The south side of Antofagasta, a dusty industrial town on the edge of Chile’s Atacama desert, one of the driest places on earth, has been turned into a city of tents.

In a sea of blue canvas, workers from Escondida, the world’s largest producing copper mine some three hours from the town, have set up a strike camp, defying BHP Billiton, the Anglo-Australian group that operates the project and is the world’s biggest diversified miner.

Every night, union officials gather the 1,000 striking miners who live in the tent city together for an update on progress in negotiations with the company, discussions with regulators and the general progress of the 20-day industrial action.

As they crowd into a sports hall, the mood is noisy, passionate and upbeat. Chants of “the copper is ours and not the foreigners’!” break out spontaneously. “We’ll go as far as we need to go,” a short, stocky union activist barks into a microphone. The strikers roar their approval.

Mining companies are watching the strike nervously. The union has moderated its pay claim from 13 per cent to 8 per cent, but is still asking for a bonus of $30,000 (€23,500, £16,000), spurred by record-high copper prices. If BHP Billiton is seen to concede too much, it could well set a worrying precedent in forthcoming contract renegotiations.

First to feel the fallout from the strike at Escondida is likely to be Codelco, the state-owned miner that is the world’s biggest copper company. In October, Codelco will open renegotiations with workers at its Andina mine near Santiago. The company – which earned $4.9bn in pre-tax profits in 2005 and is on course to increase that to $7bn this year – is aware that workers are likely to make heavy demands.

José Pablo Arellano, Codelco’s chief executive, has already begun meeting union officials. But developments in Antofagasta this week suggest the unions are in an increasingly militant mood. In tent city, the strikers say the stoppage has been transformed from a dispute over new contracts into a struggle for their right to organise.

“The company has transformed this action into a union-breaking fight by not negotiating with us,” says Juan, a 36-year-old mechanic wearing aviator sunglasses and a baseball cap bearing the union logo. “The strike has never been about money for the company,” adds another worker as he cuts up tomatoes and onions for pebre – Chilean salsa. “It is losing $15m a day but it wants to break the union movement in Chile.”

Worryingly for the government, workers from Codelco’s northern division – where contract renegotiation talks are due to start in December – have pledged financial support for the Escondida strikers and on Thursday sent a delegation to Antofagasta to express their solidarity.

The Escondida strike has thrown up dilemmas for BHP, the wider mining industry and the six-month-old administration of Michelle Bachelet.

The industry is concerned about the effect a drawn-out conflict will have on other workers and on Chile’s reputation as an destination for foreign investment.

However, it is putting pressure on BHP behind the scenes to hold its ground. At the same time, there are suggestions within the industry that BHP is using the strike to further its broader strategy. One important effect in such a supply-sensitive market has been to buoy copper prices. While the metal remains in the ground, the company may be losing daily profits, but the assets it retains continue to be very highly valued.

There are also suspicions that the company is taking advantage of diminished supplies of copper concentrates as a bargaining chip in its renegotiations with Japanese smelters.

As the biggest operator in Chile’s copper industry, the government shares the industry’s sentiment that BHP must not give too much away. Moreover, Ms Bachelet – who has already caved into student protests – may feel the need to show she can take a tough stand, particularly when it comes to dealing with workers who are widely perceived to be already well paid.

Union leaders in Antofagasta say huge reinforcements of police have been deployed to northern Chile to intimidate them. However, the government – which is benefiting from a fiscal surplus of about 6 per cent thanks to copper revenues – is also under pressure to increase spending.

Moreover, it is centre-left, and therefore more ideologically attached to unions and workers. Traditionally, wages have been higher at Codelco than at private operators and that pattern may well re-emerge when the state company gets into its own contract renegotiations.

There are indications that the industrial action may be prolonged – the workers are well organised and well funded.

At the camp in Antofagasta, Eduardo Diaz, who normally works in a senior role as a process controller, spends his days marshalling workers in activities such as collecting rubbish from the beach and painting one of the town’s churches.

“We have shown that we can organise to give an example to the unions at the other mines,” he says. “Codelco and Andina are watching us.”

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