Copper miners’ game of chicken continues – by Frik Els ( – April 6, 2016)

Lowering of cost curve, marginal mines staying open at all costs will see oversupply persist and a fifth year of copper price declines

The latest edition of the closely followed GFMS Annual Copper Survey forecasts primary production to continue to grow over next three years, albeit at a slower pace than in the recent past, as miners deliver on investments made during the boom years.

World mine production was up 3.5% or 652,000 tonnes in 2015 to just over 19 million tonnes, compared with a 2.1% increase in 2014, but down substantially from 2013’s 8.2% clip. Peru led the pack with a 28% rise in production which saw it surpass the US in the global rankings to take third place behind Chile and China.

Given the well-publicized trend of falling grades and increasingly contaminated concentrate at the world’s biggest mines it’s interesting to note that a full 722,000 tonnes of increased production came from higher yields, more than the additional supply from expansions, new mines and restarts combined.

According the Thomson Reuters GFMS study copper miners had a hard time driving costs down amid the falling price environment. Net cash costs for full year 2015 stood at an estimated $3,586 a tonne ($1.62 per pound), a modest 4% or $160 tonne decline year-on-year. However, total costs (a better proxy for sustaining production levels at mines) for the sector at $4,626 a tonne ($2.10 per pound) were only lower by a paltry 2% from levels in 2014.

While costs proved difficult to curb revenues declined steeply with the average copper price achieved in 2015 at $5,503 or $2.50 a pound. Average total costs at the world’s copper mines are also painfully close to the ruling price which on Tuesday was $2.14 or $4,718 a tonne.

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