Low copper prices dent Codelco’s bottom line (May 10, 2002)

Vancouver — Low copper prices caused the world’s largest producer, Corporacion Nacional del Cobre de Chile (Codelco), to suffer a 37% plunge in profits in the first quarter.

The company, wholly owned by the Chilean government, posted a pretax profit of US$104 million, down from the US$166 million in the first quarter of 2001.Copper prices averaged US71 per lb. during the recent 3-month period, compared with US80 a year earlier.

The major cranked out 352,000 tonnes copper, down 4% from the 366,000 tonnes produced a year earlier. Driving the decline were scheduled production cuts at four of its five operations. Late last year, the major announced plans to trim 11,300 tons of production from its high-cost El Salvador mine, in the northern part of the country, along with a 47,000-tonne reduction at its largest mine, Chuquicamata. Smaller cutbacks of 25,000 and 23,000 tonnes were tabled for the El Teniente and Andina mines, respectively. The only mine not affected by the cutbacks is Radomiro Tomic.

Cash costs in the recent quarter totalled US41 per lb., down from US43 a year earlier. Total costs for copper held steady at US66 per lb., but net costs (total costs less byproduct credits) came in at US62 per lb., an slight improvement over the US63 per lb. incurred in the first three months of last year. The lower costs reflect higher credits for molybdenum and gold byproducts.With the reductions in place, the company expects to produce 1.5 million tonnes in 2002, down from 1.6 million tonnes last year.

In early May, Codelco agreed to join forces with Toronto-based Cambior (CBJ-T) to explore three regions in northern Peru. Under the deal, the copper giant can earn a half-interest in 220 sq. km in the La Granja area and 86.4 sq. km in the Huamachuco region in return for spending US$1.5 million on exploration and completing 3,000 metres of drilling on each of the projects over three years. Codelco must also pay Cambior US$50,000 on the signing of the definitive agreements, another US$100,000 in 18 months and a final US$900,000 after three years. At the end of 1998, La Granja held proven and probable reserves of 2.3 million tonnes grading 0.59% copper.

The companies also agreed to join forces to look for gold and base metals in an unspecified third region of northern Peru. Codelco will fund the first $400,000 of exploration, and any additional expenses will be shared on an equal basis.