(Updates with details, quotes and background)
By Luis Jaime Acosta and Julia Symmes Cobb
BOGOTA, June 14 (Reuters) - Union workers at Colombia's Cerro Matoso nickel mine ditched plans to strike on Tuesday after reaching a deal on pay increases and benefits, the company and union said, averting potential disruption to output from one of the world's largest producers of ferronickel.
Workers voted late last month to strike beginning Tuesday, but reached an eleventh-hour deal with mine owners South32 Ltd , officials confirmed.
Employees will receive a pay rise of 7 percent this year, Domingo Hernandez, president of the Sintracerromatoso union, told Reuters. In 2017 and 2018, salaries will increase in tandem with inflation, he said.
"We reached a deal to avoid a strike which satisfies the workers' demands," Hernandez said. The new deal also includes improvements in health, education and housing for workers and their families.
Nickel prices are languishing below $9,000 per tonne, near a 13-year low hit in February and below the cost of production for most of the world's major nickel companies amid a global surplus.
"Despite the difficult economic situation we are facing, we built a proposal that improves labor benefits for workers, updates salaries and maintains our agreement as the best in the country," Cerro Matoso president Ricardo Gaviria said in a statement.
"This avoided a conflict that put the sustainability of the business at risk."
A spokesperson for the company said that under the accord employees will receive an 8 million peso (about $2,500) bonus. The union had originally demanded pay increases of 9.77 percent.
South32's chief executive told Reuters this month the mine was losing money and the company would not hesitate to halt production if losses continued.
Earlier this year, the company launched a cost-cutting initiative at the operation that included redundancies.
A two-week-long strike in 2015 forced the mine's previous owner, BHP Billiton, to declare force majeure.
The mine, located in the northern province of Cordoba, produced 36,670 tonnes of ferronickel last year, down 11 percent from 2014.
Cerro Matoso has 650 employees, 520 of whom belong to the union.
Inflation reached 6.77 percent in Colombia in 2015. The government estimates consumer prices will increase 6.5 percent this year.
Reporting by Luis Jaime Acosta and Julia Symmes Cobb; Editing by Nick Macfie