Codelco cash costs soar along with energy, inputs

Chilean state copper giant Codelco saw cash costs leap 35% in the first nine months of 2012 as a result of higher energy and input costs and reduced output and byproduct credits, CFO Iván Arriagada said at a press conference on Thursday. C1 costs grew to US$1.567/lb from US$1.164/lb year-on-year, with the largest chunk of the US$0.403/lb increase coming from higher costs in energy, fuel and materials at US$0.162/lb. Wages followed, adding US$0.077/lb. Lower byproduct credits raised C1 costs by US$0.075/lb, while TC/RC and cost of sales added US$0.048/lb and more expensive third-party services US$0.041/lb. Lower grades and production volume also impacted cash costs, said Arriagada. Prices for Codelco's primary byproduct, molybdenum, were down to US$29.3/kg from US$35.7/kg year-on-year. Higher costs were a major factor in Codelco's drop in profitsfor the first nine months to US$3.26bn from US$5.32bn, excluding an extraordinary gain from its purchase of a stake in Anglo American Sur. C3 net cathode costs grew 30% to US$2.232/lb owing to the rising C1 costs combined with higher financing and less favorable exchange rates, while all-in costs, which do not include TC/RC or byproduct credits, grew 20% to US$2.475/lb. While Codelco's nine-month results were down in general year-on-year, "the important thing is that they are in line with our mine plans for the period," the CFO said. ENERGY CONTRACTS Codelco has been particularly exposed to variations in energy costs at its central Chile operations connected to the country's central grid (SIC), where its power supply contract does not offer a fixed price, CEO Thomas Keller said during the press conference. The company's "electricity bill" on the SIC was about US$200mn higher than budgeted during the January-September period, he added. Codelco will be subject to the same variable price contract all throughout 2013, but starting in 2014 will move to a fixed price contract on the SIC that will allow for better protection against energy price fluctuations, which typically are due to unstable hydroelectric capacity, Keller said. However, on the northern grid (SING), the company is "very comfortable" with its contracts, which offer competitive electricity prices, said the CEO. Codelco turned out 1.19Mt of fin copper from its directly operated mines in the first nine months, down from 1.25Mt year-on-year.