May 11, 2011 - Southern Copper Corporation (SCCO-NYSE) engages in mining, smelting, and refining mineral properties in Peru, Mexico, and Chile. It is in the production of copper and molybdenum concentrates; smelting of copper concentrates to produce anode copper; and refining of anode copper to produce copper cathodes, as well as refined silver and copper.

The company operates the Toquepala and Cuajone mines in the Andes Mountains located southeast of the city of Lima, Peru, as well as a smelter and refinery in the coastal city of Ilo, Peru. Southern Copper Corporation also has underground mines that produce zinc, gold, and lead, as well as a coal mine, which produces coal and coke. The company was founded in 1952 and is based in Phoenix, Arizona. Southern Copper Corporation is a subsidiary of Americas Mining Corporation which is owned by Grupo Mexico.

This stock is for investors who want to have a position in the metals market and get paid a decent dividend as prices fluctuate, moving the stock up and down, sometimes with great vigor. In other words, this one is for risk takers who also want a dividend.

When your earnings depend on the price of commodities that gyrate, your stock price will do the same. Earnings were $2.51 in 2007, then $1.60 in 2008, followed by $1.09 in '09. Last year, they bounced back to $1.83. This year, 17 analysts have a consensus estimate of $3.21, then see $3.72 for 2012. First quarter earnings are due out very soon and are expected to be 70 cents a share compared to 45 cents last year in the first period. For the second quarter, look for 87 cents vs 37 cents in last year's second period.

The bounce back in 2010 earnings came from the rise in copper prices. They were up 45% on average, to $3.42 a pound. Molybdenum, an essential ingredient for steel manufacturing, saw prices rise an average of 43% to $15.60 a pound. SCCO pulled out 1832 tons of the stuff, an increase of 10% over 2009's production.

There was a major strike at one of the mine sites in Mexico. Kept it shut for 3 years. It's ready to start digging again and should add about 180,000 tons of copper per year, pushing total copper production to 630,000 tons, up 26% over current levels. Along with the higher volume, the price of copper is still relatively robust, thanks to higher demand from
China and recovering economies in the U.S. and Europe.

Speculators are also pushing copper higher. They're concerned about inflation and want to hold real assets. Currently the price of copper is off its recent highs but well above last year's average price, leaving the possibility for more correction. But with new demand coming from developing and developed economies, the downside pressure should be minimal, unless those economies stumble. The company has hedged against lower prices by selling into the futures market or buying puts at the $4 per pound level for about 28% of production.

The dividend for SCCO holders is usually about 50% of net earnings. In 2009, the annual distribution was 44 cents. In 2010, it was $1.68. If the company continues to pay out the 58 cents it mailed in the first quarter, that would make the dividend $2.32 this year for a yield of 6.5%. But investors can't count on that. In 2010, the payout, by quarter, was 43 cents, 45 cents, 37 cents and 43 cents. In 2009, they were also different for each quarter. The company has over $2 billion in cash so payment is fairly certain. It's only the amount that investors need to guess at.

Part of that $2 billion in cash is going to expand operations. Management outlined a 5 year plan that needs $5.6 billion to complete. Targeted growth is in Mexico and Peru, focusing on copper. The goal is to add 600,000 tons of it per year to current production. Expect expenditures of $1.7 billion this year, with the same amount earmarked for 2012.

Essential numbers: Market Cap is $29.94 billion. Trailing P/E is 18 while Forward P/E is 9.5. Price to sales ratio is 5.54. Price to book is 7.77. Book value is $4.64. Operating margin for the last 12 months was 50.07% while Profit margin was 29.81%. Return on equity was 42.10% and return on assets is 24.51%. Revenues were $5.53 billion. Total cash is $2.19 billion for $2.58 a share. Total debt is $2.76 billion. Debt to equity is 69.55%. Current ratio is 3.41. Beta is 1.55. In the last 52 weeks, the stock is up 21%. There are 850 million shares Outstanding with a Float of 169.9 million (America Minings Co. owns 80% of the stock). Institutions have 14.1% of the Float.

Watch the price of copper. If it goes higher, so will this stock. If it goes lower, SCCO will follow. With copper off its highs for the moment, the stock is down from its $50.30 all-time apex set early this year. If you're bullish on metals, then SCCO may be worthy of your consideration at these levels. If you think there's more downside for copper, just wait.

- Company Web site: www.southerncoppercorp.com

- Ted Allrich