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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Profitable Once Again: Copper Miners Report Better Numbers

It’s a big day for copper. With workers at Escondida, Chile — the world’s largest mine – having signaled they intend to start strike action today, earlier than expected.

That would likely mean upward pressure on prices. Which could be very good news for copper miners, especially in light of new research this week – which shows production costs are falling exceptionally fast in the global copper sector.

That work comes from metals industry experts CRU Group. Who released a study Tuesday detailing production costs at copper mines around the world over the past year.

CRU’s analysis found that the average cash cost of production for the global copper sector fell a full 13% during 2016. To near $2.40/lb, from just under $2.80/lb in 2015.

The chart below from the research summary shows how costs have plunged recently (red lines).

(Click to enlarge)

CRU Group’s new analysis shows copper production costs (red lines) fell markedly during 2016

Costs have actually been falling across the copper industry since 2013. But 2016 was by far the strongest drop we’ve seen the last three years—–representing the fastest annual rate of decline seen in 25 years.

The majority of the big cost savings in 2016 came from lower prices for mine consumables, as well as lower labor rates. A consequence of continued deflationary pressure in the mining sector, as prices have dropped and projects have been cut back or shelved. Related: The Unlikely Alliance Between Trump And Saudi Arabia

In fact, the falling cost structure is giving the copper sector newfound profitability, even at today’s lower copper prices. With CRU reporting that 89 percent of the global copper mining sector was cash flow-positive at 2016’s average price of $2.20/lb.

And with prices rising the last few months, the outlook is even better. Using the December 2016 average price of $2.57/lb, over 93 percent of global copper mines were making money.

That’s good news for mining companies and their investors. Watch for rebounding profits at copper mines, potentially leading to share price rebounds in this sector.

Here’s to getting back to business.

By Dave Forest

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