SANTIAGO - Anglo American (AAL.L) could begin to expand copper capacity starting in Peru in 2018 after another year without added supplies as the company remains focussed on cutting costs, the head of its copper division said in an interview.
Copper prices CMCU3 jumped 18 percent in 2016 and have been supported so far this year by strikes and a lack of new capacity.
“All of that has kept the market in almost a neutral position where there wasn’t a surplus,” said Hennie Faul, Anglo American’s chief executive officer for copper. “I couldn’t call it a tight position, but at least it got the prices to stabilise.”
Given a broadly stable copper market and a continued need to shore up the balance sheet following the commodities market crash of 2015 and early 2016, Faul said the company would only look at copper expansion once a decision had been made around year-end on restoring dividends.
The first expansion project would be at Quellaveco in Peru, where all permits have been approved and the project of up to 225,000 tonnes annually could be executed by the end of 2018.
“Should we get to make the decision we’re going to go for further expansion in copper, that (Quellaveco) will be one of our first projects,” Faul said, adding it would be an easier decision to make if prices stay where they are or increase.
In Anglo’s main copper interests in Chile - Los Bronces and Collahuasi - expansion is six years or more away, he said, although Anglo American eventually sees potential for expansion around Los Bronces to try to compensate for a decline in the grade of ore.
At Los Bronces, Faul saw roughly stable output after a fall of 24 percent to 307,200 tonnes last year because of severe weather and what Anglo American described as illegal industrial action by contractors.
He said a recovery in output, which could take place once an area of lower quality ore has been worked through, would not happen before 2018-19.
After a wave of strikes affecting copper across Latin America and beyond - most significantly at Escondida, operated by BHP (BHP.AX) (BLT.L) - Faul said Anglo American had reduced the risk of further industrial action at its operations.
“In short, we could see some disruptions. We believe we’ve done a lot of work to minimize that, but I will not rule that (strikes) out because there are still heightened tensions everywhere in terms of labour negotiations,” he said.
Anglo American has also experienced some regulatory frustration.
In February, it suspended operations at the El Soldado mine in Chile, which produced around 36,000 tonnes of copper in 2015, after failing to get regulatory approval for a redesign.
Faul said he hoped for a decision from authorities over the next week or two following an appeal by Anglo.
The mine broke even last year and is making money after prices have strengthened, he said, so Anglo would be reluctant to give it up, but would mothball it or try to sell without a resolution to the design issue.
“We can’t be in protracted discussions,” he said. “If we don’t get that resolved, we will run out of ore in the next three weeks and then we’ll just have to take a decision.”
For a graphic on copper at a glance, click here
Reporting by Barbara Lewis and Felipe Iturrieta, editing by G Crosse