Glencore Looks to Lower Copper Production Costs as Prices Slump



Copper production costs

Commodity producers don’t have much control over commodity prices. When commodity prices start falling, high-cost producers become unprofitable much sooner than those that are better-placed on the cost curve.

Low-cost producers are able to weather economic cycles better. It becomes prudent for commodity producers to control their unit production costs. In this part of the series, we’ll explore Freeport-McMoRan (FCX) and Glencore’s (GLNCY) 2016 cash cost guidances.

Note that Southern Copper (SCCO) and Turquoise Hill Resources (TRQ) are among the low-cost copper producers.

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Freeport’s unit cash costs

In its latest 2016 action plan, Freeport didn’t provide any new guidance on its 2016 unit cash costs. However, during the company’s 3Q15 earnings conference call, Freeport said that it expects its unit cash costs to fall to $1.15 per pound in 2016 from $1.52 per pound in 2015.

Together, Freeport and Teck Resources (TCK) form ~0.75% of the iShares North American Natural Resources ETF (IGE).


In its latest investor update, Glencore provided fresh guidance on its unit production costs. Glencore expects its unit cash costs to fall to $1.1 per pound in 2016.

Moreover, the company expects its unit copper cash costs to average $1.42 in fiscal 2015, as can be seen in the graph above. Based on Glencore’s latest announcements, the company’s unit cash costs would be lower compared to Freeport’s in fiscal 2015 and fiscal 2016.

Another metric that investors should be looking at is these companies’ cash-flow profiles. We’ll discuss more on this in the next part of the series.


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