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How Do Freeport’s Unit Cash Costs Stack Up against Its Peers’?

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Unit cash costs

Commodity producers don’t have much control over commodity prices. 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 able to ride out economic cycles better, and it becomes prudent for commodity producers (BHP) (RIO) to control their unit production costs. In this part of the series, we’ll look at various copper producers’ 2016 unit cash costs.

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Comparative analysis

  • Freeport-McMoRan (FCX) reported copper unit cash costs after by-product credits of $1.20 per pound in 4Q16, bringing its consolidated 2016 cash costs to $1.26 per pound. Freeport’s unit cash costs after by-product credits averaged $1.53 per pound in 2015.
  • Southern Copper’s (SCCO) unit cash costs after by-product credits averaged $0.95 per pound in 2016, compared to $1.11 per pound in 2015.
  • Teck Resources’ (TECK) 2016 unit cash costs after by-product credits averaged $1.35 per pound in 2016. The company reported unit cash costs of $1.45 per pound in 2015.
  • Anglo American’s 2016 unit cash costs after by-product credits were $1.37 per pound in 2016, down from $1.54 per pound in 2015.

As we can see, all copper producers reported lower unit cash costs in 2016. We can attribute this industrywide phenomenon to three key factors.

First, most copper miners curtailed their high-cost operations and tightened the belts of their running operations amid lower copper prices. Second, gold, a key by-product of copper mining, rose to a higher price level in 2016, helping copper miners to bring down their unit cash costs after by-product credits. Third, lower energy prices and a stronger US dollar helped copper miners to bring down their dollar-denominated costs.

In the next article, we’ll see whether copper miners can continue to cut costs in 2017.

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