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Lower Energy Prices: Boon or Bane for Copper Miners?

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Lower energy prices

Previously, we discussed copper miners’ production profiles and 2018 guidance. In this part, we’ll look at leading copper producers’ unit cash costs and see what’s impacted their unit cost progression.

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Comparative analysis

  • Freeport-McMoRan (FCX) reported unit cash costs after by-product credit of $0.93 per pound in the third quarter—compared to $0.96 per pound in the second quarter and $1.21 per pound in the third quarter of 2017. The company’s unit cash costs were slightly higher than its guidance. Freeport-McMoRan also increased its fourth-quarter unit cash cost after by-product credit guidance to $1.45 per pound from $1.29 per pound.
  • Southern Copper (SCCO) reported unit cash costs after by-product credit of $0.90 in the third quarter—compared to $0.81 per pound in the sequential quarter.
  • Antofagasta (ANTO) reported unit cash costs after by-product credit of $1.27 per pound in the third quarter—compared to $1.50 per pound in the second quarter and $1.18 per pound in the third quarter of 2017.
  • First Quantum Minerals (FM) reported a sequential and year-over-year rise in its third-quarter unit cash costs.

Copper miners (VALE) pointed to inflationary pressures, especially from higher energy prices, during their third-quarter earnings call. We should remember that diesel is a key input for copper mining companies. Energy prices have come off their 2018 highs and should help ease cost pressures for miners. However, falling energy prices might also have a negative impact on copper prices. In the past few years, we’ve seen a higher correlation between energy and metal prices.

Next, we’ll compare copper miners’ third-quarter earnings and fourth-quarter estimates.

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