CALAMA, Chile, Sept 7 (Reuters) - The ambitious investment plans of Chile's state-run copper producer Codelco are in tatters as it faces delays to mine expansions and keeps at least one unprofitable project running with global copper prices plumbing multi-year lows.
Expansion of the key Andina mine has been delayed by two years and a plan to take the century-old Chuquicamata mine underground is behind schedule, hampered by operational setbacks and financing and environmental concerns, company insiders say.
Meanwhile, Codelco, the world's No. 1 copper supplier, is keeping unprofitable mines like Salvador open, apparently to protect jobs and save President Michelle Bachelet's leftist government more confrontations with unions.
"The juncture at this moment is awful," Carlos Caballero, head of Codelco's new Ministro Hales mine, told Reuters.
Codelco's troubled outlook raises doubts over whether it will be able to bolster production to a targeted 2 million tonnes per year by 2026, from 1.67 million tonnes in 2014.
It also puts Bachelet in a difficult position because Codelco, hit by an end to the commodities boom, is generating less of the income she needs to finance ambitious and long-promised social programs.
Codelco says it needs to invest $25 billion over five years to dig deeper at new and existing sites and keep production flowing. With copper prices at a six-year-low, the cash-strapped government has so far pledged just $4 billion in returned profits between 2015 and 2020.
Codelco hands its profits to the state, and is funded in part by the return of some profit and in part by issuing debt.
Last year, the government received some $3 billion profit from Codelco, the lowest level since 2003. In 2012, the company paid $7.5 billion into Chile's coffers.
Bachelet's government and Codelco now face a financing quandary. The government has pledged billions of dollars for an overhaul of the education system and other social initiatives and is reluctant to promise more funds to Codelco at a time when the economy is struggling and copper prices are low.
But issuing more debt would hit Codelco's investment grade and returning the company to private hands is politically unpalatable.
The government says it is taking its cue from the company.
"We will have to see what decisions Codelco makes to see what path the government will take," Mining Minister Aurora Williams said.
The bind in which Chile and Codelco are caught is emblematic of the problems facing resource-dependent emerging market economies as the commodities boom collapses.
In Chile, the slump has meant output cuts, falling income and job insecurity.
Last week Freeport McMoran, the world's No. 2 miner, said it was cutting jobs as it slashed operations by half at its El Abra mine - in which Codelco has a 49 percent stake.
Codelco's chief executive, Nelson Pizarro, acknowledged last month that some of the firm's plans "need to go into intensive care" as he announced a redesign of the $6.8 billion Andina mine expansion to cut costs, improve water use and make it more acceptable to environmental activists.
Codelco told Reuters that would mean a two-year set-back.
In Calama, a small and modest city in the heart of Chile's copper belt, a union spokesman at the company's flagship Chuquicamata said its $4.2 billion transformation into an underground mine was running two years behind schedule and that the firm's targeted 2019 completion date was unrealistic.
"There is no way the construction can hit the deadlines," said Jaime Graz, head of the mine's main union.
Chuquicamata, which famously triggered the political consciousness of Argentine revolutionary Ernesto "Che" Guevara, has faced operational and engineering issues, Graz said.
The setbacks to Andina and Chuquicamata come on top of already announced delays at two other projects, Radomiro Tomic and El Teniente.
Copper makes up over half of Chile's exports, leaving it more exposed than other Latin American economies to the slowdown in China, which accounts for half the world's copper demand.
Chile and Codelco, which was nationalized under socialist president Salvador Allende in the 1970s, have survived copper slumps before. With prices down some 50 percent from a 2011 high, industry insiders believe Codelco's strategy is to slow new investment projects and ride out the storm.
Codelco has benefited from the slide in oil prices and has managed to cut costs at most projects. But its smallest mine, Salvador, has not been viable for some time.
Net unit cash costs at Salvador were $6.20 a pound in the second quarter of 2015, according to Thomson Reuters GFMS, way above the company average of $1.36. The copper price is currently at around $2.30.
Plans to expand Salvador, known as the Rajo Inca project, have not even reached pre-feasibility stage, raising questions over the mine's future.
"The most sensible and profitable thing to do would be to close Salvador now and open it if Rajo Inca is viable," a senior Codelco executive told Reuters.
Former Codelco executives said Salvador should be a low priority and that optimistic announcements on Salvador's future were "intended to keep people's hopes up".
Closing the mine would entail job losses and could be politically damaging to Bachelet, who is already struggling with low approval ratings.
Some question if Codelco's overall investment plans will deliver a return, even if prices recover.
"When they are completed it will have cost $40 billion and how much will production increase? How much could be produced elsewhere with that money?" said one copper market trader. (Writing by Rosalba O'Brien; Editing by Richard Lough and Kieran Murray)