SANTIAGO State copper producer Codelco should receive more government funds this year than Chile allocated for the world's No. 1 red metal miner in 2013, the country's mining minister told Reuters on Tuesday.
The previous, conservative government handed Codelco $1 billion in 2013. That was followed by a second distribution of $1 billion, but Codelco said that tranche was essentially an accounting change that did not amount to comprehensive funding for the ambitious and costly overhaul of its tired mines.
"Naturally that's the case," Mining Minister Aurora Williams told Reuters when asked if funding this year would be more than last year's. "And also last year, more than giving Codelco fresh funds it was fundamentally an accounting transaction that in practice didn't give Codelco fresh funds," she said on the sidelines of the CESCO/CRU copper conference.
Williams added that the new center-left government was serious about reaching solutions soon for financing the cash-strapped miner.
"This is very good news," Codelco's chief executive officer Thomas Keller told Reuters when asked about the minister's comments. "Any news that suggests an improvement in our financial situation is very good news for us."
Copper was nationalized in 1971 under socialist Chilean president Salvador Allende. Codelco has since become a crucial motor of economic development in Chile, the world's No. 1 copper producer.
The company hands all its profit over to the state, which then decides on an annual basis how much to return to the miner. This erratic financing mechanism exposes Codelco to the whims of the government at a time when Chileans are clamoring for improved social spending. This year will be a crucial test of whether the government of Michelle Bachelet has the political capital and will to reform the system.
Experts say an institutionalized set of rules for funding Codelco would give the company more certainty going forward with its projects.
Codelco, which produces around 10 percent of the world's copper supply, plans to invest roughly $30 billion to counter dwindling ore grades in its massive Chilean deposits.
The company's own production dropped to around 1.62 million tons last year, a five-year low.
(Writing by Alexandra Ulmer; Editing by Chris Reese, David Gregorio and Meredith Mazzilli)