Capstone strike at Mantoverde may end this weekend

Talks could end a four-week strike that has idled Capstone Copper’s (TSX: CS; ASX: CSC; US-OTC: CSFFF) Monteverde mine in Chile. Canaccord Genuity analyst Dalton Baretto says the strike could end this weekend after the company regained control of a desalination plant that supplies the operation.

Three developments could push Union #2 to a deal, Baretto said: the desalination plant is back in Capstone’s hands and should restart soon; Chilean labour law allows union members to cross picket lines after 30 days, starting Jan. 31; and the remaining gap in talks centres on a bonus that he sees as more important to union leadership than to many workers.

“We believe an agreement could be in place this weekend,” Baretto wrote on Friday.

Canaccord forecasts Mantoverde to produce about 101,000 tonnes of copper this year. Capstone’s original full-year guidance for Mantoverde was 97,000–112,000 tonnes of copper.

A settlement would remove a near-term overhang for Capstone investors as the company looks to lift output from its Chilean assets and advance its nearby Santo Domingo development project. In the meantime, Baretto said that if talks drag on, Mantoverde could still operate at roughly three-quarters of capacity once the desalination plant is back online.

Capstone’s Toronto-listed shares fell 9.4% on Friday to $15.09. The stock has climbed about 80% over the past 12 months. It has a market capitalization of $11.5 billion.

Baretto maintained a buy rating and raised his target price for Capstone shares to $19.50 from $17. The Mantoverde strike has been the main driver of the stock’s underperformance versus several copper peers this year, he said.

Worker inaction

Union #2 began striking on Jan. 2. The union represents about half of Mantoverde employees and about 22% of the mine’s total workforce, Capstone said at the time. It expected to keep the operation running at up to 30% of normal production during the stoppage as it scaled down certain activities.

Production rates dropped below 75% from Jan. 18, when access to the desalination plant became a flashpoint. Operations were suspended while Capstone sought a court injunction to clear the blockade and that the company has since confirmed the facility is back under its control and undamaged.

Controversy

Capstone has described the Jan. 18 incident differently in its own disclosures. In a Jan. 22 statement responding to media reports, the company said individuals entered the desalination plant facilities 40 km from the mine while workers were inside and that interference with the plant’s electrical system interrupted water supply to Mantoverde.

Striking members were preventing access and a restart, Capstone said. It added that sulphide operations were halted and oxide operations were expected to continue only until the next day unless water supply was restored, while the company sought judicial support to regain access and resume operations.

Capstone has said Mantoverde employs about 1,270 people and that the broader on-site workforce totals about 2,940 when contractors are included.