Costs 56% higher than those of its global peers, an EBITDA margin of just 34%, net debt five times higher than that of its competitors, and investments generating negative cash flows. A closer look at the indicators that now define Chile’s state-owned copper producer.
This week, Codelco once again moved to the center of Chile’s public debate. Comments by Republican Party President Senator Arturo Squella, who stated that “what should come next is the privatization of Codelco, or at least part of its ownership, so that private capital can inject new life into the company,” triggered a wave of reactions ranging from strong opposition criticism to discomfort within sectors of the governing coalition.
The controversy prompted the government to distance itself from the proposal. Economy and Mining Minister Daniel Mas clarified that “we are not in favor of privatizing” the state- owned company, although he left the door open to selling “non-core assets” and pursuing partnerships that “bring us capital, ideas and mining assets.”
However, it was Codelco Chairman Bernardo Fontaine who ultimately sought to clarify the company’s position.
“As I have said since taking office, our Codelco Recovery Plan does not include privatization. Many state-owned companies have accessed capital markets to raise private capital while remaining under state control, but that is not the path we are pursuing,” he said.
Instead, he outlined a different strategy: strengthening governance through greater transparency and safety, improving operational cash flows, prioritizing investments, evaluating the sale of non-core assets, and expanding public-private partnerships while keeping the corporation 100% state-owned.
Behind this political debate lie the company’s financial fundamentals. Its profitability challenges, growing debt burden and weak cash generation explain why the discussion about Codelco’s future has returned with such intensity.
The company is facing what Fontaine himself has described as a “profitability crisis,” a diagnosis supported by several internal reports commissioned by the new management team. The first, released in July, compared the cash flows of each division between 2018 and 2025. The second benchmarked Codelco’s 2025 performance against that of the world’s three largest copper producers and Chile’s three leading privately owned mining operations.
Additional reports are expected in the coming weeks, including assessments of the status of structural projects, the cash position of each division, and a third report aimed at identifying precisely where the corporation is losing money.
These analyses will form the basis of a new strategic roadmap—already named the Codelco Recovery Plan—in which the new Chief Executive Officer, Jorge Gómez, will play a central role. Within the company, expectations are that this will be the first plan built on a realistic assessment of the business, one that prioritizes profitability over the historical narrative of size and leadership, and that is more candid and comprehensive than previous business development plans, which have failed to deliver over the past seven years.
The numbers paint a compelling picture. According to the comparative report prepared by the company using data from the Chilean Copper Commission (Cochilco), Bloomberg and Wood Mackenzie, Codelco produced 1.41 million tonnes of attributable fine copper in 2025, above the average 1.18 million tonnes produced by its three largest global competitors. Nevertheless, that same year the state-owned miner lost the title it had held for decades as the world’s largest mined copper producer, overtaken by BHP.
The decline is not limited to a single year. Over the past decade, Codelco’s production fell from nearly 1.9 million tonnes in 2015—including its interests in El Abra, Anglo American Sur and Quebrada Blanca—to 1.44 million tonnes in 2025, representing a 24% decline. Production from its wholly owned divisions alone dropped from 1.7 million to 1.33 million tonnes, a figure that would be even lower after excluding the 27,000 tonnes that an internal audit found had been overstated to meet the 2025 production target.
“What we have been witnessing is first a deterioration and then an inability to reverse it,” summarized S&P Global Ratings analyst Amalia Bulacios, referring to declining productivity and the unsuccessful attempt to reverse the trend through large-scale investment programs.
According to industry experts, the situation can be summarized as follows: for more than a decade, Codelco has sought to increase production, but because operating earnings have not been sufficient to finance its investment plans, the company has increasingly relied on debt. The problem is that the anticipated production growth has yet to materialize, leaving the company trapped in the same cycle.
The issue is also reflected in labour productivity—measured as tonnes of copper produced per employee. Codelco’s productivity is roughly one-third that of the world’s leading mining companies, meaning its global peers produce approximately three times more copper per employee.
The paradox is that this decline occurred despite a record investment of approximately US$32 billion between 2018 and 2025. In 2025 alone, the investment-to-EBITDA ratio reached 0.8x, compared with 0.3x for the world’s largest miners and 0.4x for Chile’s leading private mining companies, dispelling the notion that Codelco underinvests. The problem is that roughly US$18 billion of that spending did not go toward structural growth projects, but rather toward sustaining existing production—and despite this expenditure, production still declined.
“The main challenge is no longer executing more and more investment, but rather capturing the expected value from the investments already made,” concludes the company’s internal cash flow report, adding that its projects—including structural projects—”have failed to meet expectations in terms of both schedule and performance.”
Juan Carlos Guajardo, Executive Director of Plusmining, summarized the vicious circle: “Higher production costs stem from producing less while maintaining a cost structure designed for a much higher level of output. When those two elements are out of alignment, the company inevitably suffers.”
The same perception is shared within the new management team: that Codelco continues to operate as though it were a 1.7-million-tonne producer, maintaining an executive and workforce structure designed for that level of output while continuing to make large capital investments that are not reflected in its operating results—helping to explain, at least in part, the company’s elevated cost structure.
Costs Spiral Higher
This mismatch is clearly reflected in Codelco’s cost performance. The company’s Cash Cost C1—the industry metric that measures the direct cash operating cost required to produce a unit of payable metal—reached US¢211.7/lb in 2025, 57% above the average US¢134.7/lb reported by the world’s three largest mining companies and 72% higher than the US¢123/lb recorded by Chile’s leading private mining operations. Meanwhile, the C3 net cathode cost—which reflects the total production cost per unit of output—rose to US¢378.4/lb, well above the benchmark levels of US¢202.8/lb and US¢220.8/lb, respectively.
The cost gap cannot be explained by ore quality. In 2025, Codelco operated with an average copper grade of 0.62%, broadly comparable to the 0.59% average of the world’s major mining companies, although below the 0.80% average reported by Chile’s leading private operators.
From a historical perspective, the deterioration is even more striking. Codelco’s C1 cash cost doubled between 2010 and 2025, rising from US¢105/lb to US¢208.6/lb, with the sharpest increase occurring after 2022, when it climbed 26%. As a result, Codelco has moved into the industry’s fourth cost quartile: whereas only 34% of global copper producers had lower costs than Codelco in 2010, by 2025 that figure had risen to 60% of global production.
Juan Ignacio Guzmán, a consultant at GEM Mining, translated this gap into financial terms. In a column published by Diario Financiero, he noted that every one-cent difference in C1 costs represents approximately US$31 million in annual earnings. Consequently, the 77-cent gap between Codelco’s C1 cost and the global average implies roughly US$2.4 billion in foregone annual profits.
Combined with declining production, this cost deterioration has translated into weaker profitability. Codelco’s EBITDA margin stood at 34% in 2025, compared with 48% for the global peer average and 63% for Chile’s leading private mining companies.
According to Bárbara Matos, Senior Vice President at Moody’s, cost inflation has affected the entire mining industry, but Codelco has also experienced additional cost pressure as a result of lower production volumes, which spread fixed costs over fewer tonnes. Moreover, several of the company’s operations are mature mines that have been producing for decades, further increasing their cost base. “It’s like spending more and more money without increasing production. You have to keep investing more and more, yet you’re essentially producing the same amount, partly because ore grades in Chile have been declining,” she said.
A Cash Flow Problem Years in the Making
The report Codelco Cash Flow 2018–2025 explains how the company reached its current position. Between 2022 and 2025, cash inflows increased 18% compared with the 2018–2021 period, supported by a copper price that averaged nearly 30% higher. However, cash outflows increased 42%, causing operating cash flow to decline 17%, from an average of US$6.171 billion per year to US$5.094 billion.
Free cash flow, after capital expenditures, fell 81%, declining from US$2.776 billion to US$518 million annually. After deducting interest expenses, the result shifted from an average annual surplus of US$2.014 billion to an average annual deficit of US$402 million. This weak financial position is not new: Codelco has generated negative free cash flow since 2012, with only two exceptions—2017 and 2021, both years characterized by exceptionally strong copper prices.
When operating cash flows, capital expenditures, interest payments and transfers to the Chilean state are combined, Codelco generated average annual negative cash flows of approximately US$2.7 billion over the past three years. Consequently, gross debt increased by 50% between 2021 and 2025, rising from US$17.6 billion to US$26.3 billion, and has nearly tripled over the past 15 years, from US$9.108 billion in 2010.
Net debt now stands at 3.8x EBITDA, significantly higher than the 0.7x average reported by global peers and the 0.5x average for Chile’s leading private mining operations. The cost of servicing that debt has also risen sharply. In 2025, Codelco paid US$1.127 billion in interest expenses—almost twice the amount paid in 2018—and by the first quarter of 2026, annualized interest payments had exceeded US$1 billion for the first time.
While debt increased, transfers to the Chilean state declined, falling from US$12.369 billion during 2018–2021 to US$7.039 billion during 2022–2025, a 43% decrease, despite significantly higher copper prices. Fontaine recently summarized the paradox: “We have borrowed money to pay taxes to the Chilean state; that is not sustainable.”
Another indicator illustrates the challenge. Each tonne of copper generated US$14,400 in cash inflows during 2025, well above the US$9,600 average recorded during 2018–2021, thanks to the increase in the copper price from US$3.18/lb to US$4.51/lb. However, Codelco spent US$10,500 per tonne in 2025, an 81% increase over the previous period, absorbing much of the benefit of higher copper prices.
“Had the structural projects been delivered as originally planned, we probably would not be in the current situation. Instead, Codelco has had to invest more while failing to receive the expected revenues in either the required amounts or within the expected timeframe. As a result, the company’s financial position has progressively deteriorated to an unsustainable point,” Guajardo concluded.
Source: Diario Financiero