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Sunday, March 27, 2011


Codelco, the state owned copper producer is huge. With 2010 sales of $16 billion, it represents almost 10% of Chile’s GDP ($160 billion in 2009). What should Chile do with it? One thing is to keep it, run it and benefit from it. This alternative forces Chile to deal with commodity price risk. Does Chile really want to bear this risk?
Another alternative is to sell it. How much? Well… P/E ratios in the industry range from 9 -15 times. If we take a conservative 10, then Codelco's $5.8 billion in earnings would turn to $52 to 87 billion valuation. Not bad? People tend to get greedy. According to a study made by Goldman Sachs in 2005 Chile would have been happy to get $26 billion for it. Looking at the price of copper it looks hard to find a better time to sell. If you think the price of copper will go higher, then sell only 10% of Codelco.

Chile spends $10 billion per year in education.  How different would Chile’s future be if we could increase spending by 50% for the next 20 years? 
It is my opinion that investment in education is the only way to break into the developed world.

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