Global copper production giant Codelco’s new boss insists the company will reverse its significant production decline this year despite struggling with $20 billion in debt. Codelco’s copper production fell from 1.618 million tons in 2021 to 1.325 million tons, the lowest in 25 years. The company faces delays in four major projects needed to extend the life of aging mines. However, Rubén Alvarado, who became CEO in September last year, told the Financial Times, “We believe 2023 is our bottom year.”
“Production in 2024 will be slightly above 2023, and by 2030 our production will reach 1.7 million tons.”
While Codelco’s production is decreasing, other copper mining businesses have faced a series of supply issues, and demand for copper is soaring. Recently, copper prices have hit record highs above $11,000 per ton, with analysts expecting prices to reach $15,000 per ton in the coming years. These economic factors have encouraged global mining giants like BHP to attempt acquiring Anglo American, which operates profitable mines in Chile and Peru. However, the acquisition plan ultimately failed.
Last year, Codelco’s El Teniente copper mine suffered its largest-ever rockfall. Built in 1905, the mine includes 4.5 kilometers of tunnels. These and other significant events have plagued the construction of new mining layers, designed to offset dwindling upper reserves and maintain production for another 50 years. Initially planned for completion in 2018, the new layer has been restructured into three projects, now scheduled for completion in 2026, 2029, and 2030.
At the current mining layer, approximately 300 meters high, the average copper grade is 0.88%. The company has extended the life of this section, El Pacífico, to 2027, which was initially set to close in 2022.
Historically, Codelco has maintained overall production stability by utilizing capacities from different regions to compensate for temporary reductions in specific areas. However, this has proven impossible as the company balances the expansion of El Teniente, the transformation of the Chuquicamata mine to an underground operation, and major overhauls of the Andina and Salvador mines. Delays of several years have affected each project due to accidents, design issues, and other operational setbacks. Since 2021, accidents have resulted in the deaths of six workers, and budget overruns have reached billions of dollars.
To avoid future shortages, increasing global copper production is critical. The International Energy Agency (IEA) estimates that by 2030, existing mines and projects under construction (which typically take 15 years on average) will only meet 80% of demand.
Codelco’s resources are among the most technically challenging in the world. Analysts state that successive Chilean governments have exacerbated this challenge by refusing to allow the fully nationalized company to reinvest profits, resulting in a backlog of maintenance and expansion projects since the early 2000s and increasing debt. Apart from a special permit to reinvest 30% of profits from 2021 to 2024, Codelco relies entirely on market financing for expansion projects, costing about $4 billion annually. Analysts indicate the company currently has around $20 billion in debt, with revenues of $16.4 billion in 2023. Debt could exceed $30 billion by 2027.
Jorge Bande, honorary head of the Copper Industry Research Center (Cesco), said, “Codelco’s structural problem is a historically severe underinvestment in maintenance and expansion.” He added that continuous leadership changes since 2010 have also been disruptive.
“We have faced very significant management challenges in major projects, ultimately leading to production declines,” Alvarado said, adding that avoiding further delays is “fundamental.”
He believes the company has “room for growth” through joint ventures with private companies, such as last year’s agreement with Rio Tinto to develop copper exploration in Chile’s Atacama region.
Meanwhile, officials said production continued to decline in Q1 and April 2024, with increases expected in the second half through production from the new part of the Salvador mine, increased output from the underground portion of Chuquicamata, and improved operations at the Andina and Ministro Hales mines.
Industry analysts generally agree that structural projects should soon yield returns in increased production. However, some worry that reforms by Alvarado and Chairman Máximo Pacheco, including simplifying leadership structures, are insufficient to address Codelco’s long-term issues of rising debt, underinvestment, and declining ore grades.
Codelco also faces new challenges. President Gabriel Boric has tasked the company with representing the state in new public-private partnerships for lithium extraction, despite Codelco having no experience in this area. Alvarado dismissed concerns about this being a distraction, calling lithium mining a “good business” for Codelco.
Long-term demand for copper also provides some benefit. This year’s record surge has eased, but prices are expected to remain high due to global supply tightness. Alvarado stated that higher prices would reduce financing needs and the amount Codelco pays for new debt. “We will enter a virtuous cycle, funding our operations sustainably while also increasing production. This is the strategy we have designed.”
[Source – 上海有色网] 全球最大铜矿商Codelco坚称其能够扭转产量下滑趋势 https://news.smm.cn/news/102805409
