World's No. 1 Copper Mine Avoids Strike in Chile

SANTIAGO, Oct. 14 -- Chile's Escondida, the world's biggest copper mine, on Tuesday averted a strike after workers accepted an early wage offer from owner BHP Billiton (BLT.L: Quote) (BHP.AX: Quote) in a move that could ease short-term supply fears.

    The deal marked a victory for BHP even though another of its Chilean mines went on strike and also reflects the giant miner's confidence in the recovering copper market. The smaller Spence mine halted extraction after a strike earlier on Tuesday.

    The early agreement at Escondida is likely to set a high bar for upcoming labor talks in Chile, the world's top copper producer, especially for state-owned miner Codelco, which will rework contracts with workers that extract a third of its copper.

    Copper mining represents about a third of the South American country's foreign trade and is one of the main sources of income for the government.

    "It was a difficult and hard negotiation that turned into a victory for the workers," the head of Escondida's union, Zeiso Mercado, told Reuters shortly after recounting the votes. "The offer responds to our needs."

    BHP started early talks with top union officials to avoid a stoppage similar to the 25-day strike in 2006 that hampered production and lifted world copper prices. The Escondida collective contract is due to expire on Dec. 5.

    The company offered to increase wages 5 percent over the 44-month contract and give bonuses and benefits worth around $25,000 per worker to avoid problems at the mine that produces 5 percent of the world's copper.

    In comparison, workers at Spence, which produced 164,761 tonnes of copper cathodes in 2008, were offered a single 4 percent wage hike and around $15,000 in bonuses.

    Escondida's more beneficial offer likely weighted in Spence negotiations, analysts say, and could set a high bar difficult for other mines to match.

    SHORT-TERM BLESS, FUTURE CHALLENGE

    "In Spence, BHP wants to send a signal that is not willing to surrender to all demands," said Juan Carlos Guajardo, the head of influential industry think tank CESCO. "Escondida's offer will raise expectations across the industry and even at BHP (mines) in the future and if market conditions deteriorate it could mean trouble for them."

    A BHP spokesman in London said the company plans to continue talks with Spence's union to "look for a solution that works for both parties."

    Higher copper prices have emboldened mining workers around the world to demand a bigger share of profits, stoking concerns of supply disruptions this year.

    Copper prices turned lower on Tuesday on lingering worries over the global economic recovery, but the value of red metal is still nearly 90 percent higher than its December low.

    Workers at Codelco's Andina copper mine rejected an early proposal for a 3 percent wage hike and around $16,000 in bonuses and benefits per worker. Andina's collective contract expires on Nov. 30.

    Codelco, the world's largest copper producer, is scheduled to rework the contract of workers at its massive Chuquicamata mines in December.

    Key collective contracts are due around the time Chileans head to the polls on Dec. 13 to choose a new president, which could further complicate negotiations.

    Billiton has a majority stake in Escondida, which has seen its output stagnate since 2005 on labor strife, lower ore grades and operational problems. Other stake-holders includes Rio Tinto (RIO.AX: Quote) (RIO.L: Quote) , which holds 30 percent, and Mitsubishi Corp (8058.T: Quote) with 10 percent.

    (Source: Reuters)