Monday, April 18, 2011

Southern Copper Corporation (NYSE: SCCO) Q2 2011 Price Target

Recent price: 35.44$
P/E Ratio: 19.83
3 Months Target Price: 27.50$

Company Description
Southern Copper Corporation is an integrated copper producer. SCC produces copper, molybdenum, zinc and silver. All of the Company's mining, smelting and refining facilities are located in Peru and in Mexico, and it conducts exploration activities in those countries and Chile. Its Peruvian copper operations involve mining, milling and flotation of copper ore to produce copper concentrates and molybdenum concentrates; the smelting of copper concentrates to produce anode copper, and the refining of anode copper to produce copper cathodes. It operates the Toquepala and Cuajone mines in the Andes Mountains, approximately 860 kilometers southeast of the city of Lima, Peru. The Company also operates a smelter and refinery west of the Toquepala and Cuajone mines in the coastal city of Ilo, Peru. The Company operates in three segments: Peruvian operations, Mexican open-pit operations and Mexican underground mining operations (IMMSA unit).

Confidence Margins
Strong resistance $50.35 (-38%)
Light resistance $42.35 (-16%)
Light support $35.68 (+2%)
Strong support $27.53 (+24%)

This is one of the rare short positions suggested for the coming quarter. As China keeps getting more restrictive in it's monetary and fiscal policy, there seems to be a link with the price of copper. This might prove to be an interesting position for the quarter.

Entry strategy
For the cautious investor:
Short sell the stock for 35$ or more.

For the risk-taking trader:
The June 2011 36$ out-of-the-money put option contract seems to be the right position to take, they can be acquired for about 255$ per contract.

Exit Strategy
For the cautious investor:
Buy to cover when the stock reaches 27$.

For the risk-taking trader:
The contracts should be kept until the underlying reaches around 27$. This should provide a satisfactory return if the underlying reaches the target price as the contracts will get in the money.

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