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)
|
|
2018
|
|
2017
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year
|
|
$
|
12.5
|
|
$
|
12.9
|
|
Interest cost
|
|
|
0.9
|
|
|
0.9
|
|
Actuarial loss/ (gain)claims cost
|
|
|
0.2
|
|
|
(0.4
|
)
|
Benefits paid
|
|
|
(0.9
|
)
|
|
(0.9
|
)
|
Actuarial (gain)/loss
|
|
|
(0.9
|
)
|
|
(0.6
|
)
|
Inflation adjustment
|
|
|
0.1
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of year
|
|
$
|
11.9
|
|
$
|
12.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
$
|
11.9
|
|
$
|
12.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASC-715 amounts recognized in statement of financial position consists of:
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
(0.1
|
)
|
$
|
(0.1
|
)
|
Non-current liabilities
|
|
|
(11.8
|
)
|
|
(12.5
|
)
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(11.9
|
)
|
$
|
(12.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASC-715 amounts recognized in accumulated other comprehensive income consists of:
|
|
|
|
|
|
|
|
Net loss (gain)
|
|
$
|
(4.4
|
)
|
$
|
(3.9
|
)
|
Total
(net of income taxes of $1.9 million and $1.7 million in 2018 and 2017, respectively)
|
|
$
|
(4.4
|
)
|
$
|
(3.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134
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)
|
|
2018
|
|
2017
|
|
Reconciliation of accumulated other comprehensive income:
|
|
|
|
|
|
|
|
Accumulated other comprehensive income at beginning of plan year
|
|
$
|
(3.9
|
)
|
$
|
(2.8
|
)
|
Net loss/(gain) occurring during the year
|
|
|
(0.6
|
)
|
|
(0.6
|
)
|
Net loss/(gain) amortized during the year
|
|
|
0.1
|
|
|
0.1
|
|
Currency exchange rate adjustment
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
Net adjustment to accumulated other comprehensive income
(net of income taxes of $0.2 million and $0.3 million in 2018
and 2017, respectively)
|
|
|
(0.5
|
)
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income at end of plan year
|
|
$
|
(4.4
|
)
|
$
|
(3.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table summarizes the amounts in accumulated other comprehensive income amortized and recognized as a component of net periodic benefit cost in 2018 and 2017, net of income
tax:
|
|
|
|
|
|
|
|
|
|
At
December 31,
|
|
(in millions)
|
|
2018
|
|
2017
|
|
Net loss / (gain)
|
|
$
|
(0.6
|
)
|
$
|
(0.6
|
)
|
Amortization of net (loss) gain
|
|
|
0.2
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
Total amortization expenses
|
|
$
|
(0.4
|
)
|
$
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
discount rates used in the calculation of other post-retirement benefits and cost as of December 31 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Expatriate health plan
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
3.90
|
%
|
|
3.25
|
%
|
|
3.65
|
%
|
Mexican health plan
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
8.45
|
%
|
|
7.80
|
%
|
|
7.55
|
%
|
135
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)
|
|
2019
|
|
$
|
0.9
|
|
2020
|
|
|
0.9
|
|
2021
|
|
|
0.9
|
|
2022
|
|
|
0.9
|
|
2023
|
|
|
0.9
|
|
2024 to 2028
|
|
|
2.9
|
|
|
|
|
|
|
Total
|
|
$
|
7.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expatriate Health Plan
For measurement purposes for pre 65 year old participants, a 5.8% annual rate of increase in the per capita cost of covered health care
benefits was assumed for 2018 which gradually decrease to 4.2%. For post 65 year old the annual rate of increase in the per capita cost for 2018 is 5.2% which is assumed to decrease gradually
to 4.0%.
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 2018 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
|
|
$
|
11.7
|
|
$
|
10.5
|
|
136
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
Environmental
capital investments in years 2018, 2017 and 2016, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Peruvian operations
|
|
$
|
59.3
|
|
$
|
93.7
|
|
$
|
110.3
|
|
Mexican operations
|
|
|
43.5
|
|
|
128.9
|
|
|
140.1
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
102.8
|
|
$
|
222.6
|
|
$
|
250.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 6 "Asset retirement obligation," for further discussion of this matter.
Air
Quality Standards ("AQS"): In June 2017, MINAM enacted a supreme decree which defines new AQS for daily sulfur dioxide in the air. The Company believes that these new AQS will allow
Peruvian industry to be more competitive with other countries. As of December 31, 2018, the Company maintains a lower daily average level of µg/m3 of SO2, than those
required by the new AQS.
Soil
Environmental Quality Standards ("SQS"): In 2013, the Peruvian government enacted 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 established additional provisions for the gradual implementation of SQS. Pursuant to this
regulation, 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, and 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 a time-frame for completion. In addition, the Company must submit a Soil Decontamination Plan ("SDP") for approval within
30 months after being notified by the authority. This SDP must include remediation actions, a schedule and compliance deadlines. Pursuant to this regulation, the Company may request a one year
extension for the decontamination plan if deemed necessary with reasonable justification.
Soil
confirmation tests must be carried out after completion of the decontamination actions (within the approved schedule) and results must be presented to authorities within
30 days after receiving such results. Although no specific sanctions have been established yet, non-compliance with this obligation or
137
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12COMMITMENTS AND CONTINGENCIES: (Continued)
with
decontamination goals will carry penalties for companies. However, companies cannot be penalized for non-compliance with the SQS during the schedule set forth for compliance.
In
accordance with the regulatory requirements, the Company has been working on the characterization phase and SDPs for environmentally impacted sites in each of its operating units
(Toquepala, Cuajone, and Ilo) with the assistance of consulting companies. It is estimated that the Toquepala and Cuajone SDPs will be presented to the authorities for review and approval at the end
of the second quarter of 2019, and the Ilo SDP will be submitted during the third quarter of 2019.
While
the Company believes that there is a reasonable possibility that a potential loss contingency may exist, it cannot currently reasonably 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 third quarter of 2019.
At that time the Company will be in a position to estimate the remediation cost. Furthermore, 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 able to disclose a range of costs that is meaningful.
Water
Quality Standards ("WQS"): In June 2017, MINAM enacted a supreme decree which establishes water quality standards in the Peruvian territory. The adoption of these standards have
not a material impact on its financial position.
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.
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
138
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12COMMITMENTS AND CONTINGENCIES: (Continued)
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.
On
February 2019, the Mexican Supreme Court confirmed the constitutionality of an ecological tax to extractive activities developed in the state of Zacatecas, which taxes the
environmental remediation actions, emissions of certain gases to the atmosphere, emissions of pollutant substances to the soil or water, and waste storage within the state territory. The Company is
evaluating the potential impact of this new environmental regulation in its financial position.
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
:
Peruvian operations
The Tia Maria Mining Project
There
are three 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) and Juan Alberto Guillen Lopez (filed June 18, 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. On March 8, 2018, the Appellate Court issued its final decision, which
upholds the first instance ruling. On April 27, 2018, the plaintiff filed an extraordinary appeal before the Supreme Court. As of December 31, 2018, the case remains pending resolution.
The
Mendoza Padilla case was initially 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, 2018, the case remains pending resolution without further developments.
The
Guillen Lopez case is currently before the lower court. As of December 31, 2018, the case remains pending resolution without further developments.
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.
139
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12COMMITMENTS AND CONTINGENCIES: (Continued)
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 tailings 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, 2018, 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.
Mexican operations
The 2014 Accidental Spill at Buenavista Mine
In
relation to the 2014 accidental spill of copper sulfate solution that occurred at a leaching pond of the Buenavista mine, the following legal procedures are pending
against the Company:
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. During the second quarter of 2018, the criminal complaint was
dismissed. This decision was appealed and 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, 2018, 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
140
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12COMMITMENTS AND CONTINGENCIES: (Continued)
Corral
Dominguez 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. During the first quarter of 2018, BVC was served with another civil action lawsuit, claiming similar damages. The
lawsuit was filed by Alma Angelina Del Cid Rivera et al. During the last quarter of 2018, BVC was served with other three civil action lawsuits, claiming similar damages, such lawsuits were filed by
Los Corrales de la Estancia, S.C. de R.L.; Jose Antonio Navarro; Jesus Maria Peña Molina, et al. As of December 31, 2018, these cases remain pending resolution.
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. In 2018, BVC was served with two additional constitutional lawsuits that were filed against SEMARNAT by Norberto Bustamante et al. Regarding the constitutional
lawsuit filed by Maria Elena Heredia Bustamante et al; in which it was claimed the lack of community approval regarding the authorization granted by SEMARNAT to build the new BVC tailings dam, on
September 5, 2018, the Supreme Court of Justice issued a resolution which established that such authorization was granted to BVC in compliance with the applicable legislation. However, SEMARNAT
must carry out a public meeting to inform the community of the technical aspects required to build the dam, potential impacts and prevention measures, with no material effects to BVC's operations. As
of December 31, 2018, the remaining cases are still 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12COMMITMENTS AND CONTINGENCIES: (Continued)
Corporate operations
Carla Lacey, on behalf of herself and all other similarly
situated stockholders of Southern Copper Corporation, and derivatively on behalf of Southern Copper Corporation
As
previously reported, 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.
On
March 20, 2018, the parties reached an agreement-in-principle to settle the action. On March 23, 2018, the parties informed the Court of the settlement-in-principle to
resolve all claims asserted by Plaintiff against Defendants in the action and requested that the Court stay the action in its entirety pending filing by the parties of a stipulation of settlement. The
Parties filed the executed stipulation on August 22, 2018. Under the proposed settlement, Grupo Mexico or Americas Mining would pay to the Company $50 million in cash less any attorneys'
fees (including costs) awarded by the Court to Plaintiff's counsel (the "Net Settlement Amount") in return for a release of all derivative and direct claims. A settlement hearing was held on
November 27, 2018. On December 27, 2018, the Court issued its ruling approving the $50 million settlement. Pursuant to the Court's ruling, Plaintiff's counsel was awarded
$13.5 million (for attorneys' fees, expenses, and a $5,000 incentive fee award to plaintiff Carla Lacey). The remaining $36.5 million was distributed via a special dividend on
February 21, 2019 to the Company's public stockholders (other than the director defendants, Grupo Mexico, Americas Mining, or any entity in which Grupo Mexico or Americas Mining has or had a
direct or indirect controlling
interest) who held shares of common stock of the Company as of February 11, 2019. As result of the payment of the settlement, the claims against the Defendants have been dismissed with
prejudice.
Labor matters
:
Peruvian operations:
75% of the Company's 4,850 Peruvian employees were unionized at December 31, 2018.
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 all the existing unions at that time.
These agreements included, among other things, annual salary increases of 5% for each of the three years. In June 2018, the Company signed a three-year collective bargaining agreement with one of the
smaller unions. This agreement includes, among other things, annual salary increases of 5% for each year starting September 2018, and a signing bonus of S/ 45,000 (approximately $13,600) which was
recorded as labor expense.
In
August 2018, the Company signed a three-year collective bargaining agreement with three additional unions. This agreement includes, among other things, annual salary increases of 5%
for each
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SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12COMMITMENTS AND CONTINGENCIES: (Continued)
year
starting December 2018, and a signing bonus of S/ 45,000 (approximately $13,600) which was recorded as labor expense.
As
of December 31, 2018, the Company continues negotiations on collective bargaining agreements with the two unsigned unions.
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.
The
workers of the San Martin mine were on strike since July 2007. 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 Federacion Nacional de Sindicatos Independientes (the National Federation of Independent
Unions), won the vote by a majority. Nevertheless, the vote was challenged by the National Mining Union. On June 26, 2018, the Federal Mediation and Arbitration Board issued a ruling
recognizing the election results. Due to the agreement between workers and the Company to end the protracted strike, on August 22, 2018, the Federal Mediation and Arbitration Board authorized
the restart of operations of the San Martín mine. Such authorization was challenged by the National Mining Union. The Company is working on a rehabilitation plan to restart operations
at the San Martin mine with a budget of $77 million. At December 31, 2018 the plan is in progress with a total expense of $17.7 million. The Company is restoring mining operations
in the first quarter of 2019 and expects to restore copper production in the second quarter of 2019.
In
the case of the Taxco mine, its workers have been on strike since July 2007. After several legal procedures, in August 2015, the Supreme Court decided to assert jurisdiction over the
case and to rule on it directly. As of December 31, 2018, the case remains pending resolution without further developments.
It
is expected that operations at the Taxco mine will remain suspended until the labor issues are resolved. In view of the lengthy strike, the Company has reviewed the carrying value of
the Taxco mine to ascertain whether impairment exists. The Company concluded that there is a non-material impairment of the assets located at this mine.
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
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SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12COMMITMENTS AND CONTINGENCIES: (Continued)
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 ton (annual) SX-EW copper greenfield project. The Company expects the license to be issued in the first half of 2019.
Tia
Maria's project budget is approximately $1.4 billion, of which $333.9 million has been invested through December 31, 2018. 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 it
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
will be used solely for farming and human consumption.
The
Company expects the project to generate 9,000 jobs (3,600 direct and 5,400 indirect) 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.
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.
Michiquillay:
In June 2018, the Company signed a contract for the acquisition of the Michiquillay copper project in Cajamarca, Peru, at a purchase price of
$400 million. Michiquillay is a world class mining project with estimated mineralized material of 1,150 million tons and a copper grade of 0.63%. It is expected to produce 225,000 tons
of copper per year (along with by-products of molybdenum, gold and silver) for an initial mine life of more than 25 years.
The
Company paid $12.5 million at the signing of the contract. An additional $12.5 million has been accrued by the Company as it evaluates the project for development, over
a three to five year period. This amount is classified in other non-current liabilities in the Company's consolidated financial statements. The balance of $375 million will be paid if the
Company decides to develop the project.
Toquepala Concentrator Expansion:
In April 2015, the construction permit for the Toquepala expansion project was approved by the MINEM. The project budget is $1.3 billion,
of which $1,227 million has been invested through December 31, 2018. When completed, this project is expected to increase annual production capacity by 100,000 tons of copper and 3,100
tons of molybdenum. The construction of the project was completed and the project began production in the fourth quarter of 2018. Full production is expected to be reached by the second quarter of
2019.
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SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12COMMITMENTS AND CONTINGENCIES: (Continued)
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 $131.7 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 $207.2 million). While final funding is
not yet settled, the Company has committed to contribute S/ 108.5 million (approximately $32.1 million) in advance, which is being utilized in an educational project and
S/ 48.4 million (approximately $14.3 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/ 202.0 million (approximately $59.8 million) for the construction of six 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.
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 condensed consolidated financial statements.
Peruvian operations
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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12COMMITMENTS AND CONTINGENCIES: (Continued)
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."
Corporate operations
Commitment for Capital projects:
As of December 31, 2018, the Company has committed approximately $343.1 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").
NOTE 13STOCKHOLDERS' EQUITY
Treasury Stock:
Activity in treasury stock in the years 2018 and 2017 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Southern Copper common shares
|
|
|
|
|
|
|
|
Balance as of January 1,
|
|
$
|
2,768.7
|
|
$
|
2,769.0
|
|
Purchase of shares
|
|
|
|
|
|
|
|
Used for corporate purposes
|
|
|
(0.4
|
)
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
Balance as of December 31,
|
|
|
2,768.3
|
|
|
2,768.7
|
|
|
|
|
|
|
|
|
|
Parent Company (Grupo Mexico) common shares
|
|
|
|
|
|
|
|
Balance as of January 1,
|
|
|
232.4
|
|
|
218.6
|
|
Other activity, including dividend, interest and foreign currency transaction effect
|
|
|
18.9
|
|
|
13.8
|
|
|
|
|
|
|
|
|
|
Balance as of December 31,
|
|
|
251.3
|
|
|
232.4
|
|
|
|
|
|
|
|
|
|
Treasury stock balance as of December 31,
|
|
$
|
3,019.6
|
|
$
|
3,001.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 13STOCKHOLDERS' EQUITY (Continued)
SCC shares of common stock in treasury:
At December 31, 2018 and 2017, treasury stock holds 111,551,617 shares and 111,567,617 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 has purchased 119.5 million shares of common stock at a cost of $2.9 billion. 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.
There
has not been activity in the SCC share repurchase program since the third quarter of 2016. The NYSE closing price of SCC common shares at December 31, 2018 was $30.77 and
the maximum number of shares that the Company could purchase at that price is 2.7 million shares.
Grupo
Mexico's direct and indirect ownership remains at 88.9% as of December 31, 2018.
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 received 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. On April 26, 2018, the Company's stockholders approved a five-year extension of the Plan until January 28, 2023 and an increase of the shares
award from 1,200 to 1,600. The fair value of the award is measured each year at the date of the grant. In 2018 and 2017 the stock based compensation expense under this plan equaled $0.4 million
for each of these years.
The
activity of this plan for the years ended December 31, 2018 and 2017 was as follows:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Total SCC shares reserved for the plan
|
|
|
600,000
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
Total shares granted at January 1,
|
|
|
(346,800
|
)
|
|
(334,800
|
)
|
Granted in the period
|
|
|
(16,000
|
)
|
|
(12,000
|
)
|
|
|
|
|
|
|
|
|
Total shares granted at December 31,
|
|
|
(362,800
|
)
|
|
(346,800
|
)
|
|
|
|
|
|
|
|
|
Remaining shares reserved
|
|
|
237.200
|
|
|
253,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Company common shares:
At December 31, 2018 and 2017, there were in treasury 100,188,809 and 108,450,672 of Grupo Mexico's common shares, respectively.
147
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SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 13STOCKHOLDERS' EQUITY (Continued)
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, 2018, 2017 and 2016 and the remaining balance of the unrecognized compensation expense under this plan were
as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Stock based compensation expense
|
|
$
|
0.2
|
|
$
|
0.6
|
|
$
|
0.6
|
|
Unrecognized compensation expense
|
|
$
|
|
|
$
|
0.2
|
|
$
|
0.8
|
|
The
plan ended in January 29, 2018.
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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, 2018
|
|
|
1,393,663
|
|
$
|
2.05
|
|
Granted
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,275,729
|
)
|
|
2.05
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding shares at December 31, 2018
|
|
|
117,934
|
|
$
|
2.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 Plan:
In January 2015, the Company offered to eligible employees a new stock purchase plan through a trust that
acquires series B 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 in 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 13STOCKHOLDERS' EQUITY (Continued)
The
stock based compensation expense for the years ended December 31, 2018, 2017 and 2016 and the unrecognized compensation expense under this plan were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Stock based compensation expense
|
|
$
|
0.6
|
|
$
|
0.6
|
|
$
|
0.6
|
|
Unrecognized compensation expense
|
|
$
|
2.6
|
|
$
|
3.2
|
|
$
|
3.8
|
|
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, 2018
|
|
|
2,293,120
|
|
$
|
2.63
|
|
Granted
|
|
|
|
|
|
|
|
Exercised
|
|
|
(452,784
|
)
|
$
|
2.63
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding shares at December 31, 2018
|
|
|
1,840,336
|
|
$
|
2.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding shares at January 1, 2017
|
|
|
2,540,223
|
|
$
|
2.63
|
|
Granted
|
|
|
|
|
|
|
|
Exercised
|
|
|
(247,103
|
)
|
$
|
2.63
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding shares at December 31, 2018
|
|
|
2,293,120
|
|
$
|
2.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 Plan:
In November 2018, the Company offered to eligible employees a new stock purchase plan (the "New Employee
Stock Purchase Plan") through a trust that acquires series B shares of Grupo Mexico stock for sale to its employees, and employees of subsidiaries, and certain affiliated companies .
The
purchase price was established at 37.89 Mexican pesos (approximately $1.86) for the initial subscription, which expires in October 2026. 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 resignation 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
150
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SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 13STOCKHOLDERS' EQUITY (Continued)
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 the following schedule:
|
|
|
|
|
|
|
% Deducted
|
|
If the resignation occurs during:
|
|
|
|
|
1st year after the grant date
|
|
|
90
|
%
|
2nd year after the grant date
|
|
|
80
|
%
|
3rd year after the grant date
|
|
|
70
|
%
|
4th year after the grant date
|
|
|
60
|
%
|
5th year after the grant date
|
|
|
50
|
%
|
6th year after the grant date
|
|
|
40
|
%
|
7th year after the grant date
|
|
|
20
|
%
|
In
the case of involuntary termination of the employee, the Company will pay to the employee the fair market sales price at the date of termination of employment 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
the following schedule:
|
|
|
|
|
|
|
% Deducted
|
|
If the resignation occurs during:
|
|
|
|
|
1st year after the grant date
|
|
|
100
|
%
|
2nd year after the grant date
|
|
|
95
|
%
|
3rd year after the grant date
|
|
|
90
|
%
|
4th year after the grant date
|
|
|
80
|
%
|
5th year after the grant date
|
|
|
70
|
%
|
6th year after the grant date
|
|
|
60
|
%
|
7th year after the grant date
|
|
|
50
|
%
|
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.
The
stock based compensation expense for the year ended December 31, 2018 and the unrecognized compensation expense under this plan were as follows (in millions):
|
|
|
|
|
|
|
2018
|
|
Stock based compensation expense
|
|
$
|
|
|
Unrecognized compensation expense
|
|
$
|
3.6
|
|
151
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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 this plan for the year ended December 31, 2018:
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Unit Weighted Average
Grant Date Fair Value
|
|
Outstanding shares at January 1, 2018
|
|
|
|
|
|
|
|
Granted
|
|
|
2,782,424
|
|
|
1.86
|
|
Exercised
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding shares at December 31, 2018
|
|
|
2,782,424
|
|
|
1.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
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
152
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SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14FAIR VALUE MEASUREMENT: (Continued)
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, 2018 and December 31, 2017 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
2018
|
|
At December 31,
2017
|
|
|
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt level 1
|
|
|
5,210.7
|
|
|
5,540.0
|
|
|
5,208.4
|
|
|
6,488.9
|
|
Long-term debt level 2
|
|
|
749.4
|
|
|
761.7
|
|
|
748.7
|
|
|
806.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
5,960.1
|
|
$
|
6,301.7
|
|
$
|
5,957.1
|
|
$
|
7,295.0
|
|
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, the notes due 2020 and the notes due 2022, which qualify as Level 2 in the fair value hierarchy as they are based on quoted priced in market that are not active.
153
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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, 2018 and 2017, as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at Measurement Date Using:
|
|
Description
|
|
Fair Value
as of
December 31,
2018
|
|
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
|
|
$
|
213.1
|
|
$
|
213.1
|
|
$
|
|
|
$
|
|
|
Available-for-sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset backed securities
|
|
|
0.4
|
|
|
|
|
|
0.4
|
|
|
|
|
Mortgage backed securities
|
|
|
0.3
|
|
|
|
|
|
0.3
|
|
|
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded derivativesNot classified as hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisionally priced sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
274.3
|
|
|
274.3
|
|
|
|
|
|
|
|
Molybdenum
|
|
|
107.4
|
|
|
107.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
595.5
|
|
$
|
594.8
|
|
$
|
0.7
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14FAIR VALUE MEASUREMENT: (Continued)
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 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 ten 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, 2018, SCC had invested its cash and cash equivalents and
short-term investments as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% in one institution
|
|
|
|
|
|
% of total
cash(1)
|
|
Country
|
|
$ in million
|
|
of country
|
|
of total cash
|
|
United States
|
|
$
|
697.1
|
|
|
65.9
|
%
|
|
27.7
|
%
|
|
18.3
|
%
|
Switzerland
|
|
|
315.7
|
|
|
29.8
|
%
|
|
61.2
|
%
|
|
18.3
|
%
|
Peru
|
|
|
7.6
|
|
|
0.7
|
%
|
|
75.6
|
%
|
|
0.5
|
%
|
Mexico
|
|
|
38.0
|
|
|
3.6
|
%
|
|
89.3
|
%
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and short-term investment
|
|
$
|
1,058.4
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
95.8%
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
155
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 15CONCENTRATION OF RISK: (Continued)
ensure
that they are maintaining their ratings. The Company does not anticipate that any of the financial institutions will default on their obligations.
The
Company's largest customers as percentage of accounts receivable and total sales were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Accounts receivable trade as of December 31,
|
|
|
|
|
|
|
|
|
|
|
Five largest customers
|
|
|
34.2
|
%
|
|
28.4
|
%
|
|
31.1
|
%
|
Largest customer
|
|
|
10.9
|
%
|
|
8.2
|
%
|
|
11.9
|
%
|
Total sales in year
|
|
|
|
|
|
|
|
|
|
|
Five largest customers
|
|
|
28.4
|
%
|
|
25.1
|
%
|
|
30.4
|
%
|
Largest customer
|
|
|
9.3
|
%
|
|
8.8
|
%
|
|
8.4
|
%
|
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.
156
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,
|
|
|
|
2018
|
|
2017
|
|
Related parties receivable current:
|
|
|
|
|
|
|
|
Grupo Mexico and affiliates:
|
|
|
|
|
|
|
|
Asarco LLC
|
|
$
|
74.4
|
|
|
4.1
|
|
Americas Mining Corporation ("AMC")
|
|
|
11.0
|
|
|
|
|
AMMINCO Apoyo Administrativo, S.A. de C.V. ("AMMINCO")
|
|
|
0.2
|
|
|
|
|
Compania Perforadora Mexico S.A.P.I. de C.V. and affiliates
|
|
|
1.4
|
|
|
1.4
|
|
Ferrocarril Mexicano, S.A. de C.V.
|
|
|
0.1
|
|
|
|
|
Grupo Mexico
|
|
|
2.7
|
|
|
2.8
|
|
Mexico Generadora de Energia S. de R.L. ("MGE")
|
|
|
10.3
|
|
$
|
16.2
|
|
Mexico Proyectos y Desarrollos, S.A. de C.V. and affiliates
|
|
|
0.6
|
|
|
1.1
|
|
Related to the controlling group:
|
|
|
|
|
|
|
|
Boutique Bowling de Mexico S.A. de C.V.
|
|
|
0.3
|
|
|
0.2
|
|
Mexico Transportes Aereos, S.A. de C.V. ("Mextransport")
|
|
|
0.1
|
|
|
|
|
Operadora de Cinemas S.A. de C.V.
|
|
|
0.4
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
$
|
101.5
|
|
$
|
26.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related parties payable:
|
|
|
|
|
|
|
|
Grupo Mexico and affiliates:
|
|
|
|
|
|
|
|
Asarco LLC
|
|
$
|
4.1
|
|
$
|
24.2
|
|
AMMINCO
|
|
|
8.0
|
|
|
|
|
Eolica El Retiro, S.A.P.I. de C.V.
|
|
|
1.0
|
|
|
0.8
|
|
Ferrocarril Mexicano S.A. de C.V.
|
|
|
6.4
|
|
|
2.6
|
|
Grupo Mexico
|
|
|
0.6
|
|
|
0.7
|
|
MGE
|
|
|
40.6
|
|
|
38.5
|
|
Mexico Proyectos y Desarrollos S.A. de C.V. and affiliates
|
|
|
14.4
|
|
|
21.7
|
|
Related to the controlling group:
|
|
|
|
|
|
|
|
Boutique Bowling de Mexico S.A. de C.V.
|
|
|
0.1
|
|
|
0.6
|
|
Mexico Transportes Aereos S.A. de C.V. ("Mextransport")
|
|
|
|
|
|
0.3
|
|
Operadora de Cinemas S.A. de C.V.
|
|
|
0.1
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
$
|
75.3
|
|
$
|
90.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157
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 summarizes the purchase and sale activities with Grupo Mexico and its affiliates in 2018, 2017 and 2016 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Purchase activity
|
|
|
|
|
|
|
|
|
|
|
Asarco LLC
|
|
$
|
37.2
|
|
$
|
37.2
|
|
$
|
30.3
|
|
AMMINCO
|
|
|
8.0
|
|
|
|
|
|
|
|
Compania Perforadora Mexico S.A.P.I. de C.V. and affiliates
|
|
|
|
|
|
|
|
|
0.3
|
|
Eolica El Retiro, S.A.P.I. de C.V.
|
|
|
3.6
|
|
|
3.3
|
|
|
2.0
|
|
Ferrocarril Mexicano, S.A. de C.V.
|
|
|
41.7
|
|
|
43.5
|
|
|
42.7
|
|
Grupo Mexico
|
|
|
10.1
|
|
|
14.0
|
|
|
13.8
|
|
MGE
|
|
|
200.1
|
|
|
223.7
|
|
|
233.8
|
|
Mexico Proyectos y Desarrollos S.A. de C.V. and affiliates
|
|
|
79.8
|
|
|
152.9
|
|
|
76.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchases
|
|
$
|
380.5
|
|
$
|
474.6
|
|
$
|
398.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales activity
|
|
|
|
|
|
|
|
|
|
|
Asarco LLC
|
|
$
|
81.8
|
|
$
|
96.2
|
|
$
|
37.1
|
|
AMMINCO
|
|
|
0.3
|
|
|
|
|
|
|
|
Compania Perforadora Mexico S.A.P.I. de C.V. and affiliates
|
|
|
|
|
|
0.2
|
|
|
0.6
|
|
Grupo Mexico
|
|
|
|
|
|
0.2
|
|
|
0.6
|
|
Mexico Proyectos y Desarrollos S.A. de C.V. and affiliates
|
|
|
|
|
|
|
|
|
0.4
|
|
Operadora de Generadoras de Energia Mexico S.A. de C.V
|
|
|
|
|
|
|
|
|
0.1
|
|
MGE
|
|
|
68.2
|
|
|
101.0
|
|
|
95.9
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
150.3
|
|
$
|
197.6
|
|
$
|
134.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. In 2018,
AMMINCO, a subsidiary of Grupo Mexico, began providing these services for the Company's Peruvian operations. The Company pays Grupo Mexico and AMMINCO for these services and expects to continue these
services in the future. The Company sold vehicles to AMMINCO.
In
2018, the Company donated $6.2 million to Fundacion Grupo Mexico, A.C., an organization dedicated to promoting the social and economic development of the communities close to
the Company's Mexican operations.
In
addition, in December 2018, the Company´s Peruvian operations advanced $11 million to AMC for the payment of the Company's GILTI tax which later was determined
not to be due.
158
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 16RELATED PARTY TRANSACTIONS: (Continued)
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.
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, 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 repaid in the third quarter of 2016.
Related to this loan, the Company recorded interest income of $4.2 million in 2016.
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 has two natural gas-fired
combined cycle power generating units, with a net total capacity of 516.2 megawatts and has been supplying power to the Company since December 2013. Currently, MGE is supplying 17.1% of its power
output to third-party energy users; compared to 14% at December 31, 2017.
In
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, a windfarm with 37 wind
turbines. This company started operations in January 2014 and started to sell power to Industrial Minera Mexico, S.A. de C.V. and subsidiaries (IMMSA) and other subsidiaries of Grupo Mexico in
the third quarter of 2014. Currently, Eolica el Retiro is supplying approximately 18% of its power output to IMMSA; compared to 27% at December 31, 2017.
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.
159
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 2018, 2017 and 2016 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Purchase activity
|
|
|
|
|
|
|
|
|
|
|
Boutique Bowling de Mexico S.A. de C.V.
|
|
$
|
0.3
|
|
$
|
0.3
|
|
$
|
0.4
|
|
Mextransport
|
|
|
12.4
|
|
|
1.3
|
|
|
2.0
|
|
Operadora de Cinemas S.A. de C.V.
|
|
|
0.2
|
|
|
0.1
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchases
|
|
$
|
12.9
|
|
$
|
1.7
|
|
$
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales activity
|
|
|
|
|
|
|
|
|
|
|
Boutique Bowling de Mexico S.A. de C.V.
|
|
$
|
0.2
|
|
$
|
0.2
|
|
$
|
0.2
|
|
Mextransport
|
|
|
1.2
|
|
|
0.3
|
|
|
0.2
|
|
Operadora de Cinemas S.A. de C.V.
|
|
|
0.1
|
|
|
0.2
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
1.5
|
|
$
|
0.7
|
|
$
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. and Operadora de Cinemas S.A. de C.V.
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.
Companies with relationships with SCC executive officers:
In 2018, the Company did not have purchase activities with companies having relationships with SCC executive officers. In 2017 and 2016, the
Company purchased industrial material from these companies amounting to $0.2 million and $2.0 million, respectively. It is anticipated that in the future the Company will not enter into
similar transactions with these same parties.
160
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 16RELATED PARTY TRANSACTIONS: (Continued)
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
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.
161
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17SEGMENT AND RELATED INFORMATION: (Continued)
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 performance to evaluate different segments and to make decisions to allocate resources to the reported
segments. These are common measures in the mining industry.
162
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17SEGMENT AND RELATED INFORMATION: (Continued)
Financial
information relating to Company's segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
|
(in millions)
|
|
|
|
Mexican
Open-pit
|
|
Mexican
IMMSA
Unit
|
|
Peruvian
Operations
|
|
Corporate,
other and
eliminations
|
|
Consolidated
|
|
Net sales outside of segments
|
|
$
|
4,075.9
|
|
$
|
448.6
|
|
$
|
2,572.2
|
|
$
|
|
|
$
|
7,096.7
|
|
Intersegment sales
|
|
|
|
|
|
79.3
|
|
|
|
|
|
(79.3
|
)
|
|
|
|
Cost of sales (exclusive of depreciation, amortization and depletion)
|
|
|
1,611.0
|
|
|
377.2
|
|
|
1,509.4
|
|
|
(88.6
|
)
|
|
3,409.0
|
|
Selling, general and administrative
|
|
|
55.3
|
|
|
8.5
|
|
|
36.7
|
|
|
2.1
|
|
|
102.6
|
|
Depreciation, amortization and depletion
|
|
|
360.4
|
|
|
47.6
|
|
|
237.4
|
|
|
28.9
|
|
|
674.3
|
|
Exploration
|
|
|
2.0
|
|
|
5.3
|
|
|
18.5
|
|
|
3.8
|
|
|
29.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
2,047.2
|
|
$
|
89.3
|
|
$
|
770.2
|
|
$
|
(25.5
|
)
|
|
2,881.2
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(261.1
|
)
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30.7
|
)
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,053.5
|
)
|
Equity earnings of affiliate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.3
|
|
Non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to SCC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,543.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital investment
|
|
$
|
266.8
|
|
$
|
60.0
|
|
$
|
774.0
|
|
$
|
20.6
|
|
$
|
1,121.4
|
|
Property and mine development, net
|
|
$
|
4,783.8
|
|
$
|
448.3
|
|
$
|
3,797.2
|
|
$
|
374.5
|
|
$
|
9,403.8
|
|
Total assets
|
|
$
|
8,165.2
|
|
$
|
930.2
|
|
$
|
4,813.1
|
|
$
|
576.3
|
|
$
|
14,484.8
|
|
163
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17SEGMENT AND RELATED INFORMATION: (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
164
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
The
following table presents information regarding the opening and closing balances of receivables by reporting segment of the Company for the three years ended December 31, 2018
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexican
Open-Pit
|
|
Mexican
IMMSA
Unit
|
|
Peruvian
Operations
|
|
Corporate &
Elimination
|
|
Consolidated
|
|
As of December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
$
|
505.9
|
|
$
|
50.5
|
|
$
|
266.0
|
|
$
|
|
|
$
|
822.4
|
|
Related parties
|
|
|
81.6
|
|
|
|
|
|
|
|
|
19.9
|
|
|
101.5
|
|
As of December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
$
|
556.2
|
|
$
|
79.7
|
|
$
|
254.7
|
|
$
|
|
|
$
|
890.6
|
|
Related parties
|
|
|
18.0
|
|
|
|
|
|
|
|
|
8.1
|
|
|
26.1
|
|
As of December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
$
|
365.2
|
|
$
|
47.1
|
|
$
|
179.6
|
|
$
|
|
|
$
|
591.9
|
|
Related parties
|
|
|
12.9
|
|
|
|
|
|
|
|
|
10.5
|
|
|
23.4
|
|
165
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17SEGMENT AND RELATED INFORMATION: (Continued)
SALES VALUE PER SEGMENT:
The following table presents information regarding the sales value by reporting segment of the Company's significant products for the three
years ended December 31, 2018 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
(in millions)
|
|
Mexican
Open-pit
|
|
Mexican
IMMSA
Unit
|
|
Peruvian
Operations
|
|
Corporate,
Other &
Eliminations
|
|
Total
Consolidated
|
|
Copper
|
|
$
|
3,459.1
|
|
$
|
45.6
|
|
$
|
2,251.2
|
|
$
|
(48.1
|
)
|
$
|
5,707.8
|
|
Molybdenum
|
|
|
342.5
|
|
|
|
|
|
167.4
|
|
|
|
|
|
509.9
|
|
Silver
|
|
|
175.3
|
|
|
83.5
|
|
|
69.5
|
|
|
(28.1
|
)
|
|
300.2
|
|
Zinc
|
|
|
|
|
|
328.7
|
|
|
|
|
|
(0.1
|
)
|
|
328.6
|
|
Other
|
|
|
99.0
|
|
|
70.1
|
|
|
84.1
|
|
|
(3.0
|
)
|
|
250.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,075.9
|
|
$
|
527.9
|
|
$
|
2,572.2
|
|
$
|
(79.3
|
)
|
$
|
7,096.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166
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, 2018 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
|
Mexican
Open-Pit
|
|
Mexican
IMMSA
Unit
|
|
Peruvian
Operations
|
|
Corporate &
Elimination
|
|
Consolidated
|
|
The Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexico
|
|
$
|
1,343.0
|
|
$
|
385.6
|
|
$
|
|
|
$
|
(79.3
|
)
|
$
|
1,649.3
|
|
United States
|
|
|
1,008.0
|
|
|
6.6
|
|
|
244.0
|
|
|
|
|
|
1,258.6
|
|
Peru
|
|
|
|
|
|
|
|
|
390.4
|
|
|
|
|
|
390.4
|
|
Brazil
|
|
|
|
|
|
43.8
|
|
|
228.1
|
|
|
|
|
|
271.9
|
|
Chile
|
|
|
|
|
|
|
|
|
136.3
|
|
|
|
|
|
136.3
|
|
Other American countries
|
|
|
60.6
|
|
|
3.8
|
|
|
1.4
|
|
|
|
|
|
65.8
|
|
Europe:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Switzerland
|
|
|
453.3
|
|
|
43.4
|
|
|
156.7
|
|
|
|
|
|
653.4
|
|
Italy
|
|
|
20.6
|
|
|
21.7
|
|
|
305.0
|
|
|
|
|
|
347.3
|
|
Spain
|
|
|
169.4
|
|
|
|
|
|
|
|
|
|
|
|
169.4
|
|
Other European countries
|
|
|
234.8
|
|
|
19.9
|
|
|
124.9
|
|
|
|
|
|
379.6
|
|
Asia:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Singapore
|
|
|
528.8
|
|
|
2.2
|
|
|
538.2
|
|
|
|
|
|
1,069.2
|
|
Japan
|
|
|
71.8
|
|
|
|
|
|
411.6
|
|
|
|
|
|
483.4
|
|
Other Asian countries
|
|
|
185.6
|
|
|
0.9
|
|
|
35.6
|
|
|
|
|
|
222.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,075.9
|
|
$
|
527.9
|
|
$
|
2,572.2
|
|
$
|
(79.3
|
)
|
$
|
7,096.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
167
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17SEGMENT AND RELATED INFORMATION: (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
|
|
Mexican
Open-Pit
|
|
Mexican
IMMSA
Unit
|
|
Peruvian
Operations
|
|
Corporate &
Elimination
|
|
Consolidated
|
|
The Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexico
|
|
$
|
1,240.0
|
|
$
|
349.1
|
|
$
|
6.6
|
|
$
|
(71.8
|
)
|
$
|
1,523.9
|
|
United States
|
|
|
1,001.2
|
|
|
41.7
|
|
|
147.4
|
|
|
|
|
|
1,190.3
|
|
Peru
|
|
|
|
|
|
0.8
|
|
|
373.4
|
|
|
|
|
|
374.2
|
|
Brazil
|
|
|
|
|
|
48.7
|
|
|
191.4
|
|
|
|
|
|
240.1
|
|
Chile
|
|
|
|
|
|
|
|
|
103.4
|
|
|
|
|
|
103.4
|
|
Other American countries
|
|
|
68.1
|
|
|
4.1
|
|
|
19.3
|
|
|
|
|
|
91.5
|
|
Europe:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Switzerland
|
|
|
473.1
|
|
|
14.3
|
|
|
114.9
|
|
|
|
|
|
602.3
|
|
Italy
|
|
|
27.7
|
|
|
18.6
|
|
|
286.1
|
|
|
|
|
|
332.4
|
|
Spain
|
|
|
142.8
|
|
|
|
|
|
|
|
|
|
|
|
142.8
|
|
Other European countries
|
|
|
230.3
|
|
|
30.3
|
|
|
76.6
|
|
|
|
|
|
337.2
|
|
Asia:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Singapore
|
|
|
547.9
|
|
|
1.4
|
|
|
502.0
|
|
|
|
|
|
1,051.3
|
|
Japan
|
|
|
93.0
|
|
|
|
|
|
386.6
|
|
|
|
|
|
479.6
|
|
Other Asian countries
|
|
|
148.6
|
|
|
0.5
|
|
|
36.4
|
|
|
|
|
|
185.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,972.7
|
|
$
|
509.5
|
|
$
|
2,244.1
|
|
$
|
(71.8
|
)
|
$
|
6,654.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
|
|
Mexican
Open-Pit
|
|
Mexican
IMMSA
Unit
|
|
Peruvian
Operations
|
|
Corporate &
Elimination
|
|
Consolidated
|
|
The Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexico
|
|
$
|
1,184.8
|
|
$
|
296.9
|
|
$
|
|
|
$
|
(72.0
|
)
|
$
|
1,409.7
|
|
United States
|
|
|
933.6
|
|
|
49.5
|
|
|
66.9
|
|
|
|
|
|
1,050.0
|
|
Peru
|
|
|
|
|
|
|
|
|
294.4
|
|
|
|
|
|
294.4
|
|
Brazil
|
|
|
|
|
|
26.1
|
|
|
170.0
|
|
|
|
|
|
196.1
|
|
Chile
|
|
|
|
|
|
|
|
|
92.4
|
|
|
|
|
|
92.4
|
|
Other American countries
|
|
|
52.9
|
|
|
2.6
|
|
|
18.8
|
|
|
|
|
|
74.3
|
|
Europe:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Switzerland
|
|
|
245.9
|
|
|
9.4
|
|
|
182.0
|
|
|
|
|
|
437.3
|
|
Italy
|
|
|
20.9
|
|
|
17.2
|
|
|
266.4
|
|
|
|
|
|
304.5
|
|
Spain
|
|
|
71.2
|
|
|
|
|
|
|
|
|
|
|
|
71.2
|
|
Other European countries
|
|
|
127.0
|
|
|
20.8
|
|
|
54.0
|
|
|
|
|
|
201.8
|
|
Asia:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Singapore
|
|
|
471.9
|
|
|
|
|
|
180.9
|
|
|
|
|
|
652.8
|
|
Japan
|
|
|
49.2
|
|
|
|
|
|
360.6
|
|
|
|
|
|
409.8
|
|
Other Asian countries
|
|
|
76.9
|
|
|
0.6
|
|
|
108.0
|
|
|
|
|
|
185.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,234.3
|
|
$
|
423.1
|
|
$
|
1,794.4
|
|
$
|
(72.0
|
)
|
$
|
5,379.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17SEGMENT AND RELATED INFORMATION: (Continued)
PROVISIONAL SALES PRICE:
At December 31, 2018, 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
|
|
|
102.4
|
|
|
2.68
|
|
January through March 2019
|
Molybdenum
|
|
|
9.0
|
|
|
11.88
|
|
January through March 2019
|
Provisional
sales price adjustments included in accounts receivable and net sales were as follows at December, 31 (in millions):
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2018
|
|
2017
|
|
Copper
|
|
$
|
(7.6
|
)
|
$
|
8.3
|
|
Molybdenum
|
|
|
(2.4
|
)
|
|
14.6
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(10.0
|
)
|
$
|
22.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 years, upon the agreement of both parties.
Under
the terms of a sales contract with Molymet Group (Molibdenos y Metales, S.A. and Sadaci N.V.), SPCC Peru Branch is required to supply approximately 70% of the
molybdenum concentrates production from 2019 through 2022. 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
169
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17SEGMENT AND RELATED INFORMATION: (Continued)
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
(in millions, except per share data)
|
|
1
st
|
|
2
nd
|
|
3
rd
|
|
4
th
|
|
Year
|
|
Net sales
|
|
$
|
1,841.1
|
|
$
|
1,837.2
|
|
$
|
1,723.7
|
|
$
|
1,694.7
|
|
$
|
7,096.7
|
|
Gross profit(1)
|
|
$
|
802.6
|
|
$
|
822.9
|
|
$
|
729.1
|
|
$
|
658.8
|
|
$
|
3,013.4
|
|
Operating income
|
|
$
|
773.3
|
|
$
|
787.6
|
|
$
|
696.7
|
|
$
|
623.6
|
|
$
|
2,881.2
|
|
Net income
|
|
$
|
471.9
|
|
$
|
411.1
|
|
$
|
370.7
|
|
$
|
294.5
|
|
$
|
1,548.2
|
|
Net income attributable to SCC
|
|
$
|
470.7
|
|
$
|
409.6
|
|
$
|
369.4
|
|
$
|
293.3
|
|
$
|
1,543.0
|
|
Per share amounts attributable to SCC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings basic and diluted
|
|
$
|
0.61
|
|
$
|
0.53
|
|
$
|
0.48
|
|
$
|
0.38
|
|
$
|
2.00
|
|
Dividend per share
|
|
$
|
0.30
|
|
$
|
0.30
|
|
$
|
0.40
|
|
$
|
0.40
|
|
$
|
1.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
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
|
|
-
(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 24, 2019, the Board of Directors authorized a dividend of $0.40 per share paid on February 26, 2019, to shareholders of record at the close of
business on February 12, 2019.
In
addition, as part of the settlement of claims brought on behalf of the Company and its shareholders against Grupo Mexico, AMC and certain current and former directors (together with
Grupo Mexico and AMC, the "Defendants") a dividend of $0.44428 per share was paid on February 21, 2019 to shareholders of record at the close of business on February 11, 2019, other than
the Defendants. The settlement dividend, totaling $36.5 million is an obligation of Grupo Mexico and AMC and therefore, have been funded by them. In addition Grupo Mexico and AMC paid
$13.5 million of legal fees. For more information, please see "Litigation mattersCorporate operations" in Note 12 "Commitments and Contingencies" of this Item.
170
Table of Contents
SOUTHERN COPPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 19SUBSEQUENT EVENTS: (Continued)
NEW MEXICAN ENVIRONMENTAL TAX:
On
February 2019, the Mexican Supreme Court confirmed the constitutionality of an ecological tax to extractive activities developed in the state of Zacatecas, which taxes the
environmental remediation actions, emissions of certain gases to the atmosphere, emissions of pollutant substances to the soil or water, and waste storage within the state territory. The Company is
evaluating the potential impact of this new environmental regulation in its financial position.
171
Table of Contents
OTHER COMPANY INFORMATION:
ANNUAL MEETING
The annual stockholders meeting of Southern Copper Corporation will be held on Thursday, April 25, 2019, 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
172
Table of Contents
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
173
Table of Contents