Walkouts may keep copper prices aloft

MONTERREY, MEXICO–Anyone looking for reasons why copper prices are likely to remain strong in 2008 need look no further than Latin America.

Unions and communities near mines have by no

means given up on their struggle for a bigger share of the commodity boom pie and that factor is seen offsetting weaker U.S. demand due to the slowing housing market there. Last year, Latin America’s miners faced at least 14 major walkouts, including one at Chile’s state-run copper miner Codelco, that helped push copper prices in London and New York to near all-time highs of US$8,800 per tonne or US$4.16 per lb.

Chile’s state copper commission, Cochilco, sees average copper prices of about US$3.10 per lb. this year, with demand of some 18.4 million tonnes in line with projected world supply of 18.5 million tonnes. Codelco is expected to produce some 1.7 million tonnes copper.

“The U.S. market is a little weaker, but Asia and China remain firm,” Codelco’s chief executive Jose Pablo Arellano told reporters in January.

Labour strife at Codelco has not gone away, even if the company is tight-lipped about it. Last year, the government ordered Codelco to directly hire nearly 5,000 currently subcontracted workers across its five divisions. The company has taken the Labour Ministry to court to challenge the decree and has so far won four of six court decisions on the issue.

Late last year, the government published a study on labour conditions for subcontracted workers in Chilean mines with a unionized work force, and recommended that subcontracted miners should also be added to the unions.

Even if Codelco wins all its challenges, subcontracted workers are demanding the same pay and work conditions as unionized miners.

“When have the courts ruled in favour of the workers? We don’t expect progress there, we want to negotiate directly with Codelco,” says labour leader Cristian Cuevas, who led a brief strike in early January by subcontracted workers and tried to block access to Codelco’s five divisions.

Codelco said it was a failed attempt to revive a massive strike last July, when some 18,000 subcontracted workers walked off the job. The company signed a deal for bonuses and better pay with 14,000 of them, but failed to reach an agreement with the rest, who continued their action for another four weeks until they accepted a company offer to end the strike.

The tensions over the labour issue also have ramifications for Chile’s entire mining industry and have angered Chilean politicians who say Codelco is rebelling against its own family, that of the state. President Michelle Bachelet is also seeing her popularity fall over the issue.

“Codelco is generating a very negative precedent for the rest of Chile’s private mining companies and is therefore causing difficulties that could be bigger than the strike last year,” says Ricardo Nunez, president of the Senate’s mining and energy commission.

“We don’t understand (Codelco’s position) because the government program of President Bachelet is about the defence of worker rights. Codelco Chile is an issue for all Chileans,” he added.

Codelco, which was not immediately available for comment, argues that it has met its worker agreements and should not be forced into measures that could compromise the efficiency of the company. Workers say they could intensify their strikes if the labour dispute is not solved early this year, while some analysts say the issue underscores the need to privatize Codelco.

Grupo Mexico (GMEXICOB-M, GMBXF-O) is another Latin American miner that faces latent labour actions. The Mexico City-listed company won back control of its huge Cananea copper mine at the start of the year and began production in mid-February with a skeleton staff, refurbishing equipment that had lain unused since a July 30 strike over pay and conditions.

A government labour board declared the strike illegal in January, allowing the company back into the mine.

“Considering the expected ramping up of operations, Cananea copper production is estimated at around 136,000 tonnes in 2008,” says Grupo Mexico chief financial officer Daniel Muniz.

That’s 38% higher than the 99,000 tonnes produced last year.

“We are aiming to have full production (starting in) May,” he adds.

But the union at Cananea, which has one of the world’s biggest known copper reserves, says most of its workers are still on strike and the legality of last year’s strike should be ruled on in a higher court.

That appeal could prevent Grupo Mexico from firing striking miners as it has threatened to do. A dispute with union leader Napoleon Gomez, whom the company and some workers accuse of pocketing millions of dollars of a workers’ fund, underlies the conflict — ostensibly about health, safety and pay. Tension between the union and the company is also linked to an explosion in a Grupo Mexico coal mine in 2006 that killed 65 miners, most of whose bodies are still unrecovered.

Mexico’s unionized workers have also been playing hardball at the country’s biggest lead mine, striking in January. Workers at northern Mexico’s Naica mine, which is owned by Industrias Peoles (IPOAF-O, PENOLES-M), won a 9% pay hike this year, while miners at Peoles’ Met-Mex metallurgical complex, one of Latin America’s biggest, won a similar pay raise and called off a planned strike. Pay talks are under way at Mexican iron mines and steel plants to avert more walkouts.

Meanwhile, Grupo Mexico’s Peruvian workers, who mine the pits of its Southern Copper (PCU-N) subsidiary, are a potential threat to production in the Andes. Miners held brief walkouts in July and October over pay and conditions. Peru’s largest mining union, representing 22,000 workers, launched a nationwide strike in April and November that included Southern Peru workers. The union had planned another walkout in January but that has been indefinitely postponed following government pressure not to strike.

Union leader Julio Ortiz says miners want a reform of the labour laws passed by former President Alberto Fujimori in the 1990s that eliminated early retirement, reduced profit dividends and allowed mining companies to use subcontracted workers.

“Fujimori turned us into cheap labour,” Ortiz says, arguing that the laws should be reversed because they were passed at a time of low metal prices and little investment in Peru’s polymetallic reserves.

But while Latin American governments have a strong interest in helping to avoid the strikes, reforming labour laws and protecting workers’ rights, their negogiating powers are limited by their reluctance to fuel inflation with wage hikes or appear too close to mining at the risk of setting off salary demands in other sectors.

Mining unions are also very suspicious of their respective labour ministries, which they believe to heavily favour company interests over their own. That means walkouts are likely to be the norm, as long as mineral prices remain high and a bigger slice of the profits are worth fighting for. –Based in Monterrey, Mexico, the author is a freelance writer specializing in mining issues.