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Company Perspectives: Codelco’s mission is to maximize the long-term generation of profits and its contribution to the national treasury.
1909: U.S. mining engineer William Braden sells controlling share of his Braden Copper Co. to the Guggenheim Exploration Co. (Guggenex); the site of the operation is El Teniente in the Andes Mountains north of Santiago.
1910: Another Guggenheim-owned company purchases rights to the Chuquicamata site, in northern Chile’s Atacama Desert.
1915: The Chuquicamata and El Teniente copper mines are in operation.
1966: Guggenheim-controlled Kennecott sells 51 percent of its mining operations in Chile to the Chilean government.
1971: Four mines, including the aforementioned two, have been fully nationalized under the rule of Salvador Allende.
1976: Corporacion Nacional del Cobre de Chile (Codelco) is established to operate the four mines for the Chilean government.
1996: El Abra mine, 49 percent owned by Codelco, opens.
1998: Codelco opens its newest copper mine, Radomiro Tomic.
The state-owned Corporacion Nacional del Cobre de Chile (Codelco) is the world’s largest producer of copper, accounting for more than 18 percent of Chile’s exports and more than 3 percent of its gross domestic product in the mid- and late 1990s. Codelco controls one-fifth of the world’s known reserves of copper and was producing over 1.6 million metric tons of copper a year at the end of the 20th century.
Its largest two mines, Chuquicamata and El Teniente, are the world’s largest open-pit and underground copper mines, respectively. Codelco is also the world’s second largest producer of molybdenum, a byproduct of copper mining. In addition to mining, the company further processes copper ore through its smelting, leaching, electrowinning, refining, and metalworking facilities.
Under U.S. Control: 1904-71
El Teniente, a large deposit of copper ore rimming a dormant volcano on the western slope of the Andes Mountains about 50 miles north of Santiago, the capital of Chile, had been mined on a small scale for centuries before William Braden, an American mining engineer, took an option on the property in 1904. He began work on a mine, complete with tunnels, plus a rope tramway, mill, and 40-mile railway, but the project proved too expensive to complete on his own, and he sold a controlling share of his Braden Copper Co. to the Guggenheim Exploration Co. (Guggenex), in 1909.
The facility, including a smelter and refinery, was completed at a cost of $25 million. By 1915 it was turning out 50 million pounds of copper a year at a production cost of less than eight cents a pound. When Guggenex was disbanded that year, 95 percent of the Braden Copper Co. passed to the newly founded Kennecott Copper Corp., which was also controlled by the Guggenheims.
El Teniente, at an average elevation of 7,000 feet above sea level, was to become the largest copper mine in the world. At mid-century the property encompassed 300 square miles. Miles of tunneling extended into ore deposits that ran deep around the edges of the volcano. The complex also included 43 miles of railroad, an aerial tramway, extensive mining, milling, smelting, and refining facilities, and housing and community facilities to meet the needs of 16,000 people living on a barren mountainside. By 1955 it had yielded 238 million tons of ore and 8.68 billion pounds of copper.
Chuquicamata, the world’s largest copper deposit, in northern Chile’s Atacama Desert, was mined by the Incas as early as 1536 and was brought to the attention of M. Guggenheim’s Sons in 1900 by an employee who reported that it could be purchased for less than $250,000. The Guggenheims passed on the opportunity. Albert C. Burrage, a Boston mining engineer, bought the property himself but lacked the resources to develop it.
In 1910 he sold it to the Guggenheims for stock valued at $25 million in the Chile Exploration Co., the operating arm of the Chile Copper Co., the company they had founded to exploit the ore at this desolate site. To do so, they built a modern port and electric-power plant at Tocopilla, 90 miles to the west, with cables to bring power to the mine, and a 55-mile aqueduct over the mountains to bring in water. The mine opened in 1915 and employed the porphyry-reduction processes perfected by Guggenheim engineers in Utah.
Chuquicamata became the world’s most productive and profitable copper mine; in 1923, it produced refined copper for less than six cents a pound-the lowest price in the world. Even so, in the commodities slump that followed World War I, it was losing money. Anaconda Copper Co. bought 51 percent of Chile Copper in 1923 for $70 million and the remaining 49 percent in 1929. Chuquicamata was developed into the world’s largest open-pit copper mine. By the end of 1955 it had yielded 413 million metric tons of copper ore and 11.54 billion pounds of copper.
Braden also took out an option in 1913 on Potrerilleros, a copper-yielding property about 100 miles south of Chuquicamata that had been mined casually since 1875. He sold it in 1916 to Anaconda, which established a subsidiary to exploit it. Work began in 1920 and was completed in 1928 at a cost of $35 million. By the time the open-pit deposits were exhausted in 1955, some 181 million metric tons of ore had been mined and 1.58 million metric tons of copper produced.
Work then began on the El Salvador mine, below the surface of Potrerilleros. It came into full production in 1959. Not long after, the Cerro de Pasco Corp. began developing the Andina open-pit mine at another location. It opened in 1970, and an underground addition went into production in 1984.
The Chilean copper operations of Anaconda and Kennecott were highly lucrative for many years. An income tax was not introduced until 1922, when a mild 12 percent rate went into effect. By 1952 the total tax burden was over 70 percent of income, but both companies continued to do well; Kennecott’s pretax income between 1955 and 1965 per dollar of sales was 59 cents, and Anaconda’s was 47 cents. Nevertheless, production did not rise significantly during the 1950s, as copper began losing ground in world commodity markets to aluminum, lighter and cheaper. Moreover, the percentage of Chilean copper ore refined in Chile dropped from 89 percent to 45 percent.
Kennecott considered a substantial increase in production at El Teniente, but only if the tax rate was reduced and it received what it considered an effective 20-year guarantee of inviolability from nationalization. Instead, in 1966 Kennecott sold 51 percent of the operation to the Chilean government. Kennecott received a ten-year contract to continue managing the joint venture after making a commitment to a huge increase in production.
Anaconda kept ownership of its mines and agreed, in return for a tax-rate cut, to raise production markedly, but in 1969 it sold 51 percent to the Chilean government. After President Salvador Allende’s left-wing government came into power, the private shares of these enterprises were nationalized, with the government agreeing to pay compensation over 30 years. The government also nationalized Cerro’s Andina mine, agreeing to pay a sum corresponding to book value.
Nationalization Under Codelco: 1976-94
Following the overthrow of Allende in 1973, the military junta headed by General Augusto Pinochet cracked down on labor unrest in the mining sector. The four mines of Andina, Chuquicamata, El Salvador, and El Teniente produced 682,300 metric tons of Chile’s total output of 828,300 metric tons in 1975. Codelco was established in 1976 to operate these mines.
Full production resumed in mid-1976, and the following year Codelco’s mines turned out about 890,000 metric tons of copper, of which Chuquicamata alone accounted for about 579,000–a world record–and El Teniente for about 276,000. In that year the Pinochet government increased the military’s share of Chile’s copper income-by law 10 percent of net profits&ndashø 10 percent of Codelco’s gross export revenues.
Codelco’s production was up to 1.1 million metric tons by 1983, when its sales reached $1.8 billion. Its production costs-the world’s lowest-of 44 cents a pound enabled its net income to reach $220.6 million. Codelco paid $678.5 million in taxes in 1983 and provided Chile with 46 percent of its foreign exchange. For most of the 1980s, however, world copper prices slumped because of the development of fiber optics and superconductors, the more limited use of raw materials in manufactured products, and the substitution in many cases of aluminum and plastics.
Codelco’s administration was marked by frequent changes in management, contradictory policies, inadequate investment, and stagnating production, although its mines significantly reduced their production costs. During 1988-89 the price of copper rose appreciably again, enabling Codelco’s revenues on 1.24 million metric tons of copper to reach $3.4 billion in 1989. Taxes and dividends transferred to the state comprised 30 percent of Chile’s revenues.
In 1990 Codelco’s four copper mines produced only 1.14 million metric tons of copper because of production problems at Chuquicamata. The company’s debt had reached about $1.5 billion. A new chief executive reduced payroll, persuaded unions to tie pay raises to productivity gains, and secured the passage of a law allowing Codelco, for the first time, to form partnerships with private firms. Net sales reached $3.02 billion in 1992, and net income was $304.72 million. The long-term debt was $1.43 billion.
Codelco suffered a grievous blow when it was discovered that an employee had cost the company at least $175 million between 1989 and 1994 by making bad commodities trades in the futures market. The employee, Juan Pablo Dávila, blamed his wild speculative binge on an effort to make up for the disastrous effects of a data-entry error.
Codelco, however, charged him with receiving millions of dollars in a scandal involving major brokerage firms and metals dealers. The scandal led to the resignation of Codelco’s chief executive and seven other senior executives and a net loss for 1993. Dávila was convicted of fraud and tax evasion and sent to jail. In 1997 Merrill Lynch & Co. agreed to pay Codelco $25 million to settle a lawsuit in connection with his trading activity. The following year Codelco sued Winchester Commodities Group Ltd. as part of its effort to recover losses.
Two More Mines, Higher Production: 1994-99
Codelco, in 1994, sold 51 percent of the El Abra property, about 30 miles north of Chuquicamata, to Cyprus Amax Minerals Co., the second largest U.S. copper-producing firm (later acquired by Phelps Dodge Corporation, the largest), for $330 million. El Abra was expected to become the third-largest copper-producing mine in Chile, yielding 225,000 metric tons a year of refined copper.
Codelco earned a profit in 1994 and enjoyed a banner year in 1995, with net earnings of $636.72 million on sales of $3.93 billion, as world copper prices soared to an average of $1.30 a pound. That year the company produced 1.16 million metric tons of copper and 16,717 metric tons of molybdenum.
The El Abra open-pit mine opened in 1996. That year Codelco sold 51 percent of Inversiones Tocopilla Ltd., its thermoelectric power company, to a three-firm consortium, receiving a payment of $178 million. In 1998 Codelco opened its newest mine, Radomiro Tomic, near Chuquicamata. The company also formed a number of joint ventures, including, in 1999, taking 49 percent of a partnership with the Mexican firm Mineras Peñoles, S.A. to seek copper deposits in the Mexican state of Sonora.
None of these years was as profitable as 1995, however, as world copper prices fell to an average low of 70 cents a pound in 1999, the lowest in 12 years and the lowest, in real terms, in 60 years. Sales came to $2.89 billion for the year and net income to $143.32 million. The company’s long-term debt was $1.43 billion at the end of the year, not including notes payable and deferred taxes, which totaled another $830.34 million.
Of Codelco’s record copper production of 1.69 million metric tons in 1999, Chuquicamata accounted for 39 percent; El Teniente, 21 percent; Andina, 15 percent; Radomiro Tomic, 12 percent; Codelco’s share of El Abra’s production, 7 percent; and El Salvador, 6 percent.
In 2000 Codelco approved a $422 million expansion of El Teniente expected to boost production from the current 350,000 metric tons a year to 480,000 by 2003. Of Codelco’s copper sales in 1999, Asia accounted for 40 percent; Europe, 35 percent; North America, 16 percent; and South America, 9 percent. By country, South Korea, Germany, China, and the United States were the largest customers, in that order. Molybdenum production was 23,079 metric tons.
Speaking to industrial analysts in New York in 1999, Codelco president and chief executive officer Marcos Lima Aravena said his company’s productivity had increased 80 percent and its direct cash costs had dropped more than 30 percent&ndashø 40 cents per pound-since 1993. This was achieved as part of an emergency plan involving job cuts, pay freezes, and productivity agreements with the workers. Because Codelco’s profits had increased in 1999 despite the fall in copper prices, Lima Aravena became the first Latin American to be named ‘Man of the Year’ by the Copper Club in New York. He was succeeded as CEO in 2000 by Juan Villarzu.
Principal Subsidiaries: Chile Copper Ltd. (U.K.); Codelco France (France); Codelco Group Inc. (U.S.A.); Codelco Kupferhandel GmbH (Germany).
Principal Divisions: Andina; Chuquicamata; El Teniente; Radomiro Tomic; Salvador; Talleres.
Principal Competitors: Grupo Mexico, S.A. de C.V.; Phelps Dodge Corp.; Rio Tinto plc.
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Source: International Directory of Company Histories, Vol. 40. St. James Press, 2001.
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