Chile Copper Firms Begin Talks on Combining Smelter Efforts

Codelco and Enami, two state-owned copper companies in Chile, have initiated discussions about the potential merger of their smelting operations to bolster the country’s smelting capacity. According to sources familiar with the matter, the talks are private and still in their early stages.

A new working group is examining the possibilities of merging an effort to modernize a closed Enami smelter with a project to establish a new facility led by Codelco. Depending on the results of these discussions, the cooperation might focus solely on aligning with national processing needs or could escalate to a complete merger where one project would supersede the other.

Importance of Smelting Capacity

Strengthening smelting facilities is a critical goal for President Gabriel Boric’s government, which identifies this as a priority in Chile, the world’s largest copper producer. A new-generation smelter would be designed to be more environmentally friendly than existing operations, significantly reducing waste linked with exporting partially processed copper concentrates, which typically contain only around 30% copper. Currently, over half of Chile's copper is shipped in this form, and it has been three decades since the construction of the last new smelter.

Challenges to New Projects

Although demand for new smelting facilities exists, creating them presents challenges. The excess capacity in China and issues in mines have resulted in processing fees reaching historical lows. However, as countries strive to expand their positions in battery supply chains, especially in light of China's dominance, sustainability and geopolitical considerations are influencing the need for local processing facilities.

The discussions between Codelco and Enami were reignited after Enami agreed to sell its stake in the Quebrada Blanca mine to Codelco in September. Following this agreement, the two companies decided to explore collaboration opportunities, focusing on potential synergies and other cooperative strategies.

Current Status of Smelting Projects

Presently, the smelting initiatives of both companies remain independent. Following financial losses, Enami suspended operations at its Hernan Videla Lira smelter in February and is currently seeking approval for upgrade projects while financing strategies are being discussed. Various international mineral companies have expressed interest in participating in these developments.

Codelco has also received interest for a greenfield smelting project from numerous entities. The company is considering an arrangement where it would secure copper from a privately operated smelter.

Collaborative Efforts with International Partners

Previously, Codelco had established a partnership with Aurubis AG, the leading smelting company in Europe, to explore potential collaborative endeavors in Chile. Recently, Codelco had to close one of its smelters due to environmental compliance issues. There are concerns regarding stricter emission regulations that could impact the operations of another facility.

Despite the existing global surplus in smelting capacity, experts predict these dynamics will shift as mining production increases to satisfy the growing demand from the energy transition. Jorge Riesco, a representative of the Chilean mining industry group Sonami, emphasized the strategic importance of enhancing local smelting capacity. He warned that dependence on foreign processing could lead to unfavorable conditions where market prices could be dictated by other countries, particularly China.

Chile, Codelco, Enami