Escondida Deal Hopes Fade as Sides Give Contradicting Views

  • Copper mine stoppage in northern Chile is in its third week
  • Mine’s union says there have been no discussions in a week

BHP Billiton CEO on Escondida Talks, Trump, Commodities

Copper traders were left confused over the state of play at the world’s top copper mine: the owner said wage talks had resumed, while the union said striking workers have had no contact with management for a week.

“The good news is that we are back around the table and things are starting to come together in some form of a negotiation,” BHP Billiton Ltd. Chief Executive Officer Andrew Mackenzie told Bloomberg TV on Monday. “Let’s wait and see, and others I’m sure will update you on the progress of those talks.”

While BHP-owned Escondida declined to comment further, the union said a meeting last Monday organized by Chilean labor authorities was the last time the two sides have sat down together. Escondida halted output on Feb. 9 after a month of talks failed to produce a wage accord.

“It is absolutely not true,” union spokesman Carlos Allendes said about Mackenzie’s remarks. “He is either misleading public opinion or someone is not informing him correctly. We have not been invited to participate in anything.”

Copper swung between gains and losses Monday before the three-month contract settled up 0.1 percent at $5,934 a metric ton on the London Metal Exchange.

“Copper traders are voting with their feet that a resolution to the strike isn’t close as the red metal finishes near highs despite mixed messages from BHP and union leaders,” Tai Wong, director of commodity products trading at BMO Capital Markets, said in an e-mail.

Disruptions at Escondida, and a suspension of exports from Freeport-McMoRan Inc.’s Grasberg in Indonesia, the second-largest copper mine, have spurred prices. A 26 percent rally in the past year is emboldening workers at a time of surging earnings growth after companies made deep cost cuts when prices were low.

BHP’s press department in Santiago referred to a statement last week by the company’s head of corporate affairs, Patricio Vilaplana.

“We hope that this will end as soon as possible and that we can resume conversations and accept the invitation from the labor directorate to keep talking,” Vilaplana said in an interview with Radio Cooperativa.

“It is not rare for contradictory messages to emerge in this kind of negotiations in Chile,” Francisca Perez, a BCI senior economist, said in Santiago by phone. “The company saying it is willing to negotiate is a positive step.”

While the union has not received a formal invitation, it doesn’t mean it won’t receive it in the future, Perez said. The confrontation between both sides will happen behind closed doors, but also in the media. “The first sign of rapprochement would be leaks that they are setting up a meeting, but I don’t see it happening this week,” Perez said.

Extremely well paid

While metal prices have rallied and earnings are up, Mackenzie said Monday that the company is asking workers to approach issues of productivity and flexibility so that when ore grades decline in the future, the mine can continue to be profitable and provide jobs.

“The workforce at Escondida is already extremely well paid and I would be pretty certain that whatever the outcome of negotiations, they will remain reasonably to high paid,” he said.

The walkout by members of a union representing 2,500 workers means BHP is reviewing its guidance for copper output of 1.62 million tons in the 12 months to June 30, including a forecast 1.07 million tons from Escondida. Stoppages at the operation will impact on Chile’s economic growth, the country’s finance minister, Rodrigo Valdes, said last week.

Rising demand, waning mine output and a lack of investment in new operations will push copper into the first deficit in six years, according to Citigroup Inc. Prices may rise above $8,000 a ton before the end of the decade, the bank forecasts. BHP sees a copper deficit emerging in the 2020s, while Glencore Plc said last week it sees global supply of the metal declining this year.

“When you look forward, you don’t have a prolonged deficit starting until 2020, but you can still get shortfalls,” Mackenzie said on Monday, citing industry hiccups bringing new projects on stream in addition to larger issues like Escondida and Grasberg.

That said, it’s “reasonable” to assume the strike gets settled and Freeport solves its problems at Grasberg, he added, in which case “that should more or less handle the supply out to 2020, but after that it’s much more uncertain.”

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