Antofagasta to Combine Copper Mines in Chile to Cut Costs

Jul 02, 2014 11:34 am ET

(Updates with power-plant plans in final paragraph.)

July 2 (Bloomberg) -- Antofagasta Plc, the copper producer controlled by Chile’s billionaire Luksic family, will cut jobs and costs by combining its El Tesoro and Esperanza mines under a new company Minera Centinela.

The mines in the Centinela region will begin coming under one management starting next week, Andrew Lindsay, a London- based director at Antofagasta, said in an interview. As many as 35 management positions will be removed, and the integration will be completed by October, he said.

Antofagasta seeks to develop the Esperanza Sur and Encuentro projects “over the coming years” as part of the overall development of the Centinela mining district, Lindsay said. It estimates about $2.7 billion of investment will be needed to produce an additional 140,000 metric tons of copper annually from the projects, he said. The company will decide on the investment by 2016 and start production from 2019.

Antofagasta will keep its annual output at about 700,000 tons before increasing it to 900,000 tons in 2018. Production at the 85,000-ton Antucoya project will start next year to replace the Michilla mine that will shut in 2015.

Antofagasta, which forecasts its net production costs to increase 6.6 percent to $1.45 a pound this year, expects copper prices to start rising from next year. The current price of about $3 a pound is “the floor level,” Lindsay said.

“We think we are at the bottom of the copper price cycle,” Lindsay said in the interview yesterday. “It will recover in the next couple of years and it will go up again and we are lucky that Antucoya will start production just when copper prices are taking off.”

Andre Sougarret, the current general manager of Esperanza, will run the new company, Lindsay said.

Antofagasta, which is seeking alternative energy sources, will supply about 20 percent of the electricity needs for Los Pelambres, its largest mine, from a wind-power plant starting in the second half of this year, Lindsay said. Pelambres produced 405,300 tons of the company’s total 721,200 tons of copper last year.