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December 7, 2008 Dear Friend, Enclosed are reports on Codelco (Chilean state copper miner), FCX pro forma the December 3rd mine plan and $18 billion of pretax writeoffs and Alcoa at $0.75 aluminum and $3 billion in writeoffs. We also attached our weekend Spot Market Review. Various companies are challenged to adapt to up to 50% revenue declines at current low metals prices. We have attempted to simulate reasonable changes in business operations and some suggestions auditors may impose at year-end. Our detailed analysis of Codelco, for whom no shares trade, is an effort to determine whether the world's largest copper miner and the Chilean treasury will collapse. We estimate it will be $2.25 billion short of cash in 2009, rather than dividending $5 to $10 billion to the state. We estimate that four of its mines generate $800 or $900 mm in EBITDA, but that Chuquicamata, Salvador and El Abra and the three smelters will lose much of it. Vital capital programs have not been funded as politicians "Milked" the company during the good years, leaving about $6 billion of debt-equivalents and larger capital spending needs as the bear markets arrive. We also attached our April 11, 2008 report written after visiting one of Codelco's mines. The analysis of Codelco makes the trials of FCX, Rio Tinto, Teck or even Mercator Minerals seem less daunting. Faithfully, John C. Tumazos |
Copyright © 2008 John Tumazos Very Independent Research,
LLC
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