Codelco BFM 77

CODELCO

ONGOING INVESTMENT

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CHILE’S STATE-OWNED COPPER CORPORATION IS CONTINUED TO INVEST IN AN EPIC MINING PROJECT.

ONGOING INVESTMENT PROJECT MANAGED BY: GARY SMITH

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Codelco, otherwise known as Corporación Nacional del Cobre de Chile, or in English, the National Copper Corporation of Chile, is a Chilean, state-owned copper mining company that came into being through the nationalisation of many foreign-owned copper companies in 1971, eventually coming together to form Codelco in 1976.

The firm is an autonomous business, owned by the people of Chile. Since its foundation, it has grown to become the primary producer of copper in the world, with ore reserves that have become an enormous engine for the development of Chile itself.

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H

owever this has never been a one-way street, and Codelco is a business that has always believed in investing in its operations to succeed.

A NATIONAL INVESTMENT

Codelco’s investment history is a long one. In 2018 the company invested $2 billion to maintain the mine’s prodigious production output.

This investment was made to fund three major projects for Codelco’s El Teniente Division, including $1,923 million for their Andres Norte operations, $101 million for the Diamante mine, and $75 million for Andesita.

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These weren’t simply shortterm cash injections, but longterm investments, with the money going into the El Teniente division extending the useful life of its mines by another 50 years. It’s an approach that has had the full support of Codelco’s board of directors, as part of a strategical plan to give structural support to Codelco that would allow the company to continue maintaining its historic production levels of approximately 1.8 million tons of copper every year.

A long-term strategy isn’t simply a question of laying down a plan for the future and adhering to it no matter what, however, and Codelco is no stranger to adjusting their plans or trajectories to accommodate changes and challenges along the way. The three new sectors the company was moving into in 2018 were in response to technical difficulties, but through those difficulties, Codelco went on to open Andes Norte, with a mine stretching roughly 2005

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meters beneath Lieutenant 8, a level of the mine that Codelco was already exploiting. The $1,923 million investment in the implementation this plan, alongside the $101 million invested in Diamente and the $75 million put into Andesita all helped build the company’s potential and allow it to contribute to the Chilean economy for event longer.

These projects are still going today, with Codelco’s Executive President Nelson Pizarro, since replaced by 33-year-old Octavio Araneda, predicting before the Chilean Senate that these mining zones would see their first extractions in 2023, three years from now. The projects have important implications for only for Codelco, or Chile, but for the world, given the essential role their mines play in the world’s copper supply chain.

“A FAVOURABLE DEBT MARKET, WITH RATES AT HISTORICALLY LOW LEVELS, MAKES IT ATTRACTIVE TO PRE-FINANCE OUR CASH NEEDS OF 2021.”

A NEW ROUND OF INVESTMENT

To continue doing their important work, Codelco has just issued $2 billion in dollardenominated bonds to allow the global copper produce to secure essential funding for its multibillion-dollar upgrade projects as well as allowing the company to refinance debt. The offering has included $1 billion in ten-year bonds, in addition to a further billion in 30-year bonds that the company issues last year.

Codelco is issuing these bonds as part of a brandnew funding strategy built on taking out loans while selling the business’s non-structural assets. The bonds sale has been handled by HSBC Securities, JP Morgan Securities, BofA and Scotia Capital.

The state-owned copper company’s vice president of administration and finance, Alejandro Rivera, has explained the strategy in a recently

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released statement.

“A favourable debt market, with rates at historically low levels, makes it attractive to pre-finance our cash needs of 2021,” Rivera has said.

The objective of this strategy is to build a base of financing that will enable Codelco to continue its epic, decadelong, $40 billion overhaul of its mines. This overhaul will allow them to replace and upgrade mining operations that have been at work for decades and are starting to show their age in the form of ore grades and increasing costs.

It’s a move that has the full support of the Chilean government, who is approving this approach in favour of injecting capital from the

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government’s funds.

As Chilean finance minister Ignacio Briones has said, “We aren’t talking about a new capitalization, but the government has always supported Codelco to get access to financing through capitalization and international markets.”

Codelco’s plans for these mines are ambitious and set to impress. They’ve already begun work on one of their biggest plans, a gigantic $5.6 billion conversation of their giant Chuquicamata open pit mine into an underground operation.

The El Teniente mine, with its three projects, is next on Codelco’s to-do list, with a $5.5 billion plan to add a new level to Codelco’s largest underground mine. The company’s new

executive president, Octavio Araneda, oversaw this project personally in his previous role as vice-president of operations at Codelco’s central and southern divisions.

Codelco’s plans also include a number major structural

“WE AREN’T TALKING ABOUT A NEW CAPITALIZATION, BUT THE GOVERNMENT HAS ALWAYS SUPPORTED CODELCO TO GET ACCESS TO FINANCING THROUGH CAPITALIZATION AND INTERNATIONAL MARKETS.” BUSINESSFOCUSMAGAZINE.COM

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projects including a $1.3 billion expansion at their Andina mine, a billion-dollar upgrade to the Salvador mine, and the expansion of their operations at Radomiro Tomic, although those plans don’t yet have an estimated price tag.

These are major projects that require major investment, and so it’s not surprising that this marks the fourth occasion since 2017 that Codelco has issued long-term debt to cover its short-and-medium term debts.

This is a challenge that has been exacerbated by ongoing low copper prices. However, while prices might be low, Codelco’s role in the copper supply chain remains critical, with the mine supplying 10% of the world’s copper.

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