Codelco's $2.4 billion capitalization masks deeper financing crisis ahead

President José Antonio Kast's administration announced on Monday, on the occasion of Miner's Day, that it will authorize Codelco to capitalize one hundred percent of its earnings for fiscal year 2025 — a move that dual Minister of Mining and Economy Daniel Mas described as a "historic and unprecedented milestone" in the more than fifty-year history of the state copper producer. The figure amounts to US$2.422 billion, though the bulk of it — US$2.006 billion — corresponds to the accounting recognition of Codelco's stake in Novandino Litio, its joint venture with SQM, rather than to fresh cash. In operational terms, the state company generated only around US$400 million from its copper business. The real effect of the measure is therefore one of balance-sheet relief rather than liquidity injection: it eases pressure on the books without adding to debt, but does not resolve the underlying problem.

That problem was laid out with unusual frankness by board chairman Bernardo Fontaine himself, in remarks to Diario Financiero: over the next four years it will be "very difficult" for Codelco's debt to come down. The company will have to reassess roughly 170 projects within its ambitious US$34 billion investment plan, which is simply not financeable on its current terms. Fontaine also flagged greater use of public-private partnerships as a complementary financing avenue. Against that backdrop, the approval by the National Economic Prosecutor's Office of the alliance with Rio Tinto to produce lithium at the Salar de Maricunga — a deal envisaging investments to start operations in 2030 — represents a second positive signal of the day for the state firm, although the cash-flow impact, as with Novandino, is deferred well into the future.

The decision on earnings comes as the copper price offers a somewhat more favorable backdrop than had been anticipated at the start of the year. The rally in the red metal, combined with domestic spending restraint, has led analysts to recalibrate the fiscal room available for the 2027 Budget: where zero or negative growth was previously the base case, houses such as BCI, Credicorp and LarrainVial now see an expansion of around 1% as feasible. It is not a dramatic swing, but it is enough to change the tone of the fiscal conversation heading into year-end.

That relatively more optimistic reading of government revenues collides, however, with a private-sector snapshot that continues to deteriorate. The business risk index compiled by the Santiago Chamber of Commerce reached 7.63 points in the first half, with six of twelve sectors deteriorating and delinquency the main concern. The labor market offers no relief: the Central Bank's Job Postings Index came in at 69.3 points in July, a 10.5% annual drop that marks nine consecutive months of contraction and the lowest level for any July since the 2020 lockdowns. The unemployment rate has held above 9% for a third consecutive month, at a five-year high. Against that backdrop, SOFOFA unveiled an agenda proposing five structural labor reforms — including a shift to universal severance and universal access to daycare — and published a study estimating that a four-percentage-point cut in the corporate tax rate, currently at 27%, could generate between 80,800 and 210,000 additional jobs over four years.

On the legislative front, the day produced two moves pulling in opposite directions. The Chamber of Deputies approved President Kast's three line-item vetoes to the sweeping economic reform bill, removing provisions on compound interest, the right to be forgotten in financial records, and payment terms for SMEs that the opposition had managed to insert during the bill's passage. Finance Minister Jorge Quiroz defended the vetoes, arguing that the Central Bank and the CMF had warned about their adverse effects on credit and the financial system; the opposition responded with accusations that the government is legislating for the wealthiest. The vetoes now move to the Senate. In parallel, the Senate Finance Committee unanimously approved the extension of the mortgage-rate subsidy, adding 30,000 new slots to reach 80,000, raising the eligibility cap to 6,000 UF and extending the benefit through May 2028. Housing Minister Iván Poduje went further, urging banks to consider reducing the required down payment for home purchases to as little as 5%. With nearly 100,000 units in stock nationwide, the government is betting on reviving construction as a jobs lever, though the effectiveness of that bet depends on demand responding as quickly as the political diagnosis requires.

Markets navigated between conflicting forces. The IPSA closed with a marginal 0.11% gain at 11,268.86 points, holding up against Wall Street weakness, though internal performance was uneven. Homebuilder stocks — Socovesa, Besalco, Paz Corp — advanced between 2% and 3%, likely responding to the legislative progress on the mortgage subsidy. On the other side, CAP suffered the index's second-largest decline, closing at 2026 lows after posting second-quarter EBITDA of US$53.3 million, 41% below analyst consensus and the largest operational miss of this earnings season. Latam Airlines lost nearly 4%, pressured by oil, which advanced more than 5% amid escalating tensions between the United States and Iran, with Brent brushing US$87.8 per barrel. The dollar closed higher, in line with the recovery of the DXY index, which gained 0.3%, while U.S. sovereign yields rose around five basis points.

On the copper front, Washington still has under consultation new tariffs on manufactured products derived from the metal under Section 232, on national security grounds, though for now the treatment of refined copper is unchanged. For Chile, whose salmon exports have already reached US$3.939 billion between January and July — a record for the period and 5% above 2025 — the tariff risk is a standing reminder of the vulnerability of its export model to the volatility of U.S. trade policy.

Next week will be shaped by the continuation of earnings season — with Falabella, Copec and Salfacorp on the calendar — the floor vote in the Senate on the mortgage subsidy, and the progress of the presidential vetoes in the upper house. Any signal on the trajectory of negotiations between Washington and Tehran will be decisive for oil prices and, by extension, for the operating costs of airlines and shipping companies with exposure to the Chilean market. As for Codelco, the question left open after today's announcement is which projects will actually prove viable within the revised investment plan, and on what terms the partnerships with private players — which Fontaine sees as indispensable to sustaining output — will move forward.

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**CAP (BVS: CAP)** — Second-quarter EBITDA fell 13% year-on-year to US$53.3 million, 41% below analyst consensus, marking the largest operational miss of the current earnings season; the stock closed at 2026 lows. The company, with direct exposure to iron ore prices and the Chinese industrial cycle, faces a weakened steel demand environment that complicates any near-term recovery.

**SMU (BVS: SMU)** — The supermarket operator, parent of Unimarc, reported a 91% drop in first-half earnings — from $19.162 billion to $1.708 billion — weighed down by the costs of its restructuring process, even as revenues grew 2.1% and EBITDA advanced 3.9%. The result illustrates the gap between operational improvement and the accounting impact of the corporate transformation the company is undergoing.

**Prudential (NYSE: PRU)** — The U.S. insurer announced a divestment plan in emerging markets to concentrate its strategy on the United States, Japan and Europe, though it confirmed that it will retain its stake in Chile, where it controls AFP Habitat alongside the Cámara Chilena de la Construcción. The decision isolates Chile as an exception within a broader exit from developing economies, though it does not dispel uncertainty about the long-term horizon of that holding.