Against the backdrop of weak copper prices and poor economic conditions, Codelco recently announced an optimization process. This process will force Codelco to reduce costs by $6 billion. Over the course of the next five years, the company is planning to “delay” $4 billion from capital investment plans, in addition to a $2 billion reduction in the company operating expenses. Combined, these actions will remove 70,000 tons of fine copper from the market.
Other actions being taken by the company include terminating contracts with third parties, which has been translated into a reduction of 3,500 contract workers during 2015.
During the World Copper Conference held recently in Santiago, Chile, CEO Nelson Pizarro explained that the financing costs have been increasing, but also emphasized that the market fundamentals in the long term are still sound.
“Copper is still a healthy commodity,” Pizarro said. “Currently, Codelco’s focus is to keep investment on their structural projects. We are trying to slow down, in some cases, the startup of those projects that are not mature yet. Nevertheless, we are going to keep investing, but in a more rational manner.”
Pizarro also said that Codelco is going to prioritize those projects that require less time to be developed. According to Pizarro, the current scenario is a temporary situation that should start to improve by 2018, with a market deficit caused by the ongoing production shortfall.
The current challenge for Codelco is to be able to handle the uncertainties in the short term while keeping the focus on the recovery process.
Codelco reduced its cash cost down to $1.39/lb last year. The target for this year is to go as low as $1.26/lb.