Codelco profits down 85% despite output increase

Chile’s Codelco, the world’s largest copper producer, saw profit nosedive in the first three months of the year as prices for the metal dropped to an average of US$2.49 per lb. in the same period compared to US$2.72 a year earlier.

The state-owned miner reported an 85% decline in profit to US$54 million in the first quarter of 2020, even though production climbed 6% to 361,000 tonnes.

Lower costs — which fell 2% to US$1.327 per lb. copper – were unable to offset the slump in prices.

A global surplus of the metal may weigh further on Codelco, analysts warn. The glut is expected to get worse over the next 18 months as market disruptions have created greater uncertainty in the factors affecting supply and demand for the metal, the International Wrought Copper Council (IWCC) said this week.

At the end of March, the Santiago-based copper giant had to partially or fully suspend some third-party services, both in projects and operations. The measure aimed at keeping low numbers of employees amid the coronavirus pandemic. The measure affected around 30% of contractor workers.

CEO Octavio Araneda emphasized the company had “its foot on the gas” in terms of a sprawling 10-year, US$40 billion mines overhaul.

Codelco, which hands all its revenue over to the state, has already finished one of its most ambitious projects — the US$5.6 billion conversion of its giant Chuquicamata open pit mine into an underground operation.

Ongoing major mine overhauls include a US$5.5 billion new level at the El Teniente underground mine, the company’s largest and the world’s no. 6 by reserve size, slated to begin operations in 2023.

It also involves converting the El Salvador mine to an open-pit mine from underground operations. The US$1 billion project, known as Rajo Inca, is expected to extend the productive life the mine by 40 years and increase output by 30% from current levels.

In April, however, the company began ramping up operations. The same month, it raised US$800 million worth of bonds to boost its cash reserves and face market uncertainty.

The company is also focused on the US$1.3 billion expansion of the Andina mine. The operation accounted for roughly 11% of Codelco’s output in 2018.

Codelco operates seven mines and four smelters, all in Chile. Its assets account for 10% of the world’s known proven and probable reserves and about 11% of the global annual copper output, with 1.8 million tonnes of production.

— This article first appeared in our sister publication, MINING.com. The Northern Miner and Mining.com are part of the Glacier Resource Innovation Group.