Top Codelco execs see debt growing as production recovers

FILE PHOTO: Maximo Pacheco, chairman of CODELCO’s board of directors, looks on during a visit to the Chuquicamata Underground mining project, in Calama, Chile, February 6, 2024. REUTERS/Pablo Sanhueza/Photo

By Fabian Cambero and Alexander Villegas

SANTIAGO (Reuters) – Top executives of Chile’s state-run Codelco, the largest copper producer in the world, expect the company’s debt to continue increasing as it adjusts cost estimates to revamp key mines.

In a late-December interview with Reuters for a report on the delays plaguing expansion projects meant to deal with a historic drop in production, Codelco Chairman Maximo Pacheco said the company’s debt would probably increase above previously reported levels.

FILE PHOTO: Ruben Alvarado, CEO of CODELCO, looks on during a visit to the Chuquicamata Underground mining project, in Calama, Chile, February 6, 2024. REUTERS/Pablo Sanhueza/File Photo

Chile mining consultancy CESCO said in an August report that Codelco’s debt could reach $30 billion by the end of the decade, but an internal Codelco report seen by Reuters showed the company is expecting debt to reach $31.5 billion by 2027. These levels could increase as key projects face delays.

FILE PHOTO: The logo of Codelco, the world’s largest copper producer, is seen at their headquarter in downtown Santiago, Chile, January 14, 2016. REUTERS/Ivan Alvarado/File Photo

Codelco finished 2023 with $20.4 billion in debt, according to company documents. In January, Codelco issued an additional $2 billion in bonds, something CEO Ruben Alvarado said shows market confidence.

“It puts (us) at ease that the market keeps trusting in us, keeps trusting in our plans and our business,” Alvarado told reporters during a visit to Codelco’s Chuquicamata mine in early February.

Issuing more debt, Alvarado said, is something the company would keep evaluating “depending on results.”

“Are we going to keep raising our debt? Probably yes,” Pacheco said, adding that debt is solely being used to finance the major construction projects aimed at extending the lifespan of key Codelco mines.

Those projects have faced years of delays and cost overruns. One of them – a project to transform the open-pit Chuquicamata into an underground operation – recently filed for a permit to make an additional $720 million investment in infrastructure.

Meanwhile, Pacheco said Codelco is expecting to submit a revised cost estimate to the board of directors for its El Teniente expansion project in the first quarter of 2024.

“As a norm and as project discipline we bring projects back to the board of directors when they exceed 10% of their original design cost,” Pacheco said, noting that the company’s finances will improve as the projects come online.

He said that the projects reached 94% of their annual target of project advancement in 2023, the highest since they started nearly 15 years ago, signaling that recent efforts are “giving results.”

Aside from ballooning debt, Codelco has faced a historic drop in production, reaching its lowest point in a quarter century in 2022. This has led credit agencies such as Moody’s and Fitch to downgrade Codelco’s credit status.

Codelco produced 1.325 million tons of copper in 2023, missing its planned target of 1.4 million tons.

Pacheco said production would start recovering in 2024 and added that the goal was to reach a production of 1.7 million tons by 2030.

“That production valley we fell into the last two years that cost around 300,000 tons of production has stabilized in a way and we’re starting to see clear signs of production recovery,” Pacheco said.

Alvarado said he expects production to reach 1.35 million tons in 2024 and said the company met its production goals in January. He added that 70% of the company’s costs are fixed, but “there are always areas” to cut costs.

When asked about potential job cuts, something union workers have threatened to strike over, Alvarado said that’s not “an objective in and of itself.”

“We’re always revising our structure,” Alvarado said. “We talk about those issues whenever it is necessary.”

(Reporting by Fabian Cambero and Alexander Villegas, Editing by Claudia Parsons and Rosalba O’Brien)