LONDON — Chile’s state-owned Codelco is turning its attention to signs of a rebound in copper demand by expanding investment to get the jump on competitors still focused on a two-year slump.
The world’s biggest copper miner plans to invest an annual $4bn-$5bn in the next five years to increase its yearly output of the metal to 2-million tonnes by as early as 2015 and higher than that from 2017, CEO Thomas Keller said in an interview in London.
"We are witnessing a modest recovery in Europe and US," Mr Keller said. "Everything indicates that we reached the bottom of demand in Europe," after a rebound in the US and Asia.
Mr Keller’s growth plans contrast with curbs on expansion at some of the largest mine operators, under pressure to return cash to investors as weak demand for commodities erodes returns. Annual spending by the top 20 producers including BHP Billiton will drop by about a third to $66bn in 2015 from 2012 levels, according to forecasts compiled by Bloomberg last month.
Glencore Xstrata chief Ivan Glasenberg said in August that mining peers had responded to his call six months earlier to curb spending and shelve expansions to buoy resource prices and returns for investors. "CEOs are now under pressure from shareholders and they are doing the right thing," he said.
Investors remain wary even as prices have risen from lows.
"There are good signs of economic recovery but this is still fragile and there is significant potential for an event to knock the recovery off course," John Meyer, an analyst at SP Angel Corporate Finance in London, said by e-mail, citing risks over the US budget, euro region and Chinese growth. "Being positive on copper is part of the Codelco party line."
For Mr Keller, the signs of recovery are shown in the premiums Codelco can charge buyers for costs such as transportation. The company raised next year’s premium for Europe 32% to $112/tonne, two people with direct knowledge of the matter said on Monday, asking not to be identified as the terms are private. That’s the highest since 2008, according to data from researcher CRU.
"There’s a shortage of immediately available cathodes, just a pure supply-demand condition" in Europe and Asia, Mr Keller said yesterday, referring to the finished form of the metal. "You’ll see higher premiums than last year virtually in all markets. There were some concerns about China at the beginning of the year but today we have a much more positive outlook."
Stockpiles tracked by the London Metal Exchange fell for a 23rd day to 523,425 tonnes, the least since March, data showed on Monday.
Codelco produced 1.647-million tons last year, or 1.758-million tonnes including its share of the El Abra and Anglo Sur mines. It will exceed last year’s output in 2013, Mr Keller said.
The company will begin output at the Minestro Hales mine in December, reaching full annual capacity of 180,000 tonnes by the end of the first half, he said.
Codelco, based in Santiago, is also turning the Chuquicamata open-pit mine, first exploited by the Guggenheim family in the 1900s, into an underground site to tap ore that contains more metal.
"We see a very healthy growth in demand, so the challenge therefore is on the supply," Mr Keller said. "It’s increasingly difficult to develop projects. In that context Codelco is in a very good position to continue to play a major role."
Industry cuts were a response to the copper prices that declined by more than a third to $6,670 a tonne on the London Metal Exchange by June 24 before rebounding to $7,190 on Wednesday.
Glencore on August 20 wrote down $7.7bn on the assets it acquired in the $29bn takeover of Xstrata in May, reflecting "the broader negative mining industry environment and sentiment which prevailed during the first half of 2013 and the heightened risks associated with greenfield and large-scale expansion projects," according to a company statement.
The company also suspended 44 projects after reviewing 88 that it acquired from Xstrata, Glencore said on September 10.
Aurubis, the largest copper smelter, on August 13 cut its annual profit forecast as it expects "volatile" metal pricing amid subdued European demand. The company sees copper prices at about $7,000/tonne "for the foreseeable future," it said.
Current copper prices reflect the demand and supply balance, Mr Keller said. "I think we have a healthy situation now in terms of copper-price levels, we shouldn’t be witnessing too much of a change from current conditions."