Codelco now mines copper for $1.40 a pound
In New York trade on Friday copper for delivery in December continued to fight back from six year lows trading at $2.35 in late afternoon.
That's up more than 6% from an intra-day trough of $2.20 per pound or around $4,850 a tonne set set earlier in the week which was the lowest since July 2009 and down 30% over the past year.
Chile's Codelco announced half year results on Friday that showed profits dropping by a third to $875 million at the state-owned copper miner, the world's number one producer of the metal.
Sharply lower molybdenum and copper price was only partially offset by a 5.5% rise in copper production to 910,000 tonnes in the six-month period despite some disruption due to flooding.
The rise in output was thanks higher production at its El Teniente and Gabriela Mistral mines and expansion projects like Minestro Hales despite which blunted the impact of a 35,000 tonne decline at Chuquicamata.
El Teniente, the world's largest underground copper operation and the sixth biggest by reserves, is like the giant company's other mines facing declining ore grades.
CEO Nelson Pizarro said Friday 2016 will see another sharp drop in grades while the company expects the price to remain stuck around $2.50 a pound reports Platts News:
"It does not look like it will be a year to be smiling. Next year is going to be very tough," the executive said.
"We can see that this situation should turn around at some point in late 2016 or in the first half of 2017," he said.
Codelco is hoping to cut costs by around $1 billion this year and is 60% on its way to achieve that target.
A huge chunk of the cost savings came as a result of a much lower peso against the US dollar. Lower power and labour costs helped the company push down cash costs by 11% to $1.40 a pound compared to 2014 and 18% versus 2013. All in costs were reduced by 15% to $2.05 during the first half.
Pizarro said had it not been for the organization's aggressive cost containment plan – which includes a freeze on executive salaries – profits would be only $272 million for the period.
Codelco is in the midst of executing a $25 billion investment plan aimed to expand its aging mines and search for new high-grade deposits.
Despite spending $5 billion every year for the next five years, Pizarro expects "no significant gain" in production for its efforts with annual production staying around the 1.6 million tonne mark until 2017 when it could reach 1.7 million tonnes.
Image of Captain Copper, superhero created to teach kids about the metal, courtesy of Codelco.
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