Fitch Rates Codelco's $600MM Notes 'A'; Outlook Stable

SANTIAGO, Chile--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A' rating to Corporacion Nacional del Cobre de Chile (Codelco)'s USD 600 million notes due in January 2019. Proceeds from this issuance will be used to refinance existing short-term debt and for general corporate purposes.

Codelco`s 'A' foreign currency IDR and 'A+' local currency IDR are directly linked to those of the Republic of Chile, which also has a foreign currency IDR of 'A', Rating Outlook Stable. Codelco's credit ratings incorporate the state's ownership of the company and its strategic importance to Chile, illustrated by the company's contribution of 15.6% of government revenues in 2007. The strategic importance of Codelco to Chile is further underpinned by Codelco's immense copper reserves (70 years at current production levels) and its leading position in the industry globally. The former factor is crucial because it allows the company to remain an important contributor of government revenues in the future, while the latter factor enables the company to manage global supply in a way that supports prices during periods of low demand.

During the latest twelve months ended Sept. 30, 2009, Codelco generated USD 7.5 billion of EBITDA. The company had USD 4.6 billion of total debt, of which USD 1.3 billion was classified as short-term. Codelco has adequate liquidity, backed by a track record of accessing debt in the local and international markets and a well-diversified debt maturity profile. Short-term debt is expected to be refinanced through a combination of the 2019 notes, bank loans from undrawn facilities and cash flow from operations.

Codelco's revenues are projected to drop sharply in 2009 due to lower copper and molybdenum prices. With about 50% of the production costs denominated in Chilean pesos, the company's cost structure should decline due to the devaluation of the peso versus the USD and the implementation of a cost reduction contingency plan. The decrease in Codelco's cost structure will not be enough to offset the decline in revenues. Consequently, operating profits should fall significantly.

Codelco's standalone financial profile is projected to remain relatively strong even with low copper prices due to manageable debt levels and the company's position as a low cost producer in the industry. Future challenges for Codelco include declining ore grades, which will require large capital investments and could increase debt levels.

Codelco, Chile's state copper company, is engaged in the mining, smelting and refining of copper, molybdenum and other sub-products. Codelco is the largest copper and molybdenum producer in the world, with approximately 1,665 million tons per year of copper (including Codelco's share in El Abra) and 30,000 tons per year of molybdenum. The company's diversified operations are distributed in four mining divisions (Codelco Norte, Salvador, Andina, and El Teniente) and the Ventana's smelter and refinery division, as well as a 49% share in the El Abra mine.

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