Chile’s state-owned Codelco’s bonds have yet to offer attractive returns and there are doubts whether the world’s largest copper producer can improve earnings and credit metrics, according to a report released Wednesday by corporate bond research firm Gimme Credit.
Codelco has been struggling to recover production, which fell to historic lows the past two years amid delays for new projects and other operational problems.
“We remain cautious about the company’s ability to restore earnings growth and improve its credit metrics, even if the trend in copper prices remains positive,” the report said.
“Although Codelco bond spreads have widened by 15-20 basis points over the past two months, we believe they still do not offer an attractive risk/reward profile.”
The consultancy firm noted that Codelco must maintain its investment plan of around $4 billion to $5 billion annually to improve its production capacity for at least the next five years.
“We do not anticipate a further significant reduction in Codelco’s leverage ratio due to the high cash requirements associated with its investment program,” the report said, acknowledging that the company maintains good access to financing.
It also noted that Codelco’s bonds are trading too tight compared with its most comparable peer, Southern Copper, “a smaller but more profitable copper producer with better credit metrics.”
(By Fabian Andres Cambero and Alexander Villegas; Editing by Jonathan Oatis)
