Workers at the world's largest privately owned copper mine in northern Chile went on strike Monday to press their demand for better pay, and by midday production was down by 60 percent, a company official reported.

Union spokesman Pedro Marin said workers were gathering at a plaza in Antofagasta, 1,600 kilometers (995 miles) north of Santiago, for a planned march.

Other miners blocked an access road to the mine with rocks and parked buses.

A union assembly was scheduled for late Monday and a vote on the company's contract proposal was likely, Marin said. The proposal was rejected by the union leadership.

The company has called its contract offer, made in government-mediated talks, final. It includes a 3 percent salary increase and one-time bonus of US$17,000 (€13,200).

The workers are asking for a 13 percent wage increase and a bonus of US$21,190 (€18,400).

There was no immediate comment by the company on Monday's work stoppage but it said earlier that it would implement a "contingency plan." No details of the plan were announced, but Marin said it includes hiring around 1,000 outside workers and contractors to maintain some production.

Around noon Monday, a company spokesman, Mauro Valdes, told the Santiago daily El Mercurio that production had dropped by around 60 percent.

Escondida produces around 3.6 metric tons (4 tons) a day, or around one quarter of Chile's total output. Chile is the world's largest copper exporter.

The Australian-British consortium BHP Billiton PLC owns 57.5 percent of the mine, while Rio Tinto PLC, also Australian-British, holds 30 percent, and the Mitsubishi Corp.-led Japanese consortium 10 percent.

Despite the pleas and overtures of the Chilean Government and the world's largest mining company, more than 2,000 union workers walked off the job at the world's largest copper mine in Chile Monday.

Because the copper pipeline is already stressed-and several other significant labour negotiations are on the horizon-copper markets and copper consumers will find themselves in a world of hurt if the Escondida strike doesn't end fast. Escondida produces 1/12 of the world's copper supply.

The strike was scheduled to begin at the start of the first shift on Monday, union Secretary Pedro Marin told Reuters over the weekend. "This will not end easily," he warned.

BHP Billiton spokeswoman Emma Meade told Bloomberg early Monday morning that the strike won't affect copper output initially as the mine will use stockpiles of ore to keep processing plants running.

The strike now puts pressure on an already tight and stressed copper pipeline, which was struggling to keep up with even short-term supply disruptions in smelting, shipping, mining production disasters and shortfalls, and labour disputes.

Escondida had offered workers a three-year contract last week with a 3% increase in salaries and bonuses worth about $15,000 per worker. The union wanted a 13% raise and a $30,000 net bonus per worker. Workers, who had already rejected Escondida's first offer of an 1.5% raise, a bonus, and low-interest loans of $8,500 per employee last week, didn't even bother to call a vote to reject the latest offer. Although the Chilean Government recently joined the two parties at the negotiating table, their efforts proved unsuccessful at averting the strike.

U.S. copper miner Phelps Dodge Senior Vice President Art Miele had recently warned that "even modest production shortfalls will have an immediate and significant impact on the (copper) market balance." International copper inventories throughout the production and copper chain are already very low, including copper exchange inventories which have less than one week of consumption remaining. Miele explained that with production facilities operating or near capacity, "it is not possible for mines or smelters to make up for lost production" to withstand strikes and other disruptions to copper supplies.

The even worse news is that during the second half of this year, several significant labour negotiations are taking place that involving copper companies including Canada's Highland Valley Copper mine in British Columbia in September, and several Codelco operations in Chile later this year. Grupo Mexico, the parent company of U.S. copper miner Asarco, already endured a strike last July at its Asarco mines and facilities. Meanwhile, Codelco is already trying to make repairs to a mine cave-in at its Chuiquicamata mining complex, which may cost it 960 tpd of copper.

Escondida produced 1.3 million tonnes of copper annually or 1/12 of the world's copper supply. The joint venture partner on the operation is Rio Tinto, whose Kennecott Copper mines include several major operations.

In his statements to Reuters, Marin vowed that the union would show its strength during the Escondida strike including holding protests that employ the noise tactics used by Chilean students in nationwide strikes last June which involved nearly 1 million protestors.
What this means to consumers

Copper is used in electrical, electronic, plumbing, and other applications, as well as transportation systems, housing, commercial construction and appliances. The average American home has at least 30 to 40 motors that rely on copper wires inside the motor, according to New York-based CPM metals analyst Jeffrey Christian. Copper is used in plumbing, automobile, trains and planes, and most other machinery that uses electricity or has water flowing through its engines.

End markets, such as construction, power generation, technology and secondarily telecomm spending, which impact copper usage could fall short.

As high metal prices have occurred during the past three years due to stronger consumer demand, institutional investors have plowed more funds in base metals mining, allowing for M&A, increasing exploration funding to seek new deposits to replace old mines, and permitting formerly marginal undeveloped copper properties to finally be developed as mines.

Union leaders couldn't be reached for comment.

"Minera Escondida is convinced the basis of this (three-year) agreement broadly exceeds the industry's conditions, ensures the stability of the business and represents benefits that will increase the quality of life for our workers and their families," the company said in a statement.

Last week, the workers voted 1,991 to one in favour of a strike to protest the company's initial contract offer.

An immediate strike was averted, however, after the mining company sought a government-mediated, five-day goodwill negotiation period, which began Monday.

If talks during the goodwill period fail, a strike would begin at the start of the first shift on Aug. 7, both the union and the company have said.

Amid a demand-driven surge in world copper prices, accidents and labour unrest have played a key role in price spikes.

Citing soaring copper prices, the miners demanded a minimum 13% wage increase, a hardship-zone wage increase and a CLP16 million net bonus. The total wage increase being sought is nearly 20%.

The company originally offered a 1.5% wage increase and a CLP4.5 million net bonus. The mining company says Escondida workers receive the highest salaries among Chilean miners.

Escondida, the world's largest privately held copper mine, produced 1.27 million metric tons of copper last year, as well as 182,000 ounces of gold.

Canada's Inmet Mining Corp. (IMN.T) said a growing shortage of zinc concentrates amid a backdrop of strong demand from smelters is pushing treatment charges lower.

"Zinc treatment charges continue to be significantly lower in the first half of 2006 compared to same period in 2005 because of a growing shortage of zinc concentrates and strong demand from the smelters," the company said in a statement late Tuesday.

But the company said the treatment charges it pays per metric ton of copper increased by 7% during the second quarter and by 13% in the year to date, compared with the same periods in 2005.

"Overall smelter processing charges, which include treatment charges and price participation, were 74% higher this quarter than the same period in 2005, mainly because of the impact higher metal prices had on price participation," Inmet said.

Inmet said it is on target to achieve its 2006 objective of 80,000 tons of copper and 82,000 tons of zinc.

Copper freight charges were higher in the second quarter compared with the same period in 2005, the company said.

This is because Inmet shipped to locations that were further away from its operations, it said.