How Codelco plans to remain the world's top copper producer

The world’s top copper producer, Chilean state-owned company Codelco, reported a 10.7% drop in output to 1.4Mt last year due to factors such as lower grades in the Ministerio Hales division, a drop in the recovery rates of the concentrator plants in the Chuquicamata and El Teniente divisions, operational problems and delays in its structural projects.

The fall was accompanied by higher costs, a drop in realized prices and weaker results of its subsidiaries, leading to a reduction in pre-tax profits of 62.9% to US$2.75bn.

In response, the company launched an austerity plan for the 2023-27 period that considers cost containment and a review of investments to face the challenge of recovering production and extending the life of its operations for another 50 years.

To learn more about the reasons for the drop in production, its plans for the future, and the company’s role in the new national lithium policy, as well as the problems with its copper project in Ecuador, among other issues, BNamericas interviewed Codelco chairman Máximo Pacheco.

BNamericas: Why did production drop?

Pacheco: Our production fell in 2022 and will fall again this year, until we start up Codelco's structural projects and manage to address operational failures. Last year we had difficulties in operational continuity and delays in the ramp-up of structural projects.

We are a company with a huge amount of equipment, plants and fixed assets, and during COVID we neglected asset management and postponed maintenance. With a tremendous effort we managed to sustain production, but we stopped doing some things, such as maintenance. So putting more focus on asset management and maintenance is a very clear lesson.

Another lesson is that responsibility for project execution must be carried out through multidisciplinary and integrated work with all divisions, areas and teams of the organization, and not just the project area, since shared infrastructure is very significant.

Production also fell because we operate with century-old deposits that are being depleted, minerals with lower grades, greater hardness… and mining to deeper levels is required. We’re in a historic process in which we’re building Codelco for the next 50 years and the construction of the structural projects will make it possible to replenish these reserves and deposits.

BNamericas: In the medium and long term, is it possible for Chilean copper production to pick up?

Pacheco: Chile has the largest copper reserves in the world and we have a tremendous responsibility to the planet. We are living in the era of decarbonization, the world is going to be more electric and the best conductor of electricity is copper.

Therefore, the fundamentals of our business to engage in this are very powerful. In addition, we have a robust portfolio of projects, although for Chile to increase production it’s not so easy and cannot be done overnight.

We have to increase resources for innovation. The last time there was a major innovation in the copper industry it was leaching technology and today we need technological innovation to treat lower grade ores more efficiently. We also have to make productivity efforts and improve asset management. I’m optimistic that Chile will be able to respond with more production to contribute to the decarbonization of the planet.

BNamericas: Last year you signed an agreement with the government to allow you to reinvest 30% of your profits in the company. Is it sufficient?

Pacheco: It's a very good strategy because it allows the owner of our company, which is the Chilean State, to take care of this business. This strengthens our balance sheet, but above all it gives a very powerful signal that not all of Codelco's profits are going to be taken to pay for benefits or social programs of the State, but that a part stays here to ensure our sustainability. Our investments will be financed with these reinvested profits, with depreciation and also with our financing capacity. This company is by far the best business Chile has.

BNamericas: The rising demand for copper due to the global energy transition has generated geopolitical tensions between nations looking to secure their mineral supply chains. In the new order, do you plan to diversify your exports, reducing exposure to China?

Pacheco: We are constantly reviewing our clients, partly because production is falling and we must restructure. Global economies are growing at different rates and the uses of copper are also changing. The impulses of electromobility and renewable energies that use a lot of copper, force us to see where the future uses of copper are. Our client portfolio takes these elements into consideration: the uses of copper, market dynamics, and the need to diversify our markets so as not to put all our eggs in one basket. Indeed, we have recomposed our portfolio, and we will continue to do so.

BNamericas: Is the environmental review system a hindrance in attempts to increase production?

Pacheco: We need to build a relationship of trust with society to get the social license. This means looking for new ways of doing mining with social legitimacy so that society perceives that mining takes care of the environment and is friendly to the communities. The State establishes the regulations in response to what society is demanding. If we face the issue well and to the extent that society understands it, then we’ll have the right to ask the State to recognize that we’re doing things in the best way. In this way, the State will allow a more responsible regulation, and also a more agile one.

BNamericas: Within the new national lithium policy framework, will you partner with private firms to mine lithium in the Salar de Maricunga?

Pacheco: Definitely. With the new policy, the State will be prepared to strengthen Chile's participation in global lithium production and take advantage of the tremendous opportunity to contribute to the energy transition. As Codelco, we are prepared to do so. We’re going to participate with our legal, environmental, community, financial and business development teams, and with our experience in mining, but above all with our international reputation because participating in global markets requires global companies, and Codelco is the flagship that we have as a country to participate in the international business community.

BNamericas: What do you think of Simco's claim regarding its ownership of property in the Salar de Maricunga? The firm warned last year that it would take legal action on the grounds that Codelco had been privileged.

Pacheco: I am a businessman and as such I believe that it’s better to resolve these issues of conflicts of interest with non-judicial means. I’m convinced that this [legal action] will not happen, because we’ll find ways to solve it.

BNamericas: What do you think of the decision by the Imbabura provincial court in Ecuador to revoke the environmental license for the Llurimagua copper-molybdenum project that Codelco owns with Ecuadoran state mining company Enami?

Pacheco: That ruling was not good news. This deposit has enormous potential and we want to help develop it. We are currently in an arbitration process. The arbitrators have already been appointed for each of the parties, missing only the third arbitrator that I hope will be appointed soon. It’s important that it be resolved, this is in the interest of Ecuador, Enami and ourselves.

BNamericas: Do you have plans for another project outside Chile?  

Pacheco: We’re always looking at opportunities, but the most important thing is that we must quickly recover production levels to 1.7Mt/y including production from our partnerships. I hope we can meet that within three to five years. To do this, we have to stay focused on Chile.

BNamericas: Will Freeport-McMoRan be able to overtake you in production?

Pacheco: We have been the world's leading copper producer for 50 years, and we have the capacity to continue to be so. That's where we are.

BNamericas: In terms of sustainability, what challenges do you face with the desalination project that will supply water to the northern district?

Pacheco: We have production that requires 5,500l/s of water, and today all that water is of continental origin. We want to transition to desalinated water, so that continental water is only used for agriculture, food or human consumption.

We’re building Codelco's first desalination plant 17km from Tocopilla, and we’re very happy because the process is progressing well. After a first stage of 800l/s, we will add another 800l/s, and more desalination plants will come. We want to fulfill the commitment to use desalinated water, be more efficient and carry out responsible management.