DBRS Assigns “A” Rating with Stable Trend to $950 Million Codelco Debt Issue

DBRS has today assigned a rating of “A,” with a Stable trend, to $950 million of senior unsecured notes maturing October 18, 2043 (the new Codelco Notes), to be issued by Corporación Nacional del Cobre de Chile (Codelco or the Company). The net proceeds from the issuance of the new Codelco Notes will be used to finance partially capital expenditures, repay short-term indebtedness and for general corporate purposes.

The new Codelco Notes will be the direct, unsecured and unsubordinated obligations of Codelco, ranking pari passu with all other unsecured and unsubordinated obligations of the Company, other than certain obligations granted preferential treatment pursuant to Chilean law. They will not contain any restrictions on the amount of additional indebtedness which may be incurred by Codelco or its subsidiaries; however, the new Codelco Notes will contain certain restrictions on the ability of the Company and its subsidiaries to incur secured indebtedness.

The new Codelco Notes have not been and will not be registered under the United States Securities Act of 1933, as amended, and are subject to restrictions on resale. Application has been made to list the notes on the Official List of the Luxembourg Stock Exchange and for trading on the Euro MTF Market in accordance with its rules and regulations, though the notes have not yet been listed. The notes will be governed by the laws of the State of New York. Codelco will submit to the jurisdiction of the United States federal and state courts, located in the borough of Manhattan in the City of New York, in respect of any action arising out of or based on the new Codelco Notes.

Codelco is the largest copper producer in the world, with proven and probable reserves that are expected to support copper production for many years. The Company’s cost of copper production has increased materially over the last number of years as ore grades decreased and its older mining operations sought to control costs in the face of labour, service, material and energy cost inflation in the Chilean and world mining sectors. Codelco is engaged in a large-scale, multi-year program to transform its main mining operations with a view toward the long-term development of its resources. Given the Company’s mandate and relationship with the Chilean state, funding of these projects is expected to be achieved by providing fewer funds than mandated to the government (which has occurred recently) or external financing (which also has occurred recently) or both.

Codelco is wholly owned by the Republic of Chile (rated AA (low) with a Stable trend by DBRS), albeit with its own legal personality and capital. Although Codelco’s debt obligations are not generally guaranteed by the Chilean government, the Company’s success is closely linked to industrial development in Chile and the exploitation of one of the country’s most important natural resources. DBRS’s rating on Codelco’s Senior Unsecured Debt is based on the expectation of support from the Chilean government, as Codelco remains a key contributor to the Chilean state’s budget.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Companies in the Mining Industry (June 2011), which can be found on our website under Methodologies.