Codelco raises $2 billion for mine expansions

Radomiro Tomic mine. (Image courtesy of Gonzalo Cerda | Flickr.)

The world’s largest copper producer, Chile’s Codelco, has issued $ 2 billion in dollar-denominated bonds to secure funding for its multibillion-dollar upgrade projects and to refinance debt.

The state-owned copper giant sold $1 billion in 10-year bonds. It also obtained a further $1 billion in 30-year bonds issued last year as part of a fresh funding strategy that includes taking out loans and selling non-structural assets. 

“A favourable debt market, with rates at historically low levels, makes it attractive to pre-finance our cash needs of 2021,” Codelco’s vice president of administration and finance, Alejandro Rivera, said in the statement.

Issuing long-term debt should allow Codelco to refinance its short- and medium-term debt

The company’s objective is to secure financing for its sprawling 10-year, $40 billion mines overhaul as many of its aging operations have been dogged by declining ore grades and increasing costs.

The move came a day after Chile’s government ruled out a capital injection for its copper company.

“We aren’t talking about a new capitalization, but the government has always supported Codelco to get access to financing through capitalization and international markets,” finance minister Ignacio Briones told Bloomberg.

Codelco has already kicked off one of its most ambitious plans — the $5.6 billion conversion of the giant Chuquicamata open pit mine into an underground operation.

The next major mine overhaul is a $5.5 billion new level at the El Teniente underground mine, the company’s largest, which fell under chief executive Octavio Araneda’s mandate in his previous role of vice-president of operations at the company’s central and southern divisions.

Taken from Codelco’s presentation May 2019.

In the copper giant’s pipeline of so-called structural projects are also a $1.3 billion expansion at the Andina mine, a $1 billion upgrade at Salvador and the expansion of Radomiro Tomic, which doesn’t have an estimated capital expenditure yet.

This is the fourth time since 2017 that Codelco issues long-term debt to refinance its short- and medium-term debt as the sector continues to face low copper prices.

The company, which produces nearly 10% of the world’s copper, returns all its profits to the state and is funded by a mix of capitalization and debt.

Diego Hernandez, head of local industry group SONAMI, said on Tuesday that prices for the metal were unlikely to rebound this year, even if trade tensions between the United States and China subside.

The bonds sale was handled by HSBC Securities, JP Morgan Securities, BofA and Scotia Capital.