Is global copper supply threatened?

Workers begin indefinite strikes at Escondida, Grasberg

BHP in for the long haul on Escondida strike as it eyes 30-day wait

Reuters

22 February 2017

SANTIAGO – BHP Billiton's decision this week to give up its legal right to replace striking workers at the Escondida copper mine, in Chile, is a move aimed at sacrificing some output to undermine the union's position, analysts said Wednesday.

The strike began on February 9, after workers voted overwhelmingly to reject a wage contract offer by BHP Billiton. That led BHP to say it would not be able to meet contractual commitments, driving the copper price up on supply concerns.

BHP made a surprise announcement on Tuesday, saying it would not seek to exercise its right to replace the 2500 striking workers after 15 days - which would have been this Friday. Instead, it said it would wait at least 30 days.

The company said this was to assure the safety of its workers but industry experts say it was a strategic move that puts the ball in the union's court.

After 30 days, workers can individually exit the strike and accept the company's offer, weakening the union's position.

Juan Carlos Guajardo, an industry veteran and consultant at Plusmining, said the delay would ease tension after day 15 of the strike, when the company could have brought in temporary workers if it had sought to.

"By delaying to day 30 it prevents the risk of days 15 to 30 being violent, something which could provoke the workers," said Guajardo.

"On day 30 the invitation to leave the strike will therefore be better received."

Previous strikes in Chile have seen clashes with striking miners trying to prevent temporary workers entering the mine.

Camped out under burning daytime sunshine and cold nights in the Atacama Desert next to the mine, workers' enthusiasm for the strike may begin to crack, although the union insists its members remain united.

"The guys are relaxed, they're okay, some are heading to town to rest and next week they will come back with more energy for however long it takes," said union spokesperson Carlos Allendes.

Escondida in northern Chile is by far the world's largest copper mine. At usual output rates, some 40 000 t of copper has been taken out of supply during the strike to date - equivalent to the annual production of a mid-sized mine.

A government-mediated attempt at restarting talks foundered on Monday, with the two sides far apart on issues such as benefits for new workers and shift changes.

Both sides say they remain open to dialogue but firm in their positions. Despite Monday's failure, the government has said it will continue to push to get the two sides back at the negotiating table.

Other miners - including those at Chile's No 2 mine, Anglo American and Glencore's Collahuasi, which has contract talks due later this year - will be watching carefully.

BHP Said to Declare Force Majeure on Copper From Escondida

David Stringer and Mark Burton

Bloomberg - https://www.bloombergquint.com/business/2017/02/10/bhp-said-to-declare-force-majeure-on-shipments-from-escondida-iyzv4mui

February 21, 2017

BHP Billiton Ltd. declared force majeure on shipments from the world’s biggest copper mine, according to two of the company’s customers, sending prices above $6,000 a ton.

The Melbourne-based miner told smelters that buy concentrates from Chile’s Escondida mine that shipments will be disrupted after workers began an indefinite strike, said the people, who asked not to be identified because the information is private.

Copper climbed 4.1 percent to $6,060.50 a ton as of 3:08 p.m. in London, reaching the highest since 2015.

A spokesman for BHP Billiton did not respond to a request for comment. Meaning “greater force,” force majeure is a contractual clause used when suppliers can’t meet obligations because of circumstances beyond their control.

Escondida in Chile produced about a million metric tons last year, which means the strike would remove about 2,700 tons a day from global supply. A year ago, that wouldn’t make much of a splash in glutted commodity markets. Now, with supply tightening, the lead-up to the stoppage helped send prices higher. While the strike’s start on Thursday was well telegraphed and copper didn’t react, a prolonged shutdown would support price gains.

Quick Response

The response in the copper market is likely to be “quicker than what previous strikes have created,” Daniel Hynes, an analyst in Sydney at Australia & New Zealand Banking Group Ltd. said Friday in an e-mail. “Normally management don’t shut down output immediately. Maybe that’s a sign that they believe this strike could go on longer than normal.”

With all operations halted at Escondida, union spokesperson Carlos Allendes said stockpiles won’t last more than a week. Union members are building a camp outside the mine designed to last at least two months given how little ground the BHP Billiton Ltd.-owned mine ceded during wage talks. BHP’s principle objective is the safety of “people and installations for the duration of the legal strike,” the company said in an e-mailed statement.

A fire broke out in a dormitory at the Escondida mine on Friday, injuring three people working on a plant expansion, but none of them critically. BHP said the blaze has been controlled and the cause is being investigated.

The strike comes as exports are halted from the world’s second-biggest copper mine at Grasberg in Indonesia. A 20-day stoppage at Escondida and a one-month delay to exports at Grasberg would result in an output loss of almost 100,000 tons, including 64,000 tons from the Chilean mine, Goldman Sachs Group Inc. said a note dated Feb. 8.

“If the strike extends beyond two to three weeks, then we’ll see the market become a lot more concerned as we move into a period when demand in China will be starting to pick up,” Mark Pervan, a Sydney-based chief economist at AME Group said by phone. The muted price response reflects weaker Chinese demand during winter and the Lunar New Year period, and the fact labor negotiations were flagged in advance, he said.

Barclays Plc analyst Dane Davis also said the physical copper market will start to feel the effects of the lost production in Chile if it lasts more than a couple of weeks.

About 56,000 tons of output could be lost at Escondida based on a two-week long strike, according to Macquarie Group Ltd. “The duration of the strike is uncertain, but we have incorporated a two-week shutdown and subsequent ramp-up into our estimates, in line with the 2011 strike,” Macquarie analysts said Friday in a note.

Contract negotiations are looming at mines in Chile that collectively account for about 14 percent of production capability in 2017, according to ANZ. Disruptions at Escondida and at other operations in Chile would probably push the copper market into a deficit of about 100,000 tons this year, the bank said in a Dec. 9 report.

Freeport-McMoRan row with Indonesia threatens global copper supply

http://www.marketwatch.com/story/freeport-mcmoran-row-with-indonesia-threatens-global-cooper-supply-2017-02-20

Feb 21, 2017

Freeport-McMoRan Inc., one of the world’s biggest copper miners, is heading toward a showdown with the Indonesian government that is threatening global supply of the metal and roiling the markets.

The Arizona-based company, whose majority-owned Grasberg copper mine in Indonesia is the world’s second largest, on Monday said it wouldn’t accept terms of a deal with the government that would allow it to resume shipments of copper concentrate that have been halted since Jan. 12.

The Indonesian government last Friday offered Freeport FCX, -1.68%   a new one-year export permit, but only if it agreed to new rules requiring it to build a new copper smelter in the country within the next five years and switch to an operating license, the terms of which dictate the company eventually would have to give up control of Grasberg.

Freeport Chief Executive Richard Adkerson said the company was unwilling to revisit the terms of its current 30-year contract to mine at Grasberg, which accounts for about a third of Freeport’s annual copper production and 40%-50% of the value of its world-wide assets. He said Freeport would consider going to arbitration if it can’t resolve the dispute within the next 120 days.

Its current contract expires in 2021 but allows for another 30-year extension to 2041. The company says it has been willing to compromise with the government but requires certainty over its long-term operating rights to make future investments.

“They’re holding fast to the idea that for us to export we have to accept forfeiting our [contract of work], and we’re holding fast to the position that we’re unwilling to do that,” Adkerson told The Wall Street Journal.

Indonesia’s minister of energy and mineral resources, Ignasius Jonan, said the government also could bring Freeport to arbitration.

“It’s not just Freeport [that has such a right], the government does too,” Jonan told reporters on the sidelines of an event Monday.

The latest chapter in the standoff sent copper above $6,000 a ton on the London Metal Exchange, a nearly 1% increase, on Monday. Prices of copper, one of the world’s most highly traded metals used in electrical cables and consumer goods, have risen 12% this year, partly thanks to Freeport’s problems at Grasberg. An industrial dispute at the world’s largest copper mine at Escondida in Chile, part-owned by BHP Billiton PLC, also has pushed prices higher.

Freeport’s row in Indonesia comes as concerns grow about a rise in protectionism globally, following U.S. President Donald Trump’s election victory in November. The trend is a particular concern for mining companies, which rely heavily on smooth global trade flows to get commodities from producing nations to consuming ones.

Without the cash generated from sales of copper concentrate produced at Grasberg, Freeport could face a heavy hit to earnings and its ability to invest elsewhere, including mines it is developing in the U.S. southwest. Revenue from Freeport’s Indonesia operations was $3.3 billion in 2016, and it expects to generate $5.9 billion this year if operations run normally.

The company sold $6.6 billion worth of mining and oil and gas assets in 2016 to address debt issues, which Mr. Adkerson said had put the company back on a “reasonable” financial footing.

“We need the financial support from Indonesia to invest in the United States,” Adkerson said. He said major shareholders such as activist investor Carl Icahn were “very concerned” about the company’s problems in Indonesia.

Resource-rich Indonesia is a top producer of minerals such as copper, tin and nickel. Under President Joko Widodo, the Southeast Asian nation has sought to attract more foreign investment.

But while Widodo’s government relaxed a three-year ban on exports of nickel ore and bauxite earlier this year, Adkerson said shifting policies had limited the country’s ability to take full advantage of its natural-resource wealth and discouraged investment.

“We all want to see Indonesia succeed, but the policies they’re adopting for the mining business are flawed,” he said. “And they’re flawed for them as well as for us.”

Bambang Gatot Ariyono, director general of minerals and coal at Indonesia’s mining ministry, said the government couldn’t allow Freeport to disobey its new rules as they already had been issued.

“We cannot run from this regulation,” he said. “We have to find a ‘win-win’ solution,” he said, adding that the government didn’t want to bankrupt Freeport and remained in discussions with the company.

Last week Freeport cut 10% of its expatriate workforce in Indonesia, and Adkerson said it plans to start cutting contract workers who account for around two-thirds of its 32,000 employees in Papua, the eastern province where Grasberg is situated. On Saturday the chief executive of Freeport’s local subsidiary resigned.

Freeport said in a statement Monday it expects its copper sales to fall by 17% in the first quarter as a result of its problems in Indonesia, with gold sales down 59%.

Freeport said it has invested $12 billion in its mine in Grasberg to date and has plans to invest an additional $15 billion.

A strike at the sole smelting facility where Freeport processes around 40% of its output has added to production woes. Unable to move copper concentrate off-site to be processed for export, Freeport was forced to stop production at Grasberg and declare force majeure earlier this month.

Freeport Mine Workers Strike Against Indonesian Government

Heather van Blokland

http://kjzz.org/content/436911/freeport-mine-workers-strike-against-indonesian-government

February 17, 2017

A strike Thursday sent home thousands of workers from Freeport McMoRan’s Indonesian operations. Union workers are demonstrating against the government today. It's the latest blow to international operations affecting one-third of the company’s copper business.

Thirty-three thousand workers have stopped production at Freeport’s Grasberg mine in Indonesia after the company halted operations. A union is planning a formal demonstration against the government.

Last month, Indonesian authorities halted export permits in an effort to force companies, like Freeport, to produce and keep profits in country.

Since the ban, Freeport’s copper concentrate has piled up, and the company cut production to 40 percent of normal levels. Now, all work has stopped at the mine, and the company is out of storage space.

Freeport executives are continuing to ask Indonesian officials for an export permit to resume normal operations. Union officials are waiting for the weekend to set next steps.

Anglo to suspend copper mining at El Soldado in Chile

Reuters - http://www.reuters.com/article/anglo-american-chile-mine-idUSL1N1G21OP

Feb 17, 2017

Anglo American PLC will temporarily suspend operations at its El Soldado copper mine in Chile after failing to receive regulatory approval for a redesign that would have helped keep output flowing, the company said on Friday.

Chilean mining regulator Sernageomin has rejected the permit request for the redesign, Anglo said, confirming a Reuters story from Thursday.

"The company has as a result decided to immediately and temporarily suspend mine operations, while it analyses in detail the report issued by the institution and decides on the next steps in respect of the future of said operation," Anglo said in a statement.

Options could include appealing or coming up with a new plan, it added.

The mine's output - it produced around 36,000 tonnes of copper in 2015 - is small by the standards of Chile, the world's top copper producer.

But the stoppage could impact the market at a time when the two biggest copper mines, Escondida in Chile and Grasberg in Indonesia, have both declared force majeure after production ground to a halt.

El Soldado is part of the Anglo American Sur complex, in which state-run Codelco and Japan's Mitsui and Mitsubishi also hold stakes.

It has lost money in recent years and has been following an aggressive savings plan against a backdrop of falling copper prices. It said last year that the mine's long-term viability was at risk under current market conditions and laid off 10 percent of the workforce.

Sernageomin did not immediately respond to requests for comment. (Reporting by Luc Cohen and Rosalba O'Brien; Editing by Jonathan Oatis and Leslie Adler)