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BHP Billiton declares force majeure at Escondida

Striking copper miners at Chile's Escondida mine hold a protest.


BHP Billiton Ltd. has declared force majeure on exports from the world's biggest copper mine, as a mine workers' strike entered its eighth day.

The strike at BHP's Escondida mine in Chile, which supplied 7 per cent of the world's copper last year, comes in a month of widespread mining strikes from Indonesia to South Africa.

The declaration of force majeure - often used after floods or earthquakes - frees BHP of its obligation to supply customers with copper until operations resume. A prolonged strike at Escondida threatens to affect supply chains for the industrial metal, which is heavily used in construction and electronics, and add pressure to the spot copper price.

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BHP appeared to dig in this week. It has declined to negotiate since industrial action started on July 21. Workers want annual bonuses of 5 million pesos ($11,000 U.S.) each compared to BHP's offer of a 2.8 million peso bonus.

The Escondida strike is illegal, according to a BHP official, because it occurs outside Chile's permissible periods for collective bargaining. The union agreed a four-year contract in 2009 and can review compensation in 2013, BHP said.

The copper price has risen sharply since 2009. Today's prices above $9,500 per tonne have boosted profits for copper miners and inspired unions to ask for a bigger share of gains.

Operating profits at Freeport-McMoRan Copper & Gold Inc., the world's biggest listed copper miner, rose 64 per cent to $5.7-billion in the first six months of this year. The company's operating profit margin was 50 per cent.

In early July, workers at Grasberg, Freeport's biggest mine in Indonesia, went on strike for eight days after demanding higher pay.

Workers at Codelco, the Chilean state-owned copper miner, staged a one-day strike this month and threatened more walkouts.

"There is a perception in the mining sector that the big mining companies are making too much money at the moment," said Rob Clifford, mining analyst at Deutsche Bank. "So they are subject to scrutiny by all their stakeholders: by staff demanding more pay, by governments demanding more taxes, and by shareholders demanding more returns."

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Referring to the Escondida mine in Chile, he added: "This strike feels different. It is not just about haggling over a number. It is about a principle. The principle is whether this type of strike is legal or not, and whether agreed frameworks for negotiation can be discarded."

The spot price of copper has risen 3.5 per cent since July 1, as reports of industrial action add to concerns about an already strained supply base.

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