January 22, 2010 - Southern Copper Corp. (PCU-NYSE) produces and sells copper, molybdenum, zinc, silver, lead, and gold worldwide. The company engages in the mining, milling, and flotation of copper ore to produce copper concentrates and molybdenum concentrates; smelting of copper concentrates to produce anode and blister copper; refining of blister/anode copper to produce copper cathodes; and production of refined copper using SX/EW technology.

The company also engages in open pit operations, which include La Caridadand Cananea mine complexes; and the smelting and refining plants and support facilities. In addition, it had underground mining operations, which includes five underground mines that produce zinc, copper, silver, and gold; a coal mine, which produces coal and coke; and various industrial processing facilities for zinc and copper.

The company has mining, smelting, and refining operations in Peru and Mexico, as well as exploration operations in Peru, Mexico, and Chile. Southern Copper Corporation was formerly known as Southern Peru Copper Corporation and changed its name to Southern Copper Corporation. The company was founded in 1952 and is based in Phoenix, Arizona. Southern Copper Corporation is a subsidiary of Grupo Mexico which owns about 79% of PCU's stock.

If you think inflation will come roaring back, then one defensive play for your portfolio is to buy metals and/or commodities. With Southern Copper, you get both.

In 2007, earnings hit $2.51 a share, up from $2.31 the year prior. But then in 2008, they took a dive, finishing at $1.60. For 2009, analysts see them even lower: $1.07. But in 2010, 10 analysts forecast much better numbers with a consensus estimate of $1.95. Maybe that's why the stock rallied from a low of $12.60 early in 2009 to its current level of $30.

During 2009 metals prices improved steadily. So did the company's bottom line, going from 9 cents in the first quarter, to 21 cents in the second, followed by 37 cents in third. Conensus for the fourth is 36 cents. Demand for the company's metals increased as the global economy started recovery, especially in China. With current manufacturing data showing strength in China, Europe and the U.S. (where the company does 70% of revenues) copper has surpassed last year's highs to more than $3.35 a pound, over twice what it sold for in December of 2008.

Not only is there industrial usage. There's a good possibility that investors are buying copper as a hedge against a weak dollar and/or a supply constraint problem due to low inventory levels. Whether it's demand from manufacturers or speculators, the end result is that PCU is selling more copper at higher prices. Revenues for 2010 are forecast to exceed 2009 by over a billion dollars: $4.77 billion vs. $3.69 billion.

Along with increased demand is the company's cost cutting efforts. Combined, they're driving more earnings. The company had higher production for copper, molybdenum, zinc and silver in the third quarter of last year. On the operating side, operating costs and expenses were lower by $426 million compared to the year before.

With improved cash flow, management is looking to expand. A new site in Peru, Tia Maria, is scheduled to open next year with expecations of 120,000 tons of copper annually. Another project: expansion of its Toquepala concentrator which is scheduled for operation in 2012 will raise copper tonnage by 100,000 a year and add 3100 tons of molbydenum capacity.

All this good news hasn't been lost on investors. Toward the end of 2008, the stock dipped to $9.10 a share, then proceeded to head higher, peaking at $36.98 on January 11 of this year. That's a gain of 300%, much better than the market in general. The price has pulled back a little in two weeks and valuations are a little better. Still, as the numbers listed at the top and some below show, they're relatively high.

The numbers: Market cap is $25.35 billion. Forward P/E is 15.3. Price to book is 7.11. Book value is $4.30. Operating margin for the last 12 months was 27% while the Profit margin was 14.5%. There's $439.24 million in cash which is equal to 52 cents a share. Total debt is $1.29 billion. Current ratio is 3.41. Beta was 1.55 for the last year. There are 850 million shares outstanding but a float of only 169.4 million (as above, Grupo Mexico own most of the shares). There's an annual dividend of 72 cents for a yield of 2.2%. The dividend was $2.27 in 2007, then $1.94 in 2008, and reduced again in 2009 to 44 cents. With the increased cash flow, there's a good chance it will be raised again.

Take a look at PCU if you're an investor that wants to own either an inflation hedge or resources used in a global economic recovery. While the last two years have been tough, it seems the time may be right for this stock to shine once again.

- Company Web site: www.southerncoppercorp.com

- Ted Allrich