Codelco, the world’s biggest copper producer, is becoming one of the supply-side’s largest headaches as its rush to renew aging mines in Chile endures setbacks that have sent output tumbling.
(Bloomberg) — Codelco, the world’s biggest copper producer, is becoming one of the supply-side’s largest headaches as its rush to renew aging mines in Chile endures setbacks that have sent output tumbling.
The company’s production in the first quarter was at the lower end of its recently set annual guidance, and is expected to stay at similar levels through next year, Chairman Maximo Pacheco said in an interview Wednesday.
Neither is there a quick fix to the state-owned behemoth’s struggles, with the $40 billion it has earmarked for projects over the next decade stretching its engineering capabilities to the limit.
Codelco’s predicament underscores the copper industry’s battle to maintain output as ore quality deteriorates and new deposits are trickier and pricier to develop. That’s fanning concerns over a looming shortage as demand for the wiring metal takes off in the shift away from fossil fuels. Pacheco says he feels the weight of responsibility to feed growing demand for a metal used in everything from electric vehicles to wind turbines.
“We are committed to continue to be the leaders of this industry,” he said from the company’s downtown Santiago office. “So when you are a leader, you have a lot of responsibilities and we feel that on our shoulders.”
For some perspective, current production is down by about a third from two decades ago, the equivalent of the entire output of a mid-sized producer like Mexico or Canada. The decline accelerated last year, with an 11% drop, and will fall as much as 7% this year. In fact, Codelco won’t get back to 2021 levels for another four or five years, and has no plans to return to record highs of the mid-2000s, Pacheco said.
At its operating mines, Codelco is striving to get back on track after mishaps including a rockfall, equipment malfunctions and a dam freeze.
Perhaps more worrying though is its project-development load as it juggles four large-scale projects. That’s a daunting undertaking for any company, especially in a small economy and as the industry continues to grapple with logistical challenges exposed by the pandemic and exacerbated by Russia’s invasion of Ukraine.
Under Pacheco, the 70-year-old former International Paper Co. executive and government minister, Codelco is trying to resolve its execution struggles by sharing the load throughout the company rather than in just one division, using specialized talent and streamlining decision making.
The state company, which has the world’s biggest copper reserves, is cleared to reinvest 30% of its profit and sold $900 million in bonds in January. It may return to the debt market when conditions are right, Pacheco said, adding though that “the key restriction is not funds, it’s execution.”
Beyond the near-term struggles, Codelco sees itself in a period of transition that will set itself up for the next 50 years.
“This transition is today in a valley that we are going to recover from, and I hope — it’s in our plan — that before the end off this decade, we’re going to be back” producing in the 1.7 million-ton range, he said.
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