(Adds CEO quote, details on declining ore grades, context, byline)
By Fabian Cambero
SANTIAGO, Nov 29 (Reuters) - Chile's Codelco, the world's largest copper producer, said on Thursday that mine output fell 3 percent in the first nine months of the year as ore grades sharply declined, leading to a 12 percent drop in pretax profit.
The state-run copper miner earned $1.42 billion pretax between January and September as production costs jumped 5 percent to $1.39 from the year-ago period, it said in a statement. Its mines produced 1.2 million tonnes of copper, with ore grades down 5 percent over the same period.
Chief Executive Nelson Pizarro cited several other major challenges in 2018, including Codelco's 18 contract negotiations with unionized workers.
"A higher copper price ... allowed us to partially mitigate the negative impact on profits from rising costs, as well as one-time costs derived from contract negotiations," Pizarro said in the third-quarter results statement.
The company has an ambitious, $40 billion, 10-year investment plan to combat declining ore grades, cut costs and boost productivity at its Chilean mines.
Pizarro said the planned upgrades were proceeding apace, with its flagship Chuquicamata mine overhaul approaching 70 percent completion after scaling back plans earlier this year.
Chile's government said in June that it would provide Codelco with $1 billion in "extraordinary" capitalization to help prevent its aging mines from running dry.
Codelco has also begun exploring its lithium holdings in Chile's Maricunga salt flat, and it continues to seek a partner to develop the asset, Pizarro said. (Reporting by Fabian Cambero, writing by Dave Sherwood Editing by Chizu Nomiyama and Richard Chang)