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BHP Faces Worker Strike at World’s Largest Copper Mine: Production in Jeopardy

BHP Faces Worker Strike at World's Largest Copper Mine

Mining giant BHP Group (ASX, LON, NYSE: BHP) has begun removing striking workers from its Escondida copper mine in Chile, escalating tensions at the world’s largest copper mine. The strike, initiated on Tuesday morning, follows a breakdown in wage negotiations and could significantly impact copper production, a vital resource for global markets.

Strike Begins Amid Failed Negotiations

The strike was declared after Union No. 1, representing approximately 2,400 workers, rejected BHP Group’s latest invitation for wage talks. The union refused to restart negotiations despite a mediated session on Monday, during which BHP presented an improved wage offer that included a $28,900 bonus per worker. Union leaders, however, did not attend scheduled sessions earlier in the day, a move BHP criticized as obstructive to the negotiation process.

“We’re convinced we made every responsible effort to reach an agreement, but that wasn’t possible,” the union stated, emphasizing their demands for a larger share of the mine’s profits, improved job security amid outsourcing and automation, and better health benefits.

Impact on Operations and Market Response

BHP largest copper mine, which owns over half of Escondida, activated a contingency plan allowing for “minimum services” and the use of non-union workers to maintain operations. However, the mine has not specified the extent to which production has been scaled down. Escondida produced 1.1 million metric tons of copper last year, representing a significant portion of global supply.

The market response has been measured so far, with BHP’s U.S.-listed shares seeing a slight dip and copper futures remaining stable. Analysts suggest that the market is cautiously optimistic about a quick resolution, especially considering the current weaker demand from China, the world’s largest consumer of copper.

“The market is taking it in its stride,” said Chris LaFemina, Jefferies’s metals and mining analyst. However, he warned that prolonged disruptions could spur additional labour disputes in Chile, potentially affecting the global copper market.

Comparisons to the 2017 Strike

The current strike brings back memories of the 2017 Escondida walkout, which lasted 44 days and severely impacted BHP Group’s copper production, driving up global copper prices. That strike remains the longest private-sector mining strike in Chile’s history, with Escondida losing over 120,000 tons of copper production during the stoppage.

Analysts at Goldman Sachs estimate that a 10-day strike could cost BHP up to $250 million in earnings, based on a daily loss of $16 million. Should the strike extend to 44 days, the financial impact could reach $795 million.

Broader Implications for Chile’s Copper Industry

The Escondida strike is not an isolated incident. A day before, 270 workers at Lundin Mining’s Caserones copper mine also downed tools over failed wage negotiations. Although the Caserones strike is not expected to affect Escondida directly, it highlights the broader labour unrest within Chile’s crucial copper mining sector.

Chile, the world’s largest copper producer, relies heavily on metal for its export earnings, with copper sales accounting for approximately 60% of the country’s total exports. Escondida alone contributed 23.7% of Chile’s copper production in the first half of 2024, nearly matching the output of Codelco, the world’s largest copper producer.

Wrapping Up!

As the strike at Escondida unfolds, the global copper market watches closely. The potential disruption of copper supply chains, particularly in China, could have far-reaching effects. Both BHP and the union have indicated a willingness to return to the negotiation table, but the resolution of this conflict remains uncertain. With memories of the 2017 strike still fresh, the stakes for both sides are exceptionally high.

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