SANTIAGO, Chile – The world’s largest mining company has had a very good year, something not lost on its miners in Chile.
Some 2,000 miners at BHP Billiton’s Escondida mine in Chile have been striking since early August, demanding a larger slice of what one worker called “the cake” being enjoyed by the Anglo-Australian company in the form of record profits from soaring world metal prices.
The strike has roiled world copper markets, often setting off buying and selling waves. Copper from Escondida represents about 8 percent of world production, and the strike has brought about half that production to a halt – stoking fears of a shortage in an already tight market.
The strike is being closely followed across Chile, the world’s largest copper producer, where the government is under pressure to spend more of its copper windfall and unions are waiting to see what kind of concessions the Escondida strikers gain.
But executives of BHP Billiton Ltd and other mining companies are wary of being locked into contracts that will mean significantly higher labor costs just as metal prices may be peaking.
There’s no doubt, however, these are bonanza days for BHP Billiton. The Melbourne-based company reported it earned $10.45 billion for the year through June, an Australian corporate profit record.
When the Escondida miners’ union last negotiated a contract with BHP Billiton three years ago, copper sold for about 80 cents a pound. The industry was near the bottom of a bust cycle.
Since then, demand from fast-growing economies such as China and India have helped drive the price of copper to about $3.50 today. Strong demand, supply constraints and a broader rally in the commodities market pushed the price of copper to an all-time high of $4.08 a pound in May.
This time around, the workers want their share of the boom times. About 800 workers have been camped in tents in a sports center the company owns in the port city of Antofagasta since Aug. 7.
The copper mine cuts a deep bowl into Chile’s Atacama Desert, bordered by the Andes on the east and the Pacific Ocean on the west, outside of Antofagasta, 870 miles north of Santiago.
Oscar Moreno, 44, has worked 17 years at Escondida. He and the other workers generally work four 12-hour days, sleeping and eating at the mine, then have four days at home. He earns about $1,490 a month, plus quarterly bonuses.
“I feel my situation is good, compared to the general situation of workers in Chile,” he said in a telephone interview from the strike camp. “I cannot complain, really, and I do not complain about my situation. My complaint is about the money that the company makes. We are asking for just one percent of the ‘cake’ it gets.”
In reporting its annual profit – up 63 percent from the prior year – BHP Billiton noted the Escondida mine produced record volumes for the company.
But costs are on the rise, too. Labor is the company’s third-largest cost, behind energy and mining expenses, according to the company’s latest annual report.
BHP has offered workers a four-year contract that includes a 4 percent raise plus bonuses, up from an initial 3 percent offer. The workers want 8 percent plus bonuses, after initially asking for 13 percent.
“Our work force at Escondida is some of the highest-paid in Chile, and this is essentially the most attractive package that has been offered to the work force in that region,” said Chief Executive Chip Goodyear, in a conference call.
Although the mine’s name means “hidden” in Spanish, Escondida is now the center of attention for copper traders in New York and London. The slightest news or speculation will set off a flurry of buying or selling in the New York Mercantile Exchange, where millions of dollars in copper contracts change hands daily.
“Everyone is focused on Escondida,” copper trader John Hanemann said.
The results of the Escondida walkout will have repercussions throughout the industry, traders and analysts say.
Contract talks at a number of copper mines are due to expire in coming months, including Chile’s state-owned Chuquicamate, the world’s largest open pit copper mine. If workers at all six of the mines with expiring labor contracts opt to strike, 18 percent of world copper supply could be at risk, Merrill Lynch commodities strategist Francisco Blanch said in a recent report.
Chile represented about 36 percent of world copper production in 2005. The United States was the second-place producer with about 8 percent of world output, according to the U.S. Geological Survey.