•The Corporation’s pre-tax profit was US$ 868 million in the first quarter of 2013, down from US$ 1.5 billion during the same quarter of the prior year. This difference is driven by lower copper and by-product prices, and a port strike that delayed copper shipments of approximately 58,000 tons to the second quarter. •The company also reduced production costs. Net cathode costs, price compared to LME copper prices, down $12.7 per pound in the same period of 2012.
Santiago, 30 May 2013. Despite increased production and reduced costs, Codelco's pre-tax profit was US$ 868 million in the first quarter of 2013. This is a 42% increase over the prior year, primarily due to falling copper prices and 58,000 tons of copper shipments delayed to second quarter sales, caused by a port strike at the end of last March.
Iván Arriagada, acting CEO, explained that during the first quarter of 2013 "Codelco increased production, which is positive, made significant progress in reducing costs and improving productivity. Although these are still initial or preliminary results, we believe we are still on the right track."
As observed on the London Metals Exchange, the average price of copper was down 4.5% during the first quarter and molybdenum prices also slumped (20%), a key by-product traded by the Company. Sulphuric acid, gold and silver prices were also down, as was the exchange rate.
Another factor that had a negative impact in the Company's pre-tax profit was the prolonged strike at the end of March that delayed a significant part of its shipments; however, this decrease in earnings will gradually recover over the year. "Pre-tax profit for January-March 2013 is affected by delayed shipments as a result of port strikes," stated Iván Arriagada.
Codelco's own production rose by 3.2% in the first quarter of 2013, to 385,000 tons of fine copper (Mtf). Including its stake in El Abra and Anglo American Sur, production was up 428,000 Mtf, up 9.5% from the same quarter of the prior year.
Codelco is driving a structural growth project to increase productivity and reduce costs, which is already showing positive results. Net cathode cost or C3, value used to compared London Metals Exchange, was down 12.7 c/lb in the first quarter of 2013.
Direct cash costs or C1 (used by the industry to benchmark efficiency) were 170 c/lb, down 6% over the same period in 2012. "In relation to costs, our cost reduction initiative has made progress. Our costs have dropped compared to the preceding quarter (October–December 2012)", explained Iván Arriagada.
In a more detailed explanation of Codelco's costs, Arriagada assured that "we have stopped soaring quarterly costs and what we expect, beyond March, is that this trend will continue. Therefore, we expect a more positive trajectory of output and costs, consistent with the plan we recently implemented and that includes other on-going initiatives, but which is more focused and systematized."
In this sense, he compared costs to the same quarter of 2012. "In spite of this, if we compare the average costs of this quarter to the prior year, we are slightly higher, since the average cost in 2012 was $1.63 per pound. What's important is that we have changed the upward trend of costs, and this quarter we have seen a fall," the executive said.
In relation to Cost C1 compared to the prior year, he stated that in this period "it was thanks to lower electricity, input and service prices." However, this effect was reversed by "the adverse effect of the Exchange Rate, CPI and a lower by-product credit. The lower by-product credit is mainly due to lower sales caused by the port strike during the quarter."
Net comparable profit (calculated by applying the same tax system as private-sector companies) was US$ 664 million, down from US$ 1.175 billion during the same period in 2012.
Codelco's own output in the first quarter of 2013 was 385,000 metric tons of copper (Mtf), a 3.2% rise over the same period in 2012, when the Company's output was 373,000 Mtf.
This rise was driven by increased production at Chuquicamata, Radomiro Tomic and El Teniente divisions, while it dropped at Andina Division – caused by adverse weather conditions that affected the continuity of operations – and at Gabriela Mistral Division.
If we include Codelco's stake in El Abra (20,000 Mtf) and Anglo American Sur (23,000 Mtf), the Company's total output was 428,000 Mtf. This means a 9% rise over the same quarter of 2012.
In by-products, molybdenum output also rose: 5,000 tons over 4,000 tons during the first quarter of the prior year. While sulphuric acid and silver output dropped.
Copper sales revenue totalled US$ 2.668 billion in January-March of 2013, compared to US$ 3.164 billion for the same period in 2012. This fall is due to lower copper prices and lower sales volumes caused by a port strike.
Copper sales cost was US$ 1.749 billion, slightly higher than US$ 1.703 million over the same period last year. For this reason, gross profit on copper sales was US$ 919 million, a further US$ 109 million have to be included for by-product and other sales.
If the non-operating revenue is deducted, which was US$160 million, Codelco's pre-tax profit was US$ 868 million, and is distributed as followed:
|Reserve Tax Law 13.196||268||305|
|Income Tax (57%)||308||654|
|Specific Mining Tax||35||70|
|Comparable Net Profit *||664||1.175|
* Equivalent to Codelco's profit applying the same tax requirements as private-sector companies.
In the first quarter of 2013, EBITDA (measures as earnings before interest, tax, reserve law, depreciation and amortization) totalled US$ 1.345 billion, down from US$1.907 billion in the same period of 2012.
During the first quarter of 2013, Codelco had to regret three fatal accidents: Héctor Alarcón Leiva and Jaime Illanes Herrera, both contractors at Project Vice Presidency, and Nelson Barría Figueroa, employee at Radomiro Tomic Division.
The total accident frequency rate was 1.22 in the first quarter of 2013, down from 1.27 for the same period in 2012.
Iván Arriagada stated that Codelco's structural growth projects are on schedule. However, the executive announced that budget cuts would affect minor projects, related to more marginal improvements, equipment replacement and minor initiatives. "We have identified that there are certain investments, between 500 to 600 million, that could be postponed this year," he stated. Arriagada also added "I want to be very clear that this cut does not affect structural growth projects. These growth projects are on schedule and are not affected."
Iván Arriagada underlined that the Company's original plan involved capital expenditures just over US$ 5.000 billion. "Based on this plan we have identified investments that can be delayed for a period of time, by giving priority to those that are critical and do not impact the integrity of our operations, but structural growth projects will not be affected at all," he insisted. He also explained that Codelco, like any other company, has to review areas where "it is possible to maintain competitiveness and where it is possible to find opportunities to be more efficient."
When he was asked about the future of Salvador Division and the possibility to implement the Rajo Inca project, Iván Arriagada said "this project is currently under study and we believe that it has a series of advantages over the alternative San Antonio Oxide project. However, it is still in a study stage, which is very preliminary, but it is promissory based on what we have seen so far."
Whether the implementation of Rajo Inca is feasible this year, the South Centre Operations vice-president, Octavio Araneda, thought it unlikely because there were still other stages to complete. "To make an investment decision we have to complete basic engineering and this project still hasn't reached the conceptual engineering (stage); therefore, in a year and a half or two we should be ready to enter the investment stage," Araneda explained.
As for the short-term volatility of copper prices, Iván Arriagada explained that these are short-term fluctuations, but it would not affect long-term prices. "Our view on long-term copper prices has not changed. It's true that we observe a certain amount of volatility in short-term copper prices; however, the specific conditions of copper as a raw material that is extremely important not only in the investment stage but also in the consumption stage of societies leaves us in good standing."
Arriagada also specified that at the end of this year and next year several mining projects will be implemented which could mean a slight surplus copper supply, and which would occur "probably, it would also introduce an additional level of volatility in the short term," although he specified that "in relation to long-term copper conditions, we believe that they have not changed and are positive."
Arriagada stated that it was very unlikely that copper prices would be negatively affected by a dwindling medium-term demand from China, since the fundamental aspects of the industry are solid "it's true that there are projections referring to a lower consumption growth rate, but we must understand that this is based on consumption where absolute terms are much bigger, then in terms of additional tons it is still relevant, significant." He repeated that copper has high consumption rate both in the investment stage as in the consumption stage, "which is where China has specifically focused on based what it wants to drive," he added.