Codelco's woes reignite debate on stock market listing

The 31.3% year-on-year drop in cash generation and the 43.9% fall in contributions to the treasury by Chilean state copper miner Codelco in January-September have reopened the debate about listing a stake in the company on the stock market.

Although former central bank governor José De Gregorio asked people not to confuse the proposal with privatization, he said the option of incorporating private partners should be considered to help the company cope with its excessive debt. A similar view was expressed by former center-right presidential candidate Felipe Kast in the 2017 campaign.

Kast suggested the private pension funds known as AFPs acquire 30% of Codelco.

In the first nine months, Codelco posted Ebitda of US$3.24bn, US$1.46bn less than in the same period 2022, due to lower sales of copper and byproducts such as molybdenum, higher costs and an increase in non-operating expenses, the company indicated in its latest financial report.

In addition, contributions to the treasury fell US$1.10bn and Codelco reported a 65% decline in pre-tax earnings to US$917mn. The company stresses pre-tax rather than net earnings as in normal circumstances all its profits go to the State.  

“There are many ways to assuage people's fears of privatization, for example, putting in the company's statutes and in the constitution a clause that the Chilean State will always have the majority on the board of directors. It would be a huge mistake to privatize the company because the people who want to do that intend to devour its capital,” De Gregorio said in an interview with local daily El Mercurio.

De Gregorio, who was also economy, mining and energy minister in the first year of the Ricardo Lagos government (2000-06), said the priorities of the State are social issues such as health and education, and not providing capital for Codelco’s mining business.

In January-September, Codelco's cash costs rose 29.9% year-on-year to US$2.045/lb largely due to a drop in copper production of 96,000t, the company said in its results.

The state miner has been experiencing higher costs since 2021.

In the first half of the year, 19 large copper mines in Chile out of a total of 22, including Codelco’s, saw an increase in costs, according to state copper commission Cochilco.

Codelco’s costs were also impacted by the effect of inflation on salaries and contracts, with the CPI rising 5.1% in the 12 months to September, according to statistics office INE.

The company’s C3 costs increased 31.4% to US$3.30/lb in the nine months due to delays in its structural projects, global volatility and the prices of inputs.

Oil prices have increased 6% since the conflict broke out in the Middle East, according to the World Bank, while the global market that continues to be impacted by Russia's invasion of Ukraine.

"The rise in crude oil makes extraction production processes in mining companies more expensive, to which is added the rise in the value of the dollar and uncertainty," Karen Zelmanovits, senior account analyst at FXGlobe, told BNamericas.

At the end of last year, Codelco had a financial debt of US$17.4bn, which six months later had risen to US$18.5bn. Its debt has been increasing since 2008, according to an analysis by Chilean copper think tank Cesco.

"Codelco is probably experiencing one of the most complex moments in its 52-year history, with production levels increasingly lower than its own projections, with delays and cost overruns of structural projects that exceed 50%," said Cesco, which projected that the debt would rise to US$30bn by 2030.