BHP Group Ltd (ASX: BHP) shares are underperforming on Monday.
In morning trade, the mining giant's shares are down slightly to $40.70.
As a comparison, the ASX 200 index is currently up 0.7% to 7,834.6 points.
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What's going on with BHP shares?
Investors have been selling the Big Australian's shares today amid concerns that there could be an imminent and potentially costly strike at its Escondida operations in Chile.
Earlier this month it was reported that workers at the world's largest copper mine had rejected an offer for a new collective bargaining agreement.
BHP has until today to agree terms before the union can legally strike. Though, mediation can be mutually extended for a further five days to at least delay this action.
Strike risk heightened
Goldman Sachs has been looking at the situation and sees a heightened risk of a strike due partly to cost of living pressures. It commented:
As we flagged in April, a number of labour unions at operations representing ~65% of 2024 Chilean copper output (GSe 3.6Mt of 5.6Mt) were entering typical 3yr wage negotiations this year; and with the dynamics facing the Chilean copper mining industry, including inflationary pressure/cost of living, higher copper prices and a tight skilled labour pool, we believe there is heightened risk of industrial action.
It also highlights that while the mining giant successfully negotiated with Sindicato No.2 recently, things may not be as simple for Sindicato No.1, the largest union, which has a history of striking every few years. It adds:
BHP successfully negotiated terms with Sindicato No.2 at Escondida (1k supervisors and staff) in Oct'23 and Spence in Jun'24 (1.1k operators); and these terms can often set expectations for other unions to follow. However, Sindicato No.1 have a history of industrial action every ~6yrs at Escondida, with strikes in 2006 (25 days), 2011 (15 days), and 2017 (44 days).
What is the financial impact?
Goldman estimates that a 10-day strike action could impact BHP's earnings by upwards of US$250 million. This is based on an estimate of US$16 million per day and lost production during ramping down and up. It explains:
Negotiating an improvement on the existing contract could cost c.$110mn in cash bonuses assuming the reported $36k bonus and 3% wage increase; it would add USc8/lb to our 2H'24e Escondida unit costs. A 10-day strike scenario could cost ~$90mn in fixed/idling costs, but ramping down/up the mine would likely add a further 5-7 days of effective lost production, removing ~50kt of copper production, impacting 2H'24 EBITDA by ~$240mn at $4/lb copper on our estimates.
And should things be worse and a strike goes on for 44 days, Goldman estimates that the EBITDA impact could be US$795 million.
