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Is Freeport-McMoRan or Southern Copper More Profitable?

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This being the quarterly earnings season, leading diversified miners including Glencore (GLEN-L) and Rio Tinto (RIO) have released only their operating results and not their financial performance. In this article, we’ll look at the 3Q17 profitability of some of the mining companies that released their quarterly financial performances. Specifically, we’ll look at adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) and adjusted EBITDA margins.

Comparative analysis

Freeport-McMoRan (FCX) posted adjusted EBITDA of $1.6 billion in 3Q17. In comparison, it posted adjusted EBITDA of $1.2 billion in 2Q17 and $1.0 billion in 1Q17. The company’s 3Q17 adjusted EBITDA margin stood at 37.3%.

In comparison, Southern Copper (SCCO) reported adjusted EBITDA of $863 million in 3Q17 with an adjusted EBITDA margin of 51.5%. Southern Copper generated adjusted EBITDA of $707 million in 2Q17 with a margin of 46.2%. As you can see, Southern Copper’s EBITDA margins are higher as compared to Freeport. This could be attributed to Southern Copper’s lower unit production costs. To be sure, Southern Copper’s unit production costs are the lowest among our select group of copper miners.

First Quantum (FM) reported adjusted EBITDA of $304 million in 3Q17 with a margin of 34.6%. The company’s 2Q17 adjusted EBITDA was $267 million.

Higher copper prices

Copper miners reported a sharp increase in their 3Q17 EBITDA. Higher earnings could be mainly attributed to copper prices. The LME (London Metals Exchange) three-month copper contract averaged $6,342 per metric ton in 3Q17 compared to $5,688 per metric ton in 2Q17. Higher copper prices positively impacted copper miners’ 3Q17 average realized prices. Thus, we saw a jump in their profitability.

In the next article, we’ll see how much cash copper miners churned in 3Q17 amid higher copper prices.

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