Top Chile copper mine hit as workers strike drags

* Subcontractors went on strike, blocked roads on Friday

* Full-time workers' union says output halted (Adds color, details on demands, context)

UJINA, Chile, May 8 (Reuters) - A strike by hundreds of subcontract workers at Chile's huge Collahuasi copper mine dragged on for a second day on Saturday, hurting operations at one of the world's largest copper deposits.

Police lobbed tear gas canisters against strikers who have blocked mine access roads since Friday, resulting in the arrest 16 people, but there were no injuries, police commander Hector Diaz told Reuters.

The huge open pit mine is located more than 14,440 feet (4,400 meters) above sea level in the snow-capped Andes mountains.

Collahuasi said it was operating under restricted conditions amid protests for higher salaries and better working conditions. Collahuasi produced 535,000 tonnes of copper last year, or about 3.3 percent of the world's mined copper.

A prolonged protest that curbs world output could push up copper prices that plunged this week on fears of a debt crisis spreading through Europe. Copper prices recouped some losses on Friday afternoon as the euro gained against the U.S. dollar and on supply fears in Collahuasi.

Global miners Xstrata (XTA.L) and Anglo American (AAL.L) jointly own the mine with a 44 percent stake each. Japanese consortium Mitsui & Co (8031.T) is a minority stakeholder.

Full-time workers' unions said strikers remain inside the mine and that the facility's output has been halted since the strike and blockade started on Friday. A Reuters reporter at the entrance of the mine did not see any protests or violence.

Subcontractors are employed by foreign and local companies that provide services ranging from catering to transportation and mine excavation. They usually get lesser benefits and salaries than their full-time peers.

Collahuasi did not say if it was extracting mineral at the mine. A Collahuasi spokeswoman in the capital Santiago declined to answer questions about the mine's output. A Reuters reporter was not allowed to enter the mine site.

The subcontract workers' leaders, who said they represent nearly 4,000 employees, said they could reach an agreement to lift the strike later on Saturday.

"We are waiting for them (company) to call us and hopefully we can reach an agreement this afternoon," Ricardo Arellano, the leader of the striking subcontractors, told Reuters. "We are tired of being discriminated against, being treated differently than staff workers."

'WE SUPPORT THEIR FIGHT'

Leaders of the union representing the mine's 1,600-member full-time workers said they sympathized with the striking subcontractors, signaling what could be tough wage negotiations when the union's contract expires in November.

"We support their fight," said Cristian Arancibia, a union leader trying to mediate between both parties on the site.

A few subcontract drivers remained next to their idle buses near the mine entrance as police, some in anti-riot gear, stood nearby outside a police station.

"Staff workers sleep in four-star dormitories, and we have to lay in crowded containers," said Miguel Araya, 44, overlooking the white salt flat next to the mine.

In recent years, simmering tensions between mining companies and subcontract workers demanding wages and benefits similar to their full-time peers have led to violent strikes. Chilean union miners are some of the best-payed miners in Latin America, enjoying bonuses of up $24,000 in new contracts in addition to their salaries.

In 2007, subcontractors at state mining giant Codelco, the world's top copper producer, slashed output at several divisions and catapulted copper prices to near annual highs.

If Collahuasi subcontractors succeed in getting better pay and conditions from the mine, part-time workers elsewhere could turn to protests to pressure miners to give them more benefits as copper prices remain near historic highs, said Pedro Marin, the head of a federation of workers unions at private mines that include the world's largest Escondida.

"This could spread like wildfire if subcontractors win this fight," Marin, who is also a full-time workers' union leader at BHP Billiton's (BHP.AX) (BLT.L) Escondida. "Their fight is a legitimate one."

Collahuasi employed 4,250 subcontractors at the end of 2008, the company said in a report published last year.