Codelco’s title as the world’s largest copper producer is now in jeopardy. At a time when the world needs more copper, Codelco has seen its production drop to a 25-year low as it struggles to overhaul aging operations in Chile.
Codelco recently reported that it will hit the lower end of its annual copper production forecast of between 1.31 million and 1.35 million tons in 2023. That puts Freeport-McMoRan and BHP right on its tail in terms of production this year putting the top position at risk.
From an operational standpoint, Codelco faced lower grades in the Ministerio Hales division, a drop in the recovery rates of the concentrator plants in the Chuquicamata and El Teniente divisions, and operational problems that were caused by the postponement of maintenance during COVID.
Codelco has several structural projects that are meant to boost copper production and set the company up for the next 50 years. The issue is that those projects have been plagued by delays due to construction accidents, difficult geotechnical conditions, and now cost overruns.
Codelco recently stated that it expects it will take until 2030 to recover production capacity of 1.7 million metric tons per year.
|Andina Transfer Project:
|Inca Open Pit:
|Andina Future Development:
|Ministro Hales Mine
Debt & Financing
With cost overruns at its projects, Codelco is facing higher debt levels. Codelco’s debt ended last year at US$18bn and is projected to increase to over US$30bn by 2027.
Last year the government decided to reinvest 30 percent of the profits generated by the state-owned copper back into the company’s projects. This is great news except that operational troubles could limit profitability making it likely that the real amounts reinvested back into the company are lower than originally projected.
The company still has an excellent credit rating, atlhough pressure could mount as it needs to spend to finish its structural projects. Debt and financing costs will need to be watched as the company navigates this difficult period.
Entry into Lithium
Codelco has been thrown in the spotlight this past year as it is one of two state owned entities that are tasked with developing the lithium sector. Codelco has set up two entities that will enter into agreements to develop projects with public and private companies.
It also has been exploring the Maricunga salt flats by itself, with recent exploration results showing that it has the second highest lithium concentration in the world. It has spent USD$15m on exploring the property to date and more drilling will take place soon.
It is not clear right now how Codelco’s entry into the lithium industry will affect its copper business. The company has stated that it feels it can take on the challenge without having negative consequences. Given the recent string of headlines, there could be some doubters.
Codelco is between a rock and hard place. Operational Issues at its mines are putting pressure on its current copper production output. New production was supposed to come online already but delays to all its structural projects have pushed back timelines. The consequence is that Codelco is being squeezed at both ends, bringing its production to a 25-year low with the hope of recovering to 1.7m tons by 2030.
Codelco has been world’s leading copper producer for the last 50 years. The company has a strong project portfolio to continue being in the number one spot but it will need to better execute on the projects it currently has underway. Time will tell whether the company can maintain its title.
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