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Production at Escondida, the world’s largest copper mine, was hurt by the longest mining strike in Chile’s history.
Output at Chile’s Escondida, the world’s largest copper mine, dropped 63 percent in the first quarter of 2017 compared to the same period a year earlier, hurt by the longest mining strike in the country’s history.
The 44-day strike allowed production to reach just 97,103 tonnes of copper in the first three months of the year, down from 265,597 tonnes in 2016.
Escondida accounts for almost 5 percent of global copper production. In 2016, output reached 1.1 million tonnes, and before the historic strike, the company was calling for the mine to produce 1.07 million tonnes in the first six months of 2017.
The protests by the union’s 2,500 workers ended on March 24, after miners decided to invoke a legal provision and extend their old contract.
As a result of the stoppage, Minera Escondida, which operates the mine, suffered a $184-million net loss in Q1. In addition, the strike has delayed the start of the Los Colorados extension and the commissioning of the Escondida water supply projects, both now expected to happen in Q3.
In April, BHP Billiton (NYSE:BHP,ASX:BHP,LSE:BLT), which owns 57.5 percent of Escondida, cut its copper guidance for 2017 to 1.33 to 1.33 million tonnes from 1.62 million tonnes.
Rio Tinto (NYSE:RIO,ASX:RIO,LSE:RIO) and a Japanese consortium headed by Mitsubishi (TSE:8058) also have stakes in Escondida.
Other supply threats ahead?
Like Escondida, Freeport-McMoRan’s (NYSE:FCX) Indonesia-based Grasberg mine stopped production for over a month in Q1 due to a smelter strike and issues surrounding the renewal of the company’s mining permit.
Escondida and Grasberg’s supply disruptions are estimated to have brought global 2017 copper output down by 5 to 7 percent. Grasberg is the world’s second-largest copper mine.
Further disruptions could be in the cards. Almost 15 percent of annual of copper production, or 3.5 million MT, will be subject to review this year, and Escondida’s labor negotiations are considered a benchmark for the industry on a global basis, Stefan Ioannou, an analyst at Cormark Securities recently said.
Some upcoming talks will be held at Glencore’s (LSE:GLEN) Collahuasi mine and Antofagasta’s (LSE:ANTO) Zaldivar mine. The latter is already facing strike threats.
“Any additional major disruptions would send the market into a considerable deficit,” Caroline Bain, Capital Economics’ chief commodities economist, said.
On Tuesday (July 4), LME copper ended down 0.6 percent at $5,892 per tonne, pulling back from a three-month high reached last week.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
