The recent resignation of Codelco CEO André Sougarret, coming after four other executives this year, hints that adding lithium to the copper mining company’s portfolio may be more than it can handle, according to industry observers and analysts.
By Eri Silva
The Chilean state-owned miner has been struggling to retain executive management while implementing a long-term investment plan that kicked off in 2017, aiming to boost production at its aging mines. The pressures have only mounted since April, when Chile President Gabriel Boric designated Codelco to lead all talks between the state and Sociedad Química y Minera de Chile SA (SQM) and Albemarle Corp., the only two companies with lithium operations within the Salar de Atacama.
As part of the Boric administration’s national lithium strategy, all new contracts for lithium operations within the Atacama salt flat, which is estimated to hold about 40% of the world’s lithium reserves, must include the state as a majority shareholder. Codelco started talks with SQM on May 26 to negotiate the details of such a partnership, as the company’s contract ends in 2030.
The added responsibility may have been too much for the CEO and other executives.
“The high turnover of executives I believe reflects, on the one hand, the difficulties that the company’s crisis represents for the people in charge of managing the company. And on the other hand, that changes are being sought,” Juan Carlos Guajardo, founder and executive director of the Plusmining consultancy in Santiago, told S&P Global Commodity Insights. “Regarding Codelco’s role in the lithium business, I have the opinion that it may represent a distracting element given the great challenges it has in the copper business.”
Sougarret issued a statement June 13 suggesting that the pressure had increased beyond manageable levels. Sougarret’s resignation came less than a year after Codelco appointed the civil mining engineer as CEO, in late August 2022.
“In these months we have faced complexities in the most diverse areas,” Sougarret said. “In personal terms, it has not been easy to reconcile the demands of the position with caring for the other facets that make up the life of a human being.”
Since the start of 2023, four other executives have resigned from the company. That includes Patricio Vergara, vice president of mineral resource management and development, whose June 7 announcement becomes effective July 24, and Francisco Balsebre Olarán, general manager of the Ministro Hales mine, whose March 29 resignation was effective from April 29.
“The government is not necessarily placing more responsibility on the company [with lithium], but it is asking it to prioritize things in a different way,” Emilio Castillo, a professor covering mineral economics and policy analysis at the University of Chile, told Commodity Insights.
“This generates problems with regard to the independence that the company and its board should have in order to carry out actions on the points they see as key, even if they are not totally aligned with the policies of the government of the day,” Castillo said.
Copper trouble
Codelco has been struggling with declining copper production in recent years as its century-old mines and aging infrastructure get run down. The company produced a historically low total of 1.6 million metric tons of copper in 2022, decreasing by 10.1% from the previous year, according to S&P Global Market Intelligence data.
To raise annual production to 1.7 million metric tons, the company is implementing a $40 billion investment program through 2026 to revamp key structural projects and upgrade smelters. To support these efforts, the government agreed in 2022 to reinvest 30% of the state-owned miner’s profits into the company between 2021 and 2024.
“A company is not built on the basis of a single person … but it is also worth questioning whether the high turnover of executives in the company for so many years has meant the deterioration of its management and administration capacity,” said Castillo.
“The company’s current state of loss of competitiveness and production is a matter of concern,” Castillo added. “With billions of dollars being spent on projects with delays and cost overruns, there is no proper direction and leadership in terms of copper.”
Sougarret’s departure should not affect Codelco’s negotiations with SQM as the discussions are being led by Codelco’s board of directors, chaired by Maximo Pacheco, according to both Castillo and Corinne Blanchard, director of lithium and clean tech equity research at Deutsche Bank Securities.
Source: S&P Global Market Intelligence