Codelco to focus on organic copper growth, ready to be Chile’s champion for lithium | Hotter Commodities

Codelco will continue to grow organically by developing its vast copper reserves and existing mining base instead of pursuing mergers and acquisitions (M&A)

In an interview during the annual CESCO week in Santiago, Chile, Pacheco said that Codelco held the world’s largest copper reserves, a central enabler in the energy transition due to its use in charging infrastructure and batteries for electric vehicles, power grids and renewable energy such as wind or solar.

“One of Codelco’s strengths is that we have a very robust portfolio of projects, which is not something that can be taken for granted by every mining company in the world,” he said.

“Most miners are looking for projects via M&A because they don’t have organized growth. But we have tremendous reserves, a robust portfolio of projects and a very strong balance sheet,” he added.

His comments come amid a revival of M&A interest in the copper and broader mining industry. A series of smaller deals recently have been followed by Glencore’s proposal to merge with Teck Resources, a bid that the Canadian company has rejected.

Codelco capex

Chile has 22.7% of the world’s copper reserves, according to official data. But Codelco, the country’s national mining champion, is struggling with aging mines and deteriorating ore grades. It has been developing a series of new structural projects to sustain its output at around 1.7 million tonnes annually.

Last year, Codelco produced an estimated 1.446 million tonnes of copper, down from 1.618 million tonnes in 2021. It was forced to halve spot sales of refined copper to China in 2023 due to production difficulties.

“Codelco’s capital expenditure for the last decade has been $40 billion and in the coming 10 years we’ll probably spend north of this amount again,” Pacheco said.

Part of this includes expenditure on the company’s series of commitments to change its mining practices as it seeks to achieve its sustainability goals.

By 2030, Codelco plans to reduce its scope 1 and 2 carbon emissions by 30%, reduce water use by 40% and increase recycling as part of its goal of creating a more circular economy. The company is also working to ensure its four operational tailings dams align with global standards. It is also focused on making sure the physical and chemical environment is stable for their operation.

Project execution the key challenge for miners

Deferrals, delays and cost overruns make project execution the trickiest challenge facing Codelco and the global mining sector, Pacheco said.

“The number one challenge we have isn’t reserves, it isn’t projects, it isn’t our balance sheet; it is how to execute our projects. Execution of our capital projects is by far our main challenge,” he told Fastmarkets.

“So many projects are delayed, deferred, or overrun, and this is something we need to significantly improve,” he said.

There is concern about a lack of supply for copper, a central enabler in the energy transition due to its use in charging infrastructure and batteries for electric vehicles, power grids and renewable energy such as wind or solar. Fastmarkets analyst Andrew Cole has forecast that the global refined copper market will be in a 340,000-tonne deficit in 2023.

Pacheco said the issue is multi-faceted and was exacerbated by the Covid-19 pandemic, which halted much of the world’s exploration and engineering work in close proximity to project sites.

“We also have an issue with construction. Globally, in the last decade, most economic sectors have improved productivity, with the exception of construction, where it almost stagnated,” he said.

The company suffered difficulties with the contractor at Rajo Inca in terms of pre-stripping activities and has since restarted work with its own teams and new contractors with the goal of being in production by mid-2024, Pacheco said.

These projects are part of the company’s plan to sustain production through the gradual replacement of aging mines and their deteriorating ore grades with new structural projects. Around 75% of Codelco’s total production will come from these new structural projects by 2030.

Codelco ready to be Chile’s national champion for lithium

Codelco is gearing up to step into the role of Chile’s national champion for lithium. This follows the unveiling of the country’s proposed policy for the critical raw materials, Pacheco told Fastmarkets.

In an interview during the annual CESCO week in Santiago, Chile, Pacheco said there were a number of reasons why Codelco, the country’s state-owned and largest copper producer, was the right company for the job.

“We’ve been preparing ourselves to face this challenge. We’re the largest, most important to the economy, number one mining company in the country, and the number one copper producer, and we are prepared to assume the role following the definition the government has provided in terms of its lithium policy,” he told Fastmarkets.

“We have our own lithium permits; we have deep experience in project development, business development, financing, and legal; and we have worked in partnerships with other mining companies in other projects,” he said.

“As a company, we are fully prepared to participate in the objectives the country is defining in terms of lithium,” he added.

His comments came as Chile revealed plans for Codelco to take a majority stake in any future lithium production contracts while respecting existing mining leases in the country. The government had previously announced plans to pass a law in Congress to create a state-owned enterprise for the mineral.

The move comes while countries around the world scramble to secure supplies of lithium, a critical mineral in electric vehicle battery production. Chile has the world’s largest lithium reserves and is the second biggest producer globally.

Codelco has already spent around $70-80 million conducting exploration work on properties in the Salar de Maricunga in Chile’s northern Atacama region.

While the new policy – which will be voted on by Congress in the second half of the year – would not impact existing licenses, it would certainly have implications for producers in the country when their permits expire.

Chile’s SQM is a major producer in Chile’s Salar de Atacama, which is home to more than a third of the world’s lithium reserves. Its license in the region expires in 2030, at which point – according to the proposed policy set out on Friday – the company has the option to enter a partnership with Codelco or exit the site entirely.

Meanwhile, US-based lithium producer Albemarle has operations in the Salar de Atacama as well as a conversion plant in La Negra, near Antofagasta. Its leases run until 2043.

When extracting raw materials from salars, lithium-containing saltwater from underground lakes is brought to the surface and evaporated in large basins. The remaining saline solution is further processed in several stages until the lithium is suitable for use in batteries.

The extraction process is often criticized for increasing droughts, threatening livestock farming and leading to the destruction of crops in adjacent communities. Chile said it plans to use direct lithium extraction technology going forward, without specifying details.

In Hotter Commodities, special correspondent Andrea Hotter covers some of the biggest stories impacting the natural resources sector. Sign up today to receive Andrea’s content as it is published.

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