Codelco output rises but lower copper price eats into profit

SANTIAGO: Codelco, the world's No. 1 copper producer, on Friday reported a rise in its first-half production, largely due to the contribution of a new mine, but a slide in the market price of copper metal eroded profits.

The Chilean state-run company said it produced 788,000 tonnes of copper in the January to June period, a 4 percent rise from 2013.

Improved ore grades and volumes at century-old Chuquicamata boosted production 26,000 tonnes, while new mine Ministro Hales contributed 66,000 tonnes despite some start-up problems.

Production fell at some mines, notably Radomiro Tomic, which is looking to use new bioleaching technology to address falling volumes as ore grades diminish.

Despite the rise in production, pre-tax profit dropped 27 percent in the first half to $1.3 billion, as the average copper price in the period fell around 8 percent to $3.14 a pound, Codelco said.

Concerns about lower demand in key buyer China and geopolitical tensions have weighed on the global copper price this year. Codelco said it expects demand to stabilize eventually.

"In the long term, we don't see substantial changes in the copper market fundamentals and we expect it to remain relatively favorable,"

Ivan Arriagada, chief financial officer, said at a press conference following the results.

A short-term boost in global supply was likely to be absorbed relatively quickly, he added.

The company produces about 10 percent of the world's copper and nearly a third of Chile's. Overall production in the Andean country should hit a record 6 million tonnes this year, the head of the SONAMI mining association said on Thursday.

Nonetheless, Codelco needs to revamp its older mines to keep them competitive and is looking to spend billions of dollars in an ambitious multi-year investment plan.

That will be partly financed by the government, which has promised $4 billion over the next five years, and partly through Codelco's own debt.

"If there is a good opportunity in rates terms we will go to the debt market in the next 12 months, as we have done in the past," Arriagada said.

Codelco said its direct cash costs in the first half were some 8 percent lower than a year ago at $1.58 per pound of copper.

The company is in the middle of a cost-cutting program, and Arriagada said on Friday that it was in good shape to meet or exceed its $600 million two-year savings target.