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Chile's Codelco sees additional delay to El Teniente expansion

SANTIAGO (Reuters) - At a time when cutting costs is a top priority, world No.1 copper producer Codelco foresees an additional delay to the expansion in its top producing copper mine, the century-old underground El Teniente, chief executive Nelson Pizarro told Reuters in an interview on Friday.

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The Chilean state-owned company is implementing an ambitious $22 billion multi-year investment plan to open new mine projects, like Ministro Hales, and revamp older ones such as El Teniente.

“This project isn’t going to follow the path we initially planned three years ago. It’s going to take more time ... likely some more months” on top of the 2 to 3 year delay already announced a year ago, said Pizarro.

He said Codelco will probably have to find a way to replace the mineral it was supposed to be extracting with the new expansion project with mineral from somewhere else at El Teniente.

Though copper prices have fallen to 6-1/2 year lows, heightening pressure on miners to save on costs and tightening cash flow, Pizarro said it is a good time to make investments as prices for oil and building materials, such as steel, have also slipped.

With nearly half of costs for miners in the local currency, the Chilean peso’s sharp depreciation versus the U.S. dollar also helps to reduce costs, said Pizarro. The Chilean currency has already weakened nearly 3 percent against the greenback in the first two weeks of 2016 after depreciating 14.7 percent last year.

Codelco will likely be able to bring down the $5.4 billion price-tag for its recently approved Radomiro Tomic sulfides project, said Pizarro, adding however that the old age of some of its mines is a limitation to reducing overall costs further.

He sees copper prices averaging between $2.15 and $2.20 a pound, and finally rebounding in the second half of 2017 as the global market for the red metal swings into a deficit. Most analysts see that happening in 2018.

“It’s hard for me to believe that these prices around $2.00 (per pound) will remain in the medium term of six months to a year like the most pessimistic voices are saying,” said Pizarro.

Regarding top metals consumer China, Pizarro forecast annual copper consumption growth of 2.7-2.9 percent over the next five years.

Asked if Codelco was considering issuing debt to help finance its investment plans, Pizarro said his priority was safeguarding the company’s coveted investment grade.

“If it doesn’t impact our investment grade, it’s a good moment (to issue debt) ... we have to analyze our 2017 financing needs. We’re probably going to need some (financial) support,” he said.

On the company’s $7.5 billion Andina mine expansion, Pizarro said the project could be complete in 2021, following a pre-feasibility study during the first half of 2016.

Pizarro downplayed reports that U.S. electric vehicle maker Tesla Motors Inc met with government authorities in Chile to discuss a lithium venture with Codelco, saying its lithium reserves are “very marginal.”

“There are business models that could make that feasible.”

Writing by Anthony Esposito; Editing by Chizu Nomiyama

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