Southern Copper Corp (SCCO 0.64%) is hitting the accelerator pedal on production in a big way. But this comes at a cost, which shareholders have been shouldering. Is now the time to step aboard, or should you wait until the spending is done?

Getting bigger, fast
Southern Copper is already one of the world's largest copper producers. For example, in 2013, it produced 617,000 tons of copper. That, however, was far behind BHP Billiton Limited (ADR), which produced around 1.3 million tons in its 2013 fiscal year. Why compare 2013 data? Because that's the reference point for Southern Copper's expansion plans. The company's goal is to increase copper production by roughly 90% from that level by 2018.

Southern is toiling in the copper mines. Source: Ikiwaner, via Wikimedia Commons.

That will bring Southern's production up to 1.165 million tons, and much closer to its larger competitors. In 2013 and 2014, the company spent roughly $3.2 billion combined on this effort, which includes mine expansions and the construction of entirely new mines.

But the spending isn't done yet. In 2015, capital spending is projected to be nearly $2.7 billion, almost as much as the previous two years combined. And spending will likely remain high through at least 2018.

That's a lot of money
Southern is spending big to build out its production, but it takes years to develop projects before they start adding meaningfully to results. And even then, the return happens over time, not all at once -- unlike the return for construction spending. To Southern's credit, however, it's managed to keep long-term debt at reasonable levels. For example, in 2012, before the big spending spree, long-term debt stood at roughly $4.2 billion. At the end of the first quarter, it was still $4.2 billion.

How did the company manage that? The first quarter is a good example because capital spending ate up nearly 90% of Southern's net income. It's basically spending everything it has on growth. Investors have felt that hit, too, because the dividend fell from over $4 a share in 2012 to a run rate of just $0.40 a year recently, freeing up cash for construction costs. So, in a very real way, shareholders are footing the bill for this expansion.

That said, it looks like pay-as-you-go has run its course. Indeed, just after the end of the first quarter, Southern issued $2 billion worth of debt. The proceeds are earmarked for its expansion efforts. So debt is now heading higher in a meaningful way. And with copper prices low, there's a good chance Southern will have to go back to this well for more cash if industry pricing doesn't turn higher soon.

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Jump aboard?
There's always risk and reward to consider when making an investment. And Southern clearly believes demand for the copper it plans to produce will materialize, making current spending well worth the price being paid. There are already positive signs, too. The miner's copper production increased around 7% year over year in the first quarter, while sales volumes increased about 12.5%. But there's still a lot of spending to be done, and there's notable financial and execution risks that go with that.

Conservative investors should probably stay on the sidelines until the company is closer to its 2018 production goals. More aggressive investors might want to consider a purchase here as the shares consolidate, but you'll likely need to be prepared to stick it out through some lean years before there's any material reward.