Codelco: The Lonely House

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MetalMiner welcomes guest contributor Carlos Tromben, executive editor at America Economia in Santiago, Chile. Carlos has an MA in communications from the ESCP-Europe in Paris, France.

The world’s mining industry looks increasingly like the opening sequence of “Game of Thrones,” the popular HBO saga. It’s like a map where bellicose and greedy Houses wage wars and forge tactical alliances between one another. No one is to be trusted; everyone is needed in the quest for total dominance.

Take Ivan Glasenberg, the secretive South African “Hand” who may well become the next King if he succeeds merging Xstrata and Glencore. Will he then go after embattled Anglo American? There you have sword-wielding Cynthia Carol, fighting off the beast of nationalization in South Africa and refusing Codelco as Chilean consort. Take Murilio Ferreira, Vale’s new Hand, courting the Middle Kingdom with large ships to form the biggest alliance of them all.

In this “Game of Thrones,” Codelco seems the lesser of the big Houses. Neighboring Vale was sold like a beautiful virgin to private suitors and is now a global powerhouse. Codelco stayed in the hands of Motherland Chile. Mind you, Codelco is still powerful, but looks rather withered. The Motherland’s strict moral code has kept it single, shielded from the lust of investment bankers, but also unable to reinvest its profits in expanding capacity of its vast yet dwindling deposits.

How To Explain This?

Well, in the first place, Codelco is young. It was born out of the kingdom’s wounds. Salvador (the Savior) Allende, the so-called comrade-king, nationalized the foreign-owned mines in the name of his people and the military later overthrew him. Since then the Motherland has forced Codelco to give 10 percent of its revenue to the kingdom’s righteous warriors. A significant royalty, when all the other Houses were allowed to exploit Chile’s copper almost for free.

The Motherland may have kept Codelco away from the banker’s greed and the stockbroker’s wickedness, but it opened the doors to the local politician, the power broker, and of course, the military-industrial complex (or Chile’s version of it). Now all of them want to keep things just as they are.

They’ve been able to do so because of the particularities of Chile’s psyche. Even after decades of neo-liberal and Chicago-inspired economics, Chileans are deeply identified with the State. That explains why any serious politicians, any consensus-builders have never attempted to explain to them how much would they benefit from a Codelco IPO. How their personal and national wealth would dramatically increase if pension funds could invest in the nation’s copper company.

There is also an identity issue here. Codelco and Chile’s mining policy are dictated by civil engineers, by logistics magicians and productivity geeks. No room for the bold global strategist, the financial maverick and the bold political leader to shake the status quo.

New “Hand” Sergio Hernandez was the man to do so. He knew Codelco could no longer afford to keep silent and humble, and he designed a battle plan. His first quest was a leveraged bid for Los Bronces, Anglo American’s half share of La Mina sin Nombre. The mine without a name is one for the fairest jewels of the Realm. It would have increased Codelco’s output by 10 percent. But mean Cynthia Carol said no. She brought in the lawyers and sold half Anglo American’s stake at the mine without a name to Mitshubishi, one of the big Houses of the Rising Sun.

Codelco could now be the most coveted middle-aged knight in the Realm, a $30 billion beau. But it needs a severe yoga, workout and soul-searching plan to be eligible and fashionable again. Or it will remain a respected middle-aged gentleman — cultured, but rather dull.

–Carlos Tromben

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