Codelco has a window of opportunity to return to the debt market as investors look past a fatal accident at its largest mine and focus instead on rising copper prices and lower interest rates.
Bonds in Chile’s state copper behemoth are trading at the cheapest levels this year, relative to Treasuries. That’s piqued the interest of management, which is mulling a similar bond sale to the $1.5 billion sold in January, said a person familiar with the matter.
Codelco is benefiting from the highest copper prices in more than a year and a rally in assets worldwide as the US Federal Reserve starts it rate-cutting cycle. But a narrowing yield gap also suggests investors are looking beyond a tunnel collapse at the El Teniente mine that killed six people and paying more attention to a production outlook boosted by partnership deals.
“For the issuer, the current market environment presents a compelling opportunity to initiate a new bond transaction,” said Franck Bekaert, senior analyst at the investment research company Gimme Credit.
As of Wednesday — before the Chile Independence Day holiday — Codelco’s dollar bonds due September 2035 were trading to yield around 124 basis points more than similar maturity US Treasuries, their tightest spread in two years. The extra yield investors demand on the February 2033 notes is down to about 125 basis points, the lowest since they were issued in 2023.
Copper giant
There’s no guarantee Codelco will return to the market this year. It has decent cash levels and the ability to secure more bank loans, said the person, who declined to be identified discussing private matters.
But the unexpected tightening of spreads may represent an opportunity that’s too good to miss for a company struggling to retain the title of world’s largest copper producer.
Codelco still has to finance a multi-billion-dollar investment program to overhaul aging mines — projects that are crucial for future production. While it recently lowered its 2025 capital expenditure budget to $4.3 billion-$5 billion from $4.6 billion-$5.6 billion, production and therefore earnings will also be lower than thought due to the collapse at a new section of El Teniente.
“The spreads for Codelco bonds are currently too tight compared to its peer group,” Bekaert said. “I remain cautious about the company’s ability to restore production growth and enhance its credit metrics quickly.”
In January, the company sold $1.5 billion in 10- and 30-year notes at a spread of 165 basis points and 185 basis points, respectively. Both are now trading about 30 basis points below where they were originally priced.
The slow and steady return to work at El Teniente — coupled with management’s focus on partnerships — have eased investor concerns, said Oren Barack, managing director of fixed income at New York-based Alliance Global Partners.
After years of negotiations, Codelco and Anglo American Plc are finally moving forward with a plan to jointly develop their adjacent mines high up in the Andes mountains near Santiago. The tie-up could boost output by 120,000 metric tons a yeaer without major investments.
A year ago, Codelco bought a 10% stake in Teck Resources Ltd.’s Quebrada Blanca mine, which is set to undertake a similar integration with the neighboring Collahuasi mine, in which Anglo has a 44% stake. Codelco also has promising exploration ventures with BHP Group and Rio Tinto Group, the world’s two largest mining companies.
Still, while current conditions seem favorable for a return to the market, Codelco may be advised to hold off for a bit longer.
“It would likely make sense for them to wait until later in the year or early 2026 to capitalize on the expected rate cuts in the coming FOMC meetings,” Barack said.
(By Carolina Gonzalez and James Attwood)
