Is The End Of The Escondida Strike A “Disaster” For This Mega-Mine?

Major South American miner Milpo dealt a major blow to the copper sector this past Thursday. Announcing that it will pull out of the Michiquillay project in Peru — one of the country’s largest undeveloped copper deposits.

Milpo cited government investment terms as a major reason for the company’s withdrawal. And elsewhere in South American copper, fiscal realities are looking ever more challenging for miners.

Like in world-leading producing nation Chile. Where BHP Billiton got some very tough news on labor terms at the world’s largest copper mine, Escondida.

The good news for BHP was the end of a 43-day strike at Escondida — with labor unions Friday officially announcing they will halt labor action here.

But there was also bad news for the mine’s owners: the method workers used to resolve the strike.

The Escondida labor action ended without workers and management coming to a new agreement on pay. Instead, workers used a loophole in Chilean law — which gives unions the option to continue under their previous contract terms for an additional 18 months.

That means workers get to push off wage negotiations until late 2018. And that may be a major problem for Escondida’s owners.

The issue is changes coming in Chile’s labor laws. As of April, it will become illegal to reduce previous benefits for workers — meaning that the current contract will become a floor for Escondida’s workers in any future negotiations. 

The new labor laws will also make it illegal to replace striking workers. Substantially weakening management’s power when workers walk off the job from now on. 

Chilean labor experts thus called this week’s outcome a disaster for BHP. Saying that things are likely to stay tense between workers and management over the coming months and years. 

The fallout appears to be starting already. With BHP saying late last week it is suspending two major capital projects in Chile — a desalination plant and an expansion of the Los Colorados concentrator plant. 

All of which is a big blow for investor confidence in Chile’s mining sector. Watch for more cuts in activity and planned projects from BHP and other miners in the country. 

Here’s to the bitter end,

Dave Forest

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