Codelco differs with treasury over stockpiling impact

Chile's state copper corporation Codelco sees its bottom line being negatively impacted to the tune of US$63mn this year, as a result of a decision to stockpile 200,000t of cathodes in the face of weak markets, CEO Juan Villarzu told reporters Tuesday. He was responding to claims made by the treasury's budget director, Mario Marcel that the Codelco decision would mean some US$230mn less for the state in 2003, and to make up the shortfall government spending cuts would be required. Villarzu said he did not know how Marcel came up with his figure, but said Codelco's revenues would fall to an estimated US$3.40bn this year from the figure forecast before factoring in the stockpile decision, which was US$3.74bn. The company, the world's largest copper producer, expects to sell 1.464Mt of the metal this year, compared with the previously planned 1.664Mt, while production will remain at 1.643Mt. But, when questioned by BNamericas, Villarzu explained that the US$63mn figure is arrived at by assuming that for accountancy purposes total costs will fall from the forecast US$3.079bn to US$2.802bn, or US$277mn, by treating the stockpiled copper as an asset. If the actual, total budgeted cost figure given by Codelco were used in the calculation, its forecast pre-tax profit - all of which goes to the state - would fall from US$661mn to US$321mn, not US$598mn as the company estimated, an impact of US$340mn rather than US$63mn. What is more, the treasury figures do not consider Codelco's direct contribution to the armed forces of 10% of its export sales revenues, which in the case of 200,000t of copper at current prices would amount to some US$35mn. When this and the US$63mn are deducted from the US$340mn, the Codelco and treasury figures are not that far apart, especially considering the latter was given in pesos (161.6bn) and exchange rate variations must be taken into account. All the figures are based on an average copper price of US$0.77/lb for this year, and Villarzu argued that a 2-cent increase would offset the US$63mn shortfall. "So the measure is positive, and I want to stress that we will not change our policy [of stockpiling]," he said, although he did admit that the latest row has caused concern in the markets, "and if people don't believe that you will not release the inventories, the effect [on copper prices] is diluted." Codelco says it will not sell off the copper accumulating in its warehouses until stocks on the world's three major metal exchanges - London, Shanghai and New York - come down to a "normal" 800,000t. The total has fallen from highs of some 1.5Mt at the end of last year, but Villarzu said it would be unlikely to come down to 800,000t before the middle of next year. Some members of the senate finance committee blasted the Codelco decision to stockpile, and called on the finance minister, Nicolas Eyzaguirre, to have a veto on the company's production and sales policies when these affect treasury funds. But Villarzu pointed out that the company's directors, including Eyzaguirre, approved the decision to build up stocks unanimously and the finance ministry effectively has a veto already, as Codelco needs its approval for budget-related matters. Spot copper closed Tuesday on the LME at US$0.743/lb.