Freeport Reviews Safety as Copper Rallies Amid Mine Suspension

Freeport-McMoRan Copper & Gold Inc. (FCX) began a safety review at its halted Grasberg operation, the world’s second-largest copper mine, amid supply concerns that are boosting prices.

The mine, halted since a tunnel collapsed May 14, usually produces 220,000 metric tons of ore a day, Rozik B. Soetjipto, president director of local unit PT Freeport Indonesia, told reporters today in Jakarta. The company doesn’t know when output can resume, he said. The lost production would amount to about 680 tons of copper a day, based on calculations by Bloomberg using figures from Freeport’s 2012 annual report.

The suspension comes after a landslide last month at Rio Tinto Group’s Bingham Canyon copper mine in Utah forced operations to halt. Copper in London reached a two-week high today, while smelters in Japan said they may seek alternative supplies to Grasberg if the halt extends.

“The longer it goes on the greater the impact will be,” Peter Richardson, a Melbourne-based analyst at Morgan Stanley, said in a telephone interview. “The market was skeptical that the mine would remain closed as a result of the incident, but increasingly it looks as though that indeed is the case.”

Indonesia said yesterday the mine will be suspended until after an investigation into the accident is completed and ordered a review of all mining operations in the country. The cause of the accident isn’t known, Energy Minister Jero Wacik said today in Jakarta. Phoenix, Arizona-based Freeport said today it is review all its underground mining.

Reviewing Safety

Of the 38 workers in a classroom at an underground training facility when the roof collapsed on May 14, 10 were rescued, according to Freeport Indonesia. The death toll of 28 compares with 31 from a blast at a coal mine in Indonesia’s West Sumatra province in June 2009.

“We are now focusing on reviewing safety throughout our underground operations,” Freeport Chief Executive Officer Richard Adkerson said in Jakarta today. “We are in the process of assembling an outside investigation team comprised of Indonesian and international experts in underground mining and geotechnical science.”

A government team has started an investigation into the accident, studying geological data, structure and maps, Thamrin Sihite, director general of coal and minerals at the Energy and Mineral Resources Ministry, said yesterday in Jakarta.

The mine is located in Papua province, about 3,120 kilometers (1,940 miles) east of Jakarta.

Japanese Smelters

Japanese smelters that process copper concentrate from Grasberg including Mitsubishi Materials Corp. haven’t had official notification on any interruption to supplies, an industry group said today.

“There’s been no official announcement from Freeport,” Hiroshi Yao, chairman of the Japan Mining Industry Association and president of Mitsubishi Materials’s president, told reporters in Tokyo. “If the operation halt lasts longer, each Japanese smelter may seek raw material from other supply sources.”

Freeport produced 315,000 metric tons of recoverable copper in Indonesia last year, according to its annual report. Global mine production in 2012 was 16.7 million tons, the International Copper Study Group said May 1. BHP Billiton Ltd.’s Escondida mine in Chile is the world’s largest copper mine.

The copper market “will be tighter than last year’’ as Freeport’s halt exacerbates supply disruptions globally, Andrew Michelmore, Chief Executive Officer of MMG Ltd., the listed unit of China’s biggest state-owned metals trader, said today in an interview in Hong Kong.

‘Close to Balanced’

“It will be very close to balanced,” Michelmore said. “We’ve had physical hiccups on the supply side and I think this again works against people who say that there’s going to be an oversupply of copper.”

Rio Tinto, the world’s second-biggest mining company, said April 16 the wall slide at its copper mine in Utah may cut full-year refined output by about 100,000 tons, reducing its previous forecast by about one third. It could wipe out a forecast surplus for the metal this year, Tom Price, a Sydney-based analyst at UBS AG, said last month.

Copper for delivery in three months on the London Metal Exchange gained 1.4 percent to $7,474.25 a Ton as of 3:36 p.m. in Hong Kong.

To contact the reporters on this story: Yoga Rusmana in Jakarta at yrusmana@bloomberg.net; Michelle Yun in Hong Kong at myun11@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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