BHP Activates Contingency Plan as Workers Strike at Escondida Copper Mine

Commodities giant BHP (ASX:BHP,LSE:BHP,NYSE:BHP) has begun removing workers who went on strike at its Chile-based Escondida copper mine, the largest copper operation in the world.

According to Reuters, Union No. 1 declared the strike after negotiations on a new labor contract collapsed.

The union, which represents around 2,400 workers, rejected BHP's latest offer. The company had proposed a signing bonus of US$28,900 per worker, but the union had asked for 1 percent of shareholder dividends for the mine.

The news outlet says that would equate to about US$36,000 per worker. The union's demand comes after a period of high copper prices, which have bolstered the profitability of mining operations globally.

BHP said it has activated a contingency plan in response to the strike, a standard measure in such situations. This plan allows the company to maintain "minimum services" at the mine using non-union employees.

Union No. 1 is open to further negotiations, but has accused BHP of violating strike terms by replacing striking workers.

The company has not specified how much production will be affected by the strike. Escondida, which produced 1.1 million metric tons of copper last year, accounts for approximately 5 percent of the world's total copper output. It processes about 400,000 metric tons of ore daily, making it a critical source of copper for smelters, particularly in China.

Analysts are closely monitoring the situation, noting that while the immediate impact on the copper market has been muted, a prolonged strike could disrupt global supply chains.

Workers at Lundin Mining's (TSX:LUN,OTC Pink:LUNMF) Caserones copper mine in Chile initiated a similar strike over failed wage negotiations on Tuesday (August 13). Lundin and BHP recently made a joint bid to acquire Filo (TSX:FIL,OTCQX:FLMMF) for C$4.5 billion. The two companies plan to form a 50/50 venture that will include the Filo del Sol project, which is owned by Filo, as well as Lundin's Josemaria project, situated near the Chilean border.

BHP, which shares ownership of Escondida with Rio Tinto (ASX:RIO,NYSE:RIO,LSE:RIO) and Japan's JECO, has been engaged in negotiations with Union No. 1 for several months. The company has defended its latest offer as one of the most competitive in the industry and expressed disappointment over the breakdown in talks.

The mine's output is critical not only to BHP's bottom line, but also to the global copper market.

As the strike continues, both sides are under pressure to reach a deal that will allow full production to resume.

During 2017, a labor dispute at Escondida resulted in a 44 day work stoppage. That strike severely impacted copper production at the mine and contributed to a rise in global copper prices.

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Securities Disclosure: I, Giann Liguid, hold no direct investment interest in any company mentioned in this article.