SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
2000
Third Quarter
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2000 Commission file number 1-14066
SOUTHERN PERU COPPER CORPORATION
--------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3849074
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(State or other jurisdiction of (I.R.S Employer
Incorporation or organization) Identification No.)
180 Maiden Lane, New York, N.Y. 10038
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212-510-2000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
As of October 31, 2000, there were outstanding 14,100,192 shares of Southern
Peru Copper Corporation common stock, par value $0.01 per share. There were also
outstanding 65,900,833 shares of Southern Peru Copper Corporation Class A common
stock, par value $0.01 per share.
<PAGE>
Southern Peru Copper Corporation
and Subsidiaries
INDEX TO FORM 10-Q
Page No.
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Part I. Financial Information:
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statement of Earnings
Three Months and Nine Months
ended September 30, 2000 and 1999 2
Condensed Consolidated Balance Sheet
September 30, 2000 and December 31, 1999 3
Condensed Consolidated Statement of Cash Flows
Three Months and Nine Months
ended September 30, 2000 and 1999 4
Notes to Condensed Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-12
Report of Independent Public Accountants 13
Part II. Other Information:
Item 6 Exhibits on Form 10-Q 14
Signatures 15
Exhibit 15 - Independent Public Accountants Awareness Letter 16
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<PAGE>
Southern Peru Copper Corporation
and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
(in thousands, except for per share amounts)
<S> <C> <C> <C> <C>
Net sales:
Stockholders and affiliates $ 23,037 $ -- $ 56,469 $ --
Others 162,018 156,086 448,729 412,404
--------- --------- --------- ---------
Total net sales 185,055 156,086 505,198 412,404
--------- --------- --------- ---------
Operating costs and expenses:
Cost of sales 113,974 105,816 324,629 290,928
Administrative and other expenses 5,799 11,585 19,936 31,111
Depreciation and depletion 18,792 18,017 56,017 53,675
Exploration expense 1,685 2,085 3,795 4,551
--------- --------- --------- ---------
Total operating costs and expenses 140,250 137,503 404,377 380,265
--------- --------- --------- ---------
Operating income 44,805 18,583 100,821 32,139
Interest income 925 1,729 1,998 6,947
Other income 311 1,021 2,221 2,663
Interest expense (3,702) (4,089) (11,636) (13,589)
--------- --------- --------- ---------
Earnings before taxes on income and
minority interest 42,339 17,244 93,404 28,160
Taxes on income 13,549 5,173 29,743 8,447
Minority interest in income of
Peruvian Branch 975 (10) 1,356 1
--------- --------- --------- ---------
Net earnings $ 27,815 $ 12,081 $ 62,305 $ 19,712
========= ========= ========= =========
Per common share amounts:
Net earnings - basic and diluted $ 0.35 $ 0.15 $ 0.78 $ 0.25
Dividends paid $ 0.056 $ 0.022 $ 0.166 $ 0.077
Weighted average common shares outstanding:
Basic 80,001 79,870 80,000 79,865
Diluted 80,024 79,910 80,025 79,884
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
Southern Peru Copper Corporation
and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, December 31,
2000 1999
---- ----
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 47,754 $ 10,596
Accounts receivable, net 117,995 80,664
Inventories 108,203 110,171
Other assets 57,732 67,710
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Total current assets 331,684 269,141
Net property 1,292,177 1,250,887
Other assets 29,306 25,425
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Total Assets $1,653,167 $1,545,453
========== ==========
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 32,210 $ 23,272
Accounts payable 41,109 58,413
Accrued liabilities 44,765 29,472
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Total current liabilities 118,084 111,157
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Long-term debt 229,418 199,253
Deferred income taxes 101,778 79,888
Other liabilities and reserves 14,638 15,242
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Total non-current liabilities 345,834 294,383
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MINORITY INTEREST 14,286 13,975
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STOCKHOLDERS' EQUITY
Common stock (a) 261,584 261,584
Retained earnings 913,379 864,354
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Total Stockholders' Equity 1,174,963 1,125,938
---------- ----------
Total Liabilities, Minority
Interest and Stockholders' Equity $1,653,167 $1,545,453
========== ==========
(a) Common shares: Authorized 34,099 34,099
Outstanding 14,100 14,119
Class A common shares Authorized and
Outstanding 65,901 65,901
The accompanying notes are an integral part of these financial statements.
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<PAGE>
Southern Peru Copper Corporation
and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ 27,815 $ 12,081 $ 62,305 $ 19,712
Adjustments to reconcile net earnings to
Net cash provided from operating activities:
Depreciation and depletion 18,792 18,017 56,017 53,675
Provision (benefit) for deferred income taxes 11,835 4,717 21,268 9,791
Foreign currency transaction losses (gains) 573 932 1,330 2,162
Minority interest of investment shares 975 (10) 1,356 1
Cash provided from (used for) operating assets and liabilities:
Accounts receivable (40,880) 4,491 (37,585) (1,817)
Inventories (3,055) (12,943) 1,968 (13,035)
Accounts payable and accrued liabilities 13,949 9,993 (3,310) 8,501
Other operating assets and liabilities (3,181) 3,657 12,645 7,355
--------- --------- --------- ---------
Net cash provided by operating activities 26,823 40,935 115,994 86,345
--------- --------- --------- ---------
INVESTING ACTIVITIES
Capital expenditures (34,198) (69,970) (98,551) (167,656)
Purchases of held-to-maturity investments -- -- -- (54,990)
Proceeds from held-to-maturity investments -- 30,520 -- 77,142
Sales of property 524 (582) 542 516
--------- --------- --------- ---------
Net cash used in investing activities (33,674) (40,032) (98,009) (144,988)
--------- --------- --------- ---------
FINANCING ACTIVITIES
Debt repayment (2,712) -- (10,897) (6,842)
Proceeds from borrowings 30,000 -- 50,000 2,000
Escrow (deposits) withdrawals on long-term loans (5,257) -- (4,127) (67)
Dividends paid to common stockholders (4,480) (1,757) (13,280) (6,150)
Distributions to minority interest (80) (33) (237) (119)
Purchases of investment shares (194) (1,459) (1,236) (2,104)
--------- --------- --------- ---------
Net cash provided (used for)financing activities 17,277 (3,249) 20,223 (13,282)
--------- --------- --------- ---------
Effect of exchange rate changes on cash (265) (716) (1,050) (1,169)
--------- --------- --------- ---------
Increase (decrease)in cash and cash equivalents 10,161 (3,062) 37,158 (73,094)
Cash and cash equivalents, at beginning of period 37,593 105,916 10,596 175,948
--------- --------- --------- ---------
Cash and cash equivalents, at end of period $ 47,754 $ 102,854 $ 47,754 $ 102,854
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
Southern Peru Copper Corporation
and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. In the opinion of Southern Peru Copper Corporation (the "Company" or
"SPCC"), the accompanying unaudited condensed consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the Company's financial position
as of September 30, 2000 and the results of operations and cash flows for
the three and nine months ended September 30, 2000 and 1999. The condensed
financial statements as of September 30, 1999 and for the three and
nine-month periods then ended were reviewed by other accountants whose
report dated October 18, 1999 stated that they were not aware of any
material modifications that should be made to those statements in order
for them to be in conformity with generally accepted accounting principles
in the United States of America. Certain reclassifications have been made
in the financial statements from amounts previously reported. The
condensed financial statements as of September 30, 2000 and for the three
and nine-months periods then ended have been subjected to a review by
Arthur Andersen, the Company's independent public accountants. The results
of operations for the three and nine-month periods are not necessarily
indicative of the results to be expected for the full year. The
accompanying condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's 1999 annual report on Form 10-K.
B. Inventories were as follows:
(In millions)
September 30, December 31,
2000 1999
---- ----
Metals at lower of average cost or market:
Finished goods $ 1.6 $ 1.5
Work-in-process 48.6 48.7
Supplies at average cost, net of reserves 58.0 60.0
------ ------
Total inventories $108.2 $110.2
====== ======
C. At September 30, 2000, the Company has recorded sales of 12.1 million
pounds of copper, at a provisional price of $0.91 per pound. These sales
are subject to final pricing based on the average monthly LME copper
prices in the month of settlement which will occur in the fourth quarter
of 2000.
D. Financial Instruments:
The Company uses derivative instruments to manage its exposure to market
risk from changes in commodity prices. Derivative instruments, which are
designated as hedges, must be deemed effective at reducing the risk
associated with the exposure being hedged and must be designated as a
hedge at the inception of the contract.
Copper: Depending on market fundamentals and other conditions, the Company
may purchase put options to reduce or eliminate the risk of price declines
below the option strike price on a portion of its anticipated future
production. Put options purchased by the Company establish a minimum sales
price for the production covered by such put options and permit the
Company to participate in price increases above the option price. The cost
of the options is amortized on a straight-line basis during the period in
which the options are exercisable. Depending upon market conditions the
Company may either sell options it holds or exercise the options at
maturity. Gains or losses from the sale or exercise of options, net of
unamortized acquisition costs, are recognized in the period in which the
underlying production is sold and reported as a component of the
underlying transaction.
At September 30, 2000, the Company held no copper put options.
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<PAGE>
Fuel swaps: The Company may enter into fuel swap agreements to limit the
effect of changes in fuel prices on its production costs. A fuel swap
establishes a fixed price for the quantity of fuel covered by the
agreement. The difference between the published price for fuel and the
price established in the contract for the month covered by the swap is
recognized in production costs.
Foreign currency: The Company selectively uses foreign currency swaps to
limit the effects of exchange rate changes on future cash flow obligations
denominated in foreign currencies. A currency swap establishes a fixed
dollar cost for a fixed amount or foreign currency required at a future
date. The Company has entered into currency swap agreements on a portion
of its capital cost contracted in Euros.
E. Commitments and Contingencies:
Litigation
In April 1996, the Company was served with a complaint filed in Peru by
approximately 800 former employees seeking the delivery of a substantial
number of labor shares of its Peruvian Branch, plus dividends. In October
1997, the Superior Court of Lima nullified a decision adverse to SPCC that
had been rendered by the trial court. The Superior Court remanded the case
for a new trial. Plaintiffs filed an extraordinary appeal before the
Peruvian Supreme Court. In March 1999, the Supreme Court denied
plaintiffs' extraordinary appeal and affirmed the decision of the Superior
Court of Lima. On December 1999, the trial court decided against SPCC,
ordering the delivery of the labor shares and dividends to the plaintiffs.
SPCC appealed this decision. In October 10, 2000, the Superior Court of
Lima affirmed the lower court's decision, which had been adverse to SPCC.
SPCC has filed an extraordinary appeal before the Peruvian Supreme Court.
The Supreme Court may grant discretionary review in limited cases. There
is also pending against SPCC a similar lawsuit filed by approximately 127
additional former employees. In 1997, the trial court dismissed the
complaint. Upon appeal filed by the plaintiffs, the Superior Court of
Lima, in 1998, nullified the trial court's decision and remanded the case
to the trial court for further proceedings. In December 1999, the trial
court dismissed the complaint against SPCC. Plaintiffs appealed this
decision in January 2000.
It is the opinion of management that the outcome of the legal proceedings
mentioned, as well as other miscellaneous litigation and proceedings now
pending, will not materially adversely affect the financial position of
the Company and its consolidated subsidiaries. However, it is possible
that litigation matters could have a material effect on quarterly or
annual operating results, when they are resolved in future periods.
F. Impact of New Accounting Standards:
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities".
This statement establishes accounting and reporting standards for
derivative instruments and hedging activities. Initially, the statement
was to be effective in fiscal years beginning after June 15, 1999. In June
1999, the FASB issued SFAS No.137, which defers the effective date of SFAS
No. 133 to fiscal years beginning after June 15, 2000. The Company is
currently assessing the impact of SFAS No. 133.
In December 1999, the Securities Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition, which provides
the staff's views in applying generally accepted accounting principles to
selected revenue recognition issues. The effective date for the
application of SAB 101 has been deferred to the fourth quarter 2000. The
Company is currently assessing the potential effect of SAB 101 on its
revenue recognition principles.
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<PAGE>
Part I Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company reported net earnings of $27.8 million, or 35 cents per common
share, for the third quarter ended September 30, 2000 compared with net earnings
of $12.1 million, or 15 cents per common share, for the third quarter of 1999.
For the first nine months of 2000, net earnings were $62.3 million or 78 cents
per common share, compared to $19.7 million or 25 cents per common share, for
the same period of 1999. The increase in earnings in the third quarter of 2000
is primarily a result of higher copper prices and increased production. The
average price for copper on the London Metal Exchange (LME) was 85 cents per
pound for the third quarter of 2000 compared with 76 cents per pound in the
third quarter of 1999. Average price for copper for the nine months ended
September 30, was 82 cents in 2000 and 69 cents in 1999
Mine copper production increased 5.1% to 194.3 million pounds in the third
quarter of 2000 compared with third quarter of last year. This increase of 9.5
million pounds included 5.4 million pounds from the Cuajone mine, 1.5 million
pounds from the Toquepala Mine and an increase of 2.6 million pounds in solvent
extraction/electrowinning (SX/EW) production. The production increase at Cuajone
is due to the completion of the mine expansion program. Toquepala's increase in
production was due principally to higher ore grades. The increase in SX/EW
production is a result of the plant expansion completion in the third quarter of
1999.
Refined copper production increased 7.5% to 524.7 million pounds in the first
nine months of year 2000 compared with same period of last year. This increase
of 36.5 million pounds is largely due to the SX-EW plant expansion completion in
the third quarter of 1999. Production increases at the Ilo refinery in the nine
months of 2000 amounted to 18.7 million pounds.
The Company's expansion and modernization program is under way. The project to
expand and protect the Cuajone mine from maximum flooding of the Torata river is
under construction and reached 90% completion at the end of the third quarter of
2000, with an investment of $70.0 million out of the $75.5 million budgeted. The
Torata River was diverted on June 30, 2000 allowing the beginning of the Cuajone
pit expansion.
The Company has completed its internal evaluation of the two proposals regarding
the Ilo smelter modernization and expansion project, which had been suspended
last year. Both alternatives fulfill the Company requirements to use the most
efficient proven technology, to provide economic returns and comply with
Peruvian environmental standards. Management is presently studying the
possibility, with the objective of increasing the return on investment, of
increasing the design capacity to 1.83 million metric tons instead of the 1.1
million metric tons originally considered. The Company is also presently
considering an increase from required SO2 gas emission recapture of 92% to a
minimum of 95%. Thus, the Company is evaluating the economic terms, financial
and tax benefits for new investments that would allow the Company to position
this new smelter as a strategic investment in the Port of Ilo, Peru, and become
the largest and best environmentally designed smelter in the southern
hemisphere. The Company's objectives are to comply with the strictest
international environmental requirements well before 2006, while at the same
time allow for an increased capacity that would contribute to the mining
development of Peru and SPCC.
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<PAGE>
The Company has completed its feasibility studies for the Toquepala concentrator
and mine expansion project. Several engineering companies have been invited to
present proposals for a lump-sum turnkey contract for engineering, procurement
and construction. Feasibility study for an additional leaching section at the
Cuajone leaching operations is currently underway. Construction of these
projects is expected to begin next year. It is anticipated that these projects
will improve SPCC's production capacity to over 900 million pounds of copper per
year when completed.
In July 2000, the Company registered a $200 million bond program to be issued
through SPCC's Peruvian Branch. This facility will provide additional committed
financing for SPCC's modernization and expansion program. In July 2000, $30
million of these bonds were sold to investors in Peru. The bonds mature in July
2007, and have a fixed interest rate of 8 3/4% per annum with quarterly interest
payments. The Company also has available an undrawn $600 million committed bank
credit facility and an undrawn balance of $78 million from a $100 million
15-year loan agreement with Mitsui and Co., Ltd.
Inflation and Devaluation of Peruvian Nuevo Sol: A portion of the Company's
operating costs is denominated in Peruvian nuevos soles. Since the revenues of
the Company are primarily denominated in U.S. dollars, when inflation in Peru is
not offset by a corresponding devaluation of the Peruvian nuevo sol, the
financial position, results of operations and cash flows of the Company could be
adversely affected. For the three months ended September 30, 2000 the inflation
and devaluation rates were 1.55% and (0.52)%, respectively, and for the nine
month periods ended September 30, 1999, the inflation and devaluation rate were
3.27% and (0.06)%, respectively.
Net Sales: Net sales in the third quarter of 2000 increased $29.0 million to
$185.1 million from the comparable period in 1999. Net sales for the first nine
months of 2000 totaled $505.2 million, compared with $412.4 million for the same
period of 1999. The increase in net sales in both the three month and nine month
periods of 2000 was principally a result of higher copper prices.
At September 30, 2000, the Company has recorded sales on 12.1 million pounds of
copper, at a provisional price of $0.91 per pound. These sales are subject to
final pricing based on the average monthly LME copper price in the month of
settlement, which will occur in the fourth quarter of 2000.
Prices: Sales prices for the Company's metals are established principally by
reference to prices quoted on the LME, the New York Commodity Exchange (COMEX)
or published in Platt's Metals Week for dealer oxide mean prices for molybdenum
products.
Three Months Ended Nine Months Ended
September 30, September 30,
Price/Volume Data: 2000 1999 2000 1999
---- ---- ---- ----
Average Metal Prices
Copper (per pound-LME) $0.85 $0.76 $0.82 $0.69
Molybdenum (per pound) $2.64 $2.69 $2.62 $2.67
Silver (per ounce-COMEX) $4.93 $5.24 $5.05 $5.21
Sales Volume (in thousands):
Copper (pounds) 198,600 199,000 559,900 548,900
Molybdenum (pounds) (1) 4,165 3,018 11,319 8,570
Silver (ounces) 966 987 2,722 2,294
(1) The Company's molybdenum production is sold in concentrate form. Volume
represents pounds of molybdenum contained in concentrates.
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<PAGE>
Financial Instruments:
The Company may use derivative instruments to manage its exposure to market risk
from changes in commodity prices. Derivative instruments which are designated as
hedges must be deemed effective at reducing the risk associated with the
exposure being hedged and must be designated as a hedge at the inception of the
contract.
Copper: Depending on market fundamentals and other conditions, the Company may
purchase put options to reduce or eliminate the risk of price declines below the
option strike price on a portion of its anticipated future production. Put
options purchased by the Company establish a minimum sales price for the
production covered by such put options and permit the Company to participate in
price increases above the option price. The cost of the options is amortized on
a straight-line basis during the period in which the options are exercisable.
Depending upon market conditions the Company may either sell options it holds or
exercise the options at maturity. Gains or losses from the sale or exercise of
options, net of unamortized acquisition costs, are recognized in the period in
which the underlying production is sold and are reported as a component of the
underlying transaction.
During the year 2000, the Company held no copper put options.
Fuel swaps: The Company may enter into fuel swap agreements to limit the effect
of changes in fuel prices on its production costs. A fuel swap establishes a
fixed price for the quantity of fuel covered by the agreement. The difference
between the published price for fuel and the price established in the contract
for the month covered by the swap is recognized in production costs. As of
September 30, 2000, and December 31, 1999, the Company has entered into the
following fuel swap agreements:
Weighted Average
Quantity Contract Price
Fuel Type Period (barrels) (per barrel)
--------- ------ --------- ------------
December 31, 1999
Residual Oil 1/00 - 12/00 1,468,800 $12.80
Diesel Fuel 1/00 - 12/00 504,000 $19.36
September 30, 2000
Residual Oil 10/00 - 12/00 367,200 $12.83
Diesel Fuel 10/00 - 12/00 126,000 $19.97
The unrealized gain in the Company's fuel swap positions at September 30, 2000,
was $6.6 million. A hypothetical 10% decrease from September 30, 2000 fuel
prices, would reduce the unrealized gain on fuel swaps by $1.3 million.
In the third quarter of 2000, the Company's production costs would have been
$5.4 million higher if this exposure had not been hedged.
Foreign currency: The Company selectively uses foreign currency swaps to limit
the effects of exchange rate changes on future cash flow obligations denominated
in foreign currencies. A currency swap establishes a fixed dollar cost for a
fixed amount of foreign currency required at a future date. The Company has
entered into currency swap agreements on a portion of its capital cost
contracted in euros.
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<PAGE>
As of September 30, 2000 the Company had the following currency swap agreements:
US$ Euros Forward
Maturity Date (in millions) Exchange Rate
------------- ------------- -------------
10/31/2000 8.5 7.4 1.1419
12/29/2000 6.5 5.7 1.1467
3/31/2001 2.6 2.3 1.1535
4/30/2001 3.3 2.9 1.1559
The unrealized loss in the Company's currency swap position at September 30,
2000 was $4.9 million. A hypothetical 10 percent decrease from September 30,
2000 rates, would increase the unrealized loss on currency swaps by $2.5
million.
Operating Costs and Expenses: Operating costs and expenses were $140.3 million
in the third quarter of 2000 compared with $137.5 million in the third quarter
of 1999. In the nine months ended September 30, operating costs and expenses
were $404.4 million in 2000, compared with $380.3 million in the comparable 1999
period.
Cost of sales for the three months ended September 30, 2000 was $114.0 million
compared with $105.8 million in the comparable 1999 period. In the nine months
ended September 30, 2000, cost of sales was $324.6 million, compared with $290.9
million in the comparable 1999 period. The increases in both periods are mainly
due to increased fuel oil and power cost. In the nine months of year 2000 the
Company's production costs would have been $18.2 million higher if fuel oil had
not been hedged.
Costs of sales for three months and nine months ended September 30, 2000,
include a charge of $2.5 million for the realized currency swap agreements.
Administrative and other expenses were $5.8 million in the three months ended
September 30, 2000 and $11.6 million in the comparable 1999 period. In the nine
months ended September 30, 2000, administrative and other expenses were $19.9
million compared with $31.1 million in the nine months ended September 30, 1999.
The decrease is mainly due to decrease in labor costs and other benefits
associated with the termination of foreign contracted employees at the end of
year 1999.
Depreciation and depletion expense for the three months ended September 30, 2000
was $18.8 million compared with $18.0 million in the comparable 1999 period. In
the nine months ended September 30, 2000 depreciation and depletion expense was
$56.0 million, compared with $53.7 million in the comparable 1999 period. The
increase in 2000 is principally due to the depreciation of the Toquepala SX/EW
plant expansion, completed in the third quarter of 1999.
Non-Operating Items: Interest income was $0.9 million in the third quarter of
2000, compared to $1.7 million in the comparable 1999 period. In the nine months
ended September 30, 2000 interest income was $2.0 million compared to $6.9
million for the same period of 1999. The decrease reflects lower invested
balances as Company funds were used for the expansion and modernization program.
Taxes on Income: Taxes on income for the nine months ended September 30, 2000
were $29.7 million, compared with $8.4 million for the same period of 1999. The
increase was principally due to higher earnings in 2000, resulting from higher
copper prices and higher production.
Cash Flows:
Third Quarter: Net cash provided by operating activities was $26.8 million in
the third quarter of 2000, compared with $40.9 million in the comparable 1999
period. In the third quarter of 2000, an increase in accounts receivable
decreased operating cash flow by $40.9 million compared with a contribution to
cash flow of $4.5 million in the third quarter of 1999. Increase in accounts
receivable in
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<PAGE>
the 2000 period is mainly due to increase of copper prices in approximately
14.8%. Additionally in the month of September, more than 80% of copper shipments
were made on the second half of the month under payment terms of 20 days from
bill of lading date.
Net cash used in investing activities was $33.7 million capital expenditures in
the third quarter of 2000. In the third quarter of 1999, net cash used in
investing activities was $40.0 million and was principally due to $70.0 million
of capital expenditures and $30.0 million of proceeds from held-to-maturity
investment.
Net cash generated by financing activities in the third quarter of 2000 was
$17.3 million, compared with a use of cash of $3.2 million in the third quarter
of 1999. The third quarter of 2000 includes proceeds from a $30 million bond
sale, reduced by a dividend distribution of $4.5 million, debt repayments of
$2.7 million and escrow deposits of $5.3 million. The third quarter of 1999
included a dividend distribution of $1.8 million.
Nine Months: Net cash provided by operating activities was $116.0 million for
the nine month period ended September 30, 2000, compared with $86.3 million in
the comparable 1999 period. Increased earnings, somewhat reduced by operating
asset requirements, accounted for the improved cash flow.
Net cash used in investing activities was $98.0 million in the nine-month period
ended September 30, 2000, and was primarily due to capital expenditures. In the
nine-month period ended September 30, 1999, net cash used in investing
activities was $145.0 million and was principally due to capital expenditures of
$167.7 less $22.1 million of net funds from the sale of held-to-maturity
investments. The decrease in capital expenditures in the nine months ended
September 30, 2000, as compared to the 1999 period is attributable to completion
of various projects and the time required to evaluate the most efficient proven
technology in the modernization and expansion of the Ilo Smelter.
Cash provided by financing activities for the nine months ended September 30,
2000 was $20.2 million, compared with a use of $13.3 million in the comparable
1999 period. The nine months ended September 30, 2000 includes a debt repayment
of $10.9 million, proceeds from borrowings of $50.0 million, escrow deposit
requirements of $4.1 million and dividends paid to shareholders of $13.3
million. The nine months ended September 30, 1999 included a debt repayment of
$6.8 million, proceeds from borrowings $2.0 million and dividends paid to
shareholders $6.2 million.
Liquidity and Capital Resources: The Company expects that it will meet its cash
requirements for 2000 and beyond from internally generated funds, cash on hand,
from borrowings under existing credit facilities and from additional external
financing.
On June 16, 2000 a bond program of $200 million was approved in Peru. On July
20, 2000, $30 million of these bonds were issued through SPCC's Branch to
Peruvian investors. The bonds have an interest rate of 8 3/4% per annum and
mature in July 2007. The proceeds will be used to finance a portion of SPCC's
expansion and modernization of its Toquepala copper mine and Ilo copper smelter.
SPCC plans to issue the remaining balance of this program from time to time.
In the third quarter of 2000, the Company paid a dividend to shareholders of
$4.5 million or 5.6 cents per share, compared with $1.8 million or 2.2 cents per
share in the same period of 1999.
Certain financing agreements contain covenants, which limit the payment of
dividends to stockholders. Under the most restrictive covenant, the Company may
pay dividends to stockholders equal to 50% of the net income of the Company for
any fiscal quarter as long as such dividends are paid by June 30 of the
following year.
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<PAGE>
Impact of New Accounting Standards: In June 1998, the Financial Accounting
Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and hedging activities.
Initially, the statement was to be effective in fiscal years beginning after
June 15, 1999. In June 1999, the FASB issued SFAS No. 137, which defers the
effective date of SFAS No.133 to fiscal years beginning after June 15, 2000. The
Company is currently assessing the impact of SFAS No. 133.
In December 1999, the Securities Exchange Commission issued Staff Accounting
Bulletin No. 101 (SAB 101), Revenue Recognition, which provides the staff's
views in applying generally accepted accounting principles to selected revenue
recognition issues. The effective date for the application of SAB 101 has been
deferred to the fourth quarter 2000. The Company is currently assessing the
potential effect of SAB 101 on its revenue recognition principles.
Cautionary statement: Forward-looking statements in this report and in other
Company statements include statements regarding expected commencement dates of
mining or metal production operations, projected quantities of future metal
production, anticipated production rates, operating efficiencies, costs and
expenditures as well as projected demand or supply for the Company's products.
Actual results could differ materially depending upon factors including the
availability of materials, equipment, required permits or approvals and
financing, the occurrence of unusual weather or operating conditions, lower than
expected ore grades, the failure of equipment or processes to operate in
accordance with specifications, labor relations, environmental risks as well as
political and economic risk associated with foreign operations. Results of
operations are directly affected by metal prices on commodity exchanges, which
can be volatile.
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<PAGE>
Arthur Andersen
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Southern Peru Copper Corporation:
We have reviewed the accompanying condensed balance sheet of Southern Peru
Copper Corporation and subsidiaries as of September 30, 2000, and the related
condensed statements of income and cash flows for the three-month and nine-month
periods then ended. The condensed financial statements as of September 30, 1999
for the three-month and nine-month periods then ended were reviewed by other
accountants whose report dated October 18, 1999, stated that they were not aware
of any material modifications that should be made to those statements in order
for them to be in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with accounting principles generally accepted in the United States of
America.
ARTHUR ANDERSEN LLP
Lima, Peru,
October 13, 2000
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<PAGE>
Part II - OTHER INFORMATION
Item 6 - Exhibits on form 10-Q
15 - Independent Public Accountants Awareness Letter.
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<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHERN PERU COPPER CORPORATION
(Registrant)
Date: November 13, 2000 /s/ Oscar Gonzalez Rocha
------------------------
President
Date: November 13, 2000 /s/ Daniel Tellechea Salido
---------------------------
Vice President of Finance
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