Chile's Codelco continues multibillion-dollar overhaul of aging operations: MI

Chilean state-owned Codelco bolstered its position as the world's largest copper producer in 2020, as the company continues to implement a multibillion-dollar overhaul of its aging operations, according to S&P Global Market Intelligence's Metals and Mining Research team.

The Metals and Mining Research team analysis of Codelco's strategies is based on a detailed compilation of its activities over the 2011-20 period, part of MI's Strategies for Copper Reserves Replacement study, which includes analysis of the world's top 10 copper producers in 2020. These compilations show the relationship between each company's production, reserves, costs, exploration budgets, acquisitions, divestitures and copper discoveries during the period.

Codelco's copper reserves decreased significantly over the past decade, falling from a high of 63.6 million mt in 2012 to 49.1 million mt at the end of 2020, and reserves grades also have declined slowly but steadily. Resources, however, rose sharply from a low of 68.3 million mt in 2012 to 88.8 million mt in 2020, as five discoveries made during the 2006-20 period were added to the company's resource inventory.

From 2011 to 2020, Codelco replaced 12.3 million mt of copper reserves, with the majority, or 74%, coming from exploration and development. With copper exploration budgets totaling $634.9 million, the cost of exploration-derived reserves was only $0.03/lb. Codelco's exploration allocations over the past 10 years are relatively small compared with its production over the same period, as the company spent $0.016/lb of copper produced.

Taking advantage of its large land position in the most copper-prospective country in the world, Codelco is solely responsible for five major discoveries since 2008 -- all of them in Chile. With copper exploration budgets totaling $916.7 million from 2006 to 2020, the exploration cost of the 18.4 million mt of attributable discovered copper was $0.02/lb.

March quarter

In the March quarter, Codelco recorded its highest quarterly profit in a decade, with profits of $1.63 billion on production of 386,000 mt of copper at a C1 cash cost of $1.32/lb.

The Ministro Hales, El Teniente, Chuquicamata, Salvador and Radomiro Tomic operations all recorded gains, offsetting a 40% decline at Gabriela Mistral. According to Chairman Juan Benavides, the company's goal is to maintain annual production at around 1.7 million mt/year.

Codelco has been involved in an overhaul of its aging operations for the better part of the last decade. In 2012, it announced a five-year, $27 billion investment plan centered around five "structural" projects: the new Ministro Hales mine, the Chuquicamata underground project, a new mine level at El Teniente, a phase-two expansion at the Andina operation, and the Radomiro Tomic phase-two sulfide project.

Instead of developing several projects simultaneously, which has proven challenging given its fiscal constraints, Codelco opted to undertake the projects sequentially. The new Ministro Hales mine and $5.8 billion Chuquicamata underground project have been completed. At El Teniente, the world's largest underground mine, Codelco is adding a new level that would supply 434,000 mt/year of copper for 50 years.

First production from the $5.7 billion project is scheduled for 2023. The new level is part of the larger Teniente Project Portfolio project, which comprises the Andes Norte Nuevo Nivel Mina, Diamante and Andesita projects. The overall project is about 62% complete.

At the Andina division, a $1.5 billion mine-plant transfer project is due for commissioning in 2021. The main goal of the project is to relocate the existing primary crushing plant to allow expansion of the open pit mine. The project is about 93% completed. The future development of a 150,000 mt/day treatment plant is under feasibility study.

At the Salvador division, Codelco is planning to begin construction of the $1.38 billion Rajo Inca project in the coming weeks. The project aims to overhaul the company's aging Salvador mine, converting the open pit operation into an underground mine and adding 47 years to the mine's life. Codelco hopes to increase production to 95,000 mt/year in the first half of 2023.

At the Radomiro Tomic division, a pre-feasibility study to expand processing to 100,000 mt/day to 200,000 mt/day is continuing.

Abroad

Looking abroad, Codelco is taking the government of Ecuador to international arbitration over the stalled Llurimagua copper project, located about 80 km (50 miles) northeast of Quito. The joint venture between Codelco and Ecuador's National Mining Company, Enami EP, dates back to a cooperation agreement signed in 2008. The Chilean miner is asking Enami to fulfill its side of the agreement.

At the 2021 CRU World Copper Conference, Codelco Executive President Octavio Araneda Osés said the company aims to generate an additional $1 billion per year in profits through efficiency and productivity improvements to help finance $35 billion in further structural improvements over the next decade.

In December 2020, Codelco outlined sustainability plans in five areas of action for its operations and projects, including cutting carbon emissions by 70%, reducing water consumption by 60% and recycling 65% of industrial waste by 2030.

Centered around five key metrics, the plan aims to reduce three-quarters of Codelco's carbon emissions by creating what it calls a "100% clean energy matrix." The plan includes replacing underground production equipment with electric vehicles and machinery and involves a search for new clean-energy sources, such as green hydrogen.