Codelco chair scraps output forecasts, eyes junior partners

Codelco will try to approach 1.3 million tonnes of copper a year over the next four years and wants Chile to rewrite the law governing its partnerships so it can bring in private miners, including juniors listed in Canada and Australia, chairman Bernardo Fontaine says.

Fontaine gave the outlook in an interview with La Tercera conducted on Friday and published on Sunday. The Santiago newspaper said the figure overturns the forecasts of his predecessor as chairman, Máximo Pacheco, who expected output of 1.5 million tonnes in 2027 and 1.7 million tonnes by the end of the decade.

Fontaine expects production to stay near 1.2 million tonnes next year, after giving a similar figure for this year at an extraordinary shareholders' meeting on Thursday. Any increase depends on when Codelco can restart operations at El Teniente that have been halted for safety reasons since an accident last year, he said.

Codelco's production fell, and its operating costs rose 42% in four years, despite $32 billion of investment over the past eight years, he said. Chile's mining output fell 8.5% in the nine months to September, and Codelco's fell 9%, he said.

"In these years we are not considering large investment projects," he said.

The exception is the Diamante project at El Teniente, where Codelco will continue and accelerate investment.

Urgent need

Fontaine described modernizing Law 19.137, the 1992 statute on Codelco's partnerships, as an urgent need. The law, he said, imposes so many procedures and rigidities that it scares off potential partners. Codelco holds one million hectares of mining claims it does not work, more than any other holder in Chile.

"And we do not have the management capacity or the resources to develop that million hectares," he said.

A new law would let Codelco attract a different kind of mining company. "We are looking, for example, at the stock exchanges of Canada and Australia, where there are junior miners that place shares precisely to explore, which is a very interesting mechanism for developing exploration quickly," he said.

Codelco's legal team is drafting a bill to propose to the government, which has the power to present it to Congress.

La Tercera noted that Codelco has said it has 34 exploration prospects open to partners. Codelco has signed formal partnerships with BHP (NYSE, LON, ASX: BHP), on the Anillo project, and with Sociedad Punta del Cobre (Santiago: PUCOBRE), or Pucobre, on Tovaku, as well as with a third company it cannot yet name, Fontaine said.

Codelco expects Glencore (LON: GLEN) to present it with a supply contract around the end of next year for a smelter Glencore wants to build. Codelco has lost nearly $1.8 billion at its smelters and refineries in recent years, and its old plants cannot compete, Fontaine said, describing a Glencore smelter as a possible medium-term alternative.

He said Codelco has made no decision and held no talks on its 24% stake in El Abra, where its partner is Freeport-McMoRan (NYSE: FCX).

On the falsified figures, Fontaine said false production totals 42,100 tonnes across 2024 and 2025 on the information available so far. Of that, 17,000 tonnes are on the balance sheet as inventory that does not exist, worth $120 million to $140 million, a figure the external financial auditor is validating, and Codelco should write it off this year, he said. About 140 executives who received excess bonuses have returned the money, and the audit should end at year-end, he said.

Contractors account for almost 40% of Codelco's costs, and their contracts will be reviewed, Fontaine said. The recovery plan, which La Tercera said was originally due in October, should be ready in December and rests on what he calls a cultural change.

"So the idea is to stop producing for the sake of producing, and to move to producing safely, profitably and efficiently," he said.