Chilean copper production giant Codelco recently raised $2 billion in a bond offering as part of its ongoing efforts to expand its copper production output. Codeldco issued 10-year notes with a 5.966% yield for $1.3 billion and 30-year notes with a 6.331% yield for $700 million.
The company recently set its lowest annual production guidance in 25 years and plans to increase copper output. However, company executives have been hampered by project delays and issues at copper mines. According to Codelco chairman Maximo Pacheco, production delays at the miner are the result of execution, not limited funding.
Declines in copper ore are making it increasingly difficult and more expensive for miners to locate high-quality copper ores and extract them from the ground. Furthermore, disruptions in the supply chain along with construction bottlenecks and inflation have also made it hard for the copper supplier to maintain a constant stream of copper supplies. On top of these issues, Codelco is saddled with massive debt due to several failed projects and is at risk of insolvency.
The Chile Center for Copper and Mining Studies (CESCO) published a report in mid-August outlining the losses Codelco suffered due to missed production targets coupled with cost overruns from upgrading five mines. CESCO’s report estimated that Codelco’s debt could balloon from $18 billion in 2023 to $30 billion in 2030. Codelco also faces the risk of a potential credit ratings downgrade by rating agency Moody’s Investors Service due to interrupted mining projects and reduced production at the company’s mines.
In a statement released after the bond offering, Codelco said the funding would provide the state-run mining giant with the funding it will need to develop a “demanding portfolio of investments” worth $4.1 billion. The company noted that the level of capital it raised through the bond offering was consistent with the increased activity at structural projects, which are ramping up production to allow Codelco to reach its 2030 production level projection of 1.7 million metric tons.
Codelco specifically issued the bonds at this time as capital markets in the northern hemisphere are resuming activity after the end of summer.
While the largest copper producer on the globe has spent the past several months fielding issues that ultimately brought copper production down to historic lows, global demand for copper is set to increase by more than 10 million tons from around 25 million tons in 2023 to 36.6 million tons by 2031. Other producers such as Southern Copper Corporation (NYSE: SCCO) could displace Codelco from its position in the market if it doesn’t get its house in order and production back on track.
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