Bloomberg News

Codelco Opens Door to Settlement in Anglo Copper Feud

June 06, 2012

Codelco, the world’s largest copper producer, said buyers are delaying metal purchases amid concern that Europe’s debt crisis will slow global growth.

Declining prices, including a 12 percent slump last month, reflect global demand that is falling short of Codelco’s estimated 3 to 3.5 percent annual growth rate, said Thomas Keller, the state-owned company’s chief executive officer.

“Everybody is more cautious about making decisions both on the demand and supply side,” Keller said in an interview in Santiago yesterday. “The somewhat lower copper price these days is a reflection of that situation.”

Copper traded at an almost six-month low on June 5 as signs of faltering growth in countries using the euro adds to concern that the region’s fiscal woes will hamper global metals demand. The benchmark futures contract rallied 2.7 percent yesterday after European Central Bank President Mario Draghi said officials stand ready to add economic stimulus.

Keller, who took over this month as CEO of Chile’s state- owned copper company, said a continuing supply shortage will help mitigate the price decline.

“We still believe that the fundamentals are basically sound but that we are suffering from quite a lot of volatility in prices as a result of the nervousness of the market,” he said.

Codelco can still achieve its production target of 1.7 million metric tons this year even as output slumped in the first quarter, he said.

Codelco plans to spend $26 billion to $27 billion this decade to revive output at its aging mines, Keller said. With the investment, the company wants to boost output to more than 2 million tons, he said.

Anglo Dispute

The new CEO signaled he’s willing to discuss a cash payment as part of a settlement with Anglo American Plc (AAL) over the world’s fifth-largest copper mine.

Keller is leading an effort to end a dispute over Codelco’s option to buy 49 percent of Anglo’s Sur unit at a below-market price. The two companies resumed talks in London last week after halting legal proceedings in Santiago until June 22, he said.

“If one is willing to sit down and negotiate of course there is always some room for flexibility,” Keller said when asked if he’d consider monetary compensation as part of a settlement. “Our strategy continues to be to pursue the 49 percent or the value attached to that 49 percent.”

Anglo is seeking to maintain control of Sur, which includes the Los Bronces mine, where the London-based company completed last year a $2.8 billion expansion, and two of the world’s best undeveloped copper deposits, according to John MacKenzie, head of copper at Anglo. Codelco owns the Andina copper mine adjacent to Los Bronces in the Andean foothills near capital Santiago.

Mitsubishi Deal

Keller, 55, replaced Diego Hernandez, who resigned last month in the same week as the companies agreed to seek an out- of-court settlement.

Hernandez, a former BHP Billiton Ltd. (BHP) executive, said Codelco was unwilling to settle for less than 49 percent of the Sur unit through exercising an option that values the asset at about $6 billion. Anglo agreed in November to sell 24.5 percent of the unit to Mitsubishi Corp. (8058) for $5.39 billion in a transaction that Codelco says blocks its option.

Talks under Hernandez broke down in January and Codelco sued Anglo for breaching terms of a contract that dates back to 1978, when Exxon Mobil Corp. bought the copper mine. Anglo said it is entitled to sell a stake to a third-party outside of a window of validity that opens for a month every three years.

To contact the reporters on this story: Matt 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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