Codelco Bets China Growth Will Justify $20 Billion Copper Mine Investments

Aug. 24 (Bloomberg) –Codelco, the world's largest copper producer, sees "robust" demand for the metal underpinning prices and the company's plan to spend almost $20 billion to revamp its mines, Chief Financial Officer Thomas Keller said.

Global copper prices are "reasonable" at current levels, Keller told reporters yesterday at the Bloomberg Chile Economic Summit in Santiago. Copper has plunged 10 percent this month after the metal used to make power cables and electrical wires more than tripled in value since 2009.

The Santiago-based company is moving ahead with plans to invest almost $20 billion over five years to expand its mines, betting that Chinese demand will help prices rebound amid a shortage of global copper supplies, Keller said. China consumes about 35 percent of Codelco's output, according to the state- owned company's website.

"Copper is on very sound footing to withstand these difficult times," he said. "Our investment plan won't be impacted by the short-term copper price indicators."

Prices for the metal rose the most in more than a week yesterday after a report on Chinese manufacturing eased concern that an economic slowdown is deepening. Chinese imports of refined copper rose for a second month in July, while inbound shipments of scrap copper jumped 14 percent from a year earlier, customs data showed this week.

Copper futures for December delivery climbed 3.95 cents, or 1 percent, to $4.0145 a pound yesterday on the Comex in New York, the biggest gain for a most-active contract since Aug. 11.

Strikes, Bad Weather
Codelco and other mining companies in Chile, which supplies a third of the world's copper, are struggling to raise output this year amid strikes and bad weather in the Atacama Desert. Chilean production of the metal may have been cut by about 8 percent because of the disruptions, Codelco Chief Executive Officer Diego Hernandez said Aug. 12.

"Long-term" copper prices may average between $3 and $5 a pound, Keller said, compared with an average of less than $2.50 a pound in the past decade.

Goldman Sachs Group Inc. said in an Aug. 8 report that copper will rebound to $11,000 a metric ton, or about $4.99 a pound, in 12 months as supplies tighten because of growth in emerging economies.

Codelco is seeking to raise debt to finance investments that will average more than $3 billion a year for most of this decade, Hernandez said in an Aug. 4 interview.

'Turbulence'
"I don't see current turbulence negatively affecting Codelco's financing capability," Keller said. "It's the reverse. Today assets like Codelco are particularly attractive."

The company may raise as much as $2.5 billion in bonds and loans by the end of 2012 to fund record spending on its mines in Chile, including the century-old Chuquicamata mine, Hernandez said. The company may sell more than $1 billion in bonds, he said.

In October, Codelco sold $1 billion of 10-year bonds to yield 3.965 percent, 130 basis points more than similar-maturity U.S. Treasuries, in a transaction arranged by Deutsche Bank AG and HSBC Holdings Plc.

Codelco may spend more than $30 billion between 2011 and 2022, as much as it spent in the past 35 years, to meet rising global demand for the metal, according to an undated presentation on the company's website.