Codelco's pre-tax profits up 25% on copper prices

Chilean state copper giant Codelco saw its H1 pre-tax profits rise to US$1.24bn from US$990mn a year ago as a result of higher copper prices, better management and greater sales volumes, CEO Nelson Pizarro said Friday.

Pizarro told reporters he is confident about the long-term fundamentals for the copper industry, and that the worst is over regarding the US-China trade war.

"Today the copper price is around US$2.70/lb. In the short term, from now to the end of the year, we think we're going to be at around the same price ... In the next two to three years, there's going to be a supply deficit that will not satisfy demand. This means copper prices going back to around or slightly higher than US$3/lb," he said.

Ebitda for January-June was up 21% year-on-year to US$2.69bn.

Codelco, the world's largest copper producer, stresses pre-tax profits as all its earnings go to the government in one form or another.

Codelco's production from its own mines in the period was up to 813,000t from 798,000t, in line with its guidance for the year and despite a fall of 3.4% in ore grades, Pizarro said.

The company's flagship El Teniente mine produced 225,000t in the first half and Radomiro Tomic 178,000t, followed by Chuquicamata (137,000t), Andina (101,000t), Ministro Hales (97,000t), Gabriela Mistral (50,000t) and Salvador (26,000t).

When including its 20% stake in Anglo American Sur (AAS) and 49% in Freeport-McMoRan's El Abra mine, first half production was 875,000t, up 2% from 851,000t in January-June 2017.

Codelco's C1 costs rose 4% to US$1.38/lb, while C3 costs were up 7% to US$2.19/lb.

Pizarro attributed the increase in C1 costs to the foreign exchange impact, with the Chilean peso going from 611 to the US dollar in 1H17 to 661 this year, as well as an increase in supply costs and the costs of labor contract agreements.

Despite the increase, the company remains among the lowest cost producers in Chile's mining industry, where average C1 costs are US1.59/lb.

CONTRACT NEGOTIATIONS

Pizarro also highlighted the successful closing of six collective contract negotiations during the first half, benefitting nearly 3,000 workers.

For the second half, four more negotiation processes are expected, namely at the Salvador, Andina and El Teniente divisions.

Agreement was not reached with one union known as Suplant representing 83 workers at Andina's concentrator, and they have been on strike since August 20, although the company says production has not been impacted.

When a reporter asked about this process, Pizarro said: "We cannot maintain the historical benefits because mining has changed, it's different. If we keep the benefits, we won't be able to make viable our projects. We're going to try to have a conversation with our people to advance in the resolution of this problem."