Scissor-Hands CEO Is Hero for Chile and Villain for Copper Bulls

  • Codelco is beating many private-sector rivals in cost cutting
  • State miner still churning out near-record levels of the metal

When soft-spoken septuagenarian Nelson Pizarro took the helm of Chile’s state copper behemoth in mid-2014 he noticed how happy people were at one of its underperforming mines. So he removed all the key managers. The result: costs fell and output reached capacity for the first time.

“A sense of vulnerability was lacking,” he said in an interview from Santiago, where executives from the world’s biggest mining companies are meeting this week. “People must understand the company’s financial health.”

The anecdote reflects a management philosophy honed over a five-decade career in the mining industry that earned Pizarro the nickname “scissor-hands.” On his watch, the world No. 1 copper miner has brought down costs by about 15 percent, more than many of its private-sector rivals. That’s allowing Codelco to keep churning out near-record levels of the metal that drives Chile’s economy even after prices slumped for a third straight year.

It’s making the bespectacled engineer and grandfather of 16 an unlikely hero for President Michelle Bachelet’s education and health programs. (Codelco handed over $1.1 billion to Chile last year even as prices approached seven-year lows.) It will also put him center stage among his cost cutting-obsessed peers at the industry’s annual get-together.

For bulls expecting a bigger supply-side reaction to China’s sharp slowdown, Pizarro is among the industry’s villains. By adapting a bloated state company to low prices, he’s helping prolong them.

While some of Codelco’s copper rivals such as Glencore Plc and Freeport McMoRan Inc. have announced production cuts, the industry generally has been focused more on cutting costs than output, according to researcher CRU Group. Societe Generale SA expects the metal surplus to last at least through 2017.

The sometimes painful cost-cutting process at Codelco has included everything from job losses to ending staff parties. Yet Scissor-hands Pizarro appears to be widely admired by his staff, from the corridors of the Santiago headquarters to the tunnels of its biggest mine El Teniente.

The admiration can verge on idolization.

After the CEO arrived to work in a Volkswagen beetle, some managers began doing the same only to be disappointed when their boss returned the loaner and went back to his luxury car.

‘Few Words’

“Nelson is hard, but loved and respected by his teams because he’s honest and fair,” said Energy Minister Maximo Pacheco, who worked with him in the 1990s when Pizarro was running Codelco’s Andina mine. “He’s an on-the-ground man who engages in direct management.”

When asked to increase the number of women in the workforce, Pizarro was at first reluctant but quickly came around, said Laura Albornoz, a Codelco director and former head of women’s affairs in Chile. “He’s a man of few words, traditional, but he’s always listening.”

Finance Minister Rodrigo Valdes is also a fan, calling the mining industry veteran “a very important asset” for Chile.

Currency Boost

Pizarro, who before returning to Codelco developed the $4.2 billion Caserones mine for Japan’s Pan Pacific Copper Co., can’t take all the cost-cutting credit.

The Chilean peso has weakened 7.7 percent against the dollar in the past year, while energy expenses have come down along with a rout in oil prices.

“When you actually do the number-crunching and you realize that the cost floors are quite significantly lower, then you realize how precarious these metal prices are,” Mark Keenan, the head of commodities research for Asia at Societe Generale in Singapore, said by phone.

While Pizarro is targeting another reduction of about 9 percent his year, he may be running out of room for more cuts.

Diluting his productivity efforts is a more than $20 billion spending program as Codelco digs deeper to profitable ore after decades of under investment.

At Chuquicamata -- the century-old pit expropriated by President Salvador Allende from U.S. companies Anaconda Corp. and Kennecott Corp. in 1971 -- Codelco is going underground.

Augusto Pinochet, the military dictator who overthrew Allende in 1973, didn’t return the mines to their owners and created Codelco in 1976. Democratically elected governments since have used Codelco profits to help make Chile the wealthiest country in the region and the highest-rated, with an AA- ranking from Standard & Poor’s and Aa3 by Moody’s.

The record spend will take Codelco’s annual production beyond 2 million metric tons next decade. Without it, output will tumble. While Codelco remains profitable at current prices, a prolonged period at lower levels may force spending cutbacks.

The magnitude and importance of the task to Chile’s future “makes you want to work for free,” Pizarro said.

It’s the kind of remark that keeps copper bulls awake at night.

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