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Codelco Asks CEO Keller to Resign After Clash Over Cuts

Thomas Keller, chief executive officer of Codelco. Photographer: Simon Dawson/Bloomberg
Thomas Keller, chief executive officer of Codelco. Photographer: Simon Dawson/Bloomberg

Codelco Chief Executive Officer Thomas Keller was asked to resign after his unyielding approach to cutting costs and preventing an output slide at the world’s biggest copper miner riled some board members and union leaders.

“Codelco is in a critical stage, it needs to be reestablished,” Oscar Landerretche, appointed as chairman of the state-owned company last month by Chile’s new government, told reporters after a late night board meeting in Santiago. “The majority of the board voted for a change in leadership.”

Keller’s departure comes as President Michelle Bachelet considers his plan to increase investments by more than $20 billion this decade. Without the spending, output would drop by more than half, Keller said April 7. The former managing director at Brookfield Asset Management Inc. had clashed with union leaders including board member Raimundo Espinoza as he sought to boost productivity. He faced strikes in April and September last year as workers pushed for greater job security.

“I’m not willing to make investments where the Chilean people are going to lose money,” Keller said in an interview with El Mercurio published yesterday. “What we have now in terms of workforce, health benefits and pay isn’t consistent with profitability promises we made,” he told the newspaper, referring to the company’s century-old Chuquicamata mine.

Board Voting

The board asked Keller to resign from June 13 and is seeking to appoint a replacement within a couple of months, Landerretche said today. Five board members voted to ask for the resignation, three voted against and one abstained, the chairman said.

Keller took over as CEO from former BHP Billiton Ltd. executive Diego Hernandez in June 2012 amid a dispute between Codelco and Anglo American Plc over the world’s fifth-largest copper mine.

His predecessor recruited Keller to be chief financial officer as Codelco stepped up investments, replaced mine managers and cut workers in a bid to lift output and productivity at aging mines in Chile.

Codelco hands over all profits to the government and presents an investment proposal each year to reinvest them. Keller publicly criticized the funding constraints last year as he battled to obtain financing to carry out the projects.

‘Huge Tensions’

“There have been huge tensions between Codelco and the Chilean government, given what appear to be mutually incompatible aims and resources,” Nic Brown, head of commodities research at Natixis SA in London, said today in e-mailed comments.

“Codelco has to invest huge amounts to maintain output over the medium term,” Brown said. “For this, it will require help from government. Government relies heavily on income from the copper sector. Bachelet wants to raise taxes to fund social programs.”

The government is committed to reinvesting in Codelco, Finance Minister Alberto Arenas said in an April 14 statement. President Bachelet and Arenas have until the end of this month to approve or revise Codelco’s investment plan.

Codelco invested more than $4 billion in each of the past two years under the previous administration of President Sebastian Pinera, using a mixture of bonds and profit.

Socialist Party

President Bachelet, who took office in March, appointed Landerretche as Codelco’s chairman last month. Landerretche is a Universidad de Chile economics professor who belongs to Bachelet’s Socialist Party.

Keller 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 Glencore Plc.

Keller’s expansion plan, which comes as rivals scale back in the face of slowing demand from China, would surpass all investments since Codelco’s 1976 creation. The record spending includes building an underground mine at Chuquicamata, the open pit expropriated by President Salvador Allende from U.S. mining companies Anaconda Corp. and Kennecott Corp. in 1971.

The expenditure requirements are partly the result of successive Chilean governments since the 1990s siphoning off the state-owned miner’s profits to help transform the nation into the region’s wealthiest country.

Copper reached a four-week low in New York today, with futures for delivery in July losing 1.9 percent to $3.0315 a pound by 7:36 a.m. on the Comex in New York.

The metal has slumped about 10 percent in the two years since Keller took Codelco’s helm.

“The departure is symptomatic of the difficulties in reconciling Codelco’s investment plans versus government policies, given the current state of the copper industry,” said Brown at Natixis. “The top job at Codelco is something of a poisoned chalice right now.”

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