How Freeport’s Unit Costs Stack Up to Southern Copper



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 peers that are placed more favorably on the cost curve.

Low-cost producers are able to ride out economic cycles better, and so it’s wise for commodity producers to control their unit production costs. In this part of the series, we’ll look at various copper producers’ (GLNCY) (XLB) 1Q17 unit cash costs.

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Peer comparisons: Teck Resources and Southern Copper

Teck Resources (TECK) reported unit cash costs before by-product credits of $1.86 per pound in 1Q17, while its after by-product unit cash cost was $1.55 per pound. The company’s unit cash cost after by-product credit was $1.45 in 4Q16. Notably, the increase in Teck’s unit cash costs is due to lower grade ores.

Southern Copper’s (SCCO) 1Q17 unit cash cost before by-product credit rose slightly over 4Q16 on higher fuel and labor costs. However, the company’s after by-product unit cash cost fell to $0.88 in 1Q17 from $0.97 in 4Q16 due to higher by-product credit.

Antofagasta and Freeport-McMoRan

Antofagasta’s (ANFGF) 1Q17 unit cash costs also rose on a sequential basis, while they fell on a yearly basis. The company attributed higher sequential costs to lower production.

Freeport-McMoRan’s (FCX) reported unit cash costs after by-product credit of $1.39 per pound in 1Q17. Although the metric is similar to the corresponding quarter last year, it’s higher than the $1.20 per pound that Freeport reported in 4Q16. These higher costs as compared to 4Q16 could be attributed to lower production from Freeport’s Grasberg mine.

Meanwhile, copper prices showed strength in 1Q17, and this has positively impacted miners’ profitability. Next, we’ll look at these mining companies’ profitability in 1Q17.


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