Quick overview
- Southern Copper Corp. and Vale SA have reported negative production costs for copper due to rising prices of byproducts like gold and silver.
- Southern Copper’s cash cost was minus 11 cents per pound in the first quarter, significantly lower than 77 cents a year prior.
- The increase in byproduct revenues, driven by a 40% rise in gold prices and more than doubling of silver prices, has made copper extraction profitable even before selling prices are considered.
- Despite the positive outcomes for Southern Copper and Vale, other large producers still reported positive production costs amid industry challenges.
For Southern Copper Corp.’s copper miners and Vale SA, the cost of producing the red metal has gone negative due to the unusual situation caused by rising prices of byproducts like gold and silver.
Southern Copper reported a cash cost of minus 11 cents per pound in the January–March period, compared to 77 cents a year prior, net of revenue from the sale of byproducts.
This indicates that even before accounting for the metal’s selling price, the business is profitable solely from the extraction of copper ore from mines.
On an all-in basis, Vale’s cost of producing copper also went negative. Positive costs were still reported by other large producers.
The uncommon outcome is an increase in the cost of metals like gold, silver, molybdenum, and zinc that are found in significant ore deposits alongside copper. Gold has increased by about 40% in the last year, while silver has more than doubled.
Southern Copper and Vale benefit more than most of their peers due to the fact that their deposits typically contain a wide variety of metals and produce substantial byproduct revenue.
As the industry struggles to keep up with the growing demand from global electrification, including the rapid development of data centers and artificial intelligence, producers benefit fully from nearly record-high copper prices thanks to the byproduct windfall.
Southern Chief Financial Officer Raul Jacob told analysts on Thursday that “a negative cash cost means that our byproduct revenues of $1.2 billion more than cover our production cost for copper.” In addition to byproducts, Southern’s large-scale, integrated operations result in structurally low underlying costs. Even so, the war in Iran has caused disruptions.
Olumide Adesina
Financial Market Writer
Olumide Adesina is a French-born Nigerian financial writer. He tracks the financial markets with over 15 years of working experience in investment trading.