Chile's State Copper Firms Explore Joint Smelting Operations

In a significant development for the copper industry, Codelco and Enami, the two state-owned copper companies in Chile, have initiated discussions about potentially merging their smelting efforts. This collaboration aims to enhance smelting capacity by consolidating their projects into one unified initiative, as reported by individuals familiar with the negotiations.

Potential for Combined Efforts

A newly formed working group is currently assessing the synergy between Enami's plans to revitalize a currently inactive smelter and Codelco's ambition to establish a new facility. Sources who requested anonymity due to the sensitive nature of these discussions indicated that the cooperation might either focus on aligning their operations with the nation's processing requirements or evolve into a larger merger where one project supersedes the other.

National Priorities

Strengthening smelting capabilities is a top priority for the government led by President Gabriel Boric, as Chile is the world's largest copper producer. The establishment of a modern smelter would not only be more environmentally friendly but also mitigate the waste associated with shipping raw concentrates that contain only about 30% copper. Currently, a substantial portion of Chile's copper is exported in semi-processed forms; the last new smelter was erected three decades ago.

Market Challenges and Opportunities

Despite the strategic importance of developing smelting operations, the global market conditions present challenges. High capacity in China and recent disruptions in mining output have led to substantially low processing fees. Nevertheless, there are pressing sustainability and geopolitical factors driving the need for local smelting capabilities, particularly as countries seek to establish stronger positions within the battery supply chains amid concerns over China's market dominance.

Background of the Talks

The discussions between Enami and Codelco were sparked after Enami agreed to transfer its interest in the Quebrada Blanca mine to Codelco in September. Following this agreement, both firms recognized the value in collaborating on smelting and refining operations, including assessing mutual benefits and potential cooperative strategies.

Current Status of Projects

At present, Enami's smelting initiatives are in a separate phase, with the company having suspended operations at the financially struggling Hernan Videla Lira plant earlier this year. It is currently awaiting the necessary approvals to proceed with an upgrade project, which has attracted interest from various entities globally. On the other hand, Codelco has received inquiries for a new smelting project that is intended to be managed privately while Codelco would play a role as an offtaker.

Future Considerations

In the context of changing market dynamics, Jorge Riesco, the head of the Chilean mining industry group Sonami, stated that while there is currently an excess of global smelting capacity, this could shift as mining yields increase to meet rising demand linked to the energy transition. Furthermore, establishing local smelting operations carries significant strategic importance for Chile to avoid dependence on foreign capacity, particularly from China, who could dictate terms in such a scenario.

Chile, Copper, Smelting