Freeport’s Indonesia Strike May Cut Output by 230,000 TonsYoga Rusmana
A strike at Freeport-McMoRan Copper & Gold Inc.’s Grasberg copper and gold mine in Indonesia may cut output by 230,000 tons of ore per day, according to an estimate from the government, which is trying to broker a resolution.
The government will facilitate talks between PT Freeport Indonesia and the union to resolve the strike, which may hurt the investment climate in Southeast Asia’s biggest economy, Energy and Mineral Resources Minister Darwin Saleh said today. A union official said there’s no mining, production and deliveries at the site, while the company declined comment on output losses.
The strike at Grasberg -- which has the world’s largest recoverable reserves of copper, according to Freeport’s website -- may widen a global deficit of the metal used in pipes and wires, boosting prices. Freeport miners are also striking in Peru at the company’s Sociedad Minera Cerro Verde SAA unit.
“Our biggest concern is how to avoid wider potential loss to production, state revenue and mining facilities,” Saleh said at a briefing in Jakarta, speaking a day after the Grasberg stoppage began. The ministry has sent a team “to Freeport to assess the latest condition and its impact,” he said.
Three-month copper, which reached a record $10,190 per ton on Feb. 15, rose as much as 0.8 percent to $8,779 on the London Metal Exchange, gaining for a second day. Demand will likely exceed supply by 495,000 tons in 2011, the biggest deficit since 2004, according to an estimate from Pan Pacific Copper Co.
Stock in Phoenix-based Freeport-McMoRan, the world’s largest publicly traded copper producer, has gained 4.1 percent over the past year. The shares closed yesterday at $42.54 after gaining 2 percent.
The strike at Grasberg “is potentially a quite important, additional factor in a market where we had over 500,000 tons of production lost already this year,” said Peter Richardson, chief metals economist at Morgan Stanley Australia Ltd.
About 8,000 employees, or 70 percent of total Freeport workers at Grasberg, have joined the stoppage to demand wage increases. The mine is located in Papua province, 1,940 miles (3,120 kilometers) east of Jakarta.
Workers in Peru, Chile, Bolivia and Indonesia have gone on strike at copper, gold and zinc mines this year, seeking improved conditions and a bigger slice of record profits after metal prices more than doubled since the end of 2008.
The strike at Grasberg may result in a loss in daily sales revenue of $19 million, said Thamrin Sihite, director general of minerals and coal at the energy ministry. Freeport contributed $1.9 billion in taxes and royalty last year, he said.
A meeting between the Manpower and Transmigration Ministry, Freeport and the labor union started yesterday and may last as long as 30 days, Ramdani Sirait, a Jakarta-based spokesman at Freeport, said in an interview today. He declined to comment on potential losses to production.
“About 95 percent of Grasberg is paralyzed, there’s no mining, production and deliveries,” Virgo Solossa, head of organizational affairs at PT Freeport Indonesia’s labor union, said by phone today from Timika, Papua, the town closest to Grasberg. “Only non mining-related and public services, such as the airport and hospital, are still running.”
Concentrate shipments from Amamapare port have been halted since yesterday morning, Solossa said yesterday, raising concern of sales defaults to Freeport’s buyers. Concentrate is semi-processed ore that typically contains about one-third copper.
“It’s too early to comment on force majeure,” Minister Saleh said today, referring to a clause that allows companies to miss contracted shipments due to circumstances outside their control. “We won’t enter a business-to-business matter.”
The company and union at Grasberg ended 38 days of talks over 2011-2013 contract terms on Aug. 26 after failing to agree on wages. Negotiations started after the workers walked off their jobs for eight days in July. Cerro Verde miners held a 48-hour work stoppage last week.
Grasberg workers expect wages to increase to between $17.50 and $43 an hour from $1.50 to $3.50, said Solossa Sept. 14. The union cut their expectations from $35 to $200 an hour initially, he said Aug. 26. Freeport offered a compensation package that includes an increase in basic wages for non-staff employees of 22 percent over a two-year period, Sirait said on Sept. 5.
Copper production at the mine fell to 1.22 billion pounds (553.4 million kilograms) last year from 1.41 billion pounds in 2009, according to the website. Gold output declined to 1.79 million ounces from 2.57 million ounces.
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