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Why Freeport Expects Its Unit Cash Costs to Fall Further in 2018

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Unit cash costs

In the previous part of this series, we looked at leading copper miners’ 4Q17 unit cash costs. We saw some increases in unit costs before byproduct credit on the back of higher input costs. In this article, we’ll look at copper miners’ 2018 unit cash cost guidance.

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Comparative analysis

Southern Copper (SCCO) expects its unit cash costs after byproduct credits to average $0.89 per pound in 2018. However, it expects the metric to fall by $0.10 per pound in the next three years. The company reported a unit cash cost after byproduct credit of $0.92 per pound in 2017 and $0.95 per pound in 2016.

First Quantum Minerals (FM) expects its 2018 unit cash costs after byproduct credits to be between $1.20 and $1.40 per pound, compared to $1.23 per pound in 2017. Antofagasta (ANTO) expects its unit cash costs after byproduct credits to average $1.35 per pound in 2018—a yearly increase of 8%. The metric had risen 4.2% year-over-year (or YoY) in 2017.

Freeport-McMoRan

Freeport-McMoRan (FCX) expects its unit cash costs before byproduct credits to average $1.60 per pound in 2018, which is similar to 2017. However, the company’s after-byproduct cash costs are expected to fall from $1.20 per pound in 2016 to $0.97 per pound in 2018. The sharp decline in Freeport’s 2018 after-byproduct unit cash costs could be due to higher gold production at its Grasberg mine (RIO). Freeport’s 2018 gold volumes are expected to rise 50% YoY to 2.4 million ounces.

Because of higher byproduct credits, the company’s unit cash costs at Grasberg are expected to fall to -$0.57 per pound in 2018. Meanwhile, 2018 could be an aberration year for Freeport in Indonesia due to higher gold production, but the mine is an attractive long-term asset for the company—as we’ll discuss in the next part of this series.

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