Chilean copper giant, Codelco, has been struggling to maintain its place as the world’s top copper producer, with a recent change in upper management yet to put minds at ease. Among falling ore grades and output reaching a 25-year low, Ruben Alvarado has been appointed Codelco’s newest CEO.
He will struggle to maintain current production rates as the company faces a massive expansion plan and increasing debt that has ballooned to US$16.85B in 2022, and may be closer to US$19B after a recent bond issuance.
Codelco’s production for this year is also expected to be 29.7% lower than its peak in 2015 (1.89Mt), reaching its lowest level since 1998. In July, the company lowered its 2023 expectations to produce between 1.31-1.35Mt of copper compared to a previous guidance of 1.35-1.42Mt.
On 1 September, Codelco appointed Alvarado as CEO to tackle executing a US$40B investment strategy to increase copper production for the company after André Sougarrets abrupt resignation after barely a year in the same position. Restoring production to past levels will be difficult, and managing expectations internally and ensuring a decent rate of return on investments will be among the new CEO’s priorities.
Codelco’s declining production is hindered by rising capital expenditures and competition for mine-building funds. Its expansion projects at the Chuquicamata and El Teniente projects have faced challenges, and greenfield discoveries are unlikely in the struggling company’s near future. There have also been accidents, weather setbacks, and other operational issues.
Codelco also faces mounting concerns over its debt levels. According to a report published in mid-August by Chile’s Centre for Copper and Mining Studies (CESCO), Codelco faces the risk of its US$19B debt increasing to US$30B in 2027, which could potentially lead to insolvency.
Amid ongoing production issues, Codelco has sought to renegotiate long-term contracts with Chinese customers. This has raised uncertainty among market participants regarding Codelco’s ability to meet contractual obligations.
Despite these challenges, Codelco maintains some advantages such as its extensive holdings in Chile, a country well known for its copper reserves. While the company’s financial health has been under review, international banks remain interested in its bonds. Codelco aims to increase its production levels by the end of the decade, in part by leveraging its advantageous position in the country.
