Codelco bets on growing demand in Chinese market

SANTIAGO, Chile - Codelco, the world's largest copper producer, sees "robust" demand for the metal underpinning prices and the company's plan to spend almost $20 billion to revamp its mines, Chief Financial Officer Thomas Keller said.

Global copper prices are "reasonable" at current levels, Keller told reporters on Tuesday at a summit in Santiago.

Copper has plunged 10 percent this month after the metal used to make power cables and electrical wires more than tripled since 2009.

The Santiago-based company plans to invest almost $20 billion over five years to expand its mines, betting that Chinese demand will help prices rebound amid a shortage of global copper supplies, Keller said. China consumes about 35 percent of Codelco's output, according to the state-controlled miner.

"Copper is on very sound footing to withstand these difficult times," Keller said. "Our investment plan won't be impacted by short-term copper price indicators."

Prices for the metal rose the most in more than a week on Tuesday after a report on Chinese manufacturing eased concern that an economic slowdown is deepening.

Chinese imports of refined copper rose for a second month in July, while inbound shipments of scrap copper jumped 14 percent from a year earlier, Chinese customs data showed this week.

Codelco and other mining companies in Chile, which supplies one-third of the world's copper, are struggling to raise output this year amid strikes and bad weather in the Atacama Desert.

Chilean production of the metal may have been cut by about 8 percent because of the disruptions, Codelco's Chief Executive Officer Diego Hernandez said on Aug 12.

"Long-term" copper prices may average between $3 and $5 a pound (454 grams), Keller said, compared with an average of less than $2.50 a pound in the past decade.

Goldman Sachs Group Inc said in an Aug 8 report that copper will rebound to $11,000 a ton, or about $4.99 a pound, in 12 months as supplies tighten because of growth in emerging economies.

Codelco is seeking to raise debt to finance investments that will average more than $3 billion a year for most of this decade, Hernandez said in an Aug 4 interview.

"I don't see current turbulence negatively affecting Codelco's financing capability," Keller said. "It's the reverse. Today, assets like Codelco are particularly attractive."

The company may raise as much as $2.5 billion in bonds and loans by the end of 2012 to fund record spending on its mines in Chile, including the century-old Chuquicamata mine, Hernandez said. The company may sell more than $1 billion in bonds, he said.

In October, Codelco sold $1 billion of 10-year bonds to yield 3.965 percent, 130 basis points more than similar-maturity US Treasuries, in a transaction arranged by Deutsche Bank AG and HSBC Holdings Plc.

Codelco may spend more than $30 billion between 2011 and 2022, as much as it spent in the past 35 years, to meet rising global demand for the metal, according to an undated presentation on the company's website.

Bloomberg News

(China Daily 08/25/2011 page17)