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Miners want a slice of the 'cake'

The metal is in demand now, and those who pull it out of the ground are striking for better pay. The unrest imperils the entire industry.

By ASSOCIATED PRESS
Published August 31, 2006

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 a 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. However, the company and strikers reached a tentative deal on Wednesday.

There's no doubt, however, these are bonanza days for BHP Billiton. The Melbourne company reported it earned $10.45-billion for the year through June.

When the Escondida miners' union last negotiated a contract with BHP Billiton three years ago, copper sold for about 80 cents a pound. Mines were mothballed. 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. Strong demand, supply constraints and a broader rally in the commodities market pushed the price of copper to a record $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, having refused the company's contract offers.

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. Labor is the company's third-largest cost, behind energy and mining expenses, according to the company's latest annual report.

Although the mine's name means "hidden" in Spanish, Escondida is 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 result of the Escondida walkout will have repercussions throughout the industry, traders and analysts say.

Contract talks at a number of copper mines - mainly in Chile - are 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.

[Last modified August 30, 2006, 19:26:27]