(Adds financial and production details, CEO comments, company background)
By Fabian Cambero
SANTIAGO, March 31 (Reuters) - Chile's state copper company Codelco posted a drop in annual copper production on Friday as ore grades declined at its key deposits, but cost cuts helped it swing to a profit for 2016.
Codelco, one of the world's largest copper miners, said it produced 1.83 million tonnes of copper in 2016, of which 1.71 million tonnes came from its wholly owned mines. The company expects a similar level of output this year, Chief Executive Nelson Pizarro said at a news conference following the results.
That 1.71 million-tonne figure is down around 1.4 percent from 2015, as the miner digs deeper and scrabbles through poorer quality ore to keep output flowing.
But costs were lower, with reported production costs per pound of copper at $1.26 in 2016 from $1.39 in 2015.
That, and a bumper fourth quarter, helped Codelco report a pretax profit for the year of $435 million, a significant rise from the previous year's historic loss of $2.19 billion.
That was good news for the Chilean government, said Pizarro. Codelco was nationalized in the 1970s and returns all its profits to the state, providing an important source of income to Chile.
"We have done what was required of us, and have not got in further debt ... despite the fall in ore grades and negative price factors until October," said Pizarro.
But while positive, the results "did not change the challenging structural scenario" ahead, he said.
Falling prices for copper in recent years have eaten into Codelco's earnings and forced it to delay some much-needed investment in ambitious projects.
For 2017, Pizarro said Codelco expected to invest some $2.8 billion, adding the company plans to go ahead with a massive desalination plant in the northern desert mining region of Antofagasta.
The project has received interest from a variety of major international actors, he said.
Writing by Gram Slattery and Rosalba O'Brien; Editing by Chizu Nomiyama and Matthew Lewis