Struggling copper giant Codelco will borrow more to fund its vast investment plans, the company’s chairman said, even after its credit rating was downgraded by Moody’s this week.
(Bloomberg) — Struggling copper giant Codelco will borrow more to fund its vast investment plans, the company’s chairman said, even after its credit rating was downgraded by Moody’s this week.
The company is “reformulating” its major projects as they run late and over budget, Maximo Pacheco told Bloomberg in an interview, emphasizing there was “absolutely” no chance of them being abandoned. Still, he left open the door to further delays, saying only that he “hoped” that that would not be necessary.
The plight of Codelco, the world’s number-one copper producer, has become a focal point for the global mining industry at a time when many are worrying that there may not be enough copper supply to meet the needs of the energy transition.
Codelco’s production is set to fall to the lowest in a quarter century this year, and could drop precipitously if it isn’t able to able to pull off an ambitious slate of projects that it has said will require about $4 billion of investment a year.
Pacheco reiterated his forecast that production in 2023 would be the low point for the company: “We are going to move from now on upwards, gradually but consistently.”
Read more: Codelco Bonds Slide as Moody’s Cuts Credit Rating on Output Drop
While the Chilean government, which owns Codelco, has allowed it to reinvest 30% of its annual profits, Pacheco conceded that wouldn’t be enough to fund its investment needs at current prices. He said that Codelco had “some borrowing capacity” to make up the difference, pointing out that its bond sale in September was 4.7 times subscribed.
Research center Cesco has warned that Codelco’s debt could rise to $30 billion by the end of the decade and that the state company risks insolvency. Moody’s lowered the firm’s rating to Baa1 from A3 late Wednesday, assigning a negative outlook with Codelco set to “remain weakly positioned” and struggle to restore earnings growth.
But Pacheco said that the company’s main challenge was operational rather than financial. Asked if there was any limit on how much Codelco could borrow, he said: “The limit obviously is how robust are our projects and our ability to execute.”
He also said the company was ready to consider other forms of financing — for example from its customers, suppliers or partners. “We are always very open to consider different alternatives and different options that world class companies are offering or suggesting to us. We try to be innovative.”
He said that the project review was a result of cost overruns and delays caused by Covid, and that it would involve looking closely at projects’ budgets and timings.
“We’ve been in business for 52 years, and what we are doing today is to extend the life of our company for another 50 years. This is why these projects are so strategic, because it’s about not today’s level of production, but the extension of our life of mine.”
–With assistance from James Attwood and Jacob Lorinc.
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