Leading Chile candidate to scrutinize Codelco as debt mounts
The candidate most likely to be Chile’s next president would do a thorough review of struggling state copper behemoth Codelco to determine what’s needed to ensure its financial viability.
While handing over control of Codelco isn’t on the table, engaging in more partnerships with private groups offers a way to ease its financial burden, said an economic adviser to right-wing candidate José Antonio Kast.
“Our main concern for Codelco is that it be a sustainable company,” Tomás Bunster said late on Wednesday at an event hosted by Bloomberg. “But like everything, we must evaluate how it’s developing over time.”
The discussion surrounding one of the most indebted major mining companies in the world is crucial both for Chile’s economy and the global copper market. Codelco’s traditional mantle as the world’s biggest producer is under threat as it grapples with setbacks in its efforts to reverse a years-long slump in output.
Bunster, an engineer and regulatory consultant, didn’t offer other possible measures to prop up Codelco’s finances. Introducing private capital into the company itself or its existing mines would require legislative changes — making it a delicate topic heading into general elections in November. Codelco has been a cash cow for Chilean governments ever since it was formed after the nationalization of US-owned mines in the 1970s.
At the same event, economic advisers to the other main candidates also said privatizing Codelco wasn’t on their agendas, but that joint ventures on future projects was an appealing prospect. The company already has minority stakes in assets operated by private firms and has exploration partnerships with companies including Rio Tinto Group.
Those types of arrangements “seems very appropriate,” Bunster said.
Codelco is striving to recover from a deadly accident at its biggest mine, which threatens its target of a gradual recovery in production over the coming years. Its four main expansion projects have all been coming in well above budget and behind schedule, pushing up debt levels to about six times earnings before interest, taxes, depreciation, and amortization.
In the lead-up to Sebastian Pinera’s first term as president in 2010-2014, he included a proposal to sell a minority stake in Codelco, which led to a public outcry and was later dropped. During that administration, Codelco’s debt levels jumped 84% despite higher copper prices.
Lithium deals
On the same panel, Bunster said a Kast administration would evaluate an agreement for Codelco to enter into SQM’s lithium business if the deal hasn’t already been finalized by the time the new president takes office.
If Communist contender Jeannette Jara wins the presidency, her government would also scrutinize the proposed SQM-Codelco tie-up, adviser Nicolas Bohme said Wednesday. Both candidates would respect the deal if it’s signed before the change of government.
For Gonzalo Sanhueza, who is working with center-right hopeful Evelyn Matthei, the arrangement is already binding and should not be rescinded. “That’s the way we’re going to begin to provide legal certainty in this country,” he said.
Regarding Jara’s proposal to establish a national lithium company, Bohme said such an entity would act, over time, as “an umbrella that brings together all existing state participation in lithium.”
(By James Attwood, Matthew Malinowski and Valentina Fuentes)
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