STRIKE CLOSES WORLD'S LARGEST COPPER MINE

UNCLAS SANTIAGO 001769

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN ETRD CI
SUBJECT: STRIKE CLOSES WORLD'S LARGEST COPPER MINE

REF: SANTIAGO 776


1. Summary. The world's largest copper mine, La Escondida, located
in northern Chile, closed August 18. The strike initiated ten days
ago by unions demanding large salary increases and bonuses has
caused it to cease all operations. In 2005, La Escondida supplied
almost eight percent of the world's copper. Negotiations are at a
standstill. To date, the Chilean government has not intervened.
End Summary.

Record Copper Prices Driving Demands
--------------


2. On August 7, over 2,000 union workers at La Escondida went on
strike demanding salary increases in light of sustained record
copper prices and company profits. Workers are demanding USD 30,000
in bonuses and nearly 20 percent pay increases. The strike is being
closed watched by unions at Chile's other copper mines, including
those run by Chile's state-owned copper company, CODELCO. La
Escondida's union leaders are pressing their demands now as
projections estimate the mine will produce USD 7 billion in profits
in 2006. Copper prices (see reftel) have remained near record highs
for much of 2006 and the Chilean government's own projections
anticipate an average price in 2006 at around USD 3 per pound.

World's Largest Copper Mine
--------------


3. The La Escondida Copper Mine, located outside of the port city of
Antofogasta over 1,000 kilometers north of Santiago and controlled
by the British-Australian company BHP Billiton, is the largest
copper mine in the world. It operates as an open pit mine and
currently accounts for 7.6 percent of total global production and
23.9 percent of Chile's total copper production. The mine's
production accounted for 2.55 percent of Chile's GDP in 2005. La
Escondida's total production for 2005 was 1,271,472 metric tons of
refined copper, representing a 6.4 percent increase over 2004. In
2005, La Escondida sales totaled USD 4.4 billion or 9.1 percent of
Chile's total exports.


4. La Escondida produces several copper products: copper
concentrates, copper blisters and copper anodes, refined copper,
semi-manufactured products, and copper scrap. Its main export
markets are Japan, Germany, Canada, China, Sweden, Brazil, South
Korea and France. La Escondida's profits reached USD 2.9 billion
between January and June 2006, compared to USD 937 million recorded
in the same period a year ago. Its profits for all of 2005 were USD
2.6 billion. La Escondida directly employs 2,300 workers with an
additional 1,900 positions supplied by contractors. Another 8,000
jobs in northern Chile are related to its production activities.

Significance for World Copper Market
--------------


5. The strike's initial days reversed a downward trend in world
copper prices, helping push the price per pound up to USD 3.59 on
the London Metal Exchange Market. To date, the strike has not
triggered a significant increase in the price of copper, but the
cessation on August 18 of all of La Escondida's operations and the
suspension of talks will likely increase world prices. According to
Alfredo Atucha, Vice-President of Finance at La Escondida, the
company is attempting to implement contingency plan that will allow
it to meet its supply commitments.

Comment
--------------


6. On the national level, the GOC has played down the strike's
importance, to avoid politicizing private sector negotiations
between private sector actors and to protect Chile's cherished image
as a model of stability. In the words of Minister of Labor Osvaldo
Andrade, "this strike is a legal right of Chilean workers and this
is an issue that affects one company in particular". He expects a
quick resolution and under Chilean law the GOC become will not get
involved unless both parties request its participation. In the
meantime, a significant portion of Chile's economy and the world's
supply of copper has gone idle with prospects for resuming
operations not in sight.
KELLY