BHP’s operations at Escondida return to normal following the end of a costly strike – but unresolved labour challenges and upcoming elections could create more uncertainty for the world’s largest copper mine.
- On 1 June BHP lifted force majeure at its Escondida copper mine in Chile, two months after a 43-day strike over contract changes saw production grind to a halt. The strike ended after BHP and the union failed to reach a deal, with workers invoking a legal provision that allowed them to return to work on their old contract for a period of 18 months. The strike is estimated to have cost BHP $1bn in lost revenue.
- Escondida is the world’s largest copper mine, producing around 5% of global copper output. The mine, which is located in the Atacama desert, is majority owned and operated by BHP, with Rio Tinto and Japanese firms, including Mitsubishi, holding smaller stakes.
- There is a long history of labour disputes at Escondida, which was hit by strikes in 2013, 2011 and 2006. The latest strike was especially damaging, not just because of its duration and financial cost, but because it failed to produce a lasting resolution. The extension of the existing contract means that additional negotiations will be necessary at the end of that period, at which point there could be the potential for further industrial action. Issues that are likely to remain contentious relate to proposed changes to benefits and shift patterns, as well as demands by unions that new workers should receive the same entitlements as existing staff. Neither side was willing to compromise on any of these issues throughout the recent strike, and these will likely remain key sources of contention when negotiations resume, raising the prospect of further costly disputes.
- The strike is indicative of a growing risk of labour disputes in Chile’s mining sector. Sweeping labour reforms that came into force in April 2017 have introduced several provisions designed to strengthen unions, including by prohibiting businesses from offering workers weaker benefits than those afforded in previous contracts. One of the union’s chief complaints at Escondida was that BHP was attempting to dilute this provision by lowering benefits before the law came into effect. With several other firms facing wage negotiations this year – including at Anglo American and Glencore’s Collahuasi mine and Barrick Gold Corp and Antofogasta’s Zaldivar mine – further strikes over similar issues are possible in coming months.
- Beyond the labour disputes, Escondida has traditionally had a positive reputation for how its stakeholder relations are managed. Although there have been some reports of tensions with local farmers over the use of scarce water resources, a sea-water desalination plant due to be commissioned this year will reduce pressure on local water resources. Mining companies in Chile more generally are currently facing pressure to moderate water usage following a series of droughts and the construction of the desalination plant will likely help address these concerns at Escondida. The company has local hire policies in place that have meant that more than 80% of Escondida’s 2,000-strong staff are from the local area. Escondida has also regularly undertaken studies to consider the impacts of its operations on the local environment and wildlife.
- Chile has traditionally had a positive reputation as a mining investment destination, but there is some uncertainty over how the long-term national political context will affect Escondida. President Michelle Bachelet, whose labour reforms were a central component of her administration, is constitutionally barred from standing in elections in November 2017 and it is currently unclear who will succeed her. The pro-business former President Sebastián Piñera – who has pledged to overturn the labour reforms – is currently leading in polls of voter intentions with around 24% of support compared to 14% to his centre-left rival Alejandro Guillier. However, more than 40% of voters say they remain undecided and powerful social movements continue to advocate a further strengthening of unions. The outcome of the November election will likely be an important factor during the next phase of contract negotiations at Escondida next year and will more broadly shape the climate for mining investment in Chile.
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