Codelco sees reasons to be cheerful despite big debt and lower production

Despite a debt of US$17.2bn at the end of last year and a 10.7% drop in copper production in 2022 to 1.4Mt, with a further decline expected for this year, Chile’s state copper miner Codelco is not at risk of insolvency and better years will come, chairman Máximo Pacheco told a seminar hosted by think tank Clapes UC.

Pacheco expressed satisfaction with the company’s US$2bn international bond issue earlier this month, which received "the interest of 270 investors and demand that exceeded the proposed value by 4.7 times, or US$9.3bn," he said. 

In terms of Ebitda, "in the last five years it fluctuated between US$4bn and US$10bn, and in the last 10 years we generated US$48.3bn, with more than US$14bn for structural projects. What is left to invest has extraordinary rates of return," he said.

The main challenge is to finance and complete the structural projects. Without these, "Codelco would become irrelevant for the country and for fiscal coffers by the end of the decade. Our production would drop by 75% to 400,000t of copper per year," Pacheco said.

Therefore, accelerating the development of the new level at the Andina division, the Chuquicamata underground mine, the project portfolio at El Teniente and the new Rajo Inca pit at Salvador, along with strengthening operations at the Ministerio Hales mine, are key, he said. 

“One of our transcendental problems is having capacity in the plants that is much higher than the ore we supply,” said the company’s chairman.

Although the bond issue carried out in New York, and led by BNP Paribas, Citi, JP Morgan, Santander and Scotiabank, will strengthen the company's finances, as Codelco said in a statement, that needs to be balanced by the new projects.

However, in addition to delays, Codelco has had to face unanticipated geotechnical problems.

“Our rocks do not bend, they do not deform, they explode!” he said in reference to the rockfall that occurred at the Andes Norte mine level at El Teniente in July. The seismic-caused incident reached a magnitude of 2,000t of explosives, Pacheco said, adding that the company is developing technology to avoid similar events.

Although this will be the worst year of the 2023-27 period, an increase in production is seen from 2024 until reaching around 1.7Mt/y copper at the end of the decade. Factors that will contribute to the rebound include the recovery of the concentrator at Andina and the increase in capacity of the Chuquicamata smelter and refinery, Pacheco said.

“We spent US$130mn at the beginning of the year [on maintenance at Chuquicamata], allowing us to expand the smelter from 700,000t to 1.15Mt,” he added.

Lithium business

Codelco has come in for criticism for its role in the lithium business at a time of low production and financial problems, but Pacheco acknowledged that it was the company that proposed to the government that it collaborate with the national lithium strategy.

That was due to its experience in joint ventures such as the one with Freeport-McMoRan to operate El Abra, in which Codelco has 49%, and the 29.5% share it has in Anglo American Sur with Mitsui, as well as the agreement it sealed this year with Rio Tinto to explore the Agua de la Falda project.

Currently, the firm is in negotiations with lithium producer SQM to operate in the Salar de Atacama, it is the only one that has lithium assets in the Salar de Pedernales and is the holder of the only contract to operate in the Salar de Maricunga, where it has already spent US$23mn on exploration and is "defining the business model to partner with a private company," Pacheco said.

Codelco remains the world’s largest copper producer.