How The Cerro Verde Mine Expansion Has Boosted The Fortunes Of Freeport’s South American Copper Mines Division

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Freeport-McMoRan’s South American copper mining operations consist of the El Abra and Cerro Verde mines. The company sold off its  Candelaria and Ojos del Salado mines in 2014, and lowered mining rates at the El Abra mine in 2015, to extend the life of these mining operations, which are coming towards the end of their life. [1] [2] The sale of mines and the lowering of mining rates at El Abra resulted in a lowering of the division’s shipments and share of the company’s overall revenue. In addition, the mining of lower grade ore sections at the El Abra mine exacerbated the impact of lower copper prices on the division’s profitability, translating into lower margins as illustrated by the graphs shown below.

The expansion of production facilities at the Cerro Verde mine, which was completed in September 2015, offset the negative impact of declining shipments and the mining of lower grade ores on the division’s operations. The expansion added 600 million pounds of incremental annual production to the division’s totals, with the mining of higher grade ores and economies of scale propping up the division’s margins. [1] As a result of the ramp-up of production from the expanded Cerro Verde mine, the South American division’s share of the company’s overall revenue has been restored to previous levels along with margin improvement, as summarized by the table shown below.

South American Copper Mines Revival

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Freeport-McMoRan

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Notes:
  1. Freeport-McMoRan’s Q2 2016 10-Q, SEC [] []
  2. Freeport-McMoRan’s 2015 10-K, SEC []