Vancouver — Low prices caused the world’s largest copper producer, Corporacion Nacional del Cobre de Chile (Codelco), to suffer a 37% plunge in profits in the first quarter.
The company, wholly owned by the Chilean government, posted a pretax profit of US$104 million, down from US$166 million in the first quarter of 2001.
Copper prices averaged US71 per lb. during the recent 3-month period, compared with US80 a year earlier. The major cranked out 352,000 tonnes copper, down 4% from 366,000 tonnes a year earlier.
Codelco’s five divisions include Chuquicamata, Radomiro Tomic, El Salvador, El Teniente and Andina. In 2000, these produced a combined 1.6 million tonnes of copper, or 15.9% of the world total, at a cash cost of just US44 per lb., ranking Codelco among the lowest-cost producers in the industry. Recently, Codelco reorganized its divisions along geographic lines; as a result, Chuquicamata and Radomiro Tomic are now combined as the Codelco Norte division.
Quarterly output declined as a result of scheduled production cuts at four of the five operations. Late last year, the major announced plans to trim 11,300 tonnes from its high-cost El Salvador mine, in the northern part of the country, along with a 47,000-tonne reduction at its largest mine, Chuquicamata. Smaller cutbacks of 25,000 and 23,000 tonnes were tabled for the El Teniente and Andina mines, respectively. The reductions are being achieved by mining lower-grade material. By maintaining roughly the same throughput levels, Codelco hopes to minimize job losses.
The only mine not affected by the cutbacks is the company’s top performer, Radomiro Tomic.
Cash costs in the recent quarter totalled US41 per lb., down from US43 a year earlier. Total costs for copper held steady at US66 per lb., but net costs (total costs less byproduct credits) came in at US62 per lb., a slight improvement over the US63 per lb. incurred in the first three months of last year. The lower costs reflect higher credits for molybdenum and gold byproducts.
With the reductions in place, the company expects to produce 1.5 million tonnes copper in 2002, down from 1.6 million tonnes last year.
In early May, Codelco agreed to join forces with Montreal-based
The companies also agreed to look for gold and base metals together in an unspecified third region of northern Peru. Codelco will fund the first $400,000 of exploration, and any additional expenses will be shared equally.
Codelco already has joint ventures with
New businesses
The Cambior partnership is part of Codelco’s ambitious plan to double its enterprise value to US$18 billion by 2006. The plan entails boosting production at existing operations (accounting for US$6.7 billion of all value generated), improving efficiencies at existing operations (US$2.9 billion), and generating new copper businesses and promoting copper use (US$1 billion). As a consequence, Codelco’s planned capital expenditures over the 2000-05 period total US$4.9 billion.
In March, Codelco’s chief financial officer, Juan Eduardo Herrera, told The Northern Miner that his company’s new businesses could be either abroad or inside Chile, and either acquisitions or joint ventures. He added that Codelco is “on copper mining and copper processing to the refined stage and [that] we’re not thinking of going beyond that or venturing into other metals.”
In the past couple of years, Codelco has bowed out of two bidding wars for major Chilean copper assets: the company scuttled a joint bid with
When asked at what price does a copper asset become too expensive for Codelco to mine, Herrera replied: “It’s very difficult, but we try to be cool in our decisions. What helps us is that we have many alternative projects. We have more projects than money, so if we don’t buy Disputada, it’s not a disaster, because we already have projects where we can double production, maintain our market share, and double the value of our company.”
ENAMI
There has been some speculation that Codelco may soon acquire the Ventanas smelter and refinery complex from Chile’s second major state-owned company,
Formed in the early 1960s, ENAMI has a mandate to help the country’s small- and medium-size miners by providing financial and technical assistance, and by buying feed at commercial rates.
In the 1990s, ENAMI spent US$55 million de-contaminating the area around Ventanas, then spent US$100 million upgrading the Paipote smelter and remediating long-standing environmental hazards. However, these expenditures, coupled with several years of low copper prices, caused ENAMI’s debt to balloon to US$480 million. The company and the Chilean government are discussing ways to reduce the debt, one proposed solution being to lease or transfer ownership in the Ventanas operations to Codelco. Codelco could expand the smelter’s capacity to 800,000 tonnes per year in order to process more concentrate from its Andina division, where annual output could be boosted from 250,000 tonnes fine copper equivalent to 400,000 tonnes.
Said Herrera: “For us, the business of smelting and refining is not the best business — mining is. But sometimes the smelting and refining capacity is a good complement.”
Codelco has been the world’s largest copper producer since its creation in 1976. It now owns about one-fifth of the world’s copper reserves (more than any other company) — an amount that would last 70 years if exploited at current production levels.
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