According to foreign media, union leader Patricio Tapia of BHP Billiton's Escondida copper mine has called on nearly 2,400 members to reject the company's latest contract offer and announced that a crucial vote will be held this week (from Monday to Thursday) to decide whether to initiate a strike. If the vote results are unfavorable, the strike may start immediately.

It now appears that both sides are likely to "break off negotiations": According to the latest news from foreign media on August 2nd, the mine's union stated on Thursday that the union workers have rejected the new collective bargaining agreement offer proposed by BHP Billiton, indicating that the workers may go on strike.

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What is the cause of the strike? It turns out that it is still inevitable for the miners to demand a 1% share of the dividend, while BHP Billiton has offered a bonus of $21,044 per person. Now the two sides cannot reach an agreement, and the union calls on workers to reject the contract and prepare for a strike.

According to a report by Securities Times, the chairman of the mine's union, Patricio Tapia, confidently stated that the strike is well-prepared, with a larger logistics fund than in 2017, and has signed a credit agreement to ensure that the basic livelihood of workers and their families is worry-free. According to him, the workers expect to share in the company's profits, specifically 1% of the shareholder dividends, to be paid over three years; given the current record-high copper prices, the substantial profits of the Escondida copper mine should be shared with the workers.

BHP Billiton responded by saying that its proposal aims to increase employee benefits and introduce new benefits, emphasizing that the proposal not only recognizes the hard work of the workers but also ensures the sustainable development of the mine. According to foreign media, BHP Billiton stated that its payroll expenses for the fiscal year 2023 were $8.6 billion, specifically $36,000 per employee for the 2,390 employees at the mine. In the negotiations, BHP Billiton offered a new collective contract for 36 months and a 1% salary adjustment.

Reading this, everyone probably has a good guess: the union believes that "with such high copper prices now, the company is making a fortune," and should lead all employees to prosperity together, but the company believes that "giving out more bonuses is already the company's sincerity," and the contradiction between the two sides arises from this.

The striking copper mine has the highest production in the world. The mine faces the risk of strikes every one or two years, and the workers' demands are often to improve safety measures and increase income, especially during the upward period of copper prices. For example, in August 2021, the mine almost had a strike, which ended with the signing of a new collective agreement between the labor and capital sides. Local media reported that each worker received a bonus of nearly $27,000 for working during the pandemic. This agreement is considered a "great victory" for the union.

The longest strike at the mine in recent years occurred in February 2017, lasting 44 days and affecting 210,000 tons of copper production. At that time, the copper mine price hit the highest price since May 2015, quickly breaking through the strong resistance area of $6,000/ton, and LME copper even reached a high of $6,204/ton on February 13.As for the reasons, they bear a striking resemblance to this instance: according to a report by People's Daily at the time, the union proposed to BHP Billiton that workers' salaries should be increased by 7%, and demanded a one-time bonus of $38,900, an amount considered the highest bonus in the history of Chile's mining industry. BHP Billiton did not accept the union's demands. That strike resulted in a loss of $740 million for BHP Billiton.

By November 2022, the miners at the mine had gone on strike again, citing "workers' concerns for their safety, as BHP Billiton allegedly failed to comply with legal regulations and the current collective agreement." However, BHP Billiton denied the accusation, calling it "false."

Mining giant BHP Billiton's Escondida copper mine in Chile is the world's largest copper mine. According to BHP Billiton's annual report, the company's copper production in 2023 was 1.777 million tons, with the mine's copper production at 1.073 million tons, accounting for 60.38% of BHP Billiton's total output. In 2024, the mine's copper production is expected to be between 1.08 million and 1.18 million tons. The mine site has two shafts, three concentrators, and two heap leaching facilities (for oxidized and sulfide ores). The mine is an important component of Chile's economy, contributing several percentage points to Chile's Gross Domestic Product.

Relevant information indicates that the mine is located at an altitude of approximately 2,000 feet in Chile's Atacama Desert and is not a typical shaft mine. The copper deposit extends 11 miles north-south and 2 miles east-west. Exploration began in 1979, the deposit was discovered in 1981, production started in the 1990s, and in 2007, copper production reached 1.5 million tons, nearly one-tenth of the world's copper production. However, it currently faces the issue of resource depletion: unless new reserves are found, the mine should only be able to operate until 2030.

Currently, BHP Billiton holds a controlling 57.5% stake in the mine, Rio Tinto holds a 30% stake, a Japanese consortium led by Mitsubishi Corp. holds a 10% stake, and the International Finance Corp. holds a 2.5% stake. Chilean domestic forces do not hold any shares, making it one of the few purely foreign-owned copper mines in Chile!

Some financial friends may be curious, why are there so few foreign-owned copper mines in Chile? This brings us to the country's famous "copper nationalization movement" in 1971.

In early 1971, the country's president, Allende, submitted a proposal on copper nationalization to the parliament. On July 11, the parliament unanimously passed the proposal, and the government nationalized the copper, nitrate, and iron mines controlled by American capital, as well as coal mines operated by domestic private capital. At the same time, the government announced the establishment of a copper court to hear various cases arising from the nationalization of copper mines, which later became one of the sources for the establishment of the Chilean National Copper Corporation (Codelco).

However, the existence of this mine makes the position of the world's largest copper producer precarious! According to local Chilean media reports, Codelco's copper production will decrease from 1.42 million tons in 2023 to 1.41 million tons in 2024; while BHP Billiton's copper production at the Escondida mine continues to increase, the total copper production will grow from 1.37 million tons in 2023 to 1.44 million tons in 2024, thereby surpassing Codelco and becoming the world's largest copper producer.In 2023, Codelco's production hit its worst performance in 25 years, with a year-on-year decline of 8.4%. According to SMM, the main reasons are: first, the low quality of mines, which leads to increased mining and operational costs; second, the company's management level is challenged by other international companies, and it needs to improve in terms of flexibility, diversification, and asset management standards. The company plans to increase its production to 1.7 million tons by 2030.

Why do copper mine strikes keep happening?

In recent years, copper mines in Chile have repeatedly experienced strikes, most of which occur during periods of rising copper prices.

For example, according to foreign media, also in August 2021, the union of the Andina copper mine, owned by Codelco, rejected the latest contract proposed by Codelco after government-mediated negotiations, officially entering a strike status. As for the specific reasons, the company stated, "It has indicated the intention to cancel historical benefits such as workers' healthcare, without taking responsibility for improving new social benefits for workers, and ignoring the high copper prices."

It is worth noting that, taking Chile as an example, copper mine strikes are not about "mutual destruction," but more like a pressure tactic adopted by unions to achieve their own goals, hence often "taking the opportunity to settle!"

According to Chilean labor law, negotiations between employers and unions begin 45 days before the contract expires. If the two parties fail to reach an agreement on new terms during this period, the government will conduct a 5-day mediation process with the consent of both parties. At the request of both parties, the mediation can be extended by 5 days, during which workers are required to continue working. If the government mediation fails, the strike will begin. Strikes in copper mines in other countries are similar. In short, if they can talk, they talk; if they can't, they overturn the table!

Let's take another example of successful negotiations: in mid-June of this year, there was good news from BHP's Spence copper mine in Chile. The union representing the mine workers accepted the company's contract proposal by an overwhelming majority, successfully avoiding potential strike risks. The mine produced about 250,000 tons of copper in 2023, accounting for about 1% of the global supply. Although it is not comparable to Escondida in scale, it is also one of BHP's important assets in Chile.

According to foreign media, 2024 is a very important year for labor contracts in Chile's mining industry. There are 41 contracts that will expire and need to be renegotiated. According to the analysis of Cesar Perez-Novoa, an equity analyst at BTG Pactual Chile, and his colleagues, these contracts account for 63% of Chile's copper production and 14% of global production. Below is the schedule for the expiration of contracts for related copper mines this year:

What is the impact of copper mine strikes?According to a historical analysis of significant copper mine strikes from 2008 to 2019, compiled by Hedge Research Investment, it can be observed that the impact of copper mine strikes on production largely depends on the scale of the mine and the intensity of the strike. The most notable example was the 44-day strike at the Escondida copper mine in 2017, which resulted in a reduction of 150,000 tons of copper production in February and March, accounting for less than 1% of the global copper production for that year.

From this historical perspective, strikes related to labor negotiations in the copper mining industry tend not to have a significant impact on production. As for the impact on copper prices, they are primarily concentrated in ultra-short-term and short-term price fluctuations, which still require attention. The medium to long-term impact on copper prices, however, should be analyzed from the fundamentals, which is another topic altogether. Nevertheless, the author would like to remind all financial friends to be mindful of the risks involved!