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Should Southern Copper Investors Expect Higher Dividends?

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Feb. 28 2018, Updated 9:01 a.m. ET

Dividends

In the previous part of this series, we looked at Freeport-McMoRan’s (FCX) capital allocation strategy. In this article, we’ll see how Southern Copper (SCCO) intends to allocate capital. Southern Copper is in the middle of a multi-year growth plan, and it expects its copper production to rise to 1.5 million tons by 2025. To put that figure in perspective, consider that the company produced 877,000 metric tons of copper last year and expects its copper production to rise 6% year-over-year to 931,000 metric tons this year.

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Growth projects

As Southern Copper is investing in growth projects, its capex (or capital expenditure) is also expected to rise in the coming years. First Quantum Minerals (FM) is also investing in growth projects. During their 4Q17 call, Southern Copper spelled out its future capex budget. The company expects its capex to be $1.7 billion this year. The capex is expected to rise by $100 million annually for two years after 2018. The capex plan might not have factored in the investments in the Michiquillay copper project in Peru that the company was awarded only recently.

Struck projects

However, some of Southern Copper’s projects—especially Tia Maria—are still awaiting clearances. In response to a question on whether Southern Copper would look at returning cash to shareholders if its capex plan is further delayed, Daniel Quintanilla, Southern Copper’s EVP, responded affirmatively. He also pointed to the near 100% dividend payout ratio that the company paid in 2011, when copper prices (ANTO) were near their peak.

In the next and final part of this series, we’ll look at Glencore’s (GLEN-L) capital allocation strategy.

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