Bloomberg News

Anglo Says Chilean Copper Mine Target to Be a Challenge

April 16, 2012

Anglo American Plc (AAL) and Xstrata Plc (XTA) will struggle to meet an annual production target at the Collahuasi copper mine, the world’s third-largest, after heavier-than-usual rains in Chile curbed output.

Collahuasi was disrupted for 18 to 20 days in the first quarter, John MacKenzie, head of Anglo’s copper unit, said in an April 10 interview in Santiago. Seasonal rains in northern Chile cause on average 2.5 days of stoppages at the mine, he said.

Global copper supply probably will fall short of demand again this year, MacKenzie said. Collahuasi will struggle to recover the first-quarter losses in the remainder of the year because of the precipitation and as ore quality falls, he said.

“We are looking at what can be done in the remaining nine months to mitigate the impact of losses from the first quarter,” MacKenzie said. “That is going to be a challenge.” He declined to provide information on the company’s targets.

Annual output at Collahuasi declined 10 percent last year to 453,409 metric tons because of adverse weather, labor stoppages and lower ore grades. Options to make up lost production from the first quarter include accelerating waste removal to access higher grades earlier, MacKenzie said.

Xstrata reported it used back-up water supplies to its Lomas Bayas copper mine in northern Chile in February as stormy weather cut off regular flows to the site. Codelco’s mines further south in the Atacama Desert were “minimally” impacted, Chief Executive Officer DiegoHernandez said in an April 13 interview in Cartagena, Colombia.

‘Very Solid’

London Metal Exchange copper prices, which averaged $8,328.57 a ton in the first quarter, will average $8,900 in the second quarter, $9,200 in the third and $9,500 in the fourth, Credit Suisse said in an April 13 report.

Emerging-market growth prospects provide a “very solid” demand outlook for copper which, combined with constrained supply, will probably result in a deficit this year, MacKenzie said.

Recovering European and U.S. demand will help make availability of the metal “tight” this year, Hernandez told reporters today. Codelco, the world’s largest copper company, will produce 1.705 million tons this year compared with 1.735 million tons last year as ore quality declines at the Chuquicamata deposit, Hernandez said.

“We would expect to see pricing being driven by that factor - the basic supply and demand equation,” MacKenzie said. “Also the growing capital and operating costs base is meaning that margins aren’t increasing at the same pace as prices.”

Global Consolidation

Anglo shares fell 1.5 percent to 2,227.50 pence in London trading today. Copper for delivery in three month fell 0.1 percent to $7,984.50.

MacKenzie forecasts further consolidation in the global mining industry as new projects become more complex and expensive to develop. Anglo is “constantly” reviewing merger and acquisition opportunities, he said.

“Copper has certainly been identified as a commodity in which we would like to grow,” he said. “So we are actively looking at opportunities, whether they’re in greenfield projects, brownfield expansions or in acquisitions.”

At Collahuasi, Anglo and Xstrata are working on a prefeasibility study of an expansion that may boost output to more than 1 million tons, he said.

Anglo’s Sur unit, which includes the Los Bronces mine in central Chile, is operating normally as Anglo and Codelco engage in a legal battle over an agreement that gave the state-owned company an option to buy as much as a 49 percent of the unit, MacKenzie said.

“We’ve expressed a willingness to negotiate a fair settlement but to date the parties have just been too far apart,” he said of the dispute.

Hernandez said it would be “difficult to think of any agreement” between the companies given Anglo disagrees with Codelco over the value of the option.

To contact the reporter on this story: Matthew Craze in Santiago at mcraze@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net


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