The Miami Herald
January 25, 1999
Chile's copper giant `paralyzes' growth plans

             By MICHAEL SMITH
             Bloomberg News

             SANTIAGO -- Codelco, the world's largest copper producer, has halted a plan
             to boost output by about 15 percent, battered by spending cuts and prices for the
             metal at 12-year lows.

             The Chilean government-owned producer said it has delayed for at least a year
             plans to increase output at its new open-pit Radomiro Tomic in the northern
             Atacama Desert mine by 70,000 metric tons, or almost half. Codelco also is
             shelving efforts to open up new areas of production at its underground El Teniente
             mine south of Santiago, which could add 150,000 tons of output, said Codelco
             President Marcos Lima.

             ``We've totally paralyzed all our projects,'' said Lima.

             The move is a reversal for Codelco which had invested hundreds of millions of
             dollars in the 1990s to boost copper production by roughly half. For much of last
             year, even as copper prices sunk to their lowest levels since the mid-1980s,
             Codelco vowed to proceed with its expansion, as Lima predicted a quick
             turnaround in prices he said were held artificially low by metals speculators.

             Codelco still is far from cutting production.

             Codelco produced just under 1.5 million tons of copper last year, and production
             probably will surpass 1.5 million tons in 1999 as a recently completed expansion
             of the high-altitude Andina mine bears fruit, Lima said.

             Codelco estimates mines that produce 6 million tons of copper -- or two-thirds of
             global output -- are losing money at current prices of around 65 cents a pound.
             Codelco's highest cost mine, Salvador, produces a pound of copper for less than
             60 cents.

             ``Codelco isn't going to cut production,'' Lima said. ``It would be absurd for
             Codelco to bear the cost of that contraction when there are other mines with costs
             above prices and that should have closed a while ago.''

             Lima hopes its decision will lead other producers to close mines or otherwise cut
             production. Copper prices probably will remain depressed for some time because
             almost every important copper consuming region of the world is facing economic
             slowdown, or even recession, he said.

             ``It worries me that we're not seeing significant reductions in production when we
             know that part of the industry is losing money,'' Lima said. ``Codelco has to take
             the leadership and evaluate the signals coming form the market, with respect to
             valuation, price, stocks, demand.''

             Though low prices, knocked down by the prospect of weakening demand from
             builders, carmakers, and other big users as the world's economic expansion slows,
             discouraged Codelco's expansion, the real culprit were budget spending cuts.

             The government, seeking to head off a budget deficit this year, cut Codelco's
             investment budget by roughly one-third, to $450 million this year from $680 million
             in 1998. That forced Lima to put the $200 million expansion of Radomiro Tomic
             on hold.

             Codelco will spend one-third of the money it gets on environmental projects,
             including plants at two mines designed to remove sulfur from the smoke spewing
             from smelters.

             The rest will go to cost-cutting new equipment, redesigning mines and other
             programs aimed at lowering costs.

             Those efforts bore fruit last year, when Codelco cut the Salvador mine's costs by
             roughly 17 percent, or 12 cents per pound of copper produced, by shutting down
             more costly parts of the mine, mechanizing processes, as well as other steps.


                               Copyright © 1999 The Miami Herald