Coronavirus to prompt Codelco lose world’s top copper miner spot

Chile’s copper miner Codelco is set to lose its position as the world’s top producer of the metal this year, as delays in upgrades and expansion projects caused by measures to stop the spread of the novel coronavirus add to the impact of low prices, lack of funding.

The miner, which hands all its revenue to the state, was in the midst of implementing a $40 billion, 10-year modernization of its mines, aimed at maintaining output despite rapidly falling ore grades.

A sustained drop in copper prices — down 22% so far this year — and the lack of readily available government funding while the country deals with ongoing unrest, has cast doubts on Codelco’s ability to keep up production rates.

Colin Hamilton, managing director of commodities research at BMO Capital Markets, anticipates the miner will have to sell non-core assets. “Any thoughts of shutting unprofitable operations, however, are off the agenda for now given the need to ensure employment,” he notes.

The analyst also sees potential delays at the key El Teniente mine’s new level, which is expected to boost mine’s production to 500,000 tonnes a year, positioning it among the world’s five largest copper operations.

“While operationally the company continues to surprise on the upside, Codelco is looking increasingly unlikely to be the world’s largest copper miner from this year forward, as depletion and restrictions prove to be headwinds that are too strong,” Hamilton says, adding that the impact of the current pandemic will negatively tip the scale.

With the electoral calendar likely being pushed back into the last quarter of the year — including April’s highly-anticipated constitutional referendum — and bleak prospects for short-term economic recovery, Chile’s position as a leading investment destination will face yet another critical test, says Mariano Pablo Machado, senior Americas analyst at global risk consultancy Verisk Maplecroft.

Although the country’s government  has taken proactive measures to contain the economic and health impacts of the covid-19, the ripple effects of a copper supply shock remain to be seen, Machado says.

“Disruption in mining will cascades throughout the scarcely diversified economy and it can have a long-lasting impact if the state’s policies fail to deliver the intended stimulus,” the expert says.

According to BMO’s figures, the implications of the current quarantine-led restrictions in top copper producing nations, particularly in Chile and Peru, remain manageable.

“If we take total Chilean and Peruvian production of ~8mtpa copper contained, the current two-week quarantine would affect ~310kt of copper,” Hamilton estimates. “Currently, we are taking these losses within our disruption allowance, which at 1.4mt is roughly 50% higher than we would run in a ‘normal’ year, to account for the risk to supply chains this year.”

Codelco operates seven mines and four smelters, all located in Chile. Its assets account for 10% of the world’s known proven and probable reserves and about 11% of the global annual copper output with 1.8 million tonnes of production.

from MINING.COM https://ift.tt/2WJkVMI