May 23, 2012 SANTIAGO (Dow Jones)--As expected, copper output at Chilean state copper company Codelco's wholly owned mines fell 10% in the first quarter to 373,000 metric tons from 414,000 tons in the same quarter last year, Codelco Chief Executive Diego Hernandez said Wednesday.

The world's largest copper miner had already announced it expected copper output to retreat this year from the record 1.735 million tons it produced in 2011.

"We expect to produce 1.708 million tons this year and through the end of April we produced 502,000 tons. Production will pick up in the second half of the year as our ore grades increase," Hernandez said.

Codelco's total January-March production, which includes output from the El Abra mine, in which the company holds a 49% stake, fell to 390,000 tons from 425,000 tons. El Abra is operated by 51% shareholder Freeport-McMoRan Copper & Gold Inc. (FCX).

Hernandez said the company formally known as Corporacion Nacional del Cobre de Chile remains optimistic regarding long-term copper price despite the ongoing woes in the euro zone.

"Undoubtedly we'll see volatility in the near-term and repercussions in the copper market, but market fundamentals including tight supply will remain," Hernandez said.

He said one possible effect of a financial crisis in Europe is many copper projects could be delayed.

"This should be favorable to producers since the market would have been flooded with copper in 2015 if all expected projects do go on line as scheduled," he said.

The executive declined, however, to provide an estimate for just how far copper prices could drop if Europe's financial troubles worsen.

With copper averaging $3.77 a pound in the first three months of the year, Codelco's pretax profit fell to $1.45 billion from $2.32 billion during the same quarter a year ago, when copper averaged $4.38/lb.

If Codelco's earnings were reported using the same tax requirements as private companies, the state-owned company would have posted a profit of $1.12 billion, compared with $1.4 million in the first quarter of 2011.

Codelco and Anglo American PLC (AAUKY, AAL.LN) recently called a truce to their legal battle over a stake in Anglo's Sur copper complex in Chile.

The two sides are at loggerheads over how big of a stake Codelco can acquire in Sur as a result of a decades-old option over the property.

As part of a legal mediation process, the two mining companies recently suspended their legal wrangle for one month in the hopes of reaching a settlement.

"The mediation hearing is part of the legal process and we couldn't pass [the opportunity] up," he said.

While declining to provide details, he said the two sides had already scheduled meetings.