The Whistling of Copper Kettles: Southern Copper Corp (SCCO), Freeport-McMoRan Copper & Gold Inc. (FCX)

If you train your ear, you can hear the sounds from copper kettles whistling their tunes to investors concerning top copper companies and the prevailing winds for the commodity this year.

A report at Kitco News (Allen Sykora – December 27, 2012 – kitco.com) relates that the expectation is that there will be a modest surplus of copper on the market this year. However, analysts expect demand to increase somewhat as well. On top of this, the Kitco article states that inventories of copper are historically low.

What does this all mean for investors considering copper companies? The consensus is that copper prices will mainly hold in 2013, with modest price fluctuations in either direction.  A Bloomberg report on December 11, 2012 (bloomberg.com – Maria Kolesnikova) indicated that Bank of America Corp (NYSE:BAC) believes that copper, gold, silver, platinum and palladium will outperform other commodities in 2013 due to easing by the U.S. Federal Reserve and supply constraints.

Therefore, some sort of price stability seems to be the tea that’s brewing in copper kettles for the year. What does this portend for investors sipping and studying major copper companies? Are they positioned for greater growth?

Southern Copper Corp (NYSE:SCCO) is one of the largest integrated copper producers in the world. The company recently reported their Year 2012 financial results. Their Net Sales were $6.7 billion. This was 2.2 percent lower than their Year 2011 historical record of $6.82 billion. They achieved their Net Sales by an increase in sales volumes for copper (+7.1 percent), silver (+14.6 percent) and zinc (+3 percent). Of note is that they experienced only a small drop in sales despite the price for copper decreasing by 10 percent.

Investors should consider pricing as well as expenses concerning copper producers. Southern Copper Corp (NYSE:SCCO)’s Operating Cash Cost per pound of copper before by-product credits was $1.796 per pound in Year 2012. This is in comparison to $1.759 per pound in Year 2011, an increase of 2.1 percent. The increase was primarily due to increases in costs for fuel and power.

Their Operating Cash Cost per pound, net of by-product credits was $0.713 in Year 2012, compared to $0.517 in Year 2011. This was mainly due to lower prices for the company’s major by-products. Therefore, analysts’ outlook for copper prices is something investors should consider for 2013 and beyond.

However, Southern Copper’s copper mine production and capital expenditures are positives for investors to look at when performing due diligence. The company’s copper mine production increased by 50,188 tons or 8.5 percent in Year 2012, compared with Year 2011. This was due to better ore grades and recoveries at all of their mines. Southern Copper had total copper production of 651,801 tons in Year 2012. This is 11,801 tons higher than their 2012 goal of 640,000 tons.

I like the company’s dedication this year to their investment program. Their goal is to increase copper production capacity by approximately 84 percent – from 640,000 tons to 1,175,000 tons by the year 2017. Southern Copper’s Capital Expenditures were $1,051.9 million for Year 2012 – a record. This was 71.6 percent higher than their record set in Year 2011. This commitment to increasing copper production capacity could provide better returns for investors in the coming years.