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SEGMENT AND RELATED INFORMATION:
 12 Months Ended
Dec. 31, 2011
SEGMENT AND RELATED INFORMATION:  
SEGMENT AND RELATED INFORMATION:

NOTE 20-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.

 

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 arms-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 information 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, industrial railroad and port facilities which 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 and support facilities which service both mines.  The Mexican open-pit operations produce copper, with production of by-products of molybdenum, silver and other material.

 

3.               Mexican underground mining operations, which include five underground mines that produce zinc, copper, silver and gold, a coal mine which produces coal and coke, and a zinc refinery.  This group is identified as the IMMSA unit.

 

The Peruvian operations include two open-pit copper mines whose mineral output is transported by rail to Ilo, Peru where it is processed at the Company’s Ilo smelter and refinery, without distinguishing between the products of the two mines.  The resulting product, anodes and refined copper, are then shipped to customers throughout the world.  These shipments are recorded as revenue of the Company’s Peruvian mines.

 

The Mexican open-pit segment includes two copper mines whose mineral output is processed in the same smelter and refinery without distinguishing between the products of the two mines.  The resultant product, anodes and refined copper, are then shipped to customers throughout the world.  These shipments are recorded as revenues of the Company’s Mexican open-pit mines.

 

The Company has determined that it is necessary to classify the Peruvian open-pit operations as a separate operating segment from the Mexican open-pit operations due to the very distinct regulatory and political environments in which they operate.  The Company’s Chief Operating Officer 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 Chief Operating Officer 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 the Chief Operating Officer on the segment basis.  The Chief Operating Officer of the Company focuses on operating income and on total assets as measures of performance to evaluate different segments and to make decisions to allocate resources to the reported segments.  These are common measures in the mining industry.

 

Financial information relating to Company’s segments is as follows:

 

 

 

Year Ended December 31, 2011

 

 

 

(in millions)

 

 

 

Mexican
Open-pit

 

Mexican
IMMSA Unit

 

Peruvian
Operations

 

Corporate
and other
eliminations

 

Total
Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales outside of segments

 

$

3,212.1

 

$

420.1

 

$

3,186.5

 

$

—

 

$

6,818.7

 

Intersegment sales

 

—

 

126.1

 

—

 

(126.1

)

—

 

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

 

1,115.8

 

309.3

 

1,441.0

 

(102.9

)

2,763.2

 

Selling, general and administrative

 

34.1

 

14.7

 

50.8

 

4.9

 

104.5

 

Depreciation, amortization and depletion

 

133.6

 

24.5

 

140.6

 

(10.6

)

288.1

 

Exploration

 

3.5

 

22.0

 

12.0

 

—

 

37.5

 

Operating income

 

$

1,925.1

 

$

175.7

 

$

1,542.1

 

$

(17.5

)

3,625.4

 

Less:

 

 

 

 

 

 

 

 

 

 

 

Interest, net

 

 

 

 

 

 

 

 

 

(172.8

)

Other income (expense)

 

 

 

 

 

 

 

 

 

(4.0

)

Income taxes

 

 

 

 

 

 

 

 

 

(1,104.3

)

Net income

 

 

 

 

 

 

 

 

 

2,344.3

 

Income attributable to the non-controlling interest

 

 

 

 

 

 

 

 

 

(7.9

)

Income attributable to SCC

 

 

 

 

 

 

 

 

 

$

2,336.4

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

358.3

 

$

48.9

 

$

205.7

 

$

—

 

$

612.9

 

Property, net

 

$

1,817.2

 

$

320.1

 

$

2,225.9

 

$

56.7

 

$

4,419.9

 

Total assets

 

$

3,471.6

 

$

743.4

 

$

3,164.0

 

$

683.7

 

$

8,062.7

 

 

 

 

Year Ended December 31, 2010

 

 

 

(in millions)

 

 

 

Mexican
Open-pit

 

Mexican
IMMSA
Unit

 

Peruvian
Operations

 

Corporate
and other
eliminations

 

Total
Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales outside of segments

 

$

1,618.7

 

$

366.7

 

$

3,125.9

 

$

38.2

 

$

5,149.5

 

Intersegment sales

 

29.8

 

146.0

 

—

 

(175.8

)

—

 

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

 

751.7

 

307.4

 

1,206.2

 

(136.3

)

2,129.0

 

Selling, general and administrative

 

31.5

 

13.4

 

52.4

 

3.0

 

100.3

 

Depreciation, amortization and depletion

 

122.1

 

22.7

 

134.0

 

2.9

 

281.7

 

Exploration

 

5.2

 

15.5

 

13.6

 

—

 

34.3

 

Operating income

 

$

738.0

 

$

153.7

 

$

1,719.7

 

$

(7.2

)

2,604.2

 

Less:

 

 

 

 

 

 

 

 

 

 

 

Interest, net

 

 

 

 

 

 

 

 

 

(152.7

)

Other income (expense)

 

 

 

 

 

 

 

 

 

(20.7

)

Income taxes

 

 

 

 

 

 

 

 

 

(868.1

)

Net income

 

 

 

 

 

 

 

 

 

1,562.7

 

Income attributable to the non-controlling interest

 

 

 

 

 

 

 

 

 

(8.7

)

Income attributable to SCC

 

 

 

 

 

 

 

 

 

$

1,554.0

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

109.8

 

$

29.8

 

$

264.2

 

$

4.9

 

$

408.7

 

Property, net

 

$

1,583.5

 

$

296.3

 

$

2,164.7

 

$

50.5

 

$

4,095.0

 

Total assets

 

$

2,510.4

 

$

747.7

 

$

3,430.9

 

$

1,439.0

 

$

8,128.0

 

 

 

 

Year Ended December 31, 2009

 

 

 

(in millions)

 

 

 

Mexican
Open-pit

 

Mexican
IMMSA
Unit

 

Peruvian
Operations

 

Corporate
and other
eliminations

 

Total
Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales outside of segments

 

$

1,037.0

 

$

420.2

 

$

2,223.5

 

$

53.6

 

$

3,734.3

 

Intersegment sales

 

39.7

 

140.0

 

—

 

(179.7

)

—

 

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

 

594.7

 

378.7

 

1,019.7

 

(127.3

)

1,865.8

 

Selling, general and administrative

 

28.4

 

12.3

 

44.4

 

0.1

 

85.2

 

Depreciation, amortization and depletion

 

120.5

 

24.4

 

127.5

 

1.2

 

273.6

 

Exploration

 

2.1

 

7.9

 

14.6

 

—

 

24.6

 

Operating income

 

$

331.0

 

$

136.9

 

$

1,017.3

 

$

(0.1

)

1,485.1

 

 

 

 

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

 

 

Interest, net

 

 

 

 

 

 

 

 

 

(90.9

)

Gain (Loss) on derivative instruments

 

 

 

 

 

 

 

 

 

4.2

 

Other income (expense)

 

 

 

 

 

 

 

 

 

6.1

 

Income taxes

 

 

 

 

 

 

 

 

 

(469.9

)

Net income

 

 

 

 

 

 

 

 

 

934.6

 

Income attributable to the non-controlling interest

 

 

 

 

 

 

 

 

 

(5.2

)

Income attributable to SCC

 

 

 

 

 

 

 

 

 

$

929.4

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

79.4

 

$

27.8

 

$

284.4

 

$

23.2

 

$

414.8

 

Property, net

 

$

1,615.8

 

$

278.4

 

$

2,026.3

 

$

49.1

 

$

3,969.6

 

Total assets

 

$

2,346.5

 

$

664.6

 

$

2,896.9

 

$

150.2

 

$

6,058.2

 

 

SALES VALUE PER SEGMENT:

 

 

 

Year Ended December 31, 2011

 

(in millions)

 

Mexican
Open-pit

 

Mexican
IMMSA Unit

 

Peruvian
Operations

 

Corporate, Other
& Eliminations

 

Total
Consolidated

 

Copper

 

$

2,509.6

 

$

57.2

 

$

2,720.0

 

$

(57.3

)

$

5,229.5

 

Molybdenum

 

310.8

 

—

 

233.3

 

—

 

544.1

 

Silver

 

248.1

 

184.2

 

121.2

 

(61.1

)

492.4

 

Zinc

 

—

 

209.8

 

—

 

—

 

209.8

 

Other

 

143.6

 

95.0

 

112.0

 

(7.7

)

342.9

 

Total

 

$

3,212.1

 

$

546.2

 

$

3,186.5

 

$

(126.1

)

$

6,818.7

 

 

 

 

Year Ended December 31, 2010

 

(in millions)

 

Mexican
Open-pit

 

Mexican
IMMSA Unit

 

Peruvian
Operations

 

Corporate, Other
& Eliminations

 

Total
Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Copper

 

$

1,088.7

 

$

68.9

 

$

2,649.7

 

$

(61.5

)

$

3,745.8

 

Molybdenum

 

361.3

 

—

 

322.1

 

—

 

683.4

 

Silver

 

142.5

 

140.4

 

86.6

 

(61.8

)

307.7

 

Zinc

 

—

 

211.7

 

—

 

0.8

 

212.5

 

Other

 

56.0

 

91.7

 

67.5

 

(15.1

)

200.1

 

Total

 

$

1,648.5

 

$

512.7

 

$

3,125.9

 

$

(137.6

)

$

5,149.5

 

 

 

 

Year Ended December 31, 2009

 

(in millions)

 

Mexican
Open-pit

 

Mexican
IMMSA Unit

 

Peruvian
Operations

 

Corporate, Other
& Eliminations

 

Total
Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Copper

 

$

698.0

 

$

78.1

 

$

1,888.7

 

$

(25.9

)

$

2,638.9

 

Molybdenum

 

234.5

 

—

 

202.2

 

—

 

436.7

 

Silver

 

96.6

 

194.7

 

59.6

 

(75.5

)

275.4

 

Zinc

 

—

 

175.5

 

—

 

1.1

 

176.6

 

Other

 

47.6

 

111.9

 

73.0

 

(25.8

)

206.7

 

Total

 

$

1,076.7

 

$

560.2

 

$

2,223.5

 

$

(126.1

)

$

3,734.3

 

 

NET SALES AND GEOGRAPHICAL INFORMATION:

 

Net sales to respective countries were as follows:

 

 

 

Years Ended December 31,

 

(in millions)

 

2011

 

2010

 

2009

 

United States

 

$

2,103.7

 

$

1,281.3

 

$

1,025.4

 

Europe

 

1,292.1

 

1,066.6

 

887.0

 

Mexico

 

1,269.3

 

872.4

 

858.2

 

Peru

 

261.7

 

315.8

 

112.6

 

Brasil

 

598.5

 

446.6

 

258.4

 

Chile

 

515.8

 

503.0

 

183.2

 

Latin America, other

 

101.2

 

167.2

 

95.3

 

Asia

 

662.9

 

538.5

 

314.2

 

Derivative instruments

 

13.5

 

(41.9

)

—

 

Total

 

$

6,818.7

 

$

5,149.5

 

$

3,734.3

 

 

PROVISIONAL SALES PRICE:

 

At December 31, 2011, 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 LME and COMEX copper prices and Dealer Oxide molybdenum prices in the future month of settlement.

 

Following are the provisionally priced copper and molybdenum sales outstanding at December 31, 2011:

 

Pounds
of copper

 

Priced at

 

Month of settlement

 

(millions)

 

 

 

 

 

52.5

 

3.44

 

January 2012

 

11.8

 

3.45

 

February 2012

 

64.3

 

 

 

 

 

 

Pounds
of molybdenum

 

Market price

 

Month of settlement

 

(millions)

 

 

 

 

 

4.4

 

13.35

 

January 2012

 

3.2

 

13.35

 

February 2012

 

2.7

 

13.35

 

March 2012

 

10.3

 

13.35

 

Total

 

 

Provisional sales price adjustments included in accounts receivable and net sales were as follows at December, 31 (in millions):

 

 

 

As of December 31,

 

 

 

2011

 

2010

 

Copper

 

$

1.4

 

$

4.8

 

Molybdenum

 

(3.4

)

7.3

 

Total

 

$

(2.0

)

$

12.1

 

 

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:

 

Under the terms of a sales contract with Mitsui & Co. Ltd. (“Mitsui”), the Company is required to supply Mitsui with 48,000 tons of copper cathodes annually through 2013.  If the shipment destination is Asia, the pricing of the cathodes is based upon the LME monthly average settlement price.  However, if the destination of shipments is the United States, the pricing of the cathodes is based upon the COMEX monthly average settlement price.  In either case a producer premium will be included which is agreed upon annually based on world market terms.  90,000 tons related to a prior contract (period 1994-2000) will be supplied as follows: 48,000 in 2014 and 42,000 in 2015.

 

Under the terms of a sales contract with Molibdenos y Metales, S.A., SPCC Peru Branch is required to supply 23,300 tons of molybdenum concentrates from 2012 through 2014.  This contract may be extended for one more calendar year during each October to maintain a three year period unless either party decides to terminate the agreement.  The sale price of the molybdenum concentrates is based on the monthly average of the high and low Metals Week Dealer Oxide quotation.  The roasting charge deduction is agreed based on international market terms.

 

Under the terms of a sales contract with Molymex, S.A. de C.V., Minera Mexico is required to supply at least the 85% of its molybdenum concentrates production from 2012 through 2015.  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.