SOUTHERN COPPER CORP/ (SCCO) stock intrinsic value fair value estimate & owner earnings analysis

Southern Copper mines and processes copper (plus by-product molybdenum, zinc and silver) from large, long-lived open-pit and underground operations in Peru and Mexico, and also smelts and refines a portion of its own concentrate. It is majority owned by the Grupo Mexico industrial group. We looked at ten years of cash generation, 2016 through 2025, a period spanning a full commodity cycle: the 2016 trough following the 2014-15 copper price collapse, a mid-cycle recovery through 2019, the 2020 pandemic shock, the 2021-22 price spike, a 2023 lull, and a fresh surge in 2024-25 tied to electrification, grid and data-center demand for copper. Owner earnings (operating cash flow, adjusted for the swing in working capital and for the portion of capital spending that funds growth rather than simply keeping existing mines running) ranged from about $0.31 a share in the 2016 trough to roughly $5.04 a share in 2025, with a mid-cycle level near $2.62 a share. We use that mid-cycle figure, not the recent peak, as the normal earning power of the business, because copper prices swing in ways we cannot predict and a valuation built on the current price would simply be betting the current price continues. The most important company-specific event over the next several years is the Tia Maria project in southern Peru. After roughly two decades of delay from local community opposition, construction is now under way - about a quarter complete as of the end of 2025, with access roads, worker housing and the main electrical substation largely built - and the company expects to begin production there in 2027, adding about 120,000 tonnes a year of copper cathode, a meaningful addition to current output. We treat this as a real, near-term driver of growth in our central case, while recognizing that this project's history of stops and delays is itself the company's biggest identifiable risk. A second, smaller project (El Pilar in Mexico) and a larger one further out (Los Chancas in Peru, targeted for 2031) sit in the pipeline but are less certain and show up mainly in our upside case. Our central case assumes owner earnings normalize down from the unusually strong 2024-25 level toward a mid-cycle base near $3.00 a share in the first forecast year, then grows modestly as Tia Maria ramps up, settling into per-share growth of roughly 2% a year by the back half of a ten-year forecast. Beyond that, because Southern Copper's disclosed ore reserves at its core mines run for many decades at current mining rates, we treat the years after the forecast as a slow, ongoing stream rather than assuming the mines simply stop - but we cap that growth well under 1% a year, since further growth beyond what today's spending already sustains would require new capital the company has not yet committed. On these assumptions we estimate the shares are worth around $68 today. Our bear case, roughly a one-in-ten outcome, assumes a repeat of the kind of community conflict that has disrupted operations before (in 2022, a blockade over land and water access cut rail access to the Cuajone mine for more than two months), that Tia Maria is delayed again rather than reaching production on schedule, and that copper prices spend an extended stretch in the lower part of their historical range. Southern Copper also carries about $6.75 billion of debt, manageable in a normal year but a heavier burden in a weak one. Under this case we estimate the shares are worth around $29 - well down from our central estimate, but still clearly positive; this is a weaker-decade story, not a company that owes more than it is worth. Our bull case, roughly a one-in-ten outcome the other way, assumes Tia Maria is completed on time and on budget, El Pilar is subsequently developed as well, and per-share cash generation holds closer to the strong levels of the past two years rather than fully normalizing. On those assumptions the shares could be worth on the order of $131. Putting these together, the margin-of-safety price sits meaningfully below our central estimate - around $41 - to build in a margin of safety appropriate to a business whose earnings swing as much with commodity prices as Southern Copper's do. We found nothing in the filings suggesting outsized China exposure, a marijuana or cryptocurrency business, a non-operating shell, imminent delisting risk, or a going-concern warning. One item we could not fully square from the filings: Southern Copper does not appear to break out stock-based compensation as a separate cash-flow line item, so we treated it as immaterial rather than estimating a number for it. It did not meaningfully affect the result either way.