Intrinsic value of Southern Copper - SCCO

Previous Close

$39.12

  Intrinsic Value

$18.62

stock screener

  Rating & Target

str. sell

-52%

  Value-price divergence*

-49%

Previous close

$39.12

 
Intrinsic value

$18.62

 
Up/down potential

-52%

 
Rating

str. sell

 
Value-price divergence*

-49%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of SCCO stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 30.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  6.62
  27.20
  24.98
  22.98
  21.18
  19.57
  18.11
  16.80
  15.62
  14.56
  13.60
  12.74
  11.97
  11.27
  10.64
  10.08
  9.57
  9.11
  8.70
  8.33
  8.00
  7.70
  7.43
  7.19
  6.97
  6.77
  6.59
  6.43
  6.29
  6.16
  6.05
Revenue, $m
  5,380
  6,843
  8,553
  10,518
  12,747
  15,241
  18,000
  21,024
  24,308
  27,846
  31,633
  35,664
  39,931
  44,432
  49,161
  54,115
  59,295
  64,698
  70,329
  76,189
  82,283
  88,618
  95,201
  102,043
  109,153
  116,543
  124,228
  132,221
  140,539
  149,198
  158,219
Variable operating expenses, $m
 
  3,771
  4,713
  5,796
  7,023
  8,398
  9,918
  11,584
  13,394
  15,343
  17,430
  19,651
  22,002
  24,482
  27,087
  29,818
  32,671
  35,649
  38,751
  41,980
  45,338
  48,828
  52,456
  56,225
  60,143
  64,215
  68,449
  72,854
  77,437
  82,208
  87,178
Fixed operating expenses, $m
 
  895
  917
  940
  964
  988
  1,012
  1,038
  1,064
  1,090
  1,118
  1,145
  1,174
  1,203
  1,234
  1,264
  1,296
  1,328
  1,362
  1,396
  1,431
  1,466
  1,503
  1,541
  1,579
  1,618
  1,659
  1,700
  1,743
  1,787
  1,831
Total operating expenses, $m
  3,816
  4,666
  5,630
  6,736
  7,987
  9,386
  10,930
  12,622
  14,458
  16,433
  18,548
  20,796
  23,176
  25,685
  28,321
  31,082
  33,967
  36,977
  40,113
  43,376
  46,769
  50,294
  53,959
  57,766
  61,722
  65,833
  70,108
  74,554
  79,180
  83,995
  89,009
Operating income, $m
  1,564
  2,178
  2,923
  3,783
  4,760
  5,855
  7,070
  8,402
  9,851
  11,413
  13,086
  14,868
  16,755
  18,746
  20,840
  23,033
  25,327
  27,721
  30,216
  32,813
  35,514
  38,323
  41,242
  44,277
  47,430
  50,709
  54,119
  57,667
  61,359
  65,204
  69,209
EBITDA, $m
  2,211
  2,999
  3,949
  5,044
  6,288
  7,683
  9,229
  10,923
  12,766
  14,752
  16,880
  19,145
  21,544
  24,075
  26,735
  29,523
  32,438
  35,480
  38,650
  41,950
  45,382
  48,951
  52,659
  56,514
  60,521
  64,686
  69,017
  73,523
  78,213
  83,096
  88,183
Interest expense (income), $m
  357
  357
  478
  619
  781
  965
  1,171
  1,399
  1,648
  1,919
  2,211
  2,524
  2,857
  3,209
  3,580
  3,971
  4,380
  4,807
  5,253
  5,718
  6,201
  6,704
  7,227
  7,771
  8,335
  8,922
  9,532
  10,166
  10,826
  11,513
  12,227
Earnings before tax, $m
  1,256
  1,821
  2,445
  3,164
  3,978
  4,890
  5,899
  7,003
  8,202
  9,493
  10,874
  12,344
  13,899
  15,538
  17,259
  19,063
  20,948
  22,914
  24,963
  27,095
  29,313
  31,619
  34,015
  36,506
  39,095
  41,787
  44,587
  47,500
  50,533
  53,691
  56,982
Tax expense, $m
  501
  492
  660
  854
  1,074
  1,320
  1,593
  1,891
  2,215
  2,563
  2,936
  3,333
  3,753
  4,195
  4,660
  5,147
  5,656
  6,187
  6,740
  7,316
  7,915
  8,537
  9,184
  9,857
  10,556
  11,283
  12,039
  12,825
  13,644
  14,497
  15,385
Net income, $m
  777
  1,329
  1,785
  2,309
  2,904
  3,570
  4,306
  5,112
  5,988
  6,930
  7,938
  9,011
  10,146
  11,342
  12,599
  13,916
  15,292
  16,727
  18,223
  19,780
  21,399
  23,082
  24,831
  26,649
  28,540
  30,505
  32,549
  34,675
  36,889
  39,195
  41,597

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  597
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  13,234
  16,064
  20,077
  24,691
  29,922
  35,776
  42,255
  49,353
  57,061
  65,367
  74,257
  83,718
  93,736
  104,300
  115,400
  127,031
  139,189
  151,874
  165,091
  178,846
  193,152
  208,023
  223,477
  239,537
  256,227
  273,575
  291,614
  310,378
  329,903
  350,231
  371,405
Adjusted assets (=assets-cash), $m
  12,637
  16,064
  20,077
  24,691
  29,922
  35,776
  42,255
  49,353
  57,061
  65,367
  74,257
  83,718
  93,736
  104,300
  115,400
  127,031
  139,189
  151,874
  165,091
  178,846
  193,152
  208,023
  223,477
  239,537
  256,227
  273,575
  291,614
  310,378
  329,903
  350,231
  371,405
Revenue / Adjusted assets
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
Average production assets, $m
  8,648
  10,997
  13,744
  16,903
  20,484
  24,492
  28,927
  33,786
  39,063
  44,749
  50,835
  57,312
  64,170
  71,402
  79,001
  86,963
  95,286
  103,970
  113,018
  122,435
  132,228
  142,409
  152,988
  163,983
  175,408
  187,285
  199,634
  212,479
  225,846
  239,762
  254,257
Working capital, $m
  1,567
  1,232
  1,540
  1,893
  2,294
  2,743
  3,240
  3,784
  4,375
  5,012
  5,694
  6,419
  7,188
  7,998
  8,849
  9,741
  10,673
  11,646
  12,659
  13,714
  14,811
  15,951
  17,136
  18,368
  19,647
  20,978
  22,361
  23,800
  25,297
  26,856
  28,479
Total debt, $m
  5,954
  7,966
  10,317
  13,021
  16,086
  19,517
  23,313
  27,473
  31,989
  36,857
  42,067
  47,611
  53,481
  59,672
  66,177
  72,992
  80,117
  87,550
  95,295
  103,356
  111,739
  120,453
  129,510
  138,921
  148,701
  158,867
  169,438
  180,433
  191,875
  203,787
  216,195
Total liabilities, $m
  7,402
  9,414
  11,765
  14,469
  17,534
  20,965
  24,761
  28,921
  33,437
  38,305
  43,515
  49,059
  54,929
  61,120
  67,625
  74,440
  81,565
  88,998
  96,743
  104,804
  113,187
  121,901
  130,958
  140,369
  150,149
  160,315
  170,886
  181,881
  193,323
  205,235
  217,643
Total equity, $m
  5,832
  6,651
  8,312
  10,222
  12,388
  14,811
  17,493
  20,432
  23,623
  27,062
  30,742
  34,659
  38,807
  43,180
  47,776
  52,591
  57,624
  62,876
  68,348
  74,042
  79,965
  86,122
  92,520
  99,168
  106,078
  113,260
  120,728
  128,496
  136,580
  144,996
  153,762
Total liabilities and equity, $m
  13,234
  16,065
  20,077
  24,691
  29,922
  35,776
  42,254
  49,353
  57,060
  65,367
  74,257
  83,718
  93,736
  104,300
  115,401
  127,031
  139,189
  151,874
  165,091
  178,846
  193,152
  208,023
  223,478
  239,537
  256,227
  273,575
  291,614
  310,377
  329,903
  350,231
  371,405
Debt-to-equity ratio
  1.021
  1.200
  1.240
  1.270
  1.300
  1.320
  1.330
  1.340
  1.350
  1.360
  1.370
  1.370
  1.380
  1.380
  1.390
  1.390
  1.390
  1.390
  1.390
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.410
  1.410
Adjusted equity ratio
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  777
  1,329
  1,785
  2,309
  2,904
  3,570
  4,306
  5,112
  5,988
  6,930
  7,938
  9,011
  10,146
  11,342
  12,599
  13,916
  15,292
  16,727
  18,223
  19,780
  21,399
  23,082
  24,831
  26,649
  28,540
  30,505
  32,549
  34,675
  36,889
  39,195
  41,597
Depreciation, amort., depletion, $m
  647
  821
  1,026
  1,261
  1,529
  1,828
  2,159
  2,521
  2,915
  3,339
  3,794
  4,277
  4,789
  5,328
  5,896
  6,490
  7,111
  7,759
  8,434
  9,137
  9,868
  10,628
  11,417
  12,238
  13,090
  13,976
  14,898
  15,857
  16,854
  17,893
  18,974
Funds from operations, $m
  529
  2,150
  2,811
  3,571
  4,433
  5,398
  6,465
  7,634
  8,903
  10,270
  11,732
  13,288
  14,935
  16,671
  18,495
  20,406
  22,403
  24,486
  26,657
  28,917
  31,266
  33,709
  36,248
  38,887
  41,630
  44,481
  47,447
  50,532
  53,743
  57,087
  60,571
Change in working capital, $m
  -394
  263
  308
  354
  401
  449
  497
  544
  591
  637
  682
  725
  768
  810
  851
  892
  932
  973
  1,013
  1,055
  1,097
  1,140
  1,185
  1,231
  1,280
  1,330
  1,383
  1,439
  1,497
  1,559
  1,624
Cash from operations, $m
  923
  1,886
  2,503
  3,217
  4,032
  4,949
  5,968
  7,090
  8,312
  9,633
  11,050
  12,562
  14,167
  15,861
  17,644
  19,514
  21,470
  23,514
  25,644
  27,862
  30,169
  32,569
  35,063
  37,655
  40,350
  43,151
  46,063
  49,093
  52,246
  55,528
  58,947
Maintenance CAPEX, $m
  0
  -645
  -821
  -1,026
  -1,261
  -1,529
  -1,828
  -2,159
  -2,521
  -2,915
  -3,339
  -3,794
  -4,277
  -4,789
  -5,328
  -5,896
  -6,490
  -7,111
  -7,759
  -8,434
  -9,137
  -9,868
  -10,628
  -11,417
  -12,238
  -13,090
  -13,976
  -14,898
  -15,857
  -16,854
  -17,893
New CAPEX, $m
  -1,119
  -2,349
  -2,747
  -3,159
  -3,581
  -4,008
  -4,435
  -4,859
  -5,277
  -5,686
  -6,086
  -6,477
  -6,858
  -7,232
  -7,599
  -7,962
  -8,323
  -8,684
  -9,048
  -9,417
  -9,793
  -10,180
  -10,580
  -10,994
  -11,426
  -11,877
  -12,349
  -12,845
  -13,367
  -13,916
  -14,495
Cash from investing activities, $m
  -452
  -2,994
  -3,568
  -4,185
  -4,842
  -5,537
  -6,263
  -7,018
  -7,798
  -8,601
  -9,425
  -10,271
  -11,135
  -12,021
  -12,927
  -13,858
  -14,813
  -15,795
  -16,807
  -17,851
  -18,930
  -20,048
  -21,208
  -22,411
  -23,664
  -24,967
  -26,325
  -27,743
  -29,224
  -30,770
  -32,388
Free cash flow, $m
  471
  -1,108
  -1,065
  -967
  -810
  -588
  -295
  72
  514
  1,031
  1,625
  2,292
  3,031
  3,840
  4,716
  5,656
  6,658
  7,719
  8,837
  10,011
  11,239
  12,521
  13,856
  15,244
  16,687
  18,184
  19,738
  21,350
  23,022
  24,758
  26,560
Issuance/(repayment) of debt, $m
  0
  2,012
  2,352
  2,704
  3,065
  3,431
  3,796
  4,159
  4,517
  4,867
  5,210
  5,544
  5,871
  6,190
  6,505
  6,816
  7,125
  7,434
  7,745
  8,061
  8,383
  8,714
  9,056
  9,411
  9,780
  10,166
  10,571
  10,995
  11,442
  11,912
  12,408
Issuance/(repurchase) of shares, $m
  -72
  87
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -72
  2,099
  2,352
  2,704
  3,065
  3,431
  3,796
  4,159
  4,517
  4,867
  5,210
  5,544
  5,871
  6,190
  6,505
  6,816
  7,125
  7,434
  7,745
  8,061
  8,383
  8,714
  9,056
  9,411
  9,780
  10,166
  10,571
  10,995
  11,442
  11,912
  12,408
Total cash flow (excl. dividends), $m
  411
  990
  1,287
  1,736
  2,255
  2,843
  3,502
  4,231
  5,030
  5,899
  6,834
  7,836
  8,902
  10,031
  11,221
  12,472
  13,782
  15,152
  16,582
  18,072
  19,622
  21,235
  22,912
  24,655
  26,467
  28,350
  30,309
  32,345
  34,464
  36,670
  38,967
Retained Cash Flow (-), $m
  -569
  -1,416
  -1,661
  -1,910
  -2,165
  -2,424
  -2,682
  -2,939
  -3,191
  -3,439
  -3,681
  -3,917
  -4,148
  -4,373
  -4,596
  -4,815
  -5,033
  -5,252
  -5,472
  -5,695
  -5,923
  -6,157
  -6,398
  -6,649
  -6,910
  -7,182
  -7,468
  -7,768
  -8,084
  -8,416
  -8,766
Prev. year cash balance distribution, $m
 
  597
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  171
  -375
  -174
  89
  419
  819
  1,293
  1,839
  2,460
  3,154
  3,919
  4,754
  5,657
  6,625
  7,656
  8,749
  9,901
  11,110
  12,377
  13,700
  15,079
  16,514
  18,007
  19,557
  21,168
  22,841
  24,577
  26,381
  28,254
  30,201
Discount rate, %
 
  7.30
  7.67
  8.05
  8.45
  8.87
  9.32
  9.78
  10.27
  10.79
  11.32
  11.89
  12.49
  13.11
  13.77
  14.45
  15.18
  15.93
  16.73
  17.57
  18.45
  19.37
  20.34
  21.35
  22.42
  23.54
  24.72
  25.96
  27.25
  28.62
  30.05
PV of cash for distribution, $m
 
  160
  -323
  -138
  65
  274
  480
  673
  841
  979
  1,079
  1,139
  1,159
  1,141
  1,089
  1,011
  912
  802
  686
  572
  464
  366
  281
  210
  152
  107
  73
  48
  31
  19
  11
Current shareholders' claim on cash, %
  100
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7

Southern Copper Corporation engages in mining, exploring, smelting, and refining copper and other minerals in Peru, Mexico, Argentina, Chile, and Ecuador. The company is involved in the mining, milling, and flotation of copper ore to produce copper and molybdenum concentrates; smelting of copper concentrates to produce anode copper; and refining of anode copper to produce copper cathodes, as well as molybdenum concentrate, refined silver, gold, and other materials. It operates the Toquepala, Cuajone, La Caridad, and Buenavista mine complexes, as well as the smelting and refining plants, which produce copper with production of by-products of molybdenum, silver, and other materials. The company also operates five underground mines that produce zinc, lead, copper, silver, and gold; a coal mine that produces coal and coke; and a zinc refinery. It has interests in 77,799 hectares of exploration concessions in Peru; 145,720 hectares of exploration concessions in Mexico; 159,831 hectares of exploration concessions in Argentina; 40,758 hectares of exploration concessions in Chile; and 2,544 hectares of exploration concessions in Ecuador. The company was founded in 1952 and is based in Phoenix, Arizona. Southern Copper Corporation operates as a subsidiary of Americas Mining Corporation.

FINANCIAL RATIOS  of  Southern Copper (SCCO)

Valuation Ratios
P/E Ratio 38.9
Price to Sales 5.6
Price to Book 5.2
Price to Tangible Book
Price to Cash Flow 32.8
Price to Free Cash Flow -154.3
Growth Rates
Sales Growth Rate 6.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -2.7%
Cap. Spend. - 3 Yr. Gr. Rate -8.1%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 102.1%
Total Debt to Equity 102.1%
Interest Coverage 5
Management Effectiveness
Return On Assets 7.7%
Ret/ On Assets - 3 Yr. Avg. 9.6%
Return On Total Capital 6.8%
Ret/ On T. Cap. - 3 Yr. Avg. 9.1%
Return On Equity 14%
Return On Equity - 3 Yr. Avg. 16.9%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 43.6%
Gross Margin - 3 Yr. Avg. 45.5%
EBITDA Margin 42%
EBITDA Margin - 3 Yr. Avg. 43.3%
Operating Margin 29.1%
Oper. Margin - 3 Yr. Avg. 31.9%
Pre-Tax Margin 23.3%
Pre-Tax Margin - 3 Yr. Avg. 27.6%
Net Profit Margin 14.4%
Net Profit Margin - 3 Yr. Avg. 17.4%
Effective Tax Rate 39.9%
Eff/ Tax Rate - 3 Yr. Avg. 38.5%
Payout Ratio 17.9%

SCCO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SCCO stock intrinsic value calculation we used $5380 million for the last fiscal year's total revenue generated by Southern Copper. The default revenue input number comes from 2016 income statement of Southern Copper. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our SCCO stock valuation model: a) initial revenue growth rate of 27.2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 7.3%, whose default value for SCCO is calculated based on our internal credit rating of Southern Copper, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Southern Copper.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of SCCO stock the variable cost ratio is equal to 55.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $873 million in the base year in the intrinsic value calculation for SCCO stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 6% for Southern Copper.

Corporate tax rate of 27% is the nominal tax rate for Southern Copper. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the SCCO stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for SCCO are equal to 160.7%.

Life of production assets of 13.4 years is the average useful life of capital assets used in Southern Copper operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for SCCO is equal to 18%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $5832 million for Southern Copper - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 769.576 million for Southern Copper is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Southern Copper at the current share price and the inputted number of shares is $30.1 billion.

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RIO Rio Tinto ADR 44.64 6.23  str.sell

COMPANY NEWS

▶ Whats Driving the Recent Strength in Copper Prices?   [Aug-18-17 09:08AM  Market Realist]
▶ Inside Rio Tintos Copper Outlook   [Aug-11-17 09:08AM  Market Realist]
▶ Copper Enters First Bull Market in 4 Years   [Aug-08-17 12:06PM  Investopedia]
▶ Coppers Long-Term Outlook, Demand, and Supply   [08:06AM  Market Realist]
▶ Chart in Focus: Freeport-McMoRans 2Q17 Earnings   [Aug-07-17 07:36AM  Market Realist]
▶ Southern Copper misses 2Q profit forecasts   [Aug-03-17 10:51AM  Associated Press]
▶ Is Teck Resources Stock Overrated on Wall Street?   [Jul-21-17 12:05PM  Market Realist]
▶ Strong earthquake strikes off Peru, no damage seen   [Jul-17-17 11:58PM  Reuters]
▶ Why Freeport-McMoRan Inc (FCX) Stock Is Set for a Comeback   [Jul-13-17 09:27AM  InvestorPlace]
▶ Freeport Investors: What to Expect from Copper in 2H17   [Jul-07-17 03:36PM  Market Realist]
▶ Copper Is Rallying Off Support   [Jun-30-17 01:44PM  Forbes]
▶ How Are Analysts Rating Southern Copper in 2Q17?   [Jun-28-17 07:36AM  Market Realist]
▶ Why Analysts Expect Freeport-McMoRans 2Q17 Profits to Rise   [Jun-27-17 09:08AM  Market Realist]
▶ 3 Top Commodity Stocks for Investors   [Jun-26-17 06:12PM  Motley Fool]
▶ These Contrarian Views Could Leave Copper Bulls Heartbroken   [Jun-19-17 10:36AM  Market Realist]
▶ Mid-Year Review: What Could Drive Copper Miners in 2H17   [Jun-16-17 07:36AM  Market Realist]
▶ Chinas Copper Imports in May: What You Need to Know   [Jun-09-17 01:05PM  Market Realist]
▶ Top 5 Copper Stocks for 2017   [May-30-17 06:00AM  Investopedia]
▶ Freeport or Teck Resources: Which Offers a Valuation Upside?   [May-24-17 10:36AM  Market Realist]
▶ How Freeports Unit Costs Stack Up to Southern Copper   [May-23-17 10:37AM  Market Realist]
▶ Copper Producers Today: Your 2017 Performance Overview   [May-22-17 01:20PM  Market Realist]
▶ 2 Top Copper Stocks to Consider Buying in 2017   [May-19-17 01:27PM  Motley Fool]
▶ Southern Copper profit rises 70 percent   [May-03-17 04:27PM  Reuters]
▶ Keep Your Eyes On Copper's Trading Range   [Apr-30-17 11:26PM  Forbes]
▶ 15 Latin American Stocks To Own Now   [Apr-18-17 03:02PM  Barrons.com]
▶ Has Freeport-McMoRans Valuation Priced in Everything?   [Apr-06-17 09:06AM  Market Realist]
▶ Bullish and Bearish Reversals for This Week   [Mar-27-17 12:30PM  TheStreet.com]
▶ Why UBS Is Bullish On Copper   [Mar-22-17 10:03PM  at Barrons.com]
Stock chart of SCCO Financial statements of SCCO
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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