Previously in this series, we looked at copper miners’ first-quarter production and 2018 guidance. In this article, we’ll look at their unit production costs. When commodity prices fall, high-cost producers become unprofitable much sooner than their peers, which are placed more favorably on the cost curve. It’s, therefore, crucial for commodity producers to have competitive cost structures.
Freeport-McMoRan (FCX) reported a net unit cash cost after by-product credits of $0.98 in the first quarter. In comparison, the metric stood at $1.39 in the corresponding quarter last year. Meanwhile, Freeport raised its full-year unit cash cost guidance from $0.97 per pound to $1.01 per pound.
During the company’s first-quarter earnings call, Freeport’s CEO, Richard Adkerson, said that “a significant portion of our input costs are correlated with copper prices.” Miners across the board are staring at cost inflation as input costs have spiked in recent quarters.
Freeport also expects an uptick in its sustaining capital expenditure (or capex) as it makes up for lower investments over the last few years. The company shelved its capex budget a couple of times between 2015 and 2016 amid falling copper prices (VALE).
Southern Copper (SCCO) reported unit cash cost after byproduct credit of $0.79 in the quarter. The metric stood at $1.54 per pound for Antofagasta (ANTO) and $1.27 per pound for First Quantum Minerals (FM). Antofagasta attributed higher unit cash costs to lower copper grades and a stronger Chilean peso. The company expects its unit cash costs after by-product credits to average $1.35 per pound in 2018.
In the next and final part of this series, we offer a comparative analysis of copper miners’ first-quarter cash flows.