Codelco Gears Up with $1.9 Billion 2005 Budget for Copper Production Expansion

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). As the London Metal Exchange (LME) reports a 37% jump in copper prices in 2004, boosted by strong growth in demand from China, it is not surprising to see the world's largest producer of copper, Chile's state-owned Codelco (Santiago), targeting major investments at increased production in 2005. There was a moment of pause and reflection in global resources supply markets around the third quarter of 2004, when a possible cooling down of the Chinese economy was the briefly accepted wisdom. But even with measures taken by the Chinese government to contain and manage growth the country's economy grew 9.5% in the fourth quarter of 2004 and by the same figure for the whole year.

The Environmental Impact Study on the $600 million Gaby copper project has been approved, and although Codelco has not included the major part of this project's investment requirements in its 2005 budget, the company is anticipating striking a deal with China's MinMetals to develop the project. Plans are for the Gaby mine to start producing 170,000 tpy in 2007-2008.

Codelco has a record $1.9 billion investment budget for 2005, which represents an increase of 27% over the previous figure of $1.5 billion announced in November 2004. The company invested about $1.2 billion in 2004.

In the Codelco Norte division the Mina Sur mine will undergo a $240 million expansion, $115 million will be invested in El Teniente, $27 million will be put into the Andina development, and the Chuquicamata camp will be transferred to Calama at a cost of $150 million. Another $430 million will be made available for mine development.

A payment of $393 million will be made to the state minerals company, Enami for the transfer of the Ventanas copper smelter-refinery to Codelco, which has been made possible by the publication of a law. Currently, Ventanas is scheduled to produce 365,000 tons of copper cathodes in 2005, an increase from the 335,000 tons produced in 2004. The envisaged increase will result from technological changes made to the electro-winning process.

Codelco is said to be mulling an increase in production capacity from 400,000 tons to 800,000 tons, with an investment of $100 million to $150 million and at the same time decrease pollutant emissions at the site. In addition, by replacing the existing converter with a larger one and using Flash-converter technology, the current annual production of 110,000 of copper anodes could be doubled to 240,000 tpy. More details should be come available when the transfer is finalized in the second quarter of 2005.

A $900 million investment will be made in the Alejandro Hales mine (formerly Mansa Mine), on which construction should start this year, after the EIS approval, although not all the financial arrangements are included in the 2005 budget. Output of 188,000 tpy is expected in the year 2007-2008.

Chile accounts for about 40% of global cooper production with a 2004 production forecast of 5.47 million tons. In 2003, Codelco produced 74% of Chile's copper. With an estimated record pre-tax profit of $3 billion in 2004, about 33% of this profit will come from molybdenum, which is a low-cost by-product as the copper process absorbs production costs. Booming prices for molybdenum are expected to rise to $22.50 per pound in 2005 from $15.20 per pound, according to Dow Jones. In 2004, Codelco produced about 70 million pounds of the metal, which is used in steel alloys as a fortifying element.

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