November 22, 2012 / 3:16 PM / 5 years ago

UPDATE 2-Codelco sees '12 copper output under 1.7 mln tns, grades slide

* Codelco January-September copper output falls 5 pct
    * Lower ore grades slam state miner
    * Codelco Jan-Sept profit jumps 27.3 pct on Anglo stake buy
    * CEO says copper market cautious, still healthy
    * Sees 2013 output higher, Chuqui labor talks loom

    By Alexandra Ulmer
    SANTIAGO, Nov 22 (Reuters) - Copper production at Chile's
Codelco slipped 5 percent in the January to September period
from a year earlier to 1.189 million tonnes, the world No.1
copper miner said on Thursday, as dwindling ore grades at ageing
deposits dampened output.
    The state-run miner now expects to produce a little under
1.7 million tonnes of copper this year, from a previous forecast
of around 1.7 million tonnes, ebbing from 2011's levels as ore
grades stubbornly decline.
    Codelco said profits before tax and extraordinary
items jumped 27.3 percent during the period from a year earlier
to $6.777 billion, boosted by its purchase of a stake in Anglo
American's Sur properties in Chile. 
     "(This year's production) will be below 1.7 million tonnes,
fundamentally due to lower ore grades," CEO Thomas Keller said
during a press conference to present the results. 
    Ore grades dropped around 9 percent on average, though they
tumbled more than 19 percent at the Chuquicamata mine, Codelco
    Century-old, massive Chuquicamata is emblematic of world
No.1 copper producer Chile's tired deposits. The mine produced
249,000 tonnes of copper in the January to September period of
this year, a 23.6 percent tumble in output compared with the
same period of 2011.
    Codelco has an ambitious plan to invest $27 billion from
2012 to 2016 to increase annual copper production to over 2
million tonnes. 
    "We're still using similar projections in terms of the cost
of our projects," Keller said on Thursday.
    Codelco forecasts its 2013 output of the red metal will top
this year's as the new Ministro Hales mine comes on line. 
    "In 2013 we are not expecting much additional growth from
Codelco or indeed Chile as a whole," said Macquarie analyst Ryan
Belshaw, adding that Codelco's January to September production
figures were broadly in line with estimates.
    "Chuquicamata hasn't been the only Chilean mine
to experience worse than expected grades this year, Collahuasi
and Los Bronces have also come in lower than guidance, all of
which has kept a cap (on) copper supply growth in 2012."    
    Codelco is also gearing up for labor negotiations at
Chuquicamata in 2013. 
    "We're approaching this collective labor negotiation with
seriousness and optimism," Keller added.
    In addition to lower grades, Codelco was also hit by steeper
energy and fuel prices and lower prices for molybdenum, a
by-product of copper. The company's direct cash costs were
$1.567 per pound of copper in the January to September period, a
40.4 percent increase compared with 2011 levels.
    If the extraordinary gain stemming from the purchase of a
slice of Anglo's coveted Sur deposit is discounted, Codelco's
profit before tax and extraordinary items falls to $3.260
billion, a 38.8 percent decrease from the same period of 2011.
    The hefty drop is due to lower prices for copper,
falling ore grades, steeper costs and a fall in production, the
firm said. 
    Copper has struggled over the past two months to break a
downtrend, giving up 8 percent since touching a peak of $8,422
on Sept. 19. 
    "We're seeing a more cautious market, but with levels of
interest that remain fairly solid, and don't indicate a
significant deterioration in market conditions," Keller said.
    Copper stocks in China's bonded warehouses hit a record high
of over one million tonnes late last week and inventories are
expected to rise by around 100,000 tonnes by the end of the year
due to weak domestic demand, traders said on Tuesday. 
    "It's something we follow closely," Keller said of the
     The percentage of copper sold to Chinese buyers increased
to 36 percent in the nine-month period compared with 34 percent
a year ago. But only 18 percent of copper went to Europe, down
from 22 percent, which Keller attributed to the debt crisis that
is plaguing the continent.

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