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Latin American Business Chilean state miner Codelco reports copper production cuts, plunging profits in 2018

Chilean state miner Codelco produced slightly less copper in 2018 than the year before, the company reported on Friday, as it continued to contend with declining ore grades and rising costs at its aging mines.

Chief Executive Nelson Pizarro said the company produced 1.678 million tonnes of copper at its own mines in 2018, down 3.3 per cent from the previous year, and a total of 1.806-million tonnes, including production from its joint ventures at El Abra and Anglo American South.

Codelco, the world’s top copper producer, reported a 2018 pre-tax profit of US$2.002-billion, down from US$2.885-billion the previous year as production costs rose 2 per cent and the price of copper fell from 2017. Codelco said it also took a one-time deduction for deteriorating assets of nearly $400-million, for a total drop in pre-tax profits of 44.3 per cent.

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Pizarro said at a presentation at Codelco’s Santiago headquarters that 18 labor negotiations at its mines had also affected the bottom line but that productivity increases kept costs in line with industry averages.

Pizarro predicted a copper price of US$2.95 per pound for 2019.

Codelco, which produces nearly 10 per cent of the world’s copper, is investing billions of dollars to convert its Chuquicamata mine, its second-largest deposit, from an open pit mine into an underground facility.

Pizarro said the Chuquicamata project was approaching 76-per-cent complete. It is a central part of a 10-year, US$39-billion overhaul of the state miner’s key operations as it seeks to maintain production despite rapidly falling ore grades at its deposits.

On Monday, Codelco cancelled a major contract with SNC-Lavalin Group Inc., another potential blow for the Canadian engineering firm as it battles to move past legal issues tied to corruption allegations.

Codelco terminated a US$260-million contract with Montreal-based SNC-Lavalin because of what it called a “serious breach of contractual milestones” by the Canadian firm in the construction of two sulphuric-acid plants at the giant Chuquicamata copper smelter complex in Chile’s northern Antofagasta region.

"Among the non-compliances are the delay in payments to its subcontractors, delays in the execution of the project and problems in the quality of the works, among others," Codelco said in a news release translated from Spanish.

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The development is another complication in SNC-Lavalin chief executive Neil Bruce’s effort to steer a new course for SNC-Lavalin that involves growing the company to $15-billion in annual sales and adjusted profit of $5 a share by 2020. In addition to the Chilean trouble, he’s been stymied in that effort by criminal bribery and fraud charges against the company related to its past business dealings in Libya, as well as trouble with its oil and gas business.

Codelco Vice President Alejandro Rivera said the company would begin applying in May for the environmental permits it needs to begin exploring for lithium on its Maricunga salt flat holding. Rivera said Codelco hoped to have results from those explorations by the end of 2020.

The company’s lithium projects are off to a slow start. Codelco has yet to find a partner for either its Maricunga or Perdernales project.

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