Wednesday, January 14, 2009

Southern Copper (NYSE:PCU): Downgraded to Sell at UBS

UBS is downgrading Southern Copper (NYSE:PCU) to Sell from Neutral while moving their tgt to $12 from $18.

As we move into 2009, Cananea remains shut down and they believe Southern Copper will disappoint on both volume and costs. The dramatic fall in copper and moly prices will take its toll on early 2009 results, but also on Q4. Firm is cutting their 2009 and 2010 earnings estimates by 56% and 62%. In their view, 4Q08 results should be very weak, as they forecast provisional pricing sales will drive Q4 EBITDA to $4m and to a loss of $67m. The stock has outperformed copper and some of its peers (GMEX, FCX) and they are cutting PT from $18 to $12 and downgrading the stock to Sell. They prefer exposure through Grupo Mexico.

Copper and moly prices under pressure
While they remain bullish on copper’s long-term outlook, due to supply issues, they are more bearish on the commodity in the short-term. Prices have declined significantly and they expect copper to average $1.30/lb in 2009. We see a modest recovery in 2010. Firm also believes moly prices will remain low. They now forecast moly to average $8/lb in 2009. Weak commodity prices will contribute to the significant cash flow declines they are forecasting for PCU in 2009 and 2010.

Notablecalls: PCU has had its bounce - now its time to come back towards the $13-$14 level. UBS' call will make that happen. Will not break $14 today but will come close.

No comments: