Gap between no. 1 and 2 copper miners widens as Codelco output drops 5.3%
Chile’s Codelco, the world’s second-largest copper miner, has lost more ground among the metal’s top tier, after reporting that output for 2019 had fallen by 5.3% to 1.588 million tonnes.
BHP, the world’s biggest mining company, churned out 1.749 million tonnes of copper last year and expects to produce between 1.705 million and 1.820 million tonnes in 2020 on a 100% basis (on an attributable basis Codelco is still top).
Codelco, which hands all its revenue over to the state, attributed the drop in production to unusually bad weather in the first half of the year, strikes at its Chuquicamata mine and operational issues.
Profit for the year fell 17% compared to 2018 to $1.34 billion, while direct cash costs increased 1.8%.
Codelco said the poor financial results were a combination lower gross margins, the downward tendency of copper prices, a reduction in physical sales of the metal and molybdenum and weak results obtained from associated investments.
Colin Hamilton, managing director of commodities research at BMO Capital Markets, had anticipated earlier this week that the copper company would soon have to sell non-core assets.
“Any thoughts of shutting unprofitable operations, however, are off the agenda for now given the need to ensure employment,” Hamilton said in a note to investors.
Hamilton also noted that it was looking increasingly unlikely that Codelco would be the world’s largest copper miner from this year forward, as depletion and restrictions prove to be headwinds that are too strong.
The escalating number of Chileans infected with the novel coronavirus forced the company on Wednesday to suspend some key projects, including work being carried out to finish transforming Chuquicamata into an underground mine, and early-stage projects at Rajo Inca and Traspaso Andina.
The halted projects are part of a 10-year, $40 billion ongoing plan to upgrade its aging mines and keep up production rates. The scheme, however, could be further jeopardized by the effects of the measures taken to deal with the global pandemic crisis.
“Although the country’s government has taken proactive measures to contain the economic and health impacts of the covid-19, the ripple effects of a copper supply shock remain to be seen,” Mariano Pablo Machado, senior Americas analyst at global risk consultancy Verisk Maplecroft, said this week.
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 7% of the global annual copper output.