Procurement News Notice |
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| PNN | 3950 |
| Work Detail | Chile's Codelco, the world's largest producer of copper, is in a "fragile" situation and will struggle to break even if the price of the metal continues as current levels, CEO Nelson Pizarro said Friday. The state-owned mining company posted profits of $54 million for the second quarter but a loss of $97 million for the first six months of the year as higher production and cost-cutting efforts were offset by a 21% drop in the copper price and the appreciation of the Chilean peso against the dollar. "It is notable that we have broken the trend that began in the fourth quarter of last year," Pizarro said, but said that with prices averaging just $2.14/lb this year, the company is only a few cents from turning a loss. Copper prices slumped Friday to $2.09/lb, their lowest in two months. The company produced 843,000 mt of copper from its mines during H1, up 1.4% from H1 2015, while sales, including copper from third parties, rose 13% to 916,000 mt. The company also sold 15,000 mt of molybdenum, up 12% from a year ago. Net cathode costs rose 9% to $2.11/lb as the stronger peso offset increased production. The executive said all but one of Codelco's seven mining operations turned a profit during the period. Costs at Andina, which produced 93,000 mt of copper, hit $2.43/lb in the period. "Andina is living through a difficult moment. We are working to improve things," the executive said, adding that the operation is expected to reach targets for stability and compliance by mid-2017. With profits reduced to a fraction of their level a couple years ago, the company has been forced to rethink its investments, once estimated at $25 billion, required to sustain copper production at current levels. "We have reformulated our business plan to maximize long-term value, maintain our financial position with responsible levels of debts and defer investment projects to the minimum extent possible," he said. A likely target is a plan to develop sulfide resources at its Radomiro Tomic copper mine. Construction had been due to begin late last year, but the company is redesigning the project to improve potential returns. A costly desalination plant to provide water to the mine has been dropped and the company is now looking for third-party investor to supply the water from 2021. At 0.51%, ore grades are significantly lower than at its Chuquicamata deposit, where the company is building a giant underground operation. "It is a less-competitive project than the other three so the financial resources are focused on the most profitable projects," he said. Codelco is focusing its limited funds on more profitable investments, such as the underground mine at Chuquicamata, due to begin production in 2019, a new crushing line at Andina (29% complete by end-June) and the new mine level at its El Teniente mine. Engineers are still trying to resolve technical problems at El Teniente, where construction of key access tunnels was halted after fatal rock burst. The company also plans to submit the Rajo Inca project to the board in the coming months, which could extend the life of Salvador division, where current reserves are running down. But even these plans could be threatened if the government does not fulfill a commitment to capitalize the company by $4 billion through 2018. "All our plans include capitalization. If it does not happen, some major decisions will have to be taken," Pizarro said. |
| Country | Chile , South America |
| Industry | Metals & Minerals |
| Entry Date | 03 Sep 2016 |
| Source | http://www.platts.com/latest-news/metals/santiago-chile/fragile-codelco-struggling-to-break-even-at-current-21366726 |
