SA Mining Majors Hit the Wall

By Glenn Dyer | More Articles by Glenn Dyer

South America’s two big miners – Vale of Brazil and Codelco, Chile’s copper major – have turned in very weak March quarter updates.

The production and financial performance has been well short of their big rivals such as Glencore, BHP and Rio Tinto.

In fact Vale fell further behind BHP and Rio Tinto in iron ore and in the case of Codelco, it was a similar story as its once dominant position in the global copper market  continues to fade.

Very quietly, BHP Group has been again been confirmed as the world’s biggest copper producer as the previous titleholder, Chilean state-owned giant Codelco, continues to lose tonnage amid surging costs and low university.

Codelco March quarter copper metal production fell 10.4% to 326,000 tonnes, well under BHP’s 405,900 tonnes for the same three months which was up 12% from a year ago and came despite mining problems in the open pit at its huge Escondida mine in northern Chile.

BHP expects to produce between 1.635 million and 1.825 million tonnes of copper in the year to June, even with production constrained by the problems at Escondida (the world’s biggest copper mine). It expects higher output from other mines in Chile, as well as from Olympic Dam in South Australia and several weeks contribution from the OZ Minerals takeover which was completed on Tuesday.

OZ Minerals will push BHP’s annual copper output close to two million tonnes a year, making it by far the biggest player in this important sector, especially for renewables.

Codelco’s weak output performance and costs surge saw the company post a 73% drop in its pre-tax profit for the first three months of this year to $US418 million

Average copper sales prices during the quarter fell 9.4%, the company said, while sales volumes fell about 1.7% during the same period, compared to the first quarter of last year.

In March, Codelco had forecast copper prices of between $US3.5 and $US4.4 a pound in 2023.

Comex copper prices are currently around $US3.84 a pound and have been under the $US4 a pound level for three periods so far in 2023. They have yet to reach $US4.40 a pound.

Prices for the metal, often seen as a bellwether for the global (especially China’s) economy, had been boosted by optimism about Chinese demand in the wake of its re-opening from its two years of tough Covid controls.

But that boost has been slow in emerging, especially for copper – Chinese imports in March unexpectedly fell. There will be an update next week with the April imports data.

Codelco’s direct production costs rose nearly 34% to about $US2.04 per pound, from $US1.53 the year before, caused by higher operating costs as well as an increase in input prices such as higher energy prices.

Codelco is struggling with old mines and deteriorating ore grades. It has been developing a series of new structural projects to sustain its output at around 1.7 million tonnes a year.

Last year, Codelco produced an estimated 1.446 million tonnes of copper, down from 1.618 million tonnes in 2021.

It was forced to slash spot sales of refined copper to China by 50% earlier this year due to production difficulties.

Codelco will become the investment vehicle for the Chilean government’s plans to take control of its lithium industry by squeezing out local player, SQM and US giant, Albemarle.

That is going to put enormous pressure on Codelco to maintain its copper focus and keep enough money to fund more than $US40 billion of fresh and recurring investment on its ageing mines and infrastructure in the next 10 years.


For Vale, the Brazilian iron ore miner and aspiring base metals major, the three months to March 31 has turned out to be a miserable time for profitability.

Not only did the company have problems keeping to its planned production level for its iron ore mines, but sales tumbled 45%, and earnings took a big hit as well.

There were extenuating circumstances – la Nina wet weather which led to stockpile problems, shipping restrictions and mining and transport bottlenecks.

Vale reported a 59% slump in net earnings for the quarter to $US1.83 billion, from the $US4.45 billion reported a year ago.

Proforma adjusted EBITDA from continuing operations tumbled to $US3.68 billion, a reduction from $US6.37 billion in the first quarter of 2022.

Vale said revenue slumped more than 20% to $US8.43 billion in the March 2023 quarter, from $US10.81 billion in the year earlier quarter.

Vale CEO Eduardo Bartolomeo said in a statement with the results: “Our Q1 results showed stronger iron ore production, supported by S11D (its northern mining system) improved performance, thanks to our truckless system improved reliability and the new crushers.

“Despite the weather-related loading restrictions that impacted our sales, we remain confident in our ability to achieve our 2023 goals. Our Energy Transition Metals results were solid, with continued ramp up at Salobo III (a new mine), resulting in a strong performance in copper.”

The company’s net debt for the three months to March jumped sharply as revenue and earnings slumped, coming in at $US8.22 billion from $US4.91 billion in the same quarter of 2022.

Several years ago, Vale was the number one iron ore producer and a major exporter. But a combination of poor weather, two dam disasters in five years, Covid, weak economic management in Brazil and managerial confusion saw the company drift to a weak Number 3 sport in terms of exports and output in the March quarter behind Rio and BHP.

Vale’s iron ore output will improve as will its export performance but unlike BHP and Rio which are managing to juggle both their iron ore positions and growing presence in renewables such as copper, nickel and lithium, the Brazilian major remains weak.

To redress this, Vale has just named former Anglo American chief, Mark Cutifani to head up the board that will oversee its base metal business – mostly copper and nickel in Canada, Brazil and Indonesia.

Cutifani joins Jerome Guillen, a former Tesla executive, on Vale’s so-called energy transition board as the iron ore miner moves forward with the separation of its base metals business.

“We are certain he will be a valuable partner as we bring our tier-one portfolio of assets to the next level, unlocking significant value to our shareholders,” chief executive officer Eduardo Bartolomeo said of Cutifani’s appointment.

The separation plan, which includes the sale of a 10% stake to a strategic investor, will also allow Vale to grow “inorganically” as the industry enters a consolidation phase, Bartolomeo said.

In reality what Vale is doing is copying the way BHP rationalised itself for a big push into renewables through copper and nickel.

Its $A9.6 billion takeover of OZ Minerals is the latest example of that direction, especially in copper, with a nice overlay of gold to go with output of the precious metal from nearby Olympic Dam in South Australia.

Rio has gone deeper into copper and gold via the move to grab a controlling 66% interest in the huge Oyu Tolgoi mine in Mongolia and lithium in Argentina. Rio (and with BHP a small shareholder) has the huge but delayed Resolution deposit in Arizona in the US and BHP has just revealed it has made a major low grade discovery, also in the same area.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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