Ousted CEO Urges Codelco to Cut Costs or Risk Mine Profit

Photographer: Simon Dawson/Bloomberg

Outgoing Codelco Chief Executive Officer Thomas Keller. Close

Outgoing Codelco Chief Executive Officer Thomas Keller.

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Photographer: Simon Dawson/Bloomberg

Outgoing Codelco Chief Executive Officer Thomas Keller.

Codelco must execute a cost-cutting program at its oldest copper mine to ensure future profitability and maintain the state-owned company’s market leadership, outgoing Chief Executive Officer Thomas Keller said.

The board will need to commit to cost-cutting when they make a decision on a $4.2 billion expansion at the century-old, one-kilometer deep Chuquicamata mine in the Atacama Desert this year, said Keller, who directors voted to remove last week.

“We need to make the adjustments that we are doing, but it’s widely known there’s resistance,” said Keller, on his last day at the company’s Santiago headquarters. “The adjustments are the requisites for that project to be viable.”

Chile’s President Michelle Bachelet appointed three new directors in May as the company pursues a $25 billion expansion plan to ensure the continuance of its aging copper mines. Codelco requires new leadership to carry out the projects, newly-appointed Chairman Oscar Landerretche said June 6 when he announced the decision to fire Keller. The board appointed Octavio Araneda, a mine manager, as interim CEO.

Labor tensions at Chuquicamata reached a boiling point in December when police were deployed to protect Codelco’s smelter amid worker protests.

“I had a really clear vision on how to do it, and that’s where I had some differences with board members,” said Keller, a former executive of the Collahuasi mine, owned by Anglo American Plc and Glencore Xstrata Plc.

Going Underground

Codelco’s $750 million of bonds due 2023 yield 3.77 percent, 0.4 percentage point more than similar securities from Melbourne-based BHP Billiton Ltd. The gap has narrowed from 0.46 at the end of last year.

Keller and his predecessor Diego Hernandez started offering severance packages to Chuquicamata workers because the existing open pit will shut later this decade. Codelco has already started work on an underground mine at Chuquicamata requiring workers with different skills.

The company needs to invest more than $4 billion annually for another four years to avert an output slump as ore grades deteriorate, Keller said. Its future looks more promising than when he took the helm two years ago because of the completion of the new Ministro Hales mine and progress at expansions at Chuquicamata and El Teniente, he said.

Keller said a team led by Chief Financial Officer Ivan Arriagada reverted years of rising costs at the mines.

The company has spent more than $4 billion a year under Keller’s leadership to revive the mines that provide about a 10th of the world’s copper.

Codelco’s copper mines have “tremendous” potential and are needed to meet an expected global shortage of the metal used in wiring and plumbing in 2016 and 2017, Keller said.

Transforming Codelco’s copper resources into profit “will be good for all Chileans,” Keller said. Codelco owns the world’s largest copper reserves, mostly encrusted in the volcanic peaks of the Andes Mountains.

To contact the reporter on this story: Matt Craze in Santiago at mcraze@bloomberg.net

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net Philip Sanders

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