Bloomberg News

AES Targets New Contracts Amid $80 Billion Chile Mine Growth

December 28, 2011

(Updates with details of projects in ninth paragraph.)

Dec. 27 (Bloomberg) -- AES Gener SA expects to sign electricity contracts with Chilean mining companies in the first half of next year as the top copper-producing nation expands output of the metal, Chief Executive Officer Felipe Ceron said.

Gener, a unit of Arlington, Virginia-based AES Corp., is in talks to supply electricity to new mining operations in northern Chile, where it plans to increase generation capacity, Ceron said yesterday in an interview from his Santiago offices. Current capacity in the region is already contracted, he said.

Mining companies including BHP Billiton Ltd. and Anglo American Plc will invest a total of $80 billion in Chile through 2018 as producers struggle to meet growing global demand, Chile’s mining association said Dec. 22. President Sebastian Pinera has said Chile needs more coal-fired and hydroelectric plants to meet demand that will double in the next decade and reduce power costs that are the highest in the region.

“There’s a lot of demand in the north of Chile from the expansion of copper projects, and we’re in a privileged position to supply the energy,” Ceron said. “We’re having conversations with mining companies, and we expect announcements in the first half of next year.”

Neither the company nor its clients have been affected by power cuts in northern Chile, he said. Outages last week, which triggered a government study into possible rationing measures, were caused by a stoppage at a plant operated by larger rival Empresa Nacional de Electricidad SA and lack of transmission capacity, Ceron said.

System ‘Fragility’

Chile’s electricity system has “an enormous fragility,” newspaper Diario Financiero quoted Energy Minister Rodrigo Alvarez as saying yesterday. Rising energy costs is costing the country competitiveness, Diego Hernandez, chief executive of state copper producer Codelco, said Dec. 6.

Gener signed supply contracts in August with Codelco.

The company is working to secure financing for its 500- megawatt Cochrane project in northern Chile, where a three-year construction program is slated to begin next year, Ceron said.

Gener also plans to begin construction next year of the 530-megawatt Alto Maipo hydroelectric plant in central Chile and an expansion of the fifth generation unit at its Guacolda plant, which will expand capacity by 150 megawatts.

Project Financing

The company may invest a total of $2.5 billion in the new plants over five years, which will be funded initially through project financing, then with the company’s own cash and a combination of new shares and bonds, Ceron said.

Gener’s Campiche thermoelectric project in central Chile remains on schedule to start operating in the first quarter of 2013, Ceron said.

In Colombia, the company is considering more hydroelectric and coal-fired projects, he said.

Ceron attributed the company’s 97 percent third-quarter profit slump to one-time events including a bond prepayment. Net income fell to $1.78 million from $69.6 million a year earlier.

He declined to give fourth-quarter earnings guidance, saying only that revenue should continue to rise as new plants start operating.

--Editors: James Attwood, Richard Richtmyer

To contact the reporter on this story: Eduardo Thomson in Santiago at ethomson1@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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