10-Q 1 a15-17848_110q.htm 10-Q

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: September 30, 2015

 

or

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                      

 

Commission File Number: 1-14066

 

SOUTHERN COPPER CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

13-3849074

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

1440 East Missouri Avenue, Suite 160, Phoenix, AZ

 

85014

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (602) 264-1375

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definitions of “large accelerated filer”, “accelerated filer and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

x

 

 

Accelerated filer

o

 

Non-accelerated filer

o

 

 

Smaller reporting company

o

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o  No x

 

As of October 30, 2015 there were outstanding 785,376,170 shares of Southern Copper Corporation common, par value $0.01 per share.

 

 

 



Table of Contents

 

Southern Copper Corporation (“SCC”)

 

INDEX TO FORM 10-Q

 

 

 

 

 

Page No.

Part I.  Financial Information:

 

 

 

 

 

Item. 1

 

Condensed Consolidated Financial Statements (Unaudited)

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Earnings for the three and nine months ended September 30, 2015 and 2014

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2015 and 2014

 

4

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2015 and 2014

 

6

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

7-28

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

29-47

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosure about Market Risk

 

48-49

 

 

 

 

 

Item 4.

 

Controls and procedures

 

50

 

 

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

51

 

 

 

Part II. Other Information:

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

52

 

 

 

 

 

Item 1A.

 

Risk Factors

 

52

 

 

 

 

 

Item 2.

 

Unregistered Sale of Equity Securities and Use of Proceeds

 

52

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

52

 

 

 

 

 

Item 6.

 

Exhibits

 

53-54

 

 

 

 

 

 

 

Signatures

 

55

 

 

 

 

 

 

 

List of Exhibits

 

56-57

 

 

 

 

 

Exhibit 15

 

Independent Accountants’ Awareness Letter

 

58

 

 

 

 

 

Exhibit 31.1

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

59

 

 

 

 

 

Exhibit 31.2

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

60

 

 

 

 

 

Exhibit 32.1

 

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

61

 

 

 

 

 

Exhibit 32.2

 

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

62

 

 

 

 

 

Exhibit 101

 

Financial statements for the three and nine months ended September 30, 2015 Formatted in XBRL: (i) the Condensed Consolidated Statements of Earnings, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) the Notes to Condensed Consolidated Financial Statements, tagged in detail.

 

Submitted electronically with this report

 

2



Table of Contents

 

PART I — FINANCIAL INFORMATION

 

Item 1.  Condensed Consolidated Financial Statements

 

Southern Copper Corporation

 

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

Net sales (including sales to related parties, see note 7)

 

$

1,133,602

 

$

1,474,647

 

$

3,791,332

 

$

4,316,442

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of sales (exclusive of depreciation, amortization and depletion shown separately below)

 

670,742

 

729,506

 

2,057,432

 

2,097,989

 

Selling, general and administrative

 

23,578

 

26,282

 

73,410

 

76,177

 

Depreciation, amortization and depletion

 

131,576

 

113,923

 

373,841

 

340,467

 

Exploration

 

13,743

 

20,638

 

36,142

 

57,317

 

Environmental remediation

 

7,043

 

37,163

 

23,503

 

37,163

 

Total operating costs and expenses

 

846,682

 

927,512

 

2,564,328

 

2,609,113

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

286,920

 

547,135

 

1,227,004

 

1,707,329

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(92,414

)

(67,728

)

(244,093

)

(198,943

)

Capitalized interest

 

27,579

 

33,153

 

99,533

 

86,918

 

Other (expense) income

 

(4,297

)

(21,066

)

(9,666

)

(31,051

)

Interest income

 

2,908

 

3,765

 

8,438

 

12,017

 

Income before income taxes

 

220,696

 

495,259

 

1,081,216

 

1,576,270

 

 

 

 

 

 

 

 

 

 

 

Income taxes (including royalty taxes, see note 4)

 

125,336

 

175,405

 

411,571

 

605,336

 

Net income before equity earnings of affiliate

 

95,360

 

319,854

 

669,645

 

970,934

 

Equity earnings of affiliate, net of income tax

 

4,039

 

5,926

 

9,454

 

17,825

 

Net income

 

99,399

 

325,780

 

679,099

 

988,759

 

Less: Net income attributable to non-controlling interest

 

962

 

1,463

 

3,518

 

3,800

 

Net income attributable to SCC

 

$

98,437

 

$

324,317

 

$

675,581

 

$

984,959

 

 

 

 

 

 

 

 

 

 

 

Per common share amounts attributable to SCC:

 

 

 

 

 

 

 

 

 

Net income — basic and diluted

 

$

0.12

 

$

0.39

 

$

0.85

 

$

1.18

 

Dividends paid

 

$

0.10

 

$

0.12

 

$

0.30

 

$

0.34

 

Weighted average common shares outstanding — basic and diluted

 

793,155

 

829,216

 

798,869

 

832,104

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3



Table of Contents

 

Southern Copper Corporation

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

(in thousands)

 

Net income

 

$

99,399

 

$

325,780

 

$

679,099

 

$

988,759

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss) net of tax: - Amortization of actuarial gain net of income tax for the three months ended September 30, 2015 - $(*) and 2014 - $44 and for the nine months ended September 30, 2015 - $(*) and 2014 - $102

 

(*

)

65

 

(*

)

(152

)

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

99,399

 

325,845

 

679,099

 

988,607

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to non-controlling interest

 

962

 

1,463

 

3,518

 

3,800

 

Comprehensive income attributable to SCC

 

$

98,437

 

$

324,382

 

$

675,581

 

$

984,807

 

 


(*) amount is lower than $0.1 million

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4



Table of Contents

 

Southern Copper Corporation

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

September 30,

 

December 31,

 

 

 

2015

 

2014

 

 

 

(in thousands)

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

504,491

 

$

363,970

 

Restricted cash

 

5,574

 

19,456

 

Short-term investments

 

882,147

 

338,589

 

Accounts receivable trade

 

419,920

 

540,245

 

Accounts receivable other (including related parties 2015 - $32,046 and 2014 - $32,835)

 

96,884

 

81,635

 

Inventories

 

804,825

 

836,464

 

Deferred income tax

 

97,964

 

119,510

 

Other current assets

 

199,099

 

189,920

 

Total current assets

 

3,010,904

 

2,489,789

 

 

 

 

 

 

 

Property, net

 

7,872,897

 

7,436,430

 

Leachable material

 

726,409

 

512,718

 

Intangible assets, net

 

202,835

 

123,554

 

Related parties receivable

 

161,244

 

161,244

 

Deferred income tax

 

602,709

 

553,948

 

Equity method investment

 

70,908

 

66,723

 

Other assets

 

217,303

 

182,336

 

Total assets

 

$

12,865,209

 

$

11,526,742

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of long-term debt

 

$

 

$

200,000

 

Accounts payable (including related parties 2015 -$51,498 and 2014 - $69,083)

 

542,752

 

549,667

 

Accrued income taxes

 

37,217

 

80,101

 

Deferred income taxes

 

13,360

 

13,360

 

Accrued workers’ participation

 

106,725

 

198,009

 

Accrued interest

 

128,551

 

70,824

 

Other accrued liabilities

 

36,929

 

38,944

 

Total current liabilities

 

865,534

 

1,150,905

 

 

 

 

 

 

 

Long-term debt

 

5,950,892

 

3,980,863

 

Deferred income taxes

 

338,174

 

385,545

 

Other liabilities and reserves

 

44,654

 

56,697

 

Asset retirement obligation

 

113,942

 

116,133

 

Total non-current liabilities

 

6,447,662

 

4,539,238

 

 

 

 

 

 

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

Common stock

 

8,846

 

8,846

 

Additional paid-in capital

 

3,338,439

 

3,344,669

 

Retained earnings

 

4,782,623

 

4,346,818

 

Accumulated other comprehensive income

 

4,813

 

4,813

 

Treasury stock, at cost, common shares

 

(2,617,827

)

(1,900,686

)

Total Southern Copper Corporation stockholders’ equity

 

5,516,894

 

5,804,460

 

Non-controlling interest

 

35,119

 

32,139

 

Total equity

 

5,552,013

 

5,836,599

 

 

 

 

 

 

 

Total liabilities and equity

 

$

12,865,209

 

$

11,526,742

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5



Table of Contents

 

Southern Copper Corporation

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

(in thousands)

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

Net income

 

$

99,399

 

$

325,780

 

$

679,099

 

$

988,759

 

Adjustments to reconcile net earnings to net cash provided from operating activities:

 

 

 

 

 

 

 

 

 

Depreciation, amortization and depletion

 

131,576

 

113,923

 

373,841

 

340,467

 

Equity earnings of affiliate, net of dividends received

 

(2,036

)

(3,184

)

(4,185

)

(10,181

)

(Gain) loss on currency translation effect

 

4,733

 

(14,856

)

(14,505

)

(20,663

)

(Benefit) provision for deferred income taxes

 

1,558

 

(76,230

)

(63,352

)

(133,052

)

Other, net

 

688

 

932

 

1,983

 

1,484

 

 

 

 

 

 

 

 

 

 

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Decrease (increase) in accounts receivable

 

61,199

 

68,956

 

120,325

 

19,039

 

Decrease (increase) in inventories

 

(74,091

)

(39,742

)

(182,052

)

(200,486

)

(Decrease) increase in accounts payable and accrued liabilities

 

49,699

 

202,050

 

(99,604

)

244,129

 

Decrease (increase) in other operating assets and liabilities

 

(10,860

)

(143,026

)

5,524

 

(113,139

)

Net cash provided by operating activities

 

261,865

 

434,603

 

817,074

 

1,116,357

 

 

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

Capital investments

 

(316,171

)

(410,450

)

(845,931

)

(1,107,484

)

Payment to acquire business, net of cash acquired

 

(100,448

)

 

(100,448

)

 

Proceeds from (purchase of) short-term investments, net

 

(308,794

)

81,897

 

(543,558

)

282

 

Sale of property

 

244

 

15

 

3,200

 

4,896

 

Net cash used in investing activities

 

(725,169

)

(328,538

)

(1,486,737

)

(1,102,306

)

 

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

Proceeds from issuance of debt

 

 

 

2,045,790

 

 

Repayments of debt

 

(200,000

)

 

(266,000

)

 

Payments of debt issuance costs

 

(2,015

)

 

(11,744

)

 

Cash dividends paid to common stockholders

 

(79,486

)

(99,641

)

(239,776

)

(283,013

)

Distributions to non-controlling interest

 

(119

)

(207

)

(531

)

(706

)

Repurchase of common shares

 

(309,787

)

(323,436

)

(724,352

)

(388,945

)

Other

 

 

 

322

 

249

 

Net cash (used in) provided by financing activities

 

(591,407

)

(423,284

)

803,709

 

(672,415

)

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

(13,141

)

16,029

 

6,475

 

19,843

 

 

 

 

 

 

 

 

 

 

 

(Decrease) increase in cash and cash equivalents

 

(1,067,852

)

(301,190

)

140,521

 

(638,521

)

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, at beginning of period

 

1,572,343

 

1,335,364

 

363,970

 

1,672,695

 

Cash and cash equivalents, at end of period

 

$

504,491

 

$

1,034,174

 

$

504,491

 

$

1,034,174

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6



Table of Contents

 

Southern Copper Corporation

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 — DESCRIPTION OF THE BUSINESS:

 

The Company is a majority-owned, indirect subsidiary of Grupo Mexico S.A.B. de C.V. (“Grupo Mexico”). At September 30, 2015, Grupo Mexico through its wholly-owned subsidiary Americas Mining Corporation (“AMC”) owned 87.4% of the Company’s capital stock. The condensed consolidated financial statements presented herein consist of the accounts of Southern Copper Corporation (“SCC” or the “Company”), a Delaware corporation, and its subsidiaries. The Company is an integrated producer of copper and other minerals, and operates mining, smelting and refining facilities in Peru and Mexico. The Company conducts its primary operations in Peru through a registered branch (the “Peruvian Branch” or “Branch” or “SPCC Peru Branch”). The Peruvian Branch is not a corporation separate from the Company. The Company’s Mexican operations are conducted through subsidiaries. The Company also conducts exploration activities in Argentina, Chile, Ecuador, Mexico and Peru.

 

In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to state fairly the Company’s financial position as of September 30, 2015 and the results of operations, comprehensive income and cash flows for the three and nine months ended September 30, 2015 and 2014. The results of operations for the three and nine months ended September 30, 2015 and 2014 are not necessarily indicative of the results to be expected for the full year. The December 31, 2014 balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States of America (U.S. GAAP). The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements at December 31, 2014 and notes included in the Company’s 2014 annual report on Form 10-K.

 

NOTE 2 — SHORT-TERM INVESTMENTS:

 

Short-term investments were as follows ($ in millions):

 

 

 

At September 30,
2015

 

At December 31,
2014

 

Trading securities

 

$

878.0

 

$

333.7

 

Weighted average interest rate

 

1.04

%

0.78

%

 

 

 

 

 

 

Available-for-sale

 

$

4.1

 

$

4.9

 

Weighted average interest rate

 

0.53

%

0.44

%

Total

 

$

882.1

 

$

338.6

 

 

Trading securities consist of bonds issued by public companies and are publicly traded. Each financial instrument is independent of the others. The Company has the intention to sell these bonds in the short-term.

 

Available-for-sale investments consist of securities issued by public companies. Each security is independent of the others and at September 30, 2015 and December 31, 2014, included corporate bonds and asset and mortgage backed obligations. As of September 30, 2015 and December 31, 2014, gross unrealized gains and losses on available for sale securities were not material.

 

Related to these investments the Company earned interest, which was recorded as interest income in the condensed consolidated statement of earnings. Also the Company redeemed some of these securities and recognized gains (losses) due to changes in fair value, which were recorded as other income (expense) in the condensed consolidated statement of earnings.

 

7



Table of Contents

 

The following table summarizes the activity of these investments by category (in millions):

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,

 

September 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Trading securities:

 

 

 

 

 

 

 

 

 

Interest earned

 

$

0.4

 

$

1.1

 

$

0.9

 

$

3.6

 

Unrealized gain (loss) at the end of the period

 

(*

)

1.0

 

(*

)

1.0

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

Interest earned

 

(*

)

(*

)

(*

)

(*

)

Investment redeemed

 

$

0.2

 

$

0.3

 

$

0.8

 

$

0.5

 

 


(*) Less than $0.1 million

 

NOTE 3 - INVENTORIES:

 

Inventories were as follows:

 

(in millions)

 

At September 30,
2015

 

At December 31,
2014

 

Inventory, current:

 

 

 

 

 

Metals at average cost:

 

 

 

 

 

Finished goods

 

$

81.3

 

$

84.6

 

Work-in-process

 

416.3

 

450.5

 

Supplies at average cost

 

307.2

 

301.4

 

Total current inventory

 

$

804.8

 

$

836.5

 

 

 

 

 

 

 

Inventory, long-term

 

 

 

 

 

Leach stockpiles

 

$

726.4

 

$

512.7

 

 

During the nine months ended September 30, 2015 and 2014 total leaching costs added as long-term inventory of leachable material amounted to $360.0 million and $265.5 million, respectively. Long-term leaching inventories recognized as cost of sales amounted to $172.8 million and $118.8 million for the nine months ended September 30, 2015 and 2014, respectively.

 

NOTE 4 — INCOME TAXES:

 

The income tax provision and the effective income tax rate for the nine months of 2015 and 2014 consisted of ($ in millions):

 

 

 

2015

 

2014

 

Statutory income tax provision

 

$

366.8

 

$

505.5

 

Peruvian royalty

 

3.0

 

6.6

 

Mexican royalty

 

22.8

 

64.9

 

Peruvian special mining tax

 

19.0

 

28.3

 

Income tax provision

 

$

411.6

 

$

605.3

 

 

 

 

 

 

 

Effective income tax rate

 

38.1

%

38.4

%

 

These provisions include income taxes for Peru, Mexico and the United States. In addition, a Mexican royalty tax, a portion of the Peruvian royalty tax and the Peruvian special mining tax are included in the income tax provision.

 

Peruvian royalty and special mining tax: In 2011, the Peruvian congress approved an amendment to the mining royalty charge. The new mining royalty charge is based on operating income margins with graduated rates ranging from 1% to 12% of operating profits, with a minimum royalty charge assessed at 1% of net sales. If the operating income margin is 10% or less, the royalty charge is 1% and for each 5% increment in the operating income margin, the royalty charge rate increases by 0.75%, up to a maximum of 12%. The minimum royalty charge assessed at 1% of net sales is recorded as cost of sales and those amounts assessed against operating income are included in the income tax provision. The Company has accrued $18.5 million and $25.5 million of royalty charge in the nine months of 2015 and 2014, respectively, of which $3.0 million and $6.6 million, respectively, were included in income taxes.

 

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Also in 2011, the Peruvian government enacted a special mining tax. This tax is based on operating income and its rate ranges from 2% to 8.4%. It begins at 2% for operating income margin up to 10% and increases by 0.4% of operating income for each additional 5% of operating income until 85% of operating income is reached. The Company has accrued $19.0 million and $28.3 million of special mining tax as part of the income tax provision for the nine months of 2015 and 2014, respectively.

 

Mexican mining royalty: In December 2013, the Mexican government enacted a new law which, among other things, established a mining royalty charge of 7.5% on earnings before taxes as defined by Mexican tax regulations and an additional royalty charge of 0.5% over gross income from sales of gold, silver and platinum. The Company has accrued $22.8 million and $64.9 million of royalty taxes as part of the income tax provision for the nine months of 2015 and 2014, respectively.

 

Income tax rate: In 2014, the Peruvian government enacted tax law changes to both the income tax and dividend tax rates that became effective on January 1, 2015. The rate in effect for 2014 was 30%, with a 4.1% dividend tax rate. The new rates are as follows:

 

Year

 

Income Tax Rate

 

Dividend Tax Rate

 

2015- 2016

 

28

%

6.8

%

2017- 2018

 

27

%

8.0

%

2019 and later

 

26

%

9.3

%

 

Accounting for uncertainty in income taxes: In the third quarter and nine months of 2015, there were no changes in the Company’s uncertain tax positions.

 

NOTE 5 — PROVISIONALLY PRICED SALES:

 

At September 30, 2015, the Company has recorded provisionally priced sales of copper at average forward prices per pound, and molybdenum at the September 30, 2015 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 September 30, 2015:

 

 

 

Sales volume
(million lbs.)

 

Priced at
(per pound)

 

Month of settlement

 

Copper

 

80.7

 

$

2.35

 

From October 2015 to December 2015

 

Molybdenum

 

12.0

 

$

5.40

 

From October 2015 to January 2016

 

 

During the month of October 2015, the market price of molybdenum decreased while copper prices slightly increased. The effect of these changes on sales for the nine months of 2015 settling in October 2015 was a reduction of $1.9 million in sales. Additionally, the effect on open sales of copper and molybdenum for the nine months of 2015 settling after October 2015 would be a further reduction of $5.4 million in sales.

 

NOTE 6 - ASSET RETIREMENT OBLIGATION:

 

The Company maintains an estimated asset retirement obligation for its mining properties in Peru, as required by the Peruvian Mine Closure Law. In accordance with the requirements of this law the Company’s closure plans were approved by the Peruvian Ministry of Energy and Mines (“MINEM”). As part of the closure plans, the Company is required to provide annual guarantees over the estimated life of the mines, based on a present value approach, and to furnish the funds for the asset retirement obligation. This law requires a review of closing plans every five years. Currently and for the near-term future, the Company has pledged the value of its Lima office complex as support for this obligation. The accepted value of the Lima office building, for this purpose, is $27.8 million. Through September 2015, the Company has provided guarantees of $17.9 million. The closure cost recognized for this liability includes the cost, as outlined in its closure plans, of dismantling the Toquepala and Cuajone concentrators, the smelter and refinery in Ilo, and the shops and auxiliary facilities at the three units.

 

In 2010, the Company announced to the Mexican federal environmental authorities its closure plans for the copper smelter plant at San Luis Potosi. The Company initiated a program for plant demolition and soil remediation with a budget of $62.4 million, of which the Company has spent $62.2 million through September 30, 2015. Plant demolition and construction of a confinement area at the south of the property were completed in 2012 and the Company expects to complete soil remediation and the construction of a second confinement area in 2015. The Company expects that once the site is remediated, a decision will be made on whether to sell or develop the property.

 

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The overall cost recognized for mining closure in Mexico includes the estimated costs of dismantling concentrators, smelter and refinery plants, shops and other facilities.

 

The following table summarizes the asset retirement obligation activity for the nine months ended September 30, 2015 and 2014 (in millions):

 

 

 

2015

 

2014

 

 

 

 

 

 

 

Balance as of January 1

 

$

116.1

 

$

124.8

 

Changes in estimates

 

 

26.7

 

Closure payments

 

(15.3

)

(8.1

)

Accretion expense

 

13.1

 

5.8

 

Balance as of September 30,

 

$

113.9

 

$

149.2

 

 

NOTE 7 — RELATED 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.

 

Receivable and payable balances with related parties are shown below (in millions):

 

 

 

At September 30,
2015

 

At December 31,
2014

 

Related parties receivable current:

 

 

 

 

 

Compania Perforadora Mexico S.A.P.I. de C.V. and affiliates

 

$

0.6

 

$

0.2

 

Grupo Mexico

 

0.7

 

0.7

 

Mexico Generadora de Energia S. de R.L. (“MGE”)

 

30.6

 

31.9

 

Mexico Proyectos y Desarrollos, S.A. de C.V. and affiliates

 

0.1

 

 

 

 

$

32.0

 

$

32.8

 

 

 

 

 

 

 

Related parties receivable non-current:

 

 

 

 

 

MGE

 

$

161.2

 

$

161.2

 

 

 

 

 

 

 

Related parties payable:

 

 

 

 

 

Asarco LLC

 

$

13.6

 

$

13.8

 

Breaker S.A. de C.V. and affiliates (“Breaker”)

 

0.6

 

0.7

 

Eolica El Retiro, S.A.P.I. de C.V.

 

0.1

 

1.6

 

Ferrocarril Mexicano S.A. de C.V.

 

1.7

 

1.8

 

Grupo Mexico

 

7.7

 

2.8

 

Higher Technology S.A.C.

 

 

0.2

 

MGE

 

22.8

 

45.2

 

Mexico Proyectos y Desarrollos, S.A. de C.V. and affiliates

 

4.0

 

1.7

 

Mexico Transportes Aereos S.A. de C.V. (“Mextransport”)

 

1.0

 

1.3

 

 

 

$

51.5

 

$

69.1

 

 

Purchase and sale activity:

 

Grupo Mexico and its affiliates:

 

The following table summarizes the purchase and sales activities with Grupo Mexico and its affiliates in the nine months ended September 30, 2015 and 2014 (in millions):

 

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2015

 

2014

 

Purchase activity

 

 

 

 

 

Asarco LLC

 

$

23.9

 

$

39.5

 

Compania Perforadora Mexico S.A.P.I. de C.V and affiliates

 

0.3

 

2.6

 

Eolica El Retiro, S.A.P.I. de C.V.

 

7.1

 

 

Ferrocarril Mexicano S.A de C.V.

 

17.8

 

17.3

 

Grupo Mexico

 

10.4

 

10.4

 

MGE

 

97.1

 

137.2

 

Mexico Proyectos y Desarrollos, S.A. de C.V. and affiliates

 

44.2

 

76.8

 

Total purchases

 

$

200.8

 

$

283.8

 

 

 

 

 

 

 

Sales activity

 

 

 

 

 

Asarco LLC

 

$

71.7

 

$

22.1

 

Compania Perforadora Mexico S.A.P.I. de C.V and affiliates

 

0.4

 

0.4

 

Grupo Mexico

 

0.1

 

 

MGE

 

64.3

 

75.5

 

Mexico Proyectos y Desarrollos, S.A. de C.V. and affiliates

 

0.7

 

0.6

 

Total sales

 

$

137.2

 

$

98.6

 

 

Grupo Mexico, the parent and the majority indirect stockholder of the Company, and its affiliates provide various services to the Company. These services are primarily related to accounting, legal, tax, financial, treasury, human resources, price risk assessment and hedging, purchasing, procurement and logistics, sales and administrative and other support services. The Company pays Grupo Mexico for these services and expects to continue requiring these services in the future.

 

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 Desarrollo S.A. de C.V. and its affiliates, and for drilling services provided by Compania 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, Controladora de Infraestructura Energetica Mexico, S. A. de C. V., an indirect subsidiary of Grupo Mexico, acquired 99.999% of MGE through a capital subscription of 1,928.6 million of Mexican pesos (approximately $150 million), reducing Minera Mexico’s participation to less than 0.001%. As consequence of this change in control, MGE became an indirect subsidiary of Grupo Mexico. Additionally, at the same time, MGE paid $150 million to the Company’s Mexican operations partially reducing the total debt. At December 31, 2012, the outstanding balance of $184.0 million was restructured as subordinated debt of MGE with an interest rate of 5.75%. MGE will repay its debt to the Company using a percentage of its profits until such time as the debt is satisfied. At September 30, 2015 the remaining balance of the debt was $161.2 million and was recorded as non-current related party receivable on the condensed consolidated balance sheet. Related to this loan the Company recorded interest income of $7.0 million in the nine months of 2015 and 2014.

 

In 2012, the Company signed a power purchase agreement with MGE, whereby MGE will supply some of the Company’s Mexican operations with power through 2032. MGE completed construction of its first power plant in June 2013 and the second plant, in the second quarter of 2014. MGE has the authorization for interconnection with the Mexican electrical system to start operations at the second plant. MGE began supplying power to the Company in December 2013. MGE is supplying a portion of its power output to third-party energy users. See also Note 9 “Commitments and Contingencies - Other commitments”.

 

On August 4, 2014, Mexico Generadora de Energia Eolica S. de R.L. de C.V, an indirect subsidiary of Grupo Mexico, located in Oaxaca, Mexico; acquired Eolica el Retiro. Eolica el Retiro is a windfarm that has 37 wind turbines. This company started operations in January 2014 and started to sell power to IMMSA and other subsidiaries of Grupo Mexico in the third quarter of 2014.

 

The Company sold copper cathodes, rod and anodes, as well as sulfuric acid, silver, gold and lime to Asarco. In addition, the

 

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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 to MGE, all subsidiaries of Grupo Mexico.

 

Companies with relationships with the controlling group:

 

The following tables summarize the purchase and sales activities with other Larrea family companies in the nine months ended September 30, 2015 and 2014 (in millions):

 

Mextransport:

 

2015

 

2014

 

Purchase activity

 

$

1.1

 

$

2.1

 

 

 

 

 

 

 

Sales activity

 

$

0.3

 

$

0.2

 

 

The Larrea family controls a majority of the capital stock of Grupo Mexico, and has extensive interests in other businesses, including aviation and real estate. 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 and air transportation.

 

Companies with relationships with SCC executive officers:

 

The following table summarizes the purchase activities with companies with relationships with SCC executive officers in the nine months ended September 30, 2015 and 2014 (in millions):

 

 

 

2015

 

2014

 

Breaker

 

$

3.8

 

$

5.7

 

Higher Technology S.A.C.

 

1.1

 

2.1

 

Pigoba S.A. de C.V.

 

 

0.4

 

Sempertrans and affiliates

 

0.5

 

0.9

 

Servicios y Fabricaciones Mecanicas S.A.C.

 

0.5

 

1.1

 

Total purchases

 

$

5.9

 

$

10.2

 

 

The Company purchased industrial materials from Higher Technology S.A.C and paid fees for maintenance services provided by Servicios y Fabricaciones Mecanicas S.A.C. Mr. Carlos Gonzalez, the son of SCC’s Chief Executive Officer, has a proprietary interest in these companies.

 

The Company purchased industrial material from Sempertrans and its affiliates, which employed Mr. Alejandro Gonzalez as a sales representative, through August 4, 2015. Also, the Company purchased industrial material from Pigoba, S.A. de C.V., a company in which Mr. Alejandro Gonzalez has a proprietary interest. Mr. Alejandro Gonzalez is the son of SCC’s Chief Executive Officer.

 

The Company purchased industrial material and services from Breaker, S.A. de C.V., a company in which Mr. Jorge Gonzalez, son-in-law of SCC’s Chief Executive Officer, has a proprietary interest; and from Breaker Peru S.A.C., a company in which Mr. Jorge Gonzalez, son-in-law and Mr. Carlos Gonzalez, son of SCC’s Chief Executive Officer have a proprietary interest.

 

Equity Investment in Affiliate: The Company has a 44.2% participation in Compania Minera Coimolache S.A. (“Coimolache”), which it accounts for on the equity method. Coimolache owns Tantahuatay, a gold mine located in the northern part of Peru. To support the cost of the development of Tantahuatay, the Company loaned $56.6 million to Coimolache. The repayment of this loan was completed in August 2014.

 

It is anticipated that in the future the Company will enter into similar transactions with these same parties.

 

NOTE 8- BENEFIT PLANS:

 

Post retirement defined benefit plans

 

The Company has two noncontributory defined benefit pension plans covering former salaried employees in the United States and certain former expatriate employees in Peru. Effective October 31, 2000, the Board of Directors amended the qualified pension plan to suspend the accrual of benefits.

 

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In October 2014, the Society of Actuaries (SOA) issued new mortality tables based on a comprehensive study of private retirement plans. Effective December 31, 2014, the Company elected to update the mortality assumption to the new SOA tables.

 

In addition, the Company’s Mexican subsidiaries have a defined contribution pension plan for salaried employees and a non-contributory defined benefit pension plan for union employees.

 

The components of the net periodic benefit costs for the nine months ended September 30, 2015 and 2014 are as follows (in millions):

 

 

 

2015

 

2014

 

Service cost

 

$

0.7

 

$

0.9

 

Interest cost

 

0.7

 

0.9

 

Expected return on plan assets

 

(2.4

)

(2.7

)

Amortization of net actuarial loss

 

(0.3

)

(0.3

)

Amortization of net loss (gain)

 

0.3

 

0.1

 

Net periodic benefit cost

 

$

(1.0

)

$

(1.1

)

 

Post-retirement health care plan

 

Peru: The Company adopted a post-retirement health care plan for retired salaried employees eligible for Medicare in 1996. The Company manages the plan and is currently providing health benefits to retirees. The plan is accounted for in accordance with ASC 715 “Compensation retirement benefits”.

 

Mexico: Through 2007, the Buenavista unit provided health care services free of charge to employees and retired unionized employees and their families through its own hospital at the Buenavista unit. In 2011, the Company signed an agreement with the Secretary of Health of the State of Sonora to provide these services to its retired workers and their families. The new workers of Buenavista del Cobre will receive health services from the Mexican Institute of Social Security as is the case for all Mexican workers.

 

The components of the net periodic benefit cost for the nine months ended September 30, 2015 and 2014 are as follows (in millions):

 

 

 

2015

 

2014

 

Interest cost

 

$

1.0

 

$

1.0

 

Amortization of net loss (gain)

 

(0.2

)

(0.2

)

Amortization of prior service cost (credit)

 

(*

)

(*

)

Net periodic benefit cost

 

$

0.8

 

$

0.8

 

 


(*) amount is lower than $0.1 million

 

NOTE 9 — COMMITMENTS 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 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 the nine months ended September 30, 2015 and 2014 were as follows (in millions):

 

 

 

2015

 

2014

 

Peruvian operations

 

$

60.8

 

$

95.9

 

Mexican operations

 

15.4

 

17.5

 

 

 

$

76.2

 

$

113.4

 

 

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,

 

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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 closure and reclamation. In accordance with the requirements of this law, the Company’s closure plans were approved by MINEM. As part of the closure plans, the Company is providing guarantees to ensure that sufficient funds will be available for the asset retirement obligation. See Note 8 “Asset retirement obligation,” for further discussion of this matter. In accordance with the requirements of the law, the Company submitted the closure plan for the Tia Maria project, in July 2015.

 

In 2008, the Peruvian government enacted environmental regulations establishing more stringent air quality standards (“AQS”) for daily sulfur dioxide (“SO2”) in the air for the Peruvian territory. These regulations, as amended in 2013, recognize distinct zones/areas, as atmospheric basins. Those areas with a mean 24-hour SO2 concentration equal or less than 20 micrograms per cubic meter (“ug/m3”) are required to develop programs to maintain this level of compliance. Those areas or cities exceeding the mean 24- hour SO2 concentration of 20 ug/m3 will be required to establish an action plan to address this problem and are required to achieve the 20 ug/m3 AQS in the future. Meanwhile they are required to achieve mean 24-hour AQS equal to 80 ug/m3 of SO2. MINAM has established three atmospheric basins that require further attention to comply with 80ug/m3 of SO2. The Ilo basin is one of these three areas and the Company’s smelter and refinery are part of the area. A supreme decree issued on April 8, 2014, indicates that mining companies should review their compliance with these regulations and develop a modification plan to reach compliance. The Company continues working with an environmental technical study group, established by a MINAM resolution to identify activities, goals, deadlines, timetables and to develop an action plan in order to achieve compliance.

 

In 2013, the Peruvian government enacted new soil environmental quality standards (“SQS”) applicable to any existing facility or project that generates or could generate risk of soil contamination in its area of operation or influence. In March 2014, MINAM issued a supreme decree which establishes additional provisions for the gradual implementation of SQS. Under this rule the Company had twelve months to identify contaminated sites in and around its facilities and present a report of identified contaminated sites. This report was submitted to MINEM in April 2015. After a review, MINEM should evaluate and issue a report to the Company which will allow it to continue with the next phase. Currently, the Company is awaiting an official response from MINEM. Once MINEM notifies the Company, it must prepare a characterization study to determine the depth, extent and physio-chemical composition of the contaminated areas and to define an appropriate remediation plan and the time-frame in which it will take place. In addition, the Company must submit for approval a Soil Decontamination Plan (SDP) within 24 months after being notified by the authority. This SDP shall include remediation actions, a schedule and compliance deadlines. Also, under this rule, if deemed necessary, the Company may request a one year extension for the decontamination plan, given sound justification.

 

Soil confirmation tests must be carried out after completion of decontamination actions (within the approved schedule) and results must be presented to authorities within 30 days after receiving such results. Non-compliance with this obligation or with decontamination goals will carry penalties, although no specific sanctions have been established yet. During compliance schedule, companies cannot be penalized for non-compliance with the SQS.

 

While the Company believes that a potential loss contingency may exist, it cannot currently estimate the amount of the contingency. The Company believes that a reasonable determination of the loss will be possible once the characterization study and the SDP are substantially completed. Then the Company will be in a position to estimate the remediation cost. Further, the Company does not believe that it can estimate a reasonable range of possible costs until the noted studies have progressed substantially and therefore is not be able to disclose a range of costs that is meaningful.

 

Mexican operations: The Company’s operations are subject to applicable Mexican federal, state and municipal environmental laws, to Mexican official standards, and to regulations for the protection of the environment, including regulations relating to water supply, water quality, air quality, noise levels and hazardous and solid waste.

 

The principal legislation applicable to the Company’s Mexican operations is the Federal General Law of Ecological Balance and Environmental Protection (the “General Law”), which is enforced by the Federal Bureau of Environmental Protection (“PROFEPA”). PROFEPA monitors compliance with environmental legislation and enforces Mexican environmental laws, regulations and official standards. PROFEPA may initiate administrative proceedings against companies that violate environmental laws, which in the most extreme cases may result in the temporary or permanent closing of non-complying facilities, the revocation of operating licenses and/or other sanctions or fines. Also, according to the federal criminal code, PROFEPA must inform corresponding authorities regarding environmental non-compliance.

 

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

 

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environment because it will be sufficient to argue 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 in order to determine which environmental actions will be considered to cause environmental harm that will give rise to administrative responsibilities (remediation or compensations), criminal responsibilities as well as monetary fines.

 

On August 6, 2014, an accidental spill of approximately 40,000 cubic meters of copper sulfate solution occurred at a leaching pond that was under construction ten kilometers away from the mine of Buenavista del Cobre, S.A. de C.V. (“BVC”) a subsidiary of the Company. The accident was caused by a rock collapse that affected the system’s pumping station and by a construction defect in the seal of a pipe in the leaching system containment dam, a part of the new SX-EW III plant. This solution reached the Bacanuchi River and the Sonora River. All the immediate actions were promptly taken in order to contain the spill, and to comply with all the legal requirements.

 

The National Water Commission (Comision Nacional del Agua “CONAGUA”), the Federal Commission for the Protection against Sanitary Risks (Comision Federal para la Proteccion de Riesgos Sanitarios “COFEPRIS”) and PROFEPA initiated administrative proceedings regarding the spill to determine possible environmental and health damages.

 

On August 19, 2014, PROFEPA, as part of the administrative proceeding initiated after the spill, announced the filing of a criminal complaint against BVC in order to determine, in such a case, the responsibility for the environmental damages. The criminal complaint filed by PROFEPA against BVC is in the procedural stages. The Company is vigorously defending against it. As of September 30, 2015, the case remains pending resolution without further developments.

 

On September 15, 2014, BVC executed an administrative agreement with PROFEPA, providing for the submission of a remediation action plan to the Mexican Ministry of Environment and Natural Resources (Secretaria de Medio Ambiente y Recursos Naturales “SEMARNAT”). The remediation program was submitted to SEMARNAT on November 27, 2014 and approved on January 6, 2015. This program will be developed in five zones along the rivers. As of September 30, 2015, the Company informed SEMARNAT of the conclusion of the clean-up and soil remediation actions in zone one, in addition, as a result of our studies of risk and environmental health it is not necessary for any remediation actions for zones 2 to 5 and we are in the process of obtaining the approval of this conclusion. Furthermore, the Company has obtained approval for the monitoring programs for all the zones.

 

The Company also created a trust with Nacional Financiera S.N.C., a Mexican development bank, acting as a Trustee to serve as a vehicle to support environmental remedial actions in connection with the spill, to comply with the remedial action plan and to compensate for damages caused to persons adversely affected by the spill. The Company committed up to two billion Mexican pesos (approximately $150 million) of which approximately one billion Mexican pesos have already been contributed. A technical committee of the trust was created with representatives from the federal government, the Company and specialists assisted by a team of environmental experts to ensure the proper use of the funds. Along with the administrative agreement executed with PROFEPA, the trust serves as an alternative mechanism for dispute resolution to mitigate public and private litigation risks.

 

Independently of the execution of the administrative agreement with PROFEPA and the creation of the above mentioned trust, since the first day of the copper solution spill, the Company has taken actions to clean the sites. On August 29, 2014, the Company hired contractors to clean the river utilizing more than 1,200 of their workers and environmental specialists.

 

In addition, the Company developed a service program for the residents of the Sonora River Region, considering (i) water distribution provision, and infrastructure development within the affected region, (ii) the expansion of the current Community Development program to communities further downstream that were affected and previously not within the scope of the Company´s program, (iii) attention to local farmers and producers in coordination with the Federal Agriculture, Livestock, Rural Development, Fisheries, and Alimentations Ministry in order to revamp and promote the activities of local farmers and producers, (iv) the implementation of sustainable productive projects at each affected site, as well as (v) the establishment of service desks to attend specific cases.

 

On March 2, 2015 as a result of four administrative proceedings, PROFEPA imposed administrative fines to BVC for an aggregate amount of 23.5 million Mexican pesos (approximately $1.7 million).

 

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During the last half of 2014 and 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 damages for alleged injuries and the repair of environmental impact caused by the spill. Two of the collective action lawsuits have been dismissed by the court. The plaintiffs in these six lawsuits are: Acciones Colectivas de Sinaloa, A.C. which established two collective actions; Filiberto Navarro Soto et al; Defensa Colectiva A.C. (dismissed on August 7, 2015); Ismael Navarro Babuca et al (dismissed on August 17, 2015); and Ana Luisa Salazar Medina et al. Similarly, during the first half of 2015, seven 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; and Grupo Banamichi Unido de Sonora El Dorado, S.C. de R.L. de C.V.  Also, during the second and third quarters of 2015, three constitutional lawsuits (juicios de amparo) were filed before Federal Courts against various authorities and against a subsidiary of the Company, arguing; (i) the supposed lack of a waste management program approved by SEMARNAT; (ii) the supposed lack of a remediation plan approved by SEMARNAT with regard to the August  2014 spill and (iii) the supposed lack of community approval regarding the environmental impact authorizations granted by SEMARNAT to the subsidiary of the Company. The plaintiffs who filed those lawsuits are: Francisco Garcia Enriquez, et al which established two lawsuits and Francisco Ramon Miranda, et al. For a description of the collective actions in Mexico we refer to the 2011 amendments to the CFPC described above. It is currently not 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 and the Company and its subsidiaries are vigorously defending against these actions. Nevertheless, the Company reasonably 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.

 

As of September 30, 2015, BVC estimated the contingent liability at $114.8 million, of which $39.9 million was paid with the Company’s funds, and approximately one billion Mexican pesos (approximately $74.9 million) was deposited in the trust. These funds have been available and have been used to compensate claims as they have arisen. This deposit was classified as restricted cash and was recorded as an operating expense in the Company’s results.

 

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:

 

Garcia Ataucuri and Others against SCC’s Peruvian Branch:

 

In April 1996, the Branch was served with a complaint filed in Peru by Mr. Garcia Ataucuri and approximately 900 former employees seeking the delivery of a substantial number of “labor shares” (acciones laborales) plus dividends on such shares, to be issued to each former employee in proportion to their time of employment with SCC’s Peruvian Branch, pursuant to a former Peruvian mandated profit sharing law.

 

The labor share litigation is based on claims of former employees for ownership of labor shares that the plaintiffs state that the Branch did not issue during the 1970s until 1979 under such former Peruvian mandated profit sharing law. In 1971, the Peruvian government enacted legislation providing that mining workers would have a 10% participation in the pre-tax profits of their employing enterprises. This participation was distributed 40% in cash and 60% in an equity interest of the enterprise. In 1978, the equity portion, which was originally delivered to a mining industry workers’ organization, was set at 5.5% of pre-tax profits and was delivered, mainly in the form of “labor shares” to individual workers. The cash portion was set at 4.0% of pre-tax earnings and was delivered to individual employees also in proportion to their time of employment with the Branch. In 1992, the workers’ participation was set at 8%, with 100% payable in cash and the equity participation was eliminated from the law.

 

In relation to the issuance of “labor shares” by the Branch in Peru, the Branch is a defendant in the following lawsuits:

 

1)                   Mr. Garcia Ataucuri seeks delivery, to himself and each of the approximately 900 former employees of the Peruvian Branch, of the 3,876,380,679.65 old soles or 38,763,806.80 “labor shares” (acciones laborales), as required by Decree Law 22333 (a former profit sharing law), to be issued proportionally to each former employee in accordance with the time of employment of such employee with SCC’s Branch in Peru, plus dividends on such shares. The 38,763,806.80 labor shares sought in the complaint, with a face value of 100.00 old soles each, represent 100% of the labor shares issued by the Branch during the 1970s until 1979 for all of its employees during that period. The plaintiffs do not represent 100% of the Branch’s eligible employees during that period.

 

It should be noted that the lawsuit refers to a prior Peruvian currency called “sol de oro” or old soles, which was later changed to the “inti”, and then into today’s “nuevo sol”. Due to a past period of high inflation between 1985 and 1990, one billion of old soles is equivalent to today’s one nuevo sol.

 

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After lengthy proceedings before the civil courts in Peru on September 19, 2001, on appeal by the Branch, the Peruvian Supreme Court annulled the proceedings noting that the civil courts lacked jurisdiction and that the matter had to be decided by a labor court (the “2000 appeal”).

 

In October 2007, in a separate proceeding initiated by the plaintiffs, the Peruvian Constitutional Court nullified the September 19, 2001 Peruvian Supreme Court decision and ordered the Supreme Court to decide again on the merits of the case accepting or denying the 2000 appeal.

 

In May 2009, the Supreme Court rejected the 2000 appeal of the Branch affirming the adverse decision of the appellate civil court and lower civil court. While the Supreme Court has ordered SCC’s Peruvian Branch to deliver the labor shares and dividends, it has clearly stated that SCC’s Peruvian Branch may prove, by all legal means, its assertion that the labor shares and dividends were distributed to the former employees in accordance with the profit sharing law then in effect, an assertion which SCC’s Peruvian Branch continues to make. None of the court decisions state the manner by which the Branch must comply with the delivery of such labor shares or make a liquidation of the amount to be paid for past dividends and interest, if any.

 

On June 9, 2009, SCC’s Peruvian Branch filed a proceeding of relief before a civil court in Peru seeking the nullity of the 2009 Supreme Court decision and, in a separate proceeding, a request for a precautionary measure. The civil court rendered a favorable decision on the nullity and the precautionary measure, suspending the enforcement of the Supreme Court decision, for the reasons indicated above and other reasons. In February 2012, the Branch was notified that the civil court had reversed its prior decisions. On appeal by the Peruvian Branch the Superior Court affirmed the lower court’s decisions regarding the nullity of the 2009 Supreme Court decision and the precautionary measure. As a result, the nullity of the precautionary measure became final and is not appealable. However, the nullity of the 2009 Supreme Court decision was appealed by the Branch before the Constitutional Court. On April 10, 2014, the Constitutional Court denied the Company’s appeal and affirmed the lower court’s decision.

 

On September 23, 2015, the lower court to secure the delivery by the Branch of the labor shares ordered to be paid, seized 10,501,857 investment shares owned by SCC and Compania Minera Los Tolmos, S.A. (“Los Tolmos”). The Company is vigorously defending against these measures, and has challenged them on various grounds, mainly because a “labor share” created by law in 1979 is not equivalent to a “investment share”, on a one to one basis, as the latter must recognize the Peruvian inflation of the 1980-2014 period, and because the seized investment shares are owned by SCC and Los Tolmos, companies that are not a party in the lawsuit. SCC and Los Tolmos have initiated a third party claim to ownership, to have the lower court cancel the seizure order on their investment shares. As of September 30, 2015, the case remains pending resolution without further developments.

 

2)                   In addition, there are filed against SCC’s Branch the following lawsuits, involving approximately 800 plaintiffs, which seek the same number of labor shares as in the Garcia Ataucuri case, plus interest, labor shares resulting from capital increases and dividends: (1) Armando Cornejo Flores and others v. SCC’s Peruvian Branch (filed May 10, 2006); (2) Alejandro Zapata Mamani and others v. SCC’s Peruvian Branch (filed June 27, 2008); (3) Edgardo Garcia Ataucuri, in representation of 216 of SCC’s Peruvian Branch former workers, v. SCC’s Peruvian Branch (filed May 2011); (4) Juan Guillermo Oporto Carpio v. SCC’s Peruvian Branch (filed August 2011); (5) Rene Mercado Caballero v. SCC’s Peruvian Branch (filed November 2011); (6) Enrique Salazar Alvarez and others v. SCC’s Peruvian Branch (filed December 2011; (7) Armando Cornejo Flores, in representation of 37 of SCC’s Peruvian Branch former workers v. SCC’s Peruvian Branch (filed March 2012), (8) Porfirio Ochochoque Mamani and others v. SCC’s Peruvian Branch (filed July 2012); (9) Alfonso Claudio Flores Jimenez and others v. SCC’s Peruvian Branch (filed July 2013); (10) Edgardo Garcia Ataucuri in representation of 104 of SCC´s Peruvian Branch former workers (filed March 2015); (11) Nicolas Aurelio Sueros Benavente v. SCC’s Peruvian Branch (filed May 2015) and (12) Victor Raul Marquez Cano v. SCC’s Peruvian Branch (filed June 2015). SCC’s Peruvian Branch has answered the complaints and denied the validity of the claims.

 

SCC’s Peruvian Branch asserts that the labor shares were distributed to the former employees in accordance with the profit sharing law then in effect. The Peruvian Branch has not made a provision for these lawsuits because it believes that it has meritorious defenses to the claims asserted in the complaints. Additionally, the amount of this contingency cannot be reasonably estimated by management at this time.

 

The “Virgen Maria” Mining Concessions of the Tia Maria Mining Project

 

The Tia Maria project includes various mining concessions, totaling 32,989.64 hectares. One of the concessions is the “Virgen Maria” mining concession totaling 943.72 hectares or 2.9% of the total mining concessions.

 

Related to the “Virgen Maria” mining concessions, the Company is party to the following lawsuits:

 

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a)             Exploraciones de Concesiones Metalicas S.A.C. (“Excomet”): In August 2009, a lawsuit was filed against SCC’s Branch by the former stockholders of Excomet. The plaintiffs allege that the acquisition of Excomet’s shares by the Branch is null and void because the $2 million purchase price paid by the Branch for the shares of Excomet was not fairly negotiated by the plaintiffs and the Branch. In 2005, the Branch acquired the shares of Excomet after lengthy negotiations with the plaintiffs, and after the plaintiffs, which were all the stockholders of Excomet, approved the transaction in a general stockholders’ meeting. Excomet was at the time owner of the “Virgen Maria” mining concession. In October 2011, the civil court dismissed the case on the grounds that the claim had been barred by the statute of limitations. On appeal by the plaintiffs, the superior court reversed the lower court’s decision and remanded it to the lower court for further proceedings. In August 2015, the lower court dismissed the case on the grounds that the plaintiffs had not proven the alleged unfairness of the negotiations. The plaintiffs appealed this resolution before the Superior Court. As of September 30, 2015, the case remains pending resolution.

 

b)             Sociedad Minera de Responsabilidad Limitada Virgen Maria de Arequipa (“SMRL Virgen Maria”): In August 2010, a lawsuit was filed against SCC’s Branch and others by SMRL Virgen Maria, a company which until July 2003 owned the mining concession Virgen Maria. SMRL Virgen Maria sold this mining concession in July 2003 to Excomet (see a) above). The plaintiff alleges that the sale of the mining concession Virgen Maria to Excomet is null and void because the persons who attended the shareholders’ meeting of SMRL Virgen Maria, at which the purchase was agreed upon, were not the real owners of the shares. The plaintiff is also pursuing the nullity of all the subsequent acts regarding the mining property (acquisition of the shares of Excomet by SCC’s Branch, noted above, and the sale of this concession to SCC’s Branch by Excomet). In October 2011, the civil court dismissed the case on the grounds that the claim had been barred by the statute of limitations. Upon appeal by the plaintiffs, the superior court remanded the proceedings to the lower court, ordering the issuance of a new decision. On June 25, 2013, the lower court dismissed the case due to procedural defects. Upon appeal by the plaintiff, on December 2, 2013 the Superior Court reversed the lower court’s decision due to procedural defects and ordered the issuance of a new resolution. In July 2014, once again the lower court dismissed the case on the grounds that the claim had barred by the statute of limitations. The plaintiff appealed this resolution before the Superior Court. On December 30, 2014, the Superior Court affirmed the lower court’s decision. The plaintiff filed an extraordinary appeal before the Supreme Court. As of September 30, 2015, the case remains pending resolution without further developments.

 

The Company asserts that the lawsuits are without merit and is vigorously defending against these lawsuits.

 

Special Regional Pasto Grande Project (“Pasto Grande Project”)

 

In the last quarter of 2012, the Pasto Grande Project, an entity of the Regional Government of Moquegua, filed a lawsuit against SCC’s Peruvian Branch alleging property rights over a certain area used by the Peruvian Branch and seeking the demolition of the tailings dam where SCC’s Peruvian Branch has deposited its tailings from the Toquepala and Cuajone operations since 1995. The Peruvian Branch has had title to use the area in question since 1960 and has constructed and operated the tailing dams also with proper governmental authorization, since 1995. SCC’s Peruvian Branch asserts that the lawsuit is without merit and is vigorously defending against the lawsuit. Upon a motion filed by the Peruvian Branch, the lower court has included the MINEM as a defendant in this lawsuit. MINEM has answered the complaint and denied the validity of the claim. As of September 30, 2015, the case remains pending resolution without further developments.

 

Labor matters:

 

Peruvian operations: Approximately 72% of the Company’s 4,605 Peruvian workers were unionized at September 30, 2015. Currently, there are five separate unions, one main union and four smaller unions. In the second quarter of 2015, two of the main unions, which formerly represented the Ilo and Cuajone workers, and one of the minor union, which formerly represented some Toquepala workers, merged into one new main union. The other four smaller unions represent the balance of workers. The Company’s collective bargaining agreements with all of these unions will expire in the second half of 2015. The Company began negotiations for new agreements in the third quarter of 2015.

 

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”) led by Napoleon Gomez Urrutia to other less politicized unions.

 

However, the workers of the San Martin and Taxco mines, are still under the National Mining Union and have been on strike since July 2007. On December 10, 2009, a federal court confirmed the legality of the San Martin strike. In order to recover the control of the San Martin mine and resume operations, the Company filed a court petition on January 27, 2011 requesting that the court, among other things, define the termination payment for each unionized worker. The court denied the petition alleging that,

 

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according to federal labor law, the union was the only legitimate party to file such petition. On appeal by the Company, on May 13, 2011, the Mexican federal tribunal accepted the petition. In July 2011, the National Mining Union appealed the favorable court decision before the Supreme Court. On November 7, 2012, the Supreme Court affirmed the decision of the federal tribunal. The Company filed a new proceeding before the labor court on the basis of the Supreme Court decision, which recognized the right of the labor court to define responsibility for the strike and the termination payment for each unionized worker. A favorable decision of the labor court in this new proceeding would have the effect of terminating the protracted strike at San Martin. As of September 30, 2015, the case remains pending resolution without further developments.

 

In the case of the Taxco mine, following the workers refusal to allow exploration of new reserves, the Company commenced litigation seeking to terminate the labor relationship with workers at the mine (including termination of the related collective bargaining agreement). On September 1, 2010, the federal labor court issued a ruling approving the termination of the collective bargaining agreement and all the individual labor contracts of the workers affiliated with the Mexican mining union at the Taxco mine. The mining union appealed the labor court ruling before a federal court. In September 2011, the federal court accepted the union’s appeal and remanded the case to the federal labor court for reconsideration. After several legal proceedings on January 25, 2013, the Company filed a new proceeding before the labor court. On June 16, 2014, the labor court denied the petition of the Company. The resolution issued by the labor court was challenged by the Company before a federal court. In August 2015, the Supreme Court decided to assert jurisdiction over the case and to rule on it directly. Considering this new decision of the Supreme Court, there could be grounds for a favorable decision to end the protracted strike at the Taxco Unit. As of September 30, 2015, the case remains pending resolution without further development.

 

It is expected that operations at these mines will remain suspended until these labor issues are resolved.

 

In view of these lengthy strikes, the Company has reviewed the carrying value of the San Martin and Taxco mines to ascertain whether impairment exists. The Company concluded that there is a non-material impairment of the assets located at these mines.

 

Other legal matters:

 

The Company is involved in various other legal proceedings incidental to its operations, but the Company 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 pending the resolution of certain differences with community groups. The Peruvian government has recommended a dialogue roundtable for the resolution of these differences.

 

The Company has established a multi-faceted encounter plan to explain the merits of the Tia Maria project. A national media campaign was launched in May 2015, after which the Company conducted a door-to-door campaign in the neighboring district of Cocachacra. This campaign had the purpose of explaining the relevant environmental topics of the project that concerned the community.

 

Tia Maria´s project budget is approximately $1.4 billion of which $360.2 million has been invested through September 30, 2015. 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 into the atmosphere are released. The project will only use seawater, transporting this more than 25 kilometers (15.5 miles) and at 1,000 meters (3,300 feet) above sea level, constructing a desalinization plant representing an investment of $95 million. In this manner, the Company guarantees that the Tambo river water resources will be used solely for farming and human consumption.

 

The Company expects the project to generate 3,500 jobs during the construction phase. When in operation, Tia Maria will directly employ 600 workers and indirectly another 2,000. 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 has reviewed the carrying value of this asset to ascertain whether impairment exists. Should the Tia Maria project not be restarted, the Company is confident that most of the project equipment will continue

 

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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.

 

In connection with the Tia Maria project, in 2014 the Company offered to establish a S/.100 million fund (approximately $33 million) for the benefit of social and infrastructure improvements in Tia Maria’s neighboring communities.

 

Toquepala Concentrator Expansion:

 

In April 2015, the construction permit for the Toquepala expansion project was approved by the MINEM. The project budget is $1.2 billion, of which $372.3 million has been expended through September 30, 2015. When completed, this expansion project is expected to increase annual production capacity by 100,000 tons of copper and 3,100 tons of molybdenum.

 

In connection with this project, 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 $143 million).

 

Power purchase agreements

 

·                  Enersur: In 1997, SCC signed a power purchase agreement with an independent power company, Enersur S.A. under which SCC agreed to purchase all of its power needs for its current Peruvian operations from Enersur for twenty years, through April 2017.

 

·                  Electroperu S.A.: In June 2014, the Company signed a power purchase agreement for 120 megawatt (“MW”) with the state power company Electroperu S.A., under which Electroperu S.A. will supply energy for the Peruvian operations for twenty years starting on April 17, 2017 and ending on April 30, 2037.

 

·                  Kallpa Generacion S.A. (“Kallpa”): In July 2014, the Company signed 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.

 

Mexican operations

 

Power purchase agreement - MGE

 

MGE, a subsidiary of Grupo Mexico, has completed the construction of the two power plants in Mexico designed to supply power to some of the Company’s Mexican operations. It is expected that MGE will supply approximately 12% of its power output to third-party energy users. These plants are natural gas-fired combined cycle power generating units, with a net total capacity of 516.2 megawatts. In 2012, the Company signed a power purchase agreement with MGE through 2032. The first plant was completed in June 2013 and the second, in the second quarter of 2014. MGE has the authorization for the interconnection with the Mexican electrical system to start operations at the second plant. The first plant began to supply power to the Company in December 2013, and the second plant began to supply power in June 2015.

 

Commitment for Capital projects

 

As of September 30, 2015, the Company has committed approximately $348.6 million for the development of its capital investment projects at its Mexican operations.

 

Tax contingency matters:

 

Tax contingencies are provided for under ASC 740-10-50-15 Uncertain tax position (see Note 4 “Income taxes”).

 

NOTE 10 — SEGMENT 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.

 

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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.

 

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.

 

Financial information relating to Southern Copper’s segments is as follows:

 

 

 

 

 

Three Months Ended September 30, 2015

 

 

 

 

 

(in millions)

 

 

 

Mexican
Open-pit

 

Mexican
IMMSA Unit

 

Peruvian
Operations

 

Corporate, other
and eliminations

 

Consolidated

 

Net sales outside of segments

 

$

597.6

 

$

68.4

 

$

467.6

 

$

 

$

1,133.6

 

Intersegment sales

 

 

 

19.0

 

 

 

(19.0

)

 

Cost of sales (exclusive of depreciation, amortization and depletion)

 

333.5

 

80.3

 

305.1

 

(48.1

)

670.8

 

Selling, general and administrative

 

15.4

 

1.5

 

9.0

 

(2.3

)

23.6

 

Depreciation, amortization and depletion

 

62.7

 

9.0

 

60.0

 

(0.1

)

131.6

 

Exploration

 

3.4

 

3.4

 

2.2

 

4.7

 

13.7

 

Environmental remediation

 

7.0

 

 

 

 

7.0

 

Operating income

 

$

175.6

 

$

(6.8

)

$

91.3

 

$

26.8

 

286.9

 

Less:

 

 

 

 

 

 

 

 

 

 

 

Interest, net

 

 

 

 

 

 

 

 

 

(61.9

)

Other income (expense)

 

 

 

 

 

 

 

 

 

(4.3

)

Income taxes

 

 

 

 

 

 

 

 

 

(125.3

)

Equity earnings of affiliate

 

 

 

 

 

 

 

 

 

4.0

 

Non-controlling interest

 

 

 

 

 

 

 

 

 

(1.0

)

Net income attributable to SCC

 

 

 

 

 

 

 

 

 

$

98.4

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital investment (*)

 

$

215.2

 

$

14.0

 

$

91.2

 

$

96.2

 

$

416.6

 

Property, net

 

$

4,824.7

 

$

393.9

 

$

2,596.3

 

$

58.0

 

$

7,872.9

 

Total assets

 

$

7,303.4

 

$

815.8

 

$

3,530.9

 

$

1,215.1

 

$

12,865.2

 

 


(*) Corporate, other and eliminations includes $100.4 million purchase of the El Pilar mining property acquisition.

 

 

 

 

 

Three Months Ended September 30, 2014

 

 

 

 

 

(in millions)

 

 

 

Mexican
Open-pit

 

Mexican
IMMSA Unit

 

Peruvian
Operations

 

Corporate, other
and eliminations

 

Consolidated

 

Net sales outside of segments

 

$

750.8

 

$

75.7

 

$

648.1

 

$

 

$

1,474.6

 

Intersegment sales

 

 

20.3

 

 

(20.3

)

 

Cost of sales (exclusive of depreciation, amortization and depletion)

 

316.8

 

78.3

 

376.8

 

(42.4

)

729.5

 

Selling, general and administrative

 

9.7

 

4.1

 

11.7

 

0.8

 

26.3

 

Depreciation, amortization and depletion

 

50.7

 

8.7

 

50.2

 

4.3

 

113.9

 

Exploration

 

0.8

 

8.4

 

3.5

 

7.9

 

20.6

 

Environmental remediation

 

37.2

 

 

 

 

37.2

 

Operating income

 

$

335.6

 

$

(3.5

)

$

205.9

 

$

9.1

 

547.1

 

Less:

 

 

 

 

 

 

 

 

 

 

 

Interest, net

 

 

 

 

 

 

 

 

 

(30.8

)

Other income (expense)

 

 

 

 

 

 

 

 

 

(21.0

)

Income taxes

 

 

 

 

 

 

 

 

 

(175.4

)

Equity earnings of affiliate

 

 

 

 

 

 

 

 

 

5.9

 

Non-controlling interest

 

 

 

 

 

 

 

 

 

(1.5

)

Net income attributable to SCC

 

 

 

 

 

 

 

 

 

$

324.3

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital investment

 

$

310.0

 

$

12.6

 

$

84.9

 

$

3.0

 

$

410.5

 

Property, net

 

$

4,149.6

 

$

376.8

 

$

2,535.7

 

$

127.5

 

$

7,189.6

 

Total assets

 

$

6,516.3

 

$

877.6

 

$

3,451.0

 

$

658.2

 

$

11,503.1

 

 

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Nine Months Ended September 30, 2015

 

 

 

 

 

(in millions)

 

 

 

Mexican
Open-pit

 

Mexican
IMMSA
Unit

 

Peruvian
Operations

 

Corporate, other
and eliminations

 

Consolidated

 

Net sales outside of segments

 

$

1,995.3

 

$

245.8

 

$

1,550.2

 

$

 

$

3,791.3

 

Intersegment sales

 

 

53.4

 

 

(53.4

)

 

Cost of sales (exclusive of depreciation, amortization and depletion)

 

929.8

 

247.8

 

947.7

 

(67.9

)

2,057.4

 

Selling, general and administrative

 

36.3

 

4.9

 

29.3

 

2.9

 

73.4

 

Depreciation, amortization and depletion

 

177.2

 

24.6

 

170.4

 

1.7

 

373.9

 

Exploration

 

5.2

 

8.5

 

8.5

 

13.9

 

36.1

 

Environmental remediation

 

23.5

 

 

 

 

23.5

 

Operating income

 

$

823.3

 

$

13.4

 

$

394.3

 

$

(4.0

)

1,227.0

 

Less:

 

 

 

 

 

 

 

 

 

 

 

Interest, net

 

 

 

 

 

 

 

 

 

(136.1

)

Other income (expense)

 

 

 

 

 

 

 

 

 

(9.7

)

Income taxes

 

 

 

 

 

 

 

 

 

(411.6

)

Equity earnings of affiliate

 

 

 

 

 

 

 

 

 

9.5

 

Non-controlling interest

 

 

 

 

 

 

 

 

 

(3.5

)

Net income attributable to SCC

 

 

 

 

 

 

 

 

 

$

675.6

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital investment (*)

 

$

601.2

 

$

29.4

 

$

211.7

 

$

104.1

 

$

946.4

 

Property, net

 

$

4,824.7

 

$

393.9

 

$

2,596.3

 

$

58.0

 

$

7,872.9

 

Total assets

 

$

7,303.4

 

$

815.8

 

$

3,530.9

 

$

1,215.1

 

$

12,865.2

 

 


(*) Corporate, other and eliminations includes $100.4 million purchase of the El Pilar mining property acquisition.

 

 

 

 

 

Nine Months Ended September 30, 2014

 

 

 

 

 

(in millions)

 

 

 

Mexican
Open-pit

 

Mexican
IMMSA
Unit

 

Peruvian
Operations

 

Corporate, other
and eliminations

 

Consolidated

 

Net sales outside of segments

 

$

2,171.1

 

$

259.2

 

$

1,886.1

 

 

$

4,316.4

 

Intersegment sales

 

 

67.2

 

 

$

(67.2

)

 

Cost of sales (exclusive of depreciation, amortization and depletion)

 

858.4

 

245.7

 

1,047.0

 

(53.1

)

2,098.0

 

Selling, general and administrative

 

27.5

 

11.7

 

34.1

 

2.9

 

76.2

 

Depreciation, amortization and depletion

 

160.3

 

24.3

 

145.8

 

10.0

 

340.4

 

Exploration

 

2.5

 

20.8

 

11.2

 

22.8

 

57.3

 

Environmental remediation

 

37.2

 

 

 

 

37.2

 

Operating income

 

$

1,085.2

 

$

23.9

 

$

648.0

 

$

(49.8

)

1,707.3

 

Less:

 

 

 

 

 

 

 

 

 

 

 

Interest, net

 

 

 

 

 

 

 

 

 

(100.0

)

Other income (expense)

 

 

 

 

 

 

 

 

 

(31.0

)

Income taxes

 

 

 

 

 

 

 

 

 

(605.3

)

Equity earnings of affiliate

 

 

 

 

 

 

 

 

 

17.8

 

Non-controlling interest

 

 

 

 

 

 

 

 

 

(3.8

)

Net income attributable to SCC

 

 

 

 

 

 

 

 

 

$

985.0

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital investment

 

$

830.0

 

$

30.8

 

$

240.3

 

$

6.4

 

$

1,107.5

 

Property, net

 

$

4,149.6

 

$

376.8

 

$

2,535.7

 

$

127.5

 

$

7,189.6

 

Total assets

 

$

6,516.3

 

$

877.6

 

$

3,451.0

 

$

658.2

 

$

11,503.1

 

 

22



Table of Contents

 

NOTE 11 — STOCKHOLDERS´EQUITY:

 

Treasury Stock:

 

Activity in treasury stock in the nine-month period ended September 30, 2015 and 2014 is as follows (in millions):

 

 

 

2015

 

2014

 

Southern Copper common shares

 

 

 

 

 

Balance as of January 1,

 

$

1,693.5

 

$

1,011.0

 

Purchase of shares

 

724.4

 

388.9

 

Used for corporate purposes

 

(0.4

)

(0.2

)

Balance as of September 30,

 

2,417.5

 

1,399.7

 

 

 

 

 

 

 

Parent Company (Grupo Mexico) common shares

 

 

 

 

 

Balance as of January 1,

 

207.2

 

205.6

 

Other activity, including dividend, interest and currency translation effect

 

(6.9

)

6.2

 

Balance as of September 30,

 

200.3

 

211.8

 

 

 

 

 

 

 

Treasury stock balance as of September 30,

 

$

2,617.8

 

$

1,611.5

 

 

The following table summarizes share distributions in the nine months of 2015 and 2014:

 

 

 

2015

 

2014

 

Southern Copper common shares

 

 

 

 

 

Directors’ Stock Award Plan

 

13,200

 

12,000

 

 

 

 

 

 

 

Parent Company (Grupo Mexico) common shares

 

 

 

 

 

Employee stock purchase plan (shares in millions)

 

4.3

 

0.9

 

 

Southern Copper Common Shares:

 

At September 30, 2015 and 2014, there were in treasury 98,044,916 and 61,740,460 SCC’s common shares, respectively.

 

SCC share repurchase program:

 

In 2008, the Company’s Board of Directors (“BOD”) authorized a $500 million share repurchase program that has since been increased by the BOD and is currently authorized to $3 billion. Pursuant to this program, the Company purchased common stock as shown in the table below. These shares are available for general corporate purposes. The Company may purchase additional shares of its common stock from time to time, based on market conditions and other factors. This repurchase program has no expiration date and may be modified or discontinued at any time.

 

Period

 

Total Number
of Shares

 

Average
Price Paid

 

Total Number of
Shares Purchased
as Part of Publicly

 

Maximum Number
of Shares that May
Yet Be Purchased
Under the Plan

 

Total Cost

 

From

 

To

 

Purchased

 

per Share

 

Announced Plan

 

@ $26.72 (*)

 

($ in millions)

 

2008

 

2012

 

46,914,486

 

$

18.72

 

46,914,486

 

 

 

$

878.1

 

2013

 

 

 

10,245,000

 

27.47

 

57,159,486

 

 

 

281.4

 

2014

 

 

 

22,711,428

 

30.06

 

79,870,914

 

 

 

682.8

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

01/01/15

 

01/31/15

 

5,927,154

 

27.12

 

85,798,068

 

 

 

160.7

 

02/01/15

 

02/28/15

 

2,590,076

 

29.45

 

88,388,144

 

 

 

76.3

 

03/01/15

 

03/31/15

 

4,563,649

 

29.16

 

92,951,793

 

 

 

133.1

 

Total first quarter

 

 

 

13,080,879

 

29.29

 

 

 

 

 

370.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

04/01/15