Chile’s Codelco Faces Financial Concerns Due to Project Delays and Escalating Debt
Chile's prominent copper producer, Codelco, is confronting potential financial strain due to rising costs and mounting debt attributed to projects that have fallen short of output targets, as revealed in a report by Chile's Centre for Copper and Mining Studies (CESCO), viewed by Reuters.
In an uncommon move, the influential industry organization, financed through its organized events' revenue, expressed concerns over cost overruns on Codelco's "structural projects," encompassing upgrades for five of its mines. The report suggests that the associated debt could surge from $18 billion to $30 billion by 2030.
Codelco responded, stating, "Codelco maintains a solid financial position and broad access to financial markets, as confirmed by our high credit rating." The company acknowledged that managing future debt growth is a crucial focus and is influenced by investment project progress and operational performance, which are under intensive attention.
This report follows the resignation of Codelco's CEO, Andre Sougarret, in June. Sougarret, who has served for only a year, cited "complexities" surrounding the business as the reason for his departure, with his term ending in August.
As a central entity within Chile's mining sector, Codelco must revitalize its copper production from a 25-year low. Its 2022 production of 1.46 million metric tons accounted for 28% of Chile's total output of 5.33 million tons, with global copper supply at around 25 million tons.
CESCO highlighted Codelco's declining output, despite $15 billion in investments in flagship projects like El Teniente and Chuquicamata. Costs for these endeavors have exceeded estimates by 75% and 53%, respectively.
CESCO emphasized the necessity of assessing the technical feasibility of projects before making further investment decisions, given the risks posed by increasing debt. The organization expressed concerns that the financial viability of Codelco, a vital asset for Chile's future prosperity, could be compromised if project targets are not met.
The report also raised apprehensions about Codelco's involvement in lithium mining potentially diverting focus from copper, a crucial resource for the global energy transition. Codelco countered these concerns by asserting that it will maintain its copper-centric production focus.
CESCO urged Codelco to prioritize governance efficiency, administrative structure, and supervision improvements before resuming investments and accumulating additional debt. The organization acknowledged that Codelco is navigating a complex phase in its history and warned that excessive debt levels could threaten its financial viability if project commitments are not fulfilled.
Codelco's copper production in the first half of 2023 amounted to 633,000 metric tons, representing a 25-year low. Over the past five years, its copper production has declined by 17%, with further decreases anticipated until 2025.
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