UPDATE 5-Chile to reopen copper mine, proposes strike deal

(Recasts with Codelco to reopen Teniente)

By Manuel Farias and Simon Gardner

SANTIAGO, May 2 (Reuters) - Chile's Codelco said on Friday it will reopen the world's largest underground copper mine on Saturday, after the government made a proposal aimed at ending a 17-day sometimes violent strike by subcontract workers.

State-owned Codelco, the world's leading copper producer, closed its Teniente division this week after strike violence flared and some staff were injured. It was the latest in a series of disruptions at the mine.

It first closed two smaller divisions, Salvador and Andina, 17 days ago during the latest in a series of strikes by subcontracted miners demanding a bigger share of windfall profits and improved working conditions.

"Teniente's transport services and productive operations will resume ... on Saturday," Codelco said in a statement.

There are growing signs the strike could soon end.

Arturo Martinez, head of the CUT, Chile's largest umbrella worker union, said on Friday afternoon the government had made a proposal to end the strike, but he gave no details.

"I have received ... a proposition from the government, which I am taking to give to the leaders of Codelco's subcontractors," negotiator Martinez told reporters after visiting the presidential palace in Santiago.

Government spokesman Francisco Vidal said the proposal centered on Codelco and the subcontractors fulfilling a series of agreements reached last year, among them a pledge by Codelco to absorb some subcontractors into its full-time ranks.

With global copper markets already nervous about low inventories, the strike has helped keep copper prices near record highs of about $4 per lb.

A source at Codelco, which produces around 1.7 million tonnes of copper a year, said the smaller Andina division remained shut, save for a few staff maintaining equipment. Salvador division was also shut.

Codelco said on Tuesday it had lost about 19,000 tonnes of production due to the strike, or around $100 million in losses.

It has denied market talk it was approaching third parties to buy or borrow copper to meet delivery commitments.

The government wants a quick end to the feud, the latest in a series of headaches for Chilean President Michelle Bachelet.

The strike took center stage at a Labor Day rally attended by tens of thousands of people in downtown Santiago on Thursday, when subcontractor union leaders vowed to continue their protest.

Toward the end of the rally, hooded youths threw sticks and stones at police, who responded with water cannon and tear gas. Police, who believe the youths were involved in student demonstrations in recent weeks, detained around 100 of them.

Andina, about 50 miles (80 km) northeast of the Chilean capital, produced 218,000 tonnes of copper in 2007. Salvador, 685 miles (1,102 km) north of Santiago, produced 64,000 tonnes of copper last year.

Teniente, 50 miles (80 km) south of Santiago, produced 405,000 tonnes of copper last year. Codelco's Norte and Ventanas divisions have run normally throughout the strike. (With reporting by Antonio de la Jara, writing by Simon Gardner, editing by Richard Chang)