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Announcement:

Moody's assigns A1 rating to CODELCO's note issue; Outlook stable

26 Oct 2010

New York, October 26, 2010 -- Moody's Investors Service assigned an A1 foreign currency rating to Corporacion Nacional del Cobre de Chile's (CODELCO) proposed senior unsecured note issue. Proceeds will be used to partially finance capital expenditures and refinance existing debt obligations. At the same time, Moody's affirmed CODELCO's existing A1 senior unsecured foreign currency ratings. The rating outlook is stable.

CODELCO is 100% owned by the Chilean government and qualifies as a government-related issuer (GRI) under Moody's methodology for such entities ("The Application of Joint Default Analysis to Government-Related Issuers, originally published in April 2005 and updated on July 22, 2010). The A1 rating on the foreign currency notes is a function of the following inputs:

Baseline credit assessment (BCA) with a 5-7 range on a scale of 1 to 21

Aa3 Government bond rating of the Chilean government

High dependence

High support

CODELCO's BCA, at the low end of the 5-7 range, and resultant foreign currency rating reflects its position as the world's largest copper producer (approximately 1.8 million metric tons in 2009 or roughly 10% of global copper production), including its share of El Abra, its competitive cost position, and its solid reserve base, approximately 70 years at current production levels. CODELCO's multiple mine operating profile, which reduces the degree of operational risk, together with its vertical integration, which encompasses SX/EW and conventional smelting facilities further support its BCA ranking. This footprint contributes to robust operating performance in a strong copper market and acceptable performance during cyclical downturns.

With the recovery in copper prices since early 2009, CODELCO's performance through June 30, 2010 has strengthened considerably, with pre-tax profit advancing to $2.6 billion from $714 million at June 30, 2009. However, the BCA incorporates the large investment requirements, roughly $15 billion over the next 5 years, to increase production, and improve ore grades, efficiency and cost position. Given the level of earnings paid out to the government, Moody's anticipates that leverage will increase over the medium term. However, the company's strategic growth investments, competitive cost position, and production levels support performance over the medium to longer-term.

CODELCO's ownership by the Chilean State and the framework in which it operates are also important considerations in the rating. Historically CODELCO has transferred its net income to the Chilean Treasury. Additionally, the company pays significant amounts in export, royalty and income taxes. Therefore, its cash flow available to cover capital expenditures and debt repayments has been limited to depreciation and other non cash-add backs. As a consequence, the increase in debt to cover the planned investment program could be meaningful.

However, reflective of the importance of CODELCO within the Chilean economy, and the company's strategic development requirements, the government has, in recent years, agreed that a portion of CODELCO's earnings can be retained to support the capital spending profile and maintain a more balanced level of debt in the capital structure (in 2009 a $1 billion equity investment was made). However the amount to be retained is determined on a year-to-year basis and no funds will be retained by CODELCO on its 2010 performance.

Additional factors considered in the rating include challenges facing the company with respect to energy and its availability, given the tight supply situation within Chile as well as water availability.

CODELCO operates under Decree Law 1.350 and is required to submit its proposed annual budget to the Ministries of Mining and Finance for approval. As part of the annual budget, CODELCO must include a debt amortization budget, inclusive of interest and principal. In addition, CODELCO can propose to retain a portion of its earnings, although there is no assurance that such a request would be approved.

Upside adjustment in the BCA is unlikely due to the company's ongoing reinvestment requirements and the expectation for increased leverage in a business that will continue to exhibit variability in copper supply and demand balances, copper price volatility and input cost challenges.

The BCA and CODELCO's senior unsecured foreign currency ratings could be negatively impacted should earnings contract for a prolonged period of time such that EBIT margins were to be below 22%, interest coverage below 9% or debt/EBITDA above 2.5x. In addition, ratings could also be negatively impacted by increases in royalties, environmental compliance costs or other regulatory requirements.

Assignments:

..Issuer: Corporacion Nacional del Cobre de Chile

....Senior Unsecured Regular Bond/Debenture, Assigned A1

The last rating action on CODELCO was June 17, 2010, when the outlook was changed to stable from positive.

The principal methodology used in rating CODELCO was Moody's Global Mining Industry rating methodology published in May 2009 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating methodologies sub-directory on Moody's Website.

Headquartered in Santiago, Chile, CODELCO, a mining, industrial and commercial state-owned enterprise, active primarily in the production of copper, had revenues of $12 billion in 2009.

New York
Carol Cowan
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Brian Oak
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.

Moody's assigns A1 rating to CODELCO's note issue; Outlook stable
No Related Data.
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