Codelco Devises Plans to Finance Expansion

Chilean state-owned copper miner Codelco plans to invest around $3.2bn in 2011, up from $2.4bn in 2010 and $2.0bn in 2009. Jose Antonio Alvarez, Codelco’s executive vice president of finance explains that to finance the investment plan, the company will take several approaches. Among them, he tells LatinFinance that the company is negotiating with the government to retain 20%-30% of its annual earnings. Between 2006 and 2009, Codelco retained between 20%-30% of its annual earnings while the rest went to the state, says Alvarez. However, last year because of the earthquake, the government kept 100% of Codelco’s earnings. He adds that this, plus additional capital injections from the government, is equivalent to about $2.0bn per year. Codelco made $2bn net profit in H1 2010. Negotiations with the government on this subject should take place between March and July. Codelco recently sold its 40% stake in power generator and distributor E-CL on the local market and in the US for $1.05bn, a plan which had been among the options it had been considering for the asset since the middle of last year. Codelco hired LarrainVial and JPMorgan, which have been advising it on strategic alternatives, as coordinators. Santander is co-manager. France’s GDF Suez, which holds a 52.4% stake, in addition to a 7.6% free float. The company estimates that it will still need between $500m-$700m. To obtain these funds, Codelco could go to market seeking dollar bonds, but Alvarez says there are no concrete plans to do so at the moment. The company recently obtained a 5-year bullet $100m loan from the Bank of Tokyo-Mitsubishi UJF, says a source with knowledge of the deal without disclosing pricing. Alvarez declines to disclose terms.