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Chile government rejects Codelco privatization

Codelco CEO Octavio Araneda visits the El Teniente underground mine, the company’s largest and the world’s no. 6 by reserve size. (Image courtesy of Codelco | Flickr.)

(This story was updated midday Wednesday)

The Chilean government ruled out on Wednesday the privatization of state-owned mining giant Codelco, the world’s largest copper producer, after a small group of lawmakers proposed to sell it off to raise funds for the coronavirus response.

Chile’s Chamber of Mines and unionized workers had rejected the proposal put forward by extreme-right parliament members to sell Codelco.

The plan, laid out in an internal memo to members of the Independent Democratic Union (UDI) party, triggered criticism from both sector representatives and unionized workers.

“Codelco is Chile’s most important company in terms of contribution to the government’s coffers and the country’s pride,” Manuel Viera, President of the Chilean Mining Chamber, told local media.

Codelco, nationalized in 1971 by socialist president Salvador Allende, turns over all of its profits to the state

He said it was “inconceivable” and “irresponsible” to turn to the mining industry whenever the country has a problem, adding that the sector shouldn’t be seen as a “milking cow,” but rather as an engine of development.

The Federation of Copper Workers (FTC), which groups together Codelco’s unions, threatened a country-wise strike, should the government decide to entertain the idea of selling the company.

The UDI internal document highlighted that Codelco, nationalized in 1971 by socialist president Salvador Allende and which now turns over all of its profits to the state, had a market value of about $50.5 billion in 2014.

“Privatizing the company would generate a very relevant income for the state, which could be used for social benefits. Moreover, privatization could continue generating income for the state through the collection of taxes and royalties,” the memo reads.

This is not the first time Codelco had faced privatization attempts. During his first term (2010-2014), President Sebastián Piñera said that taking the company private was necessary to increase its efficiency and competitiveness.

He noted at the time that the state-owned copper producer’s operational costs represented almost 47% of its total costs. In contrast, BHP’s Escondida copper mine costs represented about 19% of total expenses at the time. 

Plans at risk

The coronavirus pandemic has affected Codelco’s ambitious 10-year, $40 billion mines overhaul to keep up production rates.

The miner has already finished one of its biggest projects — the $5.6 billion conversion of the Chuquicamata open pit mine into an underground operation.

In June, however, Codelco closed Chuquicamata’s smelter and refinery to prevent further spread of covid-19 among its staff. The company has so far registered a total 3,215 confirmed cases and nine deaths due to the virus.

The coronavirus pandemic has affected Codelco’s ambitious 10-year, $40 billion mines overhaul to keep up production rates

Chile’s mining minister, Baldo Prokurica, said earlier this month that the government would prioritize the health of workers in its vital mining sector, even if it affected production.

The country has been one of the hardest hit in Latin America. It has confirmed 349,800 cases and more than 9,000 deaths, according to consolidated figures from the World Health Organization and Johns Hopkins University.

Codelco has also placed on the back burner a $5.5 billion new level at the El Teniente underground mine. The operation, the company’s largest and the world’s no. 6 by reserve size, was originally slated to kick off mining at the new section in 2023.

Work at all of Codelco’s Northern District projects including Gaby, Ministro Hales and Radomiro Tomic have now been temporarily suspended.

Plans on pause involve converting the El Salvador mine to an open-pit mine from underground operations. The $1 billion project, known as Rajo Inca, is expected to extend the productive life the mine by 40 years and increase output by 30% from current levels.

Salvador is Codelco’s smallest division by production. Last year, it churned out 50,600 million tonnes of copper, down 16.8% from 2018.

In the copper giant’s pipeline of structural projects there is also the $1.3 billion expansion of the Andina mine. The operation accounted for roughly 11% of Codelco’s output in 2018.

Codelco operates seven mines and four smelters, all in Chile. Its assets account for 10% of the world’s known proven and probable reserves and about 11% of the global annual copper output, with 1.8 million tonnes of production.

(With files from Reuters)