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Copper prices surge as workers at Rio Tinto’s (ASX:RIO) Escondida mine go on strike

Fear of a work stoppage at Escondida, the largest copper mine in the world, sent the price of the red metal on the London Metal Exchange above US$7,000 per tonne, its highest level since March.

Escondida is located in Chile, and according to Rio Tinto Limited (ASX: RIO) – which owns a 30% interest in the mine – accounted for 5% of the world’s copper production and 2.5% of the country’s GDP in 2012. The project is operated by BHP Billiton Limited (ASX: BHP), with a controlling stake of 57.5%.

According to Reuters, the union representing Escondida workers entered the latest round of labour negotiations with a proposal that includes a payout of about US$34,000 per worker, the largest one-time bonus in Chilean mining history. The owners of the mine are considering the proposal and should provide a response in the coming days.

The union said workers could repeat the 44-day strike that took place between February and March 2017, causing BHP a loss before taxation of US$546 million (circa AU$690 million back then).

Despite the threat, shares in BHP gained 2% to $33.39 on Wednesday, buoyed by rising commodity prices and news of the first round of bidding on its US shale assets. Similarly, Rio was up 2.5% to $84.01.

Rival copper miners that could benefit from the Escondida stoppage rose even more. OZ Minerals Limited (ASX: OZL) was up 3% to $10.31, and Sandfire Resources NL (ASX: SFR) climbed 4% higher to $9.26.

Foolish takeaway

Another 44-day strike wouldn’t be good news for the companies that own Escondida, but there’s no need to panic. Last year, the BHP share price experienced some volatility during and after the stoppage, but promptly recovered.

If you feel bullish about copper, Sandfire is an interesting option. At March 31, the company had US$188 million cash on hand, which will most likely be used for an acquisition, since its main project of DeGrussa has a remaining mine life of just four years.

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Motley Fool contributor Tommaso Autorino has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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