STRIKE WHILE THE COPPER IS HOT
The longest labour strike in the history of Chile’s mining sector took place in early 2017
USD 1BN
Estimated loss in copper output
When in early January 2017, Anglo-Australian miner BHP Billiton began formal negotiations with trade unions on the new collective bargaining agreement for Escondida, the world’s biggest copper mine, few expected that the discussions will result in the longest-ever labour strike in the history of Chile’s mining sector. The arduous negotiations, which did not have a formal conclusion, but instead were effectively postponed by 18 months, were an economic calamity for all parties involved.
At the very beginning of talks, Syndicate Number 1, the largest trade union at the mine, demanded a CLP 25mn or USD 36,700 bonus for all workers who sign the new labour agreement as well as a 7% wage increase, which BHP Billiton promptly rejected. In turn, the company offered a CLP 8mn or USD 11,800 contract signing bonus and a wage freeze. BHP Billiton also hinted it might cut down on the special benefits granted in the previous collective bargaining agreement, such as health insurance coverage. Given the huge difference between the trade union’s request and the company’s offer, a peaceful solution of the controversy was highly unlikely. Indeed, on February 7, 2017 Syndicate Number 1 spokesman Carlos Allendes said the process had failed and a strike was about to begin.
Confident in its strong position, the trade union declared a total strike on February 9, 2017. During the first week of the labour conflict, concerned by the lack of dialogue between the parties, the labour ministry tried to intervene as an arbiter but without success. Tension escalated as road blocks, allegedly organised by the trade union, restricted access to the mine. Furthermore, when in mid-March BHP Billiton sent an official letter with a new proposal, the union symbolically responded by burning the letter. On March 17, the company made its final offer, which included a CLP 11.5mn or USD 16,900 contract bonus per worker, and wage adjustments based on the inflation between 2013 and 2016. The union once again rejected it, as the proposal still envisaged different terms for new and old employees. The impasse finally ended on March 23, when the union formally requested the automatic renewal of the collective bargaining agreement for a period of 18 months as of February 2017.
This ended the longest mining strike in the history of Chile. It lasted 44 days and was one of the key factors for the 1.3% y/y contraction of the country’s GDP in February 2017, the largest drop since October 2009.
THE STRIKE IN NUMBERS
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COPPER MINE OUTPUT
2016
5.5MN
TONNES
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ESTIMATED LOSS IN COPPER OUTPUT
USD 1BN
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COPPER MINE OUTPUT
ESTIMATE 2017
5.6MN
TONNES
According to Sergio Hernandez, executive vice-president of the Chilean Copper Commission (COCHILCO), the estimated loss in copper output due to the labour conflict was 230,000 tonnes, valued at around USD 1bn at current prices.
As a result, Chilean copper mine output was projected to be just below 5.6mn tonnes in 2017, barely up from the 5.5mn tonnes in 2016. Apart from the losses in terms of copper production, Escondida’s shareholders also had to bear the negative consequences of road blocks at the Puerto Coloso port, where the company is developing a USD 3.4bn water desalination plant. The Escondida strike was a rough start of the process of renewing 15 collective bargaining agreements in Chile’s mining sector. It was proof that a long conflict is extremely costly for all parties involved. If such costs are to be avoided, both sides should learn to make compromises - companies should be more flexible with benefit scheme offers and trade unions should be less belligerent and less focused on preserving past extraordinary benefits. What matters the most now is how the new negotiation process at Escondida, due to start in September 2018, will unfold – would the 2017 scenario be avoided or repeated. The trade union is not likely to demand another automatic renewal of the contract, as this would imply another period of frozen salaries and no signing bonuses. BHP Billiton, on the other hand, will not be able to differentiate between old and new employees since the amended Labour Code will already be in force. Hopefully, the hard lessons learned from the 2017 standoff would act as a deterring factor for open hostilities. The renewed talks are most likely to end in a compromise including juicy signing bonuses, a wage freeze and no benefit cuts, similar to the outcome of the collective bargaining agreement talks at Collahuasi in May 2017.