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Lower copper prices hurt Codelco's H1 pre-tax profit

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IMAGE: CFO, Iván Arriagada »


Chilean state copper producer Codelco saw its pre-tax profit for the first half of 2014 fall 27.5% to US$1.31bn compared to US$1.81bn in 1H13, as a decline in copper prices impacted its financial results, despite reporting increased production.

"The impact of lower prices explains the company's results. All in all, we remain at prices and profit levels above the average of the company's history. The results are lower than previous years, but they are still good when taking a long-term view," CFO Iván Arriagada said in a press conference.

The price of copper and other byproducts accounted for US$478mn in lower earnings in the first half, the CFO said. The average copper price in the first six months was US$3.137/lb compared with US$3.420/lb in 1H13, an 8% drop.

The prices of other byproducts were also down, with the exception of molybdenum, which was up 6% in 1H14 to US$26.0/kg from US$24.5/kg. Sulfuric acid was 18% lower at US$75/t, while gold and silver prices saw decreases of 15% and 25% to US$1.291/oz and US$20/oz, respectively.

As a state company that gives all its earnings to the treasury, Codelco puts an emphasis on pre-tax profits. For comparison purposes, it also calculates what its profits would be if it were subject to the same tax conditions as a publicly traded company.

Comparable net income fell to US$1.05bn from US$1.40bn. Revenues from copper sales were down 14.6% at US$5.00bn.


Copper production from Codelco's own mines in the first half of 2014 was up 3.9% to 788,000t.

Including the company's 49% stake in the El Abra mine and its 20% interest in Anglo American Sur (AAS), output was up 4% to 877,000t. AAS, which operates the Los Bronces and El Soldado mines, contributed 48,000t in the first half, Arriagada said.

The El Teniente and Chuquicamata divisions were the top two producing units in the first half, with 214,000t and 166,000t respectively, followed by the Radomiro Tomic, Andina, Gabriela Mistral and Salvador mines.

The company's newest division, Ministro Hales, reported production of 66,000t.

Chuquicamata, El Teniente and Salvador were the only divisions that saw growth in production, up 18.6%, 2.4% and 4.5%, respectively. The Radomiro Tomic division saw the biggest production decline in the quarter at 23.5%, followed by a 19.4% drop at Gabriela Mistral.


Codelco's cost containment efforts helped the company to mitigate the decline in metals prices.

The company saw C1 costs decline 7.7% to US$1.581/lb in the first half from US$1.712/lb, while C3 costs were up 2.0% to US$2.243/lb. Total cash costs and expenses came in at US$2.409/lb in 1H14, which was 2% higher than 1H13's average of US$2.363/lb.

Some of the cost-saving measures include over US$100mn due to reduced consumption of fuel, sulfuric acid, explosives and supplies; and the renegotiation of some 80 contracts (with a target of 200 renegotiated contracts for 2014).

Arriagada noted that the cost-containment efforts in the half represented some US$182mn in savings for the company, and that Codelco is on target to meet its goal of reducing costs by US$600mn in the 2013-14 period.

Codelco is the world's largest copper producer. For the full results, in Spanish, click here.

Article Credit: Bnamericas

Updated 4 Years ago

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