Mining giant BHP (NYSE:BHP) faces tensions in Chile after the local miner's union issued a strike.
What Happened: A strike threatens to undermine the output at Escondida, the world's largest copper mine, producing over 1.1 million metric tons annually.
"After a new invitation from the company to reach an agreement, Union No. 1 declined to restart talks," BHP said in a statement, referring to the labor group representing about 2 400 people.
Per Reuter's report, BHP has offered a bonus of $28,900 per worker. Still, the union has rejected this proposal, insisting on a 1% share of the mine's shareholder dividends, translating to roughly $36,000 per worker.
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Furthermore, Reuters mentioned seeing an internal memo to union members in which the union accused BHP of engaging in "anti-union practices" by making a direct contract offer to workers.
BHP has defended its contract proposal as one of the best in the industry, stating, "We made every responsible effort to reach an agreement, but that wasn't possible."
In addition to BHP's controlling stake in the mine, other shareholders include Rio Tinto (NYSE:RIO) and Japanese Jeco Corp, a joint venture of Mitsubishi Corp, Mitsubishi Materials, and Nippon Mining & Metals.
Why It Matters: The strike reignited memories from 2017 when a prolonged walkout severely impacted production and spiked global copper prices. That strike lasted 44 days and led to a 7.5% reduction in global copper supply that year. Per union president Patricio Tapia, a fall in output is a realistic threat since the law prohibits replacement workers.
As over 60% of Escondida's copper concentrates end up in Chinese smelters, this crisis could escalate beyond borders, hitting the smelters that produce around half of the world's refined copper.
To make the situation worse, Escondida is not the only Chilean mine facing labor unrest. Workers at Lundin Mining's Caserones mine also went on strike recently due to failed pay negotiations. So far, the unrest has not significantly impacted copper prices, which have declined over 20% from their May highs.
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