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Codelco Says Hernandez Resigns as CEO of Top Copper Miner

Codelco, engaged in a dispute with Anglo American Plc over the world’s fifth-largest copper mine, said its chief executive resigned in the same week as the companies resumed talks to seek an out-of-court settlement.

Diego Hernandez, a former BHP Billiton Ltd. executive, will leave Codelco after two years in the job for personal reasons, the state-owned company said in a statement on the Chilean securities regulator’s website yesterday. Chief Financial Officer Thomas Keller will replace Hernandez.

The announcement comes two days after Anglo and Codelco halted legal proceedings to seek an agreement over terms of a 2002 contract that gave Codelco an option to buy a stake in Anglo assets at a below-market price. Mining Minister Hernan de Solminihac said Hernandez’s departure won’t affect negotiations.

“Even with this change, the board remains intact and the person who’s taking over is someone who was in the administration and was brought in by Diego Hernandez,” de Solminihac said in an interview with state television station TVN. “The same strategy will be employed moving forward.”

In his two years at Codelco’s helm, Hernandez stepped up investments in a bid to lift output at the state-owned company’s aging mines in Chile. He replaced mine managers, cut workers and recruited Keller, formerly a managing director at Toronto-based Brookfield Asset Management Inc. Codelco is the world’s biggest copper producer.

Rising Costs

Hernandez faced rising costs to revamp mines including century-old Chuquicamata. Codelco’s production will slump to 800,000 metric tons from about 1.7 million tons if it doesn’t spend more than $20 billion over a decade, he said April 17.

Codelco hands over all profits to the government and presents an investment proposal each year to reinvest profits.

“They’ve got a lot of projects they’re looking to develop but in Chile it’s pretty hard to do with government pressures and industry pressures,” said Anna Kassianos, resources analyst at Platypus Asset Management Ltd in Sydney.

In naming Keller, “continuity of the company’s management is ensured,” according to the regulatory filing.

Hernandez surprised investors in October by announcing plans to exercise the option to buy 49 percent of the Anglo Sur unit for about $6 billion after reaching a funding arrangement with Mitsui & Co Ltd.

Legal Battle

Anglo, whose shares plunged 4.7 percent the day after the announcement, said Codelco had breached terms by attempting to take up the option prematurely. London-based Anglo unveiled in November an agreement to sell 24.5 percent of the unit to Mitsubishi Corp. for $5.39 billion, in a deal Codelco said was designed to block its option.

The two companies’ ensuing legal battle was halted May 22 for a month. Anglo Chief Executive Officer Cynthia Carroll welcomed the opportunity to “re-engage,” the company said in a statement at the time.

Hernandez told reporters May 23 that while trying to find a solution was “an alternative,” Codelco has a good legal case. The two sides last held talks Jan. 29, Hernandez said, adding he didn’t speak with Carroll at a recent conference in Miami. The state-owned company rejected an offer from Anglo last year to tear up the option contract for a $1 billion payment, Hernandez said in an April 18 interview.

‘Far Apart’

“The two companies’ expectations have been very far apart,” he said May 23. “Let’s see if they’re any closer.”

Sur includes Los Bronces, where Anglo completed last year a $2.8 billion expansion, and two of the world’s best undeveloped copper deposits, according to John MacKenzie, head of copper at Anglo. Codelco owns the Andina copper mine adjacent to Los Bronces in the Andean foothills near the Chilean capital Santiago.

A Chilean court rejected a petition by Codelco last month to freeze 49 percent of dividends paid by the division.

Keller, 55, has a commercial engineering degree from Chile’s Adolfo Ibanez University and a Master of Business Administration from the University of Chicago. He was previously executive president of the Collahuasi copper mine, which is owned by Anglo and Xstrata Plc.

Boost Output

Codelco plans to spend at least $20 billion this decade to replace falling output and boost annual production to more than 2 million metric tons from less than 1.8 million tons now.

The mining minister told TVN yesterday that he doesn’t have details on why Hernandez resigned.

Neither Hernandez nor Keller was available to comment, a Codelco official said by telephone, declining to be named citing company policy. Hernandez’s resignation isn’t related to the Anglo dispute, the official said.

Anglo isn’t commenting on Hernandez’s resignation, Marcelo Esquivel, a Santiago-based spokesman, said by e-mail.

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