Codelco 2008 earnings shrink to US$4.97 billion as output struggles

Tuesday, Mar 03, 2009

Chile's state copper producer Codelco revealed a sharp decline in its pre-tax profits last year to US$4.97bn from US$8.45bn in 2007 due to lower output caused by falling grades and operational disruptions, higher costs and lower red metal prices in the fourth quarter.

Codelco's copper output fell to 1.47Mt last year from 1.58Mt in 2008, while molybdenum production dropped to 21,000t in 2008 from 28,000t the prior year.

Grades fell to an average of 0.88% last year from 0.78% in 2007, which resulted in a 152,000t decline in production, Codelco CEO José Pablo Arellano said at a Santiago press conference Friday to disclose the company's results.

Output was also hurt by violent protests by outsourced workers in early 2008 that halted several operations, Arellano said, adding that harsh winter weather at the El Teniente and Andina divisions also contributed to lowering production.

However, the start of the Gaby mine in region II last year helped to counteract the challenges to production, having added 68,000t to Codelco's overall output.

Meanwhile the company's largest division, Codelco Norte, churned out 755,000t, down from 896,000t in 2007.

El Teniente, the second largest branch, produced 381,000t, versus 405,000t in 2007. The Andina division was responsible for 220,000t last year, up from 218,000t.

The Salvador branch felt its output decline to 43,000t in 2008 from 64,000t while Codelco's 49% of the El Abra mine amounted to an equity output of 81,000t last year, even with 2007.

REVENUES, COSTS & COMPARABLE PROFIT

Codelco reported a drop in revenues last year to US$8.74bn from US$10.9bn as a result of the lower output, higher costs, and shrinking copper and molybdenum prices in the fourth quarter.

As a state company that gives all its earnings to Chile's treasury, Codelco emphasizes pre-tax earnings, but for comparison purposes the company also calculates what its profits would amount to if it were subject to the same situation as a publicly traded company.

The comparable net income amounted to US$3.95bn in 2008, down from US$6.75bn, Codelco said.

Meanwhile costs soared to US$1.78/lb last year from US$1.42/lb in 2007. Cash costs following byproduct credits and other deductions rose to US$0.70/lb in 2008 from US$0.40/lb in 2007.