Escondida Deal Ruffles Chile Mine Owners

CHILE

Escondida deal ruffles Chile mine owners

Kevin Morrison and Rebecca Bream in London and Raphael Minder in Sydney

Financial Times

30th August 2006

Mine owners in Chile, the world’s largest copper producer, are on notice after workers at Escondida, the biggest mine in the country, received an improved pay offer and attractive bonus that makes the 2,000 workforce the best-paid miners in the South American country.

The miners are set to resume work on Saturday after their 25-day strike sent copper prices soaring and forced Escondida, which accounts for 8.5 per cent of copper production worldwide, to operate at 40 per cent of capacity.

A host of mining companies that operate mines in Chile, including BHP Billiton, Xstrata, Falconbridge, Antofagasta and Anglo American, had been watching the Escondida negotiations closely. But the company most concerned is Codelco, the state-owned miner that produces about 10 per cent of global copper output. Codelco has pay negotiations by the end of the year at two of its key mine operating divisions, Codelco Norte and Andina, which together account for about 70 per cent of the company’s 1.7m tonnes a year of output.

Mining analysts said Codelco mine workers were already among the lowest paid in the country. That gap has now widened, with Escondida workers securing an annual salary gain of more than 8 per cent, a bonus of $17,000 (€13,240, £8,920), and perks such as interest-free loans and funding for health and education programmes. That puts the Escondida worker well above the annual average income of $40,000 for mine workers in Chile.

“I think Codelco will be very worried about the increases at Escondida, because the unions will see that they are already paid less than other mine workers and they will want to narrow the gap,” said one person familiar with Codelco. The copper market is factoring in further supply disruptions, with the copper price up $125 to $7,575 a tonne in London since news first broke of the wage ­settlement.

A Codelco spokeswoman said the company would not comment on its forthcoming wage negotiations, which start at the end of next month.

Negotiations between Codelco and the unions are likely to be protracted because any agreement has to be ratified by the Chilean Finance Ministry and the Resources Ministry, both of which have representatives on the board. Codelco’s budgets all have to be approved by its paymaster, the Finance Ministry. Relations between Codelco and its 17,000 workers can be fraught, with a history of industrial action. Antofagasta said it had good labour relations at its mines. The company will start renegotiating wages at its largest mine, Los Pelambres, in September next year, and at its smaller mines, El Tesoro and Michilla, in 2009 and late 2007 respectively.

Anglo American said there had been no significant industrial action at its copper mines in Chile for several years. The company is relatively confident of avoiding disruption, as it does not have to renegotiate wages at its mines for at least 12 months.

Analysts estimate that the Escondida strike cost BHP, which owns 57.5 per cent of the mine, about $17m a day in lost revenues. It also forced the company to declare force majeure on cop­per concentrate contracts.

However, the group, which recently reported record annual net earnings of $10.45bn, described the disruption as manageable and insisted that it needed to stick to a wage structure that would allow it to manage downturns as well as upturns in the commodities cycle.

BHP said that it acceded to some of the wage demands of the workers in return for a pledge from the union that the agreed labour regime and shift structure would stay in force until 2013. Its share price closed down 5 cents at A$27.65.