Better copper prices boost Codelco’s profit offsetting output decline

Q1 profit reached $534 million, more than the total earned in 2016.

Chile’s Codelco, the world's top copper miner, swung back to profit in first three months of the year, posting a pre-tax profit of $534 million for the period versus a loss logged a year ago, which is more than the $435 million the state-owned company earned in total last year.

The copper giant cited improved metal prices — up about 18% in the last seven months — as one of the factors that contributed to the company’s rebound, though it also highlighted its ongoing efforts to keep a lid on costs.

However, cash costs increased in the first quarter of the year, up roughly 6% from a year ago to $1.34 per pound of copper.

Codelco is in the midst of an ambitious $18 billion investment plan aimed at upgrading its aging mines to remain a major player.

Codelco holds vast copper deposits, accounting for 10% of the world's known proven and probable reserves and about 11% of the global annual copper output with 1.8 million metric tonnes of production.

However, most of its mines are running out of copper and need heavy investment in order to extend their productive life.

The company is already feeling the impact of that. For the first three month to March, it saw output shrink about 11% in the first quarter of 2017 to 390,000 tonnes from its wholly-owned mines, and to 416,000 tonnes when its stakes in other deposits are considered.

Chief executive Nelson Pizarro noted that a project to transform Chuquicamata open pit, one of the world’s largest, into an underground operation was almost 50% completed.

The copper producer estimates it will spend $4 billion in the expansion, to be completed in 2019, and which will allow Chuquicamata to remain in operations. Once at full tilt, by 2025, the mine is expected to produce 1.7 million tonnes of the red metal a year.

The recently updated underground extension project is part of an ambitious investment plan, originally pegged at $25 billion (now sitting at about $18bn), aimed at upgrading Codelco’s aging mines and dealing with dwindling ore grades to remain a major player.