Can BHP Billiton Break Escondida’s Strike?

Workers at BHP Billiton’s (NYSE:BHP,ASX:BHP,LSE:BLT) Chile-based Escondida mine have been on strike for 29 days, the longest period in the mine’s history. But once the walkout surpasses the 30 day-mark on March 10, the company may try to restart production using temporary workers.
Speaking to local radio station Teletrece, Patricio Vilaplana, Escondida’s corporate affairs director, said BHP Billiton is considering “using contractors’ help to try to get production going” if their safety can be assured. The company will evaluate the situation day by day, he noted.
Escondida is the world’s largest copper mine and accounts for almost 5 percent of global production — last year, output reached over 1 million tonnes of copper. Unsurprisingly, the strike has led to copper supply concerns, and has boosted prices for the red metal. Last month, copper prices reached a 21-month high of $6,204 per tonne; prices were also supported by an export stoppage at Freeport-McMoRan’s (NYSE:FCX) Grasberg mine in Indonesia.
Since then, however, copper prices have fallen. On Thursday (March 9), three-month copper on the LME touched $5,660, its lowest level since January 10. The fall was largely the result of this month’s increase in US interest rates, but a restart in production at Escondida could also act to push copper prices lower.

Will the strike continue?

For that reason, many copper-focused investors are wondering whether BHP Billiton will really bring in contractors in order to get production going again at Escondida. While there’s no guarantee that the company will do that, it’s certainly a possibility.
According to Reuters, under Chilean law, after 30 days unionized workers have the right to break from their’s union position and accept an offer from the company they are striking against. While it’s possible that some striking workers will do so, few are expected to take that route — over 99 percent of the unionized workers at Escondida initially voted to strike, which is an unusually high level of support.
“We are actually assessing the possibility of striking for 60 days. There are no negotiations at the moment, they are stalling, but we continue,” said union spokesperson Carlos Allende. The 2,500 unionized workers are striking at a campsite they built right outside the mine.
Union members also have a history of standing strong. During a 2006 strike at Escondida that lasted almost 30 days, only 32 of about 2,000 union members went back to work before the strike ended. Even so, the prospect may be tempting.
“In 2006, the company went door to door talking to workers’ wives, trying to convince them to tell their husbands to go back to work,” Allendes told Bloomberg. “We understand that their policy will be exactly the same this time.”

Other negotiations ahead

The strike at Escondida will reach the 30-day mark on Friday (March 10), and whatever BHP Billiton decides to do then will no doubt have an impact on copper prices. The company’s decision may also dictate how wage negotiations go at other large copper mines this year.
Almost 15 percent of annual copper production will be subject to review this year, including output from Grasberg and from Glencore’s (LSE:GLEN) Collahuasi mine, Stefan Ioannou, an analyst at Cormark Securities, recently said. 
“Labor negotiations at Escondida are considered a benchmark for the industry and on a global basis almost 15 percent of annual of copper production, or 3.5 million MT, will be the subject of labor renegotiations this year,” he explained.
Long-term predictions for copper prices vary, but many market watchers are calling for higher prices and a copper deficit in 2017. For example, this year Citi expects supply disruptions to help push the copper market into a deficit for the first time in six years, and sees copper prices being lifted to $7,000.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.