SHANGHAI, Aug. 29 (SMM) –Production cuts might be the last resort for debt-ridden Codelco since there is little room for cash costs to drop, SMM understands.
For many years, the world’s largest copper producer has invested heavily in copper mine expansions. Unfortunately, copper prices tumbled to near 7-year low just when the company was ambitiously opening new mines and renovating old mines. This caused its earnings to keep falling and left it under piles of debt.
Codelco suffered a pre-tax loss of $2.19 billion in 2015, the lowest since early 1990s and a reversal from the profit of $3.03 billion it posted in 2014. It reported a pre-tax loss of $97 million in H1 2016, and its net debt jumped 11.46% year-on-year to a staggering $13.6 billion in the same period.
Codelco said earlier that it would rather control costs than cut output in response to plunging copper prices. However, cost cut seems unlikely at present since its cash costs are already quite low, SMM noted.
The company’s cash costs were ¢127.5/lb in H1 2016, down 8.93% from a year ago, but up from ¢125.4/lb in Q1 2016.
Codelco plans to slash investments by at least $500 million every year and to save $2 billion before 2020, one source said.
Codelco originally planned to produce 2.5 million tonnes of copper annually before 2025, but cut the annual target to 2 million tonnes before 2020 last year. The company might reduce current target of 1.7 million tonnes of copper per year to 1.5 million tonnes or even lower.
Codelco produced 906,000 tonnes of copper in H1 2016, including output at El Abra and Anglo American Sur, down 0.44% from a year ago. Copper output at Codelco claimed about 10% of global output in H1 2016.
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