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How Freeport-McMoRan’s Mining Business Performed in 2Q16

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Aug. 5 2016, Updated 8:04 a.m. ET

Freeport-McMoRan’s mining business

Freeport-McMoRan’s (FCX) copper, gold, and molybdenum operations form part of its mining segment. In this part of the series, we’ll see how Freeport’s mining operations performed in 2Q16.

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Shipments

In 2Q16, Freeport sold 1.1 billion pounds of copper, 156,000 ounces of gold, and 19 million pounds of molybdenum. The company sold 964 million pounds of copper, 352,000 ounces of gold, and 23 million pounds of molybdenum in the corresponding quarter of 2015.

Higher copper volumes were led by the expansion of Freeport’s Cerro Verde mine, while operational issues at the Grasberg mine negatively impacted gold volumes.

Unit cash costs

Commodity producers, including Rio Tinto (RIO) and BHP Billiton (BHP), don’t have much control over commodity prices (DBB). When commodity prices start falling, high-cost producers become unprofitable much sooner than their peers who are placed more favorably on the cost curve.

Low-cost producers are better able to weather economic cycles. It makes sense for commodity producers to control their unit production costs. According to Southern Copper (SCCO), it was the copper miner with the lowest costs last year.

Freeport-McMoRan’s copper unit cash cost after by-product credit stood at $1.33 per pound in 2Q16. To put this in context: The company reported a unit cash cost of $1.50 per pound in 2Q15 and $1.38 per pound in 1Q16. You can read Analyzing Copper Producers’ 1Q16 Earnings and Future Plans to explore how Freeport’s unit cash costs compare to other miners’.

Freeport-McMoRan’s unit cash costs fell on a sequential basis as well as year-over-year. Meanwhile, Freeport expects its unit cash costs to fall further in 2H16. We’ll explore this next.

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