Santiago, Chile 05/04/2016 - Chilean producer Codelco is managing the current uncertainty and low copper prices by aggressively cutting costs and delaying some capital expenditures until improved fundamentals kick in later this decade, Codelco CEO Nelson Pizarro said.
"There is no doubt that the commodity markets are living through a difficult movement," Pizarro said at the CRU World Copper Conference here.
Since January 2011, the price index for mining shares has fallen by 68 percent and commodity prices have decreased by 53 percent, he noted.
Three-month copper on the London Metal Exchange is currently at just $4,778 per tonne, not far from the six-year low of $4,318 set in January.
"But we need to trust the foundations of the copper industry - and it does have a solid foundation," Pizarro said. "We hope for a robust price recovery after this uncertain period. We expect that the so-called 'new normal' will give us fruit in the future."
But for now the global copper market will be burdened with overproduction through at least the end of 2017, he said.
"We have concentrated very hard on bringing costs down. Codelco has reduced the cash cost from $1.64 per pound in 2012 to $1.39 in 2015. We have a goal to achieve more reductions this year to get to a cash cost of $1.26 per pound," he said.
In terms of individual operations, Codelco expects to lower cash costs at Radomiro Tomic this year by seven percent to $1.34 per pound; Chuquicamata by 15 percent to $1.35; Ministro Hales by 16 percent to $1.25; Salvador by 70 percent to $1.78; Andina by 24 percent to $1.21; and El Teniente by two percent to 99 cents.
"Our cost-cutting efforts were partially achieved through the Chilean peso devaluation and lower costs for energy and other input costs. But there has also been a strong effort by management to look for productivity gains," Pizarro said.
Codelco will also delay around $6 billion in expenditures over the next five years, most of which would have been used for structural projects. This will result in the reduction of some 4 million tonnes of copper production over the next 25 years, Pizarro said.
"We will continue to invest but will do so in a reasonable way that controls risk. We will not push forward any project that isn't mature enough or where the prices and costs don't reflect the current [challenging] situation," he said.
Codelco produced 1.73 million tonnes of copper in 2015, a 3.6-percent year-on-year increase. Still, it posted a loss of $1.35 billion, swinging from a $3.04-billion profit in 2014.
(Editing by Mark Shaw)