SCCO's Growth Ambitions Clash with Rich Valuation, Maintaining Sell Stance

What happened

A Zacks article projects Southern Copper's copper output to exceed 1.5 million tons by 2034, driven by capex-backed projects in Peru and Mexico. This aligns with SCCO's extensive growth pipeline, including Tía María and Los Chancas, as detailed in the DeepValue master report. However, the report highlights that SCCO's stock trades at ~144% above its DCF value of $59 per share, with multiples of ~31x P/E and ~18.5x EV/EBITDA. Despite strong fundamentals like low net cash costs and a solid balance sheet, this valuation embeds overly optimistic assumptions about copper prices and flawless execution in high-risk jurisdictions. Consequently, the risk-reward remains skewed to the downside, with the potential sell thesis unchanged by the growth announcement.

Implication

The production growth news reinforces SCCO's long-term potential but does not address immediate valuation concerns, with the stock priced for perfection. Current prices assume flawless execution in Peru and Mexico, ignoring historical social and regulatory friction that has stalled projects like Cuajone. With reduced dividends despite record earnings and high insider control by Grupo México, minority shareholders face governance risks amid a capital-intensive growth plan. A pullback towards the $70-90 range could improve margin of safety, making it a potential buy if fundamentals hold and copper demand remains robust. Monitoring copper price trends, project milestones, and social acceptance in key jurisdictions is essential for any future investment decision.

Thesis delta

The new article confirms SCCO's ambitious growth plans, which were already factored into the DeepValue analysis as part of the >$15bn capex pipeline. No material shift in the thesis occurs; the stock remains overvalued relative to intrinsic value, with persistent risks from valuation, country exposure, and governance. Investors should maintain a cautious stance, awaiting either a valuation reset or concrete progress that de-risks the growth pipeline.