, as well as two stages for solution purifying.
The
table below sets forth 2017, 2016 and 2015 production information for our San Luis Potosi zinc refinery:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
2017 - 2016
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Volume
|
|
%
|
|
Total zinc concentrate treated
|
|
(kt)
|
|
|
202.3
|
|
|
202.0
|
|
|
191.7
|
|
|
0.3
|
|
|
0.2
|
%
|
Refined zinc produced
|
|
(kt)
|
|
|
104.4
|
|
|
106.1
|
|
|
100.5
|
|
|
(1.7
|
)
|
|
(1.6
|
)%
|
Sulfuric acid produced
|
|
(kt)
|
|
|
180.6
|
|
|
181.3
|
|
|
183.7
|
|
|
(0.7
|
)
|
|
(0.4
|
)%
|
Refined silver produced
|
|
(kt)
|
|
|
14.5
|
|
|
10.5
|
|
|
11.3
|
|
|
4.0
|
|
|
38.1
|
%
|
Refined gold produced
|
|
(k)
|
|
|
17.8
|
|
|
14.4
|
|
|
14.0
|
|
|
3.4
|
|
|
23.6
|
%
|
Refined cadmium produced
|
|
(kt)
|
|
|
0.6
|
|
|
0.7
|
|
|
0.6
|
|
|
(0.1
|
)
|
|
(14.3
|
)%
|
Average refinery recovery
|
|
(%)
|
|
|
94.3
|
|
|
93.8
|
|
|
93.7
|
|
|
0.5
|
|
|
0.5
|
%
|
Nueva Rosita Coal and Coke Complex
The Nueva Rosita coal and coke complex began operations in 1924 and is located in the state of Coahuila, Mexico, on the outskirts of the city of
Nueva Rosita near the Texas border. It includes (a) an underground coal mine, which has been closed since 2006; (b) an open-pit mine with a yearly capacity of approximately
350,000 tons of coal; (c) a coal washing plant with a capacity of 900,000 tons per year
52
Table of Contents
that
produces high quality clean coal; and d) a re-engineered and modernized 21 ovens coke facility capable of producing 100,000 tons of coke per year (metallurgical, nut and fine) of
which, 95,000 tons are metallurgical coke. There is also a by-product plant to clean the coke gas oven in which tar, ammonium sulfate and light crude oil are recovered. There are also two
boilers, which produce 80,000 pounds of steam that is used in the by-products plant. In September 2017, a decision was made to close the coke plant, and initiate the cleaning and remediation
process.
Carbon mine exploration
In Coahuila, an intensive exploration program of diamond drilling has identified two additional areas, Esperanza with a potential for more than
30 million tons of "in place" mineralized coal and Guayacan with a potential for 15 million tons of "in place" mineralized coal, that could be used for a future coal-fired
power plant. In 2015, we drilled 3,046 meters and increased our reserves by 465,509 tons. In 2016, we drilled 1,052 meters and finished the last stage of exploration in two areas for open pit,
San Jose y Cuatro y medio, and increased reserves by 607,532. In 2017, we did not undertake exploration activites.
The
table below sets forth 2017, 2016 and 2015 production information for our Nueva Rosita coal and coke complex:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
2017 - 2016
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Volume
|
|
%
|
|
Coal minedopen-pit
|
|
(kt)
|
|
|
132.7
|
|
|
194.3
|
|
|
248.5
|
|
|
(61.6
|
)
|
|
(31.7
|
)%
|
Average BTU content
|
|
BTU/Lb
|
|
|
10,022
|
|
|
9,485
|
|
|
9,485
|
|
|
537
|
|
|
5.7
|
%
|
Average percent sulfur
|
|
%
|
|
|
1.38
|
|
|
1.49
|
|
|
1.49
|
|
|
(0.11
|
)
|
|
(7.4
|
)%
|
Clean coal produced
|
|
(kt)
|
|
|
66.4
|
|
|
86.2
|
|
|
114.3
|
|
|
(19.8
|
)
|
|
(23.0
|
)%
|
Coke tonnage produced
|
|
(kt)
|
|
|
45.4
|
|
|
71.7
|
|
|
97.5
|
|
|
(26.3
|
)
|
|
(36.7
|
)%
|
Average realized priceCoal
|
|
($ per ton)
|
|
|
29.2
|
|
|
40.2
|
|
|
39.9
|
|
|
(11.0
|
)
|
|
(27.4
|
)%
|
Average realized priceCoke
|
|
($ per ton)
|
|
|
233.0
|
|
|
215.0
|
|
|
250.0
|
|
|
18.0
|
|
|
5.7
|
%
|
ORE RESERVES
Ore
reserves are those estimated quantities of proven and probable material that may be economically mined and processed for extraction of their mineral content, at the
time of the reserve determination. "Proven" (measured) reserves are reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes;
(b) grade and/or quality are computed from the results of detailed samplings; and (c) the sites for inspection, sampling and measurement are spaced so closely and the geologic character
is so well defined that size, shape, depth and mineral content of reserves are well-established. "Probable" (indicated) reserves are reserves for which quantity and grade and/or quality are computed
from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling, and measurement are farther apart or are otherwise less adequately spaced. The degree of
assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation. "Mineralized material," on the other hand, is a mineralized body
that has been delineated by appropriately spaced drilling and/or underground sampling to support the reported tonnage and average grade of metal(s). Such a deposit does not qualify as a reserve until
legal and economic feasibility are concluded based upon a comprehensive evaluation of unit costs, grade, recoveries and other material factors.
Our
proven and probable ore reserve estimates are based on engineering evaluations of assay values derived from the sampling of drill holes and other openings. We believe that the
samplings taken
53
Table of Contents
are
spaced at intervals close enough and the geological characteristics of the deposits are sufficiently well defined to render the estimates reliable. The ore reserves estimates include assessments
of the resource, mining and metallurgy, as well as economic, marketing, legal, environmental, governmental, social and other necessary considerations.
Our
Peruvian operations, including the Toquepala and Cuajone reserves, are classified into proven (measured), probable (indicated) and possible (inferred) categories based on a Relative
Confidence Bound Index ("RCB Index") that measures our level of geologic knowledge and confidence in each block. The RCB index is a measure of relative confidence in the block grade estimate.
This approach combines the local variability of the composites used to krig a block with the kriging variance and incorporates the use of confidence intervals in measuring uncertainty of the block
estimates relative to each other. The final resource classification is then based on the distribution of these RCB values for
blocks above 0.05% copper. It is the distribution that is used to find the breaks between proven/probable and probable/possible.
Our
Mexican operations, including the Buenavista and La Caridad reserves, are calculated using a mathematical block model and applying the MineSight software system. The estimated grades
per block are classified as proven and probable. These grades are calculated applying a three-dimensional interpolation procedure and the inverse distance squared. Likewise, the quadrant method or
spherical search is implemented in order to limit the number of composites that will affect the block's interpolated value. The composites data is derived from the geological exploration of the ore
body. In order to classify the individual blocks in the model, a thorough geostatistical variogram analysis is conducted, taking into consideration the principal characteristics of the deposit. Based
on this block model classification, and with the implementation of the Lerch-Grossman algorithm, and the MineSight Pit Optimizer procedure, mineable reserves are determined. The calculated proven and
probable reserves include those blocks that are economically feasible to mine by open-pit method within a particular mine design.
For
the IMMSA unit, the basis for reserve estimations are sampling of mining operations and drilling exploration, geographical and topographic surveys, tracking down all the foregoing in
the corresponding maps, measurement, calculation and interpretation based on the maps and reports from the mines, the mills and/or smelters. Mineral reserves are mineral stock which is estimated for
extraction, to exploit if necessary, to sell or utilize economically, all or in part, taking into consideration the quotations, subsidies, costs, availability of treatment plants and other conditions
which we estimate will prevail in the period for which reserves are being calculated. The reserves are divided into proven (85% reliable or more according to statistical studies) and probable (70%-80%
reliable or more according to statistical studies) categories according to their level of reliability and availability. In order to comply with SEC regulations, proven reserves is a classification
that can only be used for such mineral found on top of the last level of the mine (either mineral up to 15 meters below the last level or below the first 15 meters only with sufficient drilling (25 or
30 meters between each drill)).
Annually
our engineering department reviews in detail the reserve computations. In addition, our engineering department reviews the computation when changes in assumptions occur. Changes
can occur for price or cost assumptions, results in field drilling or new geotechnical parameters. We also engage third party consultants to review mine planning procedures.
Pursuant
to SEC guidance, the reserves information in this report are calculated using average metals prices over the most recent three years unless otherwise stated. We refer to these
three-year average metals prices as "current prices." Our current prices for copper are calculated using prices quoted by COMEX, and our current prices for molybdenum are calculated according to
Platt's Metals Week. Unless otherwise stated, reserves estimates in this report use $2.50 per pound for copper and $7.07 per pound for molybdenum, both current prices as of December 31, 2017.
The current prices for copper and molybdenum were $2.61 and $8.10 as of December 31, 2016 and $2.99 and $9.38 as of December 31, 2015, respectively.
54
Table of Contents
For
internal ore reserve estimation, our management uses long-term metal price assumptions for copper and molybdenum, which are intended to approximate average prices over the long term.
At December 31, 2017, we consider $2.90 per pound of copper and $7.50 per pound of molybdenum. At December 31,2016, we considered $2.90 per pound of copper and $6.50 per pound of
molybdenum.
The
average metal prices over the last 10 and 15 years periods and the continued positive outlook for these metals have led us to use these prices. For other forecast and planning
purposes, particularly related to merger and acquisition activities, our management considers other price scenarios. These changes, however, do not affect the preparation of our financial statements.
For
the years 2017, 2016 and 2015, we have used reserve estimates based on current average prices as of the most recent three years then ended to determine amortization of mine
development and intangible assets.
We
periodically reevaluate estimates of our ore reserves, which represent our estimate as to the amount of unmined copper remaining in our existing mine locations that can be produced
and sold at a profit. These estimates are based on engineering evaluations derived from samples of drill holes and other openings, combined with assumptions about copper market prices and production
costs at each of our mines.
The
persons responsible for ore reserve calculations are as follows:
Peruvian open-pit
:
Cuajone
mineEdgar A. Peña Valenzuela, Mine Engineering Superintendent
Toquepala mineWilbert Perez, Mine Engineering Superintendent
Tia Maria project
:
Jaime
Arana Murriel, Investment Projects Leaching Manager
Mexican open-pit
:
La
Caridad MineGilberto Quintana, Mine Manager (with support of Hexagon Mining)
Buenavista mineJesus Molinares, Engineering and Mine Planning Superintendent
IMMSA unit
:
Santa BarbaraRaul
Guerrero Valdez, Manager
CharcasJuan J. Aguilar, Planning and Control Superintendent
Santa EulaliaJose Rovelo Saenz, Manager
TaxcoJose M. Espinosa, Manager
San MartinMaria I. Carrillo, Planning Manager
El Arco project
:
Michelle
P. Cerecer A., Planning Engineer (with support of Hexagon Mining)
El Pilar project
:
Michelle
P. Cerecer A., Planning Engineer (with support of Hexagon Mining)
Pilares project
:
Michelle
P. Cerecer A., Planning Engineer (with support of Hexagon Mining)
For
more information regarding our reserve estimates, please see Item 7 "Management's Discussion and Analysis of Financial Condition and Results of OperationsCritical
Accounting Policies and EstimatesOre Reserves."
55
Table of Contents
Ore Reserves Estimated at Current Prices:
The table below details our estimated proven and probable copper and molybdenum reserves at December 31, 2017 based on the last three
year average market prices following SEC guidance:
|
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PERUVIAN
OPEN-PIT UNIT
|
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MEXICAN
OPEN-PIT UNIT
|
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|
|
|
|
DEVELOPMENT PROJECTS
|
|
|
|
Cuajone
Mine(1)
|
|
Toquepala
Mine(1)
|
|
Buenavista
Mine(1)
|
|
La Caridad
Mine(1)
|
|
TOTAL
OPEN-PIT
MINES
|
|
MEXICAN
IMMSA
UNIT(2)
|
|
Tia
Maria
|
|
El Arco
|
|
El Pilar
|
|
Pilares
|
|
Mineral Reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
|
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|
|
|
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Metal prices:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper ($/lb.)
|
|
|
2.50
|
|
|
2.50
|
|
|
2.50
|
|
|
2.50
|
|
|
2.50
|
|
|
2.50
|
|
|
2.50
|
|
|
2.50
|
|
|
2.50
|
|
|
2.50
|
|
Molybdenum ($/lb.)
|
|
|
7.07
|
|
|
7.07
|
|
|
7.07
|
|
|
7.07
|
|
|
7.07
|
|
|
|
|
|
|
|
|
7.07
|
|
|
|
|
|
|
|
Cut-off grade
|
|
|
0.228
|
%
|
|
0.242
|
%
|
|
0.209
|
%
|
|
0.121
|
%
|
|
0.200
|
%
|
|
|
|
|
|
|
|
0.221
|
%
|
|
0.150
|
%
|
|
0.195
|
%
|
Proven
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sulfide ore reserves(kt)
|
|
|
1,035,113
|
|
|
1,854,882
|
|
|
2,355,862
|
|
|
1,611,033
|
|
|
6,856,890
|
|
|
18,227
|
|
|
|
|
|
1,353,678
|
|
|
|
|
|
10,736
|
|
Average grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
0.581
|
%
|
|
0.563
|
%
|
|
0.504
|
%
|
|
0.253
|
%
|
|
0.473
|
%
|
|
0.470
|
%
|
|
|
|
|
0.446
|
%
|
|
|
|
|
0.854
|
%
|
Molybdenum
|
|
|
0.019
|
%
|
|
0.034
|
%
|
|
0.007
|
%
|
|
0.027
|
%
|
|
0.021
|
%
|
|
|
|
|
|
|
|
0.007
|
%
|
|
|
|
|
|
|
Lead
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.220
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Zinc
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.800
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Leachable material(kt)
|
|
|
615
|
|
|
743,090
|
|
|
2,225,252
|
|
|
636,312
|
|
|
3,605,269
|
|
|
|
|
|
211,187
|
|
|
188,556
|
|
|
276,962
|
|
|
|
|
Leachable material grade
|
|
|
0.648
|
%
|
|
0.213
|
%
|
|
0.192
|
%
|
|
0.171
|
%
|
|
0.193
|
%
|
|
|
|
|
0.331
|
%
|
|
0.330
|
%
|
|
0.293
|
%
|
|
|
|
Probable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sulfide ore reserves(kt)
|
|
|
746,881
|
|
|
159,836
|
|
|
1,103,853
|
|
|
638,494
|
|
|
2,649,064
|
|
|
28,559
|
|
|
|
|
|
950,039
|
|
|
|
|
|
25,621
|
|
Average grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
0.422
|
%
|
|
0.373
|
%
|
|
0.448
|
%
|
|
0.250
|
%
|
|
0.388
|
%
|
|
0.520
|
%
|
|
|
|
|
0.410
|
%
|
|
|
|
|
0.761
|
%
|
Molybdenum
|
|
|
0.016
|
%
|
|
0.012
|
%
|
|
0.007
|
%
|
|
0.028
|
%
|
|
0.015
|
%
|
|
|
|
|
|
|
|
0.008
|
%
|
|
|
|
|
|
|
Lead
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.870
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Zinc
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.840
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Leachable material(kt)
|
|
|
2,533
|
|
|
992,528
|
|
|
832,605
|
|
|
232,742
|
|
|
2,060,408
|
|
|
|
|
|
510,258
|
|
|
65,919
|
|
|
18,259
|
|
|
|
|
Leachable material grade
|
|
|
0.775
|
%
|
|
0.154
|
%
|
|
0.169
|
%
|
|
0.162
|
%
|
|
0.162
|
%
|
|
|
|
|
0.371
|
%
|
|
0.159
|
%
|
|
0.266
|
%
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sulfide ore reserves(kt)
|
|
|
1,781,994
|
|
|
2,014,718
|
|
|
3,459,714
|
|
|
2,249,527
|
|
|
9,505,953
|
|
|
46,785
|
|
|
|
|
|
2,303,717
|
|
|
|
|
|
36,357
|
|
Average grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
0.515
|
%
|
|
0.548
|
%
|
|
0.486
|
%
|
|
0.252
|
%
|
|
0.449
|
%
|
|
0.501
|
%
|
|
|
|
|
0.431
|
%
|
|
|
|
|
0.788
|
%
|
Molybdenum
|
|
|
0.018
|
%
|
|
0.032
|
%
|
|
0.007
|
%
|
|
0.027
|
%
|
|
0.019
|
%
|
|
|
|
|
|
|
|
0.007
|
%
|
|
|
|
|
|
|
Lead
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.006
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Zinc
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.824
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Leachable material(kt)
|
|
|
3,148
|
|
|
1,735,618
|
|
|
3,057,858
|
|
|
869,054
|
|
|
5,665,678
|
|
|
|
|
|
721,445
|
|
|
254,475
|
|
|
295,221
|
|
|
|
|
Leachable material grade
|
|
|
0.750
|
%
|
|
0.179
|
%
|
|
0.186
|
%
|
|
0.169
|
%
|
|
0.181
|
%
|
|
|
|
|
0.359
|
%
|
|
0.286
|
%
|
|
0.291
|
%
|
|
0.000
|
%
|
Waste(kt)
|
|
|
4,819,036
|
|
|
7,770,720
|
|
|
5,508,426
|
|
|
1,441,730
|
|
|
19,539,912
|
|
|
|
|
|
644,868
|
|
|
1,997,867
|
|
|
446,828
|
|
|
180,165
|
|
Total material(kt)
|
|
|
6,604,178
|
|
|
11,521,056
|
|
|
12,025,998
|
|
|
4,560,311
|
|
|
34,711,543
|
|
|
46,785
|
|
|
1,366,312
|
|
|
4,556,059
|
|
|
742,049
|
|
|
216,522
|
|
Stripping ratio((W+L)/O)
|
|
|
2.71
|
|
|
4.72
|
|
|
2.48
|
|
|
1.03
|
|
|
2.65
|
|
|
|
|
|
|
|
|
0.98
|
|
|
|
|
|
4.96
|
|
Stripping ratio(W/(L+O))
|
|
|
2.70
|
|
|
2.07
|
|
|
0.85
|
|
|
0.46
|
|
|
1.29
|
|
|
|
|
|
0.89
|
|
|
0.78
|
|
|
1.51
|
|
|
4.96
|
|
Leachable material
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves in stock(kt)
|
|
|
17,904
|
|
|
1,446,708
|
|
|
1,530,984
|
|
|
835,546
|
|
|
3,831,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average copper grade
|
|
|
0.492
|
%
|
|
0.156
|
%
|
|
0.159
|
%
|
|
0.244
|
%
|
|
0.178
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In pit reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proven(kt)
|
|
|
615
|
|
|
743,090
|
|
|
2,225,252
|
|
|
636,312
|
|
|
3,605,269
|
|
|
|
|
|
211,187
|
|
|
188,556
|
|
|
276,962
|
|
|
|
|
Average copper grade
|
|
|
0.648
|
%
|
|
0.213
|
%
|
|
0.192
|
%
|
|
0.171
|
%
|
|
0.193
|
%
|
|
|
|
|
0.331
|
%
|
|
0.330
|
%
|
|
0.293
|
%
|
|
0.000
|
%
|
Probable(kt)
|
|
|
2,533
|
|
|
992,528
|
|
|
832,605
|
|
|
232,742
|
|
|
2,060,408
|
|
|
|
|
|
510,258
|
|
|
65,919
|
|
|
18,259
|
|
|
|
|
Average copper grade
|
|
|
0.775
|
%
|
|
0.154
|
%
|
|
0.169
|
%
|
|
0.162
|
%
|
|
0.162
|
%
|
|
|
|
|
0.371
|
%
|
|
0.159
|
%
|
|
0.266
|
%
|
|
0.000
|
%
|
Total leachable reserves(kt)
|
|
|
21,052
|
|
|
3,182,326
|
|
|
4,588,842
|
|
|
1,704,600
|
|
|
9,496,820
|
|
|
|
|
|
721,445
|
|
|
254,475
|
|
|
295,221
|
|
|
|
|
Average copper grade
|
|
|
0.531
|
%
|
|
0.169
|
%
|
|
0.177
|
%
|
|
0.206
|
%
|
|
0.180
|
%
|
|
|
|
|
0.359
|
%
|
|
0.286
|
%
|
|
0.291
|
%
|
|
0.000
|
%
|
Copper contained in ore reserves in pit(kt)(3)
|
|
|
9,201
|
|
|
14,147
|
|
|
22,502
|
|
|
7,138
|
|
|
52,988
|
|
|
234
|
|
|
2,590
|
|
|
10,657
|
|
|
859
|
|
|
286
|
|
kt = Thousand tons
W= Waste, L= Leachable material; O= Ore.
-
(1)
-
The
Cuajone, Toquepala, Buenavista and La Caridad concentrator recoveries calculated for these reserves were 86.1%, 87.4%, 83.0%, and 82.5%, respectively, obtained
by using recovery formulas according to the different milling capacity and geo-metallurgical zones.
-
(2)
-
The
IMMSA unit includes the Charcas, Santa Barbara, San Martin, Santa Eulalia and Taxco mines. Zinc and lead contained in ore reserves are as follows:
|
|
|
|
|
|
|
|
|
|
|
(in thousand tons)
|
|
Proven
|
|
Probable
|
|
Total
|
|
Zinc
|
|
|
510.3
|
|
|
811.1
|
|
|
1,321.4
|
|
Lead
|
|
|
222.4
|
|
|
248.5
|
|
|
470.9
|
|
-
(3)
-
Copper
contained in ore reserves for open-pit mines is (i) the product of sulfide ore reserves and the average copper grade proven plus (ii) the
product of sulfide ore reserves and the average copper grade probable plus (iii) the product of in-pit leachable reserves and the average copper grade. Copper contained in ore reserves for
underground mines is the product of sulfide ore reserves and the average copper grade.
56
Table of Contents
Metal Price Sensitivity:
In preparing the sensitivity analysis, we recalculated our reserves based on the assumption that current average metal prices were 20% higher
and 20% lower, respectively, than the actual current average prices for year-end 2017. Reserve results of this sensitivity analysis are not proportional to the increase or decrease in metal price
assumptions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE20%
|
|
DECREASE20%
|
|
|
|
Open-Pit
Mines
|
|
IMMSA
|
|
Development
Projects
|
|
Open-Pit
Mines
|
|
IMMSA
|
|
Development
Projects
|
|
Mineral Reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper ($/lb.)
|
|
|
3.00
|
|
|
3.00
|
|
|
3.00
|
|
|
2.00
|
|
|
2.00
|
|
|
2.00
|
|
Molybdenum ($/lb.)
|
|
|
8.49
|
|
|
|
|
|
8.49
|
|
|
5.66
|
|
|
|
|
|
5.66
|
|
Cut-off grade
|
|
|
0.166
|
%
|
|
|
|
|
0.177
|
%
|
|
0.254
|
%
|
|
|
|
|
0.294
|
%
|
Proven
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sulfide ore reserves (kt)
|
|
|
8,107,644
|
|
|
18,735
|
|
|
1,408,715
|
|
|
4,842,605
|
|
|
16,442
|
|
|
1,272,794
|
|
Average grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
0.443
|
%
|
|
0.460
|
%
|
|
0.439
|
%
|
|
0.522
|
%
|
|
0.480
|
%
|
|
0.468
|
%
|
Molybdenum
|
|
|
0.020
|
%
|
|
|
|
|
0.007
|
%
|
|
0.020
|
%
|
|
|
|
|
0.008
|
%
|
Lead
|
|
|
|
|
|
1.200
|
%
|
|
|
|
|
|
|
|
1.270
|
%
|
|
|
|
Zinc
|
|
|
|
|
|
2.760
|
%
|
|
|
|
|
|
|
|
2.950
|
%
|
|
|
|
Leachable material (kt)
|
|
|
3,084,129
|
|
|
|
|
|
714,355
|
|
|
3,790,751
|
|
|
|
|
|
611,364
|
|
Leachable material grade
|
|
|
0.174
|
%
|
|
|
|
|
0.310
|
%
|
|
0.214
|
%
|
|
|
|
|
0.325
|
%
|
Probable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sulfide ore reserves (kt)
|
|
|
3,499,172
|
|
|
29,523
|
|
|
1,061,866
|
|
|
1,723,683
|
|
|
25,904
|
|
|
801,479
|
|
Average grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
0.353
|
%
|
|
0.510
|
%
|
|
0.402
|
%
|
|
0.450
|
%
|
|
0.550
|
%
|
|
0.453
|
%
|
Molybdenum
|
|
|
0.015
|
%
|
|
|
|
|
0.007
|
%
|
|
0.015
|
%
|
|
|
|
|
0.008
|
%
|
Lead
|
|
|
|
|
|
0.870
|
%
|
|
|
|
|
|
|
|
0.890
|
%
|
|
|
|
Zinc
|
|
|
|
|
|
2.790
|
%
|
|
|
|
|
|
|
|
2.950
|
%
|
|
|
|
Leachable material (kt)
|
|
|
2,029,926
|
|
|
|
|
|
620,656
|
|
|
1,522,307
|
|
|
|
|
|
551,627
|
|
Leachable material grade
|
|
|
0.144
|
%
|
|
|
|
|
0.336
|
%
|
|
0.184
|
%
|
|
|
|
|
0.357
|
%
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sulfide ore reserves (kt)
|
|
|
11,606,816
|
|
|
48,258
|
|
|
2,470,581
|
|
|
6,566,288
|
|
|
42,346
|
|
|
2,074,273
|
|
Average grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
0.416
|
%
|
|
0.491
|
%
|
|
0.423
|
%
|
|
0.504
|
%
|
|
0.523
|
%
|
|
0.462
|
%
|
Molybdenum
|
|
|
0.019
|
%
|
|
|
|
|
0.007
|
%
|
|
0.019
|
%
|
|
|
|
|
0.008
|
%
|
Lead
|
|
|
|
|
|
0.998
|
%
|
|
|
|
|
|
|
|
1.038
|
%
|
|
|
|
Zinc
|
|
|
|
|
|
2.778
|
%
|
|
|
|
|
|
|
|
2.950
|
%
|
|
|
|
Leachable material (kt)
|
|
|
5,114,055
|
|
|
|
|
|
1,335,012
|
|
|
5,313,058
|
|
|
|
|
|
1,162,991
|
|
Leachable material grade
|
|
|
0.162
|
%
|
|
|
|
|
0.322
|
%
|
|
0.205
|
%
|
|
|
|
|
0.341
|
%
|
Waste (kt)
|
|
|
22,161,073
|
|
|
|
|
|
3,625,344
|
|
|
14,116,519
|
|
|
|
|
|
2,773,913
|
|
Total material (kt)
|
|
|
38,881,944
|
|
|
48,258
|
|
|
7,430,937
|
|
|
25,995,865
|
|
|
42,346
|
|
|
6,011,177
|
|
Stripping ratio ((W+L)/O)
|
|
|
2.35
|
|
|
|
|
|
2.01
|
|
|
2.96
|
|
|
|
|
|
1.90
|
|
Stripping ratio (W/(L+O))
|
|
|
1.33
|
|
|
|
|
|
0.95
|
|
|
1.19
|
|
|
|
|
|
0.86
|
|
Leachable material
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves in stock (kt)
|
|
|
3,831,142
|
|
|
|
|
|
|
|
|
3,831,142
|
|
|
|
|
|
|
|
Average copper grade
|
|
|
0.178
|
%
|
|
|
|
|
|
|
|
0.178
|
%
|
|
|
|
|
|
|
In pit reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proven (kt)
|
|
|
3,084,129
|
|
|
|
|
|
714,355
|
|
|
3,790,751
|
|
|
|
|
|
611,364
|
|
Average copper grade
|
|
|
0.174
|
%
|
|
|
|
|
0.310
|
%
|
|
0.214
|
%
|
|
|
|
|
0.325
|
%
|
Probable (kt)
|
|
|
2,029,926
|
|
|
|
|
|
620,656
|
|
|
1,522,307
|
|
|
|
|
|
551,627
|
|
Average copper grade
|
|
|
0.144
|
%
|
|
|
|
|
0.336
|
%
|
|
0.184
|
%
|
|
|
|
|
0.357
|
%
|
Total leachable reserves (kt)
|
|
|
8,945,197
|
|
|
|
|
|
1,335,012
|
|
|
9,144,200
|
|
|
|
|
|
1,162,991
|
|
Average copper grade
|
|
|
0.169
|
%
|
|
|
|
|
0.322
|
%
|
|
0.194
|
%
|
|
|
|
|
0.341
|
%
|
Copper contained in ore reserves in pit(kt)(1)
|
|
|
56,499
|
|
|
237
|
|
|
14,756
|
|
|
43,964
|
|
|
221
|
|
|
13,556
|
|
-
(1)
-
Copper
contained in ore reserves for open-pit mines is (i) the product of sulfide ore reserves and the average copper grade proven plus (ii) the
product of sulfide ore reserves and the average copper grade probable plus (iii) the product of in-pit leachable reserves and the average copper grade. Copper contained in ore reserves for
underground mines is the product of sulfide ore reserves and the average copper grade.
57
Table of Contents
Internal Ore Reserves Estimates:
The table below details our proven and probable copper and molybdenum reserves as of December 31, 2017, estimated based on long-term
price assumptions of $2.90 for copper and $7.50 for molybdenum. As discussed on page 51 the presentation of these internal ore reserve estimates are not compliant with SEC requirements, as the
long-term price assumptions differ from the current prices used pursuant to SEC guidance. These internal ore reserve estimates do not affect the preparation of our financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PERUVIAN
OPEN-PIT UNIT
|
|
MEXICAN
OPEN-PIT UNIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEVELOPMENT PROJECTS
|
|
|
|
Cuajone
Mine
|
|
Toquepala
Mine
|
|
Buenavista
Mine
|
|
La Caridad
Mine
|
|
TOTAL
OPEN-PIT
MINES
|
|
MEXICAN
IMMSA
UNIT(1)
|
|
|
|
Tia Maria
|
|
El Arco
|
|
El Pilar
|
|
Pilares
|
|
Mineral Reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper ($/lb.)
|
|
|
2.90
|
|
|
2.90
|
|
|
2.90
|
|
|
2.90
|
|
|
2.90
|
|
|
2.90
|
|
|
2.90
|
|
|
2.90
|
|
|
2.90
|
|
|
2.90
|
|
Molybdenum ($/lb.)
|
|
|
7.50
|
|
|
7.50
|
|
|
7.50
|
|
|
7.50
|
|
|
7.50
|
|
|
|
|
|
|
|
|
7.50
|
|
|
|
|
|
|
|
Cut-off grade
|
|
|
0.195
|
%
|
|
0.221
|
%
|
|
0.173
|
%
|
|
0.142
|
%
|
|
0.181
|
%
|
|
|
|
|
|
|
|
0.206
|
%
|
|
0.150
|
%
|
|
0.167
|
%
|
Proven
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sulfide ore reserves(kt)
|
|
|
1,045,269
|
|
|
2,082,590
|
|
|
2,736,074
|
|
|
1,918,878
|
|
|
7,782,811
|
|
|
18,324
|
|
|
|
|
|
1,375,273
|
|
|
|
|
|
10,736
|
|
Average grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
0.578
|
%
|
|
0.547
|
%
|
|
0.469
|
%
|
|
0.239
|
%
|
|
0.448
|
%
|
|
0.460
|
%
|
|
|
|
|
0.441
|
%
|
|
|
|
|
0.854
|
%
|
Molybdenum
|
|
|
0.019
|
%
|
|
0.032
|
%
|
|
0.007
|
%
|
|
0.028
|
%
|
|
0.020
|
%
|
|
|
|
|
|
|
|
0.007
|
%
|
|
|
|
|
|
|
Lead
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.210
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Zinc
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.760
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Leachable material (kt)
|
|
|
675
|
|
|
627,307
|
|
|
2,238,142
|
|
|
517,242
|
|
|
3,383,366
|
|
|
|
|
|
217,124
|
|
|
188,653
|
|
|
303,345
|
|
|
|
|
Leachable material grade
|
|
|
0.608
|
%
|
|
0.201
|
%
|
|
0.171
|
%
|
|
0.176
|
%
|
|
0.177
|
%
|
|
|
|
|
0.325
|
%
|
|
0.330
|
%
|
|
0.288
|
%
|
|
|
|
Probable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sulfide ore reserves(kt)
|
|
|
814,501
|
|
|
253,548
|
|
|
1,324,862
|
|
|
882,612
|
|
|
3,275,523
|
|
|
28,654
|
|
|
|
|
|
1,004,941
|
|
|
|
|
|
25,621
|
|
Average grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
0.404
|
%
|
|
0.362
|
%
|
|
0.414
|
%
|
|
0.229
|
%
|
|
0.358
|
%
|
|
0.520
|
%
|
|
|
|
|
0.402
|
%
|
|
|
|
|
0.761
|
%
|
Molybdenum
|
|
|
0.016
|
%
|
|
0.011
|
%
|
|
0.007
|
%
|
|
0.029
|
%
|
|
0.015
|
%
|
|
|
|
|
|
|
|
0.007
|
%
|
|
|
|
|
|
|
Lead
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.880
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Zinc
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.810
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Leachable material (kt)
|
|
|
2,844
|
|
|
980,048
|
|
|
876,618
|
|
|
192,372
|
|
|
2,051,882
|
|
|
|
|
|
528,940
|
|
|
65,990
|
|
|
21,486
|
|
|
|
|
Leachable material grade
|
|
|
0.716
|
%
|
|
0.152
|
%
|
|
0.149
|
%
|
|
0.162
|
%
|
|
0.152
|
%
|
|
|
|
|
0.363
|
%
|
|
0.159
|
%
|
|
0.258
|
%
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sulfide ore reserves(kt)
|
|
|
1,859,770
|
|
|
2,336,138
|
|
|
4,060,935
|
|
|
2,801,490
|
|
|
11,058,333
|
|
|
46,978
|
|
|
|
|
|
2,380,214
|
|
|
|
|
|
36,357
|
|
Average grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
0.502
|
%
|
|
0.527
|
%
|
|
0.451
|
%
|
|
0.236
|
%
|
|
0.421
|
%
|
|
0.497
|
%
|
|
|
|
|
0.425
|
%
|
|
|
|
|
0.788
|
%
|
Molybdenum
|
|
|
0.018
|
%
|
|
0.030
|
%
|
|
0.007
|
%
|
|
0.028
|
%
|
|
0.019
|
%
|
|
|
|
|
|
|
|
0.007
|
%
|
|
|
|
|
|
|
Lead
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.009
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Zinc
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.790
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Leachable material (kt)
|
|
|
3,519
|
|
|
1,607,355
|
|
|
3,114,760
|
|
|
709,614
|
|
|
5,435,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leachable material grade
|
|
|
0.695
|
%
|
|
0.171
|
%
|
|
0.165
|
%
|
|
0.172
|
%
|
|
0.168
|
%
|
|
|
|
|
0.352
|
%
|
|
0.286
|
%
|
|
0.286
|
%
|
|
0.000
|
%
|
Waste (kt)
|
|
|
4,740,889
|
|
|
8,865,007
|
|
|
5,679,744
|
|
|
1,747,261
|
|
|
21,032,901
|
|
|
|
|
|
672,277
|
|
|
2,197,006
|
|
|
533,289
|
|
|
180,165
|
|
Total material (kt)
|
|
|
6,604,178
|
|
|
12,808,500
|
|
|
12,855,439
|
|
|
5,258,365
|
|
|
37,526,482
|
|
|
46,978
|
|
|
1,418,341
|
|
|
4,831,863
|
|
|
858,120
|
|
|
216,522
|
|
Stripping ratio ((W+L)/O)
|
|
|
2.55
|
|
|
4.48
|
|
|
2.17
|
|
|
0.88
|
|
|
2.39
|
|
|
|
|
|
|
|
|
1.03
|
|
|
|
|
|
4.96
|
|
Stripping ratio (W/(L+O))
|
|
|
2.54
|
|
|
2.25
|
|
|
0.79
|
|
|
0.50
|
|
|
1.28
|
|
|
|
|
|
0.90
|
|
|
0.83
|
|
|
1.64
|
|
|
4.96
|
|
Leachable material
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves in stock (kt)
|
|
|
17,904
|
|
|
1,446,708
|
|
|
1,530,984
|
|
|
835,546
|
|
|
3,831,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average copper grade
|
|
|
0.492
|
%
|
|
0.156
|
%
|
|
0.159
|
%
|
|
0.244
|
%
|
|
0.178
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-pit reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proven (kt)
|
|
|
675
|
|
|
627,307
|
|
|
2,238,142
|
|
|
517,242
|
|
|
3,383,366
|
|
|
|
|
|
217,124
|
|
|
188,653
|
|
|
303,345
|
|
|
|
|
Average copper grade
|
|
|
0.608
|
%
|
|
0.201
|
%
|
|
0.171
|
%
|
|
0.176
|
%
|
|
0.177
|
%
|
|
|
|
|
0.325
|
%
|
|
0.330
|
%
|
|
0.288
|
%
|
|
0.000
|
%
|
Probable(kt)
|
|
|
2,844
|
|
|
980,048
|
|
|
876,618
|
|
|
192,372
|
|
|
2,051,882
|
|
|
|
|
|
528,940
|
|
|
65,990
|
|
|
21,486
|
|
|
|
|
Average copper grade
|
|
|
0.716
|
%
|
|
0.152
|
%
|
|
0.149
|
%
|
|
0.162
|
%
|
|
0.152
|
%
|
|
|
|
|
0.363
|
%
|
|
0.159
|
%
|
|
0.258
|
%
|
|
0.000
|
%
|
Total leachable reserves
|
|
|
21,423
|
|
|
3,054,063
|
|
|
4,645,744
|
|
|
1,545,160
|
|
|
9,266,390
|
|
|
|
|
|
746,064
|
|
|
254,643
|
|
|
324,831
|
|
|
|
|
Average copper grade
|
|
|
0.525
|
%
|
|
0.164
|
%
|
|
0.163
|
%
|
|
0.211
|
%
|
|
0.172
|
%
|
|
|
|
|
0.352
|
%
|
|
0.286
|
%
|
|
0.286
|
%
|
|
0.000
|
%
|
Copper contained in ore reserves (kt)(2)
|
|
|
9,361
|
|
|
15,060
|
|
|
23,454
|
|
|
7,832
|
|
|
55,707
|
|
|
233
|
|
|
2,626
|
|
|
10,844
|
|
|
929
|
|
|
286
|
|
(kt) = Thousand tons
W= Waste, L= Leachable material; O= Ore.
-
(1)
-
The
IMMSA unit includes the Charcas, Santa Barbara, San Martin, Santa Eulalia and Taxco mines. Zinc and lead contained in ore reserves are as follows:
|
|
|
|
|
|
|
|
|
|
|
(in thousand tons)
|
|
Proven
|
|
Probable
|
|
Total
|
|
Zinc
|
|
|
505.7
|
|
|
805.2
|
|
|
1,310.9
|
|
Lead
|
|
|
221.7
|
|
|
252.2
|
|
|
473.9
|
|
58
Table of Contents
Copper contained in ore reserves for open-pit mines is (i) the product of sulfide ore reserves and the average copper grade plus (ii) the product of
in-pit leachable reserves and the average grade of copper. Copper contained in ore reserves for underground mines is the product of sulfide ore reserves and the average copper grade.
OVERVIEW OF BLOCK MODEL RECONCILIATION PROCESS
We
apply the following block model to mill reconciliation procedure.
The
following stages are identified at the Cuajone, Toquepala, Buenavista and La Caridad mines:
-
1.
-
The
mine geologists gather the necessary monthly statistical data from our information system ("SRP"), which provides ore tons milled and ore grades in the
concentrator.
-
2.
-
Mined
areas are topographically determined and related boundaries are built.
-
3.
-
Using
the "interactive planner" option in our mining software (MineSight), ore tons and grades are calculated inside mined areas over the block model. At this point
the current cut-off grade is considered.
-
4.
-
In
the final stage, accumulated tons mined, weighted average grade for ore material and leach is compared to data coming from our SRP system.
Tonnage
and grade reconciliation for 2017 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Range Model
|
|
Mill
|
|
Variance
|
|
Mine
|
|
Tons
(thousands)
|
|
% Copper
|
|
Tons
(thousands)
|
|
% Copper
|
|
Tons
(thousands)
|
|
% Copper
|
|
Cuajone
|
|
|
29,069
|
|
|
0.607
|
|
|
29,769
|
|
|
0.617
|
|
|
(700
|
)
|
|
(0.010
|
)
|
Toquepala
|
|
|
22,047
|
|
|
0.642
|
|
|
20,411
|
|
|
0.663
|
|
|
(1,636
|
)
|
|
(0.021
|
)
|
Buenavista
|
|
|
69,512
|
|
|
0.550
|
|
|
69,773
|
|
|
0.547
|
|
|
(261
|
)
|
|
(0.003
|
)
|
La Caridad
|
|
|
34,.711
|
|
|
0.375
|
|
|
34,699
|
|
|
0.360
|
|
|
12
|
|
|
0.015
|
|
If
the estimation error appears greater than 3%, a detailed evaluation is done to review the differences, which normally could result in more in-fill drilling, in order to better
understand the geological characteristics (grade, rock type, mineralization and alteration) and the spacing of drill holes which are considered in the ore body zone.
AVERAGE DRILL-HOLE SPACING
The
following is the average drill-hole spacing for proven and probable sulfide reserves as of December 31, 2017:
|
|
|
|
|
|
|
|
|
|
Proven
|
|
Probable
|
|
|
|
(average spacing
in meters)
|
|
Cuajone
|
|
|
78.39
|
|
|
115.19
|
|
Toquepala
|
|
|
77.10
|
|
|
119.84
|
|
Buenavista
|
|
|
54.15
|
|
|
106.59
|
|
La Caridad
|
|
|
46.52
|
|
|
104.71
|
|
EXPLORATION ACTIVITIES
We
are engaged in ongoing extensive exploration to locate additional ore bodies in Peru, Mexico, Argentina, Ecuador and Chile. We also conduct exploration in the areas
of our current mining operations. We invested $28.8 million in exploration programs in 2017, $40.1 million in 2016 and $48.8 million in 2015 and we expect to spend approximately
$67.1 million in exploration programs in 2018.
59
Table of Contents
Currently,
we have direct control of 44,182 hectares and 148,122 hectares of exploration concessions in Peru and in Mexico, respectively. We also currently hold 64,899 hectares, 36,387
hectares and 7,298 hectares of exploration concessions in Argentina, Chile and Ecuador, respectively.
Peru
Los Chancas.
This property, located in the department of Apurimac in southern 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 and 181 million tons of
mineralized leachable material with a total copper content of 0.357%. In 2017, we continued with the development of social and environmental improvements for the local communities in order to conduct
the environmental impact assessment, which will begin in the first months of 2018.
Other Peruvian Prospects.
During 2017, we completed the explorations at the Tambillo project, located in Ayacucho, in southern Peru. We
drilled a
total of 5,000 meters. The results were not satisfactory; therefore, we decided not to continue with exploration in this project.
In
addition, we explored several targets in the south coast of Peru to locate copper porfides, with a total of 5,530 meters of diamond drilling, which results are currently under
evaluation.
For
2018, we will conduct a diamond drilling program of 15,000 meters at different prospects located on the coast of Peru, to confirm the existence of copper and copper-gold porphyry
deposits. We also expect to conduct a diamond drilling program of 22,000 meters in mineralized zones with evidences of copper porfides, located on the western mountains of Peru. Additionally, we will
continue with several prospection programs through Peruvian metallogenic zones.
Mexico
In
addition to exploration and drilling programs at existing mines, we are currently conducting exploration to locate mineral deposits at various other sites in Mexico.
The following are some of the more significant exploration projects:
Buenavista-Zinc.
The Buenavista-Zinc site is located in the state of Sonora, Mexico and is part of the northwest Buenavista ore body.
It is a skarn
deposit containing zinc, copper, silver and lead sulfide mineralization. The deposit contains approximately 158 million tons of mineralized material, containing 1.76% of zinc, 0.54% of copper
and 21 grams of silver per ton. In 2016, we reviewed the geological model of the deposit and the lithological description of prior drill holes, which were analyzed using infrared spectrometry. The
results were included in the reserves database. Currently, we are working on a revised mine plan which we expect to conclude in 2018. In addition, we continue with the metallurgical flotation testing
in order to further optimize the flotation circuit process.
The Chalchihuites.
This is a skarn type deposit located in the state of Zacatecas, close to the San Martin mining unit. Drilling
programs conducted
between 1980 and 2014 identified 12.6 million of mineralized material with an average silver content of 110 grams per ton, 2.66% of zinc, 0.37% of lead and 0.67% of copper. Current results
indicate that mineralization consists of a complex mixture of oxides and sulfides of silver, lead and zinc that requires additional metallurgical research. In 2017, we started a new drilling program
of 21,000 meters in order to continue the metallurgical research and testing. To date, the program has a progress of 16,128 meters with 40 holes accomplished, and will be completed in 2018. This
program has been carried out in compliance with QA/QC protocol that includes testing of specific density of the different rocks and mineralized types and geochemistry sampling.
Bella Union (La Caridad).
This prospect is a mineralized copper and molybdenum breccia deposit; the site is located at less than one
kilometer from
the border of La Caridad pit. In 2016, we
60
Table of Contents
conducted
a drilling program of 21,730 meters to define the geometry of the deposit. The results allowed the identification of 63.3 million tons of mineralized material with an average of 0.43%
of copper content and 0.04% of molybdenum. In 2017, a diamond drilling program of 15,000 meters was continued. During the year 9,448 meters were drilled, and 5,552 meters remain to be drilled in 2018.
Once the drilling has been completed, the estimation of resources and reserves will be made to define the potential of the Bella Union project.
Campo Medio (Santa Eulalia).
This prospect is located close to the west border of the Santa Eulalia mine. Preliminary geological
surveying in the
zone indicates the possible presence of replacement ore bodies in limestone, similar to ore bodies currently being mined at Santa Eulalia. During 2016, we completed a
geochemical and geological survey of 800 hectares between the two currently operating mines and from which we obtained in the past more than 25 million metric tons of ore. The results obtained
indicate the presence of potential mineralization in five different zones. In 2017, 1,000 geochemical samples were taken to define in more detail the five zones highlighted by the geological survey.
The 2018 exploration program contemplates the surveying using an electrical geophysical method. With the results obtained from this study, a drilling program of 10,000 meters will be designed.
Chile
El Salado (Montonero).
A copper-gold prospect located in the Atacama region, northern Chile is being explored for copper and molybdenum
porphyry
since 2014. In 2016, we conducted a diamond drilling program of 12,169 meters in order to define mineral classification. In 2017, we drilled a total of 9,939 meters and finished the conceptual study,
which is currently under evaluation.
Resguardo de la Costa.
An epithermal gold deposit located at southern Chañaral. In 2017, we conducted a diamond drilling program
of
3,000 meters. The results were not satisfactory; therefore, we decided not to continue with exploration in this project.
Other Chilean Prospects.
For 2018, we expect to conduct a diamond drilling program of 10,000 meters in copper-gold prospects
located in the
Antofagasta region at the north of Chile.
Ecuador
Chaucha.
The Ruta del Cobre ("Copper Road") project is located west of Cuenca city and south of Guayaquil. The mineralization is
characteristic of a
copper-molybdenum porphyry system which is being explored since 2014. In 2016, we conducted a diamond drilling program of 25,081 meters, in compliance
with the socioenvironmental regulations of Ecuador. This drilling allowed us to consolidate the information obtained for a better geological and economic interpretation. In 2017, we conducted a
diamond drilling program of 12,980 meters, which has allowed us to consolidate information in order to begin the conceptual study for an initial economic evaluation of the project. This study was
initiated towards the end of 2017 and is expected to continue during 2018.
Argentina
In
2011, we started exploration activities in Argentina. In 2015, we performed geological exploration in the Salta, Rio Negro and Neuquen provinces where we expected to
locate copper porphyry with precious metals epithermal systems. In 2017, we performed prospection and geological evaluation work in the provinces of San Juan and Rio Negro. For 2018, we plan to
conduct a diamond drilling program of 10,000 meters in order to continue with the exploration of the silver-gold epithermal systems, denominated the Caldera project, located in the Rio Negro province.
ITEM 3. LEGAL PROCEEDINGS
Reference is made to the information under the caption "Litigation Matters" in the consolidated financial statement Note 12 "Commitments
and contingencies."
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
61
Table of Contents
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
SCC COMMON STOCK:
SCC's
common stock is traded on the New York Stock Exchange ("NYSE") and the Lima Stock Exchange ("BVL"). SCC's common stock symbol is SCCO on both the
NYSE and the BVL. At December 31, 2017, there were 985 holders of record of our common stock.
DIVIDEND AND STOCK MARKET PRICES:
The
table below sets forth the cash dividends paid per share of capital stock and the high and low stock prices on both the NYSE and the BVL for the periods indicated.
For the year 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NYSE:
|
|
BVL:
|
|
|
|
Dividend
per Share
|
|
Quarters
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
1st
|
|
$
|
0.08
|
|
$
|
39.10
|
|
$
|
32.38
|
|
$
|
39.15
|
|
$
|
32.27
|
|
2nd
|
|
$
|
0.12
|
|
$
|
36.48
|
|
$
|
33.01
|
|
$
|
36.44
|
|
$
|
33.00
|
|
3rd
|
|
$
|
0.14
|
|
$
|
41.77
|
|
$
|
34.75
|
|
$
|
41.64
|
|
$
|
34.65
|
|
4th
|
|
$
|
0.25
|
|
$
|
47.63
|
|
$
|
39.76
|
|
$
|
47.56
|
|
$
|
40.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
$
|
0.59
|
|
$
|
47.63
|
|
$
|
32.38
|
|
$
|
47.56
|
|
$
|
32.27
|
|
For the year 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NYSE:
|
|
BVL:
|
|
|
|
Dividend
per Share
|
|
Quarters
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
1st
|
|
$
|
0.03
|
|
$
|
28.44
|
|
$
|
22.29
|
|
$
|
28.30
|
|
$
|
22.37
|
|
2nd
|
|
$
|
0.05
|
|
$
|
30.21
|
|
$
|
25.52
|
|
$
|
30.00
|
|
$
|
25.30
|
|
3rd
|
|
$
|
0.05
|
|
$
|
26.76
|
|
$
|
25.20
|
|
$
|
26.60
|
|
$
|
25.20
|
|
4th
|
|
$
|
0.05
|
|
$
|
34.98
|
|
$
|
26.01
|
|
$
|
34.76
|
|
$
|
26.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
$
|
0.18
|
|
$
|
34.98
|
|
$
|
22.29
|
|
$
|
34.76
|
|
$
|
22.37
|
|
On
January 25, 2018, the Board of Directors ("BOD") authorized a dividend of $0.30 per share paid on February 27, 2018, to shareholders of record at the close of business
on February 13, 2018.
For
a description of limitations on our ability to make dividend distributions, see "Management's Discussion and Analysis of Financial Condition and Results of
Operations"Liquidity and Capital Resources" and Note 10 "Financing" to our consolidated financial statements.
DIRECTORS' STOCK AWARD PLAN
The
following table sets forth certain information related to our shares held as treasury stock for the Directors' stock award plan at December 31, 2017:
Equity Compensation Plan Information
|
|
|
|
|
|
|
|
|
Plan Category
|
|
Number of securities to be
issued upon exercise of
outstanding options
|
|
Weighted-average
exercise price of
outstanding options
|
|
Number of securities
remaining available
for future issuance
|
|
Directors' stock award plan
|
|
N/A
|
|
N/A
|
|
|
253,200
|
|
62
Table of Contents
For
additional information see Note 13"Stockholders EquityDirectors' Stock Award Plan."
SCC COMMON STOCK REPURCHASE PLAN:
In
2008, our BOD authorized a $500 million share repurchase program that has since been increased by the BOD and is currently authorized to $3 billion.
Pursuant to this program, the Company purchased common stock as shown in the table below. These shares are available for general corporate purposes. The Company may purchase additional shares of its
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
|
|
|
|
Total Number of
Shares Purchased
as Part of Publicly
Announced Plan
|
|
Maximum Number of
Shares that May Yet
Be Purchased Under
the Plan @ $47.45(1)
|
|
|
|
|
Total
Number of Shares
Purchased
|
|
Average Price
Paid per Share
|
|
Total Cost
($ in millions)
|
|
From
|
|
To
|
|
2008
|
|
2012
|
|
|
46,914,486
|
|
$
|
18.72
|
|
|
46,914,486
|
|
|
|
|
|
878.1
|
|
2013:
|
|
|
|
|
10,245,000
|
|
|
27.47
|
|
|
57,159,486
|
|
|
|
|
|
281.4
|
|
2014:
|
|
|
|
|
22,711,428
|
|
|
30.06
|
|
|
79,870,914
|
|
|
|
|
|
682.8
|
|
2015:
|
|
|
|
|
36,689,052
|
|
|
27.38
|
|
|
116,559,966
|
|
|
|
|
|
1,004.4
|
|
2016:
|
|
|
|
|
2,937,801
|
|
|
24.42
|
|
|
119,497,767
|
|
|
|
|
|
71.7
|
|
Total purchased
|
|
|
119,497,767
|
|
$
|
24.42
|
|
|
|
|
|
1,720,408
|
|
$
|
2,918.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
NYSE
closing price of SCC common shares at December 31, 2017.
There
has not been any activity in the SCC share repurchase program since the third quarter of 2016. The NYSE closing price of SCC common shares at December 31, 2017 was $47.45
and the maximum number of shares that the Company could purchase at that price is 1.7 million shares.
As
a result of the repurchase of shares of SCC's common stock, Grupo Mexico's direct and indirect ownership was 88.9% as of December 31, 2017 and 2016.
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
Set
forth below is a line graph comparing the yearly change in the cumulative total returns on the Company's common stock against cumulative total return on the
S&P 500 Stock Index and the S&P Metals and Mining Select Industry Index, for the five year period ending December 31, 2017. The chart below analyzes the total return on SCC's common
stock for the period commencing December 31, 2012 and ending December 31, 2017, compared to the total return of the S&P 500 and the S&P Metals and Mining Select Industry Index for
the same five-year period.
63
Table of Contents
Comparison of Five Year Cumulative Total Return*
SCC Stock, S&P 500 Index and S&P Metals and Mining Select Industry Index**
-
*
-
Total
return assumes reinvestment of dividends
-
**
-
The
comparison assumes $100 invested on December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Return per Year
|
|
|
|
2013
|
|
2014
|
|
2015
|
|
2016
|
|
2017
|
|
SCC
|
|
|
8.0
|
%
|
|
(0.3
|
)%
|
|
(6.3
|
)%
|
|
23.1
|
%
|
|
50.8
|
%
|
S&P 500
|
|
|
47.0
|
%
|
|
11.4
|
%
|
|
(0.7
|
)%
|
|
9.5
|
%
|
|
19.4
|
%
|
S&P M + MS
|
|
|
(14.0
|
)%
|
|
(26.6
|
)%
|
|
(51.5
|
)%
|
|
102.4
|
%
|
|
19.4
|
%
|
The
foregoing Performance Graph and related information shall not be deemed "soliciting material" or "filed" with the SEC or subject to Section 18 of the Securities Exchange Act
of 1934, as amended, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the
extent that the Company specifically incorporates it by reference into such filing.
64
Table of Contents
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SELECTED FINANCIAL AND STATISTICAL DATA
The
selected historical financial data presented below as of and for the five years ended December 31, 2017, includes certain information that has been derived
from our consolidated financial statements. The selected financial data should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
(In millions, except per share amounts,
stock and financial ratios)
|
|
|
2017
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
Statement of Earnings Data
|
|
Net sales(1)
|
|
$
|
6,654.5
|
|
$
|
5,379.8
|
|
$
|
5,045.9
|
|
$
|
5,787.7
|
|
$
|
5,952.9
|
|
Operating income
|
|
|
2,618.9
|
|
|
1,564.2
|
|
|
1,414.4
|
|
|
2,232.7
|
|
|
2,532.1
|
|
Net income
|
|
|
732.4
|
|
|
778.8
|
|
|
741.1
|
|
|
1,337.9
|
|
|
1,624.2
|
|
Net income attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest
|
|
|
3.9
|
|
|
2.3
|
|
|
4.7
|
|
|
4.9
|
|
|
5.7
|
|
Southern Copper Corporation
|
|
$
|
728.5
|
|
$
|
776.5
|
|
$
|
736.4
|
|
$
|
1,333.0
|
|
$
|
1,618.5
|
|
Per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings basic and diluted
|
|
$
|
0.94
|
|
$
|
1.00
|
|
$
|
0.93
|
|
$
|
1.61
|
|
$
|
1.92
|
|
Dividends paid
|
|
$
|
0.59
|
|
$
|
0.18
|
|
$
|
0.34
|
|
$
|
0.46
|
|
$
|
0.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
Balance Sheet Data
|
|
2017
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
Cash and cash equivalents
|
|
$
|
1,004.8
|
|
$
|
546.0
|
|
$
|
274.5
|
|
$
|
364.0
|
|
$
|
1,672.7
|
|
Total assets(2)
|
|
|
13,780.1
|
|
|
13,234.3
|
|
|
12,593.2
|
|
|
11,393.9
|
|
|
10,970.0
|
|
Total long-term debt, including current portion(2)
|
|
|
5,957.1
|
|
|
5,954.2
|
|
|
5,951.5
|
|
|
4,180.9
|
|
|
4,178.9
|
|
Total liabilities(2)
|
|
|
7,630.7
|
|
|
7,363.4
|
|
|
7,294.0
|
|
|
5,557.3
|
|
|
5,408.2
|
|
Total equity
|
|
$
|
6,149.4
|
|
$
|
5,870.9
|
|
$
|
5,299.2
|
|
$
|
5,836.6
|
|
$
|
5,561.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
Statement of Cash Flows Data
|
|
2017
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
Net income
|
|
$
|
732.4
|
|
$
|
778.8
|
|
$
|
741.1
|
|
$
|
1,337.9
|
|
$
|
1,624.2
|
|
Depreciation, amortization and depletion
|
|
|
671.1
|
|
|
647.1
|
|
|
510.7
|
|
|
445.0
|
|
|
396.0
|
|
Cash provided by operating activities
|
|
|
1,976.6
|
|
|
923.1
|
|
|
879.8
|
|
|
1,355.9
|
|
|
1,859.1
|
|
Capital investments(3)
|
|
|
(1,023.5
|
)
|
|
(1,118.5
|
)
|
|
(1,149.6
|
)
|
|
(1,529.8
|
)
|
|
(1,703.3
|
)
|
Debt repaid
|
|
|
|
|
|
|
|
|
(266.0
|
)
|
|
|
|
|
(10.0
|
)
|
Debt incurred
|
|
|
|
|
|
|
|
|
2,045.8
|
|
|
|
|
|
|
|
Dividends paid to common stockholders
|
|
|
(456.1
|
)
|
|
(139.3
|
)
|
|
(271.2
|
)
|
|
(381.0
|
)
|
|
(573.8
|
)
|
SCC common shares buyback
|
|
|
|
|
|
(71.7
|
)
|
|
(1,004.4
|
)
|
|
(682.7
|
)
|
|
(281.4
|
)
|
Increase (decrease) in cash and cash equivalents
|
|
$
|
458.8
|
|
$
|
271.5
|
|
$
|
(89.5
|
)
|
$
|
(1,308.7
|
)
|
$
|
(786.8
|
)
|
65
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
Capital Stock
|
|
2017
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
Common shares outstandingbasic and diluted (in thousands)
|
|
|
773,028
|
|
|
773,016
|
|
|
775,942
|
|
|
812,618
|
|
|
835,318
|
|
NYSE Pricehigh
|
|
$
|
47.63
|
|
$
|
34.98
|
|
$
|
33.14
|
|
$
|
33.54
|
|
$
|
41.96
|
|
NYSE Pricelow
|
|
$
|
32.38
|
|
$
|
22.29
|
|
$
|
24.40
|
|
$
|
26.08
|
|
$
|
24.78
|
|
Book value per share
|
|
|
7.90
|
|
|
7.54
|
|
|
6.78
|
|
|
7.14
|
|
|
6.62
|
|
P/E ratio(4)
|
|
|
50.35
|
|
|
31.82
|
|
|
28.19
|
|
|
17.52
|
|
|
14.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
Financial Ratios
|
|
2017
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
Gross margin(5)
|
|
|
41.0
|
%
|
|
31.6
|
%
|
|
31.9
|
%
|
|
43.2
|
%
|
|
45.1
|
%
|
Operating income margin(6)
|
|
|
39.4
|
%
|
|
29.1
|
%
|
|
28.0
|
%
|
|
38.6
|
%
|
|
42.5
|
%
|
Net margin(7)
|
|
|
10.9
|
%
|
|
14.4
|
%
|
|
14.6
|
%
|
|
23.0
|
%
|
|
27.2
|
%
|
Current assets to current liabilities
|
|
|
2.71
|
|
|
2.57
|
|
|
2.70
|
|
|
2.07
|
|
|
4.36
|
|
Net debt/Net capitalization(8)
|
|
|
44.4
|
%
|
|
47.7
|
%
|
|
48.9
|
%
|
|
37.3
|
%
|
|
29.2
|
%
|
Total debt/Total capitalization(9)
|
|
|
49.2
|
%
|
|
50.4
|
%
|
|
52.9
|
%
|
|
41.7
|
%
|
|
42.9
|
%
|
Ratio of earnings to fixed charges(10)
|
|
|
7.4x
|
|
|
4.4x
|
|
|
4.2x
|
|
|
8.4x
|
|
|
9.8x
|
|
-
(1)
-
Please
see copper and metal prices for the last 10 years on Item 1 "BusinessMetal Prices" and sales volumes for the last three years on
Item 7 "Management Discussion and Analysis of Financial Condition and Results of OperationsSegments Results Analysis."
-
(2)
-
In
the second quarter of 2015, the Company adopted ASU 2015-03 whereby debt issuance costs are presented net of the related debt. This adoption was applied on a
retrospective basis. As a consequence, the long-term debt data and total liabilities for the years 2013 and 2014 have been modified to reflect this presentation.
-
(3)
-
Please
see Item 7 "Management Discussion and Analysis of Financial Condition and Results of OperationsCapital Investment Programs."
-
(4)
-
Represents
closing Price divided by Earnings per share.
-
(5)
-
Represents
net sales less cost of sales (including depreciation, amortization and depletion), divided by net sales as a percentage.
-
(6)
-
Represents
operating income divided by sales as a percentage.
-
(7)
-
Represents
net income divided by net sales as a percentage.
-
(8)
-
Net
debt, which is a Non-GAAP measure, is defined as total debt minus cash,cash equivalents and short-term investments balance. Please see Item 7 "Management
Discussion and Analysis of Financial Condition and Results of OperationsFinancing Section". During 2015, management decided to include short-term investments as a reduction to debt to
arrive at net debt given that the Company can liquidate these investments at any time as needed. This change was applied on a retrospective basis for all years presented herein.
Net
capitalization is defined as Net debt plus Equity.
Net
debt/Net capitalization: represents net debt divided by net debt plus equity. Net debt to net capitalization is a Non-GAAP measure. 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 net debt to net capitalization ratio to total debt and capitalization as presented in the
consolidated balance sheet is presented under the subheading "Non-GAAP
66
Table of Contents
information
reconciliation" in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations."
-
(9)
-
Total
capitalization is defined as Total debt plus Equity.
-
(10)
-
Represents
earnings divided by fixed charges. Earnings are defined as earnings before income taxes and before adjustment for income or loss from equity investees,
plus equity earnings of affiliate, fixed charges and amortization of interest capitalized, less interest capitalized. Fixed charges are defined as the sum of interest expense without the discount of
capitalized interest, plus amortized premiums, discounts and capitalized expenses related to indebtedness.
67
Table of Contents
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 ended December 31, 2017. Therefore, unless otherwise
noted, the discussion below of our financial condition and results of operations is for Southern Copper Corporation and its subsidiaries (collectively, "SCC," 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
"BusinessCautionary 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 with our principal operations in Peru and Mexico. We also have an active ongoing exploration
program in Chile, Argentina and Ecuador. In addition to copper, we produce significant amounts of other metals, either as a by-product of the copper process or in a number of dedicated mining
facilities in Mexico.
In
2017, we invested $1,023.5 million in capital programs, along with $28.8 million in our exploration efforts. We believe this commitment to growth will continue to
benefit our Company, our investors, our neighboring communities, and the countries in which we operate.
We
believe we hold the world's largest copper reserve position. At December 31, 2017, our copper ore reserves, calculated at a copper price of $2.90 per pound, totaled
70.6 million tons of contained copper, at the following locations:
|
|
|
|
|
Copper contained in ore reserves
|
|
Thousand tons
|
|
Mexican open-pit
|
|
|
31,286
|
|
Peruvian operations
|
|
|
24,421
|
|
IMMSA
|
|
|
233
|
|
Development projects
|
|
|
14,685
|
|
|
|
|
|
|
Total
|
|
|
70,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outlook:
Various key factors affect our outcome. These include, but are not limited to, the
following:
-
-
Changes in copper, molybdenum, silver and zinc
prices:
In 2017, the average LME and COMEX per pound copper prices were $2.80, approximately 27% higher than 2016. In 2017, per pound LME spot copper
prices ranged from $2.48 to $3.27. Average zinc and molybdenum prices
68
Table of Contents
We
believe that the world economy is accelerating its growth to an expected 3.9% in 2018. China, the world's largest copper consumer with over 45% of the demand, is expected to continue its growth, in
line with its estimated 6.8% GDP increase in 2017. For global refined copper demand in 2018, we expect growth of about 2.1%, which amounts to approximately 500,000 tons of new copper demand.
With
respect to copper supply, we expect a weak response as a result of the consistent decline in investments by several companies in recent years. Additionally, labor unrest, excess government
taxation and technical difficulties are further affecting production. As a result of these factors, we expect a supply growth of approximately 1% in 2018, yielding a copper market deficit this year
which will give strong support for copper prices.
-
-
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 4.3% of our sales in 2017.
-
-
Molybdenum:
It was about 5.3% of our sales in
2017. Molybdenum prices averaged $8.72 per pound in the fourth quarter of 2017, which compares to $6.58 a year ago; a 32.5% increase. January 2018 prices averaged $11.54 per pound.
Molybdenum
is mainly used for the production of 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:
It has very good long term fundamentals
due to its significant industrial consumption and the expected production. Through 2017 zinc inventories have decreased over 50% in the major warehouses, improving this metal's price support. Zinc
represented 4.9% of our sales in 2017.
-
-
Production:
In 2018, we will commence
production at the new Toquepala concentrator and expect to be able to produce 931,000 tons of copper, a 6% increase from the 877,000 tons we produced in 2017.
We
also expect to produce 17.5 million ounces of silver, about 10% higher than the 2017 production of 15.9 million ounces. In 2018, we expect to produce 84,600 tons of zinc from our
mines, up 23% from 2017 production of 68,665 tons, as a result of the recovery of production at the Santa Eulalia and Santa Barbara mines. Additionally, we expect to produce 21,700 tons of molybdenum,
an increase of 1.7% due to additional production from Buenavista and the recovery of our Peruvian operations.
69
Table of Contents
-
-
Cost:
Our operating costs and expenses for the
three-years ended December 2017 have increased in total in each of the years. Our comparison of costs for the three year period is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Operating costs and expenses (in millions)
|
|
$
|
4,035.6
|
|
$
|
3,815.6
|
|
$
|
3,631.5
|
|
Percentage increase from prior year
|
|
|
5.8
|
%
|
|
5.1
|
%
|
|
2.2
|
%
|
Operating
costs and expenses in 2017 increased $220.0 million, compared to 2016, mainly due to higher cost of sales in all our operating segments, as well as higher depreciation, amortization
and depletion at our Mexican operations. This was partially offset by lower depreciation, amortization and depletion at our Peruvian operations, lower exploration expenses and a $10.2 million
credit related to a previously accrued environmental remediation cost at our Mexican operations which was reversed in the first quarter of 2017.
Operating
costs and expenses in 2016 increased $184.1 million, compared to 2015, principally due to higher costs of sales at our Mexican operations resulting from the 18.3% increase in copper
sales volume, higher depreciation, amortization and depletion on the new assets added to our operations at Buenavista. This was partially offset by lower environmental remediation and exploration
expenses.
-
-
US tax reform:
In December 2017, new U.S. tax
legislation, the Tax Cuts and Jobs Act was enacted into law and became effective January 1, 2018. The effect of the U.S. tax reform on the Company's financial statements was a provisional
non-cash tax expense of $785.9 million. The reduction of the corporate tax rate from 35% to 21% applied to the US deferred tax asset increased tax provision by $110.2 million, and the
transition tax on the repatriated foreign earnings net of the related deemed paid tax credit increased the provision by $56.1 million. In addition, the Company anticipates that it will not be
able to realize certain deferred tax assets due to the US tax reform, and related valuation allowances for these deferred tax assets increased the tax provision, as follows: $280.2 million for
foreign tax credits, $174.1 million related to the US tax effect of Peruvian deferreds, and $165.3 million related to the US deferred tax asset calculated using a 21% tax rate.
-
-
Capital investments:
Capital investments were
$1,023.5 million for 2017. This is 8.5% lower than in 2016, and represented 140% of net income. Our growth program to develop the full production potential of our Company is underway. In
addition, the Buenavista expansion program was completed on time and under budget.
For
2018, the Board of Directors approved a capital investment program of $1,748.2 million. We are currently developing a new organic growth plan to increase our copper volume production to
1.5 million tons by 2025 with the development of new projects.
KEY MATTERS
We
discuss below 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.
70
Table of Contents
Earnings:
The table below highlights key financial and operational data of our Company for the three years ended
December 31, 2017 (in millions, except copper price and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
2017 - 2016
|
|
2016 - 2015
|
|
Copper price LME
|
|
|
2.80
|
|
|
2.21
|
|
|
2.50
|
|
|
0.59
|
|
|
(0.29
|
)
|
Pounds of copper sold
|
|
|
1,959.2
|
|
|
1,923.9
|
|
|
1,625.8
|
|
|
35.3
|
|
|
298.1
|
|
Net sales
|
|
$
|
6,654.5
|
|
$
|
5,379.8
|
|
$
|
5,045.9
|
|
$
|
1,274.7
|
|
$
|
333.9
|
|
Operating income
|
|
$
|
2,618.9
|
|
$
|
1,564.2
|
|
$
|
1,414.4
|
|
$
|
1,054.7
|
|
$
|
149.8
|
|
Income before income taxes
|
|
$
|
2,302.7
|
|
$
|
1,256.0
|
|
$
|
1,189.2
|
|
$
|
1,046.7
|
|
$
|
66.8
|
|
Net income attributable to SCC
|
|
$
|
728.5
|
|
$
|
776.5
|
|
$
|
736.4
|
|
$
|
(48.0
|
)
|
$
|
40.1
|
|
Earnings per share
|
|
$
|
0.94
|
|
$
|
1.00
|
|
$
|
0.93
|
|
$
|
(0.06
|
)
|
$
|
0.07
|
|
Dividends per share
|
|
$
|
0.59
|
|
$
|
0.18
|
|
$
|
0.34
|
|
$
|
0.41
|
|
$
|
(0.16
|
)
|
Net
sales in 2017 were higher than in 2016 by $1,274.7 million. This increase was mainly the result of higher metal prices and slightly higher sales volumes of copper (+1.8%) and
zinc (+2.0%), partially offset by lower sales volumes of silver (2.1%) and molybdenum (1.7%). Net sales in 2016 were higher than in 2015, mainly as a result of higher
sales volume of copper (+18.3%), silver (+18.9%) and zinc (+4.6%), partially offset by lower prices for copper and molybdenum.
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
above. In 2017, cost of sales increased by $218.7 million and depreciation, amortization and depletion increased by $24.0 million. The increase in cost of sales in 2017 was mainly due to
inventory consumption, foreign currency effect and higher workers' participation expense. In 2016, cost of sales increased by $106.5 million and depreciation, amortization and depletion
increased by $136.4 million. The increase in cost of sales in 2016 was due to higher copper sales volume, which increased by 18.3%. The increase in depreciation was mainly due to investment and
maintenance capital acquisitions at most of our operations.
Net
income attributable to SCC in 2017 was 6.2% lower than in 2016 mainly due to the one-time, non-cash income tax adjustment of $785.9 million as a result of the US income tax
legislation enacted in the fourth quarter of 2017. See Note 7 "Income Taxes", of our consolidated financial statements.
Income
before income taxes in 2017 was $2,302.7 million or 83.3% higher than 2016 income before taxes of $1,256.0 million. This improvement resulted from higher sales and
cost reductions achieved in electricity (8.0%), tires (9.4%), and other cost elements.
Production:
The table below highlights, mine production data of our Company for the three years ended
December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
(million pounds, except silvermillion ounces)
|
|
2017
|
|
2016
|
|
2015
|
|
2017 - 2016
|
|
2016 - 2015
|
|
|
|
|
|
|
|
|
|
Volume
|
|
%
|
|
Volume
|
|
%
|
|
Copper
|
|
|
1,933.4
|
|
|
1,984.1
|
|
|
1,638.0
|
|
|
(50.7
|
)
|
|
(2.6
|
)%
|
|
346.1
|
|
|
21.1
|
%
|
Molybdenum
|
|
|
47.0
|
|
|
47.9
|
|
|
51.5
|
|
|
(0.9
|
)
|
|
(1.9
|
)%
|
|
(3.6
|
)
|
|
(6.9
|
)%
|
Zinc
|
|
|
151.4
|
|
|
163.1
|
|
|
136.5
|
|
|
(11.7
|
)
|
|
(7.2
|
)%
|
|
26.6
|
|
|
19.5
|
%
|
Silver
|
|
|
15.9
|
|
|
16.2
|
|
|
13.3
|
|
|
(0.3
|
)
|
|
(1.5
|
)%
|
|
2.9
|
|
|
21.7
|
%
|
71
Table of Contents
The
table below highlights copper production data at each of our mines for the three years ended December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
Copper
(in million pounds):
|
|
2017
|
|
2016
|
|
2015
|
|
2017 - 2016
|
|
2016 - 2015
|
|
|
|
|
|
|
|
|
|
Volume
|
|
%
|
|
Volume
|
|
%
|
|
Toquepala
|
|
|
326.3
|
|
|
311.8
|
|
|
316.6
|
|
|
14.5
|
|
|
4.7
|
%
|
|
(4.8
|
)
|
|
(1.5
|
)%
|
Cuajone
|
|
|
348.6
|
|
|
378.0
|
|
|
392.8
|
|
|
(29.4
|
)
|
|
(7.8
|
)%
|
|
(14.8
|
)
|
|
(3.8
|
)%
|
La Caridad
|
|
|
296.9
|
|
|
293.8
|
|
|
288.9
|
|
|
3.1
|
|
|
1.1
|
%
|
|
4.9
|
|
|
1.7
|
%
|
Buenavista
|
|
|
949.5
|
|
|
986.4
|
|
|
627.4
|
|
|
(36.9
|
)
|
|
(3.7
|
)%
|
|
359.0
|
|
|
57.2
|
%
|
IMMSA
|
|
|
12.1
|
|
|
14.1
|
|
|
12.3
|
|
|
(2.0
|
)
|
|
(14.7
|
)%
|
|
1.8
|
|
|
14.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mined copper
|
|
|
1,933.4
|
|
|
1,984.1
|
|
|
1,638.0
|
|
|
(50.7
|
)
|
|
(2.6
|
)%
|
|
346.1
|
|
|
21.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 compared to 2016:
Copper mine production in 2017 decreased 2.6% to 1,933.4 million pounds from 1,984.1 million pounds in 2016. This decrease was due
to:
-
-
Lower production at the Cuajone mine due to lower ore grades and recoveries.
-
-
Lower production at our Mexican mines, principally lower SX-EW production at the Buenavista mine due to lower PLS processed with a lower copper
content.
-
-
The decrease in production was partially offset by higher production at the Toquepala mine due to higher ore grades and recoveries.
Molybdenum
production slightly decreased 1.9% in 2017 compared to 2016, principally due to lower production at our Peruvian operations as a result of lower grades and recoveries. This
decrease was partially offset by the additional production from the Buenavista molybdenum plant at the second concentrator which started production in July 2016.
Silver
mine production decreased 1.5% in 2017 as a result of lower production at our IMMSA mines partially offset by higher production at our open-pit mines in Mexico and Peru.
Zinc
production decreased 7.2% in 2017 principally due to lower production at our Santa Eulalia and Santa Barbara mines due to lower mineral milled and lower grades.
2016 compared to 2015:
Mined copper in 2016 increased 346.1 million pounds, compared to 2015 production. This increase was due
to:
-
-
Higher production at our Buenavista mine due to the ramping up of the new concentrator and better concentrate grades and recoveries.
-
-
Higher production at the La Caridad mine due to higher concentrate grades, partially offset by
-
-
Lower production at the Cuajone and Toquepala mines due to lower ore grades and concentrate recoveries.
Molybdenum
production decreased 3.6 million pounds in 2016, compared to 2015, principally due to lower production at our Peruvian mines because of lower grades. Silver production
increased 2.9 million ounces in 2016 due to higher production at our Buenavista and IMMSA mines. Zinc production increased by 26.6 million pounds in 2016 due to a year of full production
without the flooding problems that we encountered in prior years.
72
Table of Contents
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 87. 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. Additionally excluded 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 consider is one of the lowest of 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 netting 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 cover 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 with operating management areas of concern. The measure operating cash cost per pound of copper produced net of by-product revenues is a common measure used in 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 in determining whether to move forward with 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.
73
Table of Contents
Our operating cash cost per pound of copper produced, as defined above, is presented in the table below for the three years ended December 31, 2017:
Operating cash cost per pound of copper produced
(1)
(In millions, except cost per pound and percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
|
|
|
|
|
|
|
|
2017 - 2016
|
|
2016 - 2015
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Value
|
|
%
|
|
Value
|
|
%
|
|
Total operating cash cost before by-product revenues
|
|
$
|
2,797.5
|
|
$
|
2,779.8
|
|
$
|
2,643.9
|
|
$
|
17.7
|
|
|
0.6
|
%
|
$
|
135.9
|
|
|
5.1
|
%
|
Total by-product revenues
|
|
|
(1,080.4
|
)
|
|
(955.6
|
)
|
|
(866.8
|
)
|
|
(124.8
|
)
|
|
13.1
|
%
|
|
(88.8
|
)
|
|
10.2
|
%
|
Total operating cash cost net of by-product revenues
|
|
$
|
1,717.1
|
|
$
|
1,824.2
|
|
$
|
1,777.1
|
|
$
|
(107.1
|
)
|
|
(5.9
|
)%
|
$
|
47.1
|
|
|
2.7
|
%
|
Total pounds of copper produced(2)
|
|
|
1,874.5
|
|
|
1,924.7
|
|
|
1,599.3
|
|
|
(50.2
|
)
|
|
(2.6
|
)%
|
|
325.4
|
|
|
20.3
|
%
|
Operating cash cost per pound before by-product revenues
|
|
|
1.49
|
|
|
1.44
|
|
|
1.65
|
|
|
0.05
|
|
|
3.5
|
%
|
|
(0.21
|
)
|
|
(12.7
|
)%
|
Operating cash cost per pound net of by-product revenues
|
|
|
0.92
|
|
|
0.95
|
|
|
1.11
|
|
|
(0.03
|
)
|
|
(3.2
|
)%
|
|
(0.16
|
)
|
|
(14.4
|
)%
|
-
(1)
-
These
are non-GAAP measures, see page 87 for reconciliation to GAAP measure.
-
(2)
-
Net
of metallurgical losses.
2017 compared to 2016:
Our cash cost per pound before by-product revenues in 2017 was $2,797.5, 0.6% higher than in 2016. This increase in operating cash cost was
mainly the result of higher production costs.
However,
our per pound cash cost for 2017, when calculated net of by-product revenues was 3.2% lower than in 2016. This was the result of higher prices for our major by-products and
higher zinc sales volume.
2016 compared to 2015:
As seen on the chart above, our 2016 operating cash cost per pound of copper before by-product revenues was $0.21 per pound lower than in 2015,
a decrease of 12.7%. This was due to lower costs per pound from production costs, as a result of higher production at a lower per-unit cost from the Buenavista projects, lower fuel costs and lower
costs per pound from selling, general and administrative expenses and inventory change, partially offset by higher treatment and refining charges and premiums.
Our
cash cost per pound for 2016 when calculated net of by-product revenues was $0.95 per pound, compared to $1.11 per pound in 2015, a decrease of 14.4%. The total value of by-products
increased by $88.8 million in 2016, principally due to the higher sales volume and the higher sales prices for silver and zinc, reduced somewhat by decreases in molybdenum volume and sales
prices.
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,
74
Table of Contents
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.
For
2018, assuming that expected metal production and sales are achieved, that 2017 tax rates are unchanged and giving no effect to potential hedging programs, metal price sensitivity
factors would 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 silverper ounce)
|
|
$
|
0.10
|
|
$
|
1.00
|
|
$
|
0.10
|
|
$
|
1.00
|
|
Change in net earnings (in millions)
|
|
$
|
143.9
|
|
$
|
32.0
|
|
$
|
16.9
|
|
$
|
14.9
|
|
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 include La
Caridad and Buenavista mine complexes, the smelting and refining plants and support facilities, which service both mines. Our IMMSA unit includes five underground mines, a coal mine, and several
industrial processing facilities.
Segment
information is included in our review of "Results of Operations" in this item and also in Note 17 "Segment and Related Information" of our consolidated financial
statements.
Inflation and Exchange Rate Effect of the Peruvian sol and the Mexican peso:
Our functional currency is the U.S. dollar
and our revenues are primarily denominated in U.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 do believe such changes have not had a 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 $1,023.5 million in 2017, $1,118.5 million in
2016 (including the El Pilar acquisition) and $1,250.0 million in 2015 (including the El Pilar acquisition). In general, the capital investments and projects described below are intended to
increase production, decrease costs or address social and environmental commitments.
75
Table of Contents
The
table below sets forth our capital investments for the three years ended December 31, 2017 (in millions):
|
|
|
|
|
|
|
|
|
|
|
Peruvian projects:
|
|
2017
|
|
2016
|
|
2015
|
|
Toquepala expansion project
|
|
$
|
362.0
|
|
$
|
164.2
|
|
$
|
56.5
|
|
Toquepala mine equipment acquisition project
|
|
|
39.7
|
|
|
94.2
|
|
|
2.8
|
|
Heavy mineral management optimizing projectCuajone
|
|
|
81.7
|
|
|
76.6
|
|
|
50.0
|
|
Ilo 3 substation
|
|
|
29.9
|
|
|
3.7
|
|
|
6.5
|
|
HPGR systemToquepala
|
|
|
18.8
|
|
|
17.0
|
|
|
5.6
|
|
Tailings disposalQuebrada Honda dam
|
|
|
15.5
|
|
|
18.3
|
|
|
0.7
|
|
Other projects
|
|
|
14.4
|
|
|
15.4
|
|
|
14.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total projects
|
|
|
562.0
|
|
|
389.4
|
|
|
136.6
|
|
Maintenance and replacement
|
|
|
153.1
|
|
|
210.5
|
|
|
185.7
|
|
Net change in capital expenditures incurred but not yet paid
|
|
|
(29.7
|
)
|
|
(58.9
|
)
|
|
(37.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Peruvian expenditures
|
|
|
685.4
|
|
|
541.0
|
|
|
285.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexican projects:
|
|
|
|
|
|
|
|
|
|
|
New Buenavista concentrator
|
|
|
24.7
|
|
|
70.7
|
|
|
238.4
|
|
Buenavista projects infrastructure
|
|
|
1.9
|
|
|
46.6
|
|
|
89.6
|
|
Buenavista SX-EW plant III
|
|
|
1.1
|
|
|
|
|
|
11.0
|
|
Quebalix IV
|
|
|
17.6
|
|
|
104.7
|
|
|
99.4
|
|
New tailing disposal deposit at Buenavista mine
|
|
|
79.2
|
|
|
65.7
|
|
|
47.8
|
|
Solutions system improvements of Tinajas
|
|
|
14.5
|
|
|
42.5
|
|
|
34.2
|
|
New system recovery solutions
|
|
|
|
|
|
|
|
|
14.9
|
|
El Pilar mine
|
|
|
|
|
|
|
|
|
100.4
|
|
Other projects
|
|
|
63.0
|
|
|
94.5
|
|
|
92.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total projects
|
|
|
202.0
|
|
|
424.7
|
|
|
728.1
|
|
Maintenance and replacement
|
|
|
144.7
|
|
|
142.2
|
|
|
216.9
|
|
Net change in capital expenditures incurred but not yet paid
|
|
|
(8.6
|
)
|
|
10.6
|
|
|
19.8
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mexican expenditures
|
|
|
338.1
|
|
|
577.5
|
|
|
964.8
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital investments
|
|
$
|
1,023.5
|
|
$
|
1,118.5
|
|
$
|
1,250.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
2018, we plan to invest $1,748.2 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 ZincSonora:
This project is located within the Buenavista facility and contemplates the
development of a new concentrator to produce approximately 80,000 tons of zinc and 20,000 tons of additional copper per year that will allow us to double our current zinc production capacity. We have
concluded the basic engineering and we are working on the purchasing process for the main project components. We estimate an investment of $413 million for this project and expect to initiate
operations in 2020.
PilaresSonora:
This project, located six kilometers from La Caridad, will be developed as an open-pit mine
operation. The ore will be transported by truck from the pit to the primary crushers of the La Caridad copper concentrator, significantly improving the over-all mineral ore grade (from 0.34% at La
Caridad to 0.78% expected from Pilares). Currently, we continue with the mine plan preparation, including the final outline design for the road through which the ore will be transported to the
La Caridad mill. An investment of $159 million is estimated to produce 35,000 tons of copper in concentrates per year. We expect this project to start operations in 2019.
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Table of Contents
Projects in Peru
:
We currently have a portfolio of projects in Peru, with a total capital budget of $2,900 million, out of which $1,620 million have
already been invested.
Toquepala Expansion ProjectTacna:
This $1.2 billion project includes a new state-of-the-art
concentrator which will increase Toquepala's annual copper production by 100,000 tons to reach 245,000 tons in 2019, a 69% production increase. Through December 31, 2017, we have invested
$892.9 million in this expansion. The project has reached 87% progress and is expected to initiate production in June 2018.
The
project to improve the crushing process at Toquepala with the installation of a
High Pressure Grinding Roll (HPGR)
system, has as its
main objective, to ensure that our existing concentrator will operate at its maximum annual production capacity of 117,000 tons of copper while reducing operating costs through ore crushing
efficiencies, even with an increase of the ore material hardness index. The budget for this project is $50 million and as of December 31, 2017, we have invested $38.9 million in
this project. We expect that it will be completed by the first quarter of 2018.
Cuajone ProjectsMoquegua:
The
Mineral Crushing and Hauling
Project
consisted of replacing rail haulage at the Cuajone mine by an in-pit primary crusher with a 7 km overland conveyor belt system to move ore to the concentrator.
Operating savings are estimated at $23 million annually. As of December 31, 2017, the project is already completed and in operation. Total investment was $226 million, as
budgeted.
The
Cuajone tailing thickeners
project at the concentrator will replace two of the three existing thickeners with a new hi-rate thickener.
The purpose is to streamline the concentrator flotation process and improve water recovery efficiency, increasing the tailings solids content from 54% to 61%, thereby reducing fresh water consumption
and replacing it with recovered water. Equipment assembly is completed and we are in the commissioning process. As of December 31, 2017, we have invested $27.6 million in this project
out of the approved capital budget of $30 million. We expect the project to be completed by the end of the first quarter of 2018.
Tailings disposal at Quebrada HondaMoquegua:
This project increases the height of the existing Quebrada
Honda dam to impound future tailings from the Toquepala and Cuajone mills and will extend the expected life of this tailings facility by 25 years. The first stage and construction of the
drainage system for the lateral dam is finished. We finished the second stage with the installation of a new cyclone battery station that allows us to place more slurry at the dams. We are in a
bidding process for a new stage which will improve the operational processes. The project has a total budgeted cost of $116.0 million. We have invested $85.7 million through
December 31, 2017 and expect the project to be completed by the fourth quarter of 2018.
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 factors. All capital spending plans will continue to be reviewed and adjusted to respond to changes in the economy or market
conditions. We are currently developing a new organic growth plan to increase our annual copper production to 1.5 million tons by 2025 with the development of new projects, which include the
following:
El Arco:
This is a world class copper deposit located in the central part of the Baja California peninsula, with ore
reserves over 2.7 billion tons with an ore grade of 0.399% and 0.11 grams of gold per ton. This project, includes an open-pit mine combining concentrator and SX-EW operations with
77
Table of Contents
an
estimated production of 190,000 tons of copper and 105,000 ounces of gold annually. Between July 2015 and February 2016, we conducted a drilling program of 20,170 meters in order to further define
the deposit at lower depths of between 300 and 600 meters. In 2018, we expect to conduct further exploration activities. In addition, we will begin an engineering study to define optimization
alternatives for the project and update the feasibility study, besides further analysis in the electrical energy supply.
El Pilar:
This is a fully permitted, 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 325 million tons of ore with an average copper
grade of 0.287%. El Pilar will operate as a conventional open-pit mine and copper cathodes will be produced using the highly cost efficient and environmentally friendly SX-EW technology. Average
annual production is currently estimated at 35,000 tons of copper cathodes over an initial 13-year mine life, with start of commercial operations forecasted for 2019. On a preliminary basis, we
estimate a development investment of approximately $310 million. In 2016, we conducted a diamond drilling program of 3,700 meters and a geophysical survey of 40 kilometers in order to confirm
the reserves. Additionally, the results allowed us to identify potential new areas of interest. During the first half of 2017, we initiated a reserve estimation program. In July 2017, we started a
20,000 meter drilling program focused on further assessing the geophysical anomalies detected in the exploration program of 2016. During 2018 we will continue with the metallurgical testing program
and the leaching optimization studies.
Tia Maria:
We have completed engineering and after having complied with all environmental requirements, we have obtained
the approval of the environmental impact assessment. We are working jointly with the Peruvian Government to obtain the construction license for this 120,000 tons of SX-EW copper per year greenfield
project with a total capital investment of $1,400 million. We expect the license to be issued in the first half of 2018.
This
greenfield project, located in Arequipa, 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. The project will use seawater, transporting it more than 25 kilometers to an
altitude of 1,000 meters above sea level. The construction of the desalinization plant requires an investment of approximately $95 million.
We
expect the project to generate 3,600 jobs during the construction phase. When in operation, Tia Maria will directly employ 600 workers and indirectly provide jobs to another 4,200.
Through its expected twenty-year life, the project related services will create significant business opportunities in the Arequipa region. Tia Maria has complied with all existing requirements and
regulations and therefore the Company trusts that it will soon receive from government authorities the construction licenses and permits required in order to begin construction of this project.
Los Chancas.
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. The estimated capital investment is $2,800 million and is expected to be in operation in 2022. In 2016 and 2017, we
continued with the development of social and environmental improvements for the local communities in order to conduct the environmental impact assessment, which will begin in the first months of 2018.
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.
78
Table of Contents
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 with U.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 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, leachable material and
related amortization, estimated impairment of assets, asset retirement obligations, 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 $2.90 per pound for copper and
$7.50 per pound for molybdenum. These prices are intended to conservatively approximate average prices over the long term.
However,
pursuant to SEC guidance, the reserve information in this report is calculated using average metals prices over the most recent three years, except as otherwise stated. We refer
to these three-year average metals prices as "current average prices." Our current average prices for copper are calculated using prices quoted by COMEX, and our current average prices for molybdenum
are calculated using prices published in
Platt's Metals Week
. Unless otherwise stated, reserve estimates in this report use the following three years
average prices for copper and molybdenum as of December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Average
2017 - 2015
|
|
Copper ($ per pound)
|
|
$
|
2.80
|
|
$
|
2.20
|
|
$
|
2.51
|
|
$
|
2.50
|
|
Molybdenum ($ per pound)
|
|
$
|
8.21
|
|
$
|
6.42
|
|
$
|
6.59
|
|
$
|
7.07
|
|
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 to 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 "Propertiescaption 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 and Buenavista mines recognizing it as inventory. The estimates of recoverable mineral content
contained in the leaching dumps are supported by engineering studies. As the
79
Table of Contents
production
cycle of the leaching process is significantly longer than the conventional process of concentrating, smelting and electrolytic refining, we include on our balance sheet, current leach
inventory (as part of work-in-process inventories) and long-term leach inventory. Amortization of leachable material is recorded by the units of production method.
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 amounts charged to operations for reclamation and remediation.
Asset
retirement obligations are further discussed in Note 9 "Asset Retirement Obligation" to our 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 few cases perhaps a few further 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 the U.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
80
Table of Contents
"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.
On
December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act ("the Act"). The Act significantly changes U.S. tax law by, among other things,
lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Act permanently reduces the U.S.
corporate income tax rate from a maximum of 35% to a flat 21% effective January 1, 2018. The SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the
application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the
accounting for certain income tax effects of the Act. The Company has recognized the provisional tax impacts related to deemed repatriated earnings and
the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended December 31, 2017. The ultimate impact may differ
from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance
that may be issued, and actions the Company may take as a result of the Act. The accounting is expected to be complete in the fourth quarter of 2018 in accordance with SAB 118. For further
information, see Note 7 "Income Taxes", of our consolidated financial statements.
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, reflective of what we believe is the lower level of the
current price environment, for our impairment tests. 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 2.15 to 4.05 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 reverse in the future with three year average prices 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 by reference to fair value.
81
Table of Contents
RESULTS OF OPERATIONS
The
following table highlights key financial results for each of the years in the three-year period ended December 31, 2017 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
Statement of Earnings Data
|
|
2017
|
|
2016
|
|
2015
|
|
2017 - 2016
|
|
2016 - 2015
|
|
Net sales
|
|
$
|
6,654.5
|
|
$
|
5,379.8
|
|
$
|
5,045.9
|
|
$
|
1,274.7
|
|
$
|
333.9
|
|
Operating costs and expenses
|
|
|
(4,035.6
|
)
|
|
(3,815.6
|
)
|
|
(3,631.5
|
)
|
|
(220.0
|
)
|
|
(184.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
2,618.9
|
|
|
1,564.2
|
|
|
1,414.4
|
|
|
1,054.7
|
|
|
149.8
|
|
Non-operating income (expense)
|
|
|
(316.2
|
)
|
|
(308.2
|
)
|
|
(225.2
|
)
|
|
(8.0
|
)
|
|
(83.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2,302.7
|
|
|
1,256.0
|
|
|
1,189.2
|
|
|
1,046.7
|
|
|
66.8
|
|
Current income taxes and royalty taxes
|
|
|
(951.7
|
)
|
|
(623.6
|
)
|
|
(620.3
|
)
|
|
(328.1
|
)
|
|
(3.3
|
)
|
Deferred income taxes
|
|
|
(641.7
|
)
|
|
122.5
|
|
|
155.4
|
|
|
(764.2
|
)
|
|
(32.9
|
)
|
Equity earnings of affiliate
|
|
|
23.1
|
|
|
23.9
|
|
|
16.8
|
|
|
(0.8
|
)
|
|
7.1
|
|
Net income attributable to non-controlling interest
|
|
|
(3.9
|
)
|
|
(2.3
|
)
|
|
(4.7
|
)
|
|
(1.6
|
)
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to SCC
|
|
$
|
728.5
|
|
$
|
776.5
|
|
$
|
736.4
|
|
$
|
(48.0
|
)
|
$
|
40.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET SALES
2017-2016:
Net sales in 2017 were $6,654.5 million, compared to $5,379.8 million in 2016, an increase of
$1,274.7 million. This 23.7% increase was principally the result of higher metal prices as shown below, and also due to slightly higher sales volumes of copper (+1.8%) and zinc (+2.0%),
partially offset by lower sales volumes of silver (2.1%) and molybdenum (1.7%).
2016-2015:
Net sales in 2016 were $5,379.8 million, compared to $5,045.9 million in 2015, an increase of
$333.9 million or 6.6%. The increase was principally the result of higher sales volume of copper (+18.3%) and silver (+18.9%), partially offset by lower prices for copper and molybdenum.
The
table below outlines the average published market metals prices for our metals for each of the three years in the three-year period ended December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Variance
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
2017 - 2016
|
|
2016 - 2015
|
|
Copper price ($ per poundLME)
|
|
$
|
2.80
|
|
$
|
2.21
|
|
$
|
2.50
|
|
|
26.7
|
%
|
|
(11.6
|
)%
|
Copper price ($ per poundCOMEX)
|
|
$
|
2.80
|
|
$
|
2.20
|
|
$
|
2.51
|
|
|
27.3
|
%
|
|
(12.4
|
)%
|
Molybdenum price ($ per pound)(1)
|
|
$
|
8.13
|
|
$
|
6.42
|
|
$
|
6.59
|
|
|
26.6
|
%
|
|
(2.6
|
)%
|
Zinc price ($ per poundLME)
|
|
$
|
1.31
|
|
$
|
0.95
|
|
$
|
0.88
|
|
|
37.9
|
%
|
|
8.0
|
%
|
Silver price ($ per ounceCOMEX)
|
|
$
|
17.03
|
|
$
|
17.10
|
|
$
|
15.68
|
|
|
(0.4
|
)%
|
|
9.1
|
%
|
-
(1)
-
Platt's
Metals Week Dealer Oxide.
The
table below provides our metal sales as a percentage of our total net sales:
|
|
|
|
|
|
|
|
|
|
|
Sales as a percentage of total net sales
|
|
2017
|
|
2016
|
|
2015
|
|
Copper
|
|
|
82.3
|
%
|
|
78.4
|
%
|
|
79.2
|
%
|
Molybdenum
|
|
|
5.3
|
%
|
|
5.0
|
%
|
|
4.7
|
%
|
Silver
|
|
|
4.3
|
%
|
|
5.5
|
%
|
|
4.5
|
%
|
Zinc
|
|
|
4.9
|
%
|
|
4.4
|
%
|
|
4.2
|
%
|
Other by-products
|
|
|
3.2
|
%
|
|
6.7
|
%
|
|
7.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
Table of Contents
The table below provides our copper sales by type of product (in million pounds):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
Copper Sales
|
|
2017
|
|
2016
|
|
2015
|
|
2017 - 2016
|
|
2016 - 2015
|
|
Refined (including SX-EW)
|
|
|
1,193.3
|
|
|
1,161.7
|
|
|
1,146.1
|
|
|
31.6
|
|
|
15.6
|
|
Rod
|
|
|
309.7
|
|
|
319.4
|
|
|
304.6
|
|
|
(9.7
|
)
|
|
14.8
|
|
Concentrates and other
|
|
|
456.2
|
|
|
442.8
|
|
|
175.1
|
|
|
13.4
|
|
|
267.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,959.2
|
|
|
1,923.9
|
|
|
1,625.8
|
|
|
35.3
|
|
|
298.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
table below provides our copper sales volume by type of product as a percentage of our total copper sales volume:
|
|
|
|
|
|
|
|
|
|
|
Copper Sales by product type
|
|
2017
|
|
2016
|
|
2015
|
|
Refined (including SX-EW)
|
|
|
60.9
|
%
|
|
60.4
|
%
|
|
70.5
|
%
|
Rod
|
|
|
15.8
|
%
|
|
16.6
|
%
|
|
18.7
|
%
|
Concentrates and other
|
|
|
23.3
|
%
|
|
23.0
|
%
|
|
10.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
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 2017 as a percentage of total production
cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Power
|
|
|
16.8
|
%
|
|
18.5
|
%
|
|
18.5
|
%
|
Labor
|
|
|
13.9
|
%
|
|
13.2
|
%
|
|
13.3
|
%
|
Fuel
|
|
|
13.7
|
%
|
|
11.5
|
%
|
|
13.8
|
%
|
Maintenance
|
|
|
18.9
|
%
|
|
19.4
|
%
|
|
16.7
|
%
|
Operating material
|
|
|
19.3
|
%
|
|
19.3
|
%
|
|
20.8
|
%
|
Other
|
|
|
17.4
|
%
|
|
18.1
|
%
|
|
16.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017-2016:
Operating costs and expenses in 2017 increased $220.0 million, compared to 2016, primarily due to:
|
|
|
|
|
|
|
Operating cost and expenses for 2016
|
|
$
|
3,815.6
|
|
Plus:
|
|
|
|
|
|
|
Higher cost of sales (exclusive of depreciation, amortization and depletion) mainly due to higher inventory consumption, foreign currency transaction effect, higher workers' participation expense and higher fuel costs,
partially offset by lower power costs, and higher capitalized ore stockpiles on leach pads.
|
|
|
218.7
|
|
|
|
Higher depreciation, amortization and depletion mainly as a result of our expansion and maintenance capital investments.
|
|
|
24.0
|
|
Less:
|
|
|
|
|
|
|
Partial recovery of remediation costs for the 2014 spill at Buenavista due to the completion of remediation activities.
|
|
|
(10.2
|
)
|
|
|
Lower selling, general and administrative expenses.
|
|
|
(1.2
|
)
|
|
|
Lower exploration expense.
|
|
|
(11.3
|
)
|
|
|
|
|
|
|
|
Operating cost and expenses for 2017
|
|
$
|
4,035.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
Table of Contents
2016-2015:
Operating costs and expenses in 2016 increased $184.1 million, compared to 2015, primarily due to:
|
|
|
|
|
|
|
Operating cost and expenses for 2015
|
|
$
|
3,631.5
|
|
Plus:
|
|
|
|
|
|
|
Higher cost of sales (exclusive of depreciation, amortization and depletion), mainly as a result of higher sales volume, capitalized leachable material, maintentance costs, and sales expenses; partially offset by lower
fuel costs, inventory consumption, and lower cost of metals purchased from third
parties.
|
|
|
106.5
|
|
|
|
Higher depreciation, amortization and depletion mainly as a result of our expansion and maintenance capital
investments.
|
|
|
136.4
|
|
Less:
|
|
|
|
|
|
|
Lower environmental remediation expenses from the 2014 spill at Buenavista.
|
|
|
(45.0
|
)
|
|
|
Lower exploration expenses in Mexico, Peru and other exploration locations.
|
|
|
(8.7
|
)
|
|
|
Lower selling, general and administrative expenses.
|
|
|
(5.1
|
)
|
|
|
|
|
|
|
|
Operating cost and expenses for 2016
|
|
$
|
3,815.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
NON-OPERATING
INCOME (EXPENSE)
|
|
2017
|
|
2016
|
|
2015
|
|
2017 - 2016
|
|
2016 - 2015
|
|
Interest expense
|
|
$
|
(357.4
|
)
|
$
|
(360.3
|
)
|
$
|
(334.0
|
)
|
$
|
2.9
|
|
$
|
(26.3
|
)
|
Capitalized interest
|
|
|
51.4
|
|
|
69.6
|
|
|
123.2
|
|
|
(18.2
|
)
|
|
(53.6
|
)
|
Other (expense) income
|
|
|
(15.7
|
)
|
|
(24.6
|
)
|
|
(25.3
|
)
|
|
8.9
|
|
|
0.7
|
|
Interest income
|
|
|
5.5
|
|
|
7.1
|
|
|
10.9
|
|
|
(1.6
|
)
|
|
(3.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-operating income (expense)
|
|
$
|
(316.2
|
)
|
$
|
(308.2
|
)
|
$
|
(225.2
|
)
|
$
|
(8.0
|
)
|
$
|
(83.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017-2016:
Non-operating income and expense were a net expense of $316.2 million in 2017 compared to a net
expense of $308.2 million in 2016. The $8.0 million variance in net expense in 2017 was mainly due to:
-
-
$ 18.2 million of lower capitalized interest mainly due to an adjustment in capitalized interest computation,
-
-
$ 1.6 million of lower interest income; partially offset by,
-
-
$ 8.9 million of lower miscellaneous expense, net; and,
-
-
$ 2.9 million of lower interest expense.
2016-2015:
Non-operating income and expense were a net expense of $308.2 million in 2016 compared to
a net expense of $225.2 million in 2015. The $83.0 million increase in net expense in 2016 was mainly due to:
-
-
$53.6 million of lower capitalized interest, as completed Buenavista projects have been transferred to operations,
-
-
$26.3 million of higher interest expense related to the $2 billion bond issue, in April 2015,
-
-
$3.8 million of lower interest income; partially offset by,
-
-
$0.7 million of higher miscellaneous income.
84
Table of Contents
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Provision for income taxes ($ in millions)
|
|
$
|
1,593.4
|
|
$
|
501.1
|
|
$
|
464.9
|
|
Effective income tax rate
|
|
|
69.2
|
%
|
|
39.9
|
%
|
|
39.1
|
%
|
The
income tax provision includes Peruvian, Mexican and U.S. federal and state income taxes.
Components
of income tax provision for 2017, 2016 and 2015 include the following ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Statutory income tax provision
|
|
$
|
688.5
|
|
$
|
441.1
|
|
$
|
423.1
|
|
Tax reform adjustment
|
|
|
785.9
|
|
|
|
|
|
|
|
Peruvian royalty
|
|
|
2.5
|
|
|
|
|
|
2.7
|
|
Mexican royalty
|
|
|
93.2
|
|
|
48.9
|
|
|
20.9
|
|
Peruvian special mining tax
|
|
|
23.3
|
|
|
11.1
|
|
|
18.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision
|
|
$
|
1,593.4
|
|
$
|
501.1
|
|
$
|
464.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
effect of U.S. tax reform on the company's financial statements was a provisional non-cash tax provision of $785.9 million. The reduction of the corporate tax rate from 35% to
21% applied to the US deferred tax asset increased tax provision by $110.2 million and the transition tax on the repatriated foreign earnings net of the related deemed paid tax credit increased
the provision by $56.1 million. In addition, the Company anticipates that it will not be able to realize certain deferred tax assets due to the US tax reform, and related valuation allowances
for these deferred tax assets increased the tax provision as follows: $280.2 million for foreign tax credits, $174.1 million related to the US tax effect of Peruvian deferreds,
$165.3 million related to the US deferred tax asset calculated using a 21% tax rate.
The
increase in the effective tax rate in 2017 from the prior year was primarily due to the effects of US tax reform, which added 34.1% to the effective tax rate: 26.9% for valuation of
deferred tax assets for foreign tax credits, the US tax effect of Peruvian deferreds, and the US deferred tax asset, 4.8% for the reduction of the corporate tax rate from 35% to 21% applied to the US
deferred tax asset, and 2.4% for the transition tax on the repatriated foreign earnings net of the related deemed paid tax credit. The remaining changes in the effective income tax rate from 2016 to
2017 partially offset the increase from the impact of the U.S. tax reform by 4.8%, which such decrease is mainly due to tax accrued on 2016 on foreign earnings that were not permanently reinvested.
The
increase in the effective tax rate in 2016 from the prior year was primarily due to the repatriation of foreign income to the U.S. jurisdiction from our Mexican Operations net of a
decrease in permanent differences including exchange gain or loss, which is non-deductible in the Peruvian jurisdiction.
Please
see Note 7 "Income taxes" of our consolidated financial statements for further information regarding tax changes.
Equity earnings of affiliate
In 2017, 2016 and 2015 we have recognized $23.1 million, $23.9 million and $16.8 million, respectively of equity earnings
of affiliate, from our 44.2% interest in the Tantahuatay mine.
Net Income attributable to the non-controlling interest
Net income attributable to the non-controlling interest in 2017 was $3.9 million, compared to $2.3 million in 2016, and
$4.7 million in 2015. It increased in 2017 by $1.6 million and decreased in
85
Table of Contents
2016
by $2.4 million. These changes were the result of higher and lower earnings at our Peruvian operations in 2017 and 2016, respectively.
Income attributable to SCC
Our net income attributable to SCC in 2017 was $728.5 million, compared to $776.5 million in 2016 and $736.4 million in
2015. Net income attributable to SCC decreased in 2017 due to the one-time, non-cash income tax adjustment of $785.9 million as a result of the US income tax legislation enacted in the fourth
quarter of 2017. This was partially offset by higher sales and cost reductions achieved in electricity (8.0%), tires (9.4%), and other cost elements. The increase in
2016 net income was mainly a result of higher copper sales volume.
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 "BusinessBusiness 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 ended December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
Copper Sales (million pounds)
|
|
2017
|
|
2016
|
|
2015
|
|
2017 - 2016
|
|
2016 - 2015
|
|
Peruvian operations
|
|
|
710.1
|
|
|
697.2
|
|
|
714.1
|
|
|
12.9
|
|
|
(16.9
|
)
|
Mexican open-pit
|
|
|
1,249.1
|
|
|
1,226.7
|
|
|
911.7
|
|
|
22.4
|
|
|
315.0
|
|
Mexican IMMSA unit
|
|
|
15.5
|
|
|
19.5
|
|
|
16.6
|
|
|
(4.0
|
)
|
|
2.9
|
|
Other and intersegment elimination
|
|
|
(15.5
|
)
|
|
(19.5
|
)
|
|
(16.6
|
)
|
|
4.0
|
|
|
(2.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total copper sales
|
|
|
1,959.2
|
|
|
1,923.9
|
|
|
1,625.8
|
|
|
35.3
|
|
|
298.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
By-product Sales (million pounds, except
silvermillion ounces)
|
|
2017
|
|
2016
|
|
2015
|
|
2017 - 2016
|
|
2016 - 2015
|
|
Peruvian operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Molybdenum contained in concentrate
|
|
|
17.5
|
|
|
22.6
|
|
|
27.2
|
|
|
(5.1
|
)
|
|
(4.6
|
)
|
Silver
|
|
|
4.1
|
|
|
3.7
|
|
|
3.7
|
|
|
0.4
|
|
|
|
|
Mexican open-pit operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Molybdenum contained in concentrate
|
|
|
29.6
|
|
|
25.3
|
|
|
24.0
|
|
|
4.3
|
|
|
1.3
|
|
Silver
|
|
|
10.1
|
|
|
10.6
|
|
|
8.4
|
|
|
(0.5
|
)
|
|
2.2
|
|
IMMSA unit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zinc-refined and in concentrate
|
|
|
237.2
|
|
|
232.4
|
|
|
222.2
|
|
|
4.8
|
|
|
10.2
|
|
Silver
|
|
|
4.3
|
|
|
4.8
|
|
|
4.3
|
|
|
(0.5
|
)
|
|
0.5
|
|
Other and intersegment elimination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silver
|
|
|
(1.6
|
)
|
|
(1.9
|
)
|
|
(1.9
|
)
|
|
0.3
|
|
|
|
|
Total by-product sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Molybdenum contained in concentrate
|
|
|
47.1
|
|
|
47.9
|
|
|
51.2
|
|
|
(0.8
|
)
|
|
(3.3
|
)
|
Zinc-refined and in concentrate
|
|
|
237.2
|
|
|
232.4
|
|
|
222.2
|
|
|
4.8
|
|
|
10.2
|
|
Silver
|
|
|
16.9
|
|
|
17.2
|
|
|
14.5
|
|
|
(0.3
|
)
|
|
2.7
|
|
86
Table of Contents
Peruvian Open-pit Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
2017 - 2016
|
|
2016 - 2015
|
|
Net sales
|
|
$
|
2,244.1
|
|
$
|
1,794.4
|
|
$
|
2,021.3
|
|
$
|
449.7
|
|
$
|
(226.9
|
)
|
Operating costs and expenses
|
|
|
(1,617.0
|
)
|
|
(1,547.8
|
)
|
|
(1,570.4
|
)
|
|
(69.2
|
)
|
|
22.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
627.1
|
|
$
|
246.6
|
|
$
|
450.9
|
|
$
|
380.5
|
|
$
|
(204.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
2017-2016:
Net sales in 2017 increased by $449.7 million, compared to 2016, mainly as a result of higher metal
prices and higher copper and silver sales volume, partially offset by lower molybdenum sales volume.
2016-2015:
Net sales in 2016 decreased by $226.9 million, compared to 2015, mainly as a result of lower sales
volumes and the decrease in copper and molybdenum prices.
Operating costs and expenses:
2017-2016:
Operating costs and expenses in 2016 increased by $69.2 million, compared to 2016, principally due to:
|
|
|
|
|
|
|
Operating cost and expenses for 2016
|
|
$
|
1,547.8
|
|
Plus:
|
|
|
|
|
|
|
Higher cost of sales (exclusive of depreciation, amortization and depletion) mainly due to higher cost of metals purchased from third parties, higher fuel costs and higher workers' participation expense; partially offset
by lower power and operating contractors costs, and lower inventory
consumption.
|
|
|
82.6
|
|
|
|
Higher exploration expenses.
|
|
|
1.4
|
|
Less:
|
|
|
|
|
|
|
Lower depreciation, amortization and depletion expense.
|
|
|
(13.5
|
)
|
|
|
Lower selling, general and administrative expenses.
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
Operating cost and expenses for 2017
|
|
$
|
1,617.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016-2015:
Operating costs and expenses in 2016 decreased by $22.6 million, compared to 2015, principally due to:
|
|
|
|
|
|
|
Operating cost and expenses for 2015
|
|
$
|
1,570.4
|
|
Less:
|
|
|
|
|
|
|
Lower cost of sales (exclusive of depreciation, amortization and depletion), mainly due to lower fuel and power costs, workers participation expense and capitalized leachable material, partially offset by higher foreign
currency transaction
effect.
|
|
|
(8.8
|
)
|
|
|
Lower depreciation, amortization and depletion.
|
|
|
(11.0
|
)
|
|
|
Lower selling, general and administrative expenses.
|
|
|
(3.9
|
)
|
Plus:
|
|
|
|
|
|
|
Higher exploration expenses.
|
|
|
1.1
|
|
|
|
|
|
|
|
|
Operating cost and expenses for 2016
|
|
$
|
1,547.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
Table of Contents
Mexican Open-pit Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
2017 - 2016
|
|
2016 - 2015
|
|
Net sales
|
|
$
|
3,972.7
|
|
$
|
3,234.3
|
|
$
|
2,703.9
|
|
$
|
738.4
|
|
$
|
530.4
|
|
Operating costs and expenses
|
|
|
(2,035.7
|
)
|
|
(1,940.2
|
)
|
|
(1,758.3
|
)
|
|
(95.5
|
)
|
|
(181.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
1,937.0
|
|
$
|
1,294.1
|
|
$
|
945.6
|
|
$
|
642.9
|
|
$
|
348.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
2017-2016:
Net sales in 2017 increased by $738.4 million, compared to 2016, mainly due to higher metal prices and
higher copper and molybdenum sales volumes, slightly offset by lower silver sales volume.
2016-2015:
Net sales in 2016 increased by $530.4 million, compared to 2015, mainly as a result of higher copper,
molybdenum and silver sales volume, due to the completion of the Buenavista projects; partially offset by lower copper and molybdenum prices.
Operating costs and expenses:
2017-2016:
Operating costs and expenses in 2017 increased by $95.5 million, compared to 2016, mainly due to:
|
|
|
|
|
|
|
Operating cost and expenses for 2016
|
|
$
|
1,940.2
|
|
Plus:
|
|
|
|
|
|
|
Higher cost of sales (exclusive of depreciation, amortization and depletion) mainly due to higher inventory consumption, workers participation expense and higher fuel costs; partially offset by lower cost of metals
purchased from third parties and lower sales
expenses.
|
|
|
71.1
|
|
|
|
Higher depreciation, amortization and depletion expense.
|
|
|
36.3
|
|
|
|
Higher selling, general and administrative expenses.
|
|
|
0.8
|
|
Less:
|
|
|
|
|
|
|
Partial recovery of the Sonora River remediation costs due to the completion of the remediation activities.
|
|
|
(10.2
|
)
|
|
|
Lower exploration expenses.
|
|
|
(2.5
|
)
|
|
|
|
|
|
|
|
Operating cost and expenses for 2017
|
|
$
|
2,035.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88
Table of Contents
2016-2015:
Operating costs and expenses in 2016 increased by $181.9 million, compared to 2015, principally due
to:
|
|
|
|
|
|
|
Operating cost and expenses for 2015
|
|
$
|
1,758.3
|
|
Plus:
|
|
|
|
|
|
|
Higher cost of sales (exclusive of depreciation, amortization and depletion), principally as a result of higher copper sales volume from our new Buenavista concentrator production, capitalized leachable material, workers'
participation expense and sales expenses, partially offset by lower inventory consumption and foreign currency transaction
effect.
|
|
|
133.2
|
|
|
|
Higher depreciation, amortization and depletion mainly due to our expansion and maintenance capital
projects.
|
|
|
99.7
|
|
Less:
|
|
|
|
|
|
|
Lower environmental remediation expense at Buenavista.
|
|
|
(45.0
|
)
|
|
|
Lower selling, general and administrative expenses.
|
|
|
(3.5
|
)
|
|
|
Lower exploration expenses.
|
|
|
(2.5
|
)
|
|
|
|
|
|
|
|
Operating cost and expenses for 2016
|
|
$
|
1,940.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMMSA unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
2017 - 2016
|
|
2016 - 2015
|
|
Net sales
|
|
$
|
508.7
|
|
$
|
423.1
|
|
$
|
388.3
|
|
$
|
85.6
|
|
$
|
34.8
|
|
Operating costs and expenses
|
|
|
(434.9
|
)
|
|
(366.3
|
)
|
|
(374.6
|
)
|
|
(68.6
|
)
|
|
8.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
73.8
|
|
$
|
56.8
|
|
$
|
13.7
|
|
$
|
17.0
|
|
$
|
43.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
2017-2016:
Net sales in 2017 increased $85.6 million, compared to 2016, primarily due to higher metal prices and
higher zinc sales volume, slightly offset by lower silver sales volume.
2016-2015:
Net sales in 2016 increased $34.8 million, compared to 2015, mainly as a result of higher zinc, copper
and silver sales volumes, partially offset by lower copper prices.
Operating costs and expenses:
2017-2016:
Operating costs and expenses in 2017 increased $68.6 million, compared to 2016, mainly due to:
|
|
|
|
|
|
|
Operating cost and expenses for 2016
|
|
$
|
366.3
|
|
Plus:
|
|
|
|
|
|
|
Higher cost of sales (exclusive of depreciation, amortization and depletion) mainly due to higher cost of metals purchased from third parties and higher power costs; partially offset by lower sales expenses and foreign
currency
effect.
|
|
|
61.2
|
|
|
|
Higher depreciation, amortization and depletion due to our maintenance capital
investments.
|
|
|
6.4
|
|
|
|
Higher exploration expenses.
|
|
|
0.5
|
|
|
|
Higher selling, general and administrative expenses.
|
|
|
0.5
|
|
|
|
|
|
|
|
|
Operating cost and expenses for 2017
|
|
$
|
434.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
Table of Contents
2016-2015:
Operating costs and expenses in 2016 decreased $8.3 million, compared to 2015, principally due to:
|
|
|
|
|
|
|
Operating cost and expenses for 2015
|
|
$
|
374.6
|
|
Less:
|
|
|
|
|
|
|
Lower cost of sales (exclusive of depreciation, amortization and depletion), principally as a result of lower cost of metals purchased from third parties, inventory consumption and power
costs.
|
|
|
(19.7
|
)
|
|
|
Lower exploration expenses.
|
|
|
(4.6
|
)
|
Plus:
|
|
|
|
|
|
|
Higher depreciation, amortization and depletion due to our maintenance capital investments.
|
|
|
15.0
|
|
|
|
Higher selling, general and administrative expenses.
|
|
|
1.0
|
|
|
|
|
|
|
|
|
Operating cost and expenses for 2016
|
|
$
|
366.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 of intersegment operating revenues and expenses must be taken into account. Please see Note 17 "Segment and Related Information" of our
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 December 31, 2017.
Cash Flow:
The following table shows the cash flow for the three year period ended December 31, 2017 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
2017 - 2016
|
|
2016 - 2015
|
|
Net cash provided by operating activities
|
|
$
|
1,976.6
|
|
$
|
923.1
|
|
$
|
879.8
|
|
$
|
1,053.5
|
|
$
|
43.3
|
|
Net cash used in investing activities
|
|
$
|
(1,019.0
|
)
|
$
|
(452.0
|
)
|
$
|
(1,461.0
|
)
|
$
|
(567.0
|
)
|
$
|
1,009.0
|
|
Net cash (used in) provided by financing activities
|
|
$
|
(456.1
|
)
|
$
|
(210.7
|
)
|
$
|
492.2
|
|
$
|
(245.4
|
)
|
$
|
(702.9
|
)
|
Net cash provided by operating activities:
The 2017, 2016 and 2015 change in net cash from operating activities include (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
2017 - 2016
|
|
2016 - 2015
|
|
Net income
|
|
$
|
732.4
|
|
$
|
778.8
|
|
$
|
741.1
|
|
$
|
(46.4
|
)
|
$
|
37.7
|
|
Depreciation, amortization and depletion
|
|
|
671.1
|
|
|
647.1
|
|
|
510.7
|
|
|
24.0
|
|
|
136.4
|
|
Provision (benefit) for deferred income taxes
|
|
|
641.5
|
|
|
(117.0
|
)
|
|
(153.2
|
)
|
|
758.5
|
|
|
36.2
|
|
Loss (income) on foreign currency transaction effect
|
|
|
24.9
|
|
|
(8.9
|
)
|
|
(2.2
|
)
|
|
33.8
|
|
|
(6.7
|
)
|
Other adjustments to net income
|
|
|
(3.4
|
)
|
|
16.9
|
|
|
(6.8
|
)
|
|
(20.3
|
)
|
|
23.7
|
|
Operating assets and liabilities
|
|
|
(89.9
|
)
|
|
(393.8
|
)
|
|
(209.8
|
)
|
|
303.9
|
|
|
(184.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided from operating activities
|
|
$
|
1,976.6
|
|
$
|
923.1
|
|
$
|
879.8
|
|
$
|
1,053.5
|
|
$
|
43.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. In 2017, we recorded a non-cash tax charge of $785.9 million related to the US tax law change enacted in December 2017.
2017:
Net income was $732.4 million, approximately 37% of the net cash provided from operating activities. A net
increase in operating assets and liabilities decreased operating cash flow by $89.9 million and included:
-
-
$(298.7) million increase in accounts receivable.
-
-
$(201.9) million of net increase in inventory, which included $(180.4) million of higher leaching inventory, $(26.8) million of higher supplies
inventories for our operations and $(76.3) million of higher metals in process, partially offset by $81.6 million of lower finished goods inventory.
-
-
$139.5 million increase in accounts payable and accrued liabilities, which included $75.6 million of higher accounts payable,
$51.5 million of higher accrued workers' participation and $12.4 million of higher other liabilities.
-
-
$271.2 million decrease in other operating assets and liabilities, which included principally $163.9 million of lower prepaid
taxes, mainly due to the use of tax credits from previous years.
91
Table of Contents
2016:
Net income was $778.8 million, approximately 84% of the net operating cash flow. An increase in operating
assets and liabilities reduced operating cash flow by $393.8 million and included:
-
-
$(143.3) million increase in accounts receivable.
-
-
$(207.9) million increase in inventory which includes $(122.3) million of higher leachable material inventory and $(43.1) million of metals in
process, $(26.3) million of higher finished goods and $(16.2) million of higher supplies inventory.
-
-
$(42.6) million of net changes in accounts payable, accrued liabilities and other operating assets.
2015:
Net income was $741.1 million, approximately 84% of the net operating cash flow. An increase in operating
assets and liabilities reduced operating cash flow by $209.8 million and included:
-
-
$91. 6 million decrease in accounts receivable.
-
-
$(260.3) million increase in inventory which includes $(239.6) million of higher long-term leachable material inventory, principally at our
Buenavista mine.
-
-
$(28.9) million decrease in accounts payable and accrued liabilities which included $99.7 million of higher accounts payable, $(40.8)
million lower income tax accrual, $(73.1) million of workers' participation payments and $(14.7) million of lower other liabilities.
-
-
$(12.2) million of changes in other operating assets and liabilities.
Net cash used in investing activities:
2017:
Net cash used for investing activities in 2017 included $1,023.5 million for capital investments. These
included $338.1 million of investments at our Mexican operations and $685.4 million of investments at our Peruvian operations. For further information, please see "Capital Investment
Program" under this Item on page 71.
The
2017 investing activities also include net sales of short-term investments of $1.0 million.
2016:
Net cash used for investing activities in 2016 included $1,118.5 million for capital investments. These
included $577.5 million of investments at our Mexican operations and $541.0 million of investments at our Peruvian operations. For further information, please see "Capital Investment
Program" under this Item on page 71.
The
2016 investing activities also include net sales of short-term investments of $552.1 million, and a repayment of $111.2 million received from a related party.
2015:
Net cash used for investing activities in 2015 included $1,149.6 million for capital investments. These
included $964.8 million of investments at our Mexican operations and $285.2 million of investments at our Peruvian operations. For further information, please see "Capital Investment
Program" under this Item on page 71.
The
2015 investing activities also include net purchases of short-term investments of $264.8 million and $100.4 million for the acquisition of the El Pilar mining property,
and a repayment of $50 million received from a related party.
Net cash provided by (used in) financing activities:
2017:
Net cash used in financing activities in 2017 was $456.1 million and included a dividend distribution of
$456.1 million.
2016:
Net cash used in financing activities in 2016 was $210.7 million and
included:
-
-
A dividend distribution of $139.3 million.
-
-
The repurchase of 2.9 million of our common shares at a cost of $71.7 million.
92
Table of Contents
2015:
Net cash provided by financing activities in 2015 was $492.2 million and included:
-
-
Gross proceeds of $2,045.8 million from the issuance of unsecured notes, net of an underwriting discount and $66 million of
short-term borrowing in Peru.
-
-
Repayment of a short-term Peruvian loan of $66 million, and the repayment of $200 million of ten year senior unsecured notes.
-
-
A dividend distribution of $271.2 million.
-
-
The repurchase of 36.7 million of our common shares at a cost of $1,004.4 million.
-
-
Payment of debt issuance cost of $11.8 million.
-
-
A distribution of $0.5 million to the non-controlling interest.
Other Liquidity Considerations
We expect that we will meet our cash requirements for 2018 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
of December 31, 2017, $517.7 million of the Company´s total cash, cash equivalents, restricted cash and short-term investments of $1,055.3 million
was 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. At
December 31, 2016, Minera Mexico determined that it had $470.5 million in earnings available for dividends to the United States. These earnings had not been remitted, but U.S. federal
income tax, net of foreign tax credit was recognized in 2016 resulting in an increase tax of $45.7 million. At December 31, 2017, Minera Mexico had determined that it had earnings
available for dividends to the United States of $555.5 million. The 2017 U.S. tax reform introduced a one-time transition tax that is based upon the Company's total accumulated post-1986
prescribed foreign earnings and profits ("E&P") estimated to be $8.9 billion, the majority of which was previously considered to be indefinitely reinvested and accordingly, no U.S. federal and
state income taxes were provided. Upon enactment of the 2017 U.S. tax reform, the Company calculated and recorded a provisional tax amount of $181.1 million as a reasonable estimate for its
one-time transition tax liability, which was completely offset by foreign tax credit carryforwards. Because of the complexities of tax reform and the transition tax calculation, the Company is still
finalizing its calculation of the total accumulated post-1986 prescribed E&P for the applicable entities. Further, the transition tax is based in part on the amount of those earnings held in liquid
and non-liquid E&P. Until the calculation of E&P is completed and the transition tax is finalized during 2018 it is not practicable to estimate any amount of unrecognized deferred tax liability, if
any, to any additional outside basis differences in the Company's foreign subsidiaries. Earnings from the Company's Peruvian branch to the United States are not subject to transition taxes since they
are taxed on a current basis, regardless of remittances.
Share repurchase program:
In 2008, our 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 through December 31, 2017, 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 SecuritiesSCC common stock repurchase plan."
Dividend:
On January 25, 2018, the Board of Directors ("BOD") authorized a dividend of $0.30 per share paid on
February 27, 2018, to shareholders of record at the close of business on February 13, 2018.
93
Table of Contents
FINANCING
Our
total debt at December 31, 2017 was $5,957.1 million, compared to $5,954.2 million at December 31, 2016, net of the unamortized discount
and issuance costs of notes issued under par of $94.1 million and $97.0 million at December 31, 2017 and 2016, respectively. This debt is all denominated in dollars at fixed
interest rates, weighed at 5.89%.
The
ratio of total debt to total capitalization was 49.2% at December 31, 2017, compared to 50.4% at December 31, 2016. Also the ratio of net debt to net capitalization was
44.4% at December 31, 2017, compared to 47.7% at December 31, 2016.
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 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 10 "Financing" for a discussion about the covenants requirements related to our long-term debt.
Capital investment programs
A
discussion of our capital investment programs 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.
CONTRACTUAL OBLIGATIONS
The
following table summarizes our significant contractual obligations as of December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by Period
|
|
|
|
Total
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023 and
Thereafter
|
|
|
|
|
|
(dollars in millions)
|
|
Long-term debt
|
|
$
|
6,051.1
|
|
$
|
|
|
$
|
|
|
$
|
400.0
|
|
$
|
|
|
$
|
300.0
|
|
$
|
5,351.1
|
|
Interest on debt
|
|
|
7,257.3
|
|
|
356.5
|
|
|
356.5
|
|
|
341.3
|
|
|
334.9
|
|
|
333.4
|
|
|
5,534.7
|
|
Uncertain tax position(a)
|
|
|
214.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workers' participation
|
|
|
176.9
|
|
|
176.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and post-retirement obligations
|
|
|
31.4
|
|
|
3.2
|
|
|
2.6
|
|
|
2.7
|
|
|
2.8
|
|
|
2.9
|
|
|
17.2
|
|
Asset retirement obligation
|
|
|
234.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
234.1
|
|
Purchase obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitment to purchase energy
|
|
|
3,016.0
|
|
|
356.1
|
|
|
356.1
|
|
|
358.4
|
|
|
358.4
|
|
|
365.5
|
|
|
1,221.5
|
|
Capital investment projects
|
|
|
1,409.3
|
|
|
508.8
|
|
|
428.5
|
|
|
330.0
|
|
|
142.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,390.6
|
|
$
|
1,401.5
|
|
$
|
1,143.7
|
|
$
|
1,432.4
|
|
$
|
838.1
|
|
$
|
1,001.8
|
|
$
|
12,358.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
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
94
Table of Contents
outflows.
As of December 31, 2017, the tax liability recognized by the Company is $214.5 million and is included as non-current liability in the consolidated Balance Sheet.
Long-term
debt payments do not include the debt discount valuation account and issuance costs of $94.1 million.
Interest
on debt is calculated at rates in effect at December 31, 2017. As all our debt is at fixed rates, future expenditures will not change due to rate changes. Please refer to
Note 10 "Financing" of our consolidated financial statements for a description of our long-term debt arrangements and credit facilities.
Workers'
participation is currently calculated based on Peruvian Branch and Mexican pre-tax earnings. In Peru, 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 following determination of
final results for the year. Amounts in excess of 18 times a worker's salary is 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.
Pension
and post retirement obligations include the benefits expected to be paid under our pension and post-retirement benefit plans. Please refer to Note 11 "Benefit Plans" of
our consolidated financial statements.
Asset
retirement obligations include the aggregate amount of the closure and remediation costs of 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 9 "Asset Retirement Obligation."
In
June 2014, we entered into a power purchase agreement for 120 megawatt ("MW") with the state company Electroperu S.A., which began supplying energy for our Peruvian operations
for twenty years starting on April 17, 2017. In July 2014, we entered into a power purchase agreement for 120MW with a private power generator Kallpa Generacion S.A. ("Kallpa"), which
began supplying energy for our Peruvian operations for ten years starting on April 17, 2017. In May 2016, we signed an additional power purchase agreement for a maximum of 80MW with Kallpa,
under which Kallpa will supply energy for the operations related to the Toquepala Expansion and 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.
Also
we have a commitment to purchase power for our Mexican operations from MGE, a subsidiary of Grupo Mexico through 2032. See Note 12 "Commitment and
ContingenciesOther commitments".
Amounts
indicated on the above table 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.
95
Table of Contents
NON-GAAP INFORMATION RECONCILIATION
Operating cash cost
: Following is a reconciliation of "Operating Cash Cost" (see page 69) 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
$ millions
|
|
$ per
pound
|
|
$ millions
|
|
$ per
pound
|
|
$ millions
|
|
$ per
pound
|
|
Cost of sales (exclusive of depreciation, amortization and depletion)
|
|
$
|
3,252.8
|
|
$
|
1.74
|
|
$
|
3,034.1
|
|
$
|
1.58
|
|
$
|
2,927.6
|
|
$
|
1.83
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
93.1
|
|
|
0.05
|
|
|
94.3
|
|
|
0.05
|
|
|
99.4
|
|
|
0.06
|
|
Sales premiums, net of treatment and refining charges
|
|
|
22.4
|
|
|
0.01
|
|
|
24.4
|
|
|
0.01
|
|
|
(34.5
|
)
|
|
(0.02
|
)
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workers' participation
|
|
|
(196.4
|
)
|
|
(0.11
|
)
|
|
(130.2
|
)
|
|
(0.07
|
)
|
|
(116.1
|
)
|
|
(0.07
|
)
|
Cost of metals purchased from third parties
|
|
|
(363.2
|
)
|
|
(0.19
|
)
|
|
(329.9
|
)
|
|
(0.17
|
)
|
|
(351.8
|
)
|
|
(0.22
|
)
|
Royalty charge and other, net
|
|
|
(150.3
|
)
|
|
(0.08
|
)
|
|
(74.9
|
)
|
|
(0.04
|
)
|
|
(72.9
|
)
|
|
(0.05
|
)
|
Inventory change
|
|
|
139.1
|
|
|
0.07
|
|
|
162.0
|
|
|
0.08
|
|
|
192.2
|
|
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Cash Cost before by-product revenues
|
|
$
|
2,797.5
|
|
$
|
1.49
|
|
$
|
2,779.8
|
|
$
|
1.44
|
|
$
|
2,643.9
|
|
$
|
1.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By-product revenues(1)
|
|
|
(1,030.2
|
)
|
|
(0.55
|
)
|
|
(904.9
|
)
|
|
(0.47
|
)
|
|
(806.1
|
)
|
|
(0.50
|
)
|
Net revenue on sale of metal purchased from third parties
|
|
|
(50.2
|
)
|
|
(0.02
|
)
|
|
(50.7
|
)
|
|
(0.03
|
)
|
|
(60.7
|
)
|
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total by-product revenues
|
|
|
(1,080.4
|
)
|
|
(0.57
|
)
|
|
(955.6
|
)
|
|
(0.50
|
)
|
|
(866.8
|
)
|
|
(0.54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Cash Cost net of by-product revenues
|
|
|
1,717.1
|
|
|
0.92
|
|
|
1,824.2
|
|
|
0.95
|
|
|
1,777.1
|
|
$
|
1.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pounds of copper produced (in millions)
|
|
|
1,874.5
|
|
|
|
|
|
1,924.7
|
|
|
|
|
|
1,599.3
|
|
|
|
|
-
(1)
-
By-product
revenues included in our presentation of operating cash cost contain the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
|
$ millions
|
|
$ per
pound
|
|
$ millions
|
|
$ per
pound
|
|
$ millions
|
|
$ per
pound
|
|
|
Molybdenum
|
|
$
|
(353.4
|
)
|
$
|
(0.19
|
)
|
$
|
(268.1
|
)
|
$
|
(0.14
|
)
|
$
|
(239.0
|
)
|
$
|
(0.15
|
)
|
|
Silver
|
|
|
(254.9
|
)
|
|
(0.14
|
)
|
|
(246.3
|
)
|
|
(0.13
|
)
|
|
(193.0
|
)
|
|
(0.12
|
)
|
|
Zinc
|
|
|
(221.6
|
)
|
|
(0.12
|
)
|
|
(189.3
|
)
|
|
(0.10
|
)
|
|
(148.9
|
)
|
|
(0.09
|
)
|
|
Sulfuric Acid
|
|
|
(71.9
|
)
|
|
(0.04
|
)
|
|
(87.6
|
)
|
|
(0.04
|
)
|
|
(127.6
|
)
|
|
(0.08
|
)
|
|
Gold
|
|
|
(61.7
|
)
|
|
(0.03
|
)
|
|
(50.6
|
)
|
|
(0.02
|
)
|
|
(35.1
|
)
|
|
(0.02
|
)
|
|
Other
|
|
|
(66.7
|
)
|
|
(0.03
|
)
|
|
(63.0
|
)
|
|
(0.04
|
)
|
|
(62.5
|
)
|
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(1,030.2
|
)
|
$
|
(0.55
|
)
|
$
|
(904.9
|
)
|
$
|
(0.47
|
)
|
$
|
(806.1
|
)
|
$
|
(0.50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
by-product revenue presented does not match with the sales value reported by segment on page 136 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 December 31, 2017 and 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Total debt
|
|
$
|
5,957.1
|
|
$
|
5,954.2
|
|
Cash and cash equivalents
|
|
|
(1,004.8
|
)
|
|
(546.0
|
)
|
Short-term investments
|
|
|
(50.5
|
)
|
|
(51.3
|
)
|
|
|
|
|
|
|
|
|
Net debt
|
|
|
4,901.8
|
|
|
5,356.9
|
|
Net capitalization:
|
|
|
|
|
|
|
|
Net debt
|
|
|
4,901.8
|
|
|
5,356.9
|
|
Equity
|
|
|
6,149.4
|
|
|
5,870.9
|
|
|
|
|
|
|
|
|
|
Net capitalization
|
|
$
|
11,051.2
|
|
$
|
11,227.8
|
|
Net debt/net capitalization(*)
|
|
|
44.4
|
%
|
|
47.7
|
%
|
-
(*)
-
Represents
net debt divided by net capitalization.
Total debt to total capitalization:
Total debt to total capitalization as of December 31, 2017 and 2016 is as
follows:
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Total debt
|
|
$
|
5,957.1
|
|
$
|
5,954.2
|
|
Capitalization
|
|
|
|
|
|
|
|
Debt
|
|
|
5,957.1
|
|
|
5,954.2
|
|
Equity
|
|
|
6,149.4
|
|
|
5,870.9
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
12,106.5
|
|
$
|
11,825.1
|
|
Total debt/total capitalization(*)
|
|
|
49.2
|
%
|
|
50.4
|
%
|
-
(*)
-
Represents
debt divided by total capitalization.
97
Table of Contents
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity price risk:
For
additional information on metal price sensitivity, refer to "Metal Prices" in Part II, Item 7 of this annual report.
Open sales risk:
Our
provisional copper and molybdenum sales contain an embedded derivative that is required to be separate from the host contract for accounting purposes. The host
contract is the receivable from the sale of copper or molybdenum concentrates at prevailing market prices at the time of the sale. The embedded derivative, which does not qualify for hedge accounting,
is marked to market through earnings each period prior to settlement. See Note 17 to our consolidated financial statements for further information about these provisional sales.
Foreign currency exchange rate risk:
Our
functional currency is the U.S. dollar. Portions of our operating costs are denominated in Peruvian soles and Mexican pesos. Since our revenues are primarily
denominated in U.S. dollars, when inflation or deflation in our Mexican or Peruvian operations is not offset by a change in the exchange rate of the sol or the peso to the dollar, our financial
position, results of operations and cash flows could be affected by local cost conversion when expressed in U.S. dollars. In addition, the dollar value of our net monetary assets denominated in soles
or pesos can be affected by an exchange rate variance of the sol or the peso, resulting in a re-measurement gain or loss in our financial statements. Recent inflation and exchange rate variances for
the three years ended December 31, 2017, are provided in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Peru:
|
|
|
|
|
|
|
|
|
|
|
Peruvian inflation rate
|
|
|
1.5
|
%
|
|
3.2
|
%
|
|
4.4
|
%
|
Initial exchange rate
|
|
|
3.360
|
|
|
3.413
|
|
|
2.989
|
|
Closing exchange rate
|
|
|
3.245
|
|
|
3.360
|
|
|
3.413
|
|
Appreciation/(devaluation)
|
|
|
3.4
|
%
|
|
1.6
|
%
|
|
(14.2
|
)%
|
Mexico:
|
|
|
|
|
|
|
|
|
|
|
Mexican inflation rate
|
|
|
6.8
|
%
|
|
3.4
|
%
|
|
2.1
|
%
|
Initial exchange rate
|
|
|
20.664
|
|
|
17.207
|
|
|
14.718
|
|
Closing exchange rate
|
|
|
19.735
|
|
|
20.664
|
|
|
17.207
|
|
Appreciation/(devaluation)
|
|
|
4.5
|
%
|
|
(20.1
|
)%
|
|
(16.9
|
)%
|
Change in monetary position:
Assuming
an exchange rate variance of 10% at December 31, 2017, we estimate our net monetary position in Peruvian sol and Mexican peso would increase (decrease)
our net earnings as follows:
|
|
|
|
|
|
|
Effect in net
earnings
($ in millions)
|
|
Appreciation of 10% in U.S. dollar vs. Peruvian sol
|
|
$
|
11.9
|
|
Devaluation of 10% in U.S. dollar vs. Peruvian sol
|
|
$
|
(14.5
|
)
|
Appreciation of 10% in U.S. dollar vs. Mexican peso
|
|
$
|
20.1
|
|
Devaluation of 10% in U.S. dollar vs. Mexican peso
|
|
$
|
(24.5
|
)
|
98
Table of Contents
The
net monetary position is net of those assets and liabilities that are sol or peso denominated at December 31, 2017.
Short-term investments:
For
additional information on our trading securities and available-for-sale investments, refer to Note 3 Short-term Investments in Part II, Item 8
of this annual report.
99
Table of Contents
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of Southern Copper Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Southern Copper Corporation and subsidiaries (the "Company") as of
December 31, 2017 and 2016, the related consolidated statements of earnings, comprehensive income, changes in stockholders´equity, and cash flows for each of the three years in
the period ended December 31, 2017 and the related notes and schedule listed in the Index at Item 15 (collectively referred to as the "consolidated financial statements"). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting
as of December 31, 2017, based on criteria established in Internal ControlIntegrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated March 1, 2018 expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable
basis for our opinion.
Galaz,
Yamazaki, Ruiz Urquiza S.C.
Member of Deloitte Touche Tohmatsu Limited
|
|
|
/s/ MIGUEL ANGEL ANDRADE LEVEN
C.P.C. Miguel Angel Andrade Leven
We have served as the Company's auditor since 2009
Mexico City, Mexico
March 1, 2018
|
|
|
100
Table of Contents
Southern Copper Corporation
and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31,
(in millions, except for per share amounts)
|
|
2017
|
|
2016
|
|
2015
|
|
Net sales (including sales to related parties, see note 16)
|
|
$
|
6,654.5
|
|
$
|
5,379.8
|
|
$
|
5,045.9
|
|
Operating cost and expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (exclusive of depreciation, amortization and depletion shown separately below)
|
|
|
3,252.8
|
|
|
3,034.1
|
|
|
2,927.6
|
|
Selling, general and administrative
|
|
|
93.1
|
|
|
94.3
|
|
|
99.4
|
|
Depreciation, amortization and depletion
|
|
|
671.1
|
|
|
647.1
|
|
|
510.7
|
|
Exploration
|
|
|
28.8
|
|
|
40.1
|
|
|
48.8
|
|
Environmental remediation
|
|
|
(10.2
|
)
|
|
|
|
|
45.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
4,035.6
|
|
|
3,815.6
|
|
|
3,631.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
2,618.9
|
|
|
1,564.2
|
|
|
1,414.4
|
|
Interest expense
|
|
|
(357.4
|
)
|
|
(360.3
|
)
|
|
(334.0
|
)
|
Capitalized interest
|
|
|
51.4
|
|
|
69.6
|
|
|
123.2
|
|
Other expense
|
|
|
(15.7
|
)
|
|
(24.6
|
)
|
|
(25.3
|
)
|
Interest income
|
|
|
5.5
|
|
|
7.1
|
|
|
10.9
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2,302.7
|
|
|
1,256.0
|
|
|
1,189.2
|
|
Current income taxes and royalty taxes
|
|
|
951.7
|
|
|
623.6
|
|
|
620.3
|
|
Deferred income taxes
|
|
|
641.7
|
|
|
(122.5
|
)
|
|
(155.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income before equity earnings of affiliate
|
|
|
709.3
|
|
|
754.9
|
|
|
724.3
|
|
Equity earnings of affiliate, net of income tax
|
|
|
23.1
|
|
|
23.9
|
|
|
16.8
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
732.4
|
|
|
778.8
|
|
|
741.1
|
|
Less: Net income attributable to the non-controlling interest
|
|
|
3.9
|
|
|
2.3
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to SCC
|
|
$
|
728.5
|
|
$
|
776.5
|
|
$
|
736.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share amounts attributable to SCC:
|
|
|
|
|
|
|
|
|
|
|
Net earningsbasic and diluted
|
|
$
|
0.94
|
|
$
|
1.00
|
|
$
|
0.93
|
|
Dividends declared and paid
|
|
$
|
0.59
|
|
$
|
0.18
|
|
$
|
0.34
|
|
Weighted average shares outstandingbasic and diluted
|
|
|
773.0
|
|
|
773.6
|
|
|
794.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
101
Table of Contents
Southern Copper Corporation
and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
(in millions)
|
|
COMPREHENSIVE INCOME:
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
732.4
|
|
$
|
778.8
|
|
$
|
741.1
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) net of tax:
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in
pension and other post-retirement benefits (net of income tax of $(1.6), $2.6 and $2.6, respectively)
|
|
|
2.6
|
|
|
(3.5
|
)
|
|
(3.7
|
)
|
Foreign currency
translation adjustments
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)
|
|
|
2.9
|
|
|
(3.5
|
)
|
|
(3.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
735.3
|
|
|
775.3
|
|
|
737.4
|
|
Comprehensive income attributable to the non-controlling interest
|
|
|
3.9
|
|
|
2.3
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to SCC
|
|
$
|
731.4
|
|
$
|
773.0
|
|
$
|
732.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
102
Table of Contents
Southern Copper Corporation
and Subsidiaries
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
At December 31, (in millions)
|
|
2017
|
|
2016
|
|
ASSETS
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,004.8
|
|
$
|
546.0
|
|
Restricted cash
|
|
|
|
|
|
3.6
|
|
Short-term investments
|
|
|
50.5
|
|
|
51.3
|
|
Accounts receivable trade
|
|
|
890.6
|
|
|
591.9
|
|
Accounts receivable other (including related parties 2017$26.1 and 2016$23.4)
|
|
|
85.8
|
|
|
76.6
|
|
Inventories
|
|
|
1,041.9
|
|
|
1,010.4
|
|
Prepaid taxes
|
|
|
85.5
|
|
|
249.4
|
|
Other current assets
|
|
|
11.0
|
|
|
36.9
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,170.1
|
|
|
2,566.1
|
|
Property and mine development, net
|
|
|
9,099.6
|
|
|
8,766.5
|
|
Ore stockpiles on leach pads
|
|
|
977.4
|
|
|
806.9
|
|
Intangible assets, net
|
|
|
152.5
|
|
|
154.2
|
|
Deferred income tax
|
|
|
164.9
|
|
|
727.3
|
|
Equity method investment
|
|
|
99.7
|
|
|
87.5
|
|
Other non-current assets
|
|
|
115.9
|
|
|
125.8
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
13,780.1
|
|
$
|
13,234.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Accounts payable (including related parties 2017$90.1 and 2016$62.2)
|
|
$
|
659.8
|
|
$
|
584.2
|
|
Accrued income taxes
|
|
|
226.4
|
|
|
185.1
|
|
Accrued workers' participation
|
|
|
176.9
|
|
|
125.4
|
|
Accrued interest
|
|
|
83.9
|
|
|
85.6
|
|
Other accrued liabilities
|
|
|
21.3
|
|
|
18.7
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,168.3
|
|
|
999.0
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
5,957.1
|
|
|
5,954.2
|
|
Deferred income taxes
|
|
|
38.5
|
|
|
162.6
|
|
Non-current taxes payable
|
|
|
207.1
|
|
|
|
|
Other liabilities and reserves
|
|
|
37.2
|
|
|
31.1
|
|
Asset retirement obligation
|
|
|
222.5
|
|
|
216.5
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
6,462.4
|
|
|
6,364.4
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 12)
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY (NOTE 13)
|
|
|
|
|
|
|
|
Common stock par value $0.01; shares authorized, 2017 and 20162,000; shares issued, 2017 and 2016884.6
|
|
|
8.8
|
|
|
8.8
|
|
Additional paid-in capital
|
|
|
3,373.3
|
|
|
3,358.2
|
|
Retained earnings
|
|
|
5,726.2
|
|
|
5,455.3
|
|
Accumulated other comprehensive income
|
|
|
0.5
|
|
|
(2.4
|
)
|
Treasury stock, at cost, common shares
|
|
|
(3,001.1
|
)
|
|
(2,987.6
|
)
|
|
|
|
|
|
|
|
|
Total Southern Copper Corporation stockholders' equity
|
|
|
6,107.7
|
|
|
5,832.3
|
|
Non-controlling interest
|
|
|
41.7
|
|
|
38.6
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
6,149.4
|
|
|
5,870.9
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
13,780.1
|
|
$
|
13,234.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
103
Table of Contents
Southern Copper Corporation
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31,
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
732.4
|
|
$
|
778.8
|
|
$
|
741.1
|
|
Adjustments to reconcile net earnings to net cash provided from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and depletion
|
|
|
671.1
|
|
|
647.1
|
|
|
510.7
|
|
Equity earnings of affiliate, net of dividends received
|
|
|
(12.3
|
)
|
|
(11.3
|
)
|
|
(9.4
|
)
|
Loss (gain) on foreign currency transaction effect
|
|
|
24.9
|
|
|
(8.9
|
)
|
|
(2.2
|
)
|
Provision (benefit) for deferred income taxes
|
|
|
641.5
|
|
|
(117.0
|
)
|
|
(153.2
|
)
|
Other, net
|
|
|
8.9
|
|
|
28.2
|
|
|
2.6
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivable
|
|
|
(298.7
|
)
|
|
(143.3
|
)
|
|
91.6
|
|
(Increase) decrease in inventories
|
|
|
(201.9
|
)
|
|
(207.9
|
)
|
|
(260.3
|
)
|
Increase (decrease) in accounts payable and accrued liabilities
|
|
|
139.5
|
|
|
30.5
|
|
|
(28.9
|
)
|
(Increase) decrease in other operating assets and liabilities
|
|
|
271.2
|
|
|
(73.1
|
)
|
|
(12.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,976.6
|
|
|
923.1
|
|
|
879.8
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(1,023.5
|
)
|
|
(1,118.5
|
)
|
|
(1,149.6
|
)
|
Payment to acquire business, net of cash acquired
|
|
|
|
|
|
|
|
|
(100.4
|
)
|
Purchase of short-term investments
|
|
|
(61.3
|
)
|
|
(129.8
|
)
|
|
(956.9
|
)
|
Proceeds on sale of short-term investment
|
|
|
62.3
|
|
|
681.9
|
|
|
692.1
|
|
Loan repaid by related parties
|
|
|
|
|
|
111.2
|
|
|
50.0
|
|
Other, net
|
|
|
3.5
|
|
|
3.2
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,019.0
|
)
|
|
(452.0
|
)
|
|
(1,461.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt
|
|
|
|
|
|
|
|
|
2,045.8
|
|
Repayments of debt
|
|
|
|
|
|
|
|
|
(266.0
|
)
|
Payments of debt issuance cost
|
|
|
|
|
|
|
|
|
(11.8
|
)
|
Repurchase of common shares
|
|
|
|
|
|
(71.7
|
)
|
|
(1,004.4
|
)
|
Cash dividends paid to common stockholders
|
|
|
(456.1
|
)
|
|
(139.3
|
)
|
|
(271.2
|
)
|
Distributions to non-controlling interest
|
|
|
(0.3
|
)
|
|
|
|
|
(0.5
|
)
|
Other, net
|
|
|
0.3
|
|
|
0.3
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(456.1
|
)
|
|
(210.7
|
)
|
|
492.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(42.7
|
)
|
|
11.1
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
458.8
|
|
|
271.5
|
|
|
(89.5
|
)
|
Cash and cash equivalents, at beginning of year
|
|
|
546.0
|
|
|
274.5
|
|
|
364.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, at end of year
|
|
$
|
1,004.8
|
|
$
|
546.0
|
|
$
|
274.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
(in millions)
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
356.7
|
|
$
|
356.7
|
|
$
|
315.8
|
|
Income taxes
|
|
$
|
889.8
|
|
$
|
571.8
|
|
$
|
737.7
|
|
Workers' participation
|
|
$
|
136.0
|
|
$
|
121.6
|
|
$
|
192.5
|
|
Supplemental schedule of non-cash operating, investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in pension and other post-retirement benefits
|
|
$
|
2.9
|
|
$
|
(3.5
|
)
|
$
|
(3.7
|
)
|
Capital expenditures incurred but not yet paid
|
|
$
|
137.7
|
|
$
|
99.4
|
|
$
|
51.0
|
|
In 2015, the Company purchased all of the outstanding stock of Recursos Stingray de Cobre S.A de C.V for $100.0 million. In conjunction with
the acquisition, liabilities were assumed as follows (in millions):
|
|
|
|
|
|
|
2015
|
|
Fair value of assets acquired
|
|
$
|
128.3
|
|
Cash paid for the capital stock
|
|
|
(100.0
|
)
|
|
|
|
|
|
Liabilities assumed
|
|
$
|
28.3
|
|
The accompanying notes are an integral part of these consolidated financial statements.
104
Table of Contents
Southern Copper Corporation
and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
|
|
|
|
|
|
|
|
|
|
|
For years ended December 31,
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
|
TOTAL EQUITY, beginning of year
|
|
$
|
5,870.9
|
|
$
|
5,299.2
|
|
$
|
5,836.6
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY, beginning of year
|
|
|
5,832.3
|
|
|
5,262.9
|
|
|
5,804.5
|
|
CAPITAL STOCK:
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning and end of year:
|
|
|
8.8
|
|
|
8.8
|
|
|
8.8
|
|
ADDITIONAL PAID-IN CAPITAL:
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
3,358.2
|
|
|
3,349.8
|
|
|
3,344.7
|
|
Other activity of the period
|
|
|
15.1
|
|
|
8.4
|
|
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
3,373.3
|
|
|
3,358.2
|
|
|
3,349.8
|
|
|
|
|
|
|
|
|
|
|
|
|
TREASURY STOCK:
|
|
|
|
|
|
|
|
|
|
|
Southern Copper common shares
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of the year
|
|
|
(2,769.0
|
)
|
|
(2,697.6
|
)
|
|
(1,693.5
|
)
|
Share repurchase program
|
|
|
|
|
|
(71.7
|
)
|
|
(1,004.4
|
)
|
Used for corporate purposes
|
|
|
0.3
|
|
|
0.3
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
|
(2,768.7
|
)
|
|
(2,769.0
|
)
|
|
(2,697.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Parent Company common shares
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
(218.6
|
)
|
|
(211.3
|
)
|
|
(207.1
|
)
|
Other activity, including dividend, interest and foreign currency transaction effect
|
|
|
(13.8
|
)
|
|
(7.3
|
)
|
|
(4.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
(232.4
|
)
|
|
(218.6
|
)
|
|
(211.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock balance at end of year
|
|
|
(3,001.1
|
)
|
|
(2,987.6
|
)
|
|
(2,908.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
RETAINED EARNINGS:
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
5,455.3
|
|
|
4,812.1
|
|
|
4,346.8
|
|
Net earnings
|
|
|
728.5
|
|
|
776.5
|
|
|
736.4
|
|
Dividends declared and paid, common stock, per share, 2017$0.59, 2016$0.18, 2015$0.34
|
|
|
(456.1
|
)
|
|
(139.3
|
)
|
|
(271.1
|
)
|
Other activity of the period
|
|
|
(1.5
|
)
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
5,726.2
|
|
|
5,455.3
|
|
|
4,812.1
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
(2.4
|
)
|
|
1.1
|
|
|
4.8
|
|
Other comprehensive income (loss)
|
|
|
2.9
|
|
|
(3.5
|
)
|
|
(3.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
0.5
|
|
|
(2.4
|
)
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY, end of year
|
|
|
6,107.7
|
|
|
5,832.3
|
|
|
5,262.9
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CONTROLLING INTEREST, beginning of year
|
|
|
38.6
|
|
|
36.3
|
|
|
32.1
|
|
Net earnings
|
|
|
3.9
|
|
|
2.3
|
|
|
4.7
|
|
Distributions paid
|
|
|
(0.8
|
)
|
|
|
|
|
(0.5
|
)
|
Other activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CONTROLLING INTEREST, end of year
|
|
|
41.7
|
|
|
38.6
|
|
|
36.3
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL EQUITY, end of year
|
|
$
|
6,149.4
|
|
$
|
5,870.9
|
|
$
|
5,299.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
105
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1DESCRIPTION OF THE BUSINESS:
The Company is a majority-owned, indirect subsidiary of Grupo Mexico S.A.B. de C.V. ("Grupo Mexico"). At December 31, 2017, Grupo Mexico through its wholly-owned subsidiary
Americas Mining Corporation ("AMC") owned 88.9% of the Company's capital stock. The consolidated financial statements presented herein consist of the accounts of Southern Copper Corporation ("SCC" or
the "Company"), a Delaware corporation, and its subsidiaries. The Company is an integrated producer of
copper and other minerals, and operates mining, smelting and refining facilities in Peru and Mexico. The Company conducts its primary operations in Peru through a registered branch (the "Peruvian
Branch" or "Branch" or "SPCC Peru Branch"). The Peruvian Branch is not a corporation separate from the Company. The Company's Mexican operations are conducted through subsidiaries. The Company also
conducts exploration activities in Argentina, Chile, Ecuador, Mexico and Peru.
NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation
The consolidated financial statements include the accounts of subsidiaries of which the Company has voting control, in accordance with
Accounting Standards Codification ("ASC") 810
Consolidation
. Such financial statements are prepared in accordance with accounting principles generally
accepted in the United States ("U.S. GAAP").
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during
the reporting period. Significant items subject to
such estimates and assumptions include the carrying value of ore reserves that are the basis for future cash flow estimates and amortization calculations; environmental reclamation, closure and
retirement obligations; estimates of recoverable copper in mill and leach stockpiles; asset impairments (including estimates of future cash flows); unrecognized tax benefits; valuation allowances for
deferred tax assets; and fair value of financial instruments. Management bases its estimates on the Company's historical experience and on various other assumptions that are believed to be reasonable
under the circumstances. Actual results could differ from those estimates.
Revenue recognition
Substantially all of the Company's copper and non-copper products are sold under annual or other longer-term contracts.
Revenue
is recognized when title passes to the customer. The passing of title is based on terms of the contract, generally upon shipment. Copper and non-copper revenues are determined
based on the monthly average of prevailing commodity prices according to the terms of the contracts. The Company provides allowances for doubtful accounts based upon historical bad debt and claims
experience and periodic evaluation of specific customer accounts.
For
certain of the Company's 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 occasionally in some cases a few additional months. In such cases, revenue is recorded at a
106
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
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.
These
provisional pricing arrangements are accounted for separately from the contract as an embedded derivative instrument under ASC 815-30 "Derivatives and HedgingCash Flow
Hedges."
The Company sells copper in concentrate, anode, blister and refined form at industry standard commercial terms. Net sales include the invoiced value of copper, zinc, silver, molybdenum, sulfuric acid
and other metals and the corresponding fair value adjustment of the related forward contract of copper and molybdenum.
Shipping and handling fees and costs
Amounts billed to customers for shipping and handling are classified as sales. Amounts incurred for shipping and handling are included in cost
of sales (exclusive of depreciation, amortization and depletion).
Cash and cash equivalents
Cash and cash equivalents include bank deposits, certificates of deposit and short-term investment funds with original maturities of three
months or less at the date of purchase. The carrying value of cash and cash equivalents approximates fair value.
Short-term investments
The Company accounts for short-term investments in accordance with ASC 320-10 "Investments Debt and Equity SecuritiesRecognition."
The Company determines the appropriate classification of all short-term investments as held-to-maturity, available-for-sale or trading at the time of purchase and re-evaluates such classifications as
of each balance sheet date. Unrealized gains and losses on available-for-sale investments, net of taxes, are reported as a component of accumulated other comprehensive income (loss) in stockholders'
equity, unless such loss is deemed to be other than temporary.
Inventories
The Company principally produces copper and, in the production process, obtains several by-products, including molybdenum, silver, zinc,
sulfuric acid and other metals.
Metal
inventories, consisting of work-in-process and finished goods, are carried at the lower of average cost or market. Costs of work-in-process inventories and finished goods mainly
include power, labor, fuel, operating and repair materials, depreciation, amortization, depletion, and other necessary costs related to the extraction and processing of ore, including mining, milling,
concentrating, smelting, refining, leaching and chemical processing. Costs incurred in the production of metal inventories exclude general and administrative costs. Once molybdenum, silver, zinc and
other by-products are
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
identified,
they are transferred to their respective production facilities and the incremental cost required to complete production is assigned to their inventory value.
Work-in-process
inventories represent materials that are in the process of being converted into a saleable product. Conversion processes vary depending on the nature of the copper ore
and the specific mining operation. For sulfide ores, processing includes milling and concentrating and results in the production of copper and molybdenum concentrates.
Finished
goods include saleable products (e.g., copper concentrates, copper anodes, copper cathodes, copper rod, molybdenum concentrate and other metallurgical products).
Supplies
inventories are carried at the lower of average cost or market.
Long-term inventoryOre stockpiles on leach pads.
The leaching process is an integral part of the mining operations carried out at the Company's open-pit mines. The Company capitalizes the
production cost of leachable material at its Toquepala, La Caridad and Buenavista mines recognizing it as inventory. This cost includes mining and haulage costs incurred to deliver ore to leach pads,
depreciation, amortization, depletion and site overhead costs. 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, the Company includes on its balance sheet current leach
inventory (included in work-in-process inventories) and long-term leach inventory. Amortization of leachable material is recorded by the units of production method.
Property
Property is recorded at acquisition cost, net of accumulated depreciation and amortization. Cost includes major expenditures for improvements
and replacements, which extend useful lives or increase capacity and interest costs associated with significant capital additions. Maintenance, repairs, normal development costs at existing mines and
gains or losses on assets retired or sold are reflected in earnings as incurred.
Buildings
and equipment are depreciated on the straight-line method over estimated lives from five to 40 years or the estimated life of the mine if shorter.
Mine development
Mine development includes primarily the cost of acquiring land rights to an exploitable ore body, pre-production stripping costs at new mines
that are commercially exploitable, costs associated with bringing new mineral properties into production, and removal of overburden to prepare unique and identifiable areas outside the current mining
area for such future production. Mine development costs are amortized on a unit of production basis over the remaining life of the mines.
There
is a diversity of practices in the mining industry in the treatment of drilling and other related costs to delineate new ore reserves. The Company follows the practices outlined in
the next two paragraphs in its treatment of drilling and related costs.
Drilling
and other associated costs incurred in the Company's efforts to delineate new resources, whether near-mine or Greenfield are expensed as incurred. These costs are classified as
mineral
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
exploration
costs. Once the Company determines through feasibility studies that proven and probable reserves exist and that the drilling and other associated costs embody a probable future benefit
that involves a capacity, singly or in combination with other assets, to contribute directly or indirectly to future net cash inflow, then the costs are classified as mine development costs. These
mine development costs incurred prospectively to develop the property are capitalized as incurred, until the commencement of production, and are amortized using the units of production method over
estimated life of the ore body. During the production stage, drilling and other related costs incurred to maintain production are included in production cost in the period in which they are incurred.
Drilling
and other related costs incurred in the Company's efforts to delineate a major expansion of reserves at an existing production property are expensed as incurred. Once the
Company determines through feasibility studies that proven and probable incremental reserves exist and that the drilling and other associated costs embody a probable future benefit that involves a
capacity, singly or in combination with other assets, to contribute directly or indirectly to future net cash inflow, then the costs are classified as mine development costs. These incremental mine
development costs are capitalized as incurred, until the commencement of production and amortized using the units of production method over the estimated life of the ore body. A major expansion of
reserves is one that increases total reserves at a property by approximately 10% or more.
For
the years ended December 31, 2017, 2016 and 2015, the Company did not capitalize any drilling and related costs.
Asset retirement obligations (reclamation and remediation costs)
The fair value of a liability for asset retirement obligations is recognized in the period in which the liability is incurred. The liability is
measured at fair value and is adjusted to its
present value in subsequent periods as accretion expense is recorded. The corresponding asset retirement costs are capitalized as part of the carrying value of the related long-lived assets and
depreciated over the asset's useful life.
Intangible assets
Intangible assets include primarily the excess amount paid over the book value for investment shares which are presented as mining concessions,
and mining and engineering development studies. Intangible assets are carried at acquisition costs, net of accumulated amortization and are amortized principally on a unit of production basis over the
estimated remaining life of the mines. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
Debt issuance costs
Debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the carrying amount of
that debt liability, consistent with the treatment of a debt discount.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Ore reserves
The Company periodically reevaluates estimates of its ore reserves, which represent the Company's estimate as to the amount of unmined copper
remaining in its existing mine locations that can be produced and sold at a profit. Such estimates are based on engineering evaluations derived from samples of drill holes and other openings, combined
with assumptions about copper market prices and production costs at each of the respective mines.
The
Company updates its estimate of ore reserves at the beginning of each year. In this calculation, the Company uses current metal prices which are defined as the average metal price
over the preceding three years. The current price per pound of copper, as defined, was $2.50, $2.61 and $2.99 at the end of 2017, 2016 and 2015, respectively. The ore reserve estimates are used to
determine the amortization of mine development and intangible assets.
Once
the Company determines through feasibility studies that proven and probable reserves exist and that the drilling and other associated costs embody a probable future benefit that
involves a capacity, singly or in combination with other assets, to contribute directly or indirectly to future net cash inflow, then the costs are classified as mine development costs and the Company
discloses the related ore reserves.
Exploration
Tangible and intangible costs incurred in the search for mineral properties are charged against earnings when incurred.
Income taxes
Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between
the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities
are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized and settled as
prescribed in ASC 740 "Income taxes." As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Deferred income tax assets
are reduced by any benefits that, in the opinion of management, are more likely not to be realized.
The
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. The Company recognizes
potential liabilities and records tax liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on its estimate of whether, and the extent to which, additional taxes
will be due. The Company follows the
guidance of ASC 740 "Income taxes" to record these liabilities. (See Note 7 "Income taxes" of the consolidated financial statements for additional information). The Company adjusts 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
the Company's current estimate of the tax liabilities. If its estimate of tax liabilities proves to be less than
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
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 the Company determines the liabilities are no longer necessary.
The
Company classifies income tax-related interest and penalties as income taxes in the financial statements, as well as interest and penalties, if any, related to unrecognized tax
benefits.
On
December 22, 2017, the U.S. government enacted the "Tax Cuts and Jobs Act" (the "Act"). The Act contains numerous provisions, the following of which most significantly impact
the Company: (i) a decrease in the corporate tax rate from 35% to 21%; (ii) a transition of the U.S. taxation of international operation from a worldwide system to a quasi-territorial
system and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017, (iii) generally eliminates U.S. federal income taxes on
dividends from foreign subsidiaries, requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations and (iv) limitations on the use of
foreign tax credits to reduce the U.S. income tax liability.
The
U.S. Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provides guidance on accounting for the tax effects of the
Act. The Company has adopted SAB 118. Accordingly, the provisions of the Act deemed most relevant to the Company have been considered in preparation of its financial statements as of
December 31, 2017 based on the Company's best estimate. See further disclosure regarding the impacts of the Act and the adoption of SAB 118 in Note 7 to the accompanying
consolidated financial statements.
Foreign exchange
The Company's functional currency is the U.S. dollar. As required by local law, both the Peruvian Branch and Minera Mexico maintain their books
of accounts in Peruvian soles and Mexican pesos, respectively.
Foreign
currency assets and liabilities are remeasured into U.S. dollars at current exchange rates, except for non-monetary items such as inventory, property, intangible assets and other
assets which are remeasured at historical exchange rates. Revenues and expenses are generally translated at actual exchange rates in effect during the period, except for those items related to balance
sheet amounts that are remeasured at historical exchange rates. Gains and losses from foreign currency remeasurement are included in earnings of the period.
Gains
and (losses) resulting from foreign currency transactions are included in "Cost of sales (exclusive of depreciation, amortization and depletion)."
Asset impairments
The Company evaluates long-term assets when events or changes in economic circumstances indicate that the carrying amount of such assets may not
be recoverable. These evaluations are based on business plans that are prepared using a time horizon that is reflective of the Company's expectations of metal prices over its business cycle. The
Company is currently using a long-term average copper price and an average molybdenum price for impairment tests, reflective of what the Company believes is the lower level of the current price
environment. The results of its impairment
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
tests
using these long-term copper and molybdenum prices show no impairment in the carrying value of their assets.
In
recent years testing using assumptions for long-term average prices have resulted in stricter evaluation for impairment analysis than would the higher three year average prices for
copper and molybdenum prices. Should this situation reverse in the future with three year average prices below the long-term price assumption, the Company would assess the need to use the three year
average prices in its evaluations. The Company uses 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 measures any impairment by reference to fair value.
Other comprehensive income
Comprehensive income represents changes in equity during a period, except those resulting from investments by owners and distributions to
owners. During the fiscal years ended December 31, 2017, 2016 and 2015, the components of "other comprehensive income (loss)" were, the unrecognized gain (loss) on employee benefit obligations
and foreign currency translation adjustments.
Business segments
Company management views Southern Copper as having three reportable segments and manages it on the basis of these segments. The segments
identified by the Company are: 1) the Peruvian operations, which include the two open-pit copper mines in Peru and the plants and services supporting such mines, 2) the Mexican open-pit
copper mines, which include La Caridad and Buenavista mine complexes and their supporting facilities and 3) the Mexican underground mining operations, which include five underground mines that
produce zinc, lead, copper, silver and gold, a coal mine and a zinc refinery. Please see Note 17 "Segments and Related Information."
Senior
management of the Company focus on operating income as measure of performance to evaluate different segments, and to make decisions to allocate resources to the reported segments.
This is a common measure in the mining industry.
ADOPTION OF REVENUE RECOGNITION STANDARD
In
May 2014, the FASB issued ASU 2014-09 "Revenue from Contracts with Customers" (Topic 606). The objective of the new revenue standard is to provide a single
comprehensive revenue recognition model for all contracts with customers to improve comparability within industries, across industries and across capital markets.
The
core principle of the standard is that the Company should recognize revenue to represent the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the Company expects to be entitled in exchange for those goods or services.
The
Company should apply the following five steps to achieve the core principle:
Step
1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations (promises) in the contract.
Step 3: Determine the transaction price.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Step
4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the Company satisfies a performance obligation.
The
guidance also specifies the accounting for some costs to obtain or fulfill a contract with a customer. Additionally, the Company should disclose sufficient qualitative and
quantitative information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
In
March 2016, The FASB issued ASU 2016-08 Revenue from Contracts with Customers(Topic 606) Principal versus Agent Considerations (Reporting Revenue Gross versus Net). This
update clarifies the implementation guidance on principal versus agent considerations. When another party is involved in providing goods or services to a customer, an entity is required to determine
whether the nature of its promise is to provide the specified good or service itself (that is, the entity is a principal) or to arrange for that good or service to be provided by the other party (that
is, the entity is an agent).
This
revenue standard is effective for the first interim period within annual reporting periods beginning after December 15, 2017, and early adoption is not permitted. The Company
has adopted the new guidance effective January 1, 2018, applying the modified retrospective approach. Under this approach, the results for reporting periods beginning after January 1,
2018 will be presented in the consolidated financial statements under the guidance, while prior period amounts will not be adjusted and will continue to be reported under the guidance in effect for
those periods. Upon adoption by the Company, no cumulative effect adjustment is required to be recognized at January 1, 2018, as the adoption of the standard has not resulted in a change to the
way the Company recognizes its revenue. The Company will apply the related disclosure requirements of the new standard beginning in 2018.
OTHER NEW ACCOUNTING STANDARDS
In
January 2016, The FASB issued ASU 2016-01 "Financial instrumentsOverall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities"
which requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and to recognize any changes in fair value in
net income. This update also includes certain disclosure requirements. This update is effective in fiscal years, including interim periods, beginning after December 15, 2017, and upon adoption,
an entity should apply the amendments with the cumulative effect of initially applying the guidance recognized at January 1, 2018. Early adoption is not permitted. The Company has completed its
assessment of the adoption of this standard and has determined that it will not have a material impact on its consolidated financial information.
On
February 25, 2016, the FASB issued ASU 2016-02 "Leases" (Topic 842). This Update significantly modifies the accounting model of leases for lessees; as it requires them to
recognize assets and liabilities in the balance sheet for virtually all leases. However, the classification of leases as finance leases or operating leases is maintained for lessees. In addition, for
leases with a term of 12 months or less, a lessee can elect by class of underlying asset not to record assets and liabilities on the balance sheet, and recognize lease expense on a
straight-line basis over the lease term.
The
lessor accounting model for leases remains mostly unchanged from previous guidance, except for specific profit recognition requirements which were modified in order to align them to
the new
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
revenue
recognition standard issued by the FASB, and the lease classification criteria, to ensure consistency with those for a lessee.
The
amendments in this Update are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 and
early adoption is permitted. The Company is evaluating the impact of the adoption of this new standard on the consolidated financial information.
In
June 2016, the FASB issued ASU 2016-13 "Financial InstrumentsCredit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" This ASU amends guidance on
reporting credit losses for assets held at amortized cost basis and available for sale debt securities and requires a financial asset (or a group of financial assets) measured at amortized cost basis
to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present
the net carrying value at the amount expected to be collected on the financial asset. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP,
however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down.
This
update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is evaluating the impact of the
adoption of this new standard on the consolidated financial information.
Other
ASUs issued by the FASB that are pending adoption as of December 31, 2017 are not anticipated to have a significant impact on the Company's consolidated financial
statements.
NOTE 3SHORT-TERM INVESTMENTS:
Short-term investments were as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
At
December 31,
|
|
|
|
2017
|
|
2016
|
|
Trading securities
|
|
$
|
49.5
|
|
$
|
49.2
|
|
Weighted average interest rate
|
|
|
1.8
|
%
|
|
2.2
|
%
|
Available-for-sale
|
|
$
|
1.0
|
|
$
|
2.1
|
|
Weighted average interest rate
|
|
|
0.70
|
%
|
|
0.78
|
%
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
50.5
|
|
$
|
51.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
securities consist of bonds issued by public companies and are publicly traded. Each financial instrument is independent of the others. The Company has the intention to sell
these bonds in the short-term.
Available-for-sale
investments consist of securities issued by public companies. Each security is independent of the others and, as of December 31, 2017 and 2016, included
corporate bonds and asset and mortgage backed obligations. As of December 31, 2017 and 2016, gross unrealized gains and losses on available-for-sale securities were not material.
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SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3SHORT-TERM INVESTMENTS: (Continued)
Related to these investments the Company earned interest, which was recorded as interest income in the consolidated statement of earnings. Also the Company redeemed some of these
securities and recognized gains (losses) due to changes in fair value, which were recorded as other income (expense) in the consolidated statement of earnings.
The
following table summarizes the activity of these investments by category (in millions):
|
|
|
|
|
|
|
|
|
|
Years ended
December 31,
|
|
|
|
2017
|
|
2016
|
|
Trading:
|
|
|
|
|
|
|
|
Interest earned
|
|
$
|
0.7
|
|
$
|
1.5
|
|
Unrealized gain (loss) at December 31,
|
|
$
|
0.1
|
|
$
|
0.4
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
Interest earned
|
|
|
(*
|
)
|
|
(*
|
)
|
Investment redeemed
|
|
$
|
1.1
|
|
$
|
1.2
|
|
-
(*)
-
Less
than $0.1 million
At
December 31, 2017 and 2016, contractual maturities of the available-for-sale debt securities are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
One year or less
|
|
$
|
|
|
$
|
|
|
Maturing after one year through five years
|
|
|
|
|
|
|
|
Maturing after five years through ten years
|
|
|
|
|
|
|
|
Due after 10 years
|
|
|
1.0
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
$
|
1.0
|
|
$
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 4INVENTORIES:
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
(in millions)
|
|
2017
|
|
2016
|
|
Inventory, current:
|
|
|
|
|
|
|
|
Metals at average cost:
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
48.8
|
|
$
|
130.5
|
|
Work-in-process
|
|
|
308.0
|
|
|
231.6
|
|
Ore stockpiles on leach pads
|
|
|
320.9
|
|
|
310.9
|
|
Supplies at average cost
|
|
|
364.2
|
|
|
337.4
|
|
|
|
|
|
|
|
|
|
Total current inventory
|
|
$
|
1,041.9
|
|
$
|
1,010.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory, long-term:
|
|
|
|
|
|
|
|
Ore stockpiles on leach pads
|
|
$
|
977.4
|
|
$
|
806.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4INVENTORIES: (Continued)
Total
leaching costs added as long-term inventory of ore stockpiles in leach pads amounted to $513.9 million, $439.0 million and $506.9 million in 2017, 2016 and
2015, respectively. Long-term leaching inventories recognized as cost of sales amounted to $333.5 million, $316.6 million and $274.1 million in 2017, 2016 and 2015, respectively.
NOTE 5PROPERTY:
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
(in millions)
|
|
2017
|
|
2016
|
|
Buildings and equipment
|
|
$
|
12,552.8
|
|
$
|
12,177.1
|
|
Construction in progress
|
|
|
2,301.9
|
|
|
1,811.8
|
|
Mine development
|
|
|
267.9
|
|
|
259.1
|
|
Mineral assets
|
|
|
83.2
|
|
|
83.2
|
|
Land, other than mineral
|
|
|
218.4
|
|
|
142.1
|
|
|
|
|
|
|
|
|
|
Total property
|
|
|
15,424.2
|
|
|
14,473.3
|
|
Accumulated depreciation, amortization and depletion
|
|
|
(6,324.6
|
)
|
|
(5,706.8
|
)
|
|
|
|
|
|
|
|
|
Total property and mine development, net
|
|
$
|
9,099.6
|
|
$
|
8,766.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
in progress increased in 2017 as a result of the spending on the Company expansion projects. For more detailed information, please see Item 7 "Management Discussion
and Analysis of Financial Condition and Results of OperationsCapital Investment Program."
Depreciation
and depletion expense for the years ended December 31, 2017, 2016 and 2015, amounted to $665.2 million, $639.1 million and $503.6 million,
respectively.
NOTE 6INTANGIBLE ASSETS:
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
(in millions)
|
|
2017
|
|
2016
|
|
Mining concessions
|
|
$
|
121.2
|
|
$
|
121.2
|
|
Mine engineering and development studies
|
|
|
19.8
|
|
|
19.8
|
|
Software
|
|
|
49.0
|
|
|
44.8
|
|
|
|
|
|
|
|
|
|
|
|
|
190.0
|
|
|
185.8
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
Mining concessions
|
|
|
(36.6
|
)
|
|
(35.6
|
)
|
Mine engineering and development studies
|
|
|
(15.3
|
)
|
|
(14.8
|
)
|
Software
|
|
|
(27.5
|
)
|
|
(23.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(79.4
|
)
|
|
(73.5
|
)
|
Goodwill
|
|
|
41.9
|
|
|
41.9
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
152.5
|
|
$
|
154.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6INTANGIBLE ASSETS: (Continued)
Amortization
of intangibles for the years ended December 31, 2017, 2016 and 2015, amounted to $5.9 million, $8.0 million and $7.1 million, respectively.
Estimated amortization are as follows:
|
|
|
|
|
Estimated amortization expense (in millions):
|
|
|
|
2018
|
|
$
|
5.6
|
|
2019
|
|
|
5.5
|
|
2020
|
|
|
5.6
|
|
2021
|
|
|
5.5
|
|
2022
|
|
|
3.9
|
|
|
|
|
|
|
Total 2018 - 2022
|
|
$
|
26.1
|
|
|
|
|
|
|
Average annual
|
|
$
|
5.2
|
|
|
|
|
|
|
Goodwill
includes $17.0 million generated in 1997 as a result of purchasing a third party interest in the Buenavista mine. It also includes $24.9 million representing the
amount of the purchase price in excess of the fair value of the net assets acquired from El Pilar mine. This goodwill is attributable to future benefits that the Company expects to realize from the
mine and will not be deductible for income tax purposes.
NOTE 7INCOME TAXES:
Since March 2009, Grupo Mexico, through its wholly-owned subsidiary AMC, owns an interest in excess of 80% of SCC. Accordingly, SCC's results are included in the consolidated
results of the Grupo Mexico subsidiary for U.S. federal income tax reporting. SCC provides current and deferred income taxes, as if it were filing a separate U.S. federal income tax return.
On
December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was signed into law, making substantial changes to the 1986 Internal Revenue Code. Changes under the Act include, among
others, a decrease in the corporate tax rate from 35% to 21%, the transition of the U.S. taxation of international operation from a worldwide system to a quasi-territorial system, a one-time
transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017, a general elimination of U.S. federal income taxes on dividends from foreign
subsidiaries, and a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations.
Although
most provisions of the Act begin January 1, 2018, ASC 740 "Income Taxes" requires that the effects of tax law changes be recognized in the year and period of the
law change and be reflected in the company's financial results. On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application
of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax
effects of the Act. SAB 118 requires a company to reflect the income tax effects of the Act for which the accounting under ASC 740 "Income Taxes" is complete; if it is incomplete but the
Company is able to determine a reasonable estimate, a provisional estimate must be provided in the financial statements. If a provisional estimate cannot be reasonably prepared, the Company should
continue to apply ASC 740 on the basis of the provision of the tax law that were in effect immediately before the enactment of the Act. Companies have one year from the enactment of the Act to
finalize accounting for the impacts of the Act.
117
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7INCOME TAXES: (Continued)
The
Company adopted SAB 118 and accordingly, its accounting for the effect of the Act is based on its best estimate, which may require adjustment in 2018. However, the Company was
able to make reasonable estimates of certain effects and, therefore, recorded a provisional $785.9 million non-cash tax expense for the estimated effects of the Act. These adjustments were
related to the valuation allowances for foreign tax credits and other deferred tax assets, valuation of our net deferred tax assets due to the rate change from 35% to 21% and the transition tax on the
repatriation of cumulative foreign earnings . The ultimate impact of the Act may differ from these provisional amounts, possibly materially. After the Company files its 2017 U.S. federal income tax
return and finalizes certain tax positions it will conclude whether further adjustments are required to its net deferred tax assets or liabilities, current year foreign tax credits and any liability
associated with the one-time mandatory tax on the repatriation of foreign earnings.
The
Act also provides for two new taxes that become effective in tax years beginning after December 31, 2017: the Global Intangible Low Tax Income or GILTI tax and the Base
Erosion Anti-Abuse or BEAT tax. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. FASB guidance released in January 2018
indicates that either accounting for deferred taxes related to GILTI inclusions or treating any taxes on GILTI inclusions as period cost are both acceptable methods subject to an accounting policy
election. Our selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing our global income to determine whether we expect to have future U.S.
inclusions in taxable income related to GILTI and, if so, what the impact is expected to be. Because whether we expect to have future US inclusions in taxable income related to GILTI depends on not
only our current structure and estimated future results of global operations but also our intent and ability to modify our structure and/or our business, we are not yet able to reasonably estimate the
effect of this provision of the Tax Act. Therefore, we have not made any adjustments related to potential GILTI tax in our financial statements and have not made a policy decision regarding whether to
record deferred taxes on GILTI. The BEAT tax is a 5% minimum tax for tax years beginning in 2018 (12.5% after 2025) and is calculated on a base equal to the Company's income determined without the tax
benefit arising from base erosion payments. The erosion payments are a specifically defined set of deductible expenses. However, the provisions are unclear as to which payments should be characterized
as base erosion payments. The tax reform prescribes that the Secretary issue Regulations to prevent the avoidance of the BEAT tax, which have still not been finalized. Additionally, the Company needs
to evaluate any interaction between the GILTI and the BEAT taxes. Therefore, the Company is still is in the process of analyzing the provisions of these taxes and the effect they may or may not have
on future results and financial reporting. Accordingly, for 2017, there is no change made to the accounting under ASC 740 and the Company is following current tax law with respect to these
specific items.
118
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7INCOME TAXES: (Continued)
The
components of the provision for income taxes for the three years ended December 31, 2017, are as follows:
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
|
U.S. federal and state:
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Deferred
|
|
|
686.2
|
|
|
(109.4
|
)
|
|
(143.0
|
)
|
Uncertain tax positions
|
|
|
16.2
|
|
|
20.3
|
|
|
80.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
702.4
|
|
|
(89.1
|
)
|
|
(63.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Foreign (Peru and Mexico):
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
951.7
|
|
|
625.0
|
|
|
620.4
|
|
Deferred
|
|
|
(60.7
|
)
|
|
(34.8
|
)
|
|
(92.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
891.0
|
|
|
590.2
|
|
|
527.9
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
1,593.4
|
|
$
|
501.1
|
|
$
|
464.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
source of income is as follows:
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
|
Earnings by location:
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
(1.5
|
)
|
$
|
(1.9
|
)
|
$
|
(2.1
|
)
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
Peru
|
|
|
284.6
|
|
|
(85.7
|
)
|
|
213.2
|
|
Mexico
|
|
|
2,019.6
|
|
|
1,343.6
|
|
|
978.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,304.2
|
|
|
1,257.9
|
|
|
1,191.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before taxes on income
|
|
$
|
2,302.7
|
|
$
|
1,256.0
|
|
$
|
1,189.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7INCOME TAXES: (Continued)
The
reconciliation of the statutory income tax rate to the effective tax rate for the three years ended December 31, 2017, is as follows (in percentage points):
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Expected tax at U.S. statutory rate
|
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
Foreign tax at other than statutory rate, net of foreign tax credit benefit(1)
|
|
|
0.6
|
|
|
2.0
|
|
|
3.6
|
|
Percentage depletion
|
|
|
(2.9
|
)
|
|
(2.7
|
)
|
|
(5.9
|
)
|
Other permanent differences
|
|
|
5.2
|
|
|
|
|
|
0.7
|
|
Valuation allowance on US deferred tax assets, foreign tax credits and US tax effect on Peruvian deferred
|
|
|
26.9
|
|
|
|
|
|
|
|
Decrease in US deferred tax asset due to tax rate changes
|
|
|
4.8
|
|
|
|
|
|
|
|
US one time transition tax on accumulated foreign earnings
|
|
|
2.4
|
|
|
|
|
|
|
|
Increase (decrease) in unrecognized tax benefits for uncertain tax positions
|
|
|
0.7
|
|
|
0.2
|
|
|
6.7
|
|
Repatriated foreign earnings
|
|
|
(2.0
|
)
|
|
3.6
|
|
|
|
|
Amounts (over) / under provided in prior years
|
|
|
(0.1
|
)
|
|
(0.5
|
)
|
|
(2.2
|
)
|
Other
|
|
|
(1.4
|
)
|
|
2.3
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
69.2
|
%
|
|
39.9
|
%
|
|
39.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Foreign
tax at other than statutory rates, net of foreign tax credit benefit, also includes the effects of permanent differences in Peru and Mexico, that are
determined at the local statutory rate.
The
Company files income tax returns in three jurisdictions, Peru, Mexico and the United States. For the three years presented above, the statutory income tax rate for Mexico was
30% and 35% for the United States. The Peruvian tax rate was 29.5% for 2017 and 28% for 2016 and 2015. While the largest components of income taxes are the Peruvian and Mexican taxes, the
Company is a domestic U.S. entity. Therefore, the rate used in the above reconciliation is the U.S. statutory rate. For all of the years presented, both the Peruvian branch and Minera Mexico filed
separate tax returns in their respective tax jurisdictions. Although the tax rules and regulations imposed in the separate tax jurisdictions may vary significantly, similar permanent items exist, such
as items which are nondeductible or nontaxable. Some permanent differences relate specifically to SCC such as the allowance in the United States for percentage depletion.
120
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7INCOME TAXES: (Continued)
Deferred
taxes include the U.S., Peruvian and Mexican tax effects of the following types of temporary differences and carryforwards:
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
(in millions)
|
|
2017
|
|
2016
|
|
Assets:
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
47.0
|
|
$
|
27.9
|
|
Capitalized exploration expenses
|
|
|
9.5
|
|
|
17.5
|
|
U.S. foreign tax credit carryforward, net of FIN 48 liability
|
|
|
280.2
|
|
|
284.2
|
|
U.S. tax effect of Peruvian deferred tax liability
|
|
|
174.1
|
|
|
162.6
|
|
Property, plant and equipment
|
|
|
|
|
|
1.2
|
|
Reserves
|
|
|
152.6
|
|
|
108.9
|
|
Mexican tax on consolidated dividends
|
|
|
14.5
|
|
|
13.6
|
|
Prepaids
|
|
|
|
|
|
11.1
|
|
Valuation allowance on US deferred tax assets, foreign tax credits and US tax effect on Peruvian deferred
|
|
|
(619.6
|
)
|
|
|
|
Other
|
|
|
9.4
|
|
|
29.7
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
67.7
|
|
|
656.7
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
(130.3
|
)
|
|
|
|
Deferred charges
|
|
|
(16.9
|
)
|
|
(35.4
|
)
|
Unremitted foreign earnings
|
|
|
|
|
|
(45.7
|
)
|
Other
|
|
|
(1.2
|
)
|
|
(10.9
|
)
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(148.4
|
)
|
|
(92.0
|
)
|
|
|
|
|
|
|
|
|
Total net deferred tax (liabilities) / assets
|
|
$
|
(80.7
|
)
|
$
|
564.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Tax Matters
As of December 31, 2017, the Company considers its ownership of the stock of Minera Mexico to be essentially permanent in duration. The
excess of the amount for financial reporting over the tax basis of the investment in this stock is estimated to be at least $6.7 billion.
As
of December 31, 2017, $517.7 million of the Company´s total cash, cash equivalents, restricted cash and short-term investments of $1,055.3 million
was 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. At
December 31, 2016, Minera Mexico determined that it had $470.5 million in earnings available for dividends to the United States. These earnings had not been remitted, but U.S. federal
income tax, net of foreign tax credit was recognized in 2016 resulting in an increase tax of $45.7 million. At December 31, 2017, Minera Mexico had determined that it had earnings
available for dividends to the United States of $555.5 million. The 2017 U.S. tax reform introduced a one-time transition tax that is based upon the Company's total accumulated post-1986
prescribed foreign earnings and profits ("E&P") estimated to be $8.9 billion, the majority of which was previously considered to be indefinitely reinvested and accordingly, no U.S. federal and
state income taxes were provided. Upon enactment of the 2017 U.S. tax reform, the Company calculated and
121
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7INCOME TAXES: (Continued)
recorded
a provisional tax amount of $181.1 million as a reasonable estimate for its one-time transition tax liability, which was completely offset by foreign tax credit carryforward
utilization. Because of the complexities of tax reform and the transition tax calculation, the Company is still finalizing its calculation of the total accumulated post-1986 prescribed E&P for the
applicable entities. Further, the transition tax is based in part on the amount of those earnings held in liquid and non-liquid E&P. Until the calculation of E&P is completed and the transition tax is
finalized during 2018 it is not practicable to estimate any amount of unrecognized deferred tax liability, if any, to any additional outside basis differences in the Company's foreign subsidiaries.
Earnings from the Company's Peruvian branch to the United States are not subject to transition taxes since they are taxed on a current basis, regardless of remittances.
At
December 31, 2017, there were $485.8 million of foreign tax credits available for carryback or carryforward. These credits have a one year carryback and a ten year
carryforward period and can only be used to reduce U.S. income tax on foreign earnings. There were no other unused U.S. tax credits at December 31, 2017. These credits expire as follows:
|
|
|
|
|
Year
|
|
Amount
|
|
2022
|
|
|
20.3
|
|
2023
|
|
|
69.2
|
|
2024
|
|
|
102.0
|
|
2025
|
|
|
189.5
|
|
2026
|
|
|
104.8
|
|
|
|
|
|
|
Total
|
|
$
|
485.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These
foreign tax credits are presented above on a gross basis and have not been reduced here for any unrecognized tax benefits. These foreign tax credits have been adjusted to include
the 2017 Net Operating Loss carryback in the U.S. jurisdiction, increasing foreign tax credits by approximately $15.9 million. In accordance with ASU 2013-11 the Company has recorded
$205.7 million of an unrecognized tax benefit as an offset to the Company's deferred tax asset for foreign tax credits. The remaining foreign tax credits of $280.2 million are being re-valued
to zero at December 31, 2017. It is the opinion of management that with the reduction in the U.S. corporate tax rate to 21% and the tax rates in Mexico and Peru at 30% and higher, it is
unlikely the excess foreign tax credits can be utilized. Additionally, foreign dividends will no longer be taxed in the U.S. thereby reducing the U.S. tax on the foreign source income that the credits
can be used to offset.
Peruvian Tax Matters
Royalty mining charge:
The royalty charge is based on operating income margins with graduated rates ranging from 1% to
12% of operating profits, with a minimum royalty charge assessed at 1% of net sales. If the operating income margin is 10% or less, the royalty charge is 1% and for each 5% increment in the operating
income margin, the royalty charge rate increases by 0.75%, up to a maximum of 12%. The minimum royalty charge assessed at 1% of net sales is recorded as cost of sales and those amounts assessed
against operating income are included in the income tax provision. The Company has accrued $23.4 million, $16.8 million and $22.9 million of royalty charges in 2017, 2016 and
2015, respectively, of which $2.5 million and $2.7 million were included in income taxes in 2017 and 2015, respectively; no amounts were included in income tax in 2016.
122
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7INCOME TAXES: (Continued)
Peruvian special mining tax:
This tax is based on operating income with graduated rates increasing from 2% to 8.4%. The
Company recognized $23.3 million, $10.8 million and $18.1 million in 2017, 2016 and 2015, respectively, with respect to this tax. These amounts are included as "income taxes" in
the consolidated statement of earnings.
In
December 2016, the Peruvian Government enacted income tax law changes to both the income tax and dividend tax rate that become effective on January 1, 2017. The rates are as
follows:
|
|
|
|
|
|
|
|
Year
|
|
Income
Tax Rate
|
|
Dividend
Tax Rate
|
|
2015 - 2016
|
|
|
28.0
|
%
|
|
6.8
|
%
|
2017 and later
|
|
|
29.5
|
%
|
|
5
|
%
|
The
recalculation of the deferred tax liability for the Peruvian jurisdiction using the new tax rates did not have a material effect on the deferred tax liability or the financial
statements of the Company.
Mexican Tax Matters
In 2013, the Mexican Congress enacted tax law changes that became effective on January 1, 2014. Among other effects, the amounts that the
subsidiary companies of Minera Mexico recorded during 2017 were:
-
-
Mining royalty at the rate of 7.5% on taxable earnings before taxes: $87.8 million.
-
-
Additional royalty of 0.5% over gross income from sales of gold, silver and platinum: $0.8 million.
-
-
Income tax payable stemming from changes to tax consolidation: $0.3 million.
On
October 2017, the Federation's Revenue Law for 2018 was approved by the House of Representatives and the Senate. There are certain modifications that are worth highlighting:
i) The
incentive of crediting of the special use and service tax to income tax. In the case of fuel, it includes purchased diesel for final consumption in certain mining
equipment. The crediting of the special use and service tax was extended to the purchase of imported diesel.
ii) The
Federal Revenue Law allows the deduction of statutory profit sharing paid, on advance monthly payments of income tax.
iii) The
withholding rate applied by banks and other members of the financial system on interest will decrease from an annual rate of 0.58% to 0.46%.
iv) The
obligation to provide certain information regarding relevant transactions will be incorporated to the Federation's Revenue Law for 2018 given the recent rulings
issued by the Mexican Supreme Court. Taxpayers will be obligated to provide on a quarterly basis to the Mexican tax authorities information regarding financial derivative transactions, transactions
with related parties, transactions related to the participation in the equity of other companies and changes of tax residence, corporate restructures and other similar transactions.
It
is worth noting that there are no further amendments in connection with the Base Erosion and Profit Shifting action plan.
123
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SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7INCOME TAXES: (Continued)
Accounting for Uncertainty in Income Taxes
The total amount of unrecognized tax benefits in 2017, 2016 and 2015, was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Unrecognized tax benefits, opening balance
|
|
$
|
304.0
|
|
$
|
400.0
|
|
$
|
319.4
|
|
Gross increasestax positions in prior period
|
|
|
(89.5
|
)
|
|
3.9
|
|
|
36.3
|
|
Gross increasescurrent-period tax positions
|
|
|
|
|
|
23.3
|
|
|
44.3
|
|
Decreases related to settlements with taxing authorities
|
|
|
|
|
|
(123.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(89.5
|
)
|
|
(96.0
|
)
|
|
80.6
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits, ending balance
|
|
$
|
214.5
|
|
$
|
304.0
|
|
$
|
400.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $214.5 million and $304.0 million at December 31, 2017 and 2016,
respectively. These amounts relate entirely to U.S. income tax matters. The Company has no unrecognized Peruvian or Mexican tax benefits.
The
Company is currently under examination by the Internal Revenue Service for the years 2011-2013 as part of the audit of the AMC consolidated tax group.
As
of December 31, 2017 and December 31, 2016 the Company's liability for uncertain tax positions included accrued interest and penalties of $1.9 million.
The
following tax years remain open to examination and adjustment in the Company's three major tax jurisdictions:
|
|
|
Peru:
|
|
2012 and all subsequent years
|
U.S.:
|
|
2012 and all subsequent years
|
Mexico:
|
|
2012 and all subsequent years
|
Management
does not expect that any of the open years will result in a cash payment within the upcoming twelve months ending December 31, 2018. The Company's reasonable
expectations about future resolutions of uncertain items did not materially change during the year ended December 31, 2017.
NOTE 8WORKERS' PARTICIPATION:
The Company's operations in Peru and Mexico are subject to statutory workers' participation.
In
Peru, 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 distributed to workers following determination of final results for the year. The annual amount payable to an individual worker is capped at the worker's salary for an
18 month period. Amounts determined in excess of the 18 months of worker's salary is no longer made as a payment to the worker and is levied first for the benefit of the "Fondo Nacional
de Capacitacion Laboral y de Promocion del Empleo" (National Workers' Training and Employment Promotion Fund) until this entity receives from all employers in its region an amount equivalent to 2,200
Peruvian taxable units (approximately $2.7 million in 2017). Any remaining excess is levied as payment for the
124
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SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8WORKERS' PARTICIPATION: (Continued)
benefit
of the regional governments. These levies fund worker training, employment promotion, entrepreneurship and various other programs.
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.
The
provision for workers' participation is allocated to "Cost of sales (exclusive of depreciation, amortization and depletion)" and to "selling, general and administrative" in the
consolidated statement of earnings, proportional to the number of workers in the production and administrative areas, respectively. Workers' participation expense for the three years ended
December 31, 2017 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Current
|
|
$
|
192.7
|
|
$
|
131.8
|
|
$
|
140.8
|
|
Deferred
|
|
|
6.6
|
|
|
(13.4
|
)
|
|
(19.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
199.3
|
|
$
|
118.4
|
|
$
|
121.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 9ASSET RETIREMENT OBLIGATION:
The Company maintains an estimated asset retirement obligation for its mining properties in Peru, as required by the Peruvian Mine Closure Law. In accordance with the requirements of
this law, the Company's closure plans were approved by the Peruvian Ministry of Energy and Mines ("MINEM"). As part of the closure plans, the Company is required to provide annual guarantees over the
estimated life of the mines, based on a present value approach, and to furnish the funds for the asset retirement obligation. This law requires a review of closing plans every five years. Currently
and for the near-term future, the Company has pledged the value of its Lima office complex as support for this obligation. The accepted value of the Lima office building for this purpose is
$36.9 million. Through January 2018, the Company has provided guarantees of $32.3 million. The closure cost recognized for this liability includes the cost, as outlined in its closure
plans, of dismantling the Toquepala and Cuajone concentrators, the smelter and refinery in Ilo, and the shops and auxiliary facilities at the three units. In 2015, we added $12.5 million
related to the Toquepala expansion closure plan. In 2017, according to Peruvian law requirements, the Cuajone mine closure plan was reviewed. As a result of this, an adjustment of $11.6 million
was recorded.
In
2010, the Company announced to the Mexican federal environmental authorities its closure plans for the copper smelter plant at San Luis Potosi. The Company initiated a program for
plant demolition and soil remediation with a budget of $66.2 million, which has been spent through December 31, 2017. Plant demolition and construction of a confinement area at the south
of the property were completed in 2012. In accordance with remediation goals previously approved by environmental authorities, soil
remediation and on-site encapsulation on a second confinement area of impacted soils have been completed. Confirmation sampling was successfully completed. On September 2, 2016, the
environmental authorities approved the conclusion of the remediation effort for San Luis Potosi. The Company continues studying the possibilities for this property in order to decide whether to sell
or develop the property. The overall cost recognized for mining closure in Mexico includes the estimated costs of dismantling concentrators, smelter and refinery plants, shops and other
125
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SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9ASSET RETIREMENT OBLIGATION: (Continued)
facilities.
In 2016, the Company added $9.5 million related to the Quebalix IV closure plan, a project that is part of the Buenavista expansion.
The
following table summarizes the asset retirement obligation activity for years ended December 31, 2017 and 2016 (in millions):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Balance as of January 1
|
|
$
|
216.5
|
|
$
|
190.9
|
|
Changes in estimates
|
|
|
(11.6
|
)
|
|
|
|
Additions
|
|
|
|
|
|
10.5
|
|
Closure payments
|
|
|
(0.3
|
)
|
|
(2.0
|
)
|
Accretion expense
|
|
|
17.9
|
|
|
17.1
|
|
|
|
|
|
|
|
|
|
Balance as of December 31,
|
|
$
|
222.5
|
|
$
|
216.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 10FINANCING:
Long-term debt (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Face
amount
|
|
Issuance
discount
|
|
Issuance
costs
|
|
Carrying
value as of
December 31,
2017
|
|
5.375% Senior unsecured notes due 2020
|
|
$
|
400
|
|
$
|
(0.6
|
)
|
$
|
(0.6
|
)
|
$
|
398.8
|
|
3.500% Senior unsecured notes due 2022
|
|
|
300
|
|
|
(0.5
|
)
|
|
(0.8
|
)
|
|
298.7
|
|
3.875% Senior unsecured notes due 2025
|
|
|
500
|
|
|
(2.1
|
)
|
|
(2.0
|
)
|
|
495.9
|
|
9.250% Yankee Bonds due 2028
|
|
|
125
|
|
|
|
|
|
|
|
|
51.2
|
|
7.500% Senior unsecured notes due 2035
|
|
|
1,000
|
|
|
(13.2
|
)
|
|
(8.8
|
)
|
|
978.0
|
|
6.750% Senior unsecured notes due 2040
|
|
|
1,100
|
|
|
(7.4
|
)
|
|
(5.9
|
)
|
|
1,086.7
|
|
5.250% Senior unsecured notes due 2042
|
|
|
1,200
|
|
|
(19.8
|
)
|
|
(6.6
|
)
|
|
1,173.6
|
|
5.875% Senior unsecured notes due 2045
|
|
|
1,500
|
|
|
(16.9
|
)
|
|
(8.9
|
)
|
|
1,474.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,125
|
|
$
|
(60.5
|
)
|
$
|
(33.6
|
)
|
|
5,957.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less, current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
|
|
|
|
|
|
|
|
$
|
5,957.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 10FINANCING: (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Face
amount
|
|
Issuance
discount
|
|
Issuance
costs
|
|
Carrying
value as of
December 31,
2016
|
|
5.375% Senior unsecured notes due 2020
|
|
$
|
400
|
|
$
|
(0.8
|
)
|
$
|
(0.9
|
)
|
$
|
398.3
|
|
3.500% Senior unsecured notes due 2022
|
|
|
300
|
|
|
(0.7
|
)
|
|
(0.9
|
)
|
|
298.4
|
|
3.875% Senior unsecured notes due 2025
|
|
|
500
|
|
|
(2.3
|
)
|
|
(2.2
|
)
|
|
495.5
|
|
9.250% Yankee Bonds due 2028
|
|
|
125
|
|
|
|
|
|
|
|
|
51.2
|
|
7.500% Senior unsecured notes due 2035
|
|
|
1,000
|
|
|
(13.6
|
)
|
|
(8.9
|
)
|
|
977.5
|
|
6.750% Senior unsecured notes due 2040
|
|
|
1,100
|
|
|
(7.5
|
)
|
|
(6.1
|
)
|
|
1,086.4
|
|
5.250% Senior unsecured notes due 2042
|
|
|
1,200
|
|
|
(20.2
|
)
|
|
(6.7
|
)
|
|
1,173.1
|
|
5.875% Senior unsecured notes due 2045
|
|
|
1,500
|
|
|
(17.1
|
)
|
|
(9.1
|
)
|
|
1,473.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,125
|
|
$
|
(62.2
|
)
|
$
|
(34.8
|
)
|
|
5,954.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less, current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
|
|
|
|
|
|
|
|
$
|
5,954.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
bonds, referred above as "Yankee bonds", contain a covenant requiring Minera Mexico to maintain a ratio of EBITDA to interest expense of not less than 2.5 to 1.0 as such terms are
defined in the debt instrument. At December 31, 2017, Minera Mexico was in compliance with this covenant.
Between
July 2005 and November 2012 the Company issued senior unsecured notes six times totaling $4.2 billion, as listed above. Interest on the notes is paid semi-annually in
arrears. The notes rank
pari
passu
with each other and rank
pari passu
in right of payment with all of the Company's other existing and future unsecured and
unsubordinated indebtedness.
On
April 20, 2015, the Company issued $2.0 billion of fixed-rate senior unsecured notes. This debt was issued in two tranches, $500 million due 2025 at an annual
interest rate of 3.875% and $1.5 billion due 2045 at an annual interest rate of 5.875%. These notes are general unsecured obligations of the Company and rank equally with all of its existing
and future unsecured and unsubordinated debt. Net proceeds are being used for general corporate purposes, including the financing of the Company´s capital investment program. The notes
were issued with an underwriters' discount of $20.2 million. Additionally, issuance costs of $11.8 million associated with these notes were paid and deferred. The unamortized balance of
the discount and the costs are presented net of the carrying value of the debt issued and are amortized as interest expense over the life of the loan.
The
indentures relating to the notes contain certain restrictive covenants, including limitations on liens, limitations on sale and leaseback transactions, rights of the holders of the
notes upon the occurrence of a change of control triggering event, limitations on subsidiary indebtedness and limitations on consolidations, mergers, sales or conveyances. Certain of these covenants
cease to be applicable before the notes mature if the Company obtains an investment grade rating. The Company obtained investment grade rating in 2005. The Company has registered these notes under the
Securities Act of 1933, as amended. The Company may issue additional debt from time to time pursuant to certain of the indentures.
If
the Company experiences a "Change of Control Triggering Event", the Company must offer to repurchase the notes at a purchase price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any. A Change of Control Trigger Event means a Change of Control (as
127
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 10FINANCING: (Continued)
defined)
and a rating decline (as defined), that is, if the rating of the notes, by at least one of the rating agencies shall be decreased by one or more gradations.
At
December 31, 2017, the Company was in compliance with the covenants of the notes.
Aggregate
maturities of the outstanding borrowings at December 31, 2017, are as follows:
|
|
|
|
|
Years
|
|
Principal
Due(*)
|
|
|
|
(in millions)
|
|
2018
|
|
$
|
|
|
2019
|
|
|
|
|
2020
|
|
|
400.0
|
|
2021
|
|
|
|
|
2022
|
|
|
300.0
|
|
Thereafter
|
|
|
5,351.2
|
|
|
|
|
|
|
Total
|
|
$
|
6,051.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(*)
-
Total
debt maturities do not include the debt discount valuation account of $94.1 million.
NOTE 11BENEFIT PLANS:
Post retirement defined benefit plans
The Company has two noncontributory defined benefit pension plans covering former salaried employees in the United States and certain former
expatriate employees in Peru (the "Expatriate Plan"). Effective October 31, 2000, the Board of Directors amended the qualified pension plan to suspend the accrual of benefits.
In
addition, the Company's Mexican subsidiaries have a defined contribution pension plan for salaried employees and a non-contributory defined benefit pension plan for union employees
(the "Mexican Plan").
The
components of net periodic benefit costs calculated in accordance with ASC 715 "Compensation retirement benefits," using December 31 as a measurement date, consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
December 31,
|
|
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
|
Service cost
|
|
$
|
0.8
|
|
$
|
0.7
|
|
$
|
1.1
|
|
Interest cost
|
|
|
1.4
|
|
|
1.0
|
|
|
1.0
|
|
Expected return on plan assets
|
|
|
(2.9
|
)
|
|
(2.2
|
)
|
|
(3.0
|
)
|
Amortization of transition assets, net
|
|
|
0.1
|
|
|
0.1
|
|
|
0.1
|
|
Amortization of net actuarial loss
|
|
|
|
|
|
|
|
|
(0.5
|
)
|
Settlement / Curtailment
|
|
|
0.1
|
|
|
(0.2
|
)
|
|
|
|
Amortization of net loss/(gain)
|
|
|
0.2
|
|
|
0.2
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
(0.3
|
)
|
$
|
(0.4
|
)
|
$
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 11BENEFIT PLANS: (Continued)
The
change in benefit obligation and plan assets and a reconciliation of funded status are as follows:
|
|
|
|
|
|
|
|
|
|
As of
December 31,
|
|
(in millions)
|
|
2017
|
|
2016
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year
|
|
$
|
25.6
|
|
$
|
24.9
|
|
Service cost
|
|
|
0.8
|
|
|
0.7
|
|
Interest cost
|
|
|
1.4
|
|
|
1.0
|
|
Settlement
|
|
|
0.9
|
|
|
(0.1
|
)
|
Benefits paid
|
|
|
(1.9
|
)
|
|
(2.0
|
)
|
Actuarial (gain)/loss
|
|
|
(0.3
|
)
|
|
3.3
|
|
Actuarial gain assumption changes
|
|
|
0.3
|
|
|
(0.1
|
)
|
Inflation adjustment
|
|
|
0.7
|
|
|
(2.1
|
)
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of year
|
|
$
|
27.5
|
|
$
|
25.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
44.6
|
|
$
|
46.8
|
|
Actual return on plan assets
|
|
|
6.9
|
|
|
4.5
|
|
Employer contributions
|
|
|
(0.4
|
)
|
|
(0.4
|
)
|
Benefits paid
|
|
|
(0.9
|
)
|
|
(0.9
|
)
|
Currency exchange rate adjustment
|
|
|
1.4
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
51.6
|
|
$
|
44.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year:
|
|
$
|
24.1
|
|
$
|
19.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASC-715 amounts recognized in statement of financial position consists of:
|
|
|
|
|
|
|
|
Non-current assets
|
|
$
|
24.2
|
|
$
|
19.0
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
24.2
|
|
$
|
19.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASC-715 amounts recognized in accumulated other comprehensive income (net of income taxes of $(2.0) million and $(3.3) million in 2017 and 2016,
respectively) consists of:
|
|
|
|
|
|
|
|
Net loss (gain)
|
|
$
|
2.3
|
|
$
|
4.8
|
|
Prior service cost
|
|
|
1.5
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3.8
|
|
$
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 11BENEFIT PLANS: (Continued)
The
following table summarizes the changes in accumulated other comprehensive income for the years ended December 31, related to the defined benefit pension plan, net of income
tax:
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
|
Reconciliation of accumulated other comprehensive income:
|
|
|
|
|
|
|
|
Accumulated other comprehensive income at beginning of plan year
|
|
$
|
5.8
|
|
$
|
5.7
|
|
Net loss/(gain) amortized during the year
|
|
|
(0.1
|
)
|
|
(0.2
|
)
|
Net loss/(gain) occurring during the year
|
|
|
(2.4
|
)
|
|
0.6
|
|
Prior service cost (credit)
|
|
|
0.4
|
|
|
|
|
Currency exchange rate adjustment
|
|
|
0.1
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
Net adjustment to accumulated other comprehensive income
(net of income taxes of $1.3 million and $(3.3) million in 2017 and
2016, respectively)
|
|
|
(2.0
|
)
|
|
0.1
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income at end of plan year
|
|
$
|
3.8
|
|
$
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table summarizes the amounts in accumulated other comprehensive income amortized and recognized as a component of net periodic benefit cost in 2017 and 2016, net of income
tax:
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
|
Net loss / (gain)
|
|
$
|
(2.4
|
)
|
$
|
0.6
|
|
Amortization of net (loss) gain
|
|
|
(0.1
|
)
|
|
(0.1
|
)
|
Amortization of prior services cost (credit)
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization expenses
|
|
$
|
(2.1
|
)
|
$
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
assumptions used to determine the pension obligations are:
|
|
|
|
|
|
|
|
|
|
|
Expatriate Plan
|
|
2017
|
|
2016
|
|
2015
|
|
Discount rate
|
|
|
3.25
|
%
|
|
3.65
|
%
|
|
3.80
|
%
|
Expected long-term rate of return on plan asset
|
|
|
4.00
|
%
|
|
4.00
|
%
|
|
4.50
|
%
|
Rate of increase in future compensation level
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexican Plan(*)
|
|
2017
|
|
2016
|
|
2015
|
|
Discount rate
|
|
|
7.80
|
%
|
|
7.55
|
%
|
|
6.80
|
%
|
Expected long-term rate of return on plan asset
|
|
|
7.55
|
%
|
|
7.55
|
%
|
|
6.80
|
%
|
Rate of increase in future compensation level
|
|
|
4.50
|
%
|
|
4.50
|
%
|
|
4.50
|
%
|
-
(*)
-
These
rates are based on Mexican pesos as pension obligations are denominated in pesos.
130
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 11BENEFIT PLANS: (Continued)
The
scheduled maturities of the benefits expected to be paid in each of the next five years, and thereafter, are as follows:
|
|
|
|
|
Years
|
|
Expected
Benefit Payments
|
|
|
|
(in millions)
|
|
2018
|
|
$
|
2.3
|
|
2019
|
|
|
1.7
|
|
2020
|
|
|
1.8
|
|
2021
|
|
|
1.9
|
|
2022
|
|
|
2.0
|
|
2023 to 2025
|
|
|
12.4
|
|
|
|
|
|
|
Total
|
|
$
|
22.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expatriate Plan
The Company's funding policy is to contribute amounts to the qualified plan sufficient to meet the minimum funding requirements set forth in the
Employee Retirement Income Security Act of 1974 plus such additional amounts as the Company may determine to be appropriate.
Plan
assets are invested in a group annuity contract with Metropolitan Life Insurance Company ("MetLife"). The Contract invests in the MetLife General Account Payment Fund (the "Money
Fund") and the MetLife Broad Market Core Bond Fund (the "Bond Fund") managed by BlackRock, Inc.
The
Money Fund seeks to earn interest and maintain a $1.00 per share net asset value, by investing in U.S. Dollar-denominated money market securities.
The
Bond Fund seeks to outperform the Bloomberg Barclays ® U.S. Aggregate Bond Index, net of fees, over a full market cycle. The Bond Fund invests in publicly traded,
investment grade securities. These may include corporate securities, mortgage securities, treasuries and cash, agency securities, commercial mortgage backed securities and other investment vehicles
adhering to the fund's investment objectives. These investments are classified as Level 1 because they are valued using quoted prices of the same securities as they consist of instruments which
are publicly traded.
Plan
assets are invested with the objective of maximizing returns with an acceptable level of risk and maintaining adequate liquidity to fund expected benefit payments. The Company's
policy for determining asset mix-targets to meet investment objectives includes periodic consultation with recognized third party investment consultants.
The
expected long-term rate of return on plan assets is reviewed annually, taking into consideration asset allocations, historical returns and the current economic environment. Based on
these factors the Company expects its assets will earn an average of 4.00% per annum assuming its long-term mix will be consistent with its current mix.
Mexican Plan
Minera Mexico's policy for determining asset mix targets includes periodic consultation with recognized third party investment consultants. The
expected long-term rate of return on plan assets is
131
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 11BENEFIT PLANS: (Continued)
updated
periodically, taking into consideration assets allocations, historical returns and the current economic environment. The fair value of plan assets is impacted by general market conditions. If
actual returns on plan assets vary from the expected returns, actual results could differ.
The
plan assets are managed by three financial institutions, Scotiabank Inverlat S.A., Banco Santander and Banco Mercantil del Norte, S.A. 30% of the funds are invested in
Mexican government securities, including treasury certificates and development bonds of the Mexican government. The remaining 70% is invested in common shares of Grupo Mexico.
The
plan assets are invested without restriction in active markets that are accessible when required and are therefore considered as level 1, in accordance with ASC 820 "Fair
Value Measurement."
These
plans accounted for approximately 30% of benefit obligations. The following table represents the asset mix of the investment portfolio as of December 31:
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Asset category:
|
|
|
|
|
|
|
|
Equity securities
|
|
|
70
|
%
|
|
78
|
%
|
Treasury bills
|
|
|
30
|
%
|
|
22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
The
amount of contributions that the Company expects to pay to the plan during 2018 is $1.4 million, which excludes $3.4 million of pending payments to former Buenavista
workers.
Post-retirement Health Care Plan:
United States: The Company adopted a post-retirement health care plan for retired salaried employees eligible for Medicare in 1996. The
Company
manages the plan and is currently providing health benefits to retirees. The plan is accounted for in accordance with ASC 715 "Compensation retirement benefits."
In
Mexico, health services are provided by the Mexican Social Security Institute.
The
components of net period benefit costs for the three years ended December 31, 2017 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
December 31,
|
|
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
|
Interest cost
|
|
$
|
0.9
|
|
$
|
0.6
|
|
$
|
1.0
|
|
Amortization of prior service cost/ (credit)
|
|
|
(0.2
|
)
|
|
(0.5
|
)
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
0.7
|
|
$
|
0.1
|
|
$
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 11BENEFIT PLANS: (Continued)
The
change in benefit obligation and a reconciliation of funded status are as follows:
|
|
|
|
|
|
|
|
|
|
As of
December 31,
|
|
(in millions)
|
|
2017
|
|
2016
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year
|
|
$
|
12.9
|
|
$
|
10.8
|
|
Interest cost
|
|
|
0.9
|
|
|
0.6
|
|
Actuarial loss/ (gain)claims cost
|
|
|
(0.4
|
)
|
|
|
|
Benefits paid
|
|
|
(0.9
|
)
|
|
(0.8
|
)
|
Actuarial (gain)/loss
|
|
|
(0.6
|
)
|
|
3.9
|
|
Inflation adjustment
|
|
|
0.6
|
|
|
(1.6
|
)
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of year
|
|
$
|
12.5
|
|
$
|
12.9
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
|
|
$
|
|
|
Employer contributions
|
|
|
0.1
|
|
|
0.1
|
|
Benefits paid
|
|
|
(0.1
|
)
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year:
|
|
$
|
12.5
|
|
$
|
(12.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASC-715 amounts recognized in statement of financial position consists of:
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
(0.1
|
)
|
$
|
(0.1
|
)
|
Non-current liabilities
|
|
|
(12.5
|
)
|
|
(12.8
|
)
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(12.6
|
)
|
$
|
(12.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASC-715 amounts recognized in accumulated other comprehensive income consists of:
|
|
|
|
|
|
|
|
Net loss (gain)
|
|
$
|
(3.9
|
)
|
$
|
(2.8
|
)
|
Total
(net of income taxes of $1.7 million and $1.4 million in 2017 and 2016, respectively)
|
|
$
|
(3.9
|
)
|
$
|
(2.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 11BENEFIT PLANS: (Continued)
The
following table summarizes the changes in accumulated other comprehensive income for the years ended December 31, related to the post-retirement health care plan, net of
income tax:
|
|
|
|
|
|
|
|
|
|
As of
December 31,
|
|
(in millions)
|
|
2017
|
|
2016
|
|
Reconciliation of accumulated other comprehensive income:
|
|
|
|
|
|
|
|
Accumulated other comprehensive income at beginning of plan year
|
|
$
|
(2.8
|
)
|
$
|
(6.5
|
)
|
Net loss/(gain) occurring during the year
|
|
|
(0.6
|
)
|
|
2.3
|
|
Net loss/(gain) amortized during the year
|
|
|
0.1
|
|
|
0.3
|
|
Currency exchange rate adjustment
|
|
|
(0.6
|
)
|
|
1.1
|
|
|
|
|
|
|
|
|
|
Net adjustment to accumulated other comprehensive income
(net of income taxes of $0.3 million and $1.9 million in 2017
and 2016, respectively)
|
|
|
(1.1
|
)
|
|
3.7
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income at end of plan year
|
|
$
|
(3.9
|
)
|
$
|
(2.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table summarizes the amounts in accumulated other comprehensive income amortized and recognized as a component of net periodic benefit cost in 2017 and 2016, net of income
tax:
|
|
|
|
|
|
|
|
|
|
At
December 31,
|
|
(in millions)
|
|
2017
|
|
2016
|
|
Net loss / (gain)
|
|
$
|
(0.6
|
)
|
$
|
2.3
|
|
Amortization of net (loss) gain
|
|
|
0.1
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
Total amortization expenses
|
|
$
|
(0.5
|
)
|
$
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
discount rates used in the calculation of other post-retirement benefits and cost as of December 31 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Expatriate health plan
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
3.25
|
%
|
|
3.65
|
%
|
|
3.80
|
%
|
Mexican health plan
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
7.80
|
%
|
|
7.55
|
%
|
|
6.80
|
%
|
134
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 11BENEFIT PLANS: (Continued)
The
benefits expected to be paid in each of the next five years, and thereafter, are as follows:
|
|
|
|
|
Year
|
|
Expected
Benefit Payments
|
|
|
|
(in millions)
|
|
2018
|
|
$
|
0.9
|
|
2019
|
|
|
0.9
|
|
2020
|
|
|
0.9
|
|
2021
|
|
|
0.9
|
|
2022
|
|
|
0.9
|
|
2023 to 2027
|
|
|
4.8
|
|
|
|
|
|
|
Total
|
|
$
|
9.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expatriate Health Plan
For measurement purposes for pre 65 year old participants, a 5.9% annual rate of increase in the per capita cost of covered health care
benefits was assumed for 2017 which gradually decrease to 4.2% in a 85 year period. For post 65 year old the annual rate of increase in the per capita cost for 2017 is 6.3% which is
assumed to decrease gradually to 4.6%.
Assumed
health care cost trend rates can have a significant effect on amounts reported for health care plans. However, because of the size of the Company's plan, a one percentage-point
change in assumed health care trend rate would not have a significant effect.
Mexican Health Plan
For measurement purposes, a 4.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2017 and remains
at that level thereafter.
An
increase in other benefit cost trend rates have a significant effect on the amount of the reported obligations, as well as component cost of the other benefit plan. One
percentage-point change in assumed other benefits cost trend rates would have the following effects:
|
|
|
|
|
|
|
|
|
|
One Percentage
Point
|
|
(in millions)
|
|
Increase
|
|
Decrease
|
|
Effect on total service and interest cost components
|
|
$
|
1.0
|
|
$
|
0.8
|
|
Effect on the post-retirement benefit obligation
|
|
$
|
12.5
|
|
$
|
11.3
|
|
NOTE 12COMMITMENTS AND CONTINGENCIES:
Environmental matters:
The Company has instituted extensive environmental conservation programs at its mining facilities in Peru and Mexico. The Company's
environmental programs include, among others, water recovery systems to conserve water and minimize the impact on nearby streams, reforestation programs to stabilize the surface of the tailings dams
and the implementation of scrubbing technology in the mines to reduce dust emissions.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12COMMITMENTS AND CONTINGENCIES: (Continued)
Environmental capital investments in years 2017, 2016 and 2015, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Peruvian operations
|
|
$
|
93.7
|
|
$
|
110.3
|
|
$
|
98.8
|
|
Mexican operations
|
|
|
128.9
|
|
|
140.1
|
|
|
22.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
222.6
|
|
$
|
250.4
|
|
$
|
120.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peruvian operations:
The Company's operations are subject to applicable Peruvian environmental laws and regulations. The
Peruvian government, through the Ministry of Environment ("MINAM") conducts annual audits of the Company's Peruvian mining and metallurgical operations. Through these environmental audits, matters
related to environmental obligation, compliance with legal requirements, atmospheric emissions, effluent monitoring and waste management are reviewed. The Company believes that it is in material
compliance with applicable Peruvian environmental laws and regulations. Peruvian law requires that companies in the mining industry provide assurances for future mine closure and remediation. In
accordance with the requirements of this law, the Company's closure plans were approved by MINEM. See Note 9 "Asset retirement obligation," for further discussion of this matter. In accordance
with the requirements of the law, in 2015 the Company submitted the closure plans for the Tia Maria project and for the Toquepala expansion. The process of review and approval of closure plans usually
takes several months. In March 2016, MINEM approved the Mining Closure Plan for the Toquepala expansion project. The closure plan for the Tia Maria project was approved in February 2017. The Company,
however, has not recorded a retirement obligation for the project as the construction permit has not been received, and work on the project is on hold. The Company believes that under these
circumstances the recording of a retirement obligation is not appropriate. In December 2017, the Company submitted the mine closure plan update for the Cuajone operations, which is under review and
evaluation by MINEM.
In
2008, the Peruvian government enacted environmental regulations establishing stringent air quality standards ("AQS") for daily sulfur dioxide ("SO2") in the air for the Peruvian
territory. These regulations, as amended in 2013, recognized distinct zones/areas, as atmospheric basins. MINAM had established three atmospheric basins that required further attention to comply with
the air quality standards. The Ilo basin was one of these three areas and the Company's smelter and refinery are part of the area.
In
June 2017, MINAM enacted a supreme decree which defines new AQS for daily sulfur dioxide and gaseous mercury for the Peruvian territory, as well as monthly lead in particulate matter
(PM10), in order to adopt standards similar to comparable countries and conform them to the technical capabilities available in Peru, while ensuring the protection of public health. This decree also
considers criteria established by the World Health Organization and establishes a mean 24-hour AQS equal to 250 micrograms per cubic meter (µg/m3) of SO2 to replace the
current 24-hour AQS of 20 µg/m3 of SO2, effective since 2014. The decree also establishes a mean 24-hour AQS equal to 2 µg/m3 of gaseous mercury and a
mean monthly AQS equal to 1.5 µg/m3 of lead in PM10.
The
Company believes that these new AQS are appropriate for Peru and will allow Peruvian industry to be competitive with other countries. The Company has evaluated the potential impact
of these new standards and expects that its adoption will not have a material impact on the financial
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12COMMITMENTS AND CONTINGENCIES: (Continued)
position
of the Company, as currently the Company maintains a lower daily average level of µg/m3 of SO2, than those required by the new AQS.
In
addition, in June 2017, MINAM enacted a supreme decree which establishes new quality standards for water in the Peruvian territory. The Company has reviewed this decree and considers
that its adoption will not have a material impact on its financial position.
In
2013, the Peruvian government enacted soil environmental quality standards ("SQS") applicable to any existing facility or project that generates or could generate the risk of soil
contamination in its area of operation or influence. In March 2014, MINAM issued a supreme decree, which establishes additional provisions for the gradual implementation of SQS. Under this rule the
Company had twelve months to identify contaminated sites in and around its facilities and present a report of identified contaminated sites. These documents were submitted to MINEM for approval in
April 2015. After MINEM's review, the documents for the Company's operations were fully approved in July 2017. The next step is for the Company to prepare a characterization study to determine the
depth, extent and physio-chemical composition of the contaminated areas and define an appropriate remediation plan with time-frame for completion. In addition, the Company must submit for approval a
Soil Decontamination Plan (SDP) within 30 months after being notified by the authority. This SDP must include remediation actions, a schedule and compliance deadlines. Also under this rule, if
deemed necessary and given reasonable justification, the Company may request a one year extension for the decontamination plan.
Soil
confirmation tests must be carried out after completion of decontamination actions (within the approved schedule) and results must be presented to authorities within 30 days
after receiving such
results. Non-compliance with this obligation or with decontamination goals will carry penalties, although no specific sanctions have been established yet. During compliance with this schedule,
companies cannot be penalized for non-compliance with the SQS.
While
the Company believes that there is a reasonable possibility that a potential loss contingency may exist, it cannot currently estimate the amount of the contingency. The Company
believes that a reasonable determination of the loss will be possible once the characterization study and the SDP are substantially completed, which is expected for the first quarter of 2020. At that
time the Company will be in a position to estimate the remediation cost. Further, the Company does not believe that it can estimate a reasonable range of possible costs until the noted studies have
substantially progressed and therefore is not be able to disclose a range of costs that is meaningful.
Mexican operations
: The Company's operations are subject to applicable Mexican federal, state and municipal
environmental laws, to Mexican official standards, and to regulations for the protection of the environment, including regulations relating to water supply, water quality, air quality, noise levels
and hazardous and solid waste.
The
principal legislation applicable to the Company's Mexican operations is the Federal General Law of Ecological Balance and Environmental Protection (the "General Law"), which is
enforced by the Federal Bureau of Environmental Protection ("PROFEPA"). PROFEPA monitors compliance with environmental legislation and enforces Mexican environmental laws, regulations and official
standards. It may also initiate administrative proceedings against companies that violate environmental laws, which in the most extreme cases may result in the temporary or permanent shutdown of
non-complying facilities, the revocation of operating licenses and/or other sanctions or fines.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12COMMITMENTS AND CONTINGENCIES: (Continued)
In
2011, the General Law was amended, giving an individual or entity the ability to contest administrative acts, including environmental authorizations, permits or concessions granted,
without the need to demonstrate the actual existence of harm to the environment as long as it can be argued that the harm may be caused. In addition, in 2011, amendments to the Civil Federal
Procedures Code ("CFPC") were enacted. These amendments establish three categories of collective actions by means of which 30 or more people claiming injury derived from environmental, consumer
protection, financial services and economic competition issues will be considered to be sufficient in order to have a legitimate interest to seek through a civil procedure restitution or economic
compensation or suspension of the activities from which the alleged injury derived. The amendments to the CFPC may result in more litigation, with plaintiffs seeking remedies, including suspension of
the activities alleged to cause harm.
In
2013, the Environmental Liability Federal Law was enacted. The law establishes general guidelines for actions to be considered to likely cause environmental harm. If a possible
determination regarding harm occurs, environmental clean-up and remedial actions sufficient to restore environment to a pre-existing condition should be taken. Under this law, if restoration is not
possible, compensation measures should be provided. Criminal penalties and monetary fines can be imposed under this law.
2014 accidental spill at Buenavista mine:
In 2014, an accidental spill of approximately 40,000 cubic meters of copper sulfate solution
occurred at a
Buenavista mine leaching pond. This solution reached the Bacanuchi River and the Sonora River. The Company took immediate actions to contain the spill, and to comply with all necessary legal
requirements. The Company hired contractors including environmental specialists and assigned more than 1,200 of its own personnel to clean the river. In addition, the Company developed a service
program to assist the residents of the Sonora River region.
-
-
Administrative proceedings: The National Water Commission, the Federal Commission for the Protection of Sanitary Risk and PROFEPA initiated
administrative proceedings regarding the spill to determine possible environmental and health damages. On September 15, 2014, the Company executed an administrative agreement with PROFEPA,
providing for the submission of a remediation action plan to the Mexican Ministry of Environment and Natural Resources (Secretaria de Medio Ambiente y Recursos Naturales "SEMARNAT"). The general
remediation program submitted to SEMARNAT was approved on January 6, 2015.
The
Company also created a trust with a Mexican development bank, acting as a Trustee to support environmental remedial actions in connection with the spill, to comply with the remedial action plan
and to compensate those persons adversely affected by the spill. The Company committed up to two billion Mexican pesos (approximately $150 million). A technical committee for the trust was
created with representatives from the federal government, the Company and specialists assisted by a team of environmental experts to ensure the proper use of the funds. Along with the administrative
agreement executed with PROFEPA, the trust served as an alternative mechanism for dispute resolution to mitigate public and private litigation risks.
On
December 1, 2016, SEMARNAT issued its final resolution which held that all remediation actions contained in the remediation plan, had been fulfilled and that all requirements had been
complied with, except for biological monitoring activities at the Sonora River that will continue until the first semester of 2019 pursuant to the plan. On January 26, 2017, PROFEPA issued its
final resolution under which it declared all mitigation actions completed and its investigation
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12COMMITMENTS AND CONTINGENCIES: (Continued)
closed.
In light of the above, the Company has obtained all necessary formal rulings from SEMARNAT and PROFEPA. On February 7, 2017, the Company closed the trust. As a result,
$10.2 million of excess provision was credited to income in the first quarter of 2017. The total expense recorded for this accident in 2014 and 2015 was $136.4 million. Therefore, the
remediation concerns raised by SEMARNAT and PROFEPA have been addressed.
-
-
Other procedures: On August 19, 2014, PROFEPA, as part of the administrative proceeding initiated after the spill, announced the filing
of a criminal complaint against Buenavista del Cobre S.A. de C.V. ("BVC"), a subsidiary of the Company, in order to determine those responsible for the environmental damages. The Company is
vigorously defending itself against this complaint. As of December 31, 2017, the case remains pending resolution.
Through
the first half of 2015, six collective action lawsuits were filed in federal courts in Mexico City and Sonora against two subsidiaries of the Company seeking economic compensation, clean up
and remedial activities in order to restore the environment to its pre-existing conditions. Two of the collective action lawsuits have been dismissed by the court. The plaintiffs in the four remaining
lawsuits are: Acciones Colectivas de Sinaloa, A.C. which established two collective actions, Defensa Colectiva A.C.; and Ana Luisa Salazar Medina et al. which has been granted a collective action
certification. The remaining plaintiffs have requested cautionary measures on the construction of facilities for the monitoring of public health services and the prohibition of the closure of the
Río Sonora Trust. As of December 31, 2017, these cases remain pending resolution.
Similarly,
during 2015, eight civil action lawsuits were filed against BVC in the state courts of Sonora seeking damages for alleged injuries and for moral damages as a consequence of the spill. The
plaintiffs in the state court lawsuits are: Jose Vicente Arriola Nunez et al; Santana Ruiz Molina et al; Andres Nogales Romero et al; Teodoro Javier Robles et al; Gildardo Vasquez Carvajal et al;
Rafael Noriega Souffle et al; Grupo Banamichi Unido de Sonora El Dorado, S.C. de R.L. de C.V; and Marcelino Mercado Cruz. In 2016, three additional civil action lawsuits, claiming similar
damages, were filed by Juan Melquicedec Lebaron; Blanca Lidia Valenzuela Rivera et al and Ramona Franco Quijada et al. In 2017, BVC was served with thirty-three additional civil action lawsuits,
claiming similar damages. The lawsuits were filed by Francisco Javier Molina Peralta et al; Anacleto Cohen Machini et al; Francisco Rafael Alvarez Ruiz et al; Jose Alberto Martinez Bracamonte et al;
Gloria del Carmen Ramirez Duarte et al; Flor Margarita Sabori et al; Blanca Esthela Ruiz Toledo et al; Julio Alfonso Corral Domínguez et al; Maria Eduwiges Bracamonte Villa et al;
Francisca Marquez Dominguez et al; Jose Juan Romo Bravo et al; Jose Alfredo Garcia Leyva et al; Gloria Irma Dominguez Perez et al; Maria del Refugio Romero et al; Miguel Rivas Medina et al; Yolanda
Valenzuela Garrobo et al; Maria
Elena Garcia Leyva et al; Manuel Alfonso Ortiz Valenzuela et al; Francisco Alberto Arvayo Romero et al; Maria del Carmen Villanueva Lopez et al; Manuel Martin Garcia Salazar; Miguel Garcia Arguelles
et al; Dora Elena Rodriguez Ochoa et al; Honora Eduwiges Ortiz Rodriguez et al; Francisco Jose Martinez Lopez et al; Maria Eduwiges Lopez Bustamante; Rodolfo Barron Villa et al, Jose Carlos Martinez
Fernandez et al, Maria de los Angeles Fabela et al; Rafaela Edith Haro et al; Luz Mercedes Cruz et al; Juan Pedro Montaño et al; and Juana Irma Alday Villa. As of December 31,
2017, these cases remain pending resolution.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12COMMITMENTS AND CONTINGENCIES: (Continued)
During
2015, four constitutional lawsuits (juicios de amparo) were filed before Federal Courts against various authorities and against a subsidiary of the Company, arguing; (i) the alleged lack
of a waste management program approved by SEMARNAT; (ii) the alleged lack of a remediation plan approved by SEMARNAT with regard to the August 2014 spill; (iii) the alleged lack of
community approval regarding the environmental impact authorizations granted by SEMARNAT to one subsidiary of the Company; and (iv) the alleged inactivity of the authorities with regard of the
spill in August 2014. The plaintiffs of these lawsuits are: Francisca Garcia Enriquez, et al which established two lawsuits, Francisco Ramon Miranda, et al and Jesus David Lopez Peralta et al. During
the third quarter of 2016, four additional constitutional lawsuits, claiming similar damages were filed by Mario Alberto Salcido et al; Maria Elena Heredia Bustamante et al; Martin Eligio Ortiz Gamez
et al; and Maria de los Angeles Enriquez Bacame et al. During the third quarter of 2017, BVC was served with another constitutional lawsuit filed by Francisca García Enriquez et al. As
of December 31, 2017, these cases remain pending resolution.
It
is not currently possible to determine the extent of the damages sought in these state and federal lawsuits but the Company considers that these lawsuits are without merit.
Accordingly, the Company is vigorously defending against them. Nevertheless, the Company considers that none of the legal proceedings resulting from the spill, individually or in the aggregate, would
have a material effect on its financial position or results of operations.
The
Company believes that all of its facilities in Peru and Mexico are in material compliance with applicable environmental, mining and other laws and regulations.
The
Company also believes that continued compliance with environmental laws of Mexico and Peru will not have a material adverse effect on the Company's business, properties, result of
operations, financial condition or prospects and will not result in material capital investments.
Litigation matters
:
The "Virgen Maria" Mining Concessions of the Tia Maria Mining
Project
The
Tia Maria project includes various mining concessions, totaling 32,989.64 hectares. One of the concessions is the "Virgen Maria" mining concession totaling 943.72
hectares or 2.9% of the total mining concessions.
Related
to the "Virgen Maria" mining concessions, in August 2009, a lawsuit was filed against SCC's Branch by the former stockholders of Exploraciones de Concesiones
Metalicas S.A.C. ("Excomet"). The plaintiffs allege that the acquisition of Excomet's shares by the Branch is null and void because the $2 million purchase price paid by the Branch for
the shares of Excomet was not fairly negotiated by the plaintiffs and the Branch. In 2005, the Branch acquired the shares of Excomet after lengthy negotiations with the plaintiffs, and after the
plaintiffs, which were all the stockholders of Excomet, approved the transaction in a general stockholders' meeting. Excomet was at the time owner of the "Virgen Maria" mining concession. In October
2011, the civil court dismissed the case on the grounds that the claim had been barred by the statute of limitations. On appeal by the plaintiffs, the Superior Court reversed the lower court's
decision and remanded it to the lower court for further proceedings. In August 2015, the lower court dismissed the case on the grounds that the plaintiffs had not proven the alleged unfairness of the
negotiations. The plaintiffs appealed this resolution before the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12COMMITMENTS AND CONTINGENCIES: (Continued)
Superior
Court. In September 2016, the Superior Court confirmed the lower court's resolution and the plaintiffs filed an extraordinary appeal in order to have the case reviewed by the Supreme Court.
In June 2017, the Supreme Court dismissed the extraordinary appeal filed by the plaintiffs. Therefore, the lawsuit ended favorably for the Company.
The Tia Maria Mining Project
There
are four lawsuits filed against the Peruvian Branch of the Company related to the Tia Maria project. The lawsuits seek (i) to declare null and void the
resolution which approved the Environmental Impact Assessment of the project; (ii) the cancellation of the project and the withdrawal of mining activities in the area and (iii) to
declare null and void the mining concession application of the Tia Maria project. The lawsuits were filed by Messrs. Jorge Isaac del Carpio Lazo (filed May 22, 2015), Ernesto Mendoza
Padilla (filed May 26, 2015), Juan Alberto Guillen Lopez (filed June 18, 2015) and Nicolas Belfiore Nicolini (filed November 13, 2015).
The
del Carpio Lazio case was rejected by the court of first instance on November 14, 2016. The plaintiff filed an appeal before the Superior Court on January 3, 2017. On
January 9, 2018, the lawyers of both parties presented their respective positions before the Appellate Court. As of February 20, 2018, the case remains pending resolution.
The
Mendoza Padilla case was rejected by the lower court on July 8, 2015. This ruling was confirmed by the Superior Court on June 14, 2016. On July 12, 2016, the
case was appealed before the Constitutional Court. As of December 31, 2017, the case remains pending resolution without further developments.
The
Guillen Lopez case is currently before the lower court. As of December 31, 2017, the case remains pending resolution without further developments.
In
the Belfiore Nicolini case, the court ruled partially in favor of the plaintiff. However, the Company filed an appeal to challenge said decision. As of February 20, 2018, the
file was sent to the Appelllate Court for reviewing.
The
Company asserts that these lawsuits are without merit and is vigorously defending against them. The potential contingency amount for these cases cannot be reasonably estimated by
management at this time.
Special Regional Pasto Grande Project ("Pasto Grande
Project")
In
2012, the Pasto Grande Project, an entity of the Regional Government of Moquegua, filed a lawsuit against SCC's Peruvian Branch alleging property rights over a
certain area used by the Peruvian Branch and seeking the demolition of the tailings dam where SCC's Peruvian Branch has deposited its tailings from the Toquepala and Cuajone operations since 1995. The
Peruvian Branch has had title to use the area in question since 1960 and has constructed and operated the tailing dams with proper governmental authorization, since 1995. Upon a motion filed by the
Peruvian Branch, the lower court has included MINEM as a defendant in this lawsuit. MINEM has answered the complaint and denied the validity of the claim. As of December 31, 2017, the case
remains pending resolution without further developments. SCC's Peruvian Branch asserts that the lawsuit is without merit and is vigorously defending against it. The amount of this contingency cannot
be reasonably estimated by management at this time.
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NOTE 12COMMITMENTS AND CONTINGENCIES: (Continued)
Carla Lacey and Barbara Siegfried, on behalf of themselves and
all other similarly situated stockholders of Southern Copper Corporation, and derivatively on behalf of Southern Copper Corporation
A
purported class action derivative lawsuit filed in the Delaware Court of Chancery was served on the Company and its Directors in February 2016 relating to the 2012
capitalization of 99.999% of MGE by Controladora de Infraestructura Energetica Mexico, S.A. de C.V., an indirect subsidiary of Grupo Mexico (the "CIEM Capitalization"), the Company's entry into
a power purchase agreement with MGE in 2012 (the "MGE Power Purchase Agreement"), and the 2012 restructuring of a loan from the Company's Mexican Operations to MGE for the construction of two power
plants to supply power to the Company's Mexican operations (the "MGE Loan Restructuring"). The action purports to be brought on behalf of the Company and its common stockholders. The complaint
alleges, among other things, that the CIEM Capitalization, the MGE Power Purchase Agreement and the MGE Loan Restructuring were the result of breaches of fiduciary duties and the Company's charter.
The Company has filed a response denying these allegations and is currently in the discovery process.
Labor matters
:
Peruvian operations:
69% of the Company's 4,628 Peruvian employees were unionized at December, 2017. Currently, there
are six separate unions, one large union and five smaller unions. In the first quarter of 2016, the Company signed three-year agreements with five unions. These agreements include, among other things,
annual salary increases of 5% for each of the three years.
In
April 2017, the Unified Labor Union of SPCC workers and one of Toquepala's unions began a strike, demanding a review of certain health and profit sharing benefits. The strike ended
after 12 days. These two unions began illegal strikes in July and November 2017, that lasted five days and 21 days, respectively. The Company estimates that the loss of copper production
resulting from the 2017 strikes was not significant and its sales contracts were not affected.
Mexican operations
: In recent years, the Mexican operations have experienced a positive improvement of their labor
environment, as its workers opted to change their affiliation from the Sindicato Nacional de Trabajadores Mineros, Metalurgicos y Similares de la Republica Mexicana (the "National Mining Union") to
other less politicized unions.
However,
the workers of the San Martin and Taxco mines, are still under the National Mining Union and have been on strike since July 2007. On December 10, 2009, a federal court
confirmed the legality of the San Martin strike. In order to recover the control of the San Martin mine and resume operations, the Company filed a court petition on January 27, 2011 requesting
that the court, among other things, define the termination payment for each unionized worker. The court denied the petition alleging that, according to federal labor law, the union was the only
legitimate party to file such petition. On appeal by the Company, on May 13, 2011, the Mexican federal tribunal accepted the petition. In July 2011, the National Mining Union appealed the
favorable court decision before the Supreme Court. On November 7, 2012, the Supreme Court affirmed the decision of the federal tribunal. The Company filed a new proceeding before the labor
court on the basis of the Supreme Court decision, which recognized the right of the labor court to define responsibility for the strike and the termination payment for each unionized worker. A
favorable decision of the labor court in this new proceeding would have the effect of terminating the protracted strike at San Martin. As of December 31, 2017, the case remains pending
resolution without further developments.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12COMMITMENTS AND CONTINGENCIES: (Continued)
In
the case of the Taxco mine, following the workers refusal to allow exploration of new reserves, the Company commenced litigation seeking to terminate the labor relationship with
workers at the mine (including termination of the related collective bargaining agreement). On September 1, 2010, the federal labor court issued a ruling approving the termination of the
collective bargaining agreement and all the individual labor contracts of the workers affiliated with the Mexican mining union at the Taxco mine. The mining union appealed the labor court ruling
before a federal court. In September 2011, the federal court accepted the union's appeal and remanded the case to the federal labor court for reconsideration. After several legal proceedings on
January 25, 2013, the Company filed a new proceeding before the labor court. On June 16, 2014, the labor court denied the petition of the Company. The resolution issued by the labor
court was challenged by the Company before a federal court. In August 2015, the Supreme Court decided to assert jurisdiction over the case and to rule on it directly. As of December 31, 2017,
the case remains pending resolution without further developments.
It
is expected that operations at these mines will remain suspended until these labor issues are resolved. In view of these lengthy strikes, the Company has reviewed the carrying value
of the San Martin and Taxco mines to ascertain whether impairment exists. The Company concluded that there is a non-material impairment of the assets located at these mines.
Other legal matters
:
The
Company is involved in various other legal proceedings incidental to its operations, but does not believe that decisions adverse to it in any such proceedings,
individually or in the aggregate, would have a material effect on its financial position or results of operations.
Other commitments
:
Peruvian Operations
Tia Maria:
On August 1, 2014, the Company received the final approval of Tia Maria´s Environmental Impact Assessment ("EIA").
However, the issuance of the project´s construction permit has been delayed due to pressures from anti-mining groups. The Company continues working with community groups in order to
resolve open issues concerning the project. The Company is also working jointly with the Peruvian Government to obtain the construction license for this 120,000 tons of SX-EW copper per year
greenfield project. The Company expects the license to be issued in the first half of 2018.
Tia
Maria´s project budget is approximately $1.4 billion, of which $353.9 million has been invested through December 31, 2017. When completed, it is
expected to produce 120,000 tons of copper cathodes per year. This project 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 as they do not require a smelting process and consequently, no emissions are released into the atmosphere. The project will only use seawater,
transporting this more than 25 kilometers to 1,000 meters above sea level, and includes a desalinization plant which will be constructed at a cost of $95 million. Consequently, the Tambo
river water resources and the water resources from the wells in the area will be used solely for farming and human consumption.
The
Company expects the project to generate 3,500 jobs during the construction phase. When in operation, Tia Maria will directly employ 600 workers and indirectly provide jobs to another
2,000.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12COMMITMENTS AND CONTINGENCIES: (Continued)
Through
its expected twenty-year life, the project related services will create significant business opportunities in the Arequipa region.
In
view of the delay in this project, the Company continues to review the carrying value of this asset to ascertain whether impairment exists. Should the Tia Maria project not move
forward, the Company is confident that most of the project equipment will continue to be used productively, through reassignment to other mine locations operated by the Company. The Company believes
that an impairment loss, if any, will not be material.
Toquepala Concentrator Expansion:
In April 2015, the construction permit for the Toquepala expansion project was approved by the MINEM. The project budget is $1.2 billion,
of which $892.9 million has been expended through December 31, 2017. When completed, this expansion project is expected to increase annual production capacity by 100,000 tons of copper
and 3,100 tons of molybdenum. The project has reached 87% progress and is expected to be completed by the third quarter of 2018.
Corporate Social Responsibility:
The Company has a corporate social responsibility policy to maintain and promote continuity of its mining operations and obtain the best
results. The main objective of this policy is to integrate its operations with the local communities in the areas of influence of its operations by creating a permanent positive relationship with
them, in order to develop the optimum social conditions and to promote sustainable development in the area. Accordingly, the Company has made the following commitments:
Tacna Region
: In connection with the Toquepala concentrator expansion, the Company has committed to fund various social
and infrastructure improvement projects in Toquepala's neighboring communities. The total amount committed for these purposes is S/ 445.0 million (approximately $132 million).
Moquegua Region
: In the Moquegua region, the Company is part of a "development roundtable" in which the local municipal
authorities, the community representatives and the Company discuss the social needs and the way the Company could contribute to sustainable development in the region. As part of this, the roundtable
is discussing the creation of a Moquegua Region Development Fund for
which the Company has offered a contribution of S/ 700 million (approximately $209 million). While final funding is not yet settled, the Company has committed to contribute S/
108.5 million (approximately $32 million) in advance, which is being utilized in an educational project and S/ 48.4 million (approximately $14 million) for a
residual water treatment plant in Ilo, a sea-wall embankment and a fresh water facility at El Algarrobal.
In
addition, the Company has committed S/ 143.0 million (approximately $43 million) for the construction of five infrastructure projects in the Moquegua region under the
"social investment for taxes" (obras por impuestos) program which allows the Company to use these amounts as an advance payment of taxes.
144
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SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12COMMITMENTS AND CONTINGENCIES: (Continued)
These
commitments are subject to the continuity of the respective mine operations and, as such, are not considered to be present obligations of the Company. Therefore, the Company has
not recorded a liability in its consolidated financial statements.
Power purchase agreements
-
-
Electroperu S.A.:
In June 2014, the Company entered into a power
purchase agreement for 120 megawatt ("MW") with the state power company Electroperu S.A., under which Electroperu S.A. began supplying energy for the Peruvian operations for
twenty years starting on April 17, 2017.
-
-
Kallpa Generacion S.A. ("Kallpa"):
In July 2014, the Company entered
into a power purchase agreement for 120MW with Kallpa, an independent Israeli owned power company, under which Kallpa will supply energy for the Peruvian operations for ten years starting on
April 17, 2017 and ending on April 30, 2027. In May 2016, the Company signed an additional power purchase agreement for a maximum of 80MW with Kallpa, under which Kallpa began supplying
energy for the Peruvian operations related to the Toquepala Expansion and 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. On August 16, 2017, Kallpa merged with Cerro del Aguila S.A. (another power generating company owned by the same
economic group); the name of the merged entity is still Kallpa Generacion S.A. and both power purchase agreements signed with Kallpa have not been affected by the noted merger.
Mexican operations
Power purchase agreements:
-
-
MGE:
In 2012, the Company signed a power purchase agreement with MGE, an
indirect subsidiary of Grupo Mexico, to supply power to some of the Company's Mexican operations through 2032. For further information, please see Note 16 "Related party transactions".
-
-
Eolica el Retiro S.A.P.I. de C.V.: In 2013, the Company signed a power purchase agreement with Eolica el Retiro, S.A.P.I de C.V.
a windfarm energy producer that is an indirect subsidiary of Grupo Mexico, to supply power to some of the Company´s Mexican operations. For further information, please see
Note 16 "Related party transactions".
For
an estimate of the Company's contractual obligations for power purchases, please see, "Contractual Obligations" under Item 7 "Management Discussion and Analysis of Financial
Condition and Results of Operations."
Commitment for Capital projects:
As of December 31, 2017, the Company has committed approximately $1,409.3 million for the development of its capital investment
projects.
Tax contingency matters:
Tax contingencies are provided for under ASC 740-10-50-15 Uncertain tax position (see Note 7 "Income taxes").
145
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SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 13STOCKHOLDERS' EQUITY
Treasury Stock:
Activity in treasury stock in the years 2017 and 2016 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Southern Copper common shares
|
|
|
|
|
|
|
|
Balance as of January 1,
|
|
$
|
2,769.0
|
|
$
|
2,697.6
|
|
Purchase of shares
|
|
|
|
|
|
71.7
|
|
Used for corporate purposes
|
|
|
(0.3
|
)
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
Balance as of December 31,
|
|
|
2,768.7
|
|
|
2,769.0
|
|
|
|
|
|
|
|
|
|
Parent Company (Grupo Mexico) common shares
|
|
|
|
|
|
|
|
Balance as of January 1,
|
|
|
218.6
|
|
|
211.3
|
|
Other activity, including dividend, interest and foreign currency transaction effect
|
|
|
13.8
|
|
|
7.3
|
|
|
|
|
|
|
|
|
|
Balance as of December 31,
|
|
|
232.4
|
|
|
218.6
|
|
|
|
|
|
|
|
|
|
Treasury stock balance as of December 31,
|
|
$
|
3.001.1
|
|
$
|
2,987.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SCC shares of common stock in treasury:
At December 31, 2017 and 2016, treasury stock holds 111,567,617 shares and 111,579,617 shares of SCC's common stock with a cost of
$2,768.7 million and $2,769.0 million, respectively. The shares of SCC's common stock held in treasury are used for Director's stock award plans and available for general corporate
purposes.
SCC share repurchase program:
In 2008, the Company's 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. Pursuant to this program, the Company purchased common stock as shown in the table below. These shares are available for general corporate
purposes. The Company may purchase additional shares of its common
146
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SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 13STOCKHOLDERS' EQUITY (Continued)
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
Number of Shares
that May Yet Be
Purchased Under
the Plan
@ $47.45(1)
|
|
|
|
Period
|
|
|
|
|
|
Total Number of
Shares Purchased
as Part of Publicly
Announced Plan
|
|
|
|
|
Total Number
of Shares
Purchased
|
|
Average
Price Paid
per Share
|
|
Total Cost
($ in millions)
|
|
From
|
|
To
|
|
2008
|
|
2012
|
|
|
46,914,486
|
|
$
|
18.72
|
|
|
46,914,486
|
|
|
|
|
|
878.1
|
|
2013:
|
|
|
|
|
10,245,000
|
|
|
27.47
|
|
|
57,159,486
|
|
|
|
|
|
281.4
|
|
2014:
|
|
|
|
|
22,711,428
|
|
|
30.06
|
|
|
79,870,914
|
|
|
|
|
|
682.8
|
|
2015:
|
|
|
|
|
36,689,052
|
|
|
27.38
|
|
|
116,559,966
|
|
|
|
|
|
1,004.4
|
|
2016:
|
|
|
|
|
2,937,801
|
|
|
24.42
|
|
|
119,497,767
|
|
|
|
|
|
71.7
|
|
Total purchased
|
|
|
119,497,767
|
|
$
|
24.42
|
|
|
|
|
|
1,720,408
|
|
$
|
2,918.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
NYSE
closing price of SCC common shares at December 31, 2017.
There
has not been any activity in the SCC share repurchase program since the third quarter of 2016.
As
a result of the repurchase of shares of SCC's common stock, Grupo Mexico's direct and indirect ownership was 88.9% as of December 31, 2017 and 2016.
Directors' Stock Award Plan:
The Company established a stock award compensation plan for certain directors who are not compensated as employees of the Company. Under this
plan, participants will receive 1,200 shares of common stock upon election and 1,200 additional shares following each annual meeting of stockholders thereafter. 600,000 shares of Southern Copper
common stock have been reserved for this plan. The Company's Board of Directors and the stockholders approved a one-year extension of the Plan until January 29, 2018. The fair value of the
award is measured each year at the date of the grant. In 2017 and 2016 the stock based compensation expense under this plan equaled $0.4 million and $0.3 million, respectively.
The
plan expired by its terms on January 29, 2018. A 5-year extension of the plan is being submitted for approval by the Company's stockholders at the 2018 Annual Meeting of
Stockholders.
The
activity of this plan for the years ended December 31, 2017 and 2016 was as follows:
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Total SCC shares reserved for the plan
|
|
|
600,000
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
Total shares granted at January 1,
|
|
|
(334,800
|
)
|
|
(322,800
|
)
|
Granted in the period
|
|
|
(12,000
|
)
|
|
(12,000
|
)
|
|
|
|
|
|
|
|
|
Total shares granted at December 31,
|
|
|
(346,800
|
)
|
|
(334,800
|
)
|
|
|
|
|
|
|
|
|
Remaining shares reserved
|
|
|
253.200
|
|
|
265,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 13STOCKHOLDERS' EQUITY (Continued)
Parent Company common shares:
At December 31, 2017 and 2016, there were in treasury 108,450,672 and 115,667,784 of Grupo Mexico's common shares, respectively.
Employee Stock Purchase Plan:
2010 Plan:
During 2010, the Company offered to eligible employees a stock purchase plan through a trust that acquires
series B shares of Grupo Mexico stock for sale to its employees, employees of subsidiaries, and certain affiliated companies. The purchase price was established at 26.51 Mexican pesos
(approximately $1.28) for the initial subscription. Every two years employees were able to acquire title to 50% of the shares paid in the previous two years. The employees paid for shares purchased
through monthly payroll deductions over the eight year period of the plan. At the end of the eight year period, the Company granted the participant a bonus of one share for every ten shares purchased
by the employee.
The
participants were entitled to receive dividends in cash for dividends paid by Grupo Mexico for all shares that were fully purchased and paid by the employee as of the date that the
dividend is paid. If the participant had only partially paid for shares, the entitled dividends were used to reduce the remaining liability owed for purchased shares.
In
the case of voluntary or involuntary resignation/termination of the employee, the Company paid to the employee the fair market sales price at the date of resignation/termination of
the fully paid shares, net of costs and taxes. When the fair market sales value of the shares was higher than the purchase price, the Company applied a deduction over the amount to be paid to the
employee based on a decreasing schedule specified in the plan.
In
case of retirement or death of the employee, the Company rendered the buyer or his legal beneficiary, the fair market sales value as of the date of retirement or death of the shares
effectively paid, net of costs and taxes.
The
stock based compensation expense for the years ended December 31, 2017, 2016 and 2015 and the remaining balance of the unrecognized compensation expense under this plan were
as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Stock based compensation expense
|
|
$
|
0.6
|
|
$
|
0.6
|
|
$
|
0.6
|
|
Unrecognized compensation expense
|
|
$
|
0.2
|
|
$
|
0.8
|
|
$
|
1.4
|
|
The
plan ended in January 29, 2018.
148
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SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 13STOCKHOLDERS' EQUITY (Continued)
The
following table presents the stock award activity of the 2010 Employee Stock Purchase Plan for the years ended December 31, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Unit Weighted Average
Grant Date Fair Value
|
|
Outstanding shares at January 1, 2017
|
|
|
1,401,096
|
|
$
|
2.05
|
|
Granted
|
|
|
|
|
|
|
|
Exercised
|
|
|
(7,433
|
)
|
|
2.05
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding shares at December 31, 2017
|
|
|
1,393,663
|
|
$
|
2.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding shares at January 1, 2016
|
|
|
2,227,582
|
|
$
|
2.05
|
|
Granted
|
|
|
|
|
|
|
|
Exercised
|
|
|
(826,486
|
)
|
|
2.05
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding shares at December 31, 2016
|
|
|
1,401,096
|
|
$
|
2.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 Plan
: In January 2015, the Company offered to eligible employees a new stock purchase plan (the "New Employee Stock
Purchase Plan") through a trust that acquires series B of shares of Grupo Mexico stock for sale to its employees, and employees of subsidiaries, and certain affiliated companies. The purchase
price was established at 38.44 Mexican pesos (approximately $1.86) for the initial subscription, which expires on January 2023. Every two years employees will be able to acquire title to 50% of the
shares paid in the previous two years. The employees will pay for shares purchased through monthly payroll deductions over the eight year period of the plan. At the end of the eight year period, the
Company will grant the participant a bonus of 1 share for every 10 shares purchased by the employee. Any future subscription will be at the average market price at the date of acquisition or the grant
date.
If
Grupo Mexico pays dividends on shares during the eight year period, the participants will be entitled to receive the dividend in cash for all shares that have been fully purchased and
paid as of the date that the dividend is paid. If the participant has only partially paid for shares, the entitled dividends will be used to reduce the remaining liability owed for purchased shares.
In
the case of voluntary or involuntary resignation/termination of the employee, the Company will pay to the employee the fair market sales price at the date of resignation of the fully
paid shares, net of costs and taxes. When the fair market sales value of the shares is higher than the purchase price, the Company will apply a deduction over the amount to be paid to the employee
based on a decreasing schedule specified in the plan.
In
case of retirement or death of the employee, the Company will render the buyer or his legal beneficiary, the fair market sales value as of the date of retirement or death of the
shares effectively paid, net of costs and taxes.
149
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 13STOCKHOLDERS' EQUITY (Continued)
The
stock based compensation expense for the years ended December 31, 2017, 2016 and 2015 and the unrecognized compensation expense under this plan were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Stock based compensation expense
|
|
$
|
0.6
|
|
$
|
0.6
|
|
$
|
0.4
|
|
Unrecognized compensation expense
|
|
$
|
3.2
|
|
$
|
3.8
|
|
$
|
4.4
|
|
The
following table presents the stock award activity of this plan for the years ended December 31, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Unit Weighted Average
Grant Date Fair Value
|
|
Outstanding shares at January 1, 2017
|
|
|
2,540,223
|
|
$
|
2.63
|
|
Granted
|
|
|
|
|
|
|
|
Exercised
|
|
|
(247,103
|
)
|
$
|
2.63
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding shares at December 31, 2017
|
|
|
2,293,120
|
|
$
|
2.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding shares at January 1, 2016
|
|
|
2,656,386
|
|
$
|
2.63
|
|
Granted
|
|
|
|
|
|
|
|
Exercised
|
|
|
(116,163
|
)
|
$
|
2.63
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding shares at December 31, 2016
|
|
|
2,540,223
|
|
$
|
2.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Stock Purchase Plan:
Grupo Mexico also offers a stock purchase plan for certain members of its executive management and the executive management of its subsidiaries
and certain affiliated companies. Under this plan, participants will receive incentive cash bonuses which are used to purchase shares of Grupo Mexico which are deposited in a trust.
Non-controlling interest:
For all the years presented, in the consolidated statement of earnings the income attributable to non-controlling interest is based on the
earnings of the Company's Peruvian Branch.
The
non-controlling interest of the Company's Peruvian Branch is for investment shares. These shares were generated by legislation in place in Peru from the 1970s through 1991; such
legislation provided for the participation of mining workers in the profits of the enterprises for which they worked. This participation was divided between equity and cash. The investment shares
included in the non-controlling interest on the consolidated balance sheets are the still outstanding equity distributions made to the Peruvian Branch's employees.
In
prior years, the Company acquired some Peruvian investment shares in exchange for newly issued common shares of the Company and through purchases at market value. These acquisitions
were accounted for as purchases of non-controlling interests. The excess paid over the carrying value was assigned to intangible assets and is being amortized based on production. As a result of these
150
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 13STOCKHOLDERS' EQUITY (Continued)
acquisitions,
the remaining investment shareholders hold a 0.71% interest in the Peruvian Branch and are entitled to a pro rata participation in the cash distributions made by the Peruvian Branch. The
shares are recorded as a non-controlling interest in the Company's financial statements.
NOTE 14FAIR VALUE MEASUREMENT:
Subtopic 820-10 of ASC "Fair value measurement and disclosuresOverall" establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to
unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under Subtopic 820-10 are described below:
Level 1Unadjusted
quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2Inputs
that are observable, either directly or indirectly, but do not qualify as Level 1 inputs. (i.e., quoted prices for similar assets or liabilities).
Level 3Prices
or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market
activity).
The
carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable (other than accounts receivable associated with provisionally priced
sales) and accounts payable approximate fair value due to their short maturities. Consequently, such financial instruments are not included in the following table that provides information about the
carrying amounts and estimated fair values of other financial instruments that are not measured at fair value in the consolidated balance sheet as of December 31, 2017 and December 31,
2016 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2017
|
|
At December 31, 2016
|
|
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt level 1
|
|
|
5,208.4
|
|
|
6,488.9
|
|
|
5,903.0
|
|
|
6,150.8
|
|
Long-term debt level 2
|
|
|
748.7
|
|
|
806.1
|
|
|
51.2
|
|
|
61.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
5,957.1
|
|
$
|
7,295.0
|
|
$
|
5,954.2
|
|
$
|
6,212.0
|
|
Long-term
debt is carried at amortized cost and its estimated fair value is based on quoted market prices classified as Level 1 in the fair value hierarchy except for the cases of
the Yankee bonds (in 2016 and 2017), the notes due 2020 and the notes due 2022 (in 2017), which qualify as Level 2 in the fair value hierarchy as they are based on quoted priced in market that
are not active.
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Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14FAIR VALUE MEASUREMENT: (Continued)
Fair
values of assets and liabilities measured at fair value on a recurring basis were calculated as of December 31, 2017 and 2016, as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at Measurement Date Using:
|
|
Description
|
|
Fair Value
as of
December 31,
2017
|
|
Quoted prices in
active markets for
identical assets
(Level 1)
|
|
Significant
other
observable
inputs
(Level 2)
|
|
Significant
unobservable
inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
49.5
|
|
$
|
49.5
|
|
|
|
|
$
|
|
|
Available-for-sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
0.1
|
|
|
|
|
$
|
0.1
|
|
|
|
|
Asset backed securities
|
|
|
0.5
|
|
|
|
|
|
0.5
|
|
|
|
|
Mortgage backed securities
|
|
|
0.4
|
|
|
|
|
|
0.4
|
|
|
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded derivativesNot classified as hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisionally priced sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
184.6
|
|
|
184.6
|
|
|
|
|
|
|
|
Molybdenum
|
|
|
102.8
|
|
|
102.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
337.9
|
|
$
|
336.9
|
|
$
|
1.0
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at Measurement Date Using:
|
|
Description
|
|
Fair Value
as of
December 31,
2016
|
|
Quoted prices in
active markets for
identical assets
(Level 1)
|
|
Significant
other
observable
inputs
(Level 2)
|
|
Significant
unobservable
inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
49.2
|
|
$
|
49.2
|
|
|
|
|
$
|
|
|
Available-for-sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage backed securities
|
|
|
2.1
|
|
|
|
|
$
|
2.1
|
|
|
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded derivativesNot classified as hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisionally priced sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
203.8
|
|
|
203.8
|
|
|
|
|
|
|
|
Molybdenum
|
|
|
54.0
|
|
|
54.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
309.1
|
|
$
|
307.0
|
|
$
|
2.1
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company's short-term trading securities investments are classified as Level 1 because they are valued using quoted prices of the same securities as they consist of bonds
issued by public companies
152
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14FAIR VALUE MEASUREMENT: (Continued)
and
publicly traded. The Company's short-term available-for-sale investments are classified as Level 2 because they are valued using quoted prices for similar investments.
The
Company's accounts receivables associated with provisionally priced copper sales are valued using quoted market prices based on the forward price on the LME or on the COMEX. Such
value is classified within Level 1 of the fair value hierarchy. Molybdenum prices are established by reference to the publication Platt's Metals Week and are considered Level 1 in the
fair value hierarchy.
NOTE 15CONCENTRATION OF RISK:
The Company operates four open-pit copper mines, five underground poly-metallic mines, two smelters and eight refineries in Peru and Mexico and substantially all of its assets are
located in these countries. There can be no assurances that the Company's operations and assets that are subject to the jurisdiction of the governments of Peru and Mexico will not be adversely
affected by future actions of such governments. Much of the Company's products are exported from Peru and Mexico to customers principally in the United States, Europe, Asia and South America.
Financial
instruments, which potentially subject the Company to a concentration of credit risk, consist primarily of cash and cash equivalents, short-term investments and trade accounts
receivable.The Company invests or maintains available cash with various banks, principally in the United States, Mexico, Europe and Peru, or in commercial papers of highly-rated companies. As part of
its cash management process, the Company regularly monitors the relative credit standing of these institutions. At December 31, 2017, SCC had invested its cash and cash equivalents and
short-term investments as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% in one institution
|
|
Country
|
|
$ in
million
|
|
% of total
cash(1)
|
|
of country
|
|
of total cash
|
|
United States
|
|
$
|
655.1
|
|
|
62.1
|
%
|
|
19.2
|
%
|
|
11.9
|
%
|
Switzerland
|
|
|
319.5
|
|
|
30.3
|
%
|
|
60.6
|
%
|
|
18.3
|
%
|
Peru
|
|
|
23.5
|
|
|
2.2
|
%
|
|
63.5
|
%
|
|
1.4
|
%
|
Mexico
|
|
|
57.2
|
|
|
5.4
|
%
|
|
61.4
|
%
|
|
3.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and short-term investment
|
|
$
|
1,055.3
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
94.9%
of the Company's cash is in U.S. dollars.
During
the normal course of business, the Company provides credit to its customers. Although the receivables resulting from these transactions are not collateralized, the Company has not
experienced significant problems with the collection of receivables.
The
Company is exposed to credit loss in cases where the financial institutions with which it has entered into derivative transactions (commodity, foreign exchange and currency/interest
rate swaps) are unable to pay when they owe funds as a result of protection agreements with them. To minimize the risk of such losses, the Company only uses highly-rated financial institutions that
meet certain requirements. The Company also periodically reviews the creditworthiness of these institutions to ensure that they are maintaining their ratings. The Company does not anticipate that any
of the financial institutions will default on their obligations.
153
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 15CONCENTRATION OF RISK: (Continued)
The Company's largest customers as percentage of accounts receivable and total sales were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Accounts receivable trade as of December 31,
|
|
|
|
|
|
|
|
|
|
|
Five largest customers
|
|
|
28.4
|
%
|
|
31.1
|
%
|
|
32.4
|
%
|
Largest customer
|
|
|
8.2
|
%
|
|
11.9
|
%
|
|
10.9
|
%
|
Total sales in year
|
|
|
|
|
|
|
|
|
|
|
Five largest customers
|
|
|
25.1
|
%
|
|
30.4
|
%
|
|
28.0
|
%
|
Largest customer
|
|
|
8.8
|
%
|
|
8.4
|
%
|
|
7.7
|
%
|
NOTE 16RELATED PARTY TRANSACTIONS:
The Company has entered into certain transactions in the ordinary course of business with parties that are controlling shareholders or their affiliates. These transactions include the
lease of office space, air transportation, construction services and products and services related to mining and refining. The Company lends and borrows funds among affiliates for acquisitions and
other corporate purposes. These financial transactions bear interest and are subject to review and approval by senior management, as are all related party transactions. It is the Company's policy that
the Audit Committee of the Board of Directors shall review all related party transactions. The Company is prohibited from entering or continuing a material related party transaction that has not been
reviewed and approved or ratified by the Audit Committee.
154
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 16RELATED PARTY TRANSACTIONS: (Continued)
Receivable
and payable balances with related parties are shown below (in millions):
|
|
|
|
|
|
|
|
|
|
At
December 31,
|
|
|
|
2017
|
|
2016
|
|
Related parties receivable current:
|
|
|
|
|
|
|
|
Grupo Mexico and affiliates:
|
|
|
|
|
|
|
|
Mexico Generadora de Energia S. de R.L. ("MGE")
|
|
$
|
16.2
|
|
$
|
10.2
|
|
Asarco LLC
|
|
|
4.1
|
|
|
5.5
|
|
Grupo Mexico
|
|
|
2.8
|
|
|
4.5
|
|
Compañia Perforadora Mexico S.A.P.I. de C.V. and affiliates
|
|
|
1.4
|
|
|
1.3
|
|
Mexico Proyectos y Desarrollos, S.A. de C.V. and affiliates
|
|
|
1.1
|
|
|
1.5
|
|
Operadora de Generadoras de Energia Mexico S.A. de C.V.
|
|
|
|
|
|
0.1
|
|
Related to the controlling group:
|
|
|
|
|
|
|
|
Operadora de Cinemas S.A. de C.V.
|
|
|
0.3
|
|
|
0.2
|
|
Boutique Bowling de Mexico S.A. de C.V.
|
|
|
0.2
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26.1
|
|
$
|
23.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related parties payable:
|
|
|
|
|
|
|
|
Grupo Mexico and affiliates:
|
|
|
|
|
|
|
|
MGE
|
|
$
|
38.5
|
|
$
|
13.9
|
|
Asarco LLC
|
|
|
24.2
|
|
|
36.3
|
|
Mexico Proyectos y Desarrollos S.A. de C.V. and affiliates
|
|
|
21.7
|
|
|
7.8
|
|
Ferrocarril Mexicano S.A. de C.V.
|
|
|
2.6
|
|
|
3.0
|
|
Eolica El Retiro, S.A.P.I. de C.V.
|
|
|
0.8
|
|
|
0.1
|
|
Grupo Mexico
|
|
|
0.7
|
|
|
0.1
|
|
Related to the controlling group:
|
|
|
|
|
|
|
|
Operadora de Cinemas S.A. de C.V.
|
|
|
0.7
|
|
|
0.4
|
|
Boutique Bowling de Mexico S.A. de C.V.
|
|
|
0.6
|
|
|
0.2
|
|
Mexico Transportes Aereos S.A. de C.V. ("Mextransport")
|
|
|
0.3
|
|
|
0.1
|
|
Related to SCC executive officers:
|
|
|
|
|
|
|
|
Breaker, S.A. de C.V. and affiliates ("Breaker")
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
$
|
90.1
|
|
$
|
62.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 16RELATED PARTY TRANSACTIONS: (Continued)
Purchase and sale activity:
Grupo Mexico and affiliates:
The following table summarize the purchase and sale activities with Grupo Mexico and its affiliates in 2017, 2016 and 2015 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Purchase activity
|
|
|
|
|
|
|
|
|
|
|
Asarco LLC
|
|
$
|
37.2
|
|
$
|
30.3
|
|
$
|
32.0
|
|
Compañia Perforadora Mexico S.A.P.I. de C.V. and affiliates
|
|
|
|
|
|
0.3
|
|
|
0.3
|
|
Eolica El Retiro, S.A.P.I. de C.V.
|
|
|
3.3
|
|
|
2.0
|
|
|
6.6
|
|
Ferrocarril Mexicano, S.A. de C.V.
|
|
|
43.5
|
|
|
42.7
|
|
|
27.3
|
|
Grupo Mexico
|
|
|
14.0
|
|
|
13.8
|
|
|
13.8
|
|
Mexico Proyectos y Desarrollos S.A. de C.V. and affiliates
|
|
|
152.9
|
|
|
76.0
|
|
|
57.3
|
|
MGE
|
|
|
223.7
|
|
|
233.8
|
|
|
143.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchases
|
|
$
|
474.6
|
|
$
|
398.9
|
|
$
|
280.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales activity
|
|
|
|
|
|
|
|
|
|
|
Asarco LLC
|
|
$
|
96.2
|
|
$
|
37.1
|
|
$
|
72.3
|
|
Compañia Perforadora Mexico S.A.P.I. de C.V. and affiliates
|
|
|
0.2
|
|
|
0.6
|
|
|
0.6
|
|
Grupo Mexico
|
|
|
0.2
|
|
|
0.6
|
|
|
0.5
|
|
Mexico Proyectos y Desarrollos S.A. de C.V. and affiliates
|
|
|
|
|
|
0.4
|
|
|
0.8
|
|
Operadora de Generadoras de Energia Mexico S.A. de C.V
|
|
|
|
|
|
0.1
|
|
|
|
|
MGE
|
|
|
101.0
|
|
|
95.9
|
|
|
81.7
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
197.6
|
|
$
|
134.7
|
|
$
|
155.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grupo
Mexico, the parent and the majority indirect stockholder of the Company, and its affiliates provide various services to the Company. These services are primarily related to
accounting, legal, tax, financial, treasury, human resources, price risk assessment and hedging, purchasing, procurement and logistics, sales and administrative and other support services. The Company
pays Grupo Mexico for these services and expects to continue these services in the future.
In
2017, the Company made donations of $1.9 million to Fundacion Grupo Mexico, an organization dedicated to promoting the social and economic development of the communities close
to the Company's Mexican operations.
The
Company's Mexican operations paid fees for freight services provided by Ferrocarril Mexicano, S.A de C.V., for construction services provided by Mexico Proyectos y
Desarrollos, S.A. de C.V. and its affiliates, and for drilling services provided by Compañia Perforadora Mexico S.A.P.I. de C.V. All of these companies are subsidiaries of
Grupo Mexico.
The
Company's Mexican operations purchased scrap and other residual copper mineral from Asarco, and power from MGE. Both companies are subsidiaries of Grupo Mexico.
156
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 16RELATED PARTY TRANSACTIONS: (Continued)
In
2005, the Company organized MGE, as a subsidiary of Minera Mexico, for the construction of two power plants to supply power to the Company's Mexican operations. In May 2010, the
Company's Mexican operations granted a $350 million line of credit to MGE for the construction of the power plants. That line of credit was due on December 31, 2012 and carried an
interest rate of 4.4%. In the first quarter of 2012, Controladora de Infraestructura Energetica Mexico, S. A. de C. V., an indirect subsidiary of Grupo Mexico, acquired 99.999% of MGE through a
capital subscription of 1,928.6 million of Mexican pesos (approximately $150 million), reducing Minera Mexico's participation to less than 0.001%. As consequence of this change in
control, MGE became an indirect subsidiary of Grupo Mexico. Additionally, at the same time, MGE paid $150 million to the Company's Mexican operations partially reducing the total debt. The
remaining balance was restructured as subordinated debt of MGE. In the third quarter of 2016, MGE repaid the outstanding balance of the debt. Related to this loan, the Company recorded interest income
of $4.2 million and $9.2 million in 2016 and 2015, respectively.
In
2012, the Company signed a power purchase agreement with MGE, whereby MGE will supply some of the Company's Mexican operations with power through 2032. MGE completed construction of
its first power plant in June 2013 and the second plant, in the second quarter of 2014. These plants are natural gas-fired combined cycle power generating units, with a net total capacity of 516.2
megawatts. The first plant began supplying power to the Company in December 2013, and the second plant began to supply power in June 2015. MGE is supplying 13.5% of its power output to third-party
energy users.
On
August 4, 2014, Mexico Generadora de Energia Eolica S. de R.L. de C.V, an indirect subsidiary of Grupo Mexico, located in Oaxaca, Mexico, acquired Eolica el Retiro. Eolica el
Retiro is a windfarm that has 37 wind turbines. This company started operations in January 2014 and started to sell power to IMMSA and other subsidiaries of Grupo Mexico in the third quarter of 2014.
Eolica el Retiro is supplying approximately 27% of its power output to IMMSA.
The
Company sold copper cathodes, rod and anodes, as well as sulfuric acid, silver, gold and lime to Asarco. In addition, the Company received fees for building rental and maintenance
services provided to Mexico Proyectos y Desarrollos, S.A. de C.V. and its affiliates and to Perforadora Mexico S.A.P.I de C.V., and for natural gas and services provided by MGE, all
subsidiaries of Grupo Mexico.
157
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 16RELATED PARTY TRANSACTIONS: (Continued)
Companies with relationships with the controlling group:
The following table summarizes the purchase and sales activities with other Larrea family companies in 2017, 2016 and 2015 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Purchase activity
|
|
|
|
|
|
|
|
|
|
|
Boutique Bowling de Mexico S.A. de C.V.
|
|
$
|
0.3
|
|
$
|
0.4
|
|
$
|
0.4
|
|
Mextransport
|
|
|
1.3
|
|
|
2.0
|
|
|
2.0
|
|
Operadora de Cinemas S.A. de C.V.
|
|
|
0.1
|
|
|
0.5
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchases
|
|
$
|
1.7
|
|
$
|
2.9
|
|
$
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales activity
|
|
|
|
|
|
|
|
|
|
|
Boutique Bowling de Mexico S.A. de C.V.
|
|
$
|
0.2
|
|
$
|
0.2
|
|
$
|
0.3
|
|
Mextransport
|
|
|
0.3
|
|
|
0.2
|
|
|
0.3
|
|
Operadora de Cinemas S.A. de C.V.
|
|
|
0.2
|
|
|
0.1
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
0.7
|
|
$
|
0.5
|
|
$
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Larrea family controls a majority of the capital stock of Grupo Mexico, and has extensive interests in other businesses, including transportation, real estate and entertainment. The
Company engages in certain transactions in the ordinary course of business with other entities controlled by the Larrea family relating to the lease of office space, air transportation and
entertainment.
The
Company's Mexican operations paid fees for entertainment services provided by Boutique Bowling de Mexico S.A de C.V. and Operadora de Cinemas S.A. de C.V. Both companies are
controlled by the Larrea family.
MexTransport
provides aviation services to the Company's Mexican operations. In addition, the Company received fees for building rental provided to Mextransport. This is a company
controlled by the Larrea family.
In
addition, the Company received fees for building rental and maintenance services provided to Boutique Bowling de Mexico S.A de C.V., Operadora de Cinemas S.A. de C.V. and
MexTransport.
Equity Investment in Affiliate:
The Company has a 44.2% participation in Compañia Minera Coimolache S.A. ("Coimolache"),
which
it accounts for on the equity method. Coimolache owns Tantahuatay, a gold mine located in northern Peru.
It
is anticipated that in the future the Company will enter into similar transactions with these same parties.
158
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 16RELATED PARTY TRANSACTIONS: (Continued)
Companies with relationships with SCC executive officers:
The following table summarizes the purchase activities with companies with relationships to SCC executive officers in 2017, 2016 and 2015 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Breaker
|
|
$
|
|
|
$
|
0.5
|
|
$
|
5.5
|
|
Higher Technology S.A.C.
|
|
|
|
|
|
1.0
|
|
|
1.4
|
|
Servicios y Fabricaciones Mecanicas S.A.C.
|
|
|
0.2
|
|
|
0.5
|
|
|
0.7
|
|
Sempertrans
|
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchased
|
|
$
|
0.2
|
|
$
|
2.0
|
|
$
|
8.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
2016, the Company purchased industrial materials from Breaker S.A. de C.V., Breaker Peru S.A.C., and Pigoba S.A. de C.V. in which the SCC´s Chief
Executive Officer´s sons, Carlos Gonzalez and Alejandro Gonzalez, and son-in-law, Jorge Gonzalez, have a proprietary interest. Also, the Company purchased industrial material from
Higher Technology S.A.C. and paid fees for maintenance services provided by Servicios y Fabricaciones Mecanicas S.A.C., companies in which Carlos Gonzalez, the son of
SCC´s Chief Executive Officer, had a proprietary interest through June 6, 2016.
Tax Agreement:
On, February 28, 2017, AMC and the Company entered into a tax agreement, effective as of February 20, 2017,
pursuant to
which AMC, as the parent of the consolidated group of which the Company is a member and joins in the filing of a U.S. federal income tax return, (a) will be responsible for and discharge, any
and all liabilities and payments due to the IRS on account of any incremental tax liabilities of the Company in connection with the potential adjustments being considered by the IRS in connection with
the interest of the 2012 Judgment, (b) will not seek reimbursement, contribution or collection of any amounts of money or any other asset in connection therewith from the Company, and
(c) will indemnify, defend and hold harmless the Company from any such liability, including the cost of such defense.
NOTE 17SEGMENT AND RELATED INFORMATION:
Company management views Southern Copper as having three reportable segments and manages it on the basis of these segments. The reportable segments identified by the Company are: the
Peruvian operations, the Mexican open-pit operations and the Mexican underground mining operations segment identified as the IMMSA unit.
The
three reportable segments identified are groups of mines, each of which constitute an operating segment, with similar economic characteristics, type of products, processes and
support facilities, similar regulatory environments, similar employee bargaining contracts and similar currency risks. In addition, each mine within the individual group earns revenues from similar
type of customers for their products and services and each group incurs expenses independently, including commercial transactions between groups.
Intersegment
sales are based on arm's length prices at the time of sale. These may not be reflective of actual prices realized by the Company due to various factors, including additional
159
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17SEGMENT AND RELATED INFORMATION: (Continued)
processing,
timing of sales to outside customers and transportation cost. Added to the segment data is information regarding the Company's sales. The segments identified by the Company
are:
-
1.
-
Peruvian
operations, which include the Toquepala and Cuajone mine complexes and the smelting and refining plants, including a precious metals plant, industrial
railroad and port facilities that service both mines. The Peruvian operations produce copper, with production of by-products of molybdenum, silver and other material.
-
2.
-
Mexican
open-pit operations, which include La Caridad and Buenavista mine complexes and the smelting and refining plants, including a precious metals plant and a
copper rod plant and support facilities that service both mines. The Mexican open-pit operations produce copper, with production of by-products of molybdenum, silver and other material.
-
3.
-
Mexican
underground mining operations, which include five underground mines that produce zinc, copper, silver and gold, a coal mine which produces coal and coke, and
a zinc refinery. This group is identified as the IMMSA unit.
The
Peruvian operations include two open-pit copper mines whose mineral output is transported by rail to Ilo, Peru where it is processed at the Company's Ilo smelter and refinery,
without distinguishing between the products of the two mines. The resulting product, anodes and refined copper, are then shipped to customers throughout the world. These shipments are recorded as
revenue of the Company's Peruvian mines.
The
Mexican open-pit segment includes two copper mines whose mineral output is processed in the same smelter and refinery without distinguishing between the products of the two mines.
The resultant product, anodes and refined copper, are then shipped to customers throughout the world. These shipments are recorded as revenues of the Company's Mexican open-pit mines.
The
Company has determined that it is necessary to classify the Peruvian open-pit operations as a separate operating segment from the Mexican open-pit operations due to the very distinct
regulatory and political environments in which they operate. The Company's senior management must consider the operations in each country separately when analyzing results of the Company and making
key decisions. The open-pit mines in Peru must comply with stricter environmental rules and must continually deal with a political climate that has a very distinct vision of the mining industry as
compared to Mexico. In addition, the collective bargaining agreement contracts are negotiated differently in each of the countries. These key differences result in the Company taking varying decisions
with regards to open-pit operations in the two countries.
The
IMMSA segment includes five mines whose minerals are processed in the same refinery. This segment also includes an underground coal mine. Sales of product from this segment are
recorded as revenues of the Company's IMMSA unit. While the Mexican underground mines are subject to a very similar regulatory environment of the Mexican open-pit mines, the nature of the products and
processes of two Mexican operations vary distinctly. These differences cause the Company's senior management to take a very different approach when analyzing results and making decisions regarding the
two Mexican operations.
Financial
information is regularly prepared for each of the three segments and the results of the Company's operations are regularly reported to senior management on the segment basis.
Senior management of the Company focus on operating income and on total assets as measures of
160
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17SEGMENT AND RELATED INFORMATION: (Continued)
performance
to evaluate different segments and to make decisions to allocate resources to the reported segments. These are common measures in the mining industry.
Financial
information relating to Company's segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
|
|
(in millions)
|
|
|
|
Mexican
Open-pit
|
|
Mexican
IMMSA
Unit
|
|
Peruvian
Operations
|
|
Corporate, other
and
eliminations
|
|
Consolidated
|
|
Net sales outside of segments
|
|
$
|
3,972.7
|
|
$
|
437.7
|
|
$
|
2,244.1
|
|
$
|
|
|
$
|
6,654.5
|
|
Intersegment sales
|
|
|
|
|
|
71.0
|
|
|
|
|
|
(71.0
|
)
|
|
|
|
Cost of sales (exclusive of depreciation, amortization and depletion)
|
|
|
1,594.3
|
|
|
365.3
|
|
|
1,362.8
|
|
|
(69.6
|
)
|
|
3,252.8
|
|
Selling, general and administrative
|
|
|
47.9
|
|
|
7.9
|
|
|
36.2
|
|
|
1.1
|
|
|
93.1
|
|
Depreciation, amortization and depletion
|
|
|
401.0
|
|
|
56.2
|
|
|
203.6
|
|
|
10.3
|
|
|
671.1
|
|
Exploration
|
|
|
2.7
|
|
|
5.5
|
|
|
14.4
|
|
|
6.2
|
|
|
28.8
|
|
Environmental remediation
|
|
|
(10.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(10.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
1,937.0
|
|
$
|
73.8
|
|
$
|
627.1
|
|
$
|
(19.0
|
)
|
|
2,618.9
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(300.5
|
)
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15.7
|
)
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,593.4
|
)
|
Equity earnings of affiliate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.1
|
|
Non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to SCC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
728.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital investment
|
|
$
|
297.6
|
|
$
|
36.5
|
|
$
|
685.4
|
|
$
|
4.0
|
|
$
|
1,023.5
|
|
Property and mine development, net
|
|
$
|
5,004.5
|
|
$
|
366.9
|
|
$
|
3,389.8
|
|
$
|
338.4
|
|
$
|
9,099.6
|
|
Total assets
|
|
$
|
8,323.1
|
|
$
|
889.1
|
|
$
|
4,314.5
|
|
$
|
253.4
|
|
$
|
13,780.1
|
|
161
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17SEGMENT AND RELATED INFORMATION: (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
|
|
(in millions)
|
|
|
|
Mexican
Open-pit
|
|
Mexican
IMMSA
Unit
|
|
Peruvian
Operations
|
|
Corporate, other
and
eliminations
|
|
Consolidated
|
|
Net sales outside of segments
|
|
$
|
3.234.3
|
|
$
|
351.1
|
|
$
|
1,794.4
|
|
$
|
|
|
$
|
5,379.8
|
|
Intersegment sales
|
|
|
|
|
|
72.0
|
|
|
|
|
|
(72.0
|
)
|
|
|
|
Cost of sales (exclusive of depreciation, amortization and depletion)
|
|
|
1,523.2
|
|
|
304.1
|
|
|
1,280.2
|
|
|
(73.4
|
)
|
|
3,034.1
|
|
Selling, general and administrative
|
|
|
47.1
|
|
|
7.4
|
|
|
37.5
|
|
|
2.3
|
|
|
94.3
|
|
Depreciation, amortization and depletion
|
|
|
364.7
|
|
|
49.8
|
|
|
217.1
|
|
|
15.5
|
|
|
647.1
|
|
Exploration
|
|
|
5.2
|
|
|
5.0
|
|
|
13.0
|
|
|
16.9
|
|
|
40.1
|
|
Environmental remediation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
1,294.1
|
|
$
|
56.8
|
|
$
|
246.6
|
|
$
|
(33.3
|
)
|
|
1,564.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(283.6
|
)
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24.6
|
)
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(501.1
|
)
|
Equity earnings of affiliate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.9
|
|
Non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to SCC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
776.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital investment
|
|
$
|
537.0
|
|
$
|
35.8
|
|
$
|
541.0
|
|
$
|
4.7
|
|
$
|
1,118.5
|
|
Property and mine development, net
|
|
$
|
5,136.8
|
|
$
|
448.7
|
|
$
|
2,949.3
|
|
$
|
231.7
|
|
$
|
8,766.5
|
|
Total assets
|
|
$
|
8.174.4
|
|
$
|
825.0
|
|
$
|
4,225.3
|
|
$
|
9.6
|
|
$
|
13,234.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
|
|
(in millions)
|
|
|
|
Mexican
Open-pit
|
|
Mexican
IMMSA
Unit
|
|
Peruvian
Operations
|
|
Corporate, other
and
eliminations
|
|
Consolidated
|
|
Net sales outside of segments
|
|
$
|
2,703.9
|
|
$
|
320.7
|
|
$
|
2,021.3
|
|
$
|
|
|
$
|
5,045.9
|
|
Intersegment sales
|
|
|
|
|
|
67.6
|
|
|
|
|
|
(67.6
|
)
|
|
|
|
Cost of sales (exclusive of depreciation, amortization and depletion)
|
|
|
1,390.0
|
|
|
323.8
|
|
|
1,289.0
|
|
|
(75.2
|
)
|
|
2,927.6
|
|
Selling, general and administrative
|
|
|
50.5
|
|
|
6.4
|
|
|
41.4
|
|
|
1.1
|
|
|
99.4
|
|
Depreciation, amortization and depletion
|
|
|
265.0
|
|
|
34.8
|
|
|
228.1
|
|
|
(17.2
|
)
|
|
510.7
|
|
Exploration
|
|
|
7.8
|
|
|
9.6
|
|
|
11.9
|
|
|
19.5
|
|
|
48.8
|
|
Environmental remediation
|
|
|
45.0
|
|
|
|
|
|
|
|
|
|
|
|
45.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
945.6
|
|
$
|
13.7
|
|
$
|
450.9
|
|
$
|
4.2
|
|
|
1,414.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(199.9
|
)
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25.3
|
)
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(464.9
|
)
|
Equity earnings of affiliate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.8
|
|
Non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to SCC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
736.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital investment(*)
|
|
$
|
820.5
|
|
$
|
39.2
|
|
$
|
285.2
|
|
$
|
105.1
|
|
$
|
1,250.0
|
|
Property and mine development, net
|
|
$
|
4,879.3
|
|
$
|
395.8
|
|
$
|
2,583.5
|
|
$
|
404.2
|
|
$
|
8,262.8
|
|
Total assets
|
|
$
|
7,459.8
|
|
$
|
787.5
|
|
$
|
3,962.6
|
|
$
|
383.3
|
|
$
|
12,593.2
|
|
-
(*)
-
Corporate,
other and eliminations includes $100.4 million purchase of the El Pilar mining property acquisition.
162
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17SEGMENT AND RELATED INFORMATION: (Continued)
SALES VALUE PER SEGMENT:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
|
|
(in millions)
|
|
Mexican
Open-pit
|
|
Mexican
IMMSA
Unit
|
|
Peruvian
Operations
|
|
Corporate, Other &
Eliminations
|
|
Total
Consolidated
|
|
Copper
|
|
$
|
3,480.2
|
|
$
|
37.2
|
|
$
|
1,996.4
|
|
$
|
(37.3
|
)
|
$
|
5,476.5
|
|
Molybdenum
|
|
|
224.0
|
|
|
|
|
|
129.4
|
|
|
|
|
|
353.4
|
|
Silver
|
|
|
170.7
|
|
|
71.9
|
|
|
70.6
|
|
|
(26.9
|
)
|
|
286.3
|
|
Zinc
|
|
|
|
|
|
327.2
|
|
|
|
|
|
(0.6
|
)
|
|
326.6
|
|
Other
|
|
|
97.8
|
|
|
73.2
|
|
|
47.7
|
|
|
(7.0
|
)
|
|
211.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,972.7
|
|
$
|
509.5
|
|
$
|
2,244.1
|
|
$
|
(71.8
|
)
|
$
|
6,654.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
|
|
(in millions)
|
|
Mexican
Open-pit
|
|
Mexican
IMMSA
Unit
|
|
Peruvian
Operations
|
|
Corporate, Other &
Eliminations
|
|
Total
Consolidated
|
|
Copper
|
|
$
|
2,663.1
|
|
$
|
32.0
|
|
$
|
1,557.7
|
|
$
|
(32.0
|
)
|
$
|
4,220.8
|
|
Molybdenum
|
|
|
144.0
|
|
|
|
|
|
124.0
|
|
|
|
|
|
268.0
|
|
Silver
|
|
|
182.3
|
|
|
82.1
|
|
|
61.5
|
|
|
(31.6
|
)
|
|
294.3
|
|
Zinc
|
|
|
|
|
|
234.4
|
|
|
|
|
|
|
|
|
234.4
|
|
Other
|
|
|
244.9
|
|
|
74.6
|
|
|
51.2
|
|
|
(8.4
|
)
|
|
362.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,234.3
|
|
$
|
423.1
|
|
$
|
1,794.4
|
|
$
|
(72.0
|
)
|
$
|
5,379.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
|
|
(in millions)
|
|
Mexican
Open-pit
|
|
Mexican
IMMSA
Unit
|
|
Peruvian
Operations
|
|
Corporate, Other &
Eliminations
|
|
Total
Consolidated
|
|
Copper
|
|
$
|
2,237.2
|
|
$
|
30.6
|
|
$
|
1,756.9
|
|
$
|
(30.6
|
)
|
$
|
3,994.1
|
|
Molybdenum
|
|
|
109.0
|
|
|
|
|
|
130.0
|
|
|
|
|
|
239.0
|
|
Silver
|
|
|
129.5
|
|
|
66.5
|
|
|
57.2
|
|
|
(26.5
|
)
|
|
226.7
|
|
Zinc
|
|
|
|
|
|
210.7
|
|
|
|
|
|
|
|
|
210.7
|
|
Other
|
|
|
228.2
|
|
|
80.5
|
|
|
77.2
|
|
|
(10.5
|
)
|
|
375.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,703.9
|
|
$
|
388.3
|
|
$
|
2,021.3
|
|
$
|
(67.6
|
)
|
$
|
5,045.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17SEGMENT AND RELATED INFORMATION: (Continued)
NET SALES AND GEOGRAPHICAL INFORMATION:
The geographic breakdown of the Company's sales for the three years ended December 31, 2017 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
The Americas:
|
|
|
|
|
|
|
|
|
|
|
Mexico
|
|
$
|
1,551.5
|
|
$
|
1,409.7
|
|
$
|
1,641.0
|
|
United States
|
|
|
1,162.5
|
|
|
1,050.0
|
|
|
864.0
|
|
Peru
|
|
|
374.3
|
|
|
294.4
|
|
|
324.3
|
|
Brazil
|
|
|
240.1
|
|
|
196.0
|
|
|
276.4
|
|
Chile
|
|
|
103.4
|
|
|
92.4
|
|
|
102.0
|
|
Other American countries
|
|
|
91.5
|
|
|
74.3
|
|
|
89.2
|
|
Europe:
|
|
|
|
|
|
|
|
|
|
|
Switzerland
|
|
|
602.4
|
|
|
398.1
|
|
|
294.9
|
|
Italy
|
|
|
332.4
|
|
|
343.8
|
|
|
324.1
|
|
Other European countries
|
|
|
480.0
|
|
|
273.1
|
|
|
125.4
|
|
Asia:
|
|
|
|
|
|
|
|
|
|
|
Singapore
|
|
|
1,051.3
|
|
|
652.7
|
|
|
312.8
|
|
Japan
|
|
|
479.5
|
|
|
409.8
|
|
|
335.0
|
|
Other Asian countries
|
|
|
185.6
|
|
|
185.5
|
|
|
356.8
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,654.5
|
|
$
|
5,379.8
|
|
$
|
5,045.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISIONAL SALES PRICE:
At December 31, 2017, the Company has recorded provisionally priced sales of copper at average forward prices per pound, and molybdenum
at the year-end market price per pound. These sales are subject to final pricing based on the average monthly copper prices on the London Metal Exchange ("LME") or New York Commodities Exchange
("COMEX") and Dealer Oxide molybdenum prices in the future month of settlement.
Following
are the provisionally priced copper and molybdenum sales outstanding at December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
Sales volume
(million lbs.)
|
|
Priced at
(per pound)
|
|
Month of settlement
|
Copper
|
|
|
56.3
|
|
|
3.28
|
|
January through March 2018
|
Molybdenum
|
|
|
10.0
|
|
|
10.25
|
|
January through March 2018
|
Provisional
sales price adjustments included in accounts receivable and net sales were as follows at December, 31 (in millions):
|
|
|
|
|
|
|
|
|
|
At
December 31,
|
|
|
|
2017
|
|
2016
|
|
Copper
|
|
$
|
8.3
|
|
$
|
6.2
|
|
Molybdenum
|
|
|
14.6
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
22.9
|
|
$
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17SEGMENT AND RELATED INFORMATION: (Continued)
Management
believes that the final pricing of these sales will not have a material effect on the Company's financial position or results of operations.
LONG-TERM SALES CONTRACTS:
The following are the significant outstanding long-term contracts:
In
2013, a five year copper cathodes sales agreement was signed with Mitsui, with shipments beginning in 2015. Mitsui and the Company will negotiate market terms and conditions for
annual contracts no later than November 30 of the year prior to shipment. The contract considers the following annual volumes of copper cathodes; 6,000 tons for 2015 and 48,000 tons for each of
the years from 2016 through 2019. The contract volume would increase by 24,000 tons the year after Tia Maria reaches full production capacity. Failure to reach an agreement on market terms would
cancel the annual contract but not the long-term agreement. Under the terms of the agreement all shipments would be to Asia and there are no exclusivity rights for Mitsui or commissions included. This
contract may be renewed for additional five year periods, upon the agreement of both parties.
Under
the terms of a sales contract with Molibdenos y Metales, S.A., SPCC Peru Branch is required to supply approximately 26,220 tons of molybdenum concentrates from 2017 through
2019. This contract may be extended for one more calendar year during each October to maintain a three year period unless either party decides to terminate the agreement. The sale price of the
molybdenum concentrates is based on the monthly average of the high and low Metals Week Dealer Oxide quotation. The roasting charge deduction is agreed based on international market terms.
Under
the terms of a sales contract with Molymex, S.A. de C.V., Operadora de Minas de Nacozari, S.A. de C.V. and Operadora de Minas e Instalaciones Mineras, S.A. de
C. V. are required to supply at least the 80% of their molybdenum concentrates production from 2016 through 2019. The sale price of the molybdenum concentrate is based on the monthly average of the
high and low Metals Week Dealer Oxide quotation. The roasting charge deduction is negotiated based on international market terms.
NOTE 18QUARTERLY DATA (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
(in millions, except per share data)
|
|
1
st
|
|
2
nd
|
|
3
rd
|
|
4
th
|
|
Year
|
|
Net sales
|
|
$
|
1,583.9
|
|
$
|
1,529.8
|
|
$
|
1,676.5
|
|
$
|
1,864.3
|
|
$
|
6,654.5
|
|
Gross profit(1)
|
|
$
|
586.7
|
|
$
|
553.8
|
|
$
|
725.7
|
|
$
|
864.4
|
|
$
|
2,730.6
|
|
Operating income
|
|
$
|
570.4
|
|
$
|
525.9
|
|
$
|
692.6
|
|
$
|
830.0
|
|
$
|
2,618.9
|
|
Net income (loss)
|
|
$
|
315.3
|
|
$
|
300.5
|
|
$
|
402.8
|
|
$
|
(286.2
|
)
|
$
|
732.4
|
|
Net income (loss) attributable to SCC
|
|
$
|
314.4
|
|
$
|
299.7
|
|
$
|
401.8
|
|
$
|
(287.4
|
)
|
$
|
728.5
|
|
Per share amounts attributable to SCC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings basic and diluted
|
|
$
|
0.41
|
|
$
|
0.39
|
|
$
|
0.52
|
|
$
|
(0.38
|
)
|
$
|
0.94
|
|
Dividend per share
|
|
$
|
0.08
|
|
$
|
0.12
|
|
$
|
0.14
|
|
$
|
0.25
|
|
$
|
0.59
|
|
165
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 18QUARTERLY DATA (unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
1
st
|
|
2
nd
|
|
3
rd
|
|
4
th
|
|
Year
|
|
Net sales
|
|
$
|
1,245.1
|
|
$
|
1,335.1
|
|
$
|
1,400.7
|
|
$
|
1,398.9
|
|
$
|
5,379.8
|
|
Gross profit(1)
|
|
$
|
382.9
|
|
$
|
419.0
|
|
$
|
394.7
|
|
$
|
502.0
|
|
$
|
1,698.6
|
|
Operating income
|
|
$
|
346.2
|
|
$
|
385.1
|
|
$
|
362.4
|
|
$
|
470.5
|
|
$
|
1,564.2
|
|
Net income
|
|
$
|
185.7
|
|
$
|
222.6
|
|
$
|
198.2
|
|
$
|
172.3
|
|
$
|
778.8
|
|
Net income attributable to SCC
|
|
$
|
185.1
|
|
$
|
221.9
|
|
$
|
197.6
|
|
$
|
171.9
|
|
$
|
776.5
|
|
Per share amounts attributable to SCC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings basic and diluted
|
|
$
|
0.23
|
|
$
|
0.29
|
|
$
|
0.26
|
|
$
|
0.22
|
|
$
|
1.00
|
|
Dividend per share
|
|
$
|
0.03
|
|
$
|
0.05
|
|
$
|
0.05
|
|
$
|
0.05
|
|
$
|
0.18
|
|
-
(1)
-
Gross
profit is the result of net sales less cost of sales (excluding depreciation, amortization and depletion) and less depreciation, amortization and depletion.
NOTE 19SUBSEQUENT EVENTS
DIVIDENDS:
On
January 25, 2018, the Board of Directors authorized a dividend of $0.30 per share paid on February 27, 2018, to shareholders of record at the close of
business on February 13, 2018.
MICHIQUILLAY PROJECT ACQUISITION:
On
February 20, 2018, the Company won the public bidding process for the Michiquillay project in Cajamarca, Peru. The Company's tender proposed a price of
$400 million and an annual royalty of 3% on net sales. Michiquillay is a mining project with 1,150 million tons of mineralized material with a copper content of 0.63%. The estimated
capital investment is approximately $2,500 million and it is expected to start production in 2025 with a production of 225,000 tons of copper per year for an initial estimated mine life of more
than 25 years.
SAN MARTIN STRIKE:
On
February 28, 2018, the striking workers of the San Martín mine of IMMSA held an election to vote on the union that will hold the collective
bargaining agreement at the San Martín
mine. The Federacíon Nacional de Sindicatos Independientes (the National Federation of Independent Unions), won the vote by a majority. As a result, once the Federal Mediation and
Arbitration Board issues a ruling recognizing the election results, IMMSA will be entitled to negotiate and enter into a collective bargaining agreement with the Federacíon Nacional de
Sindicatos Independientes to end the strike that began in 2007 and resume operations at the San Martín Mine.
166
Table of Contents
OTHER COMPANY INFORMATION:
ANNUAL MEETING
The annual stockholders meeting of Southern Copper Corporation will be held on Tuesday, April 24, 2018, at 9:00 am, Mexico City time, at
Edificio Parque Reforma, Campos Eliseos 400, 9th Floor, Colonia Lomas de Chapultepec, Delegacion Miguel Hidalgo, C.P. 11000, Mexico City, Mexico.
TRANSFER AGENT, REGISTRAR AND STOCKHOLDERS' SERVICES
Computershare
480 Washington Boulevard
Jersey City, NJ 07310-1900
Phone: (866) 230-0172
DIVIDEND REINVESTMENT PROGRAM
SCC stockholders can have their dividends automatically reinvested in SCC common shares. SCC pays all administrative and brokerage fees. This
plan is administered by Computershare. For more information, contact Computershare at (866) 230-0172.
STOCK EXCHANGE LISTING
The principal markets for SCC's common stock are the NYSE and the Lima Stock Exchange (BVL). SCC's common stock symbol is SCCO on both the NYSE
and the Lima Stock Exchange.
OTHER SECURITIES
The Branch in Peru has issued, in accordance with Peruvian Law, "investment shares" (formerly named labor shares) that are quoted on the Lima
Stock Exchange under symbols SPCCPI1 and SPCCPI2. Transfer Agent, registrar and stockholders services are provided by Credicorp Capital, Avenida EI Derby 055, Torre 4, Piso 10, Santiago de Surco, Cod
postal 15039, Peru. Telephone (51-1)416-3333, Extensions 32478 and 32441.
OTHER CORPORATE INFORMATION
For other information on the Company or to obtain, free of charge, additional copies of the Annual Report on Form 10-K, contact the
Investor Relations Department at:
1440
East Missouri Avenue, Suite 160 Phoenix, Az. 85014, USA
Telephone: (602)264-1375
SOUTHERN COPPER CORPORATION
USA
1440 East Missouri Ave, Suite 160
Phoenix, AZ 85014, USA
Phone: (602) 264-1375
Fax: (602) 264-1397
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Mexico
Campos Eliseos 400
Colonia Lomas de Chapultepec
Delegacion Miguel Hidalgo
C.P. 11000MEXICO
Phone: (5255) 1103-5000
Fax: (5255) 1103-5567
Peru
Av. Caminos del Inca 171
Urb. Chacarilla del Estanque
Santiago de Surco
Cod postal 15038PERU
Phone: (511) 512-0440 Ext 3181
Fax: (511) 512-0492
Website:
www.southerncoppercorp.com
Email address:
southerncopper@southernperu.com.pe
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ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNT ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A.
CONTROLS AND PROCEDURES
As of December 31, 2017, the Company conducted an evaluation under the supervision and with the participation of the Company's disclosure
committee and the Company's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness and the design and operation of the Company's disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company's
disclosure controls and procedures are effective as of December 31, 2017, to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act
is:
-
1.
-
Recorded,
processed, summarized and reported within the time periods specified in the SEC's rules and forms, and
-
2.
-
Accumulated
and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There
were no changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934, as amended) that occurred during the fourth quarter ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, the Company's
internal controls over financial reporting,
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management
is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the Company.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness for future
periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
Under
the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of
the effectiveness of its internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organization of the
Treadway Commission. Based on the evaluation made under this framework, management concluded that as of December 31, 2017 such internal control over financial reporting is effective.
Our
internal control over financial reporting as of December 31, 2017 has been audited by Galaz, Yamazaki, Ruiz Urquiza, S.C. member of Deloitte Touche Tohmatsu Limited, an
independent registered public accounting firm, as stated in their report which is provided below.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of Southern Copper Corporation
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Southern Copper Corporation and subsidiaries (the "Company") as of
December 31, 2017, based on criteria established in Internal ControlIntegrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on
the criteria established in Internal ControlIntegrated Framework (2013) issued by COSO.
We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial
statement schedule as of and for the year ended December 31, 2017, of the Company and our report dated March 1, 2018, expressed an unqualified opinion on those financial statements and
financial statement schedule.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying "Management's Report on Internal Control over Financial Reporting" appearing in Item 9A. Our
responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A Company's internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the Company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness to future
periods are
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subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Galaz,
Yamazaki, Ruiz Urquiza, S.C.
Member of Deloitte Touche Tohmatsu Limited
|
|
|
/s/ MIGUEL ANGEL ANDRADE LEVEN
C.P.C. Miguel Angel Andrade Leven
Mexico City, Mexico
March 1, 2018
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ITEM 9B. OTHER INFORMATION
None.