Codelco targeting US$2bn in savings by 2020

As part of efforts to weather a "perfect storm," Chilean state copper producer Codelco is targeting savings of US$2bn by 2020, according to the firm's VP of productivity and costs, José Robles.

Speaking during an industry breakfast organized by mining providers association Aprimin, Robles said Codelco's 2020 productivity and costs agenda includes boosting productivity 18% by 2018 and 20% by 2020, cutting fresh water consumption 30% and bringing the company back to the first quartile of C1 costs.

To achieve the goals it has set itself, the company has introduced changes in its management style, following the LEAN methodology, labeled as C+ (Codelco plus), Robles said.

The methodology includes eight lines of action, including proactive maintenance programs, a low-cost acquisition program of its key supplies, and an innovation drive across operations, he said.

Codelco has made major strides to help weather the copper price slump. In 2015 the company made US$1.2bn in savings, 20% more than the planned US$1bn it had targeted earlier that year, while for 2016 the company expects an additional US$242mn in savings.

Robles said the motto of Codelco during this difficult period is "no to self-complacency," adding the firm must do everything it can to make sure changes introduced so far are sustainable over the long term to help secure the company's future.

ALL EYES ON ESCONDIDA

Robles said that as part of cost-containment efforts, all collective contract negotiations conducted so far by Codelco with its unions have resulted in limited wage increases and bonuses, all of which have been negotiated in exchange for planned productivity increases.

The new contracts signed represent a break with the much criticized trend seen during the boom years, in which workers received multimillion-peso bonuses at "all events," with no real improvements of productivity, said the executive.

Next year the company is facing perhaps one of its toughest collective contract negotiations, with the more than 5,000 workers at its Chuquicamata mine (pictured), as the century-old mine has a history of conflicts during such negotiations.

Robles said the administration expects negotiations to follow the trend seen so far this year, meaning limited, if not 0%, wage increases and modest "end-of-conflict" bonuses, all of which will be linked to productivity improvements.

However, one factor could add pressure to the negotiations: at rival mine Escondida, controlled by BHP Billiton, workers are due to enter into contract negotiations toward the end of this year. Historically, Escondida has paid the biggest bonuses across Chile's mining industry and has a history of tough negotiations, and as such, it will add pressure to the Chuquicamata negotiations, Robles said.

Robles said he hoped it will not be "a hot summer" when it comes to labor relations.