INTERVIEW: ‘The prospects for copper are pretty healthy’ - Óscar Landerretche
Óscar Landerretche recounts his journey to becoming Codelco chairman as well as recent achievements and future prospects at Chile’s major copper producer in an interview with Metal Market Magazine.
He has survived his family’s exile from Chile after a military coup, the risks posed by violent drug wars on the streets of Colombia, and a horrific package-bomb attack at his home last year. Now the outgoing chairman of Codelco is more than ready to return to two of his passions: teaching and writing.
Despite his now-deep experience in metals, it is a natural move: the life of Óscar Landerretche, who has spent the past four years chairing the world’s largest copper producer, has always been very closely interwoven with the University of Chile – the country’s oldest and most prestigious. He was actually born in the University Hospital during a strike of its doctors while his parents were both students there. “Somehow my father managed to get someone to deliver the baby,” Landerretche tells Metal Market Magazine.
At the time his father was heavily involved in the defense of the Salvador Allende government, which was eventually overthrown during a military coup by General Augusto Pinochet. When Pinochet seized power, Landerretche’s parents left Chile in exile: first moving to Bogota, Colombia, where his father worked in a bakery and completed a masters degree, and then ending up in Oxford, UK, where his father was accepted on scholarship for a PhD course.
When he arrived in the United Kingdom, Landerretche, an only-child, was around four years old. The tight-knit family stayed in the UK until he was 12, and he still considers it home. “Basically my identity was being a little British kid – I lived a regular life like anybody in England,” he says. “At that time there weren’t many immigrants in the UK so I was actually a quite strange thing. I lived in a British, working-class community where the only immigrant children were myself and one from each of Pakistan and India,” he adds.
After a while the family moved to Gloucester, where his mother, an engineer by background, developed an interest in urban and rural planning, which she went on to study locally. It was the late 1970s, and Landerretche vividly recalls living through the so-called “Winter of Discontent”, during which there were widespread strikes by UK public sector trade unions seeking larger pay rises. The period was a huge influence on Landerretche’s political identity.
“Those were tough times. My feeling is we lived in a very working-class, Labour-identity community that was mixed with more conservative military people,” he says. “My view of left-wing politics is basically UK Labour Party politics, and when I try and explain that in Chile nobody gets it because Chile has a different story,” he says.
It was in the UK that he developed a lifelong love of punk rock – “Never the hair, only the music!” – as it emerged as a major and controversial cultural phenomenon there, in particular the English band the Sex Pistols. He also became a big fan of rugby, and to this day watches Gloucester rugby club matches online from Chile and roots for England when they play international matches.
Return to Colombia
The family returned to Bogota, Colombia and, as Landerretche switched into an American school there, he encountered first-hand the violent bombing campaign of the drug cartels known as the narcos.
“We had our adventures in Colombia! You look back at it and think, ‘What on earth were we doing there?’” says Landerretche. “There was a time when you lived with the idea there was a relevant probability you’d be blown up randomly by a car bomb in the street, so you lived with that. I remember I never really felt scared about it,” he recalls.
Politics continued to play an important role in his family’s life; Landerretche’s father got involved in the peace process of M-19, which used to be the country’s second-largest guerilla group, and became economic advisor to the presidential campaign of the M-19 candidate, who was eventually assassinated. None of this dented Landerretche’s love of Colombia, which he describes as a “place where I feel things are right and how they’re supposed to be, where things smell and feel properly.”
A teenage Landerretche was already a self-confessed “brainy kid,” excelling in mathematics as well as humanities and “tormented between the two” disciplines until he settled on economics, the obvious combination of the pair. He had considered a course in journalism – “I had a fantasy I would be a BBC journalist, I wanted to be a war correspondent” – and then later in philosophy, becoming “an obnoxious kid” while reading philosophers in his teens such as Bertrand Russell.
“One day my dad took me aside and asked whether I planned to be in academia for 30 years finishing both sets of disciplines, and why didn’t I get a career instead? I was forced to converge to economics because the University of Chile wasn’t organized in the way necessary to be able to study both at the same time,” he says. It worked out well for another reason: while studying at the university he had been born at, Landerretche met his future wife, a fellow student there.
After his masters he worked as an analyst for a few years at the Central Bank of Chile, but his end-goal was a PhD in economics – Landerretche says that his “secret objective was to return to England to study,” until he was persuaded by his professors and mentors to attend the Massachusetts Institute of Technology (MIT) in the United States.
It was a challenging period: both Landerretche and his wife started the arduous task of PhDs at MIT and Boston University, respectively, when their first-born child was just a month old, something that Landerretche jokes was “a really stupid thing to do. Nobody should ever do that again!”
They now have four children: two boys and two girls. Their eldest child is an engineering freshman at the University of Chile. He also has a teenage daughter interested in political journalism, a four-year-old daughter, and a two-year-old son.
When Landerretche and his family returned to Chile from the US after his PhD, he set about building a career that reads like an impressive litany of educational, political and economic roles. Copper was still not on his career radar; his first main position was to become a founding director of the Masters in Public Policy of the University of Chile – a central focal point in his life as ever.
He became chief economist, advising the primary phase of Michelle Bachelet’s first winning Chilean presidential campaign, and played a role in the subsequent re-election campaign of former president Eduardo Frei Ruiz-Tagle, which was lost. Throughout the time, he continued to teach and consult, including to Chile’s Ministry of Finance, wrote several books and led curricular reform at the University of Chile while running its business and economics school. Then in 2014, along came the role of chairman at Codelco.
Chairing Chile’s state-run copper company was not a position that Landerretche, then 41, had ever imagined would be offered to him – he had settled into his academic and consulting roles and was extremely comfortable doing them. But Bachelet, now elected President of Chile for the second time and looking for a new chairman as part of the traditional reshuffle that accompanies an election, had other ideas.
“The government had seen the problems in Codelco and realized it needed someone it trusted – from a political perspective for the President, but also for the Minister of Finance because there was a huge fiscal problem with the company’s debt,” he says. Faced with the choice between a businessman or an economist to take the helm at Codelco, the government opted for the latter, Landerretche surmises.
“President Bachelet knew me from her first campaign and I got approached by the appointed Minister of Finance, who told me the President wanted me to be part of her government in a couple of possibilities, and offered them. At first I said, ‘Thank you, but I’m alright’,” Landerretche recalls. But Landerretche was persuaded to take on the role, sold to him in part on the basis that it was not a full-time job and would take only a third of his time, allowing him to continue to teach. “Obviously that was not true!” he says.
Landerretche quickly discovered a number of other truths, including that there was an enormous amount of skepticism about his ability to do the job from within the broader business community. “The attitude was, ‘Who is this kid? In the worst case he’s a kid, in the best case he’s an academic. What does he know?’” he says.
He also realized “very, very fast that this company had a lot of problems” and plunged himself into studying the company’s finances and meeting hundreds of staff in an effort to know Codelco better. “I arrived at the conclusion that Codelco was in a mess: it was in a critical moment, it needed a lot of tough love, and it was going to be hard,” Landerretche adds.
What had gone wrong with the company, in his opinion? Three key things, he believes: growth for growth’s sake during the boom had resulted in a non-credible portfolio of brownfield structural investments, excessively high costs, and debt that was “out of control.” When he took over the helm, the company had debts of $14 billion. “But that wasn’t the problem. The problem was that five years prior it had been $4 billion. That was not sustainable,” he explains.
He set about looking for a chief executive officer. He was convinced that the company needed a miner, not a businessperson, and he eventually “made the best choice I’ve ever made in my professional life” in opting for Nelson Pizarro, the current Codelco chief executive officer.
The pair have a real bond, both personally and professionally – Landerretche’s respect and affection for the now 77-year old Pizarro is evident. “We bonded the very first time I ever met him [Pizarro] – he’s from my father’s generation, so there was a personal connection, but moreover he was the right guy at the right moment in a way that is very difficult to replicate – the senior miner of this country in the profound sense of being a miner,” Landerettche says.
The duo have worked closely throughout their time with the President of the Federation of Copper Workers, Raimundo Espinoza, “The best union leader we could have hoped for – responsible, loyal, critical, fair, and tough when needed.”
Fixing the issues
The team divided up responsibilities and was backed by the unions and the board. Pizarro focused on cost cutting and streamlining the company’s portfolio of investments, while Landerretche looked after what he calls the “financial sanitization” of Codelco as well as reforming its corporate governance.
The increase in debt has been halted, and Landerretche leaves Codelco with a little less debt than when he joined. “We can’t pay the debts off now, we have to wait for the underground expansion at the Chuquicamata copper mine to come on line. But we lowered debt a little bit, and we stopped the inflation, which was very important to me and I’m extremely happy that we managed to do that,” he says.
His corporate governance agenda was equally tricky to achieve, Landerretche explains, not least because the reforms were initially perceived as upsetting the norm and making things more difficult. Codelco has since undergone a complete overhaul of its controls and culture, he says.
It has been mission-accomplished on Pizarro’s part too. Costs have dropped considerably. A series of efforts, coordinated by a new vice-president for cost-cutting, solely focused on reducing costs, and improving productivity has pushed costs 10% below the average costs of the private sector, Landerretche notes.
Similarly, instead of developing numerous projects at the same time, Codelco now plans to streamline its portfolio to concentrate on three and to run them in sequence. The first is Chuquicamata underground, then El Teniente and Andina. Each project has been substantially slimmed down as well.
“When we say we’re going to be able to sustain our production in the 1.6-2.0 million tonnes a year range depending on what’s coming on and going off line for the next 30 years, people can actually believe that. I’m not sure that before that we were really very credible – we were promising 2.5 million tonnes at one point,” Landerretche says.
“This company is the result of the nationalization of copper by President Allende, whose government my father defended in combat; for me that is a really big deal. I’m very proud of what has been done and very happy to have been able to serve in this way,” Landerretche adds.
Surviving a bomb
One appalling incident has spoilt Landerretche’s experience during his time at Codelco. On Friday January 13, 2017, a package was delivered to Landerretche’s family home in Santiago. It looked like a gift, but it was a bomb.
When it exploded, it was close to his then three-year-old daughter. “She just bent down and my hand was in the right place to protect my face. It’s a miracle she is alive and a miracle I have both eyes,” he says, clearly still very moved by the event. “It was luck, and luck plays a role in your life. It’s like I won the lottery, which sounds stupid because it was a very unfair thing someone did to us, but it feels like that because someone attempted murder and didn’t get away with it or leave me and my family injured,” he adds.
These days, terrorism is actually extremely rare in Chile. An eco-terrorist group claimed responsibility for the bomb, but nothing has been proven and Landerretche remains unconvinced. “Eco-terrorists claimed responsibility but I have never believed that; I believe it had to do with all the rationalization of Codelco, the different interests we have touched. Maybe I’m wrong; I hope so,” he says. The family still has 24-hour security at their house.
In light of this event, leaving the world of mining on May 10 will understandably be less of a wrench for Landerretche than it might otherwise have been. “It’s hard to say I’ll miss mining. It’d be nice to say I will, but when something like that happens, it’s really hard to say that I’ll miss it, or that it was a good experience. I grew with it, found out I can do things that I didn’t know I could do, but it’s going to be very hard to get the words out to say this was a good experience,” he says. “Every time I see my little daughter it’s very hard for me to find it a good choice, quite frankly. I didn’t know it was going to be like that.”
Nevertheless, Landerretche is firm in his decision that the incident will not force his family to fundamentally change their lives or be chased away from Chile. “That’s a decision my wife and I made, after a little while. I’m the son of an exile, and my wife was born in exile in Germany. So we’re not going to be chased out of our country,” he says. He now plans to prioritize his family as well as to continue to teach and write; “For me, that’s like being at home.”
As a state-run company, the funding structure of Codelco is very different to many other copper producers, and one that Landerretche has criticized publicly and in Parliament throughout his time at the company. Money is allocated to Codelco by the government for its term in office; the copper producer in turn hands over its profits to the state, which then decides whether and how much to reinvest in the company.
Landerretche has called on a long-term funding policy to allow the company’s management team to better plan projects and to help alleviate its debt issues. “I believe you have to put in place a credible mechanism – an anti-cyclical capitalization rule – so that holders of Codelco debt know that it is going to be paid,” he says, adding that the long-standing ‘10% Law’, which forces Codelco to transfer 10% of its export sales income to the military, should be part of this.
“We took a bite at that [10% Law] and eliminated some of its more absurd aspects, including that this company had to pay it even if it didn’t have money. It’s still a huge anomaly that has to be corrected,” he notes.
Critical for the future of Codelco will be its internationalization – an aspect that Landerretche wishes he had more time to concentrate on during his tenure as chairman. “My view is that the destiny of Codelco is to become an international, probably multi-metal company. We’ve gone through the infancy of Codelco, which is copper in Chile, and that was an important one, but the internationalization is the future and I hope it will be the mission of some of my successors to push that forward. I wish we could have got more of that done,” he adds.
He is extremely proud of the creation of Codelco Tech, which is run as a completely separate unit with its own board and a strategy focused on technology, science and innovation. He is also very proud of what he calls ‘feng shui’ copper, a pilot scheme to produce decommoditized copper with traceability throughout the supply chain. First shipments in the scheme, agreed upon with three customers – trading company Mitsui, French cable-maker Nexans and automotive manufacturer BMW – are expected at the end of the year or by the start of 2019.
The concept is similar to that being applied throughout the commodities supply chain – including in diamonds, aluminium and cobalt. The move comes amid a growing push by consumers to integrate environmentally sound choices into supply-chain management.
Copper market growth
Like its peers, Codelco suffered during the 2008-2009 global financial crisis. But despite improving profits and prices, Landerretche says the tough lessons learned from the collapse in copper prices and the subsequent push to cut costs, reduce debts and increase productivity are still fresh in the minds of mining company management teams.
This is in part because there has been little change at the top for management who steered firms through these difficult times, and also because shareholders continue to place pressure on miners. But this situation will not last forever, he warns, with cost pressures already having to be managed while growth is being reactivated through the copper supply chain.
“If we go into another super-cycle that lasts many years, I’m sure that things will be relaxed. That’s just the creative destruction way of the world. But I do believe there were lessons and I believe companies are currently being more careful, more conservative, and that’s good for everybody, because it’s going to be a more sustainable and better business,” Landerretche says.
He is a believer in the electro-mobility boom, including growth in the use of electric vehicles (EVs), which is adding to demand for battery materials containing lithium, copper and cobalt.
He also notes that the recovery in the western economies following the turmoil of 2008-2009 was a bullish factor for copper demand growth, as well as the fact that China, the world’s largest copper consumer, had managed to continue its economic growth without any major problems.
“These three trends are all feeding into copper... The prospects for copper are pretty healthy and my view is if mining companies stick to their long-term perspectives with responsible long-term views, it will be very good for them,” he adds.
This article was first published in the May issue of the Metal Market Magazine, which carries in-depth feature articles, analyses and reviews of metal and steel markets.