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Southern Copper's Q1 net income drops 35% despite record production, sales

Grupo México SABde CV subsidiary SouthernCopper Corp. recorded a 34.5% year-over-year drop in net income forthe first quarter despite achieving record production and sales, according to theApril 27 release.

The drop in net income to US$185.1 million, caused by lower metalprices, prompted the board to halve the first-quarter dividend year over year to 5 cents per share.

Copper mine production in the quarter increased 24.8% to a record221,661 tonnes, on the back of 67.6%, or 43,898 tonnes, increase in production atthe Buenavista mine.The company is aiming to increaseits production 22% in the full year to 930,000 tonnes of copper.

Mined silver production increased 25.7% to 4 million ounces,and mined zinc production increased 18.6% to 18,028 tonnes, while molybdenum productiondecreased 4.9% to 5,571 tonnes.

Operating cash cost per pound of copper, net of byproduct credits,was 98 cents, a 23.5% decrease year over year.

Sales volumes increased 26.2% for copper to a record 212,864tonnes and 25.0% for silver to 4.1 million ounces, on a yearly basis. Molybdenumand zinc sales were down 4% and 5.4%, respectively, to 5,602 tonnes and 25,252 tonnes.

The higher sales volumes were offset by lower metal prices forcopper, molybdenum, zinc and silver.

As a result, net sales in the quarter dropped 2.3% to US$1.25billion, and EBITDA declined 13.5% over the prior-year quarter to US$481.0 million.

Capital investments in the quarter decreased 10.2% on a yearlybasis to US$223.3 million.

Southern Copper said it intends to increase its copper productioncapacity to 1.2 million tonnes.

At its Mexican projects, the company has already invested US$3.0billion of the US$3.5 billion of investment program.

It expects to increase copper production by 200,000 tonnes to460,000 tonnes this year and to 500,000 tonnes in 2017. Molybdenum production isexpected to increase by 42% to roughly 4,600 tonnes per year.

A new copper-molybdenum concentrator, which is 99% complete,will have an annual production capacity of 188,000 tonnes of copper and 2,600 tonnesof molybdenum, and will also produce 2.3 million ounces of silver and 21,000 ouncesof gold per year. The plant is expected to reach full capacity by the second quarter.

The crushing, conveying and spreading system for leachable ore,Quebalix IV, which will have a capacity of 80 million tonnes per year, is expectedto be completed by the second quarter.

In Peru, the Toquepalaexpansion project is expected to increase annual production capacity by 100,000tonnes of copper to 235,000 tonnes in 2018, and molybdenum production by 3,100 tonnesat an estimated capital cost of US$1.2 billion. The project is expected to be completedby the first quarter of 2018.

The heavy mineral management optimizing project to install aprimary crusher at the Cuajonemine pit, which will have a processing capacity of 43.8 million tonnes per year,is expected to be completed by the first quarter of 2017.

Grupo México's first-quarter net profit rose to US$406.9 million, up 20.9% year over year from US$336.5million, due to higher metals production and a significant improvement in investmentgains.