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Freeport or Southern Copper: Which Produces Copper More Cheaply?

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Southern Copper

Previously in this series, we looked at leading copper producers’ 2Q17 production profiles. In this article, we’ll look at their unit production costs. Commodity producers don’t have much control over commodity prices. 

When commodity prices fall, high-cost producers become unprofitable much sooner than their peers, which are placed more favorably on the cost curve. So, it’s crucial for commodity producers to have competitive cost structures.

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Comparative analysis

  • Freeport-McMoRan (FCX) reported copper after-by-product unit cash cost of $1.20 per pound in 2Q17 versus $1.39 per pound in 1Q17. More shipments from its low-cost Grasberg mine had a favorable impact on Freeport’s 2Q17 unit cash costs.
  • Southern Copper’s (SCCO) after-by-product unit cash costs rose to $0.98 per pound in 2Q17 compared to $0.88 in the sequential quarter.
  • Teck Resources (TECK) reported unit production costs of $1.26 per pound in 2Q17 compared to $1.55 per pound in 1Q17.
  • Antofagasta’s 2Q17 unit cash costs after-by-product credit fell to $1.20 per pound in 2Q17 compared to $1.27 per pound in the previous quarter.

Guidance

Freeport-McMoRan expects its copper after-by-product unit cash cost to average $1.19 per pound in 2017. Previously, the company expected its cash cost after by-products to average $1.08 this year. The company raised its 2017 unit cost guidance during the 2Q17 earnings call. 

The key reason behind the new guidance is lower-than-expected production from Grasberg in 2017. As we noted previously, Freeport’s Grasberg mine (EIDO), where Rio Tinto (RIO) is its partner, has faced recurring issues over the last few quarters that have hurt the company’s production profile.

In the next article, we’ll look at different mining companies’ 2Q17 profitability.

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