Copp-out

Ore quality, water restrictions and protests hit Codelco’s copper production.

Copper production from Codelco, Chile’s state-owned copper production company, dropped 29.6% on a year-on-year basis. Declining ore quality, water restrictions, and union protests have severely impacted the company’s economic performance.

More specifically, Codelco has been hit by a lower grade of ore within the Ministro Hales mine and the drought affecting Anglo American’s Los Bronces and Antofagasta’s Los Pelambres sites. This, coupled with other production disruptions throughout 2022 have reduced annual production forecasts to between 1.49 and 1.51 million tonnes from the initially expected 1.61 million tonnes. Copper production will remain stable with a 1.50 million tonnes production in 2023, as a result of the aforementioned issues.

A former director of Codelco commented, “There are temporary reasons for temporary reductions in Codelco’s production, but it is more important to look at the reasons that will limit the company’s production in the long term, including the age of the deposits combined with Codelco’s difficulties in financing its exploration and development projects for new deposits on a global scale.”

“These issues are compounded by the bargaining power of unions and the influence of interest groups associated with political parties,” explained a Chilean mining executive, “these pressures have made it difficult to manage the company in a modern and efficient way.”

“These issues are compounded by the bargaining power of unions and the influence of interest groups associated with political parties.”

Mining executive, Chile

The Ministry of Mining aims to increase investments in structural projects, in order to maintain sustained production levels in ageing mines. The company also expects to boost its productive efficiency through artificial intelligence, boosting its digital data centre, launched in 2020, which uses machine learning to optimise production through the use of blending techniques.

To face these challenges, Codelco’s general manager, André Sougarret, announced changes in top executive positions including new appointments for the vice-presidency of operations in the North, and the general managers for the Chuquicamata and Andina regional divisions.

“The comparison with Escondida demonstrates that low production is not transversal to Chilean mining but is specific to Codelco.”

Mining executive, Chile

It is important to note that Codelco’s challenges do not extend the entire copper mining industry in Chile: output from BHP’s Escondida mine is rising. According to the mining executive, “the comparison with Escondida demonstrates that low production is not transversal to Chilean mining but is specific to Codelco, especially due to its status as a state-owned company.” The executive continued, “The aggressive environmental agenda pushed by Boric’s government will affect Codelco much more than private mining for several reasons: Codelco’s operations and technology are older, the large private mining companies are geographically diversified and the political cost to Boric of promoting large mining projects with environmental impacts are too high.”

If not Boric, could Codelco find an ally in the Minister of Mining? Unlikely, said the mining executive, “The Minister of Mining has no visibility or relevance to government plans. She does not play a central role in government projects and has become a rather irrelevant figure compared to previous holders of her office who emphasised the economic importance of the development of the mining industry.”

Nevertheless, Codelco continues to be the world’s leading copper producer and, according to a recent Fitch Ratings report, it maintains a strong market position to increase prices and cash flow even if it reduces its output by 10% or more. Fitch Ratings’ report considers that Codelco will benefit from the global copper production increase which will see the addition of 7.30 million tonnes through 2031 with Chile, China, and DR Congo.

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